[Federal Register Volume 67, Number 112 (Tuesday, June 11, 2002)]
[Proposed Rules]
[Pages 39886-39900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14317]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 550 and 551

[No. 2002-22]
RIN 1550-AB49


Recordkeeping and Confirmation Requirements for Securities 
Transactions; Fiduciary Powers of Savings Associations

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Thrift Supervision (OTS) is proposing new 
regulations specifying the recordkeeping and confirmation requirements 
for savings associations that effect securities transactions. Under a 
recent rule issued by the Securities and Exchange Commission (SEC), 
savings associations may perform certain broker-dealer activities 
without registering with the SEC. Today's proposal affords savings 
association customers the same protections and disclosures provided to 
bank customers; ensures that examiners will be able to evaluate a 
savings association's compliance with securities laws and to assess 
whether savings associations effect securities transactions safely and 
soundly; and provides savings associations with formal guidance for 
effecting securities transactions.
    OTS also is proposing to amend its regulations governing the 
fiduciary powers of federal savings associations. The proposed 
amendments codify a series of OTS legal opinions regarding the 
fiduciary powers of federal savings associations. This action is 
consistent with the Office of the Comptroller of the Currency's (OCC) 
recent codification of a similar series of legal opinions regarding the 
fiduciary powers of national banks. The rule would also streamline 
application procedures, clarify when a federal savings association may 
act in a fiduciary capacity without obtaining fiduciary powers from 
OTS, and make other minor or technical changes to OTS's fiduciary 
powers regulations.

DATES: Comments must be received on or before August 12, 2002.

ADDRESSES: Mail: Send comments to Regulation Comments, Chief Counsel's 
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, 
DC 20552, Attention: Docket No. 2002-22. Commenters should be aware 
that there have been some unpredictable and lengthy delays in postal 
deliveries to the Washington, DC area in recent weeks and may prefer to 
make their comments via facsimile, e-mail, or hand delivery.
    Delivery: Hand deliver comments to the Guard's Desk, East Lobby 
Entrance, 1700 G Street, NW., from 9:00 a.m. to 4:00 p.m. on business 
days, Attention: Regulation Comments, Chief Counsel's Office, Docket 
No. 2002-22.
    Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention: Docket No. 2002-22.
    E-Mail: Send e-mails to [email protected], Attention: 
Docket No. 2002-22, and include your name and telephone number.
    Availability of comments: OTS will post comments and the related 
index on the OTS Internet Site at www.ots.treas.gov. In addition, you 
may inspect comments at the Public Reading Room, 1700 G Street, NW., by 
appointment. To make an appointment for access, call (202) 906-5922, 
send an e-mail to public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile 
transmission to (202) 906-7755. (Please identify the materials you 
would like to inspect to assist us in serving you.) We schedule 
appointments on business days between 10:00 a.m. and 4:00 p.m. In most 
cases, appointments will be available the business day after the date 
we receive a request.

FOR FURTHER INFORMATION CONTACT: Timothy P. Leary, Counsel (Banking & 
Finance), (202) 906-7170, Regulations and Legislation Division, or 
Kevin Corcoran, Assistant Chief Counsel, (202) 906-6962, Business 
Transactions Division, Office of the Chief Counsel; or Judith 
McCormick, Trust Specialist, (202) 906-5636, Examination Policy 
Division, Office of Supervision, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Discussion

A. Recordkeeping and Confirmation Requirements for Securities 
Transactions

    Until recently, savings associations could not effect securities 
transactions for customers directly unless they registered with the SEC 
as a broker-dealer. Under an interim final rule issued by the SEC, 
savings associations are now treated as banks under the definitions of 
``broker'' and ``dealer'' in sections 3(a)(4) and (a)(5) of the 
Securities Exchange Act of 1934 (Exchange Act). 66 FR 27760 (May 18, 
2001).\1\ As a result, a savings association may perform certain 
broker-dealer activities without registering with the SEC as broker-
dealers.
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    \1\ The SEC recently extended until May 12, 2003 the savings 
association exemption from the definition of ``broker'' under the 
Exchange Act, and extended until November 12, 2002 the savings 
association exemption from the definition of ``dealer'' under the 
Exchange Act. SEC Release No. 34-45897 (May 8, 2002); see also SEC 
Release No. 34-44570 (July 18, 2001).
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    The OCC, Federal Deposit Insurance Corporation (FDIC), and Federal 
Reserve Board (FRB) regulations include recordkeeping and confirmation 
requirements for securities transactions effected by banks. Until the 
recent SEC rule, OTS did not need similar requirements. Today's 
proposal affords savings association customers the same protections and 
disclosures provided to bank customers. Proposed part 551 establishes 
recordkeeping and confirmation requirements for a savings association 
that effects securities transactions. Proposed part 551 is based on the 
recordkeeping and confirmation requirements of the other federal 
banking agencies.\2\ Where appropriate, however, OTS has modified the 
proposed requirements to reflect SEC regulatory requirements for 
registered broker-dealers. A section-by-section description of the 
proposed recordkeeping and confirmation regulations follows.
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    \2\ See 12 CFR part 12 (2001) (OCC); 12 CFR 208.24 (2001) (FRB); 
12 CFR part 344 (2001) (FDIC).
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What Does This Part Do? (Proposed Sec. 551.10)

    Proposed Sec. 551.10 states that part 551 establishes recordkeeping 
and confirmation requirements for a savings association that effects 
securities transactions for customers. The new part would apply to all 
savings associations.

Must I Comply With This Part? (Proposed Sec. 551.20)

    Proposed Sec. 551.20 sets out the scope of part 551. Generally, any 
savings

[[Page 39887]]

association effecting a securities transaction for a customer must 
comply with part 551, unless the transaction is specifically excepted.
    Proposed Sec. 551.20(b) contains five exceptions to this general 
rule. Four of the five proposed exceptions--for an institution that 
effects a small number of securities transactions,\3\ for certain 
government securities transactions, for certain municipal securities 
transactions, and for transactions conducted at a foreign branch of a 
savings association--are found in all of the other federal banking 
regulators' requirements. The OCC and FDIC regulations also include a 
fifth exception for a transaction effected for a bank by an SEC-
registered broker-dealer who provides a confirmation directly to the 
customer. OTS agrees this is an appropriate exception and has included 
it in the proposed rule.
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    \3\ The number in the proposed rule, 500 transactions, is based 
on the de minimis exception found in Sec. 201 of the Gramm-Leach-
Bliley Act, amending the definition of ``broker'' in Sec. 3(a)(4) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)(B)(xi)). 
The other banking agencies' regulations contain a de minimis 
transaction limit of 250 that predates GLBA.
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    This last exception would apply to transactions effected by a 
savings association employee who also acts as an employee of an SEC-
registered broker-dealer (dual employee), if the dual employee works 
for and is under the control of a registered broker-dealer when he or 
she effects the transaction. However, if the dual employee works for 
and is under the control of the savings association when he or she 
effects the transaction, the proposed exception would not apply.
    A savings association may enter into various arrangements with a 
registered broker-dealer that permit the broker-dealer to operate on 
the association's premises. As noted above, proposed part 551 generally 
would not apply to securities transactions executed by these registered 
broker-dealers for their customers. As registered broker-dealers, they 
already are subject to the SEC's recordkeeping and confirmation rules. 
However, if the savings association effects a securities transaction 
for a customer, but uses the registered broker-dealer to perform purely 
administrative functions (e.g., clearing the transaction), proposed 
part 551 would apply because the savings association has executed the 
transactions.
    OTS invites comment on these exceptions and whether they are 
appropriate in the context of the day-to-day operations of a savings 
association.

What Requirements Apply To All Transactions? (Proposed Sec. 551.30)

    Proposed Sec. 551.30 states that a savings association must effect 
all transactions, including excepted transactions, safely and soundly. 
Specifically, the savings association must maintain effective systems 
of records and controls that clearly and accurately reflect all 
appropriate information and provide an adequate basis for an audit. The 
other federal banking regulators have similar provisions.

What Definitions Apply to This Part? (Proposed Sec. 551.40).

    Proposed Sec. 551.30 contains the definitions of terms used in part 
551. The proposed definitions of ``asset-backed security,'' 
``completion of the transaction,'' ``customer,'' ``debt security,'' 
``government security,'' ``municipal security,'' and ``security'' track 
definitions in the OCC, FDIC, and FRB regulations.
    OTS's proposed rule cross-references the definition of ``investment 
discretion'' in its fiduciary powers rule at 12 CFR 550.40. By 
contrast, OCC established separate definitions of investment discretion 
for its recordkeeping and confirmation rule and its fiduciary rule. 
Although they are phrased slightly differently, the definitions of 
``investment discretion'' in OCC's two rules are substantially 
similar.\4\ In OTS's view, the two concepts are identical. As such, OTS 
has elected to use the same definition for both rules.
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    \4\ Compare 12 CFR 9.2(i) (which is similar to OTS's definition 
at 12 CFR 550.40) with 12 CFR 12.2(h) (which is similar to the 
definitions in the other federal banking regulators' recordkeeping 
and confirmation regulations).
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    The proposed rule also defines ``investment company plan.'' This 
definition comes from SEC Rule 10b-10, the SEC's rule for confirmation 
of transactions by registered broker-dealers. See 17 CFR 240.10b-
10(d)(6).
    OTS, like FDIC, would define ``sweep account'' separately from 
``periodic plan.'' Many sweep accounts differ from typical periodic 
plans such as dividend reinvestment plans and automatic investment 
plans. Accordingly, proposed Sec. 551.30 includes a definition of 
``sweep account'' based on the FDIC's regulation. See 12 CFR 344.3(c). 
The proposed definition of ``periodic plan'' is based on SEC Rule 10b-
10. See 17 CFR 240.10b-10(d)(5). Finally, OTS has included a definition 
of ``common or collective investment fund,'' which cross-references 
applicable OTS and OCC rules.

Subpart A--Recordkeeping Requirements

What Records Must I Maintain for Securities Transactions? (Proposed 
Sec. 551.50)

    Proposed Sec. 551.50 describes the records a savings association 
must maintain for securities transactions. A savings association 
effecting securities transactions for customers must maintain, for at 
least three years, chronological records containing an itemized daily 
record of each purchase and sale of securities; account records for 
each customer; the memorandum (order ticket) of each order or any other 
instruction given or received for the purchase or sale of securities; 
and a record of all registered broker-dealers the association selected 
to effect transactions and the commissions paid or allotted to each 
registered broker-dealer during each calendar year. The savings 
association must also maintain copies of the written notice required 
under proposed subpart B, which is discussed below.

How Must I Maintain My Records? (Proposed Sec. 551.60)

    Proposed Sec. 551.60(a) states that a savings association may 
maintain required records in any manner, form, or format, as long as 
the records clearly and accurately reflect the required information and 
provide an adequate basis for auditing the information.
    Proposed Sec. 551.60(b) is patterned after a recent SEC rule 
governing recordkeeping requirements by investment companies and 
investment advisers.\5\ Under the proposed rule, a savings association 
or the person that maintains and preserves records for the association 
must arrange and index the records in a way that permits easy access 
and retrieval, separately store a duplicate copy of the records, and 
promptly provide, upon an examiner's or the association director's 
request, copies of the record in the medium in which the record is 
stored, a printout of the record, and means to access, view, and print 
the record.
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    \5\ See 17 CFR 270.31a-2(f) and 275.204-2(g).
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    Proposed paragraph (b) also addresses electronic records. A savings 
association would be required to establish procedures to maintain and 
preserve electronic records in a way that reasonably safeguards the 
records from loss, alteration, or destruction; to limit access to the 
records to authorized personnel, the association's directors, and OTS 
examiners; and to reasonably ensure that electronic copies of the non-

[[Page 39888]]

electronic originals are complete, true, and legible.
    Finally, proposed Sec. 551.60(c) states that a savings association 
may contract with third party service providers to maintain records.

Subpart B--Content and Timing of Notice

What Type of Notice Must I Provide When I Effect a Securities 
Transaction for a Customer? (Proposed Sec. 551.70)

    Under proposed Sec. 551.70, whenever a savings association effects 
a securities transaction for a customer, the association must notify 
the customer by providing the customer with: (1) The registered broker-
dealer confirmation; (2) a written notice; or (3) an alternate notice 
for certain types of transactions. These three types of notices are 
described in proposed Secs. 551.80-100.

How Do I Provide a Registered Broker-dealer Confirmation? (Proposed 
Sec. 551.80)

    Under proposed Sec. 551.80, a savings association may elect to 
provide the customer with a copy of the registered broker-dealer's 
confirmation. The registered broker-dealer may send the confirmation 
directly to the customer, or the savings association may send the 
customer a copy of the confirmation within one day of receiving it from 
the registered broker-dealer. If the registered broker-dealer sends the 
confirmation directly to the customer, the savings association would 
remain responsible for the timely delivery of confirmations and the 
accurate disclosure of the required information. Proposed 
Sec. 551.80(b) requires additional disclosures if the association 
receives remuneration in connection with the transaction. In such a 
case, the association must provide the customer a statement of the 
source and amount of any remuneration. This information is generally 
required in a registered broker-dealer confirmation under SEC Rule 10b-
10(a).\6\
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    \6\ 17 CFR 240.10b-10(a)(2)(i)(C) and (D) (2001).
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How Do I Provide a Written Notice? (Proposed Sec. 551.90)

    Under proposed Sec. 551.90, the association may elect to provide a 
written confirmation disclosing certain information. These 
informational requirements are based on the SEC's rule on confirmation 
of transactions by registered broker-dealers, SEC Rule 10b-10.\7\ Under 
proposed Sec. 551.90(a) through (e), the written confirmation must 
indicate: (1) The savings association's and customer's name; (2) the 
capacity in which the savings association acted; (3) the date and time 
the transaction was executed (or a statement that the association will 
furnish this information upon written request), and the identity, 
price, and number of shares or units purchased or sold; (4) the person 
from whom the association purchased or to whom the association sold the 
security (or a statement that the association will furnish this 
information upon request); and (5) the amount and source of 
remuneration the association has received in connection with the 
transaction. Under proposed Sec. 551.90(g), the association also must 
include a statement that the association is not a member of the 
Securities Investor Protection Corporation, if that is the case, unless 
the transaction involved shares of a registered open-end investment 
company or unit investment trust. Subparagraphs (f) and (g) are drawn 
from SEC Rule 10b-10, see 17 CFR 240.10b-10(a)(2)(i)(D) and (a)(9).
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    \7\ 17 CFR 240.10b-10(a) (2001).
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    Paragraph (h) of proposed Sec. 551.90 imposes additional disclosure 
requirements on certain transactions in debt securities. These 
additional requirements, which generally involve disclosing price and 
yield information about particular types of debt securities, are 
consistent with the recordkeeping requirements of the other federal 
banking regulators and SEC Rule 10b-10.\8\ OTS has put these additional 
disclosure requirements in the form of a chart. If a transaction falls 
within more than one of the types of transactions listed in paragraphs 
(h)(1) through (5), the savings association must provide the 
information required for each type.
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    \8\ See, e.g., 12 CFR 12.4(a)(12) (2001); 17 CFR 240.1b-
10(a)(4)--(a)(7) (2001).
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What Are the Alternate Notice Requirements? (Proposed Sec. 551.100)

    Under proposed Sec. 551.100, a savings association may elect to 
provide alternate notices for certain types of transactions. These 
include transactions effected: (1) For or with the account of a 
customer under a periodic plan, sweep account, or investment company 
plan; (2) for or with the account of a customer in shares in certain 
open-ended management companies registered under the Investment Company 
Act of 1940 that hold themselves out as a money market fund and attempt 
to maintain a stable net asset value per share; (3) for an account for 
which the savings association does not exercise investment discretion 
and the customer has agreed in writing to an arrangement concerning the 
time and content of the notice; (4) for an account, other than common 
or collective investment funds, for which the savings association 
exercises investment discretion in other than an agency capacity; (5) 
for an account for which the savings association exercises investment 
discretion in an agency capacity; and (6) for a common or collective 
investment fund.
    These categories are based on the alternate notice options provided 
by the other federal banking regulators and the SEC.\9\ Most of the 
information requirements for all these accounts are based on the other 
federal banking agencies' rules. The information requirements for 
periodic plans and sweep accounts, however, are drawn from SEC Rule 
10b-10(b), and the requirements for collective or common investment 
funds are drawn from FDIC regulation 12 CFR 344.6(e). OTS has set out 
the alternate notice requirements in a chart.
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    \9\ See 12 CFR 12.5 (OCC); 12 CFR 208.24(d) (FRB); 12 CFR 344.5 
(FDIC); 17 CFR 240.10b-10(b) (SEC).
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May I Provide a Notice Electronically? (Proposed Sec. 551.110)

    Proposed Sec. 551.110 provides that a savings association may 
satisfy the written notice requirements in subpart B electronically. 
Proposed Sec. 551.110 is based on a similar regulation in the OCC's 
rules at 12 CFR 12.102. A savings association may use electronic 
communications if the parties agree, the parties are able to print or 
download the notice, the system cannot automatically delete the notice, 
and both parties are able to receive electronic messages.

May I Charge a Fee for a Notice? (Proposed Sec. 551.120)

    OTS has included a provision addressing whether a savings 
association may charge a fee for a required notice. Proposed 
Sec. 551.120, which is based on a related OCC provision,\10\ states 
that a savings association may not charge a fee for providing a notice 
required under proposed subpart B, except in three instances. A savings 
association may charge a reasonable fee for providing notice under 
proposed Sec. 551.100(a) (notice for periodic plans, sweep accounts, or 
investment company plans), (d) (notice for fiduciary accounts), and (e) 
(notice for agency accounts).
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    \10\ 12 CFR 12.6 (2001).

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[[Page 39889]]

Subpart C--Settlement of Securities Transactions

When Must I Settle a Securities Transaction? (Proposed Sec. 551.130)

    Proposed Sec. 551.130 establishes a settlement period of three days 
after the date of the transaction (``T+3'') for savings associations 
effecting securities transactions. This time frame is consistent with 
that of the other federal banking regulators and mirrors the SEC's T+3 
settlement time frame. See SEC Rule 15c6-1, 17 CFR 240.15c6-1 (2001). 
The proposal also provides that the parties may expressly agree to 
another time frame at the time of the transaction, or use some other 
time period as the SEC may specify by rule.
    OTS considered incorporating settlement rules by cross-referencing 
the SEC rule. However, many small institutions may not have access to 
SEC rules. As a result, OTS has concluded that the better practice is 
to set forth a settlement rule tracking the SEC rule. This is 
consistent with the OCC and FDIC rules.

Subpart D--Securities Trading Policies and Procedures

What Policies and Procedures Must I Maintain and Follow for Securities 
Transactions? (Proposed Sec. 551.140)

    Proposed Sec. 551.140 requires a savings association that effects 
securities transactions to maintain and follow written policies and 
procedures addressing several areas of operation. This section is based 
on similar provisions in the other banking regulators' recordkeeping 
regulations.
    Under the proposed rule, the association's policies and procedures 
must:
     Assign responsibility for the supervision of officers and 
employees engaged in various aspects of the trading process;
     Provide for the fair and equitable allocation of 
securities and prices to accounts when the savings association receives 
orders for the same security at approximately the same time and it 
places orders individually or in combination;
     Provide for the crossing of buy and sell orders on a fair 
and equitable basis; and
     Require certain officers and employees to make quarterly 
reports containing specific information on personal securities 
transactions.
    Proposed Sec. 551.140(d) describes who must file the quarterly 
reports and is similar to the reporting requirements of the other 
regulators. Under that paragraph, an officer or employee must file a 
report if he or she makes investment recommendations or decisions for 
the accounts of customers, participates in the determination of these 
recommendations or decisions, or, in connection with his or her duties, 
obtains information concerning which securities the savings association 
intends to purchase, sell, or recommend for purchase or sale. OTS has 
also relied on the SEC's reporting requirements for investment company 
personnel who engage in personal investment activities found at 17 CFR 
270.17j-1(d).

How Do My Officers and Employees File Reports of Personal Securities 
Trading Transactions? (Proposed Sec. 551.150)

    Proposed Sec. 551.150(a) details the contents of the quarterly 
report. For each transaction, an officer or employee described in 
proposed Sec. 551.140(d) would be required to report: (1) The date of 
the transaction, the title and number of shares, the interest rate and 
maturity date (if applicable), and the principal amount of each 
security; (2) the nature of the transaction (i.e., purchase, sale, or 
other type of acquisition or disposition); (3) the price at which the 
transaction was effected; (4) the name of the broker, dealer, or other 
intermediary effecting the transaction; and (5) the date the officer or 
employee submitted the report. The report is due within ten days after 
the close of the calendar quarter.
    The officer or employee would not be required to report: (1) A 
transaction if he or she has no direct or indirect influence or control 
over the account or over the securities held in the account; (2) a 
transaction in shares issued by an open-end investment company 
registered under the Investment Company Act of 1940; (3) a transaction 
in direct obligations of the United States government; or (4) a 
transaction in bankers' acceptances, bank certificates of deposit, 
commercial paper and high quality short term debt instruments, 
including repurchase agreements. In addition, the officer or employee 
would not be required to file a report if the aggregate amount of his 
or her purchases and sales is $10,000 or less during the calendar 
quarter.
    When a savings association acts as an investment advisor to an 
investment company, paragraph (c) would permit an officer or employee 
to fulfill the filing requirement by filing the report required by SEC 
Rule 17j-1(d), 17 CFR 270.17j-1(d). SEC Rule 17j-1 applies whenever a 
savings association acts as an investment adviser to an investment 
company. Proposed part 551, by contrast, applies more broadly to the 
investment advisory activities of a savings association, whether the 
association provides the advice to an investment company or to any 
other customer. Savings associations should be aware when they may be 
conducting advisory activities that would subject them to both SEC and 
OTS reporting requirements. OTS specifically requests comment whether 
the rule should specifically address this point.

B. Fiduciary Powers of Federal Savings Associations (Part 550)

    OTS also proposes amendments to its regulations governing the 
fiduciary powers of federal savings associations at 12 CFR part 550. 
The proposed rules codify a series of OTS legal opinions regarding the 
fiduciary powers of federal savings associations. This action also is 
consistent with the OCC's recent codification of a similar series of 
legal opinions regarding the fiduciary powers of national banks.\11\ 
The rule would also streamline application procedures, clarify when a 
federal savings association may act in a fiduciary capacity without 
obtaining fiduciary powers from OTS, and make other minor or technical 
changes. These changes are discussed below.
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    \11\ See 66 FR 34792 (July 2, 2001).
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1. Fiduciary Operations (Proposed Secs. 550.130 and 550.135)
a. Scope of Fiduciary Powers (Proposed Sec. 550.135(a))
    A federal savings association's authority to exercise fiduciary 
powers derives from section 5(n) of the Home Owners' Loan Act (HOLA) 
(12 U.S.C. 1464(n)). Section 5(n)(1) of the HOLA states that OTS may 
authorize a federal savings association:
    To act as trustee, executor, administrator, guardian, or in any 
other fiduciary capacity in which State banks, trust companies, or 
other corporations that compete with Federal savings associations 
are permitted to act under the laws of the State in which the 
Federal savings association is located.

Thus, under the HOLA, the scope of a federal savings association's 
fiduciary powers is expressly tied to the laws of the state in which 
the federal association is ``located.'' That location determines which 
state laws define the permissible scope of a federal savings 
association's fiduciary powers.
    There is no case law specifically discussing the meaning of 
``located'' in section 5(n). However, OTS has provided guidance 
regarding this term in a series of legal opinions.\12\ OTS has opined 
that a federal savings association

[[Page 39890]]

will be located for trust purposes in those states where it has an 
office in which it conducts fiduciary activities. OTS has indicated 
that a trust office may be in the form of a brick and mortar office or 
a fiduciary presence in the state that is the functional equivalent of 
operating a brick and mortar trust office--a so-called de facto trust 
office. To determine whether an association is operating an actual or 
de facto trust office in a particular state, OTS has looked at the 
nature of activities performed in the state. OTS has distinguished 
between fiduciary activities (such as executing documents, providing 
investment advice, making investments, and approving new accounts), 
which would establish location for trust purposes, and mere marketing 
activities, which would not. For example, OTS has concluded that a 
federal savings association is not located where its only activities 
are marketing its fiduciary services and performing specified 
incidental duties pursuant to its appointment as testamentary trustee 
or trustee holding real estate.
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    \12\ See, e.g., OTS Op. Chief Counsel (June 13, 1994); OTS Op. 
Chief Counsel (June 21, 1996); and OTS Op. Chief Counsel (August 8, 
1996).
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    OTS has incorporated these interpretations in today's proposed 
rule. For the purposes of section 5(n), the proposed rule interprets 
``location'' as the state in which a federal savings association 
``conducts fiduciary activities.'' Specifically, proposed 
Sec. 550.135(a) provides that the state laws that apply to federal 
savings associations under section 5(n) of the HOLA are the laws of the 
state in which the association conducts fiduciary activities.\13\ For 
each individual state, the proposed rule would state that a federal 
savings association may conduct fiduciary activities in the four 
fiduciary capacities specifically authorized by the HOLA (trustee, 
executor, administrator, or guardian), and in any other fiduciary 
capacity the state permits for state banks, trust companies, or other 
corporations that compete with federal savings associations in that 
state. Consistent with OTS opinions, the proposed rule indicates that a 
federal savings association conducts fiduciary activities where it 
accepts a fiduciary appointment, executes documents accepting a 
fiduciary appointment, provides investment advice regarding fiduciary 
assets, or makes discretionary decisions regarding investment or 
distribution of fiduciary assets. See proposed Sec. 550.60.
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    \13\ As a related technical change, the proposed rule deletes 
the second sentence of current Sec. 550.20. That sentence provides 
that the scope of permissible fiduciary powers for federal savings 
associations depends on the powers that the state in which the 
association is located grants to competing fiduciaries in that 
state. OTS believes that this sentence is unnecessary in light of 
proposed Sec. 550.135(a).
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    The proposed rule also provides that for each fiduciary 
relationship, the state referred to in section 5(n) of the HOLA is the 
state(s) in which the federal savings association conducts fiduciary 
activities for that relationship. We have not included a provision 
similar to that of the OCC, providing that if the federal savings 
association acts in a fiduciary capacity for a particular relationship 
in more than one state, the association may designate in which state 
the association is acting in a fiduciary capacity.\14\ Many commenters 
on the OCC's rule expressed concern that the provision might implicate 
state choice of law issues. We invite specific comment on whether such 
a provision is necessary and within the scope of section 5(n) of the 
HOLA.
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    \14\ See 12 CFR 9.7(d). In all other respects, proposed 
Secs. 550.130 and 550.135 are consistent with the OCC rule at 12 CFR 
9.7.
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b. Multi-State Operations (Proposed Sec. 550.130)
    OTS legal interpretations have also analyzed the extent to which a 
federal savings association may conduct multi-state fiduciary 
activities, market services to customers in multiple states, and 
establish offices in multiple states. These opinions have concluded 
that the HOLA places no geographic limitation on the ability of a 
federal savings association to exercise fiduciary authority on a multi-
state basis.\15\ Proposed Sec. 550.130(a) codifies these opinions and 
provides that a federal savings association may conduct fiduciary 
activities in any state.\16\
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    \15\ OTS Op. Chief Counsel (March 28, 1996).
    \16\ A federal savings association would be required to comply 
with the applicable application and notice procedures described at 
section I.B.3 of this preamble.
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    As noted above, OTS has determined that a federal savings 
association is not located for trust purposes in a state where it only 
conducts activities ancillary to its fiduciary business.\17\ 
Accordingly, proposed Sec. 550.130(b) clarifies that when a federal 
savings association conducts fiduciary activities in one state, it may 
market its fiduciary services to, and act as a fiduciary for, customers 
located in any state, and may act as a fiduciary for relationships that 
include property located in other states, or as a testamentary trustee 
for a testator located in another state. In conducting these ancillary 
activities, the federal savings association must generally comply with 
the laws of the state in which it is located.\18\
---------------------------------------------------------------------------

    \17\ OTS Op. Chief Counsel (June 13, 1994); and OTS Op. Chief 
Counsel (June 21, 1996).
    \18\ See proposed Sec. 550.135(b).
---------------------------------------------------------------------------

    The proposed rule further provides that a federal savings 
association may establish or utilize an office in another state to 
provide ancillary services.\19\ Proposed Sec. 550.60 describes examples 
of ancillary activities drawn from recent interpretive opinions. These 
activities would include advertising, marketing, soliciting fiduciary 
business, answering questions and providing information to customers 
related to their accounts, acting as liaison between the association 
and the customer (such as forwarding requests for distribution, changes 
in investment objectives, forms, or funds received from the customer), 
and inspecting or maintaining custody of fiduciary assets or holding 
title to real property.\20\ If a federal savings association, however, 
also conducts fiduciary activities in a state, it would be located in 
that state.
---------------------------------------------------------------------------

    \19\ OTS Op. Chief Counsel (May 5, 1995) at n.13.
    \20\ OTS Op. Chief Counsel (June 13, 1994); OTS Op. Chief 
Counsel (June 21, 1996); OTS Chief Counsel (August 8, 1996); and OTS 
Op. Chief Counsel (July 1, 1998).
---------------------------------------------------------------------------

c. Impact of Federal Law (Proposed Sec. 550.135(b))
    The fiduciary operations of federal savings associations are 
subject to a complex interplay between federal and state law. As noted 
above, section 5(n) of the HOLA indicates that OTS must look to state 
law to determine the scope of the fiduciary powers that may be granted 
to a federal savings association.\21\ The HOLA, however, also grants 
OTS plenary authority to regulate all aspects of the operations of 
federal savings associations, including fiduciary operations (12 U.S.C. 
1464(a)), and expressly confers upon OTS the power to authorize federal 
savings associations to exercise fiduciary powers (12 U.S.C. 1464(n)).
---------------------------------------------------------------------------

    \21\ Section 5(n) of the HOLA also specifically incorporates 
certain other state laws. For example, OTS may not grant fiduciary 
powers to a federal savings association if it has less capital than 
state law requires for state chartered fiduciaries. 12 U.S.C. 
1464(n)(8). Moreover, a federal savings association must comply with 
any state law requiring a deposit of securities or an oath or 
affidavit from fiduciaries. 12 U.S.C. 1464(n)(5) and (n)(6).
---------------------------------------------------------------------------

    OTS has issued a number of opinions addressing the interaction of 
these provisions. Specifically, OTS has opined that a federal savings 
association with OTS-authorized fiduciary powers does not need to 
obtain a license or permission from a state in order to conduct 
fiduciary activities in that state.\22\ Further, consistent with its 
role as exclusive regulator of federal savings

[[Page 39891]]

associations, OTS has issued detailed fiduciary regulations at part 
550.
---------------------------------------------------------------------------

    \22\ See, e.g., OTS Op. Chief Counsel (March 28, 1996).
---------------------------------------------------------------------------

    Other than with respect to those state laws specifically referenced 
in HOLA Sec. 5(n), the fiduciary activities of federal savings 
associations are governed solely by federal law and OTS. This position 
is consistent with the oft-stated principle that OTS totally occupies 
the field of the regulation of federal savings associations.\23\ Under 
this approach, a state law purporting, for example, to restrict the 
advertising or affect the recordkeeping practices of a federal savings 
association's fiduciary operations, would not apply to the association.
---------------------------------------------------------------------------

    \23\ See, e.g., 12 CFR 560.2 (2002); see also Fidelity Federal 
Savings and Loan Ass'n v. de la Cuesta, 458 U.S. 141 (1982).
---------------------------------------------------------------------------

    Accordingly, proposed Sec. 550.135(b) states that, except for those 
particular state laws that apply to a federal savings association by 
virtue of section 5(n) of the HOLA, state laws that purport to regulate 
any other aspect of a federal savings association's fiduciary 
activities do not apply to a federal savings association's fiduciary 
operations.
2. Application and Notice Requirements (Proposed Secs. 550.70 and 
550.125)
    In this rulemaking, OTS also proposes to revise the application and 
notice requirements applicable to fiduciary operations. Under existing 
rules, a federal savings association must obtain prior approval from 
the OTS before exercising fiduciary powers, unless its activities are 
exempt under subpart E. 12 CFR 550.70. Under current Sec. 550.130, a 
federal savings association may exercise only those fiduciary powers 
specified in the OTS approval. In addition, unless otherwise provided 
in the approval, a federal savings association may exercise fiduciary 
powers only from those offices listed in the application.\24\ As a 
result, if a federal savings association wishes to exercise fiduciary 
powers that are not specified in the OTS approval or exercise fiduciary 
powers from a new office, the federal savings association must 
generally seek additional OTS review.
---------------------------------------------------------------------------

    \24\ When OTS adopted this provision in 1997, it noted that a 
federal savings association did not need to file a new application 
every time it opens a new office. For example, OTS approval of an 
application to obtain fiduciary powers could establish a procedure 
for expansion into new states under a notice process. See 62 FR at 
67699.
---------------------------------------------------------------------------

    When OTS reviews an initial application for fiduciary powers, it 
analyzes a number of factors including, among others, the federal 
savings association's financial and managerial resources, its history 
of regulatory compliance, and level of fiduciary expertise. See 12 CFR 
550.100. In light of this initial review, OTS believes that a new 
application is not always necessary to ensure safe and sound fiduciary 
operations when a federal savings association with existing trust 
powers expands its operations.
    Application and notice requirements under the proposed rule would 
distinguish between new activities that materially differ from 
previously approved fiduciary activities and other types of activities. 
A federal savings association would engage in materially different 
activities, for example, if the business plan supporting the approved 
trust application contemplated only personal trust services and the 
savings association proposed to expand its activities to manage 
employee benefit accounts.
    When a federal savings association conducts fiduciary activities 
that differ materially from previously approved fiduciary activities, 
OTS believes that its review of a complete trust application is 
necessary to ensure that the proposed operations are consistent with 
the association's experience, resources, and expertise. Accordingly, 
the proposed rule would require a federal savings association with 
previously approved trust powers to submit a complete trust application 
and obtain prior OTS approval before it may conduct fiduciary 
activities that are materially different from activities approved in 
the initial trust application.
    OTS does not believe that a federal savings association engages in 
materially different activities when it merely expands the geographic 
scope of previously approved activities. Accordingly, the proposed rule 
would not require a new application before the federal savings 
association commences such activities. However, to ensure that OTS is 
adequately informed when an association expands the geographic scope of 
its activities into a new jurisdiction, the proposed rule would require 
a federal savings association to notify the OTS within ten days after 
commencing such fiduciary activities in a new state.\25\ A federal 
savings association would not be required to notify OTS, however, to 
move previously approved activities within a state. Similarly, no 
notice is required if the activities in a new state will consist only 
of activities ancillary to the exercise of the association's fiduciary 
business.
---------------------------------------------------------------------------

    \25\ Proposed Sec. 550.125 sets out the requirements for this 
notice. Specifically, the savings association would be required to 
identify each new state, describe the fiduciary activities the 
association is or will be conducting in each new state, and provide 
sufficient information to support a conclusion that the activities 
are permissible in each new state. Sufficient information to support 
a conclusion that the activities are permissible in the new state 
will depend on the specific circumstances of each case. Where state 
law is clear and the proposed activities are straightforward, a more 
limited discussion may suffice. A complicated business plan in a 
state with unclear law may require an opinion of counsel.
---------------------------------------------------------------------------

    OTS has incorporated the application and notice requirements in a 
chart at proposed Sec. 550.70. OTS would also make other technical 
revisions to existing part 550 to reflect the described changes.
3. Deposit of Fiduciary Funds Awaiting Investment or Distribution 
(Proposed Sec. 550.310)
    Existing Sec. 550.300 permits a federal savings association to 
deposit funds of a fiduciary account that are awaiting investment or 
distribution in self-deposits or in deposits with an affiliate. If the 
FDIC does not insure the entire amount of the self-deposit or the 
affiliate deposit, the association must set aside collateral as 
security. 12 CFR 550.310.
    OCC has a similar rule at 12 CFR 9.10. OCC's rule, however, states 
that if the FDIC does not insure the funds deposited with the 
institution, the bank must set aside collateral as security for a self-
deposit, but may set aside collateral for the deposit with an 
affiliate. The OCC has interpreted this section to mean that the 
collateral for fiduciary funds deposited with an affiliate may come 
from either the bank or its affiliate.\26\
---------------------------------------------------------------------------

    \26\ OCC Interpretive Letter  699, dated November 6, 
1995.
---------------------------------------------------------------------------

    When it revised Sec. 550.310 in 1997, OTS clearly expressed its 
intent to conform the substance of its rules to the OCC's rules. See 62 
FR 39477 (July 23, 1997). Accordingly, OTS proposes to amend its rules 
to state that if FDIC does not insure the entire amount of an affiliate 
deposit, either the savings association or the affiliate must set aside 
collateral as security.
4. Activities Exempt From Part 550 (Proposed Sec. 550.580)
    Existing Sec. 550.580 describes when a federal savings association 
may conduct fiduciary activities without obtaining fiduciary powers 
from OTS. The purpose of this section is to exempt those fiduciary 
relationships authorized in section 5(l) of the HOLA, 12 U.S.C. 
1464(l). Section 5(l) states:

    A Federal savings association is authorized to act as trustee of 
any trust created or organized in the United States and forming part 
of a stock bonus, pension, or profit-sharing plan which qualifies or 
qualified for specific tax treatment under section 401(d) of [the 
Internal Revenue Code], and as trustee

[[Page 39892]]

or custodian of an individual retirement account within the meaning 
of section 408 of [the Internal Revenue Code] if the funds of such 
trust or account are invested only in savings accounts or deposits 
in such Federal savings association or in obligations or securities 
issued by such Federal savings association.

These types of accounts are addressed under existing Secs. 550.580(a) 
and (b).
    Existing Sec. 550.580(c), however, also exempts a federal savings 
association when it acts as trustee of a fiduciary account that 
involves no active fiduciary duties, provided that applicable law 
authorizes the savings association to act in that capacity. Several 
associations have attempted to rely on paragraph (c) to argue they do 
not need to obtain fiduciary powers when acting as a directed trustee 
for non-IRA accounts. Since these activities are beyond the scope of 
section 5(l) of the HOLA, OTS is proposing to delete Sec. 550.580(c).
    OTS also proposes to amend Sec. 550.580 to clarify that a federal 
savings association conducting fiduciary activities in an exempt 
capacity may only invest the funds in the trust or account in the 
investments described in Sec. 550.600. Finally, the proposal includes 
additional clarifying amendments to this section and Sec. 550.600.

II. Solicitation of Comments Regarding the Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires federal banking 
agencies to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. OTS invites your comments on how to 
make this proposed rule easier to understand. For example:
    Did we organize the material to suit your needs? For example, 
several of the proposed rules set out requirements in a chart, rather 
than in standard regulation text. See proposed Secs. 550.70, 551.90 and 
551.100. OTS specifically requests comment whether these charts are 
clearer and more helpful. If not, how could the material be better 
organized?
    Do we clearly state the requirements in the rule? If not, how could 
the rule be more clearly stated?
    Does the rule contain technical language or jargon that is not 
clear? If so, what language requires clarification?
    Would a different format (grouping and order of sections, use of 
headings, paragraphing) make the rule easier to understand? If so, what 
changes to the format would make the rule easier to understand?
    Would more (but shorter) sections be better? If so, what sections 
should be changed?
    What else could we do to make the rule easier to understand?

III. Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA) requires the agency to ``prepare and make 
available for public comment an initial regulatory flexibility 
analysis'' which will ``describe the impact of the proposed rule on 
small entities.'' 5 U.S.C. 603(a). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities.
    OTS has prepared an IRFA for part 551 but not for part 550. Most of 
the proposed changes to part 550 merely codify OTS existing regulatory 
interpretations regarding the scope of fiduciary powers, multi-state 
operations, and the impact of federal law. To the extent that proposed 
part 550 modifies existing requirements, the proposed rule would reduce 
burden by eliminating application requirements under certain 
circumstances, by substituting notices for applications in other 
circumstances, and by providing greater flexibility regarding the 
collateralization of deposits of fiduciary funds. The rule would also 
clarify the scope of activities that are exempt from part 550 under 
section 5(l) of the HOLA. While the proposed rule would eliminate 
Sec. 550.580(c), which exempts federal savings associations that act as 
trustees of fiduciary accounts that involve no active fiduciary duties, 
OTS is not aware of any small federal savings associations that rely on 
this provision. Accordingly, OTS certifies to the Chief Counsel of 
Advocacy of the Small Business Administration that the proposed changes 
to part 550 will not have a significant economic impact on a 
substantial number of small entities.
    Because the recordkeeping and confirmation requirements are new for 
savings associations, OTS cannot determine whether the proposed 
addition of part 551 will have a significant impact on a substantial 
number of small entities. However, we have consulted supporting 
statements filed by the OCC for substantially identical requirements in 
connection with a 1999 submission under the Paperwork Reduction Act. 
Because savings associations are now considered ``banks'' for purposes 
of the broker-dealer registration requirements and because OTS has 
modeled the proposed rule on the OCC's recordkeeping and confirmation 
rules, OTS believes that OCC's estimated annual paperwork cost of 
complying with the regulations provides a reasonable starting point for 
OTS's analysis of the cost to small business entities to comply with 
the proposed rule. These estimates are discussed under section B--
Requirements of the proposed rule.
    A description of the reasons why OTS is considering this action, 
and a statement of the objectives of, and legal basis for, proposed 
part 551 are included in the supplementary material above.

A. Small Entities to Which the Proposed Rule Would Apply

    Proposed part 551 would apply to savings associations that effect 
securities transactions for customers. OTS calculates that as of April 
26, 2002, it regulates approximately 1,009 savings associations. Of 
these savings associations approximately 557 savings associations hold 
assets under $150 million. Small depository institutions are generally 
defined, for RFA purposes, as those with assets under $150 million.
    In all likelihood, however, this number substantially overstates 
the number of small savings associations that may be effected by the 
rule. No savings associations are currently registered with the SEC as 
broker-dealers, although some provide such services to their customers 
through arrangements with a third party broker-dealer. Because the new 
SEC rule permitting savings associations to perform broker-dealer 
activities without registering is so recent, OTS has no information 
concerning how many of its savings associations, large or small, have 
commenced or are contemplating commencing these operations. 
Accordingly, OTS specifically seeks comment on the number and size of 
small savings associations that may be affected by this rule.

B. Requirements of the Proposed Rule

    As described more fully in the supplementary information section, 
the proposed rule would require savings associations to retain records 
of securities transactions, send confirmation of the transactions to 
customers, settle securities transactions within certain timeframes, 
and establish and maintain specific written policies and procedures 
regarding securities transactions.
    Subpart A of the proposed rule establishes the minimum 
recordkeeping requirements for savings associations concerning 
securities transactions with their customers. This provision requires 
that the savings association maintain essential records necessary to 
track securities transactions. This type of recordkeeping is a usual 
and customary

[[Page 39893]]

process for a savings association. Consequently, most savings 
associations should be partially or fully prepared to meet the 
recordkeeping requirements. While we believe that this requirement 
should not impose significant burdens, savings associations may incur 
additional personnel (managerial, computer, and support staff), data 
storage, and other costs to the extent that existing resources are 
insufficient.
    Subpart B would establish requirements for confirmation notices and 
subpart C would address the timing of settlement for securities 
transactions. To the extent that existing practices and available 
resources are insufficient, savings associations may need the 
assistance of legal and securities professionals and other personnel 
(managerial, computer, and support staff) to ensure that notices meet 
the content requirements and are provided within the time frames set 
forth in the regulation, and to ensure that securities transactions 
close within the times specified in the rule.
    Finally, subpart D would require the savings association to 
establish and follow various policies and procedures to govern 
securities transactions. Savings associations commonly develop and 
implement policies and procedures in many of the areas addressed by the 
proposed rules (for example, the assignment of responsibility for the 
oversight of personnel). Accordingly, most savings associations should 
be partially prepared to meet these requirements. However, the 
development of policies and procedures on matters specific to 
securities transactions may require the assistance of legal and 
securities professionals. Compliance with these policies and procedures 
may require additional personal, training, and other costs.
    Based on OCC estimates, OTS calculates that this rule will impose 
at least $264 in additional costs on small savings associations that 
begin to effect securities transactions on behalf of customers.\27\ The 
development of policies and procedures, however, may require the 
assistance of legal or securities professionals which were not included 
in OCC's estimate. Accordingly, OTS has included additional costs of 
$305 to $403 to reflect the efforts of these professionals.\28\ 
Accordingly, OTS estimates that the total cost of complying with this 
rule will be $569 to $667 per small institution. OTS notes that these 
costs will drop in subsequent years because thrifts will not be 
required to develop, and will only be required to update, policies and 
procedures on effecting securities transactions.
---------------------------------------------------------------------------

    \27\ OCC estimated that banks would incur 11 hours of additional 
burden in their first year and an additional 4 hours thereafter. It 
further estimated that 80 percent of the burden would be clerical at 
a cost of $20 per hour and that 20 percent of the burden would be 
managerial at $40 per hour. Thus, the average annual cost of each 
hour is $24.
    \28\ The average billing rate for a partner in a United States 
law firm with less than nine lawyers is $183 per hour. The average 
billing rate for an associate in such a firm is $139 per hour. 1999 
Survey of Law Firm Economics, Altman Weil Pensa Publications, Inc., 
reported at www.lawyers.com. Using OCC's estimate that the rule 
imposes a maximum of 2.2 managerial burden hours, OTS estimates that 
these costs will be between $305 and $403.
---------------------------------------------------------------------------

    OTS solicits comment on its estimates of the costs of the potential 
burdens and on ways to minimize burden.

C. Significant Alternatives

    Section 603(c) of the RFA requires OTS to describe any significant 
alternatives to the proposed rule that accomplish the stated objectives 
of the rule while minimizing any significant economic impact of the 
rule on small entities. Section 603(c) lists several examples of 
significant alternatives, including: (1) Establishing different 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) clarifying, 
consolidating, or simplifying compliance and reporting requirements for 
small entities; (3) using performance standards rather than design 
standards; and (4) excepting small entities from coverage of the rule 
or a part of the rule.
    OTS considered recommending, rather than requiring, recordkeeping 
and confirmation provisions regarding securities transactions conducted 
by savings associations, but decided that such an approach was 
inappropriate. The SEC and the other federal banking regulators have 
created a regulatory scheme designed to protect investors through 
adequate disclosure of information and to discourage and detect 
fraudulent securities practices through prudent recordkeeping 
requirements. OTS believes that similar provisions are necessary to 
bring the savings association industry into conformity with the 
standards of the securities and banking industries for effecting 
securities transactions.
    OTS, however, has attempted to minimize the economic impact of the 
proposed rules on savings associations, including small savings 
associations, while still achieving the overall objectives of the 
regulation. OTS has included several exemptions to the rule that may be 
available to small savings associations. For example, proposed 
Sec. 551.20(b)(1) exempts savings associations from certain 
recordkeeping and policy and procedure requirements if the institution 
conducts fewer than 500 securities transactions for customers 
(excluding transactions in government securities). Similarly, proposed 
Sec. 551.20(b)(2) exempts savings associations who conduct fewer than 
500 government securities transactions from certain recordkeeping 
requirements. OTS believes that many small associations will take 
advantage of these exemptions. Moreover, OTS continues to have the 
ability under 12 CFR 500.30(a) to waive any recordkeeping or 
confirmation requirements upon a finding of good cause. This provision 
permits OTS to minimize any significant economic impact of a provision 
on a specific institution on a case-by-case basis.
    Finally, OTS has included a substantial amount of flexibility in 
the rule. For example, a savings association may maintain required 
records in any manner, form, or format that it deems appropriate. 
Further, the rules would specifically permit the use of electronic 
storage media and the provision of notices through electronic means. 
See proposed Secs. 551.60 and 551.110. In addition, several provisions 
permit a savings association, through the agreement with the customer, 
to modify the requirements of the part.
    OTS requests comment on the burdens associated with the proposed 
rule and whether any further exceptions for small institutions would be 
appropriate.

D. Other Matters

    There are no federal rules or statutes that duplicate, overlap, or 
conflict with the proposed rule. However, as noted above, the SEC and 
the other banking regulators have adopted substantially similar 
recordkeeping and confirmation requirements for broker-dealers and 
other depository institutions.
    OTS invites comments on the burdens associated with the proposed 
rule that affect small savings associations, and whether any 
modifications or exemptions from the rules for small savings 
associations would be appropriate.

IV. Paperwork Reduction Act

    OTS has a continuing interest in the public's opinion of our 
collections of information. OTS welcomes any comments on the collection 
requirements in the proposal. OTS specifically invites comment on:
    (1) Whether the proposed collection of information contained in 
this notice

[[Page 39894]]

of proposed rulemaking is necessary for the proper performance of the 
agency's functions, including whether the information has practical 
utility;
    (2) The accuracy of the agency's estimate of the burden of the 
proposed information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    (4) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    Respondents/recordkeepers are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number. The collection of information requirements contained in 
this notice of proposed rulemaking have been submitted to the Office of 
Management and Budget for review in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)). Send comments on the 
collection of information to the Office of Management and Budget, 
Office of Information and Regulatory Affairs, Attention: Alexander T. 
Hunt, Washington, DC 20503, or e-mail to [email protected], with copies 
to Information Collection Comments, Chief Counsel's Office, Office of 
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, or e-mail 
to [email protected].
    The collection of information requirements regarding fiduciary 
activities in this proposed rule are found in Sec. 550.125. OTS 
requires the information called for under Sec. 550.125 in order to know 
when a federal savings association is acting in a fiduciary capacity in 
a new state or conducting fiduciary activities that differ from those 
that OTS has already approved. Under a paperwork submission OTS filed 
in 2001 (OMB Control No. 1550-0037), OTS has estimated that 10 
respondents file trust powers applications annually and spend 
approximately 9 hours compiling the application. Although the number of 
respondents should not change under the proposal, the hours needed to 
file the streamlined notice required in Sec. 550.125 should be 
significantly less than the time needed to file a complete trust powers 
application. Substituting the notice requirement for a complete 
application should decrease the burden hours from 9 to approximately 3, 
resulting in a decrease in burden hours from 90 to 30.
    OTS requires the information called for under Secs. 551.50, 
551.70-.100, 551.140, and 551.150 of the proposal to establish an audit 
trail. OTS uses this audit trail in its regulatory examinations as a 
tool to evaluate a savings association's compliance with banking and 
securities laws and regulations, such as the anti-fraud provisions of 
the federal securities laws. Further, the records provide a basis for 
adequate disclosure to customers who effect securities transactions 
through savings associations.
    Under 12 U.S.C. 1464(n), OTS has supervisory responsibility for the 
fiduciary powers of federal savings associations. Further, under 12 
U.S.C. 1463(a) and 12 U.S.C. 1464(a), the Director of OTS may prescribe 
rules and regulations to carry out its responsibility to provide for 
the operation and regulation of savings associations. The proposed 
recordkeeping and confirmation rules are necessary for OTS to 
effectively carry out its statutory responsibilities.
    In estimating the potential number of respondents, OTS has used the 
number of OTS-supervised savings associations as of April 26, 2002. 
That number is 1009. Our estimate of the burden hours for respondents 
is based on the OCC's and FDIC's paperwork discussions in their final 
rules published in 1995 and 1996, respectively, as well as those 
agencies' updates of their paperwork analyses in 1999.
    The recordkeepers/respondents are federal and state savings 
associations.
    Estimated number of recordkeepers and/or respondents: 1009.
    Estimated average annual burden hours per recordkeeper/respondent: 
11.
    Estimated total annual recordkeeping burden: 11,099 hours.
    As noted, many savings associations contract with third-party 
registered broker-dealers to effect securities transactions. Moreover, 
at the request of OTS trust examiners, many federal savings 
associations with trust departments have been keeping records similar 
to those required by the proposal on recordkeeping and confirmation 
requirements. Accordingly, OTS anticipates that the start up costs to 
savings associations of the recordkeeping and confirmation requirements 
will be minimal. Records under part 551 are to be maintained for at 
least three years.

V. Unfunded Mandates Act

    OTS has determined that the proposed rule will not result in 
expenditures by state, local, or tribal governments or by the private 
sector of $100 million or more. Accordingly, this rulemaking is not 
subject to section 202 of the Unfunded Mandates Act.

VI. Executive Order 12866

    OTS has determined that the proposed rule does not constitute a 
``significant regulatory action'' for purposes of Executive Order 
12866.

List of Subjects

12 CFR Part 550

    Accounting, Reporting and recordkeeping requirements, Savings 
associations, Trusts and trustees.

12 CFR Part 551

    Reporting and recordkeeping requirements, Savings associations, 
Securities, Trusts and trustees.

    Accordingly, OTS amends chapter V, title 12, Code of Federal 
Regulations as set forth below:

PART 550--[AMENDED]

    1. The authority citation for part 550 continues to read as 
follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464.

    2. Section 550.20 is revised to read as follows:


Sec. 550.20  What are fiduciary powers?

    Fiduciary powers are the authority that the OTS permits you to 
exercise under 12 U.S.C. 1464(n).
    3. Section 550.60 is amended by adding definitions of the phrases 
``activities ancillary to your fiduciary business'' and ``fiduciary 
activities'' in alphabetical order, to read as follows:


Sec. 550.60  What other definitions apply to this part?

    Activities ancillary to your fiduciary business include 
advertising, marketing, or soliciting fiduciary business, contacting 
existing or potential customers, answering questions and providing 
information to customers related to their accounts, acting as liaison 
between you and your customer (for example, forwarding requests for 
distribution, changes in investment objectives, forms, or funds 
received from the customer), and inspecting or maintaining custody of 
fiduciary assets or holding title to real property.
* * * * *
    Fiduciary activities include accepting a fiduciary appointment, 
executing fiduciary-related documents, providing investment advice for 
a fee regarding fiduciary assets, or making discretionary decisions 
regarding investment or distribution of assets.
* * * * *
    4. Section 550.70 is revised to read as follows:

[[Page 39895]]

Sec. 550.70  Must I obtain OTS approval or file a notice before I 
exercise fiduciary powers?

    You should refer to the following chart to determine if you must 
obtain OTS approval or file a notice with OTS before you exercise 
fiduciary powers. This chart does not apply to activities that are 
exempt under subpart E of this part.

------------------------------------------------------------------------
        If you will conduct. . .                    Then. . .
------------------------------------------------------------------------
(a) Fiduciary activities for the first   You must obtain prior approval
 time.                                    from OTS under Secs.  550.80-
                                          550.120 before you conduct the
                                          activities.
(b) Fiduciary activities that are        You must obtain prior approval
 materially different from the            from OTS under Secs.  550.80-
 activities that OTS has previously       550.120 before you conduct the
 approved for you.                        activities.
(c) Fiduciary activities that are not    You must file a written notice
 materially different from the            described at Sec.  550.125 if
 activities that OTS has previously       you commence the activities in
 approved for you.                        a new State.
                                         You do not need to file a
                                          written notice if you commence
                                          the activities at a new
                                          location in a State where you
                                          already conduct these
                                          activities.
(d) Activities that are ancillary to     You do not have to obtain prior
 your fiduciary business.                 OTS approval or file a notice
                                          with OTS.
------------------------------------------------------------------------

    5. A new section 550.125 is added to subpart A to read as follows.


Sec. 550.125  How do I file the notice under Sec. 550.70(c)?

    (a) If you are required to file a notice under Sec. 550.70(c), 
within ten days after you commence the fiduciary activities in a new 
State, you must file a written notice that identifies each new State in 
which you conduct or will conduct fiduciary activities, describe the 
fiduciary activities that you conduct or will conduct in each new 
State, and provide sufficient information supporting a conclusion that 
the activities are permissible in the State.
    (b) You must file the notice with the appropriate OTS Regional 
Office at the address in Sec. 516.40(a) of this chapter.
    6. Section 550.130 is revised to read as follows:


Sec. 550.130  How may I conduct multi-state operations?

    (a) Conducting fiduciary activities in more than one State. You may 
conduct fiduciary activities in any State, subject to the application 
and notice requirements in subpart A of this part.
    (b) Serving customers in more than one State. When you conduct 
fiduciary activities in a State:
    (1) You may market your fiduciary services to, and act as a 
fiduciary for, customers located in any State, may act as a fiduciary 
for relationships that include property located in other States, and 
may act as a testamentary trustee for a testator located in other 
States.
    (2) You may establish or utilize an office in any State to perform 
activities that are ancillary to your fiduciary business.
    7. Section 550.135 is added to read as follows:


Sec. 550.135  What State laws apply to my operations?

    (a)(1) The State laws that apply to you by virtue of 12 U.S.C. 
1464(n) are the laws of the States in which you conduct fiduciary 
activities. For each individual State, you may conduct fiduciary 
activities in the capacity of trustee, executor, administrator, 
guardian, or in any other fiduciary capacity the State permits for its 
State banks, trust companies, or other corporations that compete with 
Federal savings associations in the State.
    (2) For each fiduciary relationship, the State referred to in 12 
U.S.C. 1464(n) is the State in which you conduct fiduciary activities 
for that relationship.
    (b) Except for State laws made applicable to you by virtue of 12 
U.S.C. 1464(n), State laws that purport to regulate any other aspect of 
your fiduciary activities do not apply to your fiduciary operations.
    8. Section 550.310 is amended by removing the first sentence and 
adding two sentences in its place to read as follows:


Sec. 550.310  What if the FDIC does not insure the deposits?

    If the FDIC does not insure the entire amount of a self deposit, 
you must set aside collateral as security. If the FDIC does not insure 
the entire amount of an affiliate deposit, you or your affiliate must 
set aside collateral as security.* * *
    9. In Sec. 550.580, paragraph (c) is removed and the heading and 
introductory text of Sec. 550.580 are amended to read as follows:


Sec. 550.580  When may I conduct fiduciary activities without obtaining 
OTS approval?

    Subject to the requirements of this subpart E, you do not need OTS 
approval under subpart B of this part if you conduct fiduciary 
activities in the following fiduciary capacities:
* * * * *
    10. The heading and introductory text of Sec. 550.600 are revised 
to read as follows:


Sec. 550.600  How may funds be invested when I act in an exempt 
fiduciary capacity?

    If you act in an exempt fiduciary capacity under Sec. 550.580, the 
funds of the fiduciary account may be invested only in the following:
* * * * *
    11. A new part 551 is added as follows:

PART 551--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR 
SECURITIES TRANSACTIONS

Sec.
551.10   What does this part do?
551.20   Must I comply with this part?
551.30   What requirements apply to excepted transactions?
551.40   What definitions apply to this part?
Subpart A--Recordkeeping Requirements
551.50   What records must I maintain for securities transactions?
551.60   How must I maintain my records?
Subpart B--Content and Timing of Notice
551.70   What type of notice must I provide when I effect a 
securities transaction for a customer?
551.80   How do I provide a registered broker-dealer confirmation?
551.90   How do I provide a written notice?
551.100   What are the alternate notice requirements?
551.110   May I provide a notice electronically?
551.120   May I charge a fee for a notice?
Subpart C--Settlement of Securities Transactions
551.130   When must I settle a securities transaction?
Subpart D--Securities Trading Policies and Procedures
551.140   What policies and procedures must I maintain and follow 
for securities transactions?
551.150   How do my officers and employees file reports of personal 
securities trading transactions?

    Authority: 12 U.S.C. 1462a, 1463, 1464

[[Page 39896]]

Sec. 551.10  What does this part do?

    This part establishes recordkeeping and confirmation requirements 
that apply when a savings association (``you'') effects certain 
securities transactions for customers.


Sec. 551.20  Must I comply with this part?

    (a) General. Except as provided under paragraph (b) of this 
section, you must comply with this part when:
    (1) You effect a securities transaction for a customer.
    (2) You effect a transaction in government securities.
    (3) You effect a transaction in municipal securities and are not 
registered as a municipal securities dealer with the SEC.
    (4) You effect a securities transaction as fiduciary. If you are a 
Federal savings association, you also must comply with 12 CFR part 550 
when you effect such a transaction. If you are a State savings 
association, you must comply with applicable law when you effect such a 
transaction.
    (b) Exceptions. (1) Small number of transactions. You are not 
required to comply with Sec. 551.50(b) through (d) (recordkeeping) and 
Sec. 551.140(a) through (c) (policies and procedures), if you effected 
an average of fewer than 500 securities transactions per year for 
customers over the three prior calendar years. You may exclude 
transactions in government securities when you calculate this average.
    (2) Government securities. If you effect fewer than 500 government 
securities brokerage transactions per year, you are not required to 
comply with Sec. 551.50 (recordkeeping) for those transactions. This 
exception does not apply to government securities dealer transactions. 
See 17 CFR 404.4(a).
    (3) Municipal securities. If you are registered with the SEC as a 
``municipal securities dealer,'' as defined in 15 U.S.C. 78c(a)(30) 
(see 15 U.S.C. 78o-4), you are not required to comply with this part 
when you conduct municipal securities transactions.
    (4) Foreign branches. You are not required to comply with this part 
when you conduct a transaction at your foreign branch.
    (5) Transactions by registered broker-dealers. You are not required 
to comply with this part for securities transactions effected by a 
registered broker-dealer, if the registered broker-dealer directly 
provides the customer with a confirmation. These transactions include a 
transaction effected by your employee who also acts as an employee of a 
registered broker-dealer (``dual employee'').


Sec. 551.30  What requirements apply to all transactions?

    You must effect all transactions, including transactions excepted 
under Sec. 551.20, in a safe and sound manner. You must maintain 
effective systems of records and controls regarding your customers' 
securities transactions. These systems must clearly and accurately 
reflect all appropriate information and provide an adequate basis for 
an audit.


Sec. 551.40  What definitions apply to this part?

    Asset-backed security means a security that is primarily serviced 
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. Asset-backed security includes any 
rights or other assets designed to ensure the servicing or timely 
distribution of proceeds to the security holders.
    Common or collective investment fund means any fund established 
under 12 CFR 550.260(b) or 12 CFR 9.18.
    Completion of the transaction means:
    (1) If the customer purchases a security through or from you, 
except as provided in paragraph (2) of this definition, the time the 
customer pays you any part of the purchase price. If payment is made by 
a bookkeeping entry, the time you make the bookkeeping entry for any 
part of the purchase price.
    (2) If the customer purchases a security through or from you and 
pays for the security before you request payment or notify the customer 
that payment is due, the time you deliver the security to or into the 
account of the customer.
    (3) If the customer sells a security through or to you, except as 
provided in paragraph (4) of this definition, the time the customer 
delivers the security to you. If you have custody of the security at 
the time of sale, the time you transfer the security from the 
customer's account.
    (4) If the customer sells a security through or to you and delivers 
the security to you before you request delivery or notify the customer 
that delivery is due, the time you pay the customer or pay into the 
customer's account.
    Customer means a person or account, including an agency, trust, 
estate, guardianship, or other fiduciary account for which you effect a 
securities transaction. Customer does not include a broker or dealer, 
or you when you:
    (1) Act as a broker or dealer;
    (2) Act as a fiduciary with investment discretion over an account;
    (3) Are a trustee that acts as the shareholder of record for the 
purchase or sale of securities; or
    (4) Are the issuer of securities that are the subject of the 
transaction.
    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). Debt security also includes a fractional 
or participation interest in these debt securities. Debt security does 
not include securities issued by an investment company registered under 
the Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq.
    Government security means:
    (1) A security that is a direct obligation of, or an obligation 
that is 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 if the 
Secretary of the Treasury has designated the security 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 
a corporation if a statute specifically designates, by name, the 
corporation's securities as exempt securities within the meaning of the 
laws administered by the SEC; or
    (4) Any put, call, straddle, option, or privilege on a government 
security described in this definition, other than a put, call, 
straddle, option, or privilege:
    (i) That is traded on one or more national securities exchanges; or
    (ii) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association.
    Investment company plan means any plan under which:
    (1) A customer purchases securities issued by an open-end 
investment company or unit investment trust registered under the 
Investment Company Act of 1940, making the payments directly to, or 
made payable to, the registered investment company, or the principal 
underwriter, custodian, trustee, or other designated agent of the 
registered investment company; or
    (2) A customer sells securities issued by an open-end investment 
company or unit investment trust registered under the Investment 
Company Act of 1940 under:

[[Page 39897]]

    (i) An individual retirement or individual pension plan qualified 
under the Internal Revenue Code; or
    (ii) A contractual or systematic agreement under which the customer 
purchases at the applicable public offering price, or redeems at the 
applicable redemption price, securities in specified amounts 
(calculated in security units or dollars) at specified time intervals, 
and stating the commissions or charges (or the means of calculating 
them) that the customer will pay in connection with the purchase.
    Investment discretion means the same as under 12 CFR 550.40(a).
    Municipal security means:
    (1) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, a State or any political 
subdivision, or any agency or instrumentality of a State or any 
political subdivision.
    (2) A security that is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, any municipal corporate 
instrumentality of one or more States; or
    (3) A security that is an industrial development bond, the interest 
on which is excludable from gross income under section 103(a) of the 
Code (26 U.S.C. 103(a)).
    Periodic plan means a written document that authorizes you to act 
as agent to purchase or sell for a customer a specific security or 
securities (other than securities issued by an open end investment 
company or unit investment trust registered under the Investment 
Company Act of 1940). The written document must authorize you to 
purchase or sell in specific amounts (calculated in security units or 
dollars) or to the extent of dividends and funds available, at specific 
time intervals, and must set forth the commission or charges to be paid 
by the customer or the manner of calculating them.
    SEC means the Securities and Exchange Commission.
    Security means any note, stock, treasury stock, bond, debenture, 
certificate of interest or participation in any profit-sharing 
agreement or in any oil, gas, or other mineral royalty or lease, any 
collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, and any put, call, straddle, option, or privilege on any 
security or group or index of securities (including any interest 
therein or based on the value thereof), or, in general, any instrument 
commonly known as a ``security''; or any certificate of interest or 
participation in, temporary or interim certificate for, receipt for, or 
warrant or right to subscribe to or purchase, any of the foregoing. 
Security does not include currency; any note, draft, bill of exchange, 
or banker's acceptance which has a maturity at the time of issuance of 
less than nine months, exclusive of days of grace, or any renewal 
thereof, the maturity of which is likewise limited; a deposit or share 
account in a Federal or State chartered depository institution; a loan 
participation; a letter of credit or other form of bank indebtedness 
incurred in the ordinary course of business; units of a collective 
investment fund; interests in a variable amount (master) note of a 
borrower of prime credit; U.S. Savings Bonds; or any other instrument 
OTS determines does not constitute a security for purposes of this 
part.
    Sweep account means any prearranged, automatic transfer or sweep 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.

Subpart A--Recordkeeping Requirements


Sec. 551.50  What records must I maintain for securities transactions?

    If you effect securities transactions for customers, you must 
maintain all of the following records for at least three years:
    (a) Chronological records. You must maintain an itemized daily 
record of each purchase and sale of securities in chronological order, 
including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) The name and amount of the securities;
    (3) The unit and aggregate purchase or sale price;
    (4) The trade date; and
    (5) The name or other designation of the registered broker-dealer 
or other person from whom you purchased the securities or to whom you 
sold the securities.
    (b) Account records. You must maintain account records for each 
customer reflecting:
    (1) Purchases and sales of securities;
    (2) Receipts and deliveries of securities;
    (3) Receipts and disbursements of cash; and
    (4) Other debits and credits pertaining to transactions in 
securities.
    (c) Memorandum (order ticket). You must make and keep current a 
memorandum (order ticket) of each order or any other instruction given 
or received for the purchase or sale of securities (whether executed or 
not), including:
    (1) The account or customer name for which you effected each 
transaction;
    (2) Whether the transaction was a market order, limit order, or 
subject to special instructions;
    (3) The time the trader received the order;
    (4) The time the trader placed the order with the registered 
broker-dealer, or if there was no registered broker-dealer, the time 
the trader executed or cancelled the order;
    (5) The price at which the trader executed the order;
    (6) The name of the registered broker-dealer you used.
    (d) Record of registered broker-dealers. You must maintain a record 
of all registered broker-dealers that you selected to effect securities 
transactions and the amount of commissions that you paid or allocated 
to each registered broker-dealer during each calendar year.
    (e) Notices. You must maintain a copy of the written notice 
required under subpart B of this part.


Sec. 551.60  How must I maintain my records?

    (a) You may maintain the records required under Sec. 551.50 in any 
manner, form, or format that you deem appropriate. However, your 
records must clearly and accurately reflect the required information 
and provide an adequate basis for an audit of the information.
    (b) You, or the person that maintains and preserves records on your 
behalf, must:
    (1) Arrange and index the records in a way that permits easy 
location, access, and retrieval of a particular record;
    (2) Separately store, for the time required for preservation of the 
original record, a duplicate copy of the record on any medium allowed 
by this section;
    (3) Provide promptly any of the following that examiners or your 
directors may request:
    (i) A legible, true, and complete copy of the record in the medium 
and format in which it is stored;
    (ii) A legible, true, and complete printout of the record; and
    (iii) Means to access, view, and print the records.
    (4) In the case of records on electronic storage media, you, or the 
person that maintains and preserves records for you, must establish 
procedures:
    (i) To maintain, preserve, and reasonably safeguard the records 
from loss, alteration, or destruction;
    (ii) To limit access to the records to properly authorized 
personnel, your directors, and OTS examiners; and

[[Page 39898]]

    (iii) To reasonably ensure that any reproduction of a non-
electronic original record on electronic storage media is complete, 
true, and legible when retrieved.
    (c) You may contract with third party service providers to maintain 
the records.

Subpart B--Content and Timing of Notice


Sec. 551.70  What type of notice must I provide when I effect a 
securities transaction for a customer?

    If you effect a securities transaction for a customer, you must 
give or send the customer the registered broker-dealer confirmation 
described at Sec. 551.80, or the written notice described at 
Sec. 551.90. For certain types of transactions, you may elect to 
provide the alternate notices described in Sec. 551.100.


Sec. 551.80  How do I provide a registered broker-dealer confirmation?

    (a) If you elect to satisfy Sec. 551.70 by providing the customer 
with a registered broker-dealer confirmation, you must provide the 
confirmation by having the registered broker-dealer send the 
confirmation directly to the customer or by sending a copy of the 
registered broker-dealer's confirmation to the customer within one 
business day after you receive it.
    (b) If you have received or will receive remuneration from any 
source, including the customer, in connection with the transaction, you 
must provide a statement of the source and amount of the remuneration 
in addition to the registered broker-dealer confirmation described in 
paragraph (a) of this section.


Sec. 551.90  How do I provide a written notice?

    If you elect to satisfy Sec. 551.70 by providing the customer a 
written notice, you must give or send the written notice at or before 
the completion of the securities transaction. You must include all of 
the following information in a written notice:
    (a) Your name and the customer's name.
    (b) The capacity in which you acted (for example, as agent).
    (c) The date and time of execution of the securities transaction 
(or a statement that that you will furnish this information within a 
reasonable time after the customer's written request), and the 
identity, price, and number of shares or units (or principal amount in 
the case of debt securities) of the security the customer purchased or 
sold.
    (d) The name of the person from whom you purchased or to whom you 
sold the security, or a statement that you will furnish this 
information within a reasonable time after the customer's written 
request.
    (e) The amount of any remuneration that you have received or will 
receive from the customer in connection with the transaction unless the 
remuneration paid by the customer is determined under a written 
agreement, other than on a transaction basis;
    (f) The source and amount of any other remuneration you have 
received or will receive in connection with the transaction. If, in the 
case of a purchase, you were not participating in a distribution, or in 
the case of a sale, were not participating in a tender offer, the 
written notice may state whether you have or will receive any other 
remuneration and state that you will furnish the source and amount of 
the other remuneration within a reasonable time after the customer's 
written request.
    (g) That you are not a member of the Securities Investor Protection 
Corporation, if that is the case. This does not apply to a transaction 
in shares of a registered open-end investment company or unit 
investment trust if the customer sends funds or securities directly to, 
or receives funds or securities directly from, the registered open-end 
investment company or unit investment trust, its transfer agent, its 
custodian, or a designated broker or dealer who sends the customer 
either a confirmation or the written notice in this section.
    (h) Additional disclosures. You must provide all of the additional 
disclosures described in the following chart for transactions involving 
certain debt securities:

------------------------------------------------------------------------
                                          You must provide the following
If you effect a transaction involving .   additional information in your
                  . .                          written notice . . .
------------------------------------------------------------------------
(1) A debt security subject to           A statement that the issuer may
 redemption before maturity.              redeem the debt security in
                                          whole or in part before
                                          maturity, that the redemption
                                          could affect the represented
                                          yield, and that additional
                                          information is available upon
                                          request.
(2) A debt security that you effected    (i) The dollar price at which
 exclusively on the basis of a dollar     you effected the transaction;
 price.                                   and
                                         (ii) The yield to maturity
                                          calculated from the dollar
                                          price. You do not have to
                                          disclose the yield to maturity
                                          if:
                                         (A) The issuer may extend the
                                          maturity date of the security
                                          with a variable interest rate,
                                          or
                                         (B) The security 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.
(3) A debt security that you effected    (i) The yield at which you
 on basis of yield.                       effected the transaction,
                                          including the percentage
                                          amount and its
                                          characterization (e.g.,
                                          current yield, yield to
                                          maturity, or yield to call).
                                          If you effected the
                                          transaction at yield to call,
                                          you must indicate the type of
                                          call, the call date, and the
                                          call price;
                                         (ii) The dollar price
                                          calculated from that yield;
                                          and
                                         (iii) The yield to maturity and
                                          the represented yield, if you
                                          effected the transaction on a
                                          basis other than yield to
                                          maturity and the yield to
                                          maturity is lower than the
                                          represented yield. You are not
                                          required to disclose this
                                          information if:
                                         (A) The issuer may extend the
                                          maturity date of the security
                                          with a variable interest rate;
                                          or
                                         (B) The security 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.

[[Page 39899]]

 
(4) A debt security that is an asset-    (i) A statement that the actual
 backed security that represents an       yield of the asset-backed
 interest in, or is secured by, a pool    security may vary according to
 of receivables or other financial        the rate at which the
 assets that are subject continuously     underlying receivables or
 to prepayment.                           other financial assets are
                                          prepaid; and
                                         (ii) A statement that you will
                                          furnish information concerning
                                          the factors that affect yield
                                          (including at a minimum
                                          estimated yield, weighted
                                          average life, and the
                                          prepayment assumptions
                                          underlying yield) upon the
                                          customer's written request.
(5) A debt security, other than a        A statement that the security
 government security.                     is unrated by a nationally
                                          recognized statistical rating
                                          organization, if that is the
                                          case.
------------------------------------------------------------------------

Sec. 551.100  What are the alternate notice requirements?

    You may elect to satisfy Sec. 551.70 by providing the alternate 
notices described in the following chart for certain types of 
transactions.

------------------------------------------------------------------------
 If you effect a securities transaction
                 . . .                     Then you may elect to . . .
------------------------------------------------------------------------
(a) For or with the account of a         Give or send to the customer
 customer under a periodic plan, sweep    within five business days
 account, or investment company plan;     after the end of each
                                          quarterly period a written
                                          statement disclosing:
                                         (1) Each purchase and
                                          redemption that you effected
                                          for or with, and each dividend
                                          or distribution that you
                                          credited to or reinvested for,
                                          the customer's account during
                                          the period;
                                         (2) The date of each
                                          transaction;
                                         (3) The identity, number, and
                                          price of any securities that
                                          the customer purchased or
                                          redeemed in each transaction;
                                         (4) The total number of shares
                                          of the securities in the
                                          customer's account;
                                         (5) Any remuneration that you
                                          received or will receive in
                                          connection with the
                                          transaction; and
                                         (6) That you will give or send
                                          the registered broker-dealer
                                          confirmation described in Sec.
                                           551.80 or the written notice
                                          described in Sec.  551.90
                                          within a reasonable time after
                                          the customer's written
                                          request.
(b) For or with the account of a         Give or send to the customer
 customer in shares of an open-ended      the written statement
 management company registered under      described at paragraph (a) of
 the Investment Company Act of 1940       this section on a monthly
 that holds itself out as a money         basis. You may not use the
 market fund and attempts to maintain a   alternate notice, however, if
 stable net asset value per share . . .   you deduct sales loads upon
                                          the purchase or redemption of
                                          shares in the money market
                                          fund.
(c) For an account for which you do not  Give or send to the customer a
 exercise investment discretion, and      written notice at the agreed-
 for which you and the customer have      upon time and with the agreed-
 agreed in writing to an arrangement      upon content, and include a
 concerning the time and content of the   statement that you will
 written notice . . .                     furnish the registered broker-
                                          dealer confirmation described
                                          in Sec.  551.80 or the written
                                          notice described in Sec.
                                          551.90 within a reasonable
                                          time after the customer's
                                          written request.
(d) For an account for which you         Give or send the registered
 exercise investment discretion other     broker-dealer confirmation
 than in an agency capacity, excluding    described in Sec.  551.80 or
 common or collectively investment        the written notice described
 funds . . .                              in Sec.  551.90 within a
                                          reasonable time after a
                                          written request by the person
                                          with the power to terminate
                                          the account or, if there is no
                                          such person, any person
                                          holding a vested beneficial
                                          interest in the account.
(e) For an account in which you          Give or send each customer a
 exercise investment discretion in an     written itemized statement
 agency capacity . . .                    specifying the funds and
                                          securities in your custody or
                                          possession and all debits,
                                          credits, and transactions in
                                          the customer's account. You
                                          must provide this information
                                          to the customer not less than
                                          once every three months. You
                                          must give or send the
                                          registered broker-dealer
                                          confirmation described in Sec.
                                           551.80 or the written notice
                                          described in Sec.  551.90
                                          within a reasonable time after
                                          a customer's written request.
(f) For a common or collective           (1) Give or send to a customer
 investment fund . . .                    who invests in the fund a copy
                                          of the annual financial report
                                          of the fund, or
                                         (2) Notify the customer that a
                                          copy of the report is
                                          available and that you will
                                          furnish the report within a
                                          reasonable time after a
                                          written request by a person to
                                          whom a regular periodic
                                          accounting would ordinarily be
                                          rendered with respect to each
                                          participating account.
------------------------------------------------------------------------

Sec. 551.110  May I provide a notice electronically?

    You may provide any written notice required under this subpart B 
electronically. If a customer has a facsimile machine, you may send the 
notice by facsimile transmission. You may use other electronic 
communications if:
    (a) The parties agree to use electronic instead of hard copy 
notices;
    (b) The parties are able to print or download the notice;
    (c) The system cannot automatically delete the electronic notice; 
and
    (d) Both parties are able to receive electronic messages.


Sec. 551.120  May I charge a fee for a notice?

    You may not charge a fee for providing a notice required under this 
subpart B, except that you may charge

[[Page 39900]]

a reasonable fee for the notices provided under Secs. 551.100(a), (d), 
and (e).

Subpart C--Settlement of Securities Transactions


Sec. 551.130  When must I settle a securities transaction?

    (a) You may not effect or enter into a contract for the purchase or 
sale of a security that provides for payment of funds and delivery of 
securities later than the latest of:
    (1) The third business day after the date of the contract. This 
deadline is no later than the fourth business day after the contract 
for contracts involving the sale for cash of securities that are priced 
after 4:30 p.m. Eastern Standard Time on the date the securities are 
priced and:
    (i) Are sold by an issuer to an underwriter under a firm commitment 
underwritten offering registered under the Securities Act of 1933, 15 
U.S.C. 77a, et seq., or
    (ii) Are sold by you to an initial purchaser participating in the 
offering;
    (2) Such other time as the SEC specifies by rule (see SEC Rule 
15c6-1, 17 CFR 240.15c6-1); or
    (3) Such time as the parties expressly agree at the time of the 
transaction. The parties to a contract are 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 under a firm commitment offering, if the 
managing underwriter and the issuer have agreed to the date for all 
securities sold under 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.
    (b) The deadlines in paragraph (a) of this section do not apply to 
the purchase or sale of limited partnership interests that are not 
listed on an exchange or for which quotations are disseminated through 
an automated quotation system of a registered securities association.

Subpart D--Securities Trading Policies and Procedures


Sec. 551.140  What policies and procedures must I maintain and follow 
for securities transactions?

    If you effect securities transactions for customers, you must 
maintain and follow policies and procedures that meet all of the 
following requirements:
    (a) Your policies and procedures must assign responsibility for the 
supervision of all officers or employees who:
    (1) Transmit orders to, or place orders with, registered broker-
dealers;
    (2) Execute transactions in securities for customers; or
    (3) Process orders for notice or settlement purposes, or perform 
other back office functions for securities transactions that you effect 
for customers. Policies and procedures for personnel described in this 
paragraph (a)(3) must provide supervision and reporting lines that are 
separate from supervision and reporting lines for personnel described 
in paragraphs (a)(1) and (2) of this section.
    (b) Your policies and procedures must provide for the fair and 
equitable allocation of securities and prices to accounts when you 
receive orders for the same security at approximately the same time and 
you place the orders for execution either individually or in 
combination.
    (c) Your policies and procedures must provide for securities 
transactions in which you act as agent for the buyer and seller 
(crossing of buy and sell orders) on a fair and equitable basis to the 
parties to the transaction, where permissible under applicable law.
    (d) Your policies and procedures must require your officers and 
employees to file the personal securities trading reports described at 
Sec. 551.150, if the officer or employee:
    (1) Makes investment recommendations or decisions for the accounts 
of customers;
    (2) Participates in the determination of these recommendations or 
decisions; or
    (3) In connection with their duties, obtains information concerning 
which securities you intend to purchase, sell, or recommend for 
purchase or sale.


Sec. 551.150  How do my officers and employees file reports of personal 
securities trading transactions?

    An officer or employee described in Sec. 551.140(d) must report all 
personal transactions in securities made by or on behalf of the officer 
or employee if he or she has a beneficial interest in the security.
    (a) Contents and filing of report. The officer or employee must 
file the report with you within ten business days after the end of each 
calendar quarter. The report must include the following information:
    (1) The date of each transaction, the title and number of shares, 
the interest rate and maturity date (if applicable), and the principal 
amount of each security involved.
    (2) The nature of each transaction (i.e., purchase, sale, or other 
type of acquisition or disposition).
    (3) The price at which each transaction was effected.
    (4) The name of the broker, dealer, or other intermediary effecting 
the transaction.
    (5) The date the officer or employee submitted the report.
    (b) Report not required for certain transactions. Your officer or 
employee is not required to report a transaction if:
    (1) He or she has no direct or indirect influence or control over 
the account for which the transaction was effected or over the 
securities held in that account;
    (2) The transaction was in shares issued by an open-end investment 
company registered under the Investment Company Act of 1940;
    (3) The transaction was in direct obligations of the government of 
the United States;
    (4) The transaction was in bankers' acceptances, bank certificates 
of deposit, commercial paper or high quality short term debt 
instruments, including repurchase agreements; or
    (5) The officer or employee had an aggregate amount of purchases 
and sales of $10,000 or less during the calendar quarter.
    (c) Alternate report. When you act as an investment adviser to an 
investment company registered under the Investment Company Act of 1940, 
an officer or employee that is an ``access person'' may fulfill his or 
her reporting requirements under this section by filing with you the 
``access person'' personal securities trading report required by SEC 
Rule 17j-1(d), 17 CFR 270.17j-1(d).

    Dated: May 23, 2002.

    By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-14317 Filed 6-10-02; 8:45 am]
BILLING CODE 6720-01-P