Securities and Exchange Commission

Release No. 34-47366; File No. S7-12-01

February 13, 2003

Order Extending Temporary Exemption of Banks, Savings Associations, and Savings Banks from the Definition of "Dealer" under Section 3(a)(5) of the Securities Exchange Act of 1934

The Securities and Exchange Commission ("Commission") is extending until September 30, 2003 its temporary Order issued under Section 36 of the Securities Exchange Act of 1934 ("Exchange Act") exempting banks, savings associations, and savings banks from the definition of the term "dealer" in Exchange Act Section 3(a)(5).¹ This new temporary exemption is intended to provide banks, savings associations, and savings banks with sufficient time to conform their dealer activities to the definition of dealer as supplemented by the definitions and exemptions adopted by the Commission today.²

I. Background

Prior to the adoption of the Gramm-Leach-Bliley Act ("GLBA"), banks had a complete exception from the definitions of the terms "broker" and "dealer" under the Exchange Act.³ The GLBA replaced this full exception with functional exceptions by amending the definitions of these terms. Thus, under the terms of the Exchange Act, banks must either limit their securities activities to those that fit within the functional exceptions, or conduct those activities through a registered broker-dealer.

The amended definitions of "broker" and "dealer" were to become effective on May 12, 2001. On May 11, 2001, the Commission issued interim final rules ("Rules") to define certain terms used in, and grant additional exemptions from, the amended definitions of "broker" and "dealer."⁴ The Rules included Rule 15a-7, which gave banks a temporary exemption from the definitions of "broker" and "dealer" until October 1, 2001, and provided an additional conditional exemption until January 1, 2002. The Rules also included Rule 15a-9, which extended the exceptions and exemptions granted to banks under the statute and Rules to savings associations and savings banks.⁵ On July 18, 2001, the Commission issued an Order providing banks, savings associations, and savings banks with an additional conditional exemption from the definitions of "broker" and "dealer" under the Exchange Act until May 12, 2002.⁶ On May 8, 2002, the Commission extended the exemption from the definition of "broker" until May 12, 2003 and from the definition of "dealer" until November 12, 2002.⁷ On October 30, 2002, the Commission extended the exemption from the definition of "dealer" until February 10, 2003. The effect of these rules and orders was to delay the date by which banks, savings associations, and savings banks had to comply with the new statutory scheme under the GLBA.

II. Extension of Temporary Exemption from Definition of "Dealer"

Today, the Commission adopted amendments to certain of the Rules that define terms utilized in the dealer exceptions, as well as certain dealer exemptions. Several commenters indicated that banks, savings associations, and savings banks will need time to assess their dealer activities in light the of final rules in order to determine how best to comply with the new regulatory scheme.⁸ Commenters also indicated that banks, savings associations, and savings banks will need additional time to develop compliance systems that take the new requirements into account.⁹

Based on these comments, the Commission finds that extending the temporary exemption for banks, savings associations, and savings banks from the definition of "dealer" until September 30, 2003 is necessary and appropriate in the public interest, and is consistent with the protection of investors. This additional temporary exemption should provide banks, savings associations, and savings banks with a sufficient transition period to bring their operations into compliance with the new statutory scheme based on the guidance and exemptions provided in the amended Rules.¹⁰

Accordingly, pursuant to Section 36 of the Exchange Act [15 U.S.C. 78mm],

IT IS HEREBY ORDERED that banks, savings associations, and savings banks are exempt from the definition of the term "dealer" under the Exchange Act until September 30, 2003.

By the Commission.

J. Lynn Taylor
Assistant Secretary

Endnotes

¹ 15 U.S.C. 78c(a)(5).

² Exchange Act Release No. 47364 (February 13, 2003).

³ The term "broker" is defined in Exchange Act Section 3(a)(4) [15 U.S.C. 78c(a)(4)].

⁴ 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) ("Adopting Release").

⁵ The term "bank" is defined in Exchange Act Section 3(a)(6) [15 U.S.C. 78c(a)(6)]. The terms "savings associations" and "savings banks" as used here have the same meanings as in Rule 15a-9 [17 CFR 240.15a-9].

⁶ Exchange Act Release No. 44570 (July 18, 2001).

⁷ Exchange Act Release No. 45897 (May 8, 2002).

⁸ See the discussion of these comments in Exchange Act Release No. 47364 (February 13, 2003).

⁹ Id.

¹⁰ The Commission does not expect banks to develop compliance systems for their "broker" activities until the Commission has adopted amendments to the "broker" Rules.

http://www.sec.gov/rules/exorders/34-47366.htm