[Federal Register Volume 61, Number 154 (Thursday, August 8, 1996)]
[Notices]
[Pages 41413-41415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20200]


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FEDERAL RESERVE SYSTEM


Notice of Proposals to Engage in Permissible Nonbanking 
Activities or to Acquire Companies that are Engaged in Permissible 
Nonbanking Activities

    Stichting Prioriteit ABN AMRO Holding, Stichting 
Administratiekantoor ABN AMRO Holding, ABN AMRO Holding N.V., and ABN 
AMRO Bank N.V., all of Amsterdam, The Netherlands (collectively, 
Notificants), have applied for Board approval pursuant to section 
4(c)(8) of the Bank Holding Company Act (12 U.S.C. 1843(c)(8)) (BHC 
Act) and section 225.23(a) of the Board's Regulation Y (12 CFR 
225.23(a)), to acquire all the voting shares of ChiCorp Inc. (ChiCorp), 
Chicago, Illinois, and thereby indirectly acquire its direct and 
indirect subsidiaries, including The Chicago Corporation (TCC), 
Chicago, Illinois. TCC currently engages in a variety of investment 
banking, financial advisory, and securities- and futures-related 
execution, clearing and advisory activities, and is a member of most 
United States securities and futures exchanges. Notificants propose to 
merge TCC with and into Notificants' existing section 20 subsidiary, 
ABN AMRO Securities (USA) Inc., Chicago, Illinois (Company), upon 
consummation of the proposal. Notificants would engage in the proposed 
services throughout the world.
    Notificants have requested approval to engage in the following 
nonbanking activities through the acquisition of ChiCorp:
    (i) making, acquiring, and servicing loans pursuant to 12 C.F.R. 
225.25(b)(1);
    (ii) providing investment and financial advisory services pursuant 
to 12 C.F.R. 225.25(b)(4);
    (iii) leasing personal or real property or acting as agent, broker 
or adviser in leasing such property pursuant to 12 C.F.R. 225.25(b)(5);
    (iv) operating ISI Systems, an automated front-end securities order 
entry system, and thereby providing to others data processing and data 
transmission services, facilities or data bases, or access to such 
services, facilities or data bases, for the processing, transmission or 
storage of financial, banking, or economic data pursuant to 12 C.F.R. 
225.25(b)(7);
    (v) providing discount and full-service brokerage services pursuant 
to 12 C.F.R. 225.25(b)(15);
    (vi) underwriting and dealing in government obligations and other 
obligations that state member banks may underwrite and deal in pursuant 
to 12 C.F.R. 225.25(b)(16);
    (vii) acting as a futures commission merchant (``FCM'') for 
nonaffiliated persons in the execution and clearance on major commodity 
exchanges of futures contracts and options on futures contracts for 
financial commodities pursuant to 12 C.F.R. 225.25(b)(18);
    (viii) providing investment advice as an FCM or a commodity trading 
adviser (CTA) with respect to the purchase or sale of futures contracts 
and options on futures contracts for financial commodities pursuant to 
12 C.F.R. 225.25(b)(19);
    (ix) buying and selling all types of debt and equity securities on 
the order of customers as a ``riskless principal'' and acting as agent 
in the private placement of all types of debt and equity securities 
(see Bankers Trust New York Corporation, 75 Federal Reserve Bulletin 
829 (1989); J.P. Morgan & Company Incorporated, 76 Federal Reserve 
Bulletin 26 (1990); see also Order Revising the Limitations Applicable 
to Riskless Principal Activities, 82 FRB--(1996) (Order dated June 11, 
1996));
    (x) underwriting and dealing, to a limited extent, in all types of 
debt and equity securities, except interests in open-end investment 
companies (see Canadian Imperial Bank of Commerce, et al., 76 Federal 
Reserve Bulletin 158 (1990); J.P. Morgan & Co. Incorporated,

[[Page 41414]]

et al., 75 Federal Reserve Bulletin 192 (1989));
    (xi) trading for its own account, for purposes other than hedging, 
in gold and silver bullion, bars, rounds and coins, and platinum and 
palladium coin and bullion (See Swiss Bank Corporation, 81 FRB 185 
(1995); The Bessemer Group, Incorporated, 82 FRB 569 (1996) (Bessemer);
    (xii) acting as a commodity pool operator registered with the 
Commodity Futures Trading Commission (CFTC) (See Bessemer);
    (xiii) serving as the general partner of, and holding an equity 
interest in, certain limited partnerships that would be exempt from 
registration as investment companies under the Investment Company Act 
of 1940 (15 U.S.C. Sec.  80a-1)(see Meridian Bancorp, Inc., 80 Federal 
Reserve Bulletin 736 (1994); and
    (xiv) trading for its own account, for purposes other than hedging, 
in foreign exchange spot, forward, futures, options and options on 
futures, and providing foreign exchange-related execution and advisory 
services to unaffiliated parties (see The Long-Term Credit Bank of 
Japan, 79 Federal Reserve Bulletin 347 (1993)).
    Notificants has stated that Company would engage in the proposed 
activities in accordance with the limitations and conditions 
established by the Board in its regulations, related interpretations 
and order, with certain exceptions.
    In connection with its securities brokerage activities, Company 
proposes to provide execution-only services with respect to options on 
securities to institutional customers. In addition, Company proposes to 
provide discretionary securities investment management services to 
retail customers. The Board previously has determined by order that, 
subject to certain conditions, a bank holding company may provide 
discretionary securities investment management services to retail 
customers under section 4(c)(8) of the BHC Act. See CoreStates 
Financial Corp., 80 FRB 644 (1994) (CoreStates). Notificants, however, 
do not propose to provide discretionary securities investment 
management services to retail customers in accordance with the 
limitations set forth in CoreStates. Notificants state that Company 
would operationally separate the investment management and trade 
execution functions provided to retail customers through the proposed 
discretionary management program (Program). Notificants contends that 
this separation, and the Program's proposed fee arrangements, are 
sufficient to address the potential adverse effects identified by the 
Board in CoreStates, including the potential for ``churning'' and 
providing biased investment advice.
    TCC currently engages in, and Notificants request authority for 
Company to engage in, a variety of futures-related activities. In this 
regard, Notificants propose that Company act as an FCM for 
institutional and non-institutional hedger customers in connection with 
the execution and clearance of futures and options on futures on 
financial and non-financial commodities that are not listed in section 
225.25(b)(18) of Regulation Y. See Bank of Montreal, 79 FRB 1049 (1993) 
(Bank of Montreal); Societe Generale, 81 FRB 880 (1995) (Societe 
Generale)(defining non-institutional hedger customer). These contracts 
include certain futures and options on futures contracts for which bank 
holding companies have not previously requested Board approval to 
provide execution and clearing services. The proposed futures execution 
and clearance services provided to institutional and non-institutional 
hedger customers would include execution-only and clearing-only 
services. See Northern Trust; Bank of Montreal; Societe Generale. 
Furthermore, Company proposes to establish a subsidiary that would 
become a clearing member of the London Commodity Exchange.
    Company also proposes to provide investment advice as an FCM or 
commodity trading advisor (CTA) on the purchase and sale of financial 
and non-financial futures and options on futures contracts to 
institutional and non-institutional hedger customers. The proposed 
investment advisory services would include providing discretionary 
futures portfolio management services to institutional and non-
institutional hedger customers. See CS Holding, 81 FRB 803 (1995).
    Furthermore, Company proposes to provide clearing-only services to, 
and serve as the primary clearing firm for, certain locals on the 
Kansas City Board of Trade and the Minneapolis Grain Exchange. See 
Stichting Prioriteit ABN AMRO Holding, 77 FRB 189 (1991). Notificants 
contend that TCC currently has, and Company would have, adequate risk 
management systems and other operational procedures to monitor and 
control the financial and operational risks associated with the 
proposed activity.
    Section 4(c)(8) of the BHC Act provides that a bank holding company 
may, with Board approval, engage in any activity that the Board, after 
due notice and opportunity for hearing, has determined (by order or 
regulation) to be so closely related to banking or managing or 
controlling banks as to be a proper incident thereto. Notificants 
propose to engage in certain activities that the Board previously has 
not determined are closely related to banking under section 4(c)(8) of 
the BHC Act. A particular activity may be found to meet the ``closely 
related to banking'' test if it is demonstrated that banks generally 
have provided the proposed activity, that banks generally provide 
services that are operationally or functionally similar to the proposed 
activity so as to equip them particularly well to provide the proposed 
activity, or that banks generally provide services that are so 
integrally related to the proposed activity as to require their 
provision in a specialized form. National Courier Ass'n v. Board of 
Governors, 516 F.2d 1229, 1237 (D.C. Cir. 1975). In addition, the Board 
may consider any other basis that may demonstrate that the activity has 
a reasonable or close relationship to banking or managing or 
controlling banks. Board Statement Regarding Regulation Y, 49 FR 794, 
806 (1984).
    First, Notificants propose that Company provide advice on the 
financial and non-financial commodities that underlie futures contracts 
and options on futures contracts. Company proposes to provide such 
advice only as an incident to futures advisory activities. Notificants 
contend that, because the price of a future on a particular commodity 
is integrally related to the price of the underlying commodity, a bank 
holding company providing advice on futures contracts or options on a 
futures contracts is particularly well suited to analyze and forecast 
the expected price movement of the underlying commodity. Notificants 
also contend that the procedures and expertise used in connection with 
providing advice on futures and options on futures is functionally 
inseparable from those used to provide advice on the commodities 
underlying those futures and options on futures.
    Second, Notificants propose that Company provide clearing-only 
services with respect to options on securities to institutional 
customers. Notificants contend that the proposed clearing-only services 
with respect to securities options involve the same procedures, 
operations, and risks as the provision of clearing-only services with 
respect to futures and options on futures. Notificants note that the 
Board previously has approved bank holding companies to provide 
clearing-only services for futures and options on

[[Page 41415]]

futures. See Northern Trust; Bank of Montreal.
    Third, Notificants propose that Company provide execution and 
advisory services on over-the-counter forward contracts for the 
delivery of certain non-financial commodities. Notificants contend that 
forward contracts on non-financial commodities are operationally and 
functionally similar to futures contracts on non-financial commodities. 
Because bank holding companies may provide execution and advisory 
services on futures contracts based on non-financial commodities, 
Notificants contend that bank holding companies are well suited to 
provide execution and advisory services on forward contracts based on 
the same underlying non-financial commodities. Notificants also contend 
that providing brokerage and advisory services with respect to forward 
contracts on non-financial commodities involve the same type of 
financial intermediation services that banks and bank holding companies 
provide with respect to other types of financial instruments, including 
futures contracts or forward contracts on foreign exchange.
    In order to approve the proposal, the Board must determine that the 
proposed activities to be conducted by Notificants ``can reasonably be 
expected to produce benefits to the public, such as greater 
convenience, increased competition, or gains in efficiency, that 
outweigh possible adverse effects, such as undue concentration of 
resources, decreased or unfair competition, conflicts of interests, or 
unsound banking practices.'' 12 U.S.C. 1843(c)(8). Notificants believe 
that the proposal would produce public benefits that outweigh any 
potential adverse effects. In particular, Notificants believe that the 
acquisition of ChiCorp by Notificants would permit Notificants to 
enhance the services provided by ChiCorp and increase competition for 
the proposed services. Notificants also contend that, subject to the 
limitations on the proposed activities agreed to by Notificants, 
consummation of the proposal would not produce adverse effects, such as 
undue concentration of resources, decreased or unfair competition, 
conflicts of interests, or unsound banking practices. In this regard, 
Notificants contend that Company would have the risk management systems 
necessary to monitor and control the risks associated with the proposed 
securities and futures-related activities.
    In publishing the proposal for comment, the Board does not take a 
position on issues raised by the proposal. Notice of the proposal is 
published solely to seek the views of interested persons on the issues 
presented by the application and does not represent a determination by 
the Board that the proposal meets, or is likely to meet, the standards 
of the BHC Act. Any comments or requests for hearing should be 
submitted in writing and received by William W. Wiles, Secretary, Board 
of Governors of the Federal Reserve System, Washington, D.C. 20551, not 
later than August 22, 1996. Any request for a hearing on this 
application must, as required by Sec.  262.3(e) of the Board's Rules of 
Procedure (12 CFR 262.3(e)), be accompanied by a statement of the 
reasons why a written presentation would not suffice in lieu of a 
hearing, identifying specifically any questions of fact that are in 
dispute, summarizing the evidence that would be presented at a hearing, 
and indicating how the party commenting would be aggrieved by approval 
of the proposal.
    This application may be inspected at the offices of the Board of 
Governors or the Federal Reserve Bank of Chicago.
    Board of Governors of the Federal Reserve System, August 2, 
1996.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 96-20200 Filed 8-7-96; 8:45 am]
BILLING CODE 6210-01-F