[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]
=======================================================================
-----------------------------------------------------------------------
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