[Federal Register Volume 60, Number 246 (Friday, December 22, 1995)]
[Proposed Rules]
[Pages 66517-66527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30970]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 /
Proposed Rules
[[Page 66517]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 12
[Docket No. 95-30]
RIN 1557-AB42
Recordkeeping and Confirmation Requirements for Securities
Transactions
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing to revise its rules that prescribe recordkeeping and
confirmation requirements for securities transactions. This proposal is
another part of the OCC's Regulation Review Program to update and
streamline OCC regulations and reduce unnecessary regulatory costs and
other burdens. The proposal reorganizes the OCC's regulation by placing
related subjects together, clarifying areas where the rules are unclear
or confusing, incorporating significant OCC interpretations, and
updating various provisions to address market developments and
regulatory changes by other regulators that affect requirements for
recordkeeping and confirmation of securities transactions by national
banks.
DATES: Comments must be received by February 20, 1996.
ADDRESSES: Comments should be directed to: Communications Division,
Office of the Comptroller of the Currency, 250 E Street, SW,
Washington, DC 20219. Attention: Docket No. 95-30. In addition,
comments may be sent by fax to 202-874-5274 or by electronic mail to
[email protected]. Comments will be available for public
inspection and photocopying at the same location.
FOR FURTHER INFORMATION CONTACT: Suzette H. Greco, Senior Attorney,
Securities and Corporate Practices Division (202-874-5210); Joseph W.
Malott, National Bank Examiner, Capital Markets Division (202-874-
5070); William L. Granovsky, National Bank Examiner, Compliance (202-
874-4861).
SUPPLEMENTARY INFORMATION:
Background
OCC Regulation Review Program
The OCC is proposing revisions to 12 CFR part 12 as part of its
Regulation Review Program. Pursuant to this Program, the OCC is
reviewing all its rules. Rules that are not necessary to protect
against unacceptable risks, that do not support equitable access to
banking services for all consumers, or that are not needed to
accomplish other statutory responsibilities of the OCC will be revised
or eliminated.
Where risks are meaningful and regulation is appropriate, the OCC
will examine its rules to determine if they achieve their purpose most
efficiently. In this regard, the OCC recognizes that one source of
regulatory cost is the failure of regulations to provide clear guidance
because they are difficult to follow and understand. Therefore, an
important component of the Regulation Review Program is to revise
regulations, where appropriate, to improve clarity and better
communicate the standards that the rules are intended to convey.
Revisions to 12 CFR part 12 present particular challenges in
several regards because the part implements requirements from different
statutory sources, addresses transactions of a specialized and often
technical nature, and currently is out of date in certain respects.
Recordkeeping and Confirmation Requirements for Securities Transactions
The OCC adopted part 12 on July 24, 1979 (44 FR 43252), to
establish requirements applicable to national banks effecting
securities transactions for customers, including recordkeeping and
confirmation requirements. The OCC amended part 12 on December 31, 1979
(44 FR 77137) to include additional suggestions recommended by
commenters, and the part became effective on January 1, 1980. The OCC
has not significantly changed part 12 since then.1
\1\ In 1979, the Board of Governors of the Federal Reserve
System (FRB) and the Federal Deposit Insurance Corporation (FDIC)
adopted regulations similar to part 12. See 12 CFR 208.8(k), 44 FR
43258 (July 24, 1979) (FRB regulation); 12 CFR part 344, 44 FR 43261
(July 24, 1979) (FDIC regulation). Since that time, neither of these
agencies has significantly changed these regulations, although
recently the FDIC adopted a regulation concerning authority to waive
certain requirements of part 344, similar to the authority in
Sec. 12.7(d) of part 12. See 60 FR 7111 (Feb. 7, 1995).
Consequently, the current regulations for all three Federal banking
agencies are very similar. The OCC and the other Federal banking
agencies have been meeting and discussing changes to the FRB's and
the FDIC's rules substantively similar to those proposed today by
the OCC.
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Since that time, there have been significant changes in securities
regulation and market practices. For example, Congress enacted the
Government Securities Act of 1986, 15 U.S.C. 78o-5, requiring the
registration of government securities brokers and dealers, including
financial institutions, and regulating transactions in government
securities. Recently, the Securities and Exchange Commission (SEC)
adopted amendments to its confirmation rule requiring additional
disclosures and restructuring the rule. See Securities Exchange Act of
1934 Rule 10b-10, 17 CFR 240.10b-10 (SEC Rule 10b-10).
Under SEC Rule 10b-10, the SEC requires a broker/dealer to send a
customer notification of a securities transaction at or before the
completion of the transaction. The SEC defines ``completion of the
transaction'' generally to be the time of payment or partial payment
and/or delivery of the security. See 17 CFR 240.10b-10(d)(2). The SEC
also has shortened the standard settlement period for broker/dealer
trades from five to three days (T+3 Settlement) effective on June 7,
1995. See Securities Exchange Act Release No. 33023, 58 FR 52891 (Oct.
13, 1993). In addition, for trades in government securities, next day
settlement is industry practice. Currently, part 12 generally requires
a national bank to send a customer notification of a securities
transaction within five business days from the date of the transaction.
Proposal
The proposal modernizes the rules in part 12 and reduces
unnecessary regulatory burdens, where possible. In
[[Page 66518]]
order to make part 12 more accessible and easier to use, the proposal
also restructures many sections and updates others by incorporating
significant OCC interpretive positions and reflecting regulatory
changes by other agencies. The following discussion identifies and
explains proposed changes. A Derivation Table identifying the proposed
changes and keying them to the current rule appears at the end of this
preamble.
The OCC requests comments on all aspects of the proposal, as well
as specific comments on changes in the rule.
Authority, Purpose, and Scope (Sec. 12.1)
The proposal revises the scope section (Sec. 12.1) to clarify the
securities transactions to which part 12 applies and identify the types
of transactions that are subject to other regulatory schemes. Paragraph
(c)(1) provides the rules of general applicability and paragraph (c)(2)
sets forth exemptions. Generally, any national bank effecting a
securities transaction for a customer is subject to the requirements of
part 12, unless the transaction specifically is exempted.
For example, the part 12 requirements apply to transactions in
mutual funds as well as other securities. While investment companies,
commonly referred to as mutual funds, must register with the SEC under
the Investment Company Act of 1940 (Investment Company Act), 15 U.S.C.
80a-1 et seq., and are subject to numerous legal requirements,2
the requirements of part 12 govern national banks effecting trades for
customers in mutual fund shares. Some requirements of the Investment
Company Act and its regulations also may apply to national banks
providing services to an investment company or acting as the investment
company's investment adviser. See e.g., 15 U.S.C. 80a-17; 15 U.S.C.
80a-30; 17 CFR 270.17j-1; 17 CFR 270.31a-1.
\2\ The Investment Company Act and its implementing regulations
contain various provisions relating to the formation and operation
of an investment company, including provisions on the distribution
and pricing of shares, fiduciary duties of directors, transactions
with affiliates, permissible capital structures, disclosure and
reporting requirements, and other requirements. See 15 U.S.C. 80a-1
et seq.; 17 CFR part 270. Investment companies also may need to
register their shares under the Securities Act of 1933. See 15
U.S.C. 77a et seq.
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The OCC recognizes that national banks may enter into various
arrangements with registered broker/dealers that permit the broker/
dealers to operate on the bank's premises. Part 12 generally does not
apply to securities transactions effected by these broker/dealers for
their customers. As registered broker/dealers, they already are subject
to the SEC's recordkeeping and confirmation rules. If, however, the
bank is using this broker/dealer to clear securities transactions
effected by the bank for the bank's own customers, then the
requirements of part 12 would apply to the bank.
Government Securities Transactions
National banks conducting government securities transactions for
their customers also are within the scope of part 12. Government
securities are defined in section 3(a)(42) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(42)), and include but are not limited to
United States Treasury securities and securities issued or guaranteed
by Federal government agencies and government-sponsored enterprises.
The Department of the Treasury, under its authority pursuant to the
Government Securities Act of 1986 (GSA), 15 U.S.C. 78o-5, has issued
regulations in 17 CFR parts 400 through 405, 449, and 450, applicable
to many government securities transactions by national banks (GSA
regulations). The GSA regulations define the terms ``government
securities broker'' and ``government securities dealer'' to include
financial institutions. See 17 CFR 400.3 (k) and (l). Part 404 of the
GSA regulations provides specific recordkeeping requirements for
government securities brokers and dealers that are financial
institutions. See 17 CFR 404.4.
National banks, because they are subject to part 12 recordkeeping
requirements, are not required to follow the recordkeeping requirements
of the GSA regulations at 17 CFR 404.2 and 404.3. See 17 CFR 404.4(a).
National banks, however, must follow other recordkeeping requirements
under the GSA regulations. See 17 CFR 404.4(a)(3), (b), and 450.4(c),
(d), and (f). Part 12 confirmation requirements apply to all government
securities transactions by national banks.
Consistent with the GSA regulations, proposed Sec. 12.1(c)(2)(ii)
exempts a national bank that conducts fewer than 500 government
securities brokerage transactions per year from complying with the
recordkeeping requirements under proposed (and current) Sec. 12.3. See
17 CFR 401.3(a)(2)(i) and 404.4(a). This exemption does not apply to
government securities dealer transactions by national banks, however.
Staff at the Bureau of the Public Debt, which is the organization
within the Department of the Treasury that is responsible for
administering 17 CFR 404.4(a), has advised us that they are considering
amending this regulation to clarify any ambiguity resulting from the
interplay of the regulation and current Sec. 12.7(a) (proposed
Sec. 12.1(c)(2)(i)), with respect to recordkeeping requirements for
financial institutions that conduct government securities dealer
transactions.
Municipal Securities Transactions
The proposed ``scope'' section (Sec. 12.1(c)(1)) also clarifies
that a national bank's transactions in municipal securities that are
not subject to the Municipal Securities Rulemaking Board's (MSRB)
rules, are subject to part 12. The MSRB adopts rules with respect to
transactions in ``municipal securities'' effected by brokers, dealers,
and ``municipal securities dealers.'' See 15 U.S.C. 78o-4; Rules of the
MSRB, MSRB Manual (CCH) para. 3501 et seq. Municipal securities are
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(29)) (Exchange Act), and include but are not limited to
debt obligations of a state of the United States or a political
subdivision, such as a county, city, town, village, or municipal
authority, and revenue bonds. As defined in the Exchange Act, a
``municipal securities dealer'' includes a bank, as well as a
``separately identifiable department or division of a bank,'' that is
engaged in the business of buying and selling municipal securities for
its own account through a broker or otherwise. See 15 U.S.C.
78c(a)(30). Under the SEC's regulatory scheme, however, a bank need not
register as a ``municipal securities broker.'' See 15 U.S.C. 78c(a)(4)
and (31).
Thus, under proposed Sec. 12.1(c)(2)(iii), transactions in
municipal securities conducted by a national bank registered with the
SEC as a ``municipal securities dealer'' are exempt from part 12.
However, municipal securities brokerage transactions by a national bank
not registered as a municipal securities dealer are subject to part 12
requirements.
Other Transactions and Exemptions
The ``scope'' section further provides that both 12 CFR parts 9 and
12 apply to a national bank's securities transactions effected as a
fiduciary, including transactions effected for a collective investment
fund (Sec. 12.1(c)(1)). Finally, the proposed ``scope'' section, in the
exemptions paragraph (Sec. 12.1(c)(2)), includes the current rule's
exception from certain requirements of part 12 for banks with an
average of
[[Page 66519]]
fewer than 200 securities transactions per year for customers, over the
prior three calendar year period, not including transactions in
government securities. The exemptions paragraph also restates the
current rule's exemption from part 12 requirements for activities of a
foreign branch of a national bank.
Safe and Sound Operations
Under proposed Sec. 12.1(c)(3), the proposal clarifies that
notwithstanding the exemptions from part 12, the OCC expects a national
bank conducting securities transactions for its customers to maintain
effective systems of records and controls to ensure safe and sound
operations. Since national banks already are obligated to conduct their
operations in a safe and sound manner, this addition does not impose
any new requirements; rather, it emphasizes the importance of effective
systems with respect to all securities transactions.
Definitions (Sec. 12.2)
The proposal clarifies and modernizes Sec. 12.2, the definitions
section, by adding several definitions and modifying several others.
The proposal defines ``crossing of buy and sell orders,'' a term used
in proposed Sec. 12.7(a)(3) (current Sec. 12.6(c)). It also adds a new
definition of ``completion of the transaction,'' a term used in
proposed Sec. 12.4 (a) and (b). The proposed definition is based on
that used in SEC Rule 10b-10, the SEC's rule for confirmation of
transactions by broker/dealers. See 17 CFR 240.10b-10(d)(2), citing
Securities Exchange Act of 1934 Rule 15c1-1, 17 CFR 240.15c1-1(b). The
proposal clarifies the definition of ``customer'' (Sec. 12.2(e)) by
removing the term ``dealer bank'' and inserting that a ``bank acting as
a broker or dealer'' is not a customer.
For purposes of Sec. 12.4(b) (8) and (9), the proposal adds a
definition of ``debt security'' consistent with the SEC's definition
under Rule 10b-10, 17 CFR 240.10b-10. The proposal also adds a
definition of ``asset-backed security,'' which is the same as that in
the SEC's Rule 10b-10, 17 CFR 240.10b-10.
The proposal also adds definitions of ``government security'' and
``municipal security'' which are intended to have the same meaning as
those terms have under the Securities Exchange Act of 1934. See 15
U.S.C. 78c(a)(42) and (a)(29). In addition, the proposed definition of
``security'' more closely tracks the definition of security in the
Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10), with an
exception for certain instruments, such as foreign currency and various
bank instruments. However, the proposal makes clear that the OCC may
determine whether an instrument is a security for purposes of part 12.
Recordkeeping (Sec. 12.3)
The proposed recordkeeping provision in Sec. 12.3 is similar to
current Sec. 12.3. A bank effecting securities transactions for
customers must maintain, for at least three years, chronological
records of original entry containing an itemized daily record of all
purchases and sales of securities, account records for customers, and
the written notifications to customers required by proposed (and
current) Sec. 12.4. The proposal also clarifies that a bank must
maintain a copy of any alternative form of written notification that it
uses pursuant to proposed Sec. 12.5.
The proposal retains the current provision permitting a bank to
maintain the required records in any manner, if the records clearly and
accurately reflect the information required and provide an adequate
basis for auditing the information (Sec. 12.3(b)).
The OCC seeks comments as to whether and in what manner banks rely
upon this provision (proposed Sec. 12.3(b)) and whether it serves a
useful purpose.
Form and Time of Customer Notification (Sec. 12.4); Alternative Forms
and Times of Customer Notification (Sec. 12.5)
The proposal reorganizes current Secs. 12.4 and 12.5. Under the
proposed sections, a bank has several alternatives from which it may
choose to provide the required written notification to a customer for
whom the bank has effected a securities transaction.
As under current part 12, a bank may elect to provide notification
through: (1) A copy of a broker/dealer confirmation and statement
regarding the source and amount of remuneration that the customer or
any other source is to provide the bank (Sec. 12.4(a)); (2) a written
notification that includes information such as the date of execution of
the transaction, the price and number of shares or units purchased or
sold, the capacity in which the bank is acting (as agent, principal, or
otherwise), and the amount of remuneration received by the bank and by
any broker/dealer in connection with the transaction (Sec. 12.4(b)); or
(3) an alternative form of notification permitted for a specific type
of customer transaction or account, for example, a transaction where
the bank exercises investment discretion in an agency capacity or
effects a transaction for a periodic plan (Sec. 12.5(a) through (d)).
The proposal moves current Sec. 12.5(a) regarding notification for a
transaction where the bank does not exercise investment discretion to
Sec. 12.4(c).
The proposal provides that if a bank opts to fulfill its customer
notification requirement through compliance with either of these first
two means (Sec. 12.4(a) and (b)), the bank must give or send the
notification at or before the completion of the transaction. Proposed
Sec. 12.2(c) defines the term ``completion of the transaction,'' which
generally means the payment of funds and delivery of securities, i.e.
the settlement of the securities transaction. Sending the notification
at or before completion of the transaction is consistent with the SEC's
confirmation rule, SEC Rule 10b-10. See 17 CFR 240.10b-10(a). The SEC
similarly defines ``completion of the transaction.'' See 17 CFR
240.10b-10(d)(2).
Currently, Sec. 12.5 requires a national bank that effects a
securities transaction to send written notification to its customer
within five business days from the date of the transaction or within
five business days from receipt by the bank of a broker/dealer's
confirmation (unless the bank uses a notification permitted for a
specific type of customer transaction or account). When the OCC first
adopted part 12, this five day period was consistent with the generally
recognized industry practice of having the settlement of a securities
transaction on the fifth business day after the trade day, (T+5). On
October 13, 1993, however, the SEC published a securities settlement
rule, effective June 7, 1995, requiring the payment of funds and
delivery of most securities by the third business day after the date of
the contract (T+3). See Securities and Exchange Act of 1934 Rule 15c6-
1, 17 CFR 240.15c6-1, 58 FR 52891. Thus, the current Sec. 12.5 five day
period is inconsistent with the new T+3 settlement cycle. Since
settlement will occur within three days, the OCC, by adopting the ``at
or before completion of the transaction'' timeframe, reflects current
securities industry practice. Consistent with the SEC, the OCC also is
adopting a T+3 securities settlement rule as discussed subsequently
under Sec. 12.9.
The OCC welcomes comments on whether providing written notification
``at or before completion of the transaction'' is an appropriate
requirement for a national bank in proposed Sec. 12.4(a) and (b).
The OCC also specifically requests comments on the need for
additional time by banks opting to provide notification by using a copy
of the broker/dealer's confirmation, as is currently permitted in
Sec. 12.5 (five business days from receipt).
[[Page 66520]]
Proposed Sec. 12.4(c) retains the current Sec. 12.5(a) option for
the bank and the customer to agree in writing to a different time and
form of notification for a securities transaction where the national
bank does not exercise investment discretion. This paragraph, captioned
``notification by agreement,'' also provides that the arrangement must
specify the customer's right to receive the written notification as
provided in Sec. 12.4(a) or (b) at no additional cost.
The form of the notification required under proposed Sec. 12.4(a)
is similar to current Sec. 12.4(a). Both require the bank to provide a
copy of the broker/dealer confirmation and a statement regarding
remuneration that the customer or any other source is to provide the
bank. Alternatively, the bank may choose to provide its customer a
written notification as described in proposed Sec. 12.4(b) (current
Sec. 12.4(b)). The proposed Sec. 12.4(b) form of notification requires
the bank to notify the customer about the amount of any remuneration
the customer or any other source is to provide the bank, and any
remuneration from the customer to any broker/dealer in connection with
the transaction. As with current Sec. 12.4(b), the notification under
proposed Sec. 12.4(b) also must include other information regarding the
securities involved in the transaction, the capacity in which the bank
is acting (as agent, principal, or otherwise), and the use of any
broker/dealer. By providing the notification, the bank gives its
customers an opportunity to verify the terms of their transactions and
evaluate the accuracy of the bank's execution.
Under proposed Sec. 12.4(b)(6), the bank may choose not to disclose
the source and amount of any other remuneration to the bank, if the
written notification contains the following two statements: first,
whether the bank has received or will receive any other remuneration;
and, second, that the bank will furnish the source and amount of the
other remuneration upon the customer's written request. A bank may not
use this option if, in the case of a purchase, the bank is
participating in a distribution of the security, or in the case of a
sale, the bank is participating in a tender offer. This proposed option
is new and reflects the option concerning disclosure of other
remuneration contained in SEC Rule 10b-10, 17 CFR 240.10b-
10(a)(2)(i)(D).
The OCC seeks specific comments on inclusion of this proposed
modification concerning the disclosure of other remuneration.
The SEC, on November 17, 1994, published a final rule adopting
amendments to SEC Rule 10b-10 requiring the disclosure of additional
information on the broker/dealer confirmation. See Securities Exchange
Act Release No. 34962, 59 FR 59612. Among other items, SEC Rule 10b-10
now requires disclosure concerning a debt security that has not been
rated by a nationally recognized statistical rating organization and
the fluctuation of yield with respect to certain asset-backed
securities. See 17 CFR 240.10b-10(a)(7) and (8). The SEC also expanded
the range of debt securities where yield need not be disclosed to
include any asset-backed security subject to continuous prepayment. See
17 CFR 240.10b-10(a)(5) and (6). The OCC recognizes that this type of
information may be important to bank customers evaluating the merits of
investing in various debt securities.
Consistent with SEC Rule 10b-10, the proposal adds Sec. 12.4(b)(8),
(9), (10), and (11), requiring disclosure of yield information on debt
securities. The proposal also adds Sec. 12.4(b)(12) requiring
disclosure that a debt security that has not been rated by a nationally
recognized statistical rating organization. While the proposal
incorporates these additional disclosures, the OCC is interested in
commenters' views on the applicability of these disclosures to national
banks' securities activities. The OCC may revise its proposal.
The OCC seeks comments on whether banks engage in transactions in
unrated securities and the need for requiring disclosure of information
in the written notification to customers regarding unrated securities
and yield information on debt securities, similar to the SEC
requirements under SEC Rule 10b-10.
The OCC also seeks comments on whether it should require the
disclosure of any other information describing the security in the
written notification to customers.
SEC Rule 10b-10(c) also contains a provision requiring broker/
dealers to furnish to customers requested information within five
business days of the receipt of the request, or within 15 business days
if the broker/dealer effected the transaction more than 30 days before
the receipt of the request. See 17 CFR 240.10b-10(c). Part 12 currently
does not contain a similar provision.
The OCC requests comments on whether it should include a provision
similar to SEC Rule 10b-10(c) stating the required period of time for a
bank to furnish information pursuant to a customer's request.
In addition to Sec. 12.4, the proposal also authorizes alternative
forms and times of notification under Sec. 12.5(a) through (d) for
certain specific types of transactions. These are: (1) Transactions in
which the bank exercises investment discretion in other than an agency
capacity (except for collective investment funds); (2) transactions in
which the bank exercises investment discretion in an agency capacity;
(3) transactions for a collective investment fund; and (4) transactions
for a periodic plan.
Proposed Sec. 12.5 includes captions generally characterizing the
transactions covered under each paragraph. For example, Sec. 12.5(a),
captioned ``trust transactions,'' concerns transactions for an account
in which the bank exercises investment discretion other than in an
agency capacity, e.g. a bank providing traditional trust services as
directed by a will or a trust. Under Sec. 12.5(b), captioned ``agency
transactions,'' the bank exercises investment discretion in an agency
capacity and may provide fiduciary services; however, the bank is not
named as trustee, e.g. the bank acting as a managing agent. The
captions are intended to provide practical assistance and are not
precise terms.
In a change from current Sec. 12.5, the availability of the first
two alternative forms of notification (Sec. 12.5(a) and (b)) depends on
the capacity in which the bank effects the securities transaction for
its customer, and not on the form of the account. Thus, this change
clarifies that the transaction triggers the part 12 requirements and
dictates the permissible form and time of notification.
The OCC invites comments about any effects of the proposed change
regarding alternative forms of notification based upon types of
transactions instead of accounts. The OCC also specifically requests
comments on the continuing need for the different forms of alternative
notification provided in proposed Sec. 12.5.
Consequently, under the proposal, if a bank effects a securities
transaction for a fiduciary account where the customer has the right to
direct the transaction and does so, the forms of notification available
for use by the bank are the same as for transactions where the bank
does not exercise investment discretion (except for periodic plans), in
other words, Sec. 12.4(a), (b), or (c). Hence, as an alternative to
Sec. 12.4(a) or (b), the bank could provide the notification under
Sec. 12.4(c). However, the bank could not provide notification in the
same manner as for a fiduciary account transaction that the customer
did not direct, as in Sec. 12.5(a). Therefore, the bank does not have
the option of providing notification as in Sec. 12.5(a) only upon the
[[Page 66521]]
request of the person having the power to terminate the account, or, if
there is no such person, upon the request of any person holding a
vested beneficial interest in the account.
The OCC seeks specific comments regarding whether this result
clarifies the existing part 12 requirements and is the appropriate form
of notification for securities transactions in a fiduciary account
where the customer directs the transaction.
With respect to transactions for a periodic plan (Sec. 12.5(d)),
the proposal changes the time for notification. Currently part 12
requires a national bank to furnish a written statement ``as promptly
as possible'' after each transaction for a periodic plan
(Sec. 12.5(e)). Instead, proposed Sec. 12.5(d) requires the bank to
furnish the written statement not less than once every three months.
This change is consistent with similar provisions under the securities
laws. Otherwise, the notification requirements for periodic plan
transactions remain the same.
The OCC request comments on the proposed change in notification to
not less than once every three months for periodic plan transactions
under Sec. 12.5(d) rather than notification as promptly as possible
after each transaction.
Fees (Sec. 12.6)
The proposal places the provisions regarding fees (Secs. 12.4 and
12.5) into Sec. 12.6. It does not change the substance of these
provisions.
Securities trading policies and procedures (Sec. 12.7)
The proposal retains the current requirement that a bank establish
written policies and procedures for trading practices, but places new
emphasis on following these written policies and procedures. The
proposal also relocates these provisions from Sec. 12.6 to Sec. 12.7.
With respect to proposed Sec. 12.7(a)(4), the proposal clarifies
that bank officers and employees must provide a report to the bank
containing specific information on certain trades, and the bank must
establish written policies and procedures requiring these reports.
While current Sec. 12.6(d) states that the report must ``identify'' the
securities purchased and sold, proposed Sec. 12.7(b) clarifies the
information necessary for banks to identify the securities, including
the title and number of shares, the principal amount of each security
involved, and the price at which the transaction was effected.
The OCC seeks comments as to whether enumeration of the information
required in these reports will assist banks, and officers and
employees, in complying with this requirement.
The proposal also revises one of the exceptions to the reporting
requirements for securities transactions for the benefit of certain
bank officers or employees to make clear that the reporting exception
applies only if the transactions involve an aggregate amount of
purchases and sales per officer or employee of $10,000 or less during a
calendar quarter.
The proposal also clarifies that a national bank acting as an
investment adviser to an investment company is subject to section 17 of
the Investment Company Act, 15 U.S.C. 80a-17, and, in particular, the
requirements of Rule 17j-1 of the Investment Company Act, 17 CFR
270.17j-1 (SEC Rule 17j-1). Generally, SEC Rule 17j-1 requires that an
investment adviser to a registered investment company adopt a written
code of ethics, and that certain defined ``access persons'' of the
investment adviser, including directors, officers, and certain
employees, report personal securities transactions to the investment
adviser. See 17 CFR 270.17j-1(e)(1).
The requirement under proposed Sec. 12.7(a)(4) concerning the
reporting by bank officers and employees of securities transactions in
which they have a beneficial interest is in addition to the applicable
requirements under the Investment Company Act and SEC Rule 17j-1. Banks
should recognize that the part 12 requirements, in some respects, are
broader than those under the Investment Company Act because they apply
to investment advisory activities by national banks whether the bank
provides the advice to an investment company or to another type of
customer.
The OCC welcomes any comments on this proposed addition to the
regulation.
Waivers (Sec. 12.8)
The proposal makes no substantive changes in the waiver provision
currently in Sec. 12.7(d). It relocates the provision to Sec. 12.8. As
is the current practice, the proposal makes clear that the procedure
for requesting a waiver is to submit a request in writing. The proposal
also clarifies that the OCC may grant a waiver from the requirements of
part 12 to any national bank, or any class of national banks, with
regard to specific transactions or specific classes of transactions.
Settlement of Securities Transactions (Sec. 12.9)
The proposal adds Sec. 12.9 to establish a securities settlement
timeframe for national banks effecting or entering into contracts for
the purchase or sale of securities for customers. The OCC intends this
rule to parallel the SEC's adoption of the ``T+3'' securities
settlement timeframe. In October 1993, the SEC adopted for the first
time a securities settlement rule, effective June 7, 1995, requiring
the payment of funds and delivery of most securities by the third
business day after the date of the contract (T+3). See Securities
Exchange Act of 1934 Rule 15c6-1, 17 CFR 240.15c6-1 (SEC Rule 15c6-1);
58 FR 52891 (Oct. 13, 1993); 60 FR 26604 (May 17, 1995) (amendments to
the rule). SEC Rule 15c6-1 is a separate securities settlement
requirement and is not part of the SEC's confirmation rule, SEC Rule
10b-10, 17 CFR 240.10b-10. The OCC believes that most national banks
effecting customer securities transactions use a clearing broker that
would be subject to the SEC's T+3 rule and national banks' securities
transactions thereby routinely would settle within three days. However,
some national banks may clear and settle their securities trades
directly. For this reason, the OCC proposes to revise part 12 to
include a separate T+3 settlement requirement that tracks the language
of the SEC's securities settlement rule. See 17 CFR 240.15c6-1.
As with SEC Rule 15c6-1, the OCC's rule does not apply to an
exempted security as defined in 15 U.S.C. 78c(a)(12), government
security, municipal security, commercial paper, bankers' acceptance, or
commercial bill. Proposed Sec. 12.9 also contains an identical override
provision to SEC Rule 15c6-1 permitting national banks to agree that
settlement will take place in more than three business days when the
agreement is express and reached at the time of the transaction.
Nonetheless, the OCC, similar to the intent expressed by the SEC,
intends the override provision to apply to unusual transactions and not
merely to permit national banks to specify before execution of specific
trades that a group of trades will settle in a timeframe other than
T+3. See Securities Exchange Act Release No. 33023, 58 FR 52891, 52901
(Oct. 13, 1993).
While proposed Sec. 12.9 conforms to the language of the SEC's T+3
settlement rule, the OCC notes there are alternatives to adopting the
language of the SEC's rule. For example, one possibility is not having
a separate OCC settlement rule and, instead, using three days as the
timeframe for sending the confirmation under part 12 rather than
following the SEC's ``completion of the transaction'' timeframe.
Another possibility is cross-referencing the language of SEC Rule 15c6-
1 instead of
[[Page 66522]]
incorporating the actual language of the rule.
The OCC seeks comments on the need for and the effect of proposed
Sec. 12.9 adopting the T+3 securities settlement requirement for
national banks.
The OCC also specifically invites comments on the feasibility and
appropriateness of alternative approaches to implement the T+3
securities settlement cycle.
Interpretations (Secs. 12.101 and 12.102)
The proposal adds two interpretative rulings at the end of part
12. The first interpretation (Sec. 12.101) relates to the disclosure of
remuneration for mutual fund transactions. The interpretation reflects
the view taken by the OCC in various letters granting a waiver from
compliance with part 12 remuneration disclosure requirements. In
particular, the OCC has allowed a bank to fulfill its disclosure
requirement of the source and amount of remuneration required by
current Sec. 12.4(a)(2) and (b) (proposed Sec. 12.4(a)(2) and (b)) for
mutual fund transactions by providing this information to the customer
in a current prospectus, at or before completion of the securities
transaction. The OCC's view is predicated on the SEC's position as
provided in a no-action letter dated March 19, 1979, and permits
national banks to use the same option for disclosure of remuneration as
is permitted for nonbank broker/dealers with respect to transactions in
mutual funds. See Letter to the Investment Company Institute, [1979
Transfer Binder] Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC
would reconsider its position upon any change in the SEC's practice.
The second interpretive ruling (Sec. 12.102) discusses the use of
electronic communications to satisfy part 12's customer notification
requirements. In appropriate situations, the OCC will allow a national
bank to satisfy the ``written'' notification requirement under
Secs. 12.4 and 12.5 through electronic communications. Where a customer
has a facsimile machine, a national bank may fulfill its notification
delivery requirement by sending the notification by facsimile
transmission. Similarly, a bank may satisfy the notification delivery
requirement by other electronic communications when: (1) The parties
agree to use electronic instead of hard-copy notifications; (2) the
parties have the ability to print or download the notification; (3) the
recipient affirms or rejects the trade through electronic notification;
(4) the system cannot automatically delete the electronic notification;
and (5) both parties have the capacity to receive electronic messages.
The SEC has taken a comparable approach to the use of electronic means
to deliver a confirmation under SEC Rule 10b-10, 17 CFR 240.10b-10. See
e.g., Letter regarding Thompson Financial Services, Inc. (Oct. 8,
1993). The OCC would consider the permissibility of other situations
using electronic notifications on a case-by-case basis.
Derivation Table
[Only substantive modifications, additions and changes are indicated.]
------------------------------------------------------------------------
Revised provision Original provision Comments
------------------------------------------------------------------------
Sec. 12.1(a)................... Sec. 12.1(a) .................
Sec. 12.1(b)................... Sec. 12.1(a) .................
Sec. 12.1(c)(1)................ ................... Added.
Sec. 12.1(c)(2)(i)............. Sec. 12.7(a) .................
Sec. 12.1(c)(2)(ii)............ ................... Added.
Sec. 12.1(c)(2)(iii)........... Sec. 12.7(b) Modified.
Sec. 12.1(c)(2)(iv)............ Sec. 12.7(c) .................
Sec. 12.1(c)(3)................ ................... Added.
Sec. 12.1(d)................... Sec. 12.1(b) .................
Sec. 12.2(a)................... ................... Added.
Sec. 12.2(b)................... Sec. 12.2(a) .................
Sec. 12.2(c)................... ................... Added.
Sec. 12.2(d)................... ................... Added.
Sec. 12.2(e)................... Sec. 12.2(b) Modified.
Sec. 12.2(f)................... ................... Added.
Sec. 12.2(g)................... ................... Added.
Sec. 12.2(h)................... Sec. 12.2(c) .................
Sec. 12.2(i)................... ................... Added.
Sec. 12.2(j)................... Sec. 12.2(d) .................
Sec. 12.2(k)................... Sec. 12.2(e) Modified.
Sec. 12.3...................... Sec. 12.3 .................
Sec. 12.4...................... Secs. 12.4, 12.5 Modified.
Sec. 12.5...................... Secs. 12.4, 12.5 Modified.
Sec. 12.6...................... Secs. 12.4, 12.5 .................
Sec. 12.7(a)................... Sec. 12.6(a), (b), .................
(c), and (d)
Sec. 12.7(b)................... Sec. 12.6(d) Modified.
Sec. 12.7(c)................... Sec. 12.6(d) Modified.
Sec. 12.7(d)................... ................... Added.
Sec. 12.8...................... Sec. 12.7(d) .................
Sec. 12.9...................... ................... Added.
Sec. 12.101.................... ................... Added.
Sec. 12.102.................... ................... Added.
------------------------------------------------------------------------
Regulatory Flexibility Act
It is hereby certified that this proposal will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a regulatory flexibility analysis is not required. This
proposal will have minimal economic impact on national banks,
regardless of size, since it makes no material changes to existing
regulatory requirements.
Executive Order 12866
The OCC has determined that this proposal is not a significant
regulatory action.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.
104-4, March 22, 1995, 109 Stat. 48 (Unfunded Mandates Act), requires
that an agency prepare a budgetary impact statement before promulgating
a rule that includes a Federal mandate that may result in the
expenditure by state, local, and tribal governments, in the aggregate,
or by the private sector, of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. Because the OCC has determined that the proposed rule will not
result in expenditures by state, local, and tribal governments, or by
the private sector, of more than $100 million in any one year, the OCC
has not prepared a budgetary impact statement or specifically addressed
the regulatory alternatives considered. Nevertheless, as discussed in
the preamble, the rule has the effect of reducing unnecessary
regulatory costs and other burdens, where possible.
Paperwork Reduction Act of 1995
The OCC invites comments on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of the agency's functions, including whether the
information has practical utility;
(2) The accuracy of the agency's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number.
The collection of information requirements contained in this notice
of proposed rulemaking have been submitted to the Office of Management
and Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project 1557-0142, Washington DC 20503, with copies to the
Legislative and Regulatory Activities Division (1557-0142), Office of
the Comptroller of the Currency, 250 E Street, SW., Washington, DC
20219.
[[Page 66523]]
The collection of information requirements in this proposed rule
are found in Secs. 12.3 through 12.8. This information is required by
the OCC to establish an audit trail. That audit trail is used by the
OCC in its regulatory examinations as a tool to evaluate a bank's
compliance with banking and securities laws and regulations, such as
the anti-fraud provisions of the Federal securities laws. Further, the
records provide a basis for adequate disclosure to customers who effect
securities transactions through national banks. Other records provide a
basis for the OCC to waive some or all of the recordkeeping and
confirmation requirements of 12 CFR part 12. The recordkeepers are
national banks.
Estimated total annual recordkeeping burden: 56,019 hours.
The estimated annual burden per recordkeeper varies from 2 hours to
more than 700 hours, depending on individual circumstances, with an
estimated average of 53.3 hours.
Estimated number of recordkeepers: 1,047.
List of Subjects in 12 CFR Part 12
National banks, Reporting and recordkeeping requirements,
Securities.
Authority and Issuance
For the reasons set out in the preamble, part 12 of chapter I of
title 12 of the Code of Federal Regulations is proposed to be revised
to read as follows:
PART 12--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES
TRANSACTIONS
Sec.
12.1 Authority, purpose, scope, and OMB control number.
12.2 Definitions.
12.3 Recordkeeping.
12.4 Form and time of customer notification.
12.5 Alternative forms and times of customer notification.
12.6 Fees.
12.7 Securities trading policies and procedures.
12.8 Waivers.
12.9 Settlement of securities transactions.
Interpretations
12.101 National bank disclosure of remuneration for mutual fund
transactions.
12.102 National bank use of electronic communications as customer
notifications.
Authority: 12 U.S.C. 24, 92a, and 93a.
Sec. 12.1 Authority, purpose, scope, and OMB control number.
(a) Authority. This part is issued pursuant to 12 U.S.C. 24, 12
U.S.C. 92a, and 12 U.S.C. 93a.
(b) Purpose. This part establishes rules, policies, and procedures
applicable to recordkeeping and confirmation requirements for certain
securities transactions effected by national banks for customers.
(c) Scope--(1) General. Any security transaction effected for a
customer by a national bank is subject to this part unless exempted by
paragraph (c)(2) of this section. A national bank effecting
transactions in government securities is subject to the confirmation,
recordkeeping, and policies and procedures requirements of this part.
This part also applies to municipal securities transactions by a
national bank that is not registered as a ``municipal securities
dealer'' with the Securities and Exchange Commission. See 15 U.S.C.
78c(a)(30) and 78o-4. This part, as well as 12 CFR part 9, applies to a
national bank's securities transactions effected as a fiduciary.
(2) Exemptions--(i) Small number of transactions. The requirements
of Secs. 12.3(a)(2) through (4) and 12.7(a)(1) through (3) do not
apply to a national bank having an average of fewer than 200 securities
transactions per year for customers over the prior three calendar year
period. The calculation of this average does not include transactions
in government securities.
(ii) Government securities. The recordkeeping requirements of
Sec. 12.3 do not apply to national banks effecting fewer than 500
government securities brokerage transactions per year. This exemption
does not apply to government securities dealer transactions by national
banks.
(iii) Municipal securities. This part does not apply to
transactions in municipal securities conducted by a national bank
registered with the Securities and Exchange Commission as a ``municipal
securities dealer'' as defined in title 15 U.S.C. 78c(a)(30). See 15
U.S.C. 78o-4.
(iv) Foreign branches. This part does not apply to securities
transactions conducted by a foreign branch of a national bank.
(3) Safe and Sound Operations. Notwithstanding paragraph (c)(2) of
this section, every national bank conducting securities transactions
for customers shall maintain effective systems of records and controls
regarding their customer securities transactions to ensure safe and
sound operations. The systems maintained must clearly and accurately
reflect appropriate information and provide an adequate basis for an
audit.
(d) OMB control number. The collection of information requirements
in this part were approved by the Office and Management and Budget
under OMB control number 1557-0142.
Sec. 12.2 Definitions.
(a) Asset-backed security means a security that is primarily
serviced by the cashflows of a discrete pool of receivables or other
financial assets, either fixed or revolving that by their terms convert
into cash within a finite time period plus any rights or other assets
designed to assure the servicing or timely distribution of proceeds to
the security holders.
(b) Collective investment fund means any funds held by a national
bank as fiduciary and invested collectively in a ``collective
investment'' as described in 12 CFR 9.18(a).
(c) Completion of the transaction means:
(1) In the case of a customer who purchases a security through or
from a national bank, except as provided in paragraph (c)(2) of this
section, the time when the customer pays the bank any part of the
purchase price, or, if payment is made by a bookkeeping entry, the time
when the bank makes the bookkeeping entry for any part of the purchase
price;
(2) In the case of a customer who purchases a security through or
from a national bank and who makes payment for the security prior to
the time when payment is requested or notification is given that
payment is due, the time when the bank delivers the security to or into
the account of the customer;
(3) In the case of a customer who sells a security through or to a
national bank except as provided in paragraph (c)(4) of this section,
if the security is not in the custody of the bank at the time of sale,
the time when the security is delivered to the bank, and if the
security is in the custody of the bank at the time of sale, the time
when the bank transfers the security from the account of the customer;
(4) In the case of a customer who sells a security through or to a
national bank and who delivers the security to the bank prior to the
time when delivery is requested or notification is given that delivery
is due, the time when the bank makes payment to or into the account of
the customer.
(d) Crossing of buy and sell orders means a security transaction in
which the same bank acts as agent for both the buyer and the seller.
(e) Customer means any person or account, including any agency,
trust,
[[Page 66524]]
estate, guardianship, committee, or other fiduciary account for which a
national bank makes or participates in making the purchase or sale of
securities, but does not include a broker, dealer, bank acting as a
broker or dealer, or issuer of the securities that are the subject of
the transaction.
(f) Debt security as used in Sec. 12.4(b)(8) and (9) only, means
any security, such as a bond, debenture, note, or any other similar
instrument which evidences a liability of the issuer (including any
security of this type that is convertible into stock or a similar
security) and fractional or participation interests in one or more of
any of the foregoing; provided, however, that securities issued by an
investment company registered under the Investment Company Act of 1940,
15 U.S.C. 80a-1 et seq., shall not be included in this definition.
(g) Government security means:
(1) A security which is a direct obligation of, or obligation
guaranteed as to principal and interest by, the United States;
(2) A security which is issued or guaranteed by a corporation in
which the United States has a direct or indirect interest and which is
designated by the Secretary of the Treasury for exemption as necessary
or appropriate in the public interest or for the protection of
investors;
(3) A security issued or guaranteed as to principal and interest by
any corporation whose securities are designated, by statute
specifically naming the corporation, to constitute exempt securities
within the meaning of the laws administered by the Securities and
Exchange Commission; or
(4) Any put, call, straddle, option, or privilege on a security as
described in paragraph (g) (1), (2), or (3) of this section, other than
a put, call, straddle, option, or privilege:
(i) That is traded on one or more national securities exchanges; or
(ii) For which quotations are disseminated through an automated
quotation system operated by a registered securities association.
(h) Investment discretion means that, with respect to an account, a
bank directly or indirectly:
(1) Is authorized to determine what securities or other property
shall be purchased or sold by or for the account; or
(2) Makes decisions as to what securities or other property shall
be purchased or sold by or for the account even though some other
person may have responsibility for these investment decisions.
(i) Municipal security means:
(1) A security which is a direct obligation of, or an obligation
guaranteed as to principal or interest by, a State or any political
subdivision, or any agency or instrumentality of a State or any
political subdivision;
(2) A security which is a direct obligation of, or an obligation
guaranteed as to principal or interest by, any municipal corporate
instrumentality of one or more States; or
(3) A security which is an industrial development bond (as defined
in section 103(c)(2) of the Internal Revenue Code of 1954 (26 U.S.C.
103(c)(2) (1970)) (Code)) the interest on which is excludable from
gross income under section 103(a)(1) of the Code (26 U.S.C. 103(a)(1))
if, by reason of the application of paragraph (4) or (6) of section
103(c) of the Code (26 U.S.C. 103(c)) (determined as if paragraphs
(4)(A), (5), and (7) were not included in section 103(c) (26 U.S.C.
103(c)), paragraph (1) of section 103(c) (26 U.S.C. 103(c)) does not
apply to the security.
(j) Periodic plan (including dividend reinvestment plans, automatic
investment plans and employee stock purchase plans) means a written
authorization for a national bank to act as agent to purchase or sell
for a customer a specific security or securities, in a specific amount
(calculated in security units or dollars) or to the extent of dividends
and funds available, at specific time intervals, and setting forth the
commission or charges to be paid by the customer or the manner of
calculating them.
(k) Security: (1) Means any note, stock, treasury stock, bond,
debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or
lease, any collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust
certificate, for a security, any put, call, straddle, option, or
privilege on any security, or group or index of securities (including
any interest therein or based on the value thereof), or, in general,
any instrument commonly known as a ``security''; or any certificate of
interest or participation in, temporary or interim certificate for,
receipt for, or warrant or right to subscribe to or purchase, any of
the foregoing;
(2) Does not mean currency; any note, draft, bill of exchange, or
banker's acceptance which has a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or any renewal
thereof, the maturity of which is likewise limited; a deposit or share
account in a Federal or State chartered depository institution; a loan
participation; units of a collective investment fund; interests in a
variable amount note as defined in 12 CFR 9.18(c)(2)(ii); U.S. Savings
Bonds; or any other instrument the OCC determines does not constitute a
security for purposes of this part.
Sec. 12.3 Recordkeeping.
(a) General rule. A national bank effecting securities transactions
for customers shall maintain the following records for at least three
years:
(1) Chronological records. A chronological record of each original
entry containing an itemized daily record of each purchase and sale of
securities, including:
(i) Account or customer name for which each transaction was
effected;
(ii) Description of the securities;
(iii) Unit and aggregate purchase or sale price (if any);
(iv) Trade date; and
(v) Name or other designation of the broker/dealer or other person
from whom the securities were purchased or to whom the securities were
sold;
(2) Account records. Account records for each customer, reflecting:
(i) Purchases and sales of securities;
(ii) Receipts and deliveries of securities;
(iii) Receipts and disbursements of cash with respect to
transactions in securities for each account; and
(iv) Other debits and credits pertaining to transactions in
securities;
(3) Memorandum order. A separate memorandum (order ticket) of each
order to purchase or sell securities (whether executed or cancelled),
including:
(i) Account or customer name for which the transaction was
effected;
(ii) Type of order (market order, limit order, or subject to
special instructions);
(iii) Time the trader or other bank employee responsible for
effecting the transaction received the order;
(iv) Time the trader placed the order with the broker/dealer, or if
there was no broker/dealer, time the order was executed or cancelled;
(v) Price at which the order was executed; and
(vi) Name of the broker/dealer utilized;
(4) Record of broker/dealers. A record of all broker/dealers
selected by the bank to effect securities transactions and the amount
of commissions paid or allocated to each broker during the calendar
year; and
(5) Notifications. A copy of the written notification required by
Secs. 12.4 and 12.5.
(b) Manner of maintenance. The records required by this section
must
[[Page 66525]]
clearly and accurately reflect the information required and provide an
adequate basis for the audit of the information.
Sec. 12.4 Form and time of customer notification.
A national bank effecting a securities transaction for its customer
shall give or send to the customer a notification. This section and
Sec. 12.5 describe the form and time of permissible types of
notifications. A bank may elect to provide notification through a copy
of a broker/dealer confirmation and statement regarding remuneration as
provided in Sec. 12.4(a), written notification as provided in
Sec. 12.4(b), notification by agreement as provided in Sec. 12.4(c), or
an alternative form of notification applicable to a specific type of
transaction as provided in Sec. 12.5.
(a) Confirmation of a broker/dealer. A national bank effecting a
securities transaction for a customer shall give or send to its
customer at or before the completion of the transaction a written
notification that includes:
(1) A copy of the confirmation of a broker/dealer relating to the
securities transaction; and
(2) If the customer or any other source will provide remuneration
to the bank in connection with the transaction, and a written agreement
between the bank and the customer does not determine the remuneration,
a statement of the source and amount of any remuneration that the
customer or any other source is to provide the bank.
(b) Written notification. A national bank effecting a securities
transaction for its customer that does not provide notification
pursuant to paragraph (a) of this section, shall give or send to its
customer at or before the completion of the transaction a written
notification that includes:
(1) Name of the bank;
(2) Name of the customer;
(3) Capacity in which the bank acts (as agent for the customer, as
agent for both the customer and some other person, as principal for its
own account, or in any other capacity);
(4) Date of execution, a statement that the bank will furnish the
time of execution within a reasonable time upon written request of the
customer, and the identity, price, and number of shares or units (or
principal amount in the case of debt securities) of the security
purchased or sold by the customer;
(5) Amount of any remuneration that the customer has provided or is
to provide any broker/dealer, directly or indirectly, in connection
with the transaction;
(6) Amount of any remuneration that the bank has received or will
receive from the customer, and the source and amount of any other
remuneration that the bank has received or will receive in connection
with the transaction;
(i) A bank need not provide the information in paragraph (b)(6) of
this section if:
(A) The bank and its customer have determined remuneration pursuant
to a written agreement; or
(B) In the case of government securities and municipal securities,
the bank received the remuneration in other than an agency transaction;
(ii) Unless the bank follows paragraph (b)(6) of this section, the
written notification must state whether the bank has received or will
receive any other remuneration and that the bank will furnish the
source and amount of the other remuneration upon written request of the
customer. A bank may not follow this paragraph (b)(6)(ii), if, in the
case of a purchase, the bank was participating in a distribution, or,
in the case of a sale, the bank was participating in a tender offer;
(7) Name of the broker/dealer utilized; or where there is no
broker/dealer, the name of the person from whom the security was
purchased or to whom the security was sold, or a statement that the
bank will furnish this information upon written request from the
customer. The bank shall furnish this information within a reasonable
time after receipt of a written request;
(8) In the case of any transaction in a debt security subject to
redemption before maturity, a statement to the effect that the debt
security may be redeemed in whole or in part before maturity, that the
redemption could affect the yield represented and the fact that
additional information is available upon request;
(9) In the case of a transaction in a debt security effected
exclusively on the basis of a dollar price:
(i) The dollar price at which the transaction was effected, and
(ii) The yield to maturity calculated from the dollar price:
Provided, however, that this paragraph (b)(9)(ii) shall not apply to a
transaction in a debt security that either:
(A) Has a maturity date that may be extended by the issuer thereof,
with a variable interest payable thereon; or
(B) Is an asset-backed security, that represents an interest in or
is secured by a pool of receivables or other financial assets that are
subject continuously to prepayment;
(10) In the case of a transaction in a debt security effected on
the basis of yield:
(i) The yield at which the transaction was effected, including the
percentage amount and its characterization (e.g. current yield, yield
to maturity, or yield to call) and if effected at yield to call, the
type of call, the call date and call price; and
(ii) The dollar price calculated from the yield at which the
transaction was effected; and
(iii) If effected on a basis other than yield to maturity and the
yield to maturity is lower than the represented yield, the yield to
maturity as well as the represented yield; Provided, however, that this
paragraph (b)(10)(iii) shall not apply to a transaction in a debt
security that either:
(A) Has a maturity date that may be extended by the issuer thereof,
with a variable interest rate payable thereon; or
(B) Is an asset-backed security, that represents an interest in or
is secured by a pool of receivables or other financial assets that are
subject continuously to prepayment;
(11) In the case of a transaction in a debt security that is an
asset-backed security, which represents an interest in or is secured by
a pool of receivables or other financial assets that are subject
continuously to prepayment, a statement indicating that the actual
yield of the asset-backed security may vary according to the rate at
which the underlying receivables or other financial assets are prepaid
and a statement of the fact that information concerning the factors
that affect yield (including at a minimum estimated yield, weighted
average life, and the prepayment assumptions underlying yield) will be
furnished upon written request of the customer; and
(12) In the case of a transaction in a debt security, other than a
government security, that the security is unrated by a nationally
recognized statistical rating organization, if that is the case.
(c) Notification by agreement. Unless the bank follows paragraphs
(a) or (b) of this section, a national bank effecting a securities
transaction for an account in which the bank does not exercise
investment discretion (except for periodic plans) shall give or send
the notification at the time and in the form agreed to in writing by
the bank and customer, provided that the agreement makes clear the
customer's right to receive the written notification pursuant to
paragraphs (a) or (b) of this section at no additional cost to the
customer.
Sec. 12.5 Alternative forms and times of customer notification.
(a) Trust transactions. Unless the bank follows Sec. 12.4(a) or
(b), a national bank effecting a securities transaction
[[Page 66526]]
for an account in which the bank exercises investment discretion other
than in an agency capacity (except for collective investment funds)
shall give or send the notification within a reasonable time if a
person having the power to terminate the account, or, if there is no
such person, any person holding a vested beneficial interest in the
account, requests written notification pursuant to Sec. 12.4(a) or (b).
Otherwise, notification is not required.
(b) Agency transactions. (1) Unless the bank follows Sec. 12.4(a)
or (b), a national bank effecting a securities transaction for an
account in which the bank exercises investment discretion in an agency
capacity shall give or send, not less than once every three months, an
itemized statement to each customer that specifies the funds and
securities in the custody or possession of the bank at the end of the
period and all debits, credits and transactions in the customer's
account during the period; and
(2) If requested by the customer, the bank shall give or send
written notification to the customer pursuant to Sec. 12.4(a) or (b)
within a reasonable time.
(c) Collective investment fund transactions. Unless the bank
follows Sec. 12.4(a) or (b), a national bank effecting a securities
transaction for a collective investment fund shall follow 12 CFR
9.18(b)(5).
(d) Periodic plan transactions. (1) Unless the bank follows
Sec. 12.4 (a) or (b), a national bank effecting a securities
transaction for a periodic plan shall give or send to its customer not
less than once every three months a written statement showing:
(i) The customer's funds and securities in the custody or
possession of the bank;
(ii) All service charges and commissions paid by the customer in
connection with the transaction; and
(iii) All other debits and credits of the customer's account
involved in the transaction.
(2) Upon written request of the customer, the bank shall give or
send the information described in Sec. 12.4 (a) or (b), except that the
bank need not provide to the customer any information relating to
remuneration paid in connection with the transaction when the
remuneration is paid by a source other than the customer.
Sec. 12.6 Fees.
(a) Permissible fees. A national bank may charge a reasonable fee
for providing notification pursuant to Sec. 12.5 (a), (b), and (d).
(b) Impermissible fees. A national bank may not charge a fee for
providing notification pursuant to Sec. 12.4 (a), (b), and (c), and
Sec. 12.5(c).
Sec. 12.7 Securities trading policies and procedures.
(a) Policies and procedures; reports of securities trading. A
national bank effecting securities transactions for customers shall
maintain and adhere to policies and procedures that:
(1) Assign responsibility for supervision of all officers or
employees who:
(i) Transmit orders to or place orders with broker/dealers; or
(ii) Execute transactions in securities for customers;
(2) Provide for the fair and equitable allocation of securities and
prices to accounts when the bank receives orders for the same security
at approximately the same time and places the orders for execution
either individually or in combination;
(3) Provide for the crossing of buy and sell orders on a fair and
equitable basis to the parties to the transaction, where applicable,
and where permissible under local law; and
(4) Require bank officers and employees to report to the bank,
within ten days after the end of the calendar quarter, all transactions
in securities made by them or on their behalf, either at the bank or
elsewhere, in which they have a beneficial interest, if the officers
and employees:
(i) Make investment recommendations or decisions for the accounts
of customers;
(ii) Participate in the determination of the recommendations or
decisions; or
(iii) In connection with their duties, obtain information
concerning which securities are purchased, sold, or recommended for
purchase or sale.
(b) Report required. A bank officer or employee shall file a
report, as referenced in paragraph (a)(4) of this section, that
contains the following information:
(1) The date of the transaction, the title and number of shares,
and the principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale, or other
type of acquisition or disposition);
(3) The price at which the transaction was effected; and
(4) The name of the broker, dealer, or bank with or through whom
the transaction was effected.
(c) Report not required. Paragraph (b) of this section does not
require a bank officer or employee to report transactions for the
benefit of the officer or employee if:
(1) The officer or employee has no direct or indirect influence or
control over the transaction;
(2) The transaction is in mutual fund shares;
(3) The transaction is in government securities; or
(4) The transactions involve an aggregate amount of purchases and
sales per officer or employee of $10,000 or less during the calendar
quarter.
(d) Additional reporting requirement. A national bank that acts as
an investment adviser to an investment company is subject to the
requirements of Securities and Exchange Commission (SEC) Rule 17j-1 (17
CFR 270.17j-1) of the Investment Company Act of 1940. SEC Rule 17j-1
requires certain personal securities transactions by ``access persons''
of the investment adviser, including directors, officers, and certain
employees, to be reported to the Securities and Exchange Commission.
The reporting requirement under paragraph (a)(4) of this section is in
addition to any applicable requirements under SEC Rule 17j-1.
Sec. 12.8 Waivers.
A national bank may file a written request with the OCC for waiver
of one or more of the requirements set forth in Secs. 12.2 through
12.7, either in whole or in part. The OCC may grant a waiver from the
requirements of this part to any national bank, or any class of
national banks, with regard to specific transactions or specific
classes of transactions.
Sec. 12.9 Settlement of securities transactions.
(a) Except as provided in paragraphs (b), (c), and (d) of this
section, a national bank shall not effect or enter into a contract for
the purchase or sale of a security (other than an exempted security as
defined in 15 U.S.C. 78c(a)(12), government security, municipal
security, commercial paper, bankers' acceptances, or commercial bills)
that provides for payment of funds and delivery of securities later
than the third business day after the date of the contract unless
otherwise expressly agreed to by the parties at the time of the
transaction.
(b) Paragraphs (a) and (c) of this section shall not apply to
contracts:
(1) For the purchase or sale of limited partnership interests that
are not listed on an exchange or for which quotations are not
disseminated through an automated quotation system of a registered
securities association;
(2) For the purchase or sale of securities that the Securities and
Exchange Commission (SEC) may from
[[Page 66527]]
time to time, taking into account then existing market practices,
exempt by order from the requirements of paragraph (a) of SEC Rule
15c6-1, 17 CFR 240.15c6-1, either unconditionally or on specified terms
and conditions, if the SEC determines that an exemption is consistent
with the public interest and the protection of investors.
(c) Paragraph (a) of this section shall not apply to contracts for
the sale for cash of securities that are priced after 4:30 p.m. Eastern
time on the date the securities are priced and that are sold by an
issuer to an underwriter pursuant to a firm commitment underwritten
offering registered under the Securities Act of 1933, 15 U.S.C. 77a et
seq., or sold to an initial purchaser by a national bank participating
in the offering provided that a national bank shall not effect or enter
into a contract for the purchase or sale of the securities that
provides for payment of funds and delivery of securities later than the
fourth business day after the date of the contract unless otherwise
expressly agreed to by the parties at the time of the transaction.
(d) For purposes of paragraphs (a) and (c) of this section, the
parties to a contract shall be deemed to have expressly agreed to an
alternate date for payment of funds and delivery of securities at the
time of the transaction for a contract for the sale for cash of
securities pursuant to a firm commitment offering if the managing
underwriter and the issuer have agreed to the date for all securities
sold pursuant to the offering and the parties to the contract have not
expressly agreed to another date for payment of funds and delivery of
securities at the time of the transaction.
Interpretations
Sec. 12.101 National bank disclosure of remuneration for mutual fund
transactions.
A national bank may fulfill its obligation to disclose information
on the source and amount of remuneration, required by Sec. 12.4(a)(2)
and (b), for mutual fund transactions by providing this information to
the customer in a current prospectus, at or before completion of the
securities transaction. The OCC's view is consistent with the position
of the Securities and Exchange Commission (SEC) as provided in a no-
action letter dated March 19, 1979, which permits confirmations for
mutual funds merely to refer to the sales load disclosed in the
prospectus. See Letter to the Investment Company Institute, (1979
Transfer Binder) Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC
would reconsider its position upon any change in the SEC's practice.
Sec. 12.102 National bank use of electronic communications as customer
notifications.
(a) In appropriate situations, a national bank may satisfy the
``written'' notification requirement under Secs. 12.4 and 12.5 through
electronic communications. Where a customer has a facsimile machine, a
national bank may fulfill its notification delivery requirement by
sending the notification by facsimile transmission. Similarly, a bank
may satisfy the notification delivery requirement by other electronic
communications when:
(1) The parties agree to use electronic instead of hard-copy
notifications;
(2) The parties have the ability to print or download the
notification;
(3) The recipient affirms or rejects the trade through electronic
notification;
(4) The system cannot automatically delete the electronic
notification; and
(5) Both parties have the capacity to receive electronic messages.
(b) The OCC would consider the permissibility of other situations
using electronic notifications on a case-by-case basis.
Dated: December 7, 1995.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 95-30970 Filed 12-21-95; 8:45 am]
BILLING CODE 4810-33-P