[Federal Register Volume 69, Number 214 (Friday, November 5, 2004)]
[Notices]
[Pages 64607-64608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3031]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50618/File No. S7-12-01]


Order Extending Temporary Exemption of Banks, Savings 
Associations, and Savings Banks From the Definition of ``Broker'' Under 
Section 3(a)(4) of the Securities Exchange Act of 1934

November 1, 2004.

I. Background

    The Gramm-Leach-Bliley Act (``GLBA'') repealed the blanket 
exception of banks from the definitions of ``broker'' and ``dealer'' 
under the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and 
replaced this full exception with functional exceptions incorporated in 
amended definitions of ``broker'' and ``dealer.'' Under the GLBA, banks 
that engage in securities activities either must conduct those 
activities through a registered broker-dealer or ensure that their 
securities activities fit within the terms of a functional exception to 
the amended definitions of ``broker'' and ``dealer.''
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    \1\ As defined in Exchange Act Sections 3(a)(4) and 3(a)(5) [15 
U.S.C. 78c(a)(4) and 78c(a)(5)].
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    The GLBA provided that the amended definitions of ``broker'' and 
``dealer'' were to become effective May 12, 2001. On May 11, 2001, the 
Securities and Exchange Commission (``Commission'') issued interim 
final rules (``Interim Rules'') to define certain terms used in, and 
grant additional exemptions from, the amended definitions of ``broker'' 
and ``dealer.'' \2\ Among other things, the Interim Rules extended the 
exceptions and exemptions granted to banks under the statute and 
Interim Rules to savings associations and savings banks. They also 
included a temporary exemption that gave banks time to come into full 
compliance with the more narrowly-tailored exceptions from broker-
dealer registration.\3\ To further accommodate the banking industry's 
continuing compliance concerns, the Commission delayed the effective 
date of the bank ``broker'' and ``dealer'' rules through a series of 
orders that ultimately extended the temporary exemption from the 
definition of ``broker'' to November 12, 2004, and from the definition 
of ``dealer'' to September 30, 2003.\4\
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    \2\ See Definition of Terms in and Specific Exemptions for 
Banks, Savings Associations, and Savings Banks Under Sections 
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, Exchange 
Act Release No. 44291 (May 11, 2001), 66 FR 27760 (May 18, 2001).
    \3\ 17 CFR 240.15a-7.
    \4\ See Exchange Act Release No. 44570 (July 18, 2001); Exchange 
Act Release No. 45897 (May 8, 2002); and Exchange Act Release No. 
46745 (October 30, 2002); Exchange Act Release No. 47649 (April 8, 
2003) (extending the exemption from the definition of ``broker'' 
until November 12, 2004); Exchange Act Release No. 47366 (February 
13, 2003) (extending exemption from the definition of ``dealer'' 
until September 30, 2003). On February 13, 2003, the Commission 
adopted amendments to certain parts of the Interim Rules that define 
terms used in the dealer exceptions, as well as certain dealer 
exemptions (``Dealer Release'') Exchange Act Release No. 47364 
(February 13, 2003), 68 FR 8686 (February 24, 2003). Therefore, this 
order is limited to an extension of the temporary exemption from the 
definition of ``broker''.
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    In June 2004, the Commission proposed Regulation B, which would 
revise and replace the Interim Rules.\5\ The comment period for 
Regulation B expired on September 1, 2004,\6\ and the Commission has 
received over 105 comments, including comments from the banking 
industry, banking regulators, and members of Congress.
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    \5\ Exchange Act Release No. 49879 (June 17, 2004), 69 FR 39682 
(June 30, 2004)
    \6\ See Exchange Act Release No. 50056 (July 22, 2004) 69 FR 
44988 (July 28, 2004) (extending comment period on Regulation B 
until September 1, 2004).
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    In the Interim Rules, the Commission adopted Exchange Act Rule 15a-
7,\7\ which provided that banks must begin complying with the GLBA on 
January 1, 2002. We proposed to amend this provision in Regulation B by 
providing banks and other financial institutions until January 1, 2006, 
to begin complying with the GLBA.\8\
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    \7\ 17 CFR 240.15a-7.
    \8\ In proposing Regulation B, the Commission proposed Rule 781 
as a re-designation of Rule 15a-7 and proposed a compliance date of 
January 1, 2006. See 17 CFR 242.781.
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II. Extension of Temporary Exemption From Definition of ``Broker''

    The Commission is carefully considering comments to determine what 
final action should be taken with regard to the Regulation B proposal. 
The Commission anticipates that this review process will not be 
completed before the exemption from the Interim Rules relating to the 
definition of ``broker'' expires on November 12, 2004.
    Therefore, the Commission finds that extending the temporary 
exemption of banks, savings associations, and savings banks from the 
definition of ``broker'' is necessary and appropriate in the public 
interest, and is consistent with the protection of investors. The 
Commission believes that extending the exemption from the definition of 
``broker'' until March 31, 2005, will prevent banks and other financial 
institutions from unnecessarily incurring costs to comply with the 
statutory scheme based on the current Interim Rules and will give the 
Commission time to fully consider comments received on Regulation B and

[[Page 64608]]

take any final action on the proposal as necessary, including 
consideration of any modification necessary to the proposed compliance 
date.

III. Conclusion

    Accordingly, pursuant to Section 36 of the Exchange Act,\9\
    It Is Hereby Ordered that banks, savings associations, and savings 
banks are exempt from the definition of the term ``broker'' under the 
Exchange Act until March 31, 2005.
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    \9\ 15 U.S.C. 78mm.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3031 Filed 11-4-04; 8:45 am]
BILLING CODE 8010-01-P