[Federal Register Volume 67, Number 117 (Tuesday, June 18, 2002)]
[Notices]
[Pages 41545-41547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15290]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46069; File No. S7-12-01]
Notice of Application of Evangelical Christian Credit Union for
Exemptive Relief Under Sections 15 and 36 of the Exchange Act and
Request for Comment
June 12, 2002.
The Commission has received a request from a federally insured
credit union, Evangelical Christian Credit Union (``ECCU''), for an
exemption pursuant to Sections 15(a)(2) and 36(a) of the Securities
Exchange Act of 1934 (``Exchange Act''). ECCU requests relief from the
broker-dealer registration requirements of Section 15(a)(1) of the
Exchange Act and the reporting and other requirements of the Exchange
Act applicable to broker-dealers so that it might offer sweep account
services to its members without registering as a broker-dealer. In
order to provide an
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opportunity for interested persons to comment, the Commission is
publishing this notice and request for comment pursuant to Rule 0-12
under the Exchange Act. In light of informal requests for similar
relief for other credit unions, the Commission is also requesting
comment on whether all credit unions should be permitted to offer sweep
accounts to members, including individuals, on the same terms as
requested by ECCU.
Background
Section 15(a)(1) of the Exchange Act generally requires any broker
or dealer who makes use of the mails or any instrumentality of
interstate commerce to effect transactions in, or induce the purchase
or sale of, any security to register with the Commission. Section
3(a)(4)(A) of the Exchange Act defines a ``broker'' as ``any person
engaged in the business of effecting transactions in securities for the
account of others.'' Sweeping deposit account balances into mutual
funds constitutes ``effecting transactions in securities,'' and an
entity engaging in such activity on an ongoing basis for compensation
would be ``in the business of'' securities brokerage. Absent an
exception or exemption, the entity would be required to register as a
broker with the Commission.
Section 15(a)(2) of the Exchange Act authorizes the Commission to
conditionally or unconditionally exempt from the broker-dealer
registration requirements of Section 15(a)(1) any broker or dealer or
class of broker or dealer, by rule or order, as it considers consistent
with the public interest and the protection of investors.\1\ Similarly,
but more broadly, Section 36 of the Exchange Act authorizes the
Commission to conditionally or unconditionally exempt any person,
security, or transaction, or any class or classes of persons,
securities, or transactions, from any provision or provisions of the
Exchange Act or any rule or regulation thereunder, by rule, regulation,
or order, to the extent that such exemption is necessary or appropriate
in the public interest, and is consistent with the protection of
investors.\2\
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\1\ See 15 U.S.C. 78o(a)(2).
\2\ See 15 U.S.C. 78mm.
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ECCU's application relates to the May 11, 2001 interim final rules
\3\ defining certain terms used in, and granting additional exemptions
from, the functional exceptions from the definitions of ``broker'' and
``dealer'' added to the Exchange Act by the Gramm-Leach-Bliley Act \4\
(``GLBA''). To allow banks sufficient time to implement changes
necessary to comply with the interim final rules, and to allow for
careful consideration of amendments to those rules, banks and thrifts
have a temporary, general exemption from broker-dealer registration.\5\
Once the Commission adopts amendments to the interim final rules and
the rules become effective, banks and thrifts will have a more specific
set of exceptions and exemptions from registration. Banks and thrifts
acting as brokers will not be considered brokers only if they meet one
of eleven product or transaction-specific exceptions of the GLBA or are
otherwise exempt from the definition by Commission rules.
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\3\ See Exchange Act Release No. 44291 (May 11, 2001), 66 FR
27760 (May 18, 2001), available at <http://www.sec.gov/rules/final/34-44291.htm.
\4\ Pub. L. 106-102, 106th Cong., 1st Sess., 113 Stat. 1338
(Nov. 12, 1999).
\5\ At the time it issued the interim final rules, the
Commission granted banks, savings associations, and savings banks a
temporary, general exemption from the definitions of the terms
``broker'' and ``dealer'' under the Exchange Act. See Rules 15a-7
and 15a-9 in the interim final rules release, supra note 1. Soon
after, the Commission extended this exemption until May 12, 2002.
See Exchange Act Release No. 44570 (July 18, 2001) (File No. S7-12-
01), available at <http://www.sec.gov/rules/other/34-44570.htm. Recently, the Commission further extended the
exemption with respect to the definition of ``broker'' until May 12,
2003, and with respect to the definition of ``dealer'' until
November 12, 2002. See Exchange Act Release No. 45897 (May 8, 2002)
(File No. S7-12-01), available at <http://www.sec.gov/rules/other/34-45897.htm.
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One of functional broker exceptions is for sweeping funds into no-
load money market funds, as provided in new Section 3(a)(4)(B)(v) of
the Exchange Act.\6\ This section provides that a bank shall not be
considered to be a broker because it ``effects transactions as part of
a program for the investment or reinvestment of deposit funds into any
no-load, open-end management investment company registered under the
Investment Company Act of 1940 that holds itself out as a money market
fund.'' \7\ However, like the other GLBA functional exceptions for
banks, the sweep account exception by its terms is available only to
``banks'' as defined in Exchange Act Section 3(a)(6). Credit unions are
not banks within the meaning of this definition.\8\ Therefore, without
an exemption, credit unions generally would be the only depository
institutions unable to sweep deposit account balances into no-load
money market funds and ECCU, specifically, would not be permitted to do
so absent registration as a broker-dealer.
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\6\ See 15 U.S.C. 78c(a)(4)(B)(v).
\7\ Id.
\8\ Thrifts also are not banks. However, Rule 15a-9 under the
Exchange Act, which is currently applicable, generally exempts
thrifts from the definition of the term ``broker'' on the same terms
and conditions as banks.
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Summary of the Application
ECCU proposes to offer its member institutions a sweep account
service that would involve linking a deposit account with an omnibus
account maintained with a registered broker-dealer and representing the
interests of ECCU member institutions in one or more no-load money
market mutual funds. Under the proposed arrangement, funds would
automatically transfer back and forth between the two accounts,
maintaining a specified minimum balance in the deposit account and
automatically investing deposits above a specified target amount in
money market mutual funds. In connection with the arrangement, ECCU
proposes to engage in limited shareholder servicing and support
activities, and limited promotional activities.
The funds into which ECCU proposes to sweep deposits pay the fund
sponsor a management fee of 0.20% of fund net asset value annually and
reimburse the fund sponsor for operating expenses estimated at
approximately 0.10% of fund net asset value annually. ECCU represents
that it would not receive from the fund sponsor any portion of the
sponsor's management fee or operating expenses, but that in
consideration of its shareholder servicing and support activities it
would receive an administrative services fee not to exceed 0.25%
annually of the net asset value of shares invested in the funds through
ECCU's omnibus account. ECCU also proposes to charge each member
institution a flat, monthly, cash management service fee for the sweep
service. In addition, ECCU proposes to charge its member institutions a
fee not to exceed 1.00% annually on balances maintained in the funds
through their sweep accounts. ECCU represents that it would obtain from
the sponsor of the funds written confirmation that the funds made
available through ECCU's sweep program qualify as no-load money market
funds under the definitions of ``money market fund'' and ``no-load'' in
Rules 3b-17(e) and 3b-17(f) under the Exchange Act.
In its application, ECCU states that the primary purpose of its
proposed arrangement is to meet the unique needs of its member
institutions, over 96% of which are non-profit organizations under
Section 501(c)(3) of the Internal Revenue Code, and many of which are
funded by cyclical donor cash flows. ECCU further states that it would
offer its proposed sweep account services only to its member
institutions and not to individuals. ECCU has waived the
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request for confidential treatment included in its application, and the
complete application will be available on the Commission's website
(http://www.sec.gov) and available for a fee at the Commission's Public
Reference Branch, at (202) 942-8090, 450 Fifth Street, NW., Washington,
DC 20549-0102.
Request for Comment
First, the Commission invites any person to submit comments or
other information that relates to the relief requested in ECCU's
application, including whether the application should be granted.
Second, the Commission requests comment on whether relief such as
requested by ECCU should be extended to all credit unions with deposits
insured by the National Credit Union Share Insurance Fund to permit all
federally insured credit unions to offer sweep account services on the
same terms and conditions available to banks and thrifts. In
particular, the Commission requests comment on the significance of the
scope of the relief requested in ECCU's application being limited to
sweep arrangements for institutions, and the significance of the non-
profit status of almost all of those institutions. In this connection,
the Commission would appreciate receiving information relating to
whether any exemption permitting credit unions to offer sweep account
services on the same terms and conditions available to banks and
thrifts:
(a) Should be limited to the ECCU application until additional
experience is gained with other applicants;
(b) Should be available only to some category or categories of
credit unions such as, for example, federally insured credit unions;
(c) Should be available with respect to all credit union members or
only some category or categories of credit union members such as, for
example, individuals or non-profit organizations;
(d) Would benefit credit union members and customers of banks and
thrifts by enhancing the ability of credit unions to compete with banks
and thrifts by offering new services;
(e) Would raise investor protection concerns; or
(f) Would unfairly disadvantage banks, thrifts, broker-dealers, or
other financial institutions in light of the ability of credit unions
to offer particular products or services that other institutions might
not be able to offer such as, for example, interest-bearing business
checking accounts.
Third, the Commission requests comment on whether such relief would
raise issues that should be considered in connection with amendments to
the May 11, 2001 interim final rules implementing the functional
regulation exceptions from broker-dealer registration of the GLBA. The
Commission notes that when it issued the interim final rules, it
requested comment on whether the exceptions and exemptions from the
definitions of ``broker'' and ``dealer'' applicable to banks should be
extended to other entities.\9\
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\9\ See Exchange Act Release No. 44291 (May 11, 2001), 66 FR
27760, 27788 (May 18, 2001), available at <http://www.sec.gov/rules/final/34-44291.htm.
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Comments should be received on or before July 18, 2002. For further
information, contact Catherine McGuire, Chief Counsel, Lourdes
Gonzalez, Assistant Chief Counsel, or Brice Prince, Special Counsel, at
(202) 942-0073, Office of Chief Counsel, Division of Market Regulation,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-1001.
Comments should be submitted in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609. Comments also may be submitted
electronically at the following e-mail address: [email protected].
All comments should refer to File No. S7-12-01, and this file number
should be included in the subject line if email is used. All comments
received will be available for public inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, NW., Washington,
DC 20549-0102. Electronically submitted comment letters will be posted
on the Commission's website (http://www.sec.gov).\10\
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\10\ We do not edit personal, identifying information, such as
names or e-mail addresses, from electronic submissions. Submit only
information you wish to make publicly available.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-15290 Filed 6-17-02; 8:45 am]
BILLING CODE 8010-01-P