[Federal Register: December 12, 2002 (Volume 67, Number 239)]
[Rules and Regulations]
[Page 76293-76304]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de02-1]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
[[Page 76293]]
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 506, 550, and 551
[No. 2002-57]
RIN 1550-AB49
Recordkeeping and Confirmation Requirements for Securities
Transactions; Fiduciary Powers of Savings Associations
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of Thrift Supervision (OTS) is issuing a final rule
specifying the recordkeeping and confirmation requirements for savings
associations that effect securities transactions. Under a rule issued
by the Securities and Exchange Commission (SEC), savings associations
may perform certain broker-dealer activities without registering with
the SEC. Today's final rule affords savings association customers the
same protections and disclosures provided to bank customers; ensures
that examiners will be able to evaluate a savings association's
compliance with securities laws and to assess whether savings
associations effect securities transactions safely and soundly; and
provides savings associations with formal guidance for effecting
securities transactions. It does not modify savings associations'
authority to effect these transactions.
OTS also is amending its regulations governing the fiduciary powers
of Federal savings associations. The final rule codifies a series of
OTS legal opinions regarding fiduciary powers. The final rule also
streamlines application procedures, clarifies when a Federal savings
association may act in a fiduciary capacity without obtaining fiduciary
powers from OTS, clarifies the scope of Federal preemption of state law
in the fiduciary area, and makes other minor or technical changes to
OTS's fiduciary powers regulations.
EFFECTIVE DATE: January 1, 2003.
FOR FURTHER INFORMATION CONTACT: Judith McCormick, Trust Specialist,
(202) 906-5636, Supervision Policy Division, Office of Supervision; or
Timothy P. Leary, Counsel (Banking & Finance), (202) 906-7170,
Regulations and Legislation Division, or Kevin Corcoran, Assistant
Chief Counsel, (202) 906-6962, Business Transactions Division, Office
of the Chief Counsel, Office of Thrift Supervision, 1700 G Street, NW.,
Washington DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
On June 11, 2002, OTS published a notice of proposed rulemaking
seeking comment on regulations setting out recordkeeping and
confirmation requirements for savings associations that effect
securities transactions and on amendments to OTS's regulations
governing the fiduciary powers of Federal savings associations. 67 FR
39886 (June 11, 2002). Four commenters, two trade groups and two
Federal savings associations that conduct fiduciary activities,
responded to the proposal. The commenters generally supported the
proposal. Unless specifically discussed below, the proposed rules are
adopted without change.
A. Recordkeeping and Confirmation Requirements for Securities
Transactions
Until recently, savings associations could not effect securities
transactions for customers directly unless they registered with the SEC
as a broker-dealer. Under an interim final rule issued by the SEC,
savings associations are now treated as banks under the definitions of
``broker'' and ``dealer'' in sections 3(a)(4) and (a)(5) of the
Securities Exchange Act of 1934 (Exchange Act). 66 FR 27760 (May 18,
2001).\1\ As a result, a savings association may now perform certain
broker-dealer activities without registering with the SEC as broker-
dealers.
---------------------------------------------------------------------------
\1\ The SEC extended until May 12, 2003 the savings association
exception from the definition of ``broker'' under the Exchange Act,
and extended until February 10, 2003 the savings association
exception from the definition of ``dealer'' under the Exchange Act.
SEC Release Nos. 34-46751 (October 30, 2002) and 34-45897 (May 8,
2002); see also SEC Release No. 34-44570 (July 18, 2001). On October
31, 2002, the SEC issued a proposed rule exempting banks from the
definition of ``dealer'' when performing certain de minimis riskless
principal transactions, defining certain terms used in the bank
exceptions to dealer registration, and exempting banks from the
definitions of ``broker'' and ``dealer'' when engaging in securities
lending transactions with a qualified investor. 67 FR 64495
(November 5, 2002). Because savings associations are treated as
banks they are covered by this proposed rule as well.
---------------------------------------------------------------------------
The OCC, Federal Deposit Insurance Corporation (FDIC), and Federal
Reserve Board (FRB) regulations include recordkeeping and confirmation
requirements for securities transactions effected by banks. The
proposed OTS rule was intended to afford savings association customers
the same protections and disclosures provided to bank customers; to
ensure that examiners will be able to evaluate a savings association's
compliance with securities laws and to assess whether savings
associations effect securities transactions safely and soundly; and to
provide savings associations with formal guidance for effecting
securities transactions.
Two commenters made specific suggestions regarding the proposed
recordkeeping and confirmation requirements for securities
transactions. We discuss those comments below.
1. Need for Regulations
Before passage of the the Gramm-Leach-Bliley Act (GLBA), the terms
``broker'' and ``dealer'' in the Securities Exchange Act of 1934 did
not include a bank. As a result, banks could engage in securities
transactions without registering as a broker or a dealer with the SEC.
In Title II of GLBA, Congress replaced this general exception with
eleven functional exceptions covering specified bank securities
activities. Pending issuance of a final rule implementing the Title II
exceptions, the SEC has extended banks a blanket exception from the
definitions of ``broker'' and ``dealer.'' The SEC has stated it will
treat savings associations as banks for purposes of the eleven
exceptions, and has included savings associations in the extended
blanket exception.
One commenter, a Federal savings association, questioned the need
for recordkeeping and confirmation requirements. Once the SEC issues a
[[Page 76294]]
final rule, the commenter notes, the eleven GLBA exceptions will be
much narrower in scope than the pre-GLBA blanket exception.
Accordingly, the commenter predicts that the vast majority of bank and
thrift securities transactions will no longer be excepted.
As a result, the commenter believes that banks and thrifts will
have to register as a broker or dealer (which is not practical given
the capital requirements to do so) or contract with a registered broker
or dealer in order to continue to engage or participate in most current
security transactions. Since these security transactions would be
subject to SEC recordkeeping and confirmation requirements, rather than
banking agency rules, the commenter argued that the new OTS
recordkeeping and confirmation rules will have a very limited
application, and urged OTS not to issue a final rule.
OTS believes that many, if not all, of the securities transactions
that savings associations currently conduct will continue to fit within
the Title II exceptions. For instance, savings associations already
effect securities transactions as fiduciaries, effect safekeeping and
custody transactions, conduct sweep activities, and enter into
networking arrangements. See 15 U.S.C. 78c(a)(4)(B)(i), (ii), (v), and
(viii). Given this, OTS believes that recordkeeping and confirmation
requirements are necessary to afford savings association customers the
same protections and disclosures provided to bank customers, to ensure
that examiners will be able to evaluate a savings association's
compliance with securities laws and assess whether savings associations
effect securities transactions safely and soundly, and to provide
savings associations with formal guidance for effecting securities
transactions.\2\
---------------------------------------------------------------------------
\2\ At the request of OTS trust examiners, many Federal savings
associations with trust departments have been keeping records
similar to those required by the final recordkeeping and
confirmation rules.
---------------------------------------------------------------------------
2. Section 551.140--Securities Trading Policies and Procedures
Proposed Sec. 551.140 required a savings association that effects
securities transactions to maintain and follow written policies and
procedures addressing several areas of operation.\3\ One commenter, a
trade association, questioned the need for significant new policies and
procedures in the absence of an SEC final rule implementing the Title
II exceptions. Until the SEC acts, this commenter argued, it is unclear
whether the Federal banking agencies will have to revise applicable
banking and savings association regulations, including the proposed
recordkeeping and confirmation requirements for savings associations.
The commenter asked that OTS be mindful of requiring savings
associations to put in place significant policies and procedures that
shortly might have to be substantially revised.
---------------------------------------------------------------------------
\3\ Under the proposed rule, the association's policies and
procedures must assign responsibility for the supervision of
officers and employees engaged in various aspects of the trading
process; provide for the fair and equitable allocation of securities
and prices to accounts when the savings association receives orders
for the same security at approximately the same time and it places
orders individually or in combination; provide for the crossing of
buy and sell orders on a fair and equitable basis; and require
certain officers and employees to make quarterly reports containing
specific information on personal securities transactions.
---------------------------------------------------------------------------
While we appreciate the commenter's concern, the creation and
implementation of written securities trading policies and procedures is
critical, especially during the period until the SEC promulgates its
final rules implementing all of the Title II exceptions.\4\ Absent such
a requirement, a savings association, alone among financial
institutions, could act as a broker-dealer without having written
trading policies and procedures in place. In our view, this state of
affairs is untenable. Accordingly, the final rule requires savings
associations to develop and maintain written policies and procedures
for securities trading.
---------------------------------------------------------------------------
\4\ As noted, the SEC has just issued a proposed rule
implementing certain limited bank exceptions from the definition of
``dealer.'' 67 FR 64495 (November 5, 2002).
---------------------------------------------------------------------------
B. Fiduciary Activities of Federal Savings Associations
OTS also proposed amendments to 12 CFR part 550, which governs the
fiduciary activities of Federal savings associations. The proposal
codified a series of OTS legal opinions regarding the fiduciary powers
of Federal savings associations and was consistent with the Office of
the Comptroller's (OCC) recent codification of a similar series of
legal opinions regarding the fiduciary powers of national banks.\5\ The
proposal also streamlined application procedures, clarified when a
Federal savings association may act in a fiduciary capacity without
obtaining fiduciary powers from OTS, and made other minor or technical
changes.
---------------------------------------------------------------------------
\5\ See 66 FR 34792 (July 2, 2001).
---------------------------------------------------------------------------
1. Section 550.60--What Other Definitions Apply to This Part?
OTS proposed amending Sec. 550.60 to include a definition of the
term ``activities ancillary to your fiduciary business.'' The proposal
codified OTS legal opinions that concluded that a Federal savings
association is not ``located'' in a state for purposes of section 5(n)
of the Home Owners' Loan Act (HOLA) \6\ when the association conducts
in that state activities that are ancillary to the association's
fiduciary business.
---------------------------------------------------------------------------
\6\ 12 U.S.C. 1464(n) (2001). Under that section, OTS may
authorize a Federal savings association:
[T]o act as trustee, executor, administrator, guardian, or in
any other fiduciary capacity in which State banks, trust companies,
or other corporations that compete with Federal savings associations
are permitted to act under the laws of the State in which the
Federal savings association is located. (emphasis added). Thus,
under HOLA, the scope of a Federal savings association's fiduciary
powers is expressly tied to the laws of the state in which the
Federal savings association is ``located.''
---------------------------------------------------------------------------
The proposal defined ``activities ancillary to your fiduciary
business'' to include advertising, marketing, or soliciting fiduciary
business, contacting existing or potential customers, answering
questions and providing information to customers related to their
accounts, acting as liaison between you and your customer (for example,
forwarding requests for distribution, changes in investment objectives,
forms, or funds received from the customer), and inspecting or
maintaining custody of fiduciary assets or holding title to real
property. One commenter suggested adding the phrase ``* * * or services
similar in nature to those listed above'' at the end of the definition
to provide Federal savings associations more flexibility.
The OCC's corresponding definition includes language indicating
that the list of ancillary activities in the definition is illustrative
and not comprehensive. 12 CFR 9.2 (definition of ``trust representative
office''). The OCC definition further notes that ``[o]ther activities
may also be `ancillary activities' for purposes of this definition.''
To provide flexibility, we have added language similar to that found in
the OCC definition.\7\
---------------------------------------------------------------------------
\7\ Distinguishing between key fiduciary activities and
ancillary activities in Sec. 550.60 assists in determining where
the Federal savings association is acting in a fiduciary capacity
for purposes of section 5(n) of the HOLA. The classification as
ancillary does not affect the importance of those activities or
change in any way an association's fiduciary duty with respect to
those activities. See 66 FR 34792, 34793, n.2.
---------------------------------------------------------------------------
2. Section 550.70--Must I Obtain OTS Approval or File a Notice Before I
Exercise Fiduciary Powers?
Proposed Sec. 550.70 required a Federal savings association to
obtain prior approval from OTS before conducting fiduciary activities
that are ``materially different'' from the activities that OTS has
previously approved for the association. The final rule clarifies that
[[Page 76295]]
a Federal savings association engages in ``materially different''
activities when, among other things, it acts under fiduciary powers
that it has held but not exercised for five or more years.
The purpose of the ``materially different'' standard was to
identify those situations where a complete OTS review is necessary to
ensure that proposed operations are consistent with the association's
experience, resources, and expertise. If a Federal savings association
wishes to commence fiduciary activities under powers it has held but
not exercised for more than five years, its ability to conduct
fiduciary operations could have changed since that time. Accordingly,
under Sec. 550.70, the association must submit a new trust application
to allow OTS to review its current expertise and resources.
We have also revised Sec. 550.70 to make clear that OTS must
approve the exercise of fiduciary powers by a Federal savings
association. If, for instance, a Federal thrift without fiduciary
powers merges with a state institution with fiduciary powers, a
resulting Federal savings association would have to obtain OTS approval
before exercising fiduciary powers.
3. Section 550.135(b)--What State Laws Apply to My Operations?
Proposed Sec. 550.135(b) provided that, except for those state
laws specifically mentioned in section 5(n) of the HOLA, ``[s]tate laws
that purport to regulate any other aspect of your fiduciary activities
do not apply to your fiduciary operations.'' One commenter has asked
that we clarify what types of state laws ``purport to regulate'' a
Federal thrift's fiduciary operations. As one example, the commenter
asks whether state securities laws requiring investment adviser
licensing of a Federal savings association or its employees are
applicable state laws.
To clarify OTS's views on preemption of state law in the context of
fiduciary activities, OTS has included language similar to that found
in the lending and deposit-taking regulations that discuss preemption.
See 12 CFR 557.11-.13 and 560.2. Fiduciary activities, like lending and
deposit-taking, are authorized by section 5 of the HOLA. Section 5
authorizes OTS, ``under such regulations as [it] may prescribe * * * to
provide for the * * * operation and regulation of * * * Federal savings
associations * * * giving primary consideration of the best practices
of thrift institutions in the United States.'' 12 U.S.C. 1464(a)
(2001).
OTS intends that, except with regard to those specific state laws
identified in section 5(n) of the HOLA (scope of fiduciary powers,
investment in state trust companies, access to examination reports
regarding trust activities, deposit of securities, oaths and
affidavits, and capital), a determination whether Federal law preempts
state law will follow the same analysis set out in the lending and
deposit-taking regulations.
OTS has moved proposed Sec. 550.135(b) into a separate section,
Sec. 550.136, entitled ``To what extent do State laws apply to my
fiduciary operations?'' Proposed Sec. 550.135(a) is now Sec. 550.135
of the final rule, with the new title ``How do I determine which
State's laws apply to my fiduciary operations?'
Section 550.136 of the final rule tracks Sec. 560.2 of the lending
regulations. Section 550.136(a) includes a general statement regarding
Federal preemption of state law under HOLA. Paragraph (a) makes clear
that, to enhance safety and soundness and to enable Federal savings
associations to conduct their fiduciary activities in accordance with
the best practices of thrift institutions in the United States (by
efficiently delivering fiduciary services to the public free from undue
regulatory duplication and burden), OTS occupies the field of the
regulation of the fiduciary activities of Federal savings associations.
In so doing, OTS intends to give Federal savings associations
maximum flexibility to exercise their fiduciary powers in accordance
with a uniform scheme of Federal regulation. Federal savings
associations may exercise fiduciary powers as authorized under HOLA and
OTS regulations, without regard to state laws that purport to regulate
or otherwise affect their fiduciary activities, except to the extent
provided in 12 U.S.C. 1464(n) (state laws regarding scope of fiduciary
powers, investments in state trust companies, access to examination
reports regarding trust activities, deposits of securities, oaths and
affidavits, and capital) or as provided in paragraph (c), discussed
below. Paragraph (a) also clarifies that for purposes of Sec. 550.136,
``state law'' includes any state statute, regulation, ruling, order, or
judicial decision.
Paragraph (b) then lists illustrative examples of the types of
state laws that are preempted. That list includes state registration
and licensing laws, state recordkeeping requirements, state advertising
and marketing laws, state laws affecting the ability of a Federal
savings association acting in a fiduciary capacity to maintain an
action or proceeding in state court, and state laws regarding
fiduciary-related fees. These examples are drawn from prior OTS opinion
letters and inquiries that OTS has received from thrifts that conduct
fiduciary activities.\8\
---------------------------------------------------------------------------
\8\ See, e.g., OTS Op. Chief Counsel (January 3, 2001)
(preempting state restriction on out-of-state Federal savings
association conducting fiduciary activities in an agency office);
OTS Op. Chief Counsel (July 1, 1998) (preempting state restrictions
on who may act as trustee of a pre-need funeral trust); OTS Op.
Chief Counsel (August 8, 1996) (preempting state marketing
restrictions); OTS Op. Chief Counsel (June 21, 1996) (preempting
state marketing restrictions); OTS Op. Chief Counsel (March 28,
1996) (preempting state licensing requirement); OTS Op. Acting Chief
Counsel (June 13, 1994) (preempting state licensing requirement).
---------------------------------------------------------------------------
Finally, paragraph (c) specifies that certain state laws generally
are not preempted.\9\ The list of those laws is the same as in Sec.
560.2(c) (contract and commercial law, real property law, tort law, and
criminal law), with the addition of state probate law.\10\ Generally,
Federal law will not preempt these laws to the extent the state law
only incidentally affects the fiduciary operations of Federal savings
associations or is otherwise consistent with the purposes of the
preemption regulation. The final rule provides that OTS may decline to
preempt state laws other than those listed in the above categories if
the law furthers a vital state interest and either has only an
incidental effect on the association's fiduciary operations or is not
otherwise contrary to the purposes of the preemption regulation.
---------------------------------------------------------------------------
\9\ In clarifying the scope of Federal preemption of state law
in the fiduciary area, OTS does not intend to supplant areas in
which state law has long governed the duties of a fiduciary, such as
state principal and income laws and state ``prudent man'' or
``prudent investor'' laws.
\10\ Acting as an executor is a classic fiduciary activity. 12
CFR 550.30(b). Moreover, institutions acting as executors have
always been subject to state laws governing the administration of
estates. OTS has no intention of changing this in the final rule.
---------------------------------------------------------------------------
When confronted with interpretive questions under Sec. 550.136, we
anticipate that courts will, in accordance with well established
principles of regulatory construction, look to the regulatory history
of Sec. 550.136 for guidance. The purpose of paragraph (c) is to
preserve the traditional infrastructure of basic state laws that
undergird commercial transactions, not to open the door to state
regulation of a Federal savings association's fiduciary activities.
When analyzing the status of state laws under Sec. 550.136, the
first step will be to determine whether the type of law in question is
listed in paragraph (b). If so, the analysis will end there; the law is
preempted. If the law is not covered by paragraph (b), the next
question is whether the law affects fiduciary activities. If it does,
then, in accordance with paragraph (a), the presumption
[[Page 76296]]
arises that the law is preempted. This presumption can by reversed only
if the law can clearly be shown to fit within the confines of paragraph
(c). For these purposes, paragraph (c) is intended to be interpreted
narrowly. Any doubt should be resolved in favor of preemption.
For example, under this approach Federal law would not preempt a
provision in a state corporation code requiring an out-of-state
corporation doing business in that state to appoint a state resident or
official as the corporation's agent for service of process purposes.
The law is not included in the list of illustrative examples in
paragraph (b). The law does, however, affect a thrift's fiduciary
activities, so a presumption of preemption arises. This presumption can
by reversed if the law fits within the confines of paragraph (c).
In our view, a service of process statute falls within the
exception in subparagraph (c)(1) for commercial laws. Moreover, a
requirement that an out-of-state thrift appoint a resident or official
for purposes of service of process would only incidentally impact the
fiduciary activities of a Federal savings association. Furthermore,
finding such a state law applicable to a Federal savings association is
consistent with the purposes of the preemption regulation. The
preemption regulation is intended to allow Federal savings associations
to exercise fiduciary powers in accordance with a uniform Federal
scheme. Appointing a state resident or official to receive service of
process is largely ministerial and should not affect a Federal savings
association's ability to offer fiduciary services free of overlapping,
varying state regulation. Accordingly, the state law would not be
preempted.
As questions arise, OTS will issue interpretive guidance consistent
with the foregoing. While recognizing that no regulation can anticipate
and expressly resolve all questions, we believe Sec. 550.136 provides
thrifts with substantially more guidance than was previously available.
This should enable thrifts to plan and operate their fiduciary
activities more efficiently. From time to time, OTS will review,
update, and modify Sec. 550.136 to ensure that it reflects new
developments and promotes ``best practices'' and safety and soundness.
II. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) requires
Federal agencies to prepare a final regulatory flexibility analysis
with a final rule that was subject to notice and comment unless the
agency certifies that the rule will not have a significant impact on a
substantial number on small entities.
Most of the changes to part 550 merely codify existing OTS
regulatory interpretations regarding the scope of fiduciary powers,
multi-state operations, and the impact of Federal law. To the extent
that the final rule modifies existing requirements of part 550, the
final rule will reduce burden by eliminating application requirements
under certain circumstances, by substituting notices for applications
in other circumstances, by providing greater flexibility regarding the
collateralization of deposits of fiduciary funds, and by clarifying the
scope of Federal preemption of state laws in the fiduciary area. The
final rule also clarifies the scope of activities that are exempt from
part 550 under section 5(l) of the HOLA. While the final rule
eliminates Sec. 550.580(c), which exempts Federal savings associations
that act as trustees of fiduciary accounts that involve no active
fiduciary duties, OTS is not aware of any small Federal savings
associations that rely on that provision. Accordingly, OTS certifies to
the Chief Counsel of Advocacy of the Small Business Administration that
the final changes to part 550 will not have a significant economic
impact on a substantial number of small entities.
In the proposal, OTS published an initial regulatory flexibility
analysis for part 551. OTS includes here a final regulatory flexibility
analysis for part 551.
Because the recordkeeping and confirmation requirements are new for
savings associations, OTS cannot determine whether the addition of part
551 will have a significant impact on a substantial number of small
entities. However, we have consulted supporting statements filed by the
OCC for substantially identical requirements in connection with a 1999
submission under the Paperwork Reduction Act. Because savings
associations are now considered ``banks'' for purposes of the broker-
dealer registration requirements and because OTS has modeled the final
rule on the OCC's recordkeeping and confirmation rules, OTS believes
that the OCC's estimated annual paperwork cost of complying with the
regulations provides a reasonable starting point for OTS's analysis of
the cost to small business entities to comply with the proposed rule.
These estimates are discussed under section B--Requirements of the
proposed rule.
A description of the reasons why OTS is issuing this final rule,
and a statement of the objectives of, and legal basis for, proposed
part 551 are included in the supplementary material above. OTS did not
receive any comments on its initial regulatory flexibility analysis for
part 551.
A. Small Entities to Which the Proposed Rule Would Apply
Part 551 applies to savings associations that effect securities
transactions for customers. OTS calculates that as of October 21, 2002,
it regulates approximately 982 savings associations. Of these savings
associations approximately 529 savings associations hold assets under
$150 million. Small depository institutions are generally defined, for
RFA purposes, as those with assets under $150 million.
In all likelihood, however, this number substantially overstates
the number of small savings associations that will be effected by the
final rule. No savings associations are currently registered with the
SEC as broker-dealers, although some provide such services to their
customers through arrangements with a third party broker-dealer.
Because the new SEC rule permitting savings associations to perform
broker-dealer activities without registering is so recent, OTS has no
information concerning how many of its savings associations, large or
small, have commenced or are contemplating commencing these operations.
B. Requirements of the Final Rule
As set out in detail in the regulatory text, the final rule
requires savings associations to retain records of securities
transactions, send confirmation of the transactions to customers,
settle securities transactions within certain timeframes, and establish
and maintain specific written policies and procedures regarding
securities transactions.
Subpart A of the final rule establishes the minimum recordkeeping
requirements for savings associations concerning securities
transactions with their customers. This provision requires that the
savings association maintain essential records necessary to track
securities transactions. This type of recordkeeping is a usual and
customary process for a savings association. Consequently, most savings
associations should be partially or fully prepared to meet the
recordkeeping requirements. While we believe that this requirement
should not impose significant burdens, savings associations may incur
additional personnel (managerial, computer, and support staff), data
storage, and other costs to the extent that existing resources are
insufficient.
Subpart B establishes requirements for confirmation notices and
subpart C
[[Page 76297]]
addresses the timing of settlement for securities transactions. To the
extent that existing practices and available resources are
insufficient, savings associations may need the assistance of legal and
securities professionals and other personnel (managerial, computer, and
support staff) to ensure that notices meet the content requirements and
are provided within the time frames set forth in the regulation, and to
ensure that securities transactions close within the times specified in
the rule.
Finally, subpart D requires the savings association to establish
and follow various policies and procedures to govern securities
transactions. Savings associations commonly develop and implement
policies and procedures in many of the areas addressed by the final
rule (for example, the assignment of responsibility for the oversight
of personnel). Accordingly, most savings associations should be
partially prepared to meet these requirements. However, the development
of policies and procedures on matters specific to securities
transactions may require the assistance of legal and securities
professionals. Compliance with these policies and procedures may
require additional personnel, training, and other costs.
Based on OCC estimates, OTS calculates that this rule will impose
at least $264 in additional costs on small savings associations that
begin to effect securities transactions on behalf of customers.\11\ The
development of policies and procedures, however, may require the
assistance of legal or securities professionals that were not included
in the OCC's estimate. Accordingly, OTS has included additional costs
of $305 to $403 to reflect the efforts of these professionals.\12\
Accordingly, OTS estimates that the total cost of complying with this
rule will be $569 to $667 per small institution. OTS notes that these
costs will drop in subsequent years because thrifts will not be
required to develop, and will only be required to update, policies and
procedures on effecting securities transactions.
---------------------------------------------------------------------------
\11\ OCC estimated that banks would incur 11 hours of additional
burden in their first year and an additional 4 hours thereafter. It
further estimated that 80 percent of the burden would be clerical at
a cost of $20 per hour and that 20 percent of the burden would be
managerial at $40 per hour. Thus, the average annual cost of each
hour is $24.
\12\ The average billing rate for a partner in a United States
law firm with less than nine lawyers is $183 per hour. The average
billing rate for an associate in such a firm is $139 per hour. 1999
Survey of Law Firm Economics, Altman Weil Pensa Publications, Inc.,
reported at www.lawyers.com. Using OCC's estimate that the rule
imposes a maximum of 2.2 managerial burden hours, OTS estimates that
these costs will be between $305 and $403.
---------------------------------------------------------------------------
C. Significant Alternatives
Section 604(a)(5) requires OTS to describe the steps it has taken
to minimize the significant economic impact on small entities
consistent with the objectives of the statute and regulations. OTS
solicited comment on other alternatives that would minimize the burden
on small savings associations that effect securities transactions,
including whether any modifications or exemptions from the rules for
small savings associations would be appropriate. OTS received no
comments.
As noted in the proposal, OTS considered recommending, rather than
requiring, recordkeeping and confirmation provisions regarding
securities transactions conducted by savings associations, but decided
that such an approach was inappropriate. The SEC and the other Federal
banking regulators have created a regulatory scheme designed to protect
investors through adequate disclosure of information and to discourage
and detect fraudulent securities practices through prudent
recordkeeping requirements. OTS believes that similar provisions are
necessary to bring the savings association industry into conformity
with the standards of the securities and banking industries for
effecting securities transactions.
OTS, however, has attempted to minimize the economic impact of the
final rule on savings associations, including small savings
associations, while still achieving the overall objectives of the
regulation. OTS has included several exemptions to the rule that may be
available to small savings associations. For example, Sec.
551.20(b)(1) exempts savings associations from certain recordkeeping
and policy and procedure requirements if the institution conducts fewer
than 500 securities transactions for customers (excluding transactions
in government securities). Similarly, Sec. 551.20(b)(2) exempts
savings associations who conduct fewer than 500 government securities
transactions from certain recordkeeping requirements. OTS believes that
many small associations will take advantage of these exemptions.
Moreover, OTS continues to have the ability under 12 CFR 500.30(a)
to waive any recordkeeping or confirmation requirements upon a finding
of good cause. This provision permits OTS to minimize any significant
economic impact of a provision on a specific institution on a case-by-
case basis.
Finally, OTS has included a substantial amount of flexibility in
the final rule. For example, a savings association may maintain
required records in any manner, form, or format that it deems
appropriate. Further, the rules would specifically permit the use of
electronic storage media and the provision of notices through
electronic means. See Sec. Sec. 551.60 and 551.110. In addition,
several provisions permit a savings association, through the agreement
with the customer, to modify the requirements of the part.
D. Other Matters
There are no Federal rules or statutes that duplicate, overlap, or
conflict with the proposed rule. However, as noted above, the SEC and
the other banking regulators have adopted substantially similar
recordkeeping and confirmation requirements for broker-dealers and
other depository institutions.
III. Paperwork Reduction Act
OTS in the proposal solicited specific comment on the paperwork
collection requirements in the proposed rule. No commenters included
any comments or suggestions regarding paperwork.
The information collection requirements contained in the final rule
are virtually identical to those included in the proposed rule on
theses subjects published in June 2002. The burden on respondents
remains unchanged from those in the proposal, which OMB approved in
July 2002. See OMB Nos. 1550-0109 (July 15, 2002; expires July 31,
2005) and 1550-0037 (July 22, 2002; expires July 31, 2005).
Respondents/recordkeepers are not required to respond to any collection
of information unless it displays a currently valid OMB control number.
IV. Unfunded Mandates Act
OTS has determined that the final rule will not result in
expenditures by state, local, or tribal governments or by the private
sector of $100 million or more. Accordingly, a budgetary impact
statement is not required under section 202 of the Unfunded Mandates
Act.
V. Effective Date
Under the Administrative Procedure Act, an agency must publish a
rule at least 30 days before its effective date. 5 U.S.C. 553(d). The
agency may, however, waive this 30-day delayed publication requirement
if the rule relieves a restriction (5 U.S.C. 553(d)(1)) or for good
cause (5 U.S.C. 553(d)(3)).
OTS waives the 30-day requirement for the amendments to its
fiduciary powers regulations because the rule imposes no new burden and
relieves a
[[Page 76298]]
restriction, specifically the restriction against a Federal savings
association exercising fiduciary powers in a new state without OTS's
approval.
With regard to the recordkeeping and confirmation rules, OTS waives
the 30-day delayed effective provision for good cause. OTS finds good
cause for making the recordkeeping and confirmation rules effective at
the beginning of the next quarter because the new rules will fill a
current gap in the rules applicable to securities transactions of
securities transactions.
Moreover, as noted in section I(A)(1), n. 2, above, at the request
of OTS trust examiners, many Federal savings associations with trust
departments have been keeping records similar to those required by the
final recordkeeping and confirmation rules. For those securities
transactions conducted by a savings association outside the trust
department, keeping records and sending confirmations are standard
industry practice in the securities business, so a savings association
should already be following these, or similar, requirements simply as a
matter of sound business practices. Accordingly, savings associations
should not need the benefit of the full 30-day delayed effective date
in order to have enough time to comply with the rule. As a result, the
final rule will be effective January 1, 2003.
VI. Executive Order 12866
OTS has determined that the final rule does not constitute a
``significant regulatory action'' for purposes of Executive Order
12866.
VII. Federalism
Executive Order 13132 imposes certain requirements on an agency
when formulating and implementing policies that may have federalism
implications or taking action that preempts state law. In accordance
with those requirements, OTS has consulted with the Conference of State
Bank Supervisors, the National Association of Attorneys General, and
the American Council of State Savings Supervisors.
List of Subjects
12 CFR Part 506
Reporting and recordkeeping requirements.
12 CFR Part 550
Accounting, Reporting and recordkeeping requirements, Savings
associations, Trusts and trustees.
12 CFR Part 551
Reporting and recordkeeping requirements, Savings associations,
Securities, Trusts and trustees.
Accordingly, OTS amends chapter V, title 12, Code of Federal
Regulations as set forth below:
PART 506--INFORMATION COLLECTION REQUIREMENTS UNDER THE PAPERWORK
REDUCTION ACT
1. The authority citation for part 506 continues to read as
follows:
Authority: 44 U.S.C. 3501 et seq.
2. Amend Sec. 506.1(b) by adding in numerical order, the following
entry to read as follows:
Sec. 506.1 OMB control numbers assigned pursuant to the Paperwork
Reduction Act.
* * * * *
(b) Display.
------------------------------------------------------------------------
Current OMB
12 CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
Part 551................................................... 1550-0109
* * * * *
------------------------------------------------------------------------
PART 550--[AMENDED]
3. The authority citation for part 550 continues to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464.
4. Section 550.20 is revised to read as follows:
Sec. 550.20 What are fiduciary powers?
Fiduciary powers are the authority that OTS permits you to exercise
under 12 U.S.C. 1464(n).
5. Section 550.60 is amended by adding definitions of the phrases
``activities ancillary to your fiduciary business'' and ``fiduciary
activities'' in alphabetical order, to read as follows:
Sec. 550.60 What other definitions apply to this part?
Activities ancillary to your fiduciary business include
advertising, marketing, or soliciting fiduciary business, contacting
existing or potential customers, answering questions and providing
information to customers related to their accounts, acting as liaison
between you and your customer (for example, forwarding requests for
distribution, changes in investment objectives, forms, or funds
received from the customer), and inspecting or maintaining custody of
fiduciary assets or holding title to real property. This list is
illustrative and not comprehensive. Other activities may also be
``ancillary activities'' for purposes of this definition.
* * * * *
Fiduciary activities include accepting a fiduciary appointment,
executing fiduciary-related documents, providing investment advice for
a fee regarding fiduciary assets, or making discretionary decisions
regarding investment or distribution of assets.
6. Section 550.70 is revised to read as follows:
Sec. 550.70 Must I obtain OTS approval or file a notice before I
exercise fiduciary powers?
You should refer to the following chart to determine if you must
obtain OTS approval or file a notice with OTS before you exercise
fiduciary powers. This chart does not apply to activities that are
exempt under subpart E of this part.
------------------------------------------------------------------------
If you will conduct . . . Then . . .
------------------------------------------------------------------------
(a) Fiduciary activities for the You must obtain prior approval from
first time and OTS has not OTS under Sec. Sec. 550.80
previously approved an application through 550.120 before you conduct
that you submitted under this part. the activities
(b) Fiduciary activities that are You must obtain prior approval from
materially different from the OTS under Sec. Sec. 550.80
activities that OTS has previously through 550.120 before you conduct
approved for you, including the activities.
fiduciary activities that OTS has
previously approved for you have
not exercised for at least five
years.
(c) Fiduciary activities that are You must file a written notice
not materially different from the described at Sec. 550.125 if you
activities that OTS has previously commence the activities in a new
approved for you. State. You do not need to file a
written notice if you commence the
activities at a new location in a
State where you already conduct
these activities.
(d) Activities that are ancillary You do not have to obtain prior OTS
to your fiduciary business. approval or file a that are notice
with OTS.
------------------------------------------------------------------------
[[Page 76299]]
7. Section 550.125 is added to subpart A to read as follows:
Sec. 550.125 How do I file the notice under Sec. 550.70(c)?
(a) If you are required to file a notice under Sec. 550.70(c),
within ten days after you commence the fiduciary activities in a new
State, you must file a written notice that identifies each new State in
which you conduct or will conduct fiduciary activities, describe the
fiduciary activities that you conduct or will conduct in each new
State, and provide sufficient information supporting a conclusion that
the activities are permissible in the State.
(b) You must file the notice with the appropriate OTS Regional
Office at the address in Sec. 516.40(a) of this chapter.
8. Section 550.130 is revised to read as follows:
Sec. 550.130 How may I conduct multi-state operations?
(a) Conducting fiduciary activities in more than one State. You may
conduct fiduciary activities in any State, subject to the application
and notice requirements in subpart A of this part.
(b) Serving customers in more than one State. When you conduct
fiduciary activities in a State:
(1) You may market your fiduciary services to, and act as a
fiduciary for, customers located in any State, may act as a fiduciary
for relationships that include property located in other States, and
may act as a testamentary trustee for a testator located in other
States.
(2) You may establish or utilize an office in any State to perform
activities that are ancillary to your fiduciary business.
9. Section 550.135 is added to read as follows:
Sec. 550.135 How do I determine which State's laws apply to my
operations?
(a) The State laws that apply to you by virtue of 12 U.S.C. 1464(n)
are the laws of the States in which you conduct fiduciary activities.
For each individual State, you may conduct fiduciary activities in the
capacity of trustee, executor, administrator, guardian, or in any other
fiduciary capacity the State permits for its State banks, trust
companies, or other corporations that compete with Federal savings
associations in the State.
(b) For each fiduciary relationship, the State referred to in 12
U.S.C. 1464(n) is the State in which you conduct fiduciary activities
for that relationship.
10. Section 550.136 is added to read as follows:
Sec. 550.136 To what extent do State laws apply to my fiduciary
operations?
(a) Occupation of field. To enhance safety and soundness and to
enable Federal savings associations to conduct their fiduciary
activities in accordance with the best practices of thrift institutions
in the United States (by efficiently delivering fiduciary services to
the public free from undue regulatory duplication and burden), OTS
occupies the field of the regulation of the fiduciary activities of
Federal savings associations. In so doing, OTS intends to give Federal
savings associations maximum flexibility to exercise their fiduciary
powers in accordance with a uniform scheme of Federal regulation.
Accordingly, Federal savings associations may exercise fiduciary powers
as authorized under Federal law, including this part, without regard to
State laws that purport to regulate or otherwise affect their fiduciary
activities, except to the extent provided in 12 U.S.C. 1464(n) (State
laws regarding scope of fiduciary powers, investments in state trust
companies, access to examination reports regarding trust activities,
deposits of securities, oaths and affidavits, and capital) or in
paragraph (c) of this section. For purposes of this section, ``State
law'' includes any State statute, regulation, ruling, order, or
judicial decision.
(b) Illustrative examples. Examples of State laws that are
preempted by the HOLA and this section include those regarding:
(1) Registration and licensing;
(2) Recordkeeping;
(3) Advertising and marketing;
(4) The ability of a federal savings association conducting
fiduciary activities to maintain an action or proceeding in State
court; and
(5) Fiduciary-related fees.
(c) State laws that are not preempted. State laws of the following
types are not preempted to the extent that they only incidentally
affect the fiduciary operations of Federal savings associations or are
otherwise consistent with the purposes of paragraph (a) of this
section:
(1) Contract and commercial law;
(2) Real property law;
(3) Tort law;
(4) Criminal law;
(5) Probate law; and
(6) Any other law that OTS, upon review, finds:
(i) Furthers a vital State interest; and
(ii) Either has only an incidental effect on fiduciary operations
or is not otherwise contrary to the purposes expressed in paragraph (a)
of this section.
11. Section 550.310 is amended by removng the first sentence and
adding two new sentences in its place to read as follows:
Sec. 550.310 What if the FDIC does not insure the deposits?
If the FDIC does not insure the entire amount of a self deposit,
you must set aside collateral as security. If the FDIC does not insure
the entire amount of an affiliate deposit, you or your affiliate must
set aside collateral as security. * * *
12. Section 550.580is amended by revising the section heading and
the introductory text and by removing paragraph (c) to read as follows:
Sec. 550.580 When may I conduct fiduciary activities without
obtaining OTS approval?
Subject to the requirements of this subpart E, you do not need OTS
approval under subpart B if you conduct fiduciary activities in the
following fiduciary capacities:
* * * * *
13. The section heading and introductory text of Sec. 550.600 are
revised to read as follows:
Sec. 550.600 How may funds be invested when I act in an exempt
fiduciary capacity?
If you act in an exempt fiduciary capacity under Sec. 550.580, the
funds of the fiduciary account may be invested only in the following:
* * * * *
14. A new part 551 is added as follows:
PART 551--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR
SECURITIES TRANSACTIONS
Sec.
551.10 What does this part do?
551.20 Must I comply with this part?
551.30 What requirements apply to all transactions?
551.40 What definitions apply to this part?
Subpart A--Recordkeeping Requirements
551.50 What records must I maintain for securities transactions?
551.60 How must I maintain my records?
Subpart B--Content and Timing of Notice
551.70 What type of notice must I provide when I effect a securities
transaction for a customer?
551.80 How do I provide a registered broker-dealer confirmation?
551.90 How do I provide a written notice?
551.100 What are the alternate notice requirements?
551.110 May I provide a notice electronically?
551.120 May I charge a fee for a notice?
[[Page 76300]]
Subpart C--Settlement of Securities Transactions
551.130 When must I settle a securities transaction?
Subpart D--Securities Trading Policies and Procedures
551.140 What policies and procedures must I maintain and follow for
securities transactions?
551.150 How do my officers and employees file reports of personal
securities trading transactions?
Authority: 12 U.S.C. 1462a, 1463, 1464.
Sec. 551.10 What does this part do?
This part establishes recordkeeping and confirmation requirements
that apply when a savings association (``you'') effects certain
securities transactions for customers.
Sec. 551.20 Must I comply with this part?
(a) General. Except as provided under paragraph (b) of this
section, you must comply with this part when:
(1) You effect a securities transaction for a customer.
(2) You effect a transaction in government securities.
(3) You effect a transaction in municipal securities and are not
registered as a municipal securities dealer with the SEC.
(4) You effect a securities transaction as fiduciary. If you are a
Federal savings association, you also must comply with 12 CFR part 550
when you effect such a transaction. If you are a State savings
association, you must comply with applicable law when you effect such a
transaction.
(b) Exceptions--(1) Small number of transactions. You are not
required to comply with Sec. 551.50(b) through (d) (recordkeeping) and
Sec. 551.140(a) through (c) (policies and procedures), if you effected
an average of fewer than 500 securities transactions per year for
customers over the three prior calendar years. You may exclude
transactions in government securities when you calculate this average.
(2) Government securities. If you effect fewer than 500 government
securities brokerage transactions per year, you are not required to
comply with Sec. 551.50 (recordkeeping) for those transactions. This
exception does not apply to government securities dealer transactions.
See 17 CFR 404.4(a).
(3) Municipal securities. If you are registered with the SEC as a
``municipal securities dealer,'' as defined in 15 U.S.C. 78c(a)(30)
(see 15 U.S.C. 78o-4), you are not required to comply with this part
when you conduct municipal securities transactions.
(4) Foreign branches. You are not required to comply with this part
when you conduct a transaction at your foreign branch.
(5) Transactions by registered broker-dealers. You are not required
to comply with this part for securities transactions effected by a
registered broker-dealer, if the registered broker-dealer directly
provides the customer with a confirmation. These transactions include a
transaction effected by your employee who also acts as an employee of a
registered broker-dealer (``dual employee'').
Sec. 551.30 What requirements apply to all transactions?
You must effect all transactions, including transactions excepted
under Sec. 551.20, in a safe and sound manner. You must maintain
effective systems of records and controls regarding your customers'
securities transactions. These systems must clearly and accurately
reflect all appropriate information and provide an adequate basis for
an audit.
Sec. 551.40 What definitions apply to this part?
Asset-backed security means a security that is primarily serviced
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. Asset-backed security includes any
rights or other assets designed to ensure the servicing or timely
distribution of proceeds to the security holders.
Common or collective investment fund means any fund established
under 12 CFR 550.260(b) or 12 CFR 9.18.
Completion of the transaction means:
(1) If the customer purchases a security through or from you,
except as provided in paragraph (2) of this definition, the time the
customer pays you any part of the purchase price. If payment is made by
a bookkeeping entry, the time you make the bookkeeping entry for any
part of the purchase price.
(2) If the customer purchases a security through or from you and
pays for the security before you request payment or notify the customer
that payment is due, the time you deliver the security to or into the
account of the customer.
(3) If the customer sells a security through or to you, except as
provided in paragraph (4) of this definition, the time the customer
delivers the security to you. If you have custody of the security at
the time of sale, the time you transfer the security from the
customer's account.
(4) If the customer sells a security through or to you and delivers
the security to you before you request delivery or notify the customer
that delivery is due, the time you pay the customer or pay into the
customer's account.
Customer means a person or account, including an agency, trust,
estate, guardianship, or other fiduciary account for which you effect a
securities transaction. Customer does not include a broker or dealer,
or you when you: act as a broker or dealer; act as a fiduciary with
investment discretion over an account; are a trustee that acts as the
shareholder of record for the purchase or sale of securities; or are
the issuer of securities that are the subject of the transaction.
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). Debt security also includes a fractional
or participation interest in these debt securities. Debt security does
not include securities issued by an investment company registered under
the Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq.
Government security means:
(1) A security that is a direct obligation of, or an obligation
that is 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 if the
Secretary of the Treasury has designated the security 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
a corporation if a statute specifically designates, by name, the
corporation's securities as exempt securities within the meaning of the
laws administered by the SEC; or
(4) Any put, call, straddle, option, or privilege on a government
security described in this definition, other than a put, call,
straddle, option, or privilege:
(i) That is traded on one or more national securities exchanges; or
(ii) For which quotations are disseminated through an automated
quotation system operated by a registered securities association.
Investment discretion means the same as under 12 CFR 550.40(a).
Investment company plan means any plan under which:
(1) A customer purchases securities issued by an open-end
investment company or unit investment trust registered under the
Investment
[[Page 76301]]
Company Act of 1940, making the payments directly to, or made payable
to, the registered investment company, or the principal underwriter,
custodian, trustee, or other designated agent of the registered
investment company; or
(2) A customer sells securities issued by an open-end investment
company or unit investment trust registered under the Investment
Company Act of 1940 under:
(i) An individual retirement or individual pension plan qualified
under the Internal Revenue Code; or
(ii) A contractual or systematic agreement under which the customer
purchases at the applicable public offering price, or redeems at the
applicable redemption price, securities in specified amounts
(calculated in security units or dollars) at specified time intervals,
and stating the commissions or charges (or the means of calculating
them) that the customer will pay in connection with the purchase.
Municipal security means:
(1) A security that 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.
(2) A security that is a direct obligation of, or an obligation
guaranteed as to principal or interest by, any municipal corporate
instrumentality of one or more States; or
(3) A security that is an industrial development bond, the interest
on which is excludable from gross income under section 103(a) of the
Code (26 U.S.C. 103(a)).
Periodic plan means a written document that authorizes you to act
as agent to purchase or sell for a customer a specific security or
securities (other than securities issued by an open end investment
company or unit investment trust registered under the Investment
Company Act of 1940). The written document must authorize you to
purchase or sell in specific amounts (calculated in security units or
dollars) or to the extent of dividends and funds available, at specific
time intervals, and must set forth the commission or charges to be paid
by the customer or the manner of calculating them.
SEC means the Securities and Exchange Commission.
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.
Security does not include currency; any note, draft, bill of exchange,
or banker's acceptance which has a maturity at the time of issuance of
less than nine months, exclusive of days of grace, or any renewal
thereof, the maturity of which is likewise limited; a deposit or share
account in a Federal or State chartered depository institution; a loan
participation; a letter of credit or other form of bank indebtedness
incurred in the ordinary course of business; units of a collective
investment fund; interests in a variable amount (master) note of a
borrower of prime credit; U.S. Savings Bonds; or any other instrument
OTS determines does not constitute a security for purposes of this
part.
Sweep account means any prearranged, automatic transfer or sweep 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.
Subpart A--Recordkeeping Requirements
Sec. 551.50 What records must I maintain for securities transactions?
If you effect securities transactions for customers, you must
maintain all of the following records for at least three years:
(a) Chronological records. You must maintain an itemized daily
record of each purchase and sale of securities in chronological order,
including:
(1) The account or customer name for which you effected each
transaction;
(2) The name and amount of the securities;
(3) The unit and aggregate purchase or sale price;
(4) The trade date; and
(5) The name or other designation of the registered broker-dealer
or other person from whom you purchased the securities or to whom you
sold the securities.
(b) Account records. You must maintain account records for each
customer reflecting:
(1) Purchases and sales of securities;
(2) Receipts and deliveries of securities;
(3) Receipts and disbursements of cash; and
(4) Other debits and credits pertaining to transactions in
securities.
(c) Memorandum (order ticket). You must make and keep current a
memorandum (order ticket) of each order or any other instruction given
or received for the purchase or sale of securities (whether executed or
not), including:
(1) The account or customer name for which you effected each
transaction;
(2) Whether the transaction was a market order, limit order, or
subject to special instructions;
(3) The time the trader received the order;
(4) The time the trader placed the order with the registered
broker-dealer, or if there was no registered broker-dealer, the time
the trader executed or cancelled the order;
(5) The price at which the trader executed the order;
(6) The name of the registered broker-dealer you used.
(d) Record of registered broker-dealers. You must maintain a record
of all registered broker-dealers that you selected to effect securities
transactions and the amount of commissions that you paid or allocated
to each registered broker-dealer during each calendar year.
(e) Notices. You must maintain a copy of the written notice
required under subpart B of this part.
Sec. 551.60 How must I maintain my records?
(a) You may maintain the records required under Sec. 551.50 in any
manner, form, or format that you deem appropriate. However, your
records must clearly and accurately reflect the required information
and provide an adequate basis for an audit of the information.
(b) You, or the person that maintains and preserves records on your
behalf, must:
(1) Arrange and index the records in a way that permits easy
location, access, and retrieval of a particular record;
(2) Separately store, for the time required for preservation of the
original record, a duplicate copy of the record on any medium allowed
by this section;
(3) Provide promptly any of the following that OTS examiners or
your directors may request:
(i) A legible, true, and complete copy of the record in the medium
and format in which it is stored;
(ii) A legible, true, and complete printout of the record; and
(iii) Means to access, view, and print the records.
(4) In the case of records on electronic storage media, you, or the
person that
[[Page 76302]]
maintains and preserves records for you, must establish procedures:
(i) To maintain, preserve, and reasonably safeguard the records
from loss, alteration, or destruction;
(ii) To limit access to the records to properly authorized
personnel, your directors, and OTS examiners; and
(iii) To reasonably ensure that any reproduction of a non-
electronic original record on electronic storage media is complete,
true, and legible when retrieved.
(c) You may contract with third party service providers to maintain
the records.
Subpart B-Content and Timing of Notice
Sec. 551.70 What type of notice must I provide when I effect a
securities transaction for a customer?
If you effect a securities transaction for a customer, you must
give or send the customer the registered broker-dealer confirmation
described at Sec. 551.80, or the written notice described at Sec.
551.90. For certain types of transactions, you may elect to provide the
alternate notices described in Sec. 551.100.
Sec. 551.80 How do I provide a registered broker-dealer confirmation?
(a) If you elect to satisfy Sec. 551.70 by providing the customer
with a registered broker-dealer confirmation, you must provide the
confirmation by having the registered broker-dealer send the
confirmation directly to the customer or by sending a copy of the
registered broker-dealer's confirmation to the customer within one
business day after you receive it.
(b) If you have received or will receive remuneration from any
source, including the customer, in connection with the transaction, you
must provide a statement of the source and amount of the remuneration
in addition to the registered broker-dealer confirmation described in
paragraph (a) of this section.
Sec. 551.90 How do I provide a written notice?
If you elect to satisfy Sec. 551.70 by providing the customer a
written notice, you must give or send the written notice at or before
the completion of the securities transaction. You must include all of
the following information in a written notice:
(a)Your name and the customer's name.
(b)The capacity in which you acted (for example, as agent).
(c) The date and time of execution of the securities transaction
(or a statement that you will furnish this information within a
reasonable time after the customer's written request), and the
identity, price, and number of shares or units (or principal amount in
the case of debt securities) of the security the customer purchased or
sold.
(d) The name of the person from whom you purchased or to whom you
sold the security, or a statement that you will furnish this
information within a reasonable time after the customer's written
request.
(e) The amount of any remuneration that you have received or will
receive from the customer in connection with the transaction unless the
remuneration paid by the customer is determined under a written
agreement, other than on a transaction basis.
(f) The source and amount of any other remuneration you have
received or will receive in connection with the transaction. If, in the
case of a purchase, you were not participating in a distribution, or in
the case of a sale, were not participating in a tender offer, the
written notice may state whether you have or will receive any other
remuneration and state that you will furnish the source and amount of
the other remuneration within a reasonable time after the customer's
written request.
(g) That you are not a member of the Securities Investor Protection
Corporation, if that is the case. This does not apply to a transaction
in shares of a registered open-end investment company or unit
investment trust if the customer sends funds or securities directly to,
or receives funds or securities directly from, the registered open-end
investment company or unit investment trust, its transfer agent, its
custodian, or a designated broker or dealer who sends the customer
either a confirmation or the written notice in this section.
(h) Additional disclosures. You must provide all of the additional
disclosures described in the following chart for transactions involving
certain debt securities:
------------------------------------------------------------------------
You must provide the following additional
If you effect a transaction information in your written notice . . .
involving . . .
------------------------------------------------------------------------
(1) A debt security subject A statement that the issuer may redeem
to redemption before the debt security in whole or in part
maturity. before maturity, that the redemption
could affect the represented yield, and
that additional redemption information
is available upon request.
(2) A debt security that you (i) The dollar price at which you
effected exclusively on the effected the transaction; and
basis of a dollar price. (ii) The yield to maturity calculated
from the dollar price. You do not have
to disclose the yield to maturity if:
(A) The issuer may extend the maturity
date of the security with a variable
interest rate; or
(B) The security 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.
(3) A debt security that you (i) The yield at which the transaction,
effected on basis of yield. including the percentage amount and its
characterization (e.g., current yield,
yield to maturity, or yield to call). If
you effected the transaction at yield to
call, you must indicate the type of
call, the call date, and the call price;
(ii) The dollar price calculated from
that yield; and
(iii) The yield to maturity and the
represented yield, if you effected the
transaction on a basis other than yield
to maturity and the yield to maturity is
lower than the represented yield. You
are not required to disclose this
information if:
(A) The issuer may extend the maturity
date of the security with a variable
interest rate; or
(B) The security 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.
(4) A debt security that is (i) A statement that the actual yield of
an asset-backed security the asset-backed security may vary
that represents an interest according to the rate at which the
in, or is secured by, a pool underlying receivables or other
of receivables or other financial assets are prepaid; and
financial assets that are (ii) A statement that you will furnish
subject continuously to information concerning the factors that
prepayment. affect yield (including at a minimum
estimated yield, weighted average life,
and the prepayment assumptions
underlying yield) upon the customer's
written request.
[[Page 76303]]
(5) A debt security, other A statement that the security is unrated
than a government security. by a nationally recognized statistical
rating organization, if that is the
case.
------------------------------------------------------------------------
Sec. 551.100 What are the alternate notice requirements?
You may elect to satisfy Sec. 551.70 by providing the alternate
notices described in the following chart for certain types of
transactions.
------------------------------------------------------------------------
If you effect a securities transaction
. . . Then you may elect to . . .
------------------------------------------------------------------------
(a) For or with the account of a Give or send to the customer
customer under a periodic plan, sweep within five business days
account, or investment company plan. after the end of each
quarterly period a written
statement disclosing:
(1) Each purchase and
redemption that you effected
for or with, and each dividend
or distribution that you
credited to or reinvested for,
the customer's account during
the period;
(2) The date of each
transaction;
(3) The identity, number,
and price of any securities
that the customer purchased
or redeemed in each
transaction;
(4) The total number of
shares of the securities in
the customer's account;
(5) Any remuneration that
you received or will
receive in connection with
the transaction; and
(6) That you will give or
send the registered broker-
dealer confirmation
described in Sec. 551.80
or the written notice
described in Sec. 551.90
within a reasonable time
after the customer's
written request.
(b) For or with the account of a Give or send to the customer
customer in shares of an open-ended the written statement
management company registered under described at paragraph (a) of
the Investment Company Act of 1940 this section on a monthly
that holds itself out as a money basis. You may not use the
market fund and attempts to maintain a alternate notice, however, if
stable net asset value per share. you deduct sales loads upon
the purchase or redemption of
shares in the money market
fund.
(c) For an account for which you do not Give or send to the customer a
exercise investment discretion, and written notice at the agreed-
for which you and the customer have upon time and with the agreed-
agreed in writing to an arrangement upon content, and include a
concerning the time and content of the statement that you will
written notice. furnish the registered broker-
dealer confirmation described
in Sec. 551.80 or the
written notice described in
Sec. 551.90 within a
reasonable time after the
customer's written request.
(d) For an account for which you Give or send the registered
exercise investment discretion other broker-dealer confirmation
than in an agency capacity, excluding described in Sec. 551.80 or
common or collective investment funds. the written notice described
in Sec. 551.90 within a
reasonable time after a
written request by the person
with the power to terminate
the account or, if there is no
such person, any person
holding a vested beneficial
interest in the account.
(e) For an account in which you Give or send each customer a
exercise investment discretion in an written itemized statement
agency capacity. specifying the funds and
securities in your custody or
possession and all debits,
credits, and transactions in
the customer's account. You
must provide this information
to the customer not less than
once every three months. You
must give or send the
registered broker-dealer
confirmation described in Sec.
551.80 or the written notice
described in Sec. 551.90
within a reasonable time after
a customer's written request.
(f) For a common or collective (1) Give or send to a customer
investment fund. who invests in the fund a copy
of the annual financial report
of the fund, or
(2) Notify the customer that a
copy of the report is
available and that you will
furnish the report within a
reasonable time after a
written request by a person to
whom a regular periodic
accounting would ordinarily be
rendered with respect to each
participating account.
------------------------------------------------------------------------
Sec. 551.110 May I provide a notice electronically?
You may provide any written notice required under this subpart B
electronically. If a customer has a facsimile machine, you may send the
notice by facsimile transmission. You may use other electronic
communications if:
(a) The parties agree to use electronic instead of hard copy
notices;
(b) The parties are able to print or download the notice;
(c) Your electronic communications system cannot automatically
delete the electronic notice; and
(d) Both parties are able to receive electronic messages.
Sec. 551.120 May I charge a fee for a notice?
You may not charge a fee for providing a notice required under this
subpart B, except that you may charge a reasonable fee for the notices
provided under Sec. Sec. 551.100(a), (d), and (e).
Subpart C--Settlement of Securities Transactions
Sec. 551.130 When must I settle a securities transaction?
(a) You may not effect or enter into a contract for the purchase or
sale of a security that provides for payment of funds and delivery of
securities later than the latest of:
(1) The third business day after the date of the contract. This
deadline is no later than the fourth business day after
[[Page 76304]]
the contract for contracts involving the sale for cash of securities
that are priced after 4:30 p.m. Eastern Standard Time on the date the
securities are priced and are sold by an issuer to an underwriter under
a firm commitment underwritten offering registered under the Securities
Act of 1933, 15 U.S.C. 77a, et seq., or are sold by you to an initial
purchaser participating in the offering;
(2) Such other time as the SEC specifies by rule (see SEC Rule
15c6-1, 17 CFR 240.15c6-1); or
(3) Such time as the parties expressly agree at the time of the
transaction. The parties to a contract are 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 under a firm commitment offering, if the
managing underwriter and the issuer have agreed to the date for all
securities sold under 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.
(b) The deadlines in paragraph (a) of this section do not apply to
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.
Subpart D--Securities Trading Policies and Procedures
Sec. 551.140 What policies and procedures must I maintain and follow
for securities transactions?
If you effect securities transactions for customers, you must
maintain and follow policies and procedures that meet all of the
following requirements:
(a) Your policies and procedures must assign responsibility for the
supervision of all officers or employees who:
(1) Transmit orders to, or place orders with, registered broker-
dealers;
(2) Execute transactions in securities for customers; or
(3) Process orders for notice or settlement purposes, or perform
other back office functions for securities transactions that you effect
for customers. Policies and procedures for personnel described in this
paragraph (a)(3) must provide supervision and reporting lines that are
separate from supervision and reporting lines for personnel described
in paragraphs (a)(1) and (2) of this section.
(b) Your policies and procedures must provide for the fair and
equitable allocation of securities and prices to accounts when you
receive orders for the same security at approximately the same time and
you place the orders for execution either individually or in
combination.
(c) Your policies and procedures must provide for securities
transactions in which you act as agent for the buyer and seller
(crossing of buy and sell orders) on a fair and equitable basis to the
parties to the transaction, where permissible under applicable law.
(d) Your policies and procedures must require your officers and
employees to file the personal securities trading reports described at
Sec. 551.150, if the officer or employee:
(1) Makes investment recommendations or decisions for the accounts
of customers;
(2) Participates in the determination of these recommendations or
decisions; or
(3) In connection with their duties, obtains information concerning
which securities you intend to purchase, sell, or recommend for
purchase or sale.
Sec. 551.150 How do my officers and employees file reports of
personal securities trading transactions?
An officer or employee described in Sec. 551.140(d) must report
all personal transactions in securities made by or on behalf of the
officer or employee if he or she has a beneficial interest in the
security.
(a) Contents and filing of report. The officer or employee must
file the report with you within ten business days after the end of each
calendar quarter. The report must include the following information:
(1) The date of each transaction, the title and number of shares,
the interest rate and maturity date (if applicable), and the principal
amount of each security involved.
(2) The nature of each transaction (i.e., purchase, sale, or other
type of acquisition or disposition).
(3) The price at which each transaction was effected.
(4) The name of the broker, dealer, or other intermediary effecting
the transaction.
(5) The date the officer or employee submitted the report.
(b) Report not required for certain transactions. Your officer or
employee is not required to report a transaction if:
(1) He or she has no direct or indirect influence or control over
the account for which the transaction was effected or over the
securities held in that account;
(2) The transaction was in shares issued by an open-end investment
company registered under the Investment Company Act of 1940;
(3) The transaction was in direct obligations of the government of
the United States;
(4) The transaction was in bankers' acceptances, bank certificates
of deposit, commercial paper or high quality short term debt
instruments, including repurchase agreements; or
(5) The officer or employee had an aggregate amount of purchases
and sales of $10,000 or less during the calendar quarter.
(c) Alternate report. When you act as an investment adviser to an
investment company registered under the Investment Company Act of 1940,
an officer or employee that is an ``access person'' may fulfill his or
her reporting requirements under this section by filing with you the
``access person'' personal securities trading report required by SEC
Rule 17j-1(d), 17 CFR 270.17j-1(d).
Dated: December 2, 2002.
By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-31005 Filed 12-11-02; 8:45 am]
BILLING CODE 6720-01-P