[Federal Register Volume 67, Number 239 (Thursday, December 12, 2002)]
[Rules and Regulations]
[Pages 76293-76304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31005]



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  Federal Register / Vol. 67, No. 239 / Thursday, December 12, 2002 / 
Rules and Regulations  

[[Page 76293]]



DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Parts 506, 550, and 551

[No. 2002-57]
RIN 1550-AB49


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

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is issuing a final rule 
specifying the recordkeeping and confirmation requirements for savings 
associations that effect securities transactions. Under a rule issued 
by the Securities and Exchange Commission (SEC), savings associations 
may perform certain broker-dealer activities without registering with 
the SEC. Today's final rule 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. It does not modify savings associations' 
authority to effect these transactions.
    OTS also is amending its regulations governing the fiduciary powers 
of Federal savings associations. The final rule codifies a series of 
OTS legal opinions regarding fiduciary powers. The final rule also 
streamlines application procedures, clarifies when a Federal savings 
association may act in a fiduciary capacity without obtaining fiduciary 
powers from OTS, clarifies the scope of Federal preemption of state law 
in the fiduciary area, and makes other minor or technical changes to 
OTS's fiduciary powers regulations.

EFFECTIVE DATE: January 1, 2003.

FOR FURTHER INFORMATION CONTACT: Judith McCormick, Trust Specialist, 
(202) 906-5636, Supervision Policy Division, Office of Supervision; or 
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, Office of Thrift Supervision, 1700 G Street, NW., 
Washington DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    On June 11, 2002, OTS published a notice of proposed rulemaking 
seeking comment on regulations setting out recordkeeping and 
confirmation requirements for savings associations that effect 
securities transactions and on amendments to OTS's regulations 
governing the fiduciary powers of Federal savings associations. 67 FR 
39886 (June 11, 2002). Four commenters, two trade groups and two 
Federal savings associations that conduct fiduciary activities, 
responded to the proposal. The commenters generally supported the 
proposal. Unless specifically discussed below, the proposed rules are 
adopted without change.

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 now perform certain 
broker-dealer activities without registering with the SEC as broker-
dealers.
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    \1\ The SEC extended until May 12, 2003 the savings association 
exception from the definition of ``broker'' under the Exchange Act, 
and extended until February 10, 2003 the savings association 
exception from the definition of ``dealer'' under the Exchange Act. 
SEC Release Nos. 34-46751 (October 30, 2002) and 34-45897 (May 8, 
2002); see also SEC Release No. 34-44570 (July 18, 2001). On October 
31, 2002, the SEC issued a proposed rule exempting banks from the 
definition of ``dealer'' when performing certain de minimis riskless 
principal transactions, defining certain terms used in the bank 
exceptions to dealer registration, and exempting banks from the 
definitions of ``broker'' and ``dealer'' when engaging in securities 
lending transactions with a qualified investor. 67 FR 64495 
(November 5, 2002). Because savings associations are treated as 
banks they are covered by this proposed rule as well.
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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. The 
proposed OTS rule was intended to afford savings association customers 
the same protections and disclosures provided to bank customers; to 
ensure 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 to 
provide savings associations with formal guidance for effecting 
securities transactions.
    Two commenters made specific suggestions regarding the proposed 
recordkeeping and confirmation requirements for securities 
transactions. We discuss those comments below.
1. Need for Regulations
    Before passage of the the Gramm-Leach-Bliley Act (GLBA), the terms 
``broker'' and ``dealer'' in the Securities Exchange Act of 1934 did 
not include a bank. As a result, banks could engage in securities 
transactions without registering as a broker or a dealer with the SEC. 
In Title II of GLBA, Congress replaced this general exception with 
eleven functional exceptions covering specified bank securities 
activities. Pending issuance of a final rule implementing the Title II 
exceptions, the SEC has extended banks a blanket exception from the 
definitions of ``broker'' and ``dealer.'' The SEC has stated it will 
treat savings associations as banks for purposes of the eleven 
exceptions, and has included savings associations in the extended 
blanket exception.
    One commenter, a Federal savings association, questioned the need 
for recordkeeping and confirmation requirements. Once the SEC issues a

[[Page 76294]]

final rule, the commenter notes, the eleven GLBA exceptions will be 
much narrower in scope than the pre-GLBA blanket exception. 
Accordingly, the commenter predicts that the vast majority of bank and 
thrift securities transactions will no longer be excepted.
    As a result, the commenter believes that banks and thrifts will 
have to register as a broker or dealer (which is not practical given 
the capital requirements to do so) or contract with a registered broker 
or dealer in order to continue to engage or participate in most current 
security transactions. Since these security transactions would be 
subject to SEC recordkeeping and confirmation requirements, rather than 
banking agency rules, the commenter argued that the new OTS 
recordkeeping and confirmation rules will have a very limited 
application, and urged OTS not to issue a final rule.
    OTS believes that many, if not all, of the securities transactions 
that savings associations currently conduct will continue to fit within 
the Title II exceptions. For instance, savings associations already 
effect securities transactions as fiduciaries, effect safekeeping and 
custody transactions, conduct sweep activities, and enter into 
networking arrangements. See 15 U.S.C. 78c(a)(4)(B)(i), (ii), (v), and 
(viii). Given this, OTS believes that recordkeeping and confirmation 
requirements are necessary to afford savings association customers the 
same protections and disclosures provided to bank customers, to ensure 
that examiners will be able to evaluate a savings association's 
compliance with securities laws and assess whether savings associations 
effect securities transactions safely and soundly, and to provide 
savings associations with formal guidance for effecting securities 
transactions.\2\
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    \2\ At the request of OTS trust examiners, many Federal savings 
associations with trust departments have been keeping records 
similar to those required by the final recordkeeping and 
confirmation rules.
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2. Section 551.140--Securities Trading Policies and Procedures
    Proposed Sec.  551.140 required a savings association that effects 
securities transactions to maintain and follow written policies and 
procedures addressing several areas of operation.\3\ One commenter, a 
trade association, questioned the need for significant new policies and 
procedures in the absence of an SEC final rule implementing the Title 
II exceptions. Until the SEC acts, this commenter argued, it is unclear 
whether the Federal banking agencies will have to revise applicable 
banking and savings association regulations, including the proposed 
recordkeeping and confirmation requirements for savings associations. 
The commenter asked that OTS be mindful of requiring savings 
associations to put in place significant policies and procedures that 
shortly might have to be substantially revised.
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    \3\ 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.
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    While we appreciate the commenter's concern, the creation and 
implementation of written securities trading policies and procedures is 
critical, especially during the period until the SEC promulgates its 
final rules implementing all of the Title II exceptions.\4\ Absent such 
a requirement, a savings association, alone among financial 
institutions, could act as a broker-dealer without having written 
trading policies and procedures in place. In our view, this state of 
affairs is untenable. Accordingly, the final rule requires savings 
associations to develop and maintain written policies and procedures 
for securities trading.
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    \4\ As noted, the SEC has just issued a proposed rule 
implementing certain limited bank exceptions from the definition of 
``dealer.'' 67 FR 64495 (November 5, 2002).
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B. Fiduciary Activities of Federal Savings Associations

    OTS also proposed amendments to 12 CFR part 550, which governs the 
fiduciary activities of Federal savings associations. The proposal 
codified a series of OTS legal opinions regarding the fiduciary powers 
of Federal savings associations and was consistent with the Office of 
the Comptroller's (OCC) recent codification of a similar series of 
legal opinions regarding the fiduciary powers of national banks.\5\ The 
proposal also streamlined application procedures, clarified when a 
Federal savings association may act in a fiduciary capacity without 
obtaining fiduciary powers from OTS, and made other minor or technical 
changes.
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    \5\ See 66 FR 34792 (July 2, 2001).
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1. Section 550.60--What Other Definitions Apply to This Part?
    OTS proposed amending Sec.  550.60 to include a definition of the 
term ``activities ancillary to your fiduciary business.'' The proposal 
codified OTS legal opinions that concluded that a Federal savings 
association is not ``located'' in a state for purposes of section 5(n) 
of the Home Owners' Loan Act (HOLA) \6\ when the association conducts 
in that state activities that are ancillary to the association's 
fiduciary business.
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    \6\ 12 U.S.C. 1464(n) (2001). Under that section, OTS may 
authorize a Federal savings association:
    [T]o 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. (emphasis added). Thus, 
under HOLA, the scope of a Federal savings association's fiduciary 
powers is expressly tied to the laws of the state in which the 
Federal savings association is ``located.''
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    The proposal defined ``activities ancillary to your fiduciary 
business'' to 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. One commenter suggested adding the phrase ``* * * or services 
similar in nature to those listed above'' at the end of the definition 
to provide Federal savings associations more flexibility.
    The OCC's corresponding definition includes language indicating 
that the list of ancillary activities in the definition is illustrative 
and not comprehensive. 12 CFR 9.2 (definition of ``trust representative 
office''). The OCC definition further notes that ``[o]ther activities 
may also be `ancillary activities' for purposes of this definition.'' 
To provide flexibility, we have added language similar to that found in 
the OCC definition.\7\
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    \7\ Distinguishing between key fiduciary activities and 
ancillary activities in Sec.  550.60 assists in determining where 
the Federal savings association is acting in a fiduciary capacity 
for purposes of section 5(n) of the HOLA. The classification as 
ancillary does not affect the importance of those activities or 
change in any way an association's fiduciary duty with respect to 
those activities. See 66 FR 34792, 34793, n.2.
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2. Section 550.70--Must I Obtain OTS Approval or File a Notice Before I 
Exercise Fiduciary Powers?
    Proposed Sec.  550.70 required a Federal savings association to 
obtain prior approval from OTS before conducting fiduciary activities 
that are ``materially different'' from the activities that OTS has 
previously approved for the association. The final rule clarifies that

[[Page 76295]]

a Federal savings association engages in ``materially different'' 
activities when, among other things, it acts under fiduciary powers 
that it has held but not exercised for five or more years.
    The purpose of the ``materially different'' standard was to 
identify those situations where a complete OTS review is necessary to 
ensure that proposed operations are consistent with the association's 
experience, resources, and expertise. If a Federal savings association 
wishes to commence fiduciary activities under powers it has held but 
not exercised for more than five years, its ability to conduct 
fiduciary operations could have changed since that time. Accordingly, 
under Sec.  550.70, the association must submit a new trust application 
to allow OTS to review its current expertise and resources.
    We have also revised Sec.  550.70 to make clear that OTS must 
approve the exercise of fiduciary powers by a Federal savings 
association. If, for instance, a Federal thrift without fiduciary 
powers merges with a state institution with fiduciary powers, a 
resulting Federal savings association would have to obtain OTS approval 
before exercising fiduciary powers.
3. Section 550.135(b)--What State Laws Apply to My Operations?
    Proposed Sec.  550.135(b) provided that, except for those state 
laws specifically mentioned in section 5(n) of the HOLA, ``[s]tate laws 
that purport to regulate any other aspect of your fiduciary activities 
do not apply to your fiduciary operations.'' One commenter has asked 
that we clarify what types of state laws ``purport to regulate'' a 
Federal thrift's fiduciary operations. As one example, the commenter 
asks whether state securities laws requiring investment adviser 
licensing of a Federal savings association or its employees are 
applicable state laws.
    To clarify OTS's views on preemption of state law in the context of 
fiduciary activities, OTS has included language similar to that found 
in the lending and deposit-taking regulations that discuss preemption. 
See 12 CFR 557.11-.13 and 560.2. Fiduciary activities, like lending and 
deposit-taking, are authorized by section 5 of the HOLA. Section 5 
authorizes OTS, ``under such regulations as [it] may prescribe * * * to 
provide for the * * * operation and regulation of * * * Federal savings 
associations * * * giving primary consideration of the best practices 
of thrift institutions in the United States.'' 12 U.S.C. 1464(a) 
(2001).
    OTS intends that, except with regard to those specific state laws 
identified in section 5(n) of the HOLA (scope of fiduciary powers, 
investment in state trust companies, access to examination reports 
regarding trust activities, deposit of securities, oaths and 
affidavits, and capital), a determination whether Federal law preempts 
state law will follow the same analysis set out in the lending and 
deposit-taking regulations.
    OTS has moved proposed Sec.  550.135(b) into a separate section, 
Sec.  550.136, entitled ``To what extent do State laws apply to my 
fiduciary operations?'' Proposed Sec.  550.135(a) is now Sec.  550.135 
of the final rule, with the new title ``How do I determine which 
State's laws apply to my fiduciary operations?'
    Section 550.136 of the final rule tracks Sec.  560.2 of the lending 
regulations. Section 550.136(a) includes a general statement regarding 
Federal preemption of state law under HOLA. Paragraph (a) makes clear 
that, to enhance safety and soundness and to enable Federal savings 
associations to conduct their fiduciary activities in accordance with 
the best practices of thrift institutions in the United States (by 
efficiently delivering fiduciary services to the public free from undue 
regulatory duplication and burden), OTS occupies the field of the 
regulation of the fiduciary activities of Federal savings associations.
    In so doing, OTS intends to give Federal savings associations 
maximum flexibility to exercise their fiduciary powers in accordance 
with a uniform scheme of Federal regulation. Federal savings 
associations may exercise fiduciary powers as authorized under HOLA and 
OTS regulations, without regard to state laws that purport to regulate 
or otherwise affect their fiduciary activities, except to the extent 
provided in 12 U.S.C. 1464(n) (state laws regarding scope of fiduciary 
powers, investments in state trust companies, access to examination 
reports regarding trust activities, deposits of securities, oaths and 
affidavits, and capital) or as provided in paragraph (c), discussed 
below. Paragraph (a) also clarifies that for purposes of Sec.  550.136, 
``state law'' includes any state statute, regulation, ruling, order, or 
judicial decision.
    Paragraph (b) then lists illustrative examples of the types of 
state laws that are preempted. That list includes state registration 
and licensing laws, state recordkeeping requirements, state advertising 
and marketing laws, state laws affecting the ability of a Federal 
savings association acting in a fiduciary capacity to maintain an 
action or proceeding in state court, and state laws regarding 
fiduciary-related fees. These examples are drawn from prior OTS opinion 
letters and inquiries that OTS has received from thrifts that conduct 
fiduciary activities.\8\
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    \8\ See, e.g., OTS Op. Chief Counsel (January 3, 2001) 
(preempting state restriction on out-of-state Federal savings 
association conducting fiduciary activities in an agency office); 
OTS Op. Chief Counsel (July 1, 1998) (preempting state restrictions 
on who may act as trustee of a pre-need funeral trust); OTS Op. 
Chief Counsel (August 8, 1996) (preempting state marketing 
restrictions); OTS Op. Chief Counsel (June 21, 1996) (preempting 
state marketing restrictions); OTS Op. Chief Counsel (March 28, 
1996) (preempting state licensing requirement); OTS Op. Acting Chief 
Counsel (June 13, 1994) (preempting state licensing requirement).
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    Finally, paragraph (c) specifies that certain state laws generally 
are not preempted.\9\ The list of those laws is the same as in Sec.  
560.2(c) (contract and commercial law, real property law, tort law, and 
criminal law), with the addition of state probate law.\10\ Generally, 
Federal law will not preempt these laws to the extent the state law 
only incidentally affects the fiduciary operations of Federal savings 
associations or is otherwise consistent with the purposes of the 
preemption regulation. The final rule provides that OTS may decline to 
preempt state laws other than those listed in the above categories if 
the law furthers a vital state interest and either has only an 
incidental effect on the association's fiduciary operations or is not 
otherwise contrary to the purposes of the preemption regulation.
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    \9\ In clarifying the scope of Federal preemption of state law 
in the fiduciary area, OTS does not intend to supplant areas in 
which state law has long governed the duties of a fiduciary, such as 
state principal and income laws and state ``prudent man'' or 
``prudent investor'' laws.
    \10\ Acting as an executor is a classic fiduciary activity. 12 
CFR 550.30(b). Moreover, institutions acting as executors have 
always been subject to state laws governing the administration of 
estates. OTS has no intention of changing this in the final rule.
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    When confronted with interpretive questions under Sec.  550.136, we 
anticipate that courts will, in accordance with well established 
principles of regulatory construction, look to the regulatory history 
of Sec.  550.136 for guidance. The purpose of paragraph (c) is to 
preserve the traditional infrastructure of basic state laws that 
undergird commercial transactions, not to open the door to state 
regulation of a Federal savings association's fiduciary activities.
    When analyzing the status of state laws under Sec.  550.136, the 
first step will be to determine whether the type of law in question is 
listed in paragraph (b). If so, the analysis will end there; the law is 
preempted. If the law is not covered by paragraph (b), the next 
question is whether the law affects fiduciary activities. If it does, 
then, in accordance with paragraph (a), the presumption

[[Page 76296]]

arises that the law is preempted. This presumption can by reversed only 
if the law can clearly be shown to fit within the confines of paragraph 
(c). For these purposes, paragraph (c) is intended to be interpreted 
narrowly. Any doubt should be resolved in favor of preemption.
    For example, under this approach Federal law would not preempt a 
provision in a state corporation code requiring an out-of-state 
corporation doing business in that state to appoint a state resident or 
official as the corporation's agent for service of process purposes. 
The law is not included in the list of illustrative examples in 
paragraph (b). The law does, however, affect a thrift's fiduciary 
activities, so a presumption of preemption arises. This presumption can 
by reversed if the law fits within the confines of paragraph (c).
    In our view, a service of process statute falls within the 
exception in subparagraph (c)(1) for commercial laws. Moreover, a 
requirement that an out-of-state thrift appoint a resident or official 
for purposes of service of process would only incidentally impact the 
fiduciary activities of a Federal savings association. Furthermore, 
finding such a state law applicable to a Federal savings association is 
consistent with the purposes of the preemption regulation. The 
preemption regulation is intended to allow Federal savings associations 
to exercise fiduciary powers in accordance with a uniform Federal 
scheme. Appointing a state resident or official to receive service of 
process is largely ministerial and should not affect a Federal savings 
association's ability to offer fiduciary services free of overlapping, 
varying state regulation. Accordingly, the state law would not be 
preempted.
    As questions arise, OTS will issue interpretive guidance consistent 
with the foregoing. While recognizing that no regulation can anticipate 
and expressly resolve all questions, we believe Sec.  550.136 provides 
thrifts with substantially more guidance than was previously available. 
This should enable thrifts to plan and operate their fiduciary 
activities more efficiently. From time to time, OTS will review, 
update, and modify Sec.  550.136 to ensure that it reflects new 
developments and promotes ``best practices'' and safety and soundness.

II. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) requires 
Federal agencies to prepare a final regulatory flexibility analysis 
with a final rule that was subject to notice and comment unless the 
agency certifies that the rule will not have a significant impact on a 
substantial number on small entities.
    Most of the changes to part 550 merely codify existing OTS 
regulatory interpretations regarding the scope of fiduciary powers, 
multi-state operations, and the impact of Federal law. To the extent 
that the final rule modifies existing requirements of part 550, the 
final rule will reduce burden by eliminating application requirements 
under certain circumstances, by substituting notices for applications 
in other circumstances, by providing greater flexibility regarding the 
collateralization of deposits of fiduciary funds, and by clarifying the 
scope of Federal preemption of state laws in the fiduciary area. The 
final rule also clarifies the scope of activities that are exempt from 
part 550 under section 5(l) of the HOLA. While the final rule 
eliminates 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 that provision. Accordingly, OTS certifies to 
the Chief Counsel of Advocacy of the Small Business Administration that 
the final changes to part 550 will not have a significant economic 
impact on a substantial number of small entities.
    In the proposal, OTS published an initial regulatory flexibility 
analysis for part 551. OTS includes here a final regulatory flexibility 
analysis for part 551.
    Because the recordkeeping and confirmation requirements are new for 
savings associations, OTS cannot determine whether the 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 final 
rule on the OCC's recordkeeping and confirmation rules, OTS believes 
that the 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 issuing this final rule, 
and a statement of the objectives of, and legal basis for, proposed 
part 551 are included in the supplementary material above. OTS did not 
receive any comments on its initial regulatory flexibility analysis for 
part 551.

A. Small Entities to Which the Proposed Rule Would Apply

    Part 551 applies to savings associations that effect securities 
transactions for customers. OTS calculates that as of October 21, 2002, 
it regulates approximately 982 savings associations. Of these savings 
associations approximately 529 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 will be effected by the 
final 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.

B. Requirements of the Final Rule

    As set out in detail in the regulatory text, the final rule 
requires 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 final 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 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 establishes requirements for confirmation notices and 
subpart C

[[Page 76297]]

addresses 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 requires 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 final 
rule (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 personnel, 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.\11\ The 
development of policies and procedures, however, may require the 
assistance of legal or securities professionals that were not included 
in the OCC's estimate. Accordingly, OTS has included additional costs 
of $305 to $403 to reflect the efforts of these professionals.\12\ 
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.
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    \11\ 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.
    \12\ 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.
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C. Significant Alternatives

    Section 604(a)(5) requires OTS to describe the steps it has taken 
to minimize the significant economic impact on small entities 
consistent with the objectives of the statute and regulations. OTS 
solicited comment on other alternatives that would minimize the burden 
on small savings associations that effect securities transactions, 
including whether any modifications or exemptions from the rules for 
small savings associations would be appropriate. OTS received no 
comments.
    As noted in the proposal, 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 
final rule 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, 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, 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 final 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 Sec. Sec.  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.

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.

III. Paperwork Reduction Act

    OTS in the proposal solicited specific comment on the paperwork 
collection requirements in the proposed rule. No commenters included 
any comments or suggestions regarding paperwork.
    The information collection requirements contained in the final rule 
are virtually identical to those included in the proposed rule on 
theses subjects published in June 2002. The burden on respondents 
remains unchanged from those in the proposal, which OMB approved in 
July 2002. See OMB Nos. 1550-0109 (July 15, 2002; expires July 31, 
2005) and 1550-0037 (July 22, 2002; expires July 31, 2005). 
Respondents/recordkeepers are not required to respond to any collection 
of information unless it displays a currently valid OMB control number.

IV. Unfunded Mandates Act

    OTS has determined that the final rule will not result in 
expenditures by state, local, or tribal governments or by the private 
sector of $100 million or more. Accordingly, a budgetary impact 
statement is not required under section 202 of the Unfunded Mandates 
Act.

V. Effective Date

    Under the Administrative Procedure Act, an agency must publish a 
rule at least 30 days before its effective date. 5 U.S.C. 553(d). The 
agency may, however, waive this 30-day delayed publication requirement 
if the rule relieves a restriction (5 U.S.C. 553(d)(1)) or for good 
cause (5 U.S.C. 553(d)(3)).
    OTS waives the 30-day requirement for the amendments to its 
fiduciary powers regulations because the rule imposes no new burden and 
relieves a

[[Page 76298]]

restriction, specifically the restriction against a Federal savings 
association exercising fiduciary powers in a new state without OTS's 
approval.
    With regard to the recordkeeping and confirmation rules, OTS waives 
the 30-day delayed effective provision for good cause. OTS finds good 
cause for making the recordkeeping and confirmation rules effective at 
the beginning of the next quarter because the new rules will fill a 
current gap in the rules applicable to securities transactions of 
securities transactions.
    Moreover, as noted in section I(A)(1), n. 2, above, at the request 
of OTS trust examiners, many Federal savings associations with trust 
departments have been keeping records similar to those required by the 
final recordkeeping and confirmation rules. For those securities 
transactions conducted by a savings association outside the trust 
department, keeping records and sending confirmations are standard 
industry practice in the securities business, so a savings association 
should already be following these, or similar, requirements simply as a 
matter of sound business practices. Accordingly, savings associations 
should not need the benefit of the full 30-day delayed effective date 
in order to have enough time to comply with the rule. As a result, the 
final rule will be effective January 1, 2003.

VI. Executive Order 12866

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

VII. Federalism

    Executive Order 13132 imposes certain requirements on an agency 
when formulating and implementing policies that may have federalism 
implications or taking action that preempts state law. In accordance 
with those requirements, OTS has consulted with the Conference of State 
Bank Supervisors, the National Association of Attorneys General, and 
the American Council of State Savings Supervisors.

List of Subjects

12 CFR Part 506

    Reporting and recordkeeping requirements.

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 506--INFORMATION COLLECTION REQUIREMENTS UNDER THE PAPERWORK 
REDUCTION ACT

    1. The authority citation for part 506 continues to read as 
follows:

    Authority: 44 U.S.C. 3501 et seq.


    2. Amend Sec.  506.1(b) by adding in numerical order, the following 
entry to read as follows:


Sec.  506.1  OMB control numbers assigned pursuant to the Paperwork 
Reduction Act.

* * * * *
    (b) Display.

------------------------------------------------------------------------
                                                             Current OMB
   12 CFR part or section where identified and described     control No.
------------------------------------------------------------------------
 
                                * * * * *
Part 551...................................................    1550-0109
 
                                * * * * *
------------------------------------------------------------------------

PART 550--[AMENDED]

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

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


    4. Section 550.20 is revised to read as follows:


Sec.  550.20  What are fiduciary powers?

    Fiduciary powers are the authority that OTS permits you to exercise 
under 12 U.S.C. 1464(n).

    5. 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. This list is 
illustrative and not comprehensive. Other activities may also be 
``ancillary activities'' for purposes of this definition.
* * * * *
    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.

    6. Section 550.70 is revised to read as follows:


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     You must obtain prior approval from
 first time and OTS has not           OTS under Sec.  Sec.   550.80
 previously approved an application   through 550.120 before you conduct
 that you submitted under this part.  the activities
(b) Fiduciary activities that are    You must obtain prior approval from
 materially different from the        OTS under Sec.  Sec.   550.80
 activities that OTS has previously   through 550.120 before you conduct
 approved for you, including          the activities.
 fiduciary activities that OTS has
 previously approved for you have
 not exercised for at least five
 years.
(c) Fiduciary activities that are    You must file a written notice
 not materially different from the    described at Sec.   550.125 if you
 activities that OTS has previously   commence the activities in a new
 approved for you.                    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    You do not have to obtain prior OTS
 to your fiduciary business.          approval or file a that are notice
                                      with OTS.
------------------------------------------------------------------------


[[Page 76299]]


    7. 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.

    8. 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.

    9. Section 550.135 is added to read as follows:


Sec.  550.135  How do I determine which State's laws apply to my 
operations?

    (a) 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.
    (b) 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.

    10. Section 550.136 is added to read as follows:


Sec.  550.136  To what extent do State laws apply to my fiduciary 
operations?

    (a) Occupation of field. To enhance safety and soundness and to 
enable Federal savings associations to conduct their fiduciary 
activities in accordance with the best practices of thrift institutions 
in the United States (by efficiently delivering fiduciary services to 
the public free from undue regulatory duplication and burden), OTS 
occupies the field of the regulation of the fiduciary activities of 
Federal savings associations. In so doing, OTS intends to give Federal 
savings associations maximum flexibility to exercise their fiduciary 
powers in accordance with a uniform scheme of Federal regulation. 
Accordingly, Federal savings associations may exercise fiduciary powers 
as authorized under Federal law, including this part, without regard to 
State laws that purport to regulate or otherwise affect their fiduciary 
activities, except to the extent provided in 12 U.S.C. 1464(n) (State 
laws regarding scope of fiduciary powers, investments in state trust 
companies, access to examination reports regarding trust activities, 
deposits of securities, oaths and affidavits, and capital) or in 
paragraph (c) of this section. For purposes of this section, ``State 
law'' includes any State statute, regulation, ruling, order, or 
judicial decision.
    (b) Illustrative examples. Examples of State laws that are 
preempted by the HOLA and this section include those regarding:
    (1) Registration and licensing;
    (2) Recordkeeping;
    (3) Advertising and marketing;
    (4) The ability of a federal savings association conducting 
fiduciary activities to maintain an action or proceeding in State 
court; and
    (5) Fiduciary-related fees.
    (c) State laws that are not preempted. State laws of the following 
types are not preempted to the extent that they only incidentally 
affect the fiduciary operations of Federal savings associations or are 
otherwise consistent with the purposes of paragraph (a) of this 
section:
    (1) Contract and commercial law;
    (2) Real property law;
    (3) Tort law;
    (4) Criminal law;
    (5) Probate law; and
    (6) Any other law that OTS, upon review, finds:
    (i) Furthers a vital State interest; and
    (ii) Either has only an incidental effect on fiduciary operations 
or is not otherwise contrary to the purposes expressed in paragraph (a) 
of this section.

    11. Section 550.310 is amended by removng the first sentence and 
adding two new 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. * * *
    12. Section 550.580is amended by revising the section heading and 
the introductory text and by removing paragraph (c) 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 if you conduct fiduciary activities in the 
following fiduciary capacities:
* * * * *

    13. The section 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:
* * * * *

    14. 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 all 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?

[[Page 76300]]

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.


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: act as a broker or dealer; act as a fiduciary with 
investment discretion over an account; are a trustee that acts as the 
shareholder of record for the purchase or sale of securities; or 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 discretion means the same as under 12 CFR 550.40(a).
    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

[[Page 76301]]

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:
    (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.
    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 OTS 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

[[Page 76302]]

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
    (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 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 additional
 If you effect a transaction    information in your written notice . . .
       involving . . .
------------------------------------------------------------------------
(1) A debt security subject    A statement that the issuer may redeem
 to redemption before           the debt security in whole or in part
 maturity.                      before maturity, that the redemption
                                could affect the represented yield, and
                                that additional redemption information
                                is available upon request.
(2) A debt security that you   (i) The dollar price at which you
 effected exclusively on the    effected the transaction; and
 basis of a dollar price.      (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   (i) The yield at which the transaction,
 effected on basis of yield.    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.
(4) A debt security that is    (i) A statement that the actual yield of
 an asset-backed security       the asset-backed security may vary
 that represents an interest    according to the rate at which the
 in, or is secured by, a pool   underlying receivables or other
 of receivables or other        financial assets are prepaid; and
 financial assets that are     (ii) A statement that you will furnish
 subject continuously to        information concerning the factors that
 prepayment.                    affect yield (including at a minimum
                                estimated yield, weighted average life,
                                and the prepayment assumptions
                                underlying yield) upon the customer's
                                written request.

[[Page 76303]]

 
(5) A debt security, other     A statement that the security is unrated
 than a government security.    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 collective investment funds.   the written notice described
                                          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) Your electronic communications 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 a reasonable fee for the notices 
provided under Sec. Sec.  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

[[Page 76304]]

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 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 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 not 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: December 2, 2002.

    By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-31005 Filed 12-11-02; 8:45 am]
BILLING CODE 6720-01-P