[Federal Register Volume 61, Number 248 (Tuesday, December 24, 1996)]
[Proposed Rules]
[Pages 67729-67738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32275]


 ========================================================================
 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.
 
 ========================================================================
 

  Federal Register / Vol. 61, No. 248 / Tuesday, December 24, 1996 / 
Proposed Rules  

[[Page 67729]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 344

RIN 3064-AB74


Recordkeeping and Confirmation Requirements for Securities 
Transactions

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is issuing 
for comment a notice of proposed rulemaking that would amend its 
regulations governing recordkeeping and confirmation requirements for 
securities transactions. The proposed rulemaking updates, clarifies and 
streamlines the FDIC regulations and reduces unnecessary regulatory 
costs and other burdens. The proposed rule reorganizes the regulation, 
clarifies areas where the rule was confusing, incorporates significant 
interpretive positions, and updates various provisions to address 
market developments and regulatory changes by other regulators that 
affect requirements for recordkeeping and confirmation of securities 
transactions by banks.

DATES: Comments must be received by January 23, 1997.

ADDRESSES: Comments should be directed to Jerry L. Langley, Executive 
Secretary, Attention: Room F-402, Federal Deposit Insurance 
Corporation, 550 17th Street, N.W., Washington, D.C. 20429. Comments 
may be hand delivered to Room F-402, 1776 F Street, N.W., Washington, 
DC 20429, on business days between 8:30 a.m. and 5:00 p.m. or 
transmitted by fax or the Internet. The FDIC's fax number is (202) 898-
3838 and its Internet address is: [email protected]. Comments will be 
available for inspection and photocopying in Room 100, 801 17th Street, 
NW, Washington, DC between 9:00 a.m. and 5:00 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Miguel D. Browne, Deputy Assistant 
Director, Division of Supervision, Securities, Capital Markets and 
Trust Branch, (202) 898-6789; John F. Harvey, Review Examiner (Trust), 
Securities, Capital Markets and Trust Branch, Division of Supervision, 
(202) 898-6762; Patrick J. McCarty, Counsel, Regulations and 
Legislation Section, Legal Division, (202) 898-8708, and Gerald 
Gervino, Senior Attorney, Regulations and Legislation Section, Legal 
Division, (202) 898-3723.

SUPPLEMENTARY INFORMATION:

Background

    In 1979, the FDIC adopted Part 344 to require banks under its 
jurisdiction to establish uniform procedures and recordkeeping and 
confirmation requirements with respect to effecting securities 
transactions for customers. The requirements reflected, in part, the 
recommendations of the Securities and Exchange Commission's (SEC) Final 
Report of the Securities and Exchange Commission on Bank Securities 
Activities (June 30, 1977). Part 344's recordkeeping and confirmation 
requirements were patterned after the SEC's rules applicable to broker/
dealers and were intended to serve similar purposes for banks involved 
in effecting customers' securities transactions.1 See 44 FR 43261 
(July 24, 1979). The Board of Governors of the Federal Reserve System 
(FRB) and the Office of the Comptroller of the Currency (OCC) also 
adopted regulations substantially identical to part 344 in 1979. See 12 
CFR 208.8(k), 44 FR 43258 (July 24, 1979) (FRB regulation); 12 CFR part 
344, 44 FR 43254 (July 24, 1979) (OCC regulation).
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    \1\ Brokers and dealers generally must register with the 
Securities and Exchange Commission under the Securities Exchange Act 
of 1934. See 15 U.S.C. 78o(a)(1). Banks are excluded from the 
definitions of ``broker'' and ``dealer'' and thus are not subject to 
the registration provisions. See 15 U.S.C. 78c(a) (4) and (5).
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    On December 22, 1995, the OCC published a notice of proposed 
rulemaking (60 FR 66517) (OCC proposal) to revise 12 CFR part 12, the 
OCC's Recordkeeping and Confirmation Requirements for Securities 
Transactions regulation. The purpose of the proposal was to modernize 
part 12, address various market developments and regulatory changes, 
and reduce regulatory burden, where possible. The FRB published a 
substantially similar yet somewhat differently worded proposed rule on 
December 26, 1995. See 60 FR 66759. The FDIC published an advance 
notice of proposed rulemaking on May 24, 1996, soliciting comment on 
issues similar to those raised in the OCC's and FRB's proposed rules, 
as well as issues which the OCC and FRB proposals did not address. See 
61 FR 26135. The OCC published its final rule revising part 12 on 
December 2, 1996. See 61 FR 63958.
    The FDIC and the other federal banking agencies are required by 
section 303 of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRI) to review their regulations to 
streamline them to improve efficiency, to reduce unnecessary costs and 
to eliminate unwarranted constraints on credit availability. 12 U.S.C. 
4803(a). Section 303(a) also requires the Federal banking agencies to 
work jointly to make uniform all regulations and guidelines 
implementing common statutory or supervisory policies. As noted above, 
on July 24, 1979 the FDIC and the other Federal banking agencies 
promulgated regulations addressing recordkeeping and confirmation 
requirements for securities transactions effected by banks. These 
regulations were virtually identical.
    Consistent with section 303 of CDRI, the FDIC has reviewed the OCC 
and FRB proposals and attempted to draft its notice of proposed 
rulemaking in order that it will be nearly uniform with the other 
proposals. We note at the outset that the FDIC would prefer a rule 
which is uniform with the other agencies. The FDIC's proposed rule is 
closer in structure, definitions, language and form to that of the 
FRB's proposal than the OCC's final rule. The FDIC requests comment on 
all aspects of the notice of proposed rulemaking.

Comments Received and Changes Made

    The FDIC received 10 comments on the advance notice of proposed 
rulemaking. The comment letters included four from banks and bank 
holding companies, four from trade associations, and two from broker/
dealers. Commenters generally supported the proposed changes to part

[[Page 67730]]

344, but several commenters requested changes. One commenter stated 
that it was imperative that the Federal banking agencies work together 
to issue identical regulations governing securities confirmation and 
recordkeeping requirements. The FDIC has carefully considered each of 
the comments and has made several changes in response to the comments 
received.
    Overall, the notice of proposed rulemaking adopts many of the 
changes to part 344 which were identified in the ANPR. The section-by-
section discussion in the preamble identifies substantive changes made 
to certain sections of the existing rule.

Section-by-Section Discussion

Purpose and Scope (Sec. 344.1)

    The notice of proposed rulemaking makes some very minor language 
changes to the ``Purpose'' part of Sec. 344.1 to clarify which banks 
are subject to the jurisdiction of the FDIC.
    The ``Scope'' part of Sec. 344.1 has also been revised and 
reorganized to clarify the types of securities transactions which are 
generally subject to the regulation. Generally, any state nonmember 
insured bank effecting a securities transaction for a customer is 
subject to the requirements of part 344, unless the transaction 
specifically is exempted.

Exceptions (Sec. 344.2)

    The notice of proposed rulemaking relocates and expands the 
``Exceptions'' section of part 344 from the end of the regulation to 
near the beginning so that it will be clearer as to what types of 
transactions are not subject to the regulation. The proposal provides 
in paragraph (a) five exceptions for: (1) Banks conducting a small 
number of securities transactions; (2) certain government securities 
transactions; (3) certain municipal securities transactions; (4) 
securities transactions conducted by a foreign branch of a bank; and 
(5) certain securities transactions with a broker/dealer. The notice of 
proposed rulemaking also clarifies that even though these types of 
transactions are excepted from compliance with all or certain sections 
of part 344, the FDIC expects a bank conducting securities transactions 
for its customers to maintain effective systems of records and controls 
to ensure safe and sound operations.
    The FDIC is including in the notice of proposed rulemaking a new 
exception (5) for certain securities transactions effected through 
broker/dealers. The FDIC requested comment in the ANPR on whether part 
344 ought to apply to securities transactions effected by broker/
dealers who have entered into ``networking arrangements'' with banks. 
Most commenters believe that the FDIC's recordkeeping and confirmation 
requirements should not apply to these type of bank operations with a 
registered broker/dealer. Registered broker/dealers are already subject 
to the SEC's recordkeeping and confirmation rules and are required to 
provide their customers with confirmations similar to those which banks 
must provide their customers under part 344.2 The FDIC has 
determined that part 344 should not generally apply to securities 
transactions effected by these registered broker/dealers where the bank 
customer has in fact knowingly become a customer of the broker/dealer. 
Language has been added to Sec. 344.2(a)(5) to establish a two-part 
test. In order for the exception to apply: (A) The broker/dealer must 
be fully disclosed to the customer and (B) the customer must have a 
direct contractual agreement, e.g. a signed account agreement, with the 
broker/dealer. The FDIC believes it is very important that the customer 
understand that they are dealing with a broker/dealer and not the bank. 
Banks which enter into networking arrangements with broker/dealers and 
who do not want those securities transactions to be subject to Part 344 
should take adequate steps to make sure that the two-part test is being 
observed. Full disclosure by the broker/dealer to the bank customers is 
consistent with the Interagency Statement on Retail Sale of Nondeposit 
Investment Products.3 The FDIC also agrees that when an employee 
of the bank is working for and under the control and supervision of a 
registered broker/dealer while soliciting, recommending, purchasing or 
selling securities to customers pursuant to a networking arrangement, 
Part 344 requirements would not apply. Exception (5) has been drafted 
to make it clear that dual employee arrangements are not subject to 
Part 344.
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    \2\ It is not unusual for a bank effecting a securities 
transaction to forward orders to a registered broker/dealer for 
execution and clearing. Under these circumstances, the requirements 
of part 344 would apply because the bank is effecting the securities 
transaction for its customer.
    \3\ FDIC Financial Institutions Letter 9-94 (February 17, 1994); 
and FDIC Financial Institutions Letter 61-95 (September 13, 1995).
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    With respect to networking arrangements, the FDIC requests comment 
regarding whether it is common for banks with networking arrangements 
to receive separate surcharges or fees from bank customers in addition 
to the transaction volume compensation they receive from the broker/
dealer. The FDIC would also like to receive comment on whether banks 
which impose these additional surcharges or fees should be required to 
comply with Part 344 or separately disclose those additional fees in 
some other manner.

Definitions (Sec. 344.3)

    The notice of proposed rule adds eight new definitions and requests 
comment on modifying two existing definitions. Six of the definitions--
``asset-backed security,'' ``completion of the transaction,'' 
``crossing of buy and sell orders,'' ``debt security,'' ``government 
security,'' and ``municipal security''--were identified in the ANPR and 
are included unchanged in the notice of proposed rulemaking. The FDIC 
has defined these terms the same way that the Federal Reserve has 
proposed them. The OCC proposal has the same terms but the structure 
and language used are somewhat different.
    The FDIC is also proposing to add two new definitions; ``bank'' and 
``cash management sweep account'' which weren't in the ANPR. With 
respect to the term ``Bank,'' the FDIC proposes to define the term to 
mean ``state nonmember insured bank (except a District bank) or a 
foreign bank having an insured branch.'' This change is consistent with 
the minor language modifications made to Sec. 344.1 and shortens the 
regulation by eliminating the need to repeat ``state nonmember insured 
bank (except a District bank) or a foreign bank having an insured 
branch'' where ``Bank'' is currently found.
    The other new definition would be ``Cash management sweep 
account.'' The FDIC requested comment in the ANPR with respect to bank 
``sweep account'' activities. Most commenters thought that part 344 
should clarify how ``sweep accounts'' are treated under the rule. While 
several commenters recommended that sweep accounts be included in the 
definition of periodic accounts the FDIC has decided not to do so for 
several reasons. First, the FDIC believes that sweep accounts are 
different in kind from typical periodic plans such as dividend 
reinvestment plans (DRIPs) and automatic investment plans. Sweep 
accounts do not normally invest in securities at the regular intervals 
(i.e; monthly or quarterly) as do DRIPs and automatic investment plans. 
Second, sweep accounts are a significant product/service in their own 
right which account for several billions of dollars worth of 
transactions on a daily basis and probably exceed the dollar volume in 
traditional periodic plans. Due to these differences, the FDIC

[[Page 67731]]

believes it is not appropriate to include sweep accounts in the 
definition of periodic plans. Third, the FDIC believes that bank 
customers with sweep accounts should receive confirmations more 
frequently than periodic plan account holders. The FDIC is proposing 
that banks be required to issue confirmations for sweep accounts at 
least monthly, if there are securities transactions in the account, and 
at least quarterly when there are no transactions. Quarterly 
confirmations are proposed for periodic plans. The FDIC believes it 
would be confusing if sweep accounts were to be included in the 
definition of periodic plans and yet be subject to a more frequent 
confirmation requirement. For these reasons, the FDIC is proposing a 
separate definition for sweep accounts and requests comment on the 
adequacy of such definition.
    The term ``cash management sweep account'' would cover any 
prearranged, automatic transfer of funds above a certain dollar level 
from a deposit account to purchase a security or securities or any 
prearranged, automatic redemption or sale of a security or securities 
when a deposit account drops below a certain dollar level with the 
proceeds being transferred into a deposit account. The term would only 
cover transactions involving the purchase or sale of securities. The 
FDIC requests comment on whether it is necessary to provide 
clarification regarding reporting requirements where monies (interest, 
dividends, etc.) earned on a security are deposited into a sweep 
account. The FDIC also requests comment on whether the term ``cash 
management sweep account'' is appropriate.
    The FDIC notes that not all sweep accounts will be treated the same 
under part 344. First, totally excluded from the coverage of part 344 
would be sweep accounts which sweep from a deposit account into another 
deposit account such as a money market deposit account (MMDA). 
According to a recently published Federal Reserve study, billions of 
dollars are being swept from noninterest bearing deposit accounts into 
MMDAs.4 Since there is no purchase or sale of a security involved 
in this type of sweep transaction, part 344 would not apply.
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    \4\ Senior Financial Officer Survey May 1996, Division of 
Monetary Affairs, Board of Governors of the Federal Reserve System 
(August 8, 1996).
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    While very similar to sweeps into MMDAs, sweep accounts which 
automatically transfer idle cash from a deposit account into a money 
market mutual fund would be subject to part 344. Shares of money market 
mutual funds, or any other interest in an open-end investment company, 
are ``securities'' within the Federal securities laws as well as the 
definition of ``security'' in part 344. Sweep accounts which 
automatically purchase or sell shares in money market mutual funds, or 
any other mutual fund, would therefore be subject to the regulation. As 
noted above, the FDIC is proposing in Sec. 344.6(d) that banks be 
required to provide either monthly or quarterly statements to its 
customers depending upon the frequency of securities transactions. 
Banks would be required to provide notifications to customers at the 
end of the month if a purchase or sale of a security has occurred in 
their cash management sweep account. Banks would be required to provide 
quarterly statements to cash management sweep account customers at a 
minimum.
    A third common type of sweep account offered by banks involves 
transferring idle cash into a repurchase agreement on government 
securities. This type of transaction is clearly within the scope of 
part 344, since there is a security being purchased or sold.
    However, government securities are subject to the Government 
Securities Act of 1986, 15 U.S.C. 78o-5, and the rulemaking authority 
of the Bureau of the Public Debt, Department of Treasury. The Treasury 
Department requires broker/dealers and banks to provide next day 
confirmations on hold in custody repurchase agreements on government 
securities. See 17 CFR parts 400 through 405, 449, and 450. We note 
that banks offering sweep transactions involving repurchase agreements 
on government securities will be subject to more frequent confirmation 
requirements than other sweep accounts under part 344.
    The FDIC is also requesting comment on modifications to two 
definitions. The FDIC proposes to modify the existing definition of 
``customer'' to specifically exclude those persons and accounts who 
enter into written agreements with fully disclosed broker/dealers for 
securities transactions. This modification, which parallels the 
proposed exception in Sec. 344.2(a)(5), is intended to make it clear 
that bank customers who enter into written agreements with fully 
disclosed broker/dealers, such as broker/dealers with networking 
agreements with the bank, are not ``customers'' of the bank for 
purposes of part 344.
    The other proposed modification is to the term ``investment 
discretion.'' The FDIC proposes to replace the word ``recommendations'' 
with the word ``decisions.'' The result would be to narrow the 
definition of investment discretion to situations in which the bank 
actually makes investment decisions with respect to a customer's 
account as opposed to where the bank merely makes recommendations to 
the customer. This change would conform the FDIC's definition to the 
OCC and FRB's regulatory language as well as track the definition in 
the Securities Exchange Act of 1934, as amended. 15 U.S.C. 78c(a)(35). 
We note that the OCC proposed in December of 1995 a different 
definition of the term ``investment discretion'' in connection with its 
Trust Regulations. See 60 FR 66163. The FDIC requests comment on 
whether an alternate definition should be considered.

Recordkeeping (Sec. 344.4)

    With respect to recordkeeping, the notice of proposed rulemaking 
makes several non-substantive changes. Section 344.4 (a) remains 
identical in substance to the existing rule. The FDIC proposes to add 
headings and paragraphs to make the rule easier to read. A new 
paragraph (5) has been added to require banks to retain copies of all 
written notifications which are provided. This is not a new 
requirement, but is merely a relocation of the recordkeeping 
requirement which is found in current Sec. 344.4.
    The FDIC proposes to make similar changes to the section of the 
rule regarding record maintenance. A new heading for Sec. 344.4(b), 
entitled ``Manner of maintenance'' is proposed. Language has been added 
which attempts to make it clear that banks do not have to maintain 
their records in any particular form or format, as long as the records 
are clear, and accurately reflect the information required under 
Sec. 344.4(a). This provision is intended to give banks flexibility in 
the maintenance of records required by part 344. The FDIC also 
recognizes that better and more affordable technology will increase 
banks' interest in replacing paper files with electronic data bases and 
filing systems. The FDIC has no objection to a bank using an electronic 
or automated recordkeeping system. Accordingly, the proposed rule 
specifically permits the use of electronic or automated records as long 
as the records are easily retrievable and readily available for 
inspection and the bank has the capability to reproduce the records in 
hard copy form. Further, the FDIC proposes to add language which makes 
it clear that a bank using a third party service provider to maintain 
the records would meet the rule's recordkeeping requirements.

[[Page 67732]]

Content and Time of Customer Notification (Sec. 344.5)

    The FDIC is proposing to revise existing Sec. 344.4 ``Content and 
time of customer notification'' in several material respects. The FDIC 
has added language to the beginning of Sec. 344.5 to make it clear that 
banks may provide the written confirmations required by mail, facsimile 
or other electronic means. The SEC recently issued guidance to the 
broker/dealer community regarding the delivery of confirmations by 
electronic means. SEC Release No. 33-7288, 61 FR 24644 (May 15, 1996). 
The FDIC recognizes that banks will want to, and should be permitted 
to, use new confirmation delivery systems as technology advances. In 
appropriate situations, a bank may satisfy the ``written'' notification 
requirement through electronic communications. Where a customer has a 
facsimile machine, a bank may fulfill its notification delivery 
requirement by sending the notification by facsimile transmission. 
Similarly, consistent with SEC guidance a bank may satisfy the 
notification delivery requirement by other electronic communications 
when the parties agree to use electronic instead of hard-copy 
notifications; the parties have the ability to print or download the 
notification; the recipient affirms or rejects the trade through 
electronic notification; the system cannot automatically delete the 
electronic notification; and both parties have the capacity to receive 
electronic messages. The FDIC will consider granting banks permission 
to use electronic confirmations in other situations depending upon 
advances in technology and other regulatory developments.
    In proposed Sec. 344.5(a)(1) the FDIC has added clarifying language 
regarding the use of broker/dealer confirmations to satisfy the written 
notification requirements. There has been some confusion regarding 
direct mailing of broker/dealer confirmations to bank customers. The 
FDIC has added language which would make it clear that banks have the 
option of either (1) having a broker/dealer executing a transaction for 
the bank to send a confirmation directly to the bank's customer or (2) 
choosing to forward a copy of the broker/dealer confirmation to the 
bank customer when it is received. The FDIC believes banks should have 
the option of directing a broker/dealer to send a confirmation directly 
to the bank's customer as this will improve bank service by 
accelerating the delivery of confirmations to its customer. Banks using 
this option are ultimately responsible for the timely delivery of 
confirmations as well as accurate disclosure of all information 
required therein.
    Another significant change in proposed Sec. 344.5(a)(1) is the 
shortening of the timeframe banks have for forwarding broker/dealer 
confirmations to customers. Under existing Sec. 344.4, banks are 
required to forward a broker/dealer's confirmation within five business 
days of receipt. With the settlement period being shortened to T+3, see 
proposed Sec. 344.7, and general improvement in communications, the 
FDIC believes that shortening the timeframe for banks sending out 
broker/dealer confirmations is justified. The proposed rule requires 
banks to send broker/dealer confirmations within one business day of 
receipt.
    With respect to disclosure of other remuneration, the FDIC is 
adding clarifying language to proposed Sec. 344.5(a)(2). Even when 
banks use a broker/dealer confirmation, they must provide a statement 
regarding the amount of any remuneration the bank will receive from the 
customer or any other source in connection with the transaction. There 
are certain exceptions--where there is a written agreement between the 
bank and the customer, in government and municipal securities 
transactions where the bank acts as a dealer, and in mutual fund 
transactions where the customer receives a current prospectus. Proposed 
paragraph (a)(2) is being revised to make it consistent with the 
remuneration disclosure requirements found in paragraph (b)(6).
    With respect to the content of the written notification issued by a 
bank, the first seven requirements under the proposed rule are 
virtually identical to the existing rule. Sec. 344.4(b)(1)-(7). The 
FDIC has added new language to proposed paragraph (b)(6) regarding the 
exceptions from the disclosure of remuneration requirement for mutual 
fund transactions. Banks are not required to provide a statement 
regarding the source and amount of other remuneration if the bank 
provides the customer with a current prospectus which discloses all 
current fees, loads and expenses at or before completion of the 
transaction. This exception is consistent with current securities 
industry practice which is based on a 1979 SEC No Action Letter. See 
Letter to the Investment Company Institute, reprinted in [1979 Transfer 
Binder] Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The FDIC 
believes adding this language to the text of the regulation will 
provide clearer guidance to banks, their counsel and examiners in this 
area.
    The FDIC is proposing to add five confirmation disclosure 
requirements for debt security transactions. See proposed 
Sec. 344.5(b)(8)-(12). Paragraphs (b)(8)-(11) address yield information 
disclosure, while paragraph (b)(12) requires disclosure that a debt 
security has not been rated by a nationally recognized statistical 
rating organization, if that is the case. These requirements are 
consistent with those of the SEC's confirmation rule, Rule 10b-10. See 
17 CFR 240.10b-10(a)(2)(i)(D).

Notification By Agreement; Alternative Forms and Times of Notification 
(Sec. 344.6)

    In addition to the notification requirements in proposed 
Sec. 344.5, the regulation authorizes alternative forms and times of 
notification under Sec. 344.6 for certain specific types of accounts. 
These are: (1) Accounts in which the bank exercises investment 
discretion in other than an agency capacity; (2) accounts in which the 
bank exercises investment discretion in an agency capacity; (3) cash 
management sweep accounts; (4) transactions for a collective investment 
fund account; and (5) transactions for a periodic plan account. The 
proposed rule makes very minor changes to the current Sec. 344.5. The 
proposed rule revises the name of the section and adds headings in an 
effort to eliminate confusion and enhance readability. The one major 
change is the addition of a subsection addressing the notification 
requirements for cash management sweep accounts.
    Under proposed Sec. 344.6(a) a bank and its customer can agree, in 
writing, to a different arrangement as to the time and content of 
written notification to be received. This provision may be of benefit 
to both banks and their customers in that it permits bank customers to 
opt for periodic statements--monthly or quarterly--if they do not 
desire to receive confirmations within 3 days of the transaction. Banks 
may benefit by not having to produce as many confirmations for the same 
account and/or not having to produce confirmations as quickly. The FDIC 
would like to receive comment regarding the typical written 
notification timeframes in standard bank account documents. The FDIC 
would like to know if bank customers who sign bank account agreements 
providing for alternate notification arrangements are aware of their 
right to receive written notifications in as little as 3 days. Comment 
is specifically requested as to

[[Page 67733]]

whether the FDIC should require banks to provide more disclosure to its 
customers regarding when they are entitled to receive written 
notifications. Commenters who support requiring additional disclosures 
by banks should provide specific examples of the types or forms of 
disclosure that are, or should be, made.
    The FDIC proposes to add a new paragraph (d) to Sec. 344.6 to 
address the notification requirements for cash management sweep 
accounts. The FDIC believes that banks offering cash management sweep 
accounts should provide notification similar to that provided by 
registered broker/dealers offering similar services. As discussed under 
Sec. 344.3, the FDIC has proposed a new definition ``cash management 
sweep accounts''. Section 344.6(d) in the proposed rule provides the 
timeframe for notification for cash management sweep accounts. The 
proposed rule clarifies that, with respect to cash management sweep 
accounts, the time for notification is each month in which a purchase 
or sale of securities takes place in the customer's account and not 
less than once every 3 months if there are no securities transactions 
in the account. Under the SEC's Rule 10b-10, broker/dealers must 
provide a confirmation after the end of each monthly period for 
transactions in money market mutual funds. See 17 CFR 240.10b-10(b)(2).
    As discussed above, Sec. 344.6(d) does not control the notification 
requirements for cash management sweep accounts which sweep idle funds 
into repurchase agreements on government securities. Confirmation 
requirements for sweeps into repurchase agreements on government 
securities are subject to the Government Securities Act of 1986 and the 
Treasury Department regulations thereunder. The Treasury Department 
regulations normally require next day confirmations on sweeps into hold 
in custody repurchase agreements on government securities.
    Under proposed Sec. 344.6(f) the FDIC is proposing to revise the 
time frame for providing confirmations for periodic plan accounts. The 
FDIC proposes to loosen the confirmation requirements for periodic 
plans from ``as soon as possible'' to ``not less than once every three 
months''. The FDIC believes that this timeframe is consistent with 
current industry practice and the SEC's notification requirements. This 
timeframe also will serve to reduce unnecessary regulatory burden.

Settlement of Securities Transactions (Sec. 344.7)

    The FDIC's ANPR requested comment on the need for, and effect of, 
adopting the T+3 securities settlement requirement for banks. The FDIC 
was considering whether part 344 should adopt a provision which tracks 
the SEC's securities settlement rule or whether part 344 should merely 
cross reference the SEC's rule. We note that the FRB's proposal would 
have required banks to comply with the standard settlement cycle 
observed by the United States securities industry.5 While the 
cross referencing of the SEC's settlement rule would provide uniformity 
with the securities industry and avoid the time consuming task of the 
FDIC amending part 344 when the SEC makes material changes to their 
rule, the rule would not be clear on its face as to the settlement 
requirements expected of banks. In addition, cross referencing would 
require many small banks to have access to the SEC's rules and be aware 
of current SEC interpretations of such rules. The notice of proposed 
rulemaking sets forth a new section, Sec. 344.7, with a T+3 settlement 
rule which tracks the SEC's settlement rule.6
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    \5\ The text of the FRB's proposal is as follows: ``Settlement 
of securities transactions. All contracts for the purchase or sale 
of a security shall provide for completion of the transaction within 
the number of business days in the standard settlement cycle for the 
security followed by registered broker/dealers in the United States 
unless otherwise agreed to by the parties at the time of the 
transaction.'' See 60 FR 66764.
    \6\ See Securities Exchange Act of 1934 Rule 15c6-1, 17 CFR 
240.15c6-1; 58 FR 52891 (Oct. 13, 1993); 60 FR 26604 (May 17, 1995) 
(amendments to the rule).
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Securities Trading Policies and Procedures (Sec. 344.8)

    In the notice of proposed rulemaking the FDIC proposes to split the 
existing Sec. 344.6 ``Securities trading policies and procedures'' in 
two, separating the trading policies and procedures from the bank 
personnel securities trading reporting requirements. New Sec. 344.8 
would retain virtually unchanged paragraphs (a), (b) and (c) of the 
existing Sec. 344.6 addressing orders and execution of trades, the 
equitable allocation of securities and prices for accounts and the 
crossing of buy and sell orders. The one substantive change to be found 
in the proposal addresses the separation of order and execution 
functions from the traditional back office clearing functions. See 
proposed Sec. 344.8(a)(2). The FRB proposal raised this issue and the 
FDIC believes, based on the recent highly publicized cases involving a 
lack of internal controls for securities and commodities trading, that 
such a provision is appropriate. The proposed rulemaking adds a new 
provision which would require banks to adopt written policies and 
procedures with separate supervisory procedures and reporting lines for 
back office functions.

Personal Securities Trading Reporting by Directors, Officers and 
Employees (Sec. 344.9)

    The FDIC proposes to create a new Sec. 344.9 addressing personal 
securities trading reporting by bank personnel. The FDIC believes that 
a separate section is warranted. The FDIC proposes to relocate the 
substance of paragraph (d) of existing Sec. 344.6 to new Sec. 344.9. In 
addition, the FDIC is proposing to add two new paragraphs: one which 
requires certain bank directors to report personal securities trading 
and the other which identifies an alternate report which bank personnel 
subject to the reporting requirement can use. New headings have been 
added to identify more clearly the requirements of the section.
    There are two substantive changes proposed to new Sec. 344.9. The 
first substantive change proposed is to expand the scope of the 
regulation to cover certain bank directors. The existing regulation 
only applies to bank officers and employees even though bank directors 
may be involved in making investment recommendations or decisions for 
customer accounts. The proposed paragraph (b) would require those bank 
directors who are (1) involved in making investment recommendations or 
decisions for customer accounts or (2) participate in the determination 
of such recommendations or decisions to provide the same quarterly 
reports on personal securities trading which bank officers and 
employees are required to provide. As a point of clarification, 
individuals who are both officers and directors of a bank are subject 
to the provisions and reporting requirement of paragraph (a).
    This proposed reporting requirement would not apply to all bank 
directors, nor would it necessarily require reporting by all the bank 
directors who serve on the bank's investment or trust committee. For 
example, the proposed reporting requirement would not apply to 
directors who, through their position on the trust or investment 
committee, approve or become aware of the trust department's general 
asset allocation recommendations or those directors who approve of or 
who know that the bank is recommending specific industries, sectors or 
foreign markets. Directors who receive monthly or quarterly reports 
detailing past trading activity in specific securities for

[[Page 67734]]

customer accounts wouldn't be subject to the proposed reporting 
requirement because such information would not provide such directors 
with any advantage for personal trading. For this reason the FDIC has 
left out the provision requiring officers or employees who, in 
connection with their duties, obtain information concerning which 
securities are being purchased, sold or recommended. The FDIC requests 
comment regarding whether this provision should be included in new 
paragraph (b).
    The proposed reporting requirement in new paragraph (b) would 
apply, however, to those directors who actively participate in making 
decisions or recommendations with respect to the purchase or sale of 
specific securities (both debt and equity) for customer accounts prior 
to transactions taking place. Directors who have such information could 
possibly use such information to trade for their own gain. The FDIC 
would like to remind bank directors, officers and employees that the 
use of such information for personal trading is illegal and could 
result in significant criminal and regulatory actions against the 
individual as well as the bank.
    The second substantive change identifies an alternate report for 
personal securities trading. The proposed Sec. 344.9(a) and (b) 
continue to provide that personal securities trading reports must be 
filed with the bank within 10 business days 7 of the end of the 
calendar quarter. New paragraph (d) clarifies that a bank director, 
officer or employee may fulfill the reporting requirement under 
proposed Sec. 344.9 (a) or (b) by providing a copy of the report 
required under SEC Rule 17j-1. If a bank acts as an investment adviser 
to an investment company registered under the Investment Company Act of 
1940, the bank's directors, officers and employees--as ``access 
persons''--would be required to comply with and file a personal 
securities trading report with the bank. Proposed paragraph (d) makes 
it clear that the Rule 17j-1 report, which is more detailed than the 
report required under Sec. 344.9, will be accepted by the FDIC in lieu 
of filing the Sec. 344.9 report. This proposed change is consistent 
with the OCC's interpretative position published as part of their final 
rule.
---------------------------------------------------------------------------

    \7\ The FDIC has added the word ``business'' to the regulation 
to make it clear that the personal securities trading reports must 
be filed within 10 business, as opposed to calendar, days after the 
end of the calendar quarter. This is consistent with past 
interpretations and merely serves to clarify existing regulatory 
practice.
---------------------------------------------------------------------------

Waivers (Sec. 344.10)

    The notice of proposed rulemaking restates the FDIC's existing 
waiver provision found in existing Sec. 344.8.

Paperwork Reduction Act

    The collections of information 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 collections of information should be 
sent to the Office of Management and Budget, Paperwork Reduction 
Project (3064-0028), Washington DC 20503, with copies of such comments 
to be sent to Steven F. Hanft, Office of the Executive Secretary, Room 
F-454, Federal Deposit Insurance Corporation, 550 17th Street, N.W., 
Washington, DC 20429.
    The collection of information requirements in this proposed rule 
are found in 12 CFR Secs. 344.2(b), 344.4(a), 344.5(a) and (b), 344.8, 
and 344.9. The collections consist of recordkeeping requirements, 
Secs. 344.2(b) and 344.4(a); the provision of written confirmations, 
Secs. 344.5 (a) and (b) and 344.6; the establishment of written 
policies and procedures for placing orders and executing trades as well 
as back office functions, Sec. 344.8; the reporting of personal 
securities trading by certain bank directors, officers and employees, 
Sec. 344.9.
    The likely respondents/recordkeepers are state nonmember insured 
banks.
    Estimated average annual burden hours per respondent/recordkeeper: 
19.43 hours.
    Estimated number of respondents and/or recordkeepers: 5,663 state 
nonmember insured banks.
    Estimated total annual reporting and recordkeeping burden: 109,818 
hours.
    Start-up costs to respondents: None.
    Records under this part are to be maintained for at least three 
years.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) 
(5 U.S.C. 605(b)), the initial regulatory flexibility analysis 
otherwise required under section 603 of the RFA (5 U.S.C. 603) is not 
required if the head of the agency certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities and the agency publishes such certification and a succinct 
statement explaining the reasons for such certification in the Federal 
Register along with its general notice of proposed rulemaking.
    The FDIC hereby certifies that the proposal will not have a 
significant economic impact on a substantial number of small entities. 
The proposal should result in a net benefit to all banks regardless of 
size due to the streamlining and clarifications provided in the 
proposed rule, but the economic impact on small banks will not be 
significant. Most banks with total assets of under $100 million will 
not engage in securities activities in a manner covered by this 
regulation. Rather, a small bank typically will use either a registered 
broker/dealer who has rented space on the bank's premises in what is 
commonly referred to as a ``networking arrangement'' or an 
``introducing broker'' who will refer a customer to a dealer that can 
effect the desired transaction, both of which situations are outside 
the scope of part 344, as proposed.

List of Subjects in 12 CFR Part 344

    Banks, Banking, Reporting and recordkeeping requirements, 
Securities.

Authority and Issuance

    For the reasons set out in the preamble, the FDIC proposes to 
revise Part 344 of title 12 of the Code of Federal Regulations to read 
as follows:

PART 344--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR 
SECURITIES TRANSACTIONS

Sec.
344.1  Purpose and scope.
344.2  Exceptions.
344.3  Definitions.
344.4  Recordkeeping.
344.5  Content and time of notification.
344.6  Notification by agreement; alternative forms and times of 
notification.
344.7  Settlement of securities transactions.
344.8  Securities trading policies and procedures.
344.9  Personal securities trading reporting by bank directors, 
officers and employees.
344.10  Waivers.

    Authority: 12 U.S.C. 1817, 1818 and 1819.


Sec. 344.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to ensure that purchasers 
of securities in transactions effected by a state nonmember insured 
bank (except a District bank) or a foreign bank having an insured 
branch are provided adequate information regarding transactions. This 
part is also designed to ensure that banks subject to this part 
maintain adequate records and controls with respect to the securities 
transactions they effect.
    (b) Scope; General. Any security transaction effected for a 
customer by a bank is subject to this part unless

[[Page 67735]]

excepted by Sec. 344.2. A bank effecting transactions in government 
securities is subject to the notification, recordkeeping, and policies 
and procedures requirements of this part. This part also applies to 
municipal securities transactions by a 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.


Sec. 344.2  Exceptions.

    (a) A bank effecting securities transactions for customers is not 
subject to all or part of this part 344 to the extent that they qualify 
for one or more of the following exceptions:
    (1) Small number of transactions. The requirements of 
Secs. 344.4(a) (2) through (4) and 344.8(a) (1) through (3) do not 
apply to a bank effecting 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.
    (2) Government securities. The recordkeeping requirements of 
Sec. 344.4 do not apply to banks effecting fewer than 500 government 
securities brokerage transactions per year. This exemption does not 
apply to government securities dealer transactions by banks.
    (3) Municipal securities. This part does not apply to transactions 
in municipal securities effected by a 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.
    (4) Foreign branches. Activities of foreign branches of a bank 
shall not be subject to the requirements of this part.
    (5) Transactions effected by registered broker/dealers. (i) This 
part does not apply to securities transactions effected for a bank 
customer by a registered broker/dealer if:
    (A) The broker/dealer is fully disclosed to the bank customer; and
    (B) The bank customer has a direct contractual agreement with the 
broker/dealer.
    (ii) This exemption extends to bank arrangements with broker/
dealers which involve bank employees when acting as employees of, and 
subject to the supervision of, the registered broker/dealer when 
soliciting, recommending, or effecting securities transactions.
    (b) Safe and sound operations. Notwithstanding this section, every 
bank effecting securities transactions for customers shall maintain, 
directly or indirectly, effective systems of records and controls 
regarding their customer securities transactions to ensure safe and 
sound operations. The records and systems maintained must clearly and 
accurately reflect the information required under this part and provide 
an adequate basis for an audit.


Sec. 344.3  Definitions.

    (a) Asset-backed security means a security that is serviced 
primarily by the cash flows 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) Bank means a state nonmember insured bank (except a District 
bank) or a foreign bank having an insured branch.
    (c) Cash management sweep account means a prearranged, automatic 
transfer of funds above a certain dollar level from a deposit account 
to purchase a security or securities, or any prearranged, automatic 
redemption or sale of a security or securities when a deposit account 
drops below a certain level with the proceeds being transferred into a 
deposit account.
    (d) Collective investment fund means funds held by a bank as 
fiduciary and, consistent with local law, invested collectively:
    (1) In a common trust fund maintained by such bank exclusively for 
the collective investment and reinvestment of monies contributed 
thereto by the bank in its capacity as trustee, executor, 
administrator, guardian, or custodian under the Uniform Gifts to Minors 
Act; or
    (2) In a fund consisting solely of assets of retirement, pension, 
profit sharing, stock bonus or similar trusts which are exempt from 
Federal income taxation under the Internal Revenue Code (Title 26 of 
the United States Code).
    (e) Completion of the transaction means:
    (1) For purchase transactions, the time when the customer pays the 
bank any part of the purchase price (or the time when the bank makes 
the book-entry for any part of the purchase price, if applicable), 
however, if the customer pays for the security prior to the time 
payment is requested or becomes due, then the transaction shall be 
completed when the bank transfers the security into the account of the 
customer; and
    (2) For sale transactions, the time when the bank transfers the 
security out of the account of the customer or, if the security is not 
in the bank's custody, then the time when the security is delivered to 
the bank, however, if the customer delivers the security to the bank 
prior to the time delivery is requested or becomes due then the 
transaction shall be completed when the bank makes payment into the 
account of the customer.
    (f) 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.
    (g) Customer means any person or account, including any agency, 
trust, estate, guardianship, or other fiduciary account for which a 
bank makes or participates in making the purchase or sale of 
securities, but does not include a person or account having a direct, 
contractual agreement with a fully disclosed broker/dealer, broker, 
dealer, dealer bank or issuer of the securities that are the subject of 
the transaction.
    (h) Debt security means any security, such as a bond, debenture, 
note, or any other similar instrument that 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.
    (i) Government security means:
    (1) A security that is a direct obligation of, or obligation 
guaranteed as to principal and interest by, the United States;
    (2) A security that 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 
described in paragraph (i) (1), (2), or (3) of this section other than 
a put, call, straddle, option, or privilege that is traded on one or 
more national securities exchanges, or for which quotations are 
disseminated through an automated quotation system operated by a 
registered securities association.

[[Page 67736]]

    (j) 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.
    (k) Municipal security means 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, or any 
municipal corporate instrumentality of one or more States or any 
security which is an industrial development bond (as defined in section 
103(c)(2) of the Internal Revenue Code of 1954) the interest on which 
is excludable from gross income under section 103(a)(1) of such Code 
if, by reason of the application of paragraph (4) or (6) of section 
103(c) of such Code (determined as if paragraphs (4)(A), (5) and (7) 
were not included in such section 103(c), paragraph (1) of such section 
103(c) does not apply to such security.
    (l) Periodic plan means any written authorization for a bank acting 
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. Periodic plans 
include dividend reinvestment plans, automatic investment plans, and 
employee stock purchase plans.
    (m) Security means any interest or instrument commonly known as a 
security, whether in the nature of debt or equity, including any stock, 
bond, note, debenture, evidence of indebtness or any participation in 
or right to subscribe to or purchase any of the foregoing. The term 
security does not include:
    (1) A deposit or share account in a federally or state insured 
depository institution;
    (2) A loan participation;
    (3) A letter of credit or other form of bank indebtness incurred in 
the ordinary course of business;
    (4) Currency;
    (5) Any note, draft, bill of exchange, or bankers 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;
    (6) Units of a collective investment fund;
    (7) Interests in a variable amount (master) note of a borrower of 
prime credit; or
    (8) U.S. Savings Bonds.


Sec. 344.4  Recordkeeping.

    (a) General rule. A bank effecting securities transactions for 
customers shall maintain the following records for at least three 
years:
    (1) Chronological records. An itemized daily record of each 
purchase and sale of securities maintained in chronological order, and 
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;
    (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; and
    (iv) Other debits and credits pertaining to transactions in 
securities;
    (3) A separate memorandum (order ticket) of each order to purchase 
or sell securities (whether executed or cancelled), which shall 
include:
    (i) The accounts for which the transaction was effected;
    (ii) Whether the transaction was a market order, limit order, or 
subject to special instructions;
    (iii) The time the order was received by the trader or other bank 
employee responsible for effecting the transaction;
    (iv) The time the order was placed with the broker/dealer, or if 
there was no broker/dealer, time the order was executed or cancelled;
    (v) The price at which the order was executed; and
    (vi) 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. 344.5 and 344.6.
    (b) Manner of maintenance. Records may be maintained in whatever 
manner, form or format a bank deems appropriate, provided however, the 
records required by this section must clearly and accurately reflect 
the information required and provide an adequate basis for the audit of 
the information. Records may be maintained in hard copy, automated or 
electronic form provided the records are easily retrievable, readily 
available for inspection, and capable of being reproduced in a hard 
copy. A bank may contract with third party service providers, including 
broker/dealers, to maintain records required under this part.


Sec. 344.5  Content and time of notification.

    Every bank effecting a securities transaction for a customer shall 
give, send or have sent, by mail, facsimile or other means of 
electronic transmission, to the customer at or before completion of the 
transaction one of the types of written notification identified below:
    (a) Broker/dealer's confirmations. (1) A copy of the confirmation 
of a broker/dealer relating to the securities transaction. A bank may 
either have the broker/dealer send the confirmation directly to the 
bank's customer or send a copy of the broker/dealer's confirmation to 
the customer upon receipt of the confirmation by the bank. If a bank 
chooses to send a copy of the broker/dealer's confirmation, it must be 
sent within one business day from the bank's receipt of the broker/
dealer's confirmation; and
    (2) If the bank is to receive remuneration from the customer or any 
other source in connection with the transaction, a statement of the 
source and amount of any remuneration to be received if such would be 
required under paragraph (b)(6) of this section; or
    (b) Written notification. A written notification disclosing:
    (1) Name of the bank;
    (2) Name of the customer;
    (3) Whether the bank is acting as agent for such customer, as agent 
for both such customer and some other person, as principal for its own 
account, or in any other capacity;
    (4) The date and time of execution, or the fact that the time of 
execution will be furnished 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) The amount of any remuneration received or to be received, 
directly or indirectly, by any broker/dealer from such customer in 
connection with the transaction;
    (6)(i) The amount of any remuneration received or to be received by 
the bank

[[Page 67737]]

from the customer, and the source and amount of any other remuneration 
received or to be received by the bank in connection with the 
transaction, unless:
    (A) Remuneration is determined pursuant to a prior written 
agreement between the bank and the customer; or
    (B) In the case of government securities and municipal securities, 
the bank received the remuneration in other than an agency transaction; 
or
    (C) In the case of open end investment company securities, the bank 
has provided the customer with a current prospectus which discloses all 
current fees, loads and expenses at or before completion of the 
transaction;
    (ii) If the bank elects not to disclose the source and amount of 
remuneration it has or will receive from a party other than the 
customer pursuant to paragraph (b)(6)(i) (A), (B), or (C) of this 
section, the written notification must disclose whether the bank has 
received or will receive remuneration from a party other than the 
customer, and that the bank will furnish within a reasonable time the 
source and amount of this remuneration upon written request of the 
customer. This election is not available, however, if, with respect to 
a purchase, the bank was participating in a distribution of that 
security; or, with respect to a sale, the bank was participating in a 
tender offer for that security;
    (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 within a reasonable time upon 
written request;
    (8) In the case of a 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 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 shall not apply to a transaction in a debt 
security that either has a maturity date that may be extended by the 
issuer thereof, with a variable interest payable thereon, or 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) shall not apply to a transaction in a debt security 
that either has a maturity date that may be extended by the issuer with 
a variable interest rate payable thereon, or 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.


Sec. 344.6  Notification by agreement; alternative forms and times of 
notification.

    A bank may elect to use the following alternative notification 
procedures if the transaction is effected for:
    (a) Notification by agreement. Accounts (except periodic plans) 
where the bank does not exercise investment discretion and the bank and 
the customer agree in writing to a different arrangement as to the time 
and content of the written notification; provided however, that such 
agreement makes clear the customer's right to receive the written 
notification pursuant to Sec. 344.5 (a) or (b) at no additional cost to 
the customer.
    (b) Trust accounts. Accounts (except collective investment funds) 
where the bank exercises investment discretion in other than in an 
agency capacity, in which instance the bank shall, upon 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 such account, give or send to such person the written 
notification within a reasonable time. The bank may charge such person 
a reasonable fee for providing this information.
    (c) Agency accounts. Accounts where the bank exercises investment 
discretion in an agency capacity, in which instance:
    (1) The bank shall give or send to each customer not less 
frequently than once every three months an itemized statement which 
shall specify the funds and securities in the custody or possession of 
the bank at the end of such period and all debits, credits and 
transactions in the customer's accounts during such period; and
    (2) If requested by the customer, the bank shall give or send to 
each customer within a reasonable time the written notification 
described in Sec. 344.5. The bank may charge a reasonable fee for 
providing the information described in Sec. 344.5.
    (d) Cash management sweep accounts. A bank effecting a securities 
transaction for a cash management sweep account shall give or send its 
customer a written notification as described in Sec. 344.5 for each 
month in which a purchase or sale of a security takes place in the 
account and not less than once every three months if there are no 
securities transactions in the account.
    (e) Collective investment fund accounts. The bank shall at least 
annually furnish to the customer a copy of a financial report of the 
fund, or provide notice that a copy of such report is available and 
will be furnished upon request to each person to whom a regular 
periodic accounting would ordinarily be rendered with respect to each 
participating account. This report shall be based upon an audit made by 
independent public accountants or internal auditors responsible only to 
the board of directors of the bank.
    (f) Periodic plan accounts. The bank shall give or send to the 
customer not less than once every three months a written statement 
showing:
    (1) The funds and securities in the custody or possession of the 
bank;
    (2) All service charges and commissions paid by the customer in 
connection with the transaction; and

[[Page 67738]]

    (3) All other debits and credits of the customer's account involved 
in the transaction; provided that upon written request of the customer, 
the bank shall give or send the information described in Sec. 344.5, 
except that any such information relating to remuneration paid in 
connection with the transaction need not be provided to the customer 
when the remuneration is paid by a source other than the customer. The 
bank may charge a reasonable fee for providing information described in 
Sec. 344.5.


Sec. 344.7  Settlement of securities transactions.

    (a) A 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; or
    (2) For the purchase or sale of securities that the Securities and 
Exchange Commission (SEC) may from 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(a), 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 bank participating in the 
offering. A 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.


Sec. 344.8  Securities trading policies and procedures.

    (a) Policies and procedures. Every bank effecting securities 
transactions for customers shall establish written policies and 
procedures providing:
    (1) Assignment of 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; and
    (2) Assignment of responsibility for supervision and reporting, 
separate from those in paragraph (a)(1) of this section, with respect 
to all officers or employees who process orders for notification or 
settlement purposes, or perform other back office functions with 
respect to securities transactions effected for customers; and
    (3) For the fair and equitable allocation of securities and prices 
to accounts when orders for the same security are received at 
approximately the same time and are placed for execution either 
individually or in combination; and
    (4) Where applicable, and where permissible under local law, for 
the crossing of buy and sell orders on a fair and equitable basis to 
the parties to the transaction.


Sec. 344.9  Personal securities trading reporting by bank directors, 
officers and employees.

    (a) Officers and employees subject to reporting. Bank officers and 
employees who:
    (1) Make investment recommendations or decisions for the accounts 
of customers;
    (2) Participate in the determination of such recommendations or 
decisions; or
    (3) In connection with their duties, obtain information concerning 
which securities are being purchased or sold or recommend such action, 
must report to the bank, within ten business 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. The report shall identify the securities purchased 
or sold and indicate the dates of the transactions and whether the 
transactions were purchases or sales.
    (b) Directors subject to reporting. Bank directors who:
    (1) Make investment recommendations or decisions for the accounts 
of customers; or
    (2) Participate in the determination of such recommendations or 
decisions must report to the bank, within ten business 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. The report shall identify the securities 
purchased or sold and indicate the dates of the transactions and 
whether the transactions were purchases or sales.
    (c) Exempt transactions. Excluded from this reporting requirement 
are:
    (1) Transactions for the benefit of the director, officer or 
employee over which the director, officer or employee has no direct or 
indirect influence or control;
    (2) Transactions in mutual fund shares;
    (3) Transactions in government securities; and
    (4) All transactions involving in the aggregate $10,000 or less 
during the calendar quarter.
    (d) Alternative report. Where a bank acts as an investment adviser 
to an investment company registered under the Investment Company Act of 
1940, the bank's directors, officers and employees may fulfill their 
reporting requirement under paragraph (a) or (b) of this section by 
filing with the bank the ``access persons'' personal securities trading 
report required by (SEC) Rule 17j-1, 17 CFR 270.17j-1.


Sec. 344.10  Waivers.

    The Board of Directors of the FDIC, in its discretion, may waive 
for good cause all or any part of this part 344.

    Dated at Washington, D.C., this 11th day of December, 1996.

    By Order of the Board of Directors.

Federal Deposit Insurance Corporation.
Jerry L. Langley,
Executive Secretary.
[FR Doc. 96-32275 Filed 12-23-96; 8:45 am]
BILLING CODE 6714-01-P