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2000 - FDIC Rules and Regulations
{{4-30-97 p.2755}}
PART 344RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR
SECURITIES TRANSACTIONS
Sec. 344.1
Purpose and scope.
344.2
Exceptions.
344.3
Definitions.
344.4
Recordkeeping.
344.5
Content and time of notification.
344.6
Notification by agreement; alternative forms and times of notification.
344.7
Settlement of securities transactions.
344.8
Securities trading policies and procedures.
344.9
Personal securities trading reporting by bank officers and employees.
344.10
Waivers.
Authority: 12 U.S.C. 1817, 1818 and 1819.
SOURCE: The provisions of this Part 344 appear at 62 Fed. Reg.
9919, March 5, 1997, effective April 1, 1997, except as otherwise
noted.
§ 344.1 Purpose and scope.
(a) Purpose. The purpose of this part is to ensure that
purchasers of securities in transactions effected by a state nonmember
insured bank (except a District bank) or a foreign bank having an
insured branch are provided adequate information regarding
transactions. This part is also designed to ensure that banks subject
to this part maintain adequate records and controls with respect to the
securities transactions they effect.
(b) Scope; general. Any security transaction effected
for a customer by a bank is subject to this part unless excepted by
§ 344.2. A bank effecting transactions in government securities is
subject to the notification, recordkeeping, and policies and procedures
requirements of this part. This part also applies to municipal
securities transactions by a bank that is not registered as a
"municipal securities dealer" with the Securities and Exchange
Commission. See 15 U.S.C.
78c(a)(30) and 78o--4.
[Codified to 12 C.F.R.
§ 344.1]
§ 344.2 Exceptions.
(a) A bank effecting securities transactions for customers is not
subject to all or part of this part 344 to the extent that they qualify
for one or more of the following exceptions:
(1) Small number of transactions. The requirements of
§§ 344.4(a)(2) through (4) and 344.8(a)(1) through (3) do not apply
to a bank effecting an average of fewer than 200 securities
transactions per year for customers over the prior three calendar year
period. The calculation of this average does not include transactions
in government securities.
(2) Government securities. The recordkeeping
requirements of § 344.4 do not apply to banks effecting fewer than
500 government securities brokerage transactions per year. This
exemption does not apply to government securities dealer transactions
by banks.
(3) Municipal securities. This part does not apply to
transactions in municipal securities effected by a bank registered with
the Securities and Exchange Commission as a "municipal securities
dealer" as defined in title 15 U.S.C.
78c(a)(30). See 15 U.S.C.
78o--4.
(4) Foreign branches. Activities of foreign branches
of a bank shall not be subject to the requirements of this part.
(5) Transactions effected by registered broker/dealers.
(i) This part does not apply to securities transactions effected
for a bank customer by a registered broker/dealer if:
(A) The broker/dealer is fully disclosed to the bank customer;
and
(B) The bank customer has a direct contractual agreement with the
broker/dealer.
{{4-30-97 p.2756}}
(ii) This exemption extends to bank arrangements with
broker/dealers which involve bank employees when acting as employees
of, and subject to the supervision of, the registered broker/dealer
when soliciting, recommending, or effecting securities transactions.
(b) Safe and sound operations. Notwithstanding this
section, every bank effecting securities transactions for customers
shall maintain, directly or indirectly, effective systems of records
and controls regarding their customer securities transactions to ensure
safe and sound operations. The records and systems maintained must
clearly and accurately reflect the information required under this part
and provide an adequate basis for an audit.
[Codified to 12 C.F.R.
§ 344.2]
§ 344.3 Definitions.
(a) Asset-backed security means a security that is
serviced primarily 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 plus any rights or
other assets designed to assure the servicing or timely distribution of
proceeds to the security holders.
(b) Bank means a state nonmember insured bank (except a
District bank) or a foreign bank having an insured branch.
(c) Cash management sweep account means a prearranged,
automatic transfer 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.
(d) Collective investment fund means funds held by a
bank as fiduciary and, consistent with local law, invested
collectively:
(1) In a common trust fund maintained by such bank exclusively
for the collective investment and reinvestment of monies contributed
thereto by the bank in its capacity as trustee, executor,
administrator, guardian, or custodian under the Uniform Gifts to Minors
Act; or
(2) In a fund consisting solely of assets of retirement, pension,
profit sharing, stock bonus or similar trusts which are exempt from
Federal income taxation under the Internal Revenue Code (26 U.S.C.).
(e) Completion of the transaction means:
(1) For purchase transactions, the time when the customer pays
the bank any part of the purchase price (or the time when the bank
makes the book-entry for any part of the purchase price, if
applicable), however, if the customer pays for the security prior to
the time payment is requested or becomes due, then the transaction
shall be completed when the bank transfers the security into the
account of the customer; and
(2) For sale transactions, the time when the bank transfers the
security out of the account of the customer or, if the security is not
in the bank's custody, then the time when the security is delivered to
the bank, however, if the customer delivers the security to the bank
prior to the time delivery is requested or becomes due then the
transaction shall be completed when the bank makes payment into the
account of the customer.
(f) Crossing of buy and sell orders means a security
transaction in which the same bank acts as agent for both the buyer and
the seller.
(g) Customer means any person or account, including any
agency, trust, estate, guardianship, or other fiduciary account for
which a bank effects or participates in effecting the purchase or sale
of securities, but does not include a broker, dealer, bank acting as a
broker or a dealer, issuer of the securities that are the subject of
the transaction or a person or account having a direct, contractual
agreement with a fully disclosed broker/dealer.
(h) 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) and fractional or
participation interests in one or more of any of the foregoing;
provided, however, that securities issued by an
{{4-30-97 p.2757}}investment company registered
under the Investment Company Act of 1940,
15 U.S.C. 80a--1 et seq., shall
not be included in this definition.
(i) Government security means:
(1) A security that is a direct obligation of, or obligation
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 and which is
designated by the Secretary of the Treasury 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 any corporation whose securities are designated, by statute
specifically naming the corporation, to constitute exempt securities
within the meaning of the laws administered by the Securities and
Exchange Commission; or
(4) Any put, call, straddle, option, or privilege on a security
described in paragraph (i)(1), (2), or (3) of this section other than a
put, call, straddle, option, or privilege that is traded on one or more
national securities exchanges, or for which quotations are disseminated
through an automated quotation system operated by a registered
securities association.
(j) Investment discretion means that, with respect to an
account, a bank directly or indirectly:
(1) Is authorized to determine what securities or other property
shall be purchased or sold by or for the account; or
(2) Makes decisions as to what securities or other property shall
be purchased or sold by or for the account even though some other
person may have responsibility for these investment decisions.
(k) Municipal security means a security which 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, or any
municipal corporate instrumentality of one or more States or any
security which is an industrial development bond (as defined in 26
U.S.C. 103(c)(2)) the interest on which is excludable from gross income
under 26 U.S.C. 103(a)(1) if, by reason of the application of paragraph
(4) or (6) of 26 U.S.C. 103(c) (determined as if paragraphs (4)(A), (5)
and (7) were not included in 26 U.S.C. 103(c), paragraph (1) of 26
U.S.C. 103(c) does not apply to such security.
(l) Periodic plan means any written authorization for a
bank to act as agent to purchase or sell for a customer a specific
security or securities, in a specific amount (calculated in security
units or dollars) or to the extent of dividends and funds available, at
specific time intervals, and setting forth the commission or charges to
be paid by the customer or the manner of calculating them. Periodic
plans include dividend reinvestment plans, automatic investment plans,
and employee stock purchase plans.
(m) 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. The
term security does not include:
(1) A deposit or share account in a federally or state insured
depository institution;
(2) A loan participation;
(3) A letter of credit or other form of bank indebtedness
incurred in the ordinary course of business;
(4) Currency;
{{4-30-97 p.2758}}
(5) Any note, draft, bill of exchange, or bankers acceptance
which has a maturity at the time of issuance of not exceeding nine
months, exclusive of days of grace, or any renewal thereof the maturity
of which is likewise limited;
(6) Units of a collective investment fund;
(7) Interests in a variable amount (master) note of a borrower of
prime credit; or
(8) U.S. Savings Bonds.
[Codified to 12 C.F.R.
§ 344.3]
§ 344.4 Recordkeeping.
(a) General rule. A bank effecting securities
transactions for customers shall maintain the following records for at
least three years:
(1) Chronological records. An itemized daily record of
each purchase and sale of securities maintained in chronological order,
and including:
(i) Account or customer name for which each transaction was
effected;
(ii) Description of the securities;
(iii) Unit and aggregate purchase or sale price;
(iv) Trade date; and
(v) Name or other designation of the broker/dealer or other
person from whom the securities were purchased or to whom the
securities were sold;
(2) Account records. Account records for each
customer, reflecting:
(i) Purchases and sales of securities;
(ii) Receipts and deliveries of securities;
(iii) Receipts and disbursements of cash; and
(iv) Other debits and credits pertaining to transactions in
securities;
(3) A separate memorandum (order ticket) of each order
to purchase or sell securities (whether executed or canceled), which
shall include:
(i) The accounts for which the transaction was effected;
(ii) Whether the transaction was a market order, limit order, or
subject to special instructions;
(iii) The time the order was received by the trader or other bank
employee responsible for effecting the transaction;
(iv) The time the order was placed with the broker/dealer, or if
there was no broker/dealer, time the order was executed or canceled;
(v) The price at which the order was executed; and
(vi) The broker/dealer utilized;
(4) Record of broker/dealers. A record of all
broker/dealers selected by the bank to effect securities transactions
and the amount of commissions paid or allocated to each broker during
the calendar year; and
(5) Notifications. A copy of the written notification
required by §§ 344.5 and 344.6.
(b) Manner of maintenance. Records may be maintained in
whatever manner, form or format a bank deems appropriate, provided
however, the records required by this section must clearly and
accurately reflect the information required and provide an adequate
basis for the audit of the information. Records may be maintained in
hard copy, automated or electronic form provided the records are easily
retrievable, readily available for inspection, and capable of being
reproduced in a hard copy. A bank may contract with third party service
providers, including broker/dealers, to maintain records required under
this part.
[Codified to 12 C.F.R.
§ 344.4]
§ 344.5 Content and time of notification.
Every bank effecting a securities transaction for a customer shall
give or send, by mail, facsimile or other means of electronic
transmission, to the customer at or before completion of the
transaction one of the types of written notification identified below:
(a) Broker/dealer's confirmations. (1) A copy of the
confirmation of a broker/dealer relating to the securities transaction.
A bank may either have the broker/dealer send the
{{4-30-97 p.2759}}confirmation directly to the
bank's customer or send a copy of the broker/dealer's confirmation to
the customer upon receipt of the confirmation by the bank. If a bank
chooses to send a copy of the broker/dealer's confirmation, it must be
sent within one business day from the bank's receipt of the
broker/dealer's confirmation; and
(2) If the bank is to receive remuneration from the customer or
any other source in connection with the transaction, a statement of the
source and amount of any remuneration to be received if such would be
required under paragraph (b)(6) of this section; or
(b) Written notification. A written notification
disclosing:
(1) Name of the bank;
(2) Name of the customer;
(3) Whether the bank is acting as agent for such customer, as
agent for both such customer and some other person, as principal for
its own account, or in any other capacity;
(4) The date and time of execution, or the fact that the time of
execution will be furnished within a reasonable time upon written
request of the customer, and the identity, price, and number of shares
or units (or principal amount in the case of debt securities) of the
security purchased or sold by the customer;
(5) The amount of any remuneration received or to be received,
directly or indirectly, by any broker/dealer from such customer in
connection with the transaction;
(6)(i) The amount of any remuneration received or to be received
by the bank from the customer, and the source and amount of any other
remuneration received or to be received by the bank in connection with
the transaction, unless:
(A) Remuneration is determined pursuant to a prior written
agreement between the bank and the customer; or
(B) In the case of government securities and municipal
securities, the bank received the remuneration in other than an agency
transaction; or
(C) In the case of open end investment company securities, the
bank has provided the customer with a current prospectus which
discloses all current fees, loads and expenses at or before completion
of the transaction;
(ii) If the bank elects not to disclose the source and amount of
remuneration it has or will receive from a party other than the
customer pursuant to paragraph (b)(6)(i)(A), (B), or (C) of this
section, the written notification must disclose whether the bank has
received or will receive remuneration from a party other than the
customer, and that the bank will furnish within a reasonable time the
source and amount of this remuneration upon written request of the
customer. This election is not available, however, if, with respect to
a purchase, the bank was participating in a distribution of that
security; or, with respect to a sale, the bank was participating in a
tender offer for that security;
(7) Name of the broker/dealer utilized; or where there is no
broker/dealer, the name of the person from whom the security was
purchased or to whom the security was sold, or a statement that the
bank will furnish this information within a reasonable time upon
written request;
(8) In the case of a transaction in a debt security subject to
redemption before maturity, a statement to the effect that the debt
security may be redeemed in whole or in part before maturity, that the
redemption could affect the yield represented and that additional
information is available upon request;
(9) In the case of a transaction in a debt security effected
exclusively on the basis of a dollar price:
(i) The dollar price at which the transaction was effected; and
(ii) The yield to maturity calculated from the dollar price,
provided however, that this shall not apply to a transaction in a debt
security that either has a maturity date that may be extended by the
issuer thereof, with a variable interest payable thereon, or 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;
(10) In the case of a transaction in a debt security effected on
the basis of yield:
{{4-30-97 p.2760}}
(i) The yield at which the transaction was effected, including
the percentage amount and its characterization (e.g., current yield,
yield to maturity, or yield to call) and if effected at yield to call,
the type of call, the call date and call price;
(ii) The dollar price calculated from the yield at which the
transaction was effected; and
(iii) If effected on a basis other than yield to maturity and the
yield to maturity is lower than the represented yield, the yield to
maturity as well as the represented yield; provided however, that this
paragraph (b)(10) shall not apply to a transaction in a debt security
that either has a maturity date that may be extended by the issuer with
a variable interest rate payable thereon, or 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;
(11) In the case of a transaction in a debt security that is an
asset-backed security, which represents an interest in or is secured by
a pool of receivables or other financial assets that are subject
continuously to prepayment, a statement indicating that the actual
yield of the asset-backed security may vary according to the rate at
which the underlying receivables or other financial assets are prepaid
and a statement of the fact that information concerning the factors
that affect yield (including at a minimum estimated yield, weighted
average life, and the prepayment assumptions underlying yield) will be
furnished upon written request of the customer; and
(12) In the case of a transaction in a debt security, other than
a government security, that the security is unrated by a nationally
recognized statistical rating organization, if that is the case.
[Codified to 12 C.F.R.
§ 344.5]
§ 344.6 Notification by agreement; alternative forms and times
of notification.
A bank may elect to use the following alternative notification
procedures if the transaction is effected for:
(a) Notification by agreement. Accounts (except periodic
plans) where the bank does not exercise investment discretion and the
bank and the customer agree in writing to a different arrangement as to
the time and content of the written notification; provided however,
that such agreement makes clear the customer's right to receive the
written notification pursuant to § 344.5 (a) or (b) at no additional
cost to the customer.
(b) Trust accounts. Accounts (except collective
investment funds) where the bank exercises investment discretion in
other than in an agency capacity, in which instance the bank shall,
upon request of the person having the power to terminate the account
or, if there is no such person, upon the request of any person holding
a vested beneficial interest in such account, give or send to such
person the written notification within a reasonable time. The bank may
charge such person a reasonable fee for providing this information.
(c) Agency accounts. Accounts where the bank exercises
investment discretion in an agency capacity, in which instance:
(1) The bank shall give or send to each customer not less
frequently than once every three months an itemized statement which
shall specify the funds and securities in the custody or possession of
the bank at the end of such period and all debits, credits and
transactions in the customer's accounts during such period; and
(2) If requested by the customer, the bank shall give or send to
each customer within a reasonable time the written notification
described in § 344.5. The bank may charge a reasonable fee for
providing the information described in § 344.5.
(d) Cash management sweep accounts. A bank effecting a
securities transaction for a cash management sweep account shall give
or send its customer a written statement, in the same form as required
under paragraph (f) of this section, for each month in which a purchase
or sale of a security takes place in the account and not less than once
every three months if there are no securities transactions in the
account. Notwithstanding the provisions of this paragraph (d), banks
that retain custody of government securities that are
{{10-31-07 p.2761}}the subject of a hold-in-custody
repurchase agreement are subject to the requirements of
17 CFR 403.5(d).
(e) Collective investment fund accounts. The bank shall
at least annually give or send to the customer a copy of a financial
report of the fund, or provide notice that a copy of such report is
available and will be furnished upon request to each person to whom a
regular periodic accounting would ordinarily be rendered with respect
to each participating account. This report shall be based upon an audit
made by independent public accountants or internal auditors responsible
only to the board of directors of the bank.
(f) Periodic plan accounts. The bank shall give or send
to the customer not less than once every three months a written
statement showing:
(1) The funds and securities in the custody or possession of the
bank;
(2) All service charges and commissions paid by the customer in
connection with the transaction; and
(3) All other debits and credits of the customer's account
involved in the transaction; provided that upon written request of the
customer, the bank shall give or send the information described in
§ 344.5, except that any such information relating to remuneration
paid in connection with the transaction need not be provided to the
customer when the remuneration is paid by a source other than the
customer. The bank may charge a reasonable fee for providing
information described in § 344.5.
[Codified to 12 C.F.R.
§ 344.6]
§ 344.7 Settlement of securities transactions.
(a) A bank shall not effect or enter into a contract for the
purchase or sale of a security (other than an exempted security as
defined in 15 U.S.C. 78c(a)(12), government security, municipal
security, commercial paper, bankers' acceptances, or commercial bills)
that provides for payment of funds and delivery of securities later
than the third business day after the date of the contract unless
otherwise expressly agreed to by the parties at the time of the
transaction.
(b) Paragraphs (a) and (c) of this section shall not apply to
contracts:
(1) For 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; or
(2) For the purchase or sale of securities that the Securities
and Exchange Commission (SEC) may from time to time, taking into
account then existing market practices, exempt by order from the
requirements of paragraph (a) of SEC Rule 15c6--1, 17 CFR
240.15c6--1(a), either unconditionally or on specified terms and
conditions, if the SEC determines that an exemption is consistent with
the public interest and the protection of investors.
(c) Paragraph (a) of this section shall not apply to contracts for
the sale for cash of securities that are priced after 4:30 p.m. Eastern
time on the date the securities are priced and that are sold by an
issuer to an underwriter pursuant to a firm commitment underwritten
offering registered under the Securities Act of 1933,
15 U.S.C. 77a et seq., or sold
to an initial purchaser by a bank participating in the offering. A bank
shall not effect or enter into a contract for the purchase or sale of
the securities that provides for payment of funds and delivery of
securities later than the fourth business day after the date of the
contract unless otherwise expressly agreed to by the parties at the
time of the transaction.
(d) For the purposes of paragraphs (a) and (c) of this section, the
parties to a contract shall be 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 pursuant to a firm commitment offering if the managing
underwriter and the issuer have agreed to the date for all securities
sold pursuant to 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.
[Codified to 12 C.F.R. § 344.7]
{{10-31-07 p.2762}}
§ 344.8 Securities trading policies and procedures.
(a) Policies and procedures. Every bank effecting
securities transactions for customers shall establish written policies
and procedures providing:
(1) Assignment of responsibility for supervision of all officers
or employees who:
(i) Transmit orders to or place orders with broker/dealers; or
(ii) Execute transactions in securities for customers;
(2) Assignment of responsibility for supervision and reporting,
separate from those in paragraph (a)(1) of this section, with respect
to all officers or employees who process orders for notification or
settlement purposes, or perform other back office functions with
respect to securities transactions effected for customers;
(3) For the fair and equitable allocation of securities and
prices to accounts when orders for the same security are received at
approximately the same time and are placed for execution either
individually or in combination; and
(4) Where applicable, and where permissible under local law, for
the crossing of buy and sell orders on a fair and equitable basis to
the parties to the transaction.
[Codified to 12 C.F.R.
§ 344.8]
§ 344.9 Personal securities trading reporting by bank officers
and employees.
(a) Officers and employees subject to reporting. Bank
officers and employees who:
(1) Make investment recommendations or decisions for the accounts
of customers;
(2) Participate in the determination of such recommendations or
decisions; or
(3) In connection with their duties, obtain information
concerning which securities are being purchased or sold or recommend
such action, must report to the bank, within 30-calendar days after the
end of the calendar quarter, all transactions in securities made by
them or on their behalf, either at the bank or elsewhere in which they
have a beneficial interest. The report shall identify the securities
purchased or sold and indicate the dates of the transactions and
whether the transactions were purchases or sales.
(b) Exempt transactions. Excluded from this reporting
requirement are:
(1) Transactions for the benefit of the officer or employee over
which the officer or employee has no direct or indirect influence or
control;
(2) Transactions in registered investment company shares;
(3) Transactions in government securities; and
(4) All transactions involving in the aggregate $10,000 or less
during the calendar quarter.
(c) Alternative report. Where a bank acts as an
investment adviser to an investment company registered under the
Investment Company Act of 1940, the bank's officers and employees may
fulfill their reporting requirement under paragraph (a) of this section
by filing with the bank the "access persons" personal securities
trading report required by (SEC) Rule 17j--1, 17 CFR 270.17j-1.
[Codified to 12 C.F.R. § 344.9]
[Section 344.9 amended at 72 Fed. Reg. 60457, October 25, 2007,
effective November 26, 2007]
§ 344.10 Waivers.
The Board of Directors of the FDIC, in its discretion, may waive for
good cause all or any part of this part 344.
[Codified to 12 C.F.R. § 344.10]
[The page following this is 2781.]
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