[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Rules and Regulations]
[Pages 64146-64148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31504]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 703


Investment and Deposit Activities

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: On June 12, 1997, the NCUA Board issued comprehensive final 
amendments to the NCUA Rules and Regulations on investment and deposit 
activities. Two new provisions will result in a number of credit unions 
having to significantly change the way they do business with broker-
dealers, which was not NCUA's intention. In addition, there are a few 
minor errors in the regulatory language. This document revises the two 
broker-dealer provisions to make them consistent with NCUA's intent and 
corrects the minor errors.


[[Page 64147]]


DATES: The interim rule is effective January 1, 1998. Comments must be 
received on or before February 2, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the 
Board. Mail or hand-deliver comments to: National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax 
comments to (703) 518-6319. E-mail comments to [email protected]. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: David M. Marquis, Director, Office of 
Examination and Insurance, (703) 518-6360, or Daniel Gordon, Senior 
Investment Officer, Office of Investment Services, (703) 518-6620, or 
at the above address.

SUPPLEMENTARY INFORMATION: The comprehensive final rule amendments to 
12 CFR part 703 were published on June 18, 1997 (62 FR 32989).

Broker-Dealers

    Section 703.50(a) of the final rule requires that any broker-dealer 
used by a federal credit union be either a federally regulated 
depository institution or registered with the Securities and Exchange 
Commission (SEC). NCUA particularly was concerned about credit unions 
doing business with entities that sell only certificates of deposit 
(CDs), as these entities are not subject to comprehensive regulatory 
oversight. NCUA does not wish to force credit unions to stop doing 
business with legitimate CD brokers, however, and has determined that a 
credit union has sufficient control over the transaction when it 
purchases a CD or share certificate directly from the issuing bank, 
credit union, or other depository institution. Under the rule, as 
amended by this document, a federal credit union can use a CD broker to 
find an institution offering high rates, and may compensate the broker 
for that service, but it must send the funds directly to the 
institution and not through the broker or other third party.

Safekeeping

    Section 703.60(c) provides that a federal credit union may not 
allow a selling broker-dealer to safekeep its securities. NCUA's intent 
was to ensure that the credit union was the beneficial owner of 
securities it purchased. NCUA did not intend to change the way most 
federal credit unions do business. NCUA believes that the regulations 
and oversight of the SEC and depository institution regulators provide 
adequate protection for credit unions and is amending the rule to 
require only that safekeepers be entities regulated by such agencies.

Corrections

    Section 703.80(a) of the final rule provides that before a federal 
credit union purchases or sells a security, except for new issues it 
purchases at par, it must obtain a price quotation on the security from 
at least two broker-dealers or from an industry-recognized information 
provider. NCUA added the requirement to ensure that federal credit 
unions are aware of the market prices of securities they buy and sell. 
The exception recognizes that the selling price of a new issue is, by 
definition, the market price.
    Although NCUA intended to exempt all new issues of securities from 
the pricing requirement, new issues of some securities are sold at a 
discount from their face value, not at par. NCUA is correcting this 
oversight by adding that a federal credit union need not obtain two 
prices, or a price from an industry-recognized information provider, 
for a new issue of a security purchased at original issue discount.
    NCUA also is correcting three other minor errors with this 
document.

Interim Final Rule

    The new amendments to Part 703 take effect January 1, 1998. If the 
provisions discussed above are not revised before then, credit unions 
will have to unnecessarily change the way they do business. NCUA has 
determined that, in this case, the Administrative Procedure Act notice 
and comment procedures are impracticable and contrary to the public 
interest. 5 U.S.C. 553(b)(3)(B). Accordingly, NCUA is issuing this 
document as an interim final rule, with an effective date of January 1, 
1998. NCUA is requesting comments, however, to determine whether 
further changes to the provisions are warranted.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any final regulation may 
have on a substantial number of small credit unions, defined as those 
having less than $1 million in assets. NCUA has determined and 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small credit unions.

Paperwork Reduction Act

    This interim final rule does not change the paperwork requirements 
of Part 703.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. This interim final rule applies only to 
federal credit unions, and as such, has no direct effect on states, on 
the relationship between the states, or on the distribution of power 
and responsibilities among the various levels of government.

List of Subjects in 12 CFR Part 703

    Credit unions, Investments, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on November 
24, 1997.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA amends 12 CFR part 703 as follows:

PART 703--INVESTMENT AND DEPOSIT ACTIVITIES

    1. The authority citation for part 703 continues to read as 
follows:

    Authority: 12 U.S.C. 1757(7), 1757(8), 1757(15).

    2. Amend Sec. 703.50 as follows:


Sec. 703.50  [Amended]

    a. In paragraph (a), by removing ``You'' at the beginning of the 
paragraph and adding the phrase ``Except as provided in paragraph (c) 
of this section, you'' in its place; and
    b. Add paragraph (c) to read as follows:


Sec. 703.50  What rules govern my dealings with entities I use to 
purchase and sell investments (``broker-dealers'')?

* * * * *
    (c) The requirements of paragraph (a) of this section do not apply 
when you purchase a certificate of deposit or share certificate 
directly from a bank, credit union, or other depository institution.
    3. Amend Sec. 703.60 by revising paragraph (c) to read as follows:


Sec. 703.60  What rules govern my safekeeping of investments?

* * * * *
    (c) Any safekeeper you use must be regulated and supervised by 
either the Securities and Exchange Commission or a federal or state 
depository institution regulatory agency.
* * * * *


Sec. 703.80  [Amended]

    4. Amend Sec. 703.80 by adding the phrase ``or at original issue 
discount'' after the word ``par'' and before the comma in paragraph (a) 
introductory text.

[[Page 64148]]

Sec. 703.100  [Amended]

    5. Amend Sec. 703.100 by adding the word ``security'' between the 
words ``priority'' and ``interest'' in paragraph (k)(2).


Sec. 703.150  [Amended]

    6. Amend Sec. 703.150 by adding the word ``investment'' in place of 
the word ``security'' each time it appears in the definitions of 
``Adjusted trading'' and ``Pair-off transaction.''

[FR Doc. 97-31504 Filed 12-3-97; 8:45 am]
BILLING CODE 7535-01-P