UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION

Release No. 34-50618 / November 1, 2004

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

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The Gramm-Leach-Bliley Act ("GLBA") repealed the blanket exception of banks from the definitions of "broker" and "dealer" under the Securities Exchange Act of 1934 ("Exchange Act")¹ and replaced this full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."

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

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.

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

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 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.

By the Commission.

Endnotes

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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)].

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".

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).

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.

⁹ 15 U.S.C. 78mm.

http://www.sec.gov/rules/other/34-50618.htm