[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)]
[Notices]
[Pages 81863-81866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27711]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities: Information Collection 
Renewal; Comment Request; Reporting, Recordkeeping, and Disclosure 
Requirements Associated With Proprietary Trading and Certain Interests 
in and Relationships With Covered Funds

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice and request for comment.

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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork 
and respondent burden, invites the general public and other Federal 
agencies to take this opportunity to comment on a continuing 
information collection as required by the Paperwork Reduction Act of 
1995 (PRA).
    In accordance with the requirements of the PRA, the OCC may not 
conduct or sponsor, and the respondent is not required to respond to, 
an information collection unless it displays a currently valid Office 
of Management and Budget (OMB) control number.
    The OCC is soliciting comment concerning renewal of its information 
collection titled, ``Reporting, Recordkeeping, and Disclosure 
Requirements Associated with Proprietary Trading and Certain Interests 
in and Relationships with Covered Funds.''

DATES: Comments must be submitted on or before January 17, 2017.

ADDRESSES: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email, if possible. Comments may be sent to: Legislative and Regulatory 
Activities Division, Office of the Comptroller of the Currency, 
Attention: 1557-00309, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to 
(571) 465-4326 or by electronic mail to [email protected]. You may 
personally inspect and photocopy comments at the OCC, 400 7th Street 
SW., Washington, DC 20219. For security reasons, the OCC requires that 
visitors make an appointment to inspect comments. You may do so by 
calling (202) 649-6700 or, for persons who are deaf or hard of hearing, 
TTY, (202) 649-5597. Upon arrival, visitors will be required to present 
valid government-issued photo identification and submit to security 
screening in order to inspect and photocopy comments.
    All comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not include any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.

FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, OCC Clearance 
Officer, (202) 649-5490 or, for persons who are deaf or hard of 
hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities 
Division, Office of the Comptroller of the Currency, 400 7th Street 
SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.

SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal 
agencies must obtain approval from the OMB for each collection of 
information that they conduct or sponsor. ``Collection of information'' 
is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency 
requests or requirements that members of the public submit reports, 
keep records, or provide information to a third party. Section 
3506(c)(2)(A) of title 44 requires Federal agencies to provide a 60-day 
notice in the Federal Register concerning each proposed collection of 
information, including each proposed extension of an existing 
collection of information, before submitting the collection to OMB for 
approval. To comply with this requirement, the OCC is publishing notice 
of the proposed collection of information set forth in this document.
    Title: Reporting, Recordkeeping, and Disclosure Requirements 
Associated with Proprietary Trading and Certain Interests in and 
Relationships with Covered Funds.
    OMB Control No.: 1557-0309.
    Type of Review: Regular.
    Description: This collection of information is established pursuant 
to a 2014 final rule \1\ required by the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act), which was enacted on July 
21, 2010.\2\ Section 619 of the Dodd-Frank Act contains certain 
prohibitions and restrictions on the ability of a banking entity and 
nonbank financial company supervised by the Board of Governors of the 
Federal Reserve System (Board) to engage in proprietary trading and 
have certain interests in, or relationships with, a hedge fund or 
private equity fund.
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    \1\ 79 FR 5536 (January 31, 2014).
    \2\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
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    Section 619 of the Dodd-Frank Act added a new section 13 to the 
Bank Holding Company Act (BHC Act) (codified at 12 U.S.C. 1851) that 
generally prohibits any banking entity from engaging in proprietary 
trading or from acquiring or retaining an ownership interest in, 
sponsoring, or having certain relationships with a hedge fund or 
private equity fund, subject to certain exemptions.
    Section 44.12(e) states that, upon application by a banking entity, 
the Board may extend the period of time to meet the requirements on 
ownership limitations under Sec.  44.12(a)(2)(i) for up to 2 additional 
years, if the Board finds that an extension would be consistent with 
safety and soundness and not detrimental to the public interest. An 
application for extension must: (1) Be submitted to the Board at least 
90 days prior to the expiration of the applicable time period; (2) 
provide the reasons for application including information that 
addresses the factors in paragraph (e)(2) of Sec.  44.12; and (3) 
explain the banking entity's plan for reducing the permitted investment 
in a covered fund through redemption, sale, dilution, or other methods 
as required in Sec.  44.12(a)(2).
    Section 44.20(d) provides that a banking entity engaged in 
proprietary trading activity permitted under subpart

[[Page 81864]]

B of part 44 must comply with the reporting requirements described in 
Appendix A if (1) the banking entity (other than a foreign banking 
entity as provided in Sec.  44.20(d)(1)(ii)) has, together with its 
affiliates and subsidiaries, trading assets and liabilities (excluding 
trading assets and liabilities involving obligations of or guaranteed 
by the United States or any agency of the United States) the average 
gross sum of which (on a worldwide consolidated basis) over the 
previous consecutive four quarters, as measured as of the last day of 
each of the four prior calendar quarters, equals or exceeds the 
threshold established in Sec.  44.20(d)(2); (2) in the case of a 
foreign banking entity, the average gross sum of the trading assets and 
liabilities of the combined U.S. operations of the foreign banking 
entity (including all subsidiaries, affiliates, branches, and agencies 
of the foreign banking entity operating, located, or organized in the 
United States and excluding trading assets and liabilities involving 
obligations of or guaranteed by the United States or any agency of the 
United States) over the previous consecutive four quarters, as measured 
as of the last day of each of the four prior calendar quarters, equals 
or exceeds the threshold established in Sec.  44.20(d)(2); or (3) the 
OCC notifies the banking entity in writing that it must satisfy the 
reporting requirements contained in Appendix A of part 44. The 
threshold for reporting is $50 billion beginning on June 30, 2014; $25 
billion beginning on April 30, 2016; and $10 billion beginning on 
December 31, 2016. Under the 2014 final rule, a banking entity with $50 
billion or more in trading assets and liabilities must report the 
information required by Appendix A for each calendar month within 30 
days of the end of the relevant calendar month. Beginning with 
information for the month of January 2015, such information must be 
reported within 10 days of the end of that calendar month. The OCC may 
notify a banking entity in writing that it must report on a different 
basis. Any other banking entity subject to Appendix A shall report the 
information required by Appendix A for each calendar quarter within 30 
days of the end of that calendar quarter unless the OCC notifies the 
banking entity in writing that it must report on a different basis. 
Appendix A requires banking entities to furnish the following 
quantitative measurements for each trading desk of the banking entity: 
(1) Risk and Position Limits and Usage; (2) Risk Factor Sensitivities; 
(3) Value-at-Risk (VaR) and stress VaR; (4) Comprehensive Profit and 
loss Attribution; (5) Inventory Turnover; (6) Inventory Aging; and (7) 
Customer-Facing Trade Ratio.
    Section 44.3(d)(3) specifies that proprietary trading does not 
include any purchase or sale of a security by a banking entity for the 
purpose of liquidity management in accordance with a documented 
liquidity management plan of the banking entity that: (1) Specifically 
contemplates and authorizes the particular securities to be used for 
liquidity management purposes, the amount, types, and risks of these 
securities that are consistent with liquidity management, and the 
liquidity circumstances in which the particular securities may or must 
be used; (2) requires that any purchase or sale of securities 
contemplated and authorized by the plan be principally for the purpose 
of managing the liquidity of the banking entity, and not for the 
purpose of short-term resale, benefitting from actual or expected 
short-term price movements, realizing short-term arbitrage profits, or 
hedging a position taken for such short-term purposes; (3) requires 
that any securities purchased or sold for liquidity management purposes 
be highly liquid and limited to securities the market, credit, and 
other risks of which the banking entity does not reasonably expect to 
give rise to appreciable profits or losses as a result of short-term 
price movements; (4) limits any securities purchased or sold for 
liquidity management purposes, together with any other instruments 
purchased or sold for such purposes, to an amount that is consistent 
with the banking entity's near-term funding needs, including deviations 
from normal operations of the banking entity or any affiliate thereof, 
as estimated and documented pursuant to methods specified in the plan; 
(5) includes written policies and procedures, internal controls, 
analysis, and independent testing to ensure that the purchase and sale 
of securities that are not permitted under Sec.  44.6(a) or Sec.  
44.6(b) are for the purpose of liquidity management and in accordance 
with the liquidity management plan described in this paragraph; and (6) 
is consistent with the OCC's supervisory requirements, guidance, and 
expectations regarding liquidity management.
    Section 44.4(b)(3)(i)(A) provides that a trading desk or other 
organizational unit of another entity with $50 billion or more in 
trading assets and liabilities is not a client, customer, or 
counterparty unless the trading desk documents how and why a particular 
trading desk or other organizational unit of the entity should be 
treated as a client, customer, or counterparty of the trading desk for 
purposes of Sec.  44.4(b)(2).
    Section 44.5(c) requires documentation for any purchase or sale of 
financial instruments for risk-mitigating hedging purposes that is: (1) 
Not established by the specific trading desk establishing or 
responsible for the underlying positions, contracts, or other holdings 
the risks of which the hedging activity is designed to reduce; (2) 
established by the specific trading desk establishing or responsible 
for the underlying positions, contracts, or other holdings the risks of 
which the purchases or sales are designed to reduce, but that is 
effected through a financial instrument, exposure, technique, or 
strategy that is not specifically identified in the trading desk's 
written policies and procedures established under Sec.  44.5(b)(1) or 
Sec.  44.4(b)(2)(iii)(B) as a product, instrument, exposure, technique, 
or strategy such desk may use for hedging; or (3) established to hedge 
aggregated positions across two or more trading desks. In connection 
with any purchase or sale that meets these specified circumstances, a 
banking entity must, at a minimum and contemporaneously with the 
purchase or sale, document: (1) The specific, identifiable risk(s) of 
the identified positions, contracts, or other holdings of the banking 
entity that the purchase or sale is designed to reduce; (2) the 
specific risk-mitigating strategy that the purchase or sale is designed 
to fulfill; and (3) the trading desk or other business unit that is 
establishing and responsible for the hedge. The banking entity must 
also create and retain records sufficient to demonstrate compliance 
with Sec.  44.5(c) for at least 5 years in a form that allows the 
banking entity to promptly produce such records to the OCC on request 
or such longer period as required under other law or part 44.
    Section 44.11(a)(2) requires that covered funds generally must be 
organized and offered only in connection with the provision of bona 
fide trust, fiduciary, investment advisory, or commodity trading 
advisory services and only to persons that are customers of such 
services of the banking entity (or an affiliate thereof), pursuant to a 
written plan or similar documentation outlining how the banking entity 
or such affiliate intends to provide advisory or similar services to 
its customers through organizing and offering the covered fund.
    Section 44.20(b) specifies the contents of the compliance program 
for a banking

[[Page 81865]]

entity with total consolidated assets of $10 billion or more. It 
includes: (1) Written policies and procedures reasonably designed to 
document, describe, monitor, and limit trading activities (including 
those permitted under Sec. Sec.  44.3 to 44.6), including setting, 
monitoring, and managing required limits set out in Sec.  44.4 and 
Sec.  44.5 and activities and investments with respect to a covered 
fund (including those permitted under Sec. Sec.  44.11 through 44.14) 
conducted by the banking entity to ensure that all activities and 
investments conducted by the banking entity that are subject to section 
13 of the BHC Act and part 44 comply with section 13 of the BHC Act and 
part 44; (2) a system of internal controls reasonably designed to 
monitor compliance with section 13 of the BHC Act and part 44 and to 
prevent the occurrence of activities or investments that are prohibited 
by section 13 of the BHC Act and part 44; (3) a management framework 
that clearly delineates responsibility and accountability for 
compliance with section 13 of the BHC Act and part 44 and includes 
appropriate management review of trading limits, strategies, hedging 
activities, investments, incentive compensation, and other matters 
identified in part 44 or by management as requiring attention; (4) 
independent testing and audit of the effectiveness of the compliance 
program conducted periodically by qualified personnel of the banking 
entity or by a qualified outside party; (5) training for trading 
personnel and managers, as well as other appropriate personnel, to 
effectively implement and enforce the compliance program; and (6) 
records sufficient to demonstrate compliance with section 13 of the BHC 
Act and part 44, which a banking entity must promptly provide to the 
OCC upon request and retain for a period of no less than 5 years or 
such longer period as required by the OCC.
    Section 44.20(c) specifies that the compliance program of a banking 
entity must satisfy the requirements and other standards contained in 
Appendix B, if: (1) The banking entity engages in proprietary trading 
permitted under subpart B of part 44 and is required to comply with the 
reporting requirements of Sec.  44.20(d); (2) the banking entity has 
reported total consolidated assets as of the previous calendar year end 
of $50 billion or more or, in the case of a foreign banking entity, has 
total U.S. assets as of the previous calendar year end of $50 billion 
or more (including all subsidiaries, affiliates, branches and agencies 
of the foreign banking entity operating, located or organized in the 
United States); or (3) the OCC notifies the banking entity in writing 
that it must satisfy the requirements and other standards contained in 
Appendix B. Appendix B provides enhanced minimum standards for 
compliance programs for banking entities that meet any of the 
thresholds in Sec.  44.20(c) as described above. Appendix B sets forth 
standards with respect to the establishment, oversight, maintenance, 
and enforcement by banking entities of the enhanced compliance program 
for ensuring and monitoring compliance with the prohibitions and 
restrictions on proprietary trading and covered fund activities and 
investments set forth in section 13 of the BHC Act and part 44. The 
program must: (1) Be reasonably designed to identify, document, 
monitor, and report the permitted trading and covered fund activities 
and investments; identify, monitor, and promptly address the risk of 
these covered activities and investments and potential areas of 
noncompliance; and prevent activities or investments prohibited by, or 
that do not comply with, section 13 of the BHC Act and part 44; (2) 
establish and enforce appropriate limits on covered activities and 
investments, including limits on size, scope, complexity, and risks of 
individual activities or investments consistent with the requirements 
of section 13 of the BHC Act and part 44; (3) subject the effectiveness 
of the compliance program to periodic independent review and testing, 
and ensure that the entity's internal audit, corporate compliance, and 
internal control functions involved in review and testing are effective 
and independent; (4) make senior management and others accountable for 
effective implementation of compliance program and ensure that the 
board of directors and chief executive officer (or equivalent) of the 
banking entity review effectiveness of the compliance program; and (5) 
facilitate supervision and examination by the OCC of permitted trading 
and covered fund activities and investments.
    Section 44.20(d) provides that a banking entity engaged in certain 
proprietary trading activity must comply with the reporting 
requirements described in Appendix A if the banking entity's trading 
activity meets or exceeds the thresholds set forth in Sec.  44.20(d). A 
banking entity must also, for any quantitative measurement furnished to 
the OCC pursuant to Sec.  44.20(d) and Appendix A, create and maintain 
records documenting the preparation and content of these reports, as 
well as such information as is necessary to permit the OCC to verify 
the accuracy of such reports, for a period of 5 years from the end of 
the calendar year for which the measurement was taken.
    Section 44.20(e) specifies additional documentation required for 
covered funds. Any banking entity that has more than $10 billion in 
total consolidated assets as reported on December 31 of the previous 
two calendar years shall maintain records that include: (1) 
Documentation of the exclusions or exemptions other than sections 
3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 relied on by 
each fund sponsored by the banking entity (including all subsidiaries 
and affiliates) in determining that such fund is not a covered fund; 
(2) for each fund sponsored by the banking entity (including all 
subsidiaries and affiliates) for which the banking entity relies on one 
or more of the exclusions from the definition of covered fund provided 
by Sec. Sec.  44.10(c)(1), 44.10(c)(5), 44.10(c)(8), 44.10(c)(9), or 
44.10(c)(10), documentation supporting the banking entity's 
determination that the fund is not a covered fund pursuant to one or 
more of those exclusions; (3) for each seeding vehicle described in 
Sec. Sec.  44.10(c)(12)(i) or 44.10(c)(12)(iii) that will become a 
registered investment company or SEC-regulated business development 
company, a written plan documenting the banking entity's determination 
that the seeding vehicle will become a registered investment company or 
SEC-regulated business development company; the period of time during 
which the vehicle will operate as a seeding vehicle; and the banking 
entity's plan to market the vehicle to third-party investors and 
convert it into a registered investment company or SEC-regulated 
business development company within the time period specified in Sec.  
44.12(a)(2)(i)(B); and (4) for any banking entity that is, or is 
controlled directly or indirectly by a banking entity that is, located 
in or organized under the laws of the United States or of any State, if 
the aggregate amount of ownership interests in foreign public funds 
that are described in Sec.  44.10(c)(1) owned by such banking entity 
(including ownership interests owned by any affiliate that is 
controlled directly or indirectly by a banking entity that is located 
in or organized under the laws of the United States or of any State) 
exceeds $50 million at the end of two or more consecutive calendar 
quarters, beginning with the next succeeding calendar quarter, 
documentation of the value of the ownership interests owned

[[Page 81866]]

by the banking entity (and such affiliates) in each foreign public fund 
and each jurisdiction in which any such foreign public fund is 
organized, calculated as of the end of each calendar quarter, which 
documentation must continue until the banking entity's aggregate amount 
of ownership interests in foreign public funds is below $50 million for 
two consecutive calendar quarters.
    Section 44.20(f)(1) applies to banking entities with no covered 
activities. A banking entity that does not engage in activities or 
investments pursuant to subpart B or subpart C of part 44 (other than 
trading activities permitted pursuant to Sec.  44.6(a)) may satisfy the 
requirements of Sec.  44.20 by establishing the required compliance 
program prior to becoming engaged in such activities or making such 
investments (other than trading activities permitted pursuant to Sec.  
44.6(a)).
    Section 44.20(f)(2) applies to banking entities with modest 
activities. A banking entity with total consolidated assets of $10 
billion or less as reported on December 31 of the previous two calendar 
years that engages in activities or investments pursuant to subpart B 
or subpart C of part 44 (other than trading activities permitted under 
Sec.  44.6(a)) may satisfy the requirements of Sec.  44.20 by including 
in its existing compliance policies and procedures appropriate 
references to the requirements of section 13 of the BHC Act and part 44 
and adjustments as appropriate given the activities, size, scope and 
complexity of the banking entity.
    Section 44.11(a)(8)(i) requires that a banking entity clearly and 
conspicuously disclose, in writing, to any prospective and actual 
investor in the covered fund (such as through disclosure in the covered 
fund's offering documents): (1) That any losses in such covered fund 
will be borne solely by investors in the covered fund and not by the 
banking entity or its affiliates; therefore, the banking entity's 
losses in such covered fund will be limited to losses attributable to 
the ownership interests in the covered fund held by the banking entity 
and any affiliate in its capacity as investor in the covered fund or as 
beneficiary of a restricted profit interest held by the banking entity 
or any affiliate; (2) that such investor should read the fund offering 
documents before investing in the covered fund; (3) that the ownership 
interests in the covered fund are not insured by the FDIC, and are not 
deposits, obligations of, or endorsed or guaranteed in any way, by any 
banking entity (unless that happens to be the case); and (4) the role 
of the banking entity and its affiliates and employees in sponsoring or 
providing any services to the covered fund.
    Affected Public: Businesses or other for-profit.
    Burden Estimates:
    Number of respondents: 381.
    Total estimated annual burden: 28,016 hours (14,386 hours for 
initial setup and 13,630 hours for ongoing compliance).
    Frequency of Response: On occasion.
    Comments: Comments submitted in response to this notice will be 
summarized and included in the request for OMB approval. All comments 
will become a matter of public record. Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the functions of the OCC, including whether the 
information has practical utility;
    (b) The accuracy of the OCC's estimate of the information 
collection burden;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the collection on respondents, 
including through the use of automated collection techniques or other 
forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

    Dated: November 10, 2016.
Karen Solomon,
Deputy Chief Counsel, Office of the Comptroller of the Currency.
[FR Doc. 2016-27711 Filed 11-17-16; 8:45 am]
BILLING CODE 4810-33-P