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8000 - Miscellaneous Statutes and Regulations
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CHAPTER IV—DEPARTMENT OF THE TREASURY
SUBCHAPTER A—REGULATIONS UNDER SECTION 15C OF THE SECURITIES
EXCHANGE ACT OF 1934
Part
400
Rules of General Application
401
Exemptions
402
Financial Responsibility
403
Protection of Customer Securities and Balances
404
Recordkeeping and Preservation of Records
405
Reports and Audit
449
Forms, Section 15C of the Securities Exchange Act of 1934
SUBCHAPTER B—REGULATIONS UNDER TITLE 11 OF THE GOVERNMENT
SECURITIES ACT OF 1986
450
Custodial Holdings of Government Securities by Depository Institutions
SUBCHAPTER A—REGULATIONS UNDER SECTION 15C OF THE
SECURITIES EXCHANGE ACT OF 1934
PART 400—RULES OF GENERAL APPLICATION
Sec.
400.1
Scope of regulations.
400.2
Office responsible for regulations; filing of requests for
exemptions, for interpretations, and of other materials.
400.3
Definitions.
400.4
Information concerning associated persons of financial
institutions that are government securities brokers or dealers.
400.5
Amendments to application for registration and to notice of
status as a government securities broker or dealer.
400.6
Notice of withdrawal from business as a government securities
broker or dealer by a financial institution.
AUTHORITY: 15 U.S.C.
78o--5.
SOURCE: The provisions of this Part 400 appear at 52 Fed. Reg.
27926, July 24, 1987, except as otherwise
noted.
§ 400.1 Scope of regulations.
(a) Title I of the Government Securities Act of 1986 (Pub. L.
99--571, 100 Stat. 3208) amends the Securities Exchange Act of 1934 (48
Stat. 881--905; 15 U.S.C. chapter 2B) ("Act") by adding section
15C, authorizing the Secretary of the Treasury to promulgate
regulations concerning the financial responsibility, protection of
customer securities and balances, recordkeeping and reporting of
brokers and dealers in government securities. Those regulations
constitute subchapter A of this chapter. Unless otherwise explicitly
provided, all regulations in this subchapter apply to all government
securities brokers or dealers, including registered brokers or dealers
and financial institutions. Registered brokers or dealers include OTC
derivatives dealers.
(b) Section 15C(a)(1)(A) of the Act
(15 U.S.C. 78o--5(a)(1)(A))
requires all government securities brokers and government securities
dealers, except those who are brokers or dealers registered pursuant to
section 15 or section 15B of the Act or financial institutions, to
register with the Securities and Exchange Commission
("Commission"). Regulations concerning registration are at
§ 240.15Ca2--1 et seq. of this title. The Commission is responsible
for the interpretation of the definitions of government securities
broker and government securities dealer and of the regulations at
§ 240.15Ca2--1 et seq.
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(c) Section 15C(a)(1)(B)(i) of the Act (15 U.S.C.
78o--5(a)(1)(B)(i)) requires all government securities brokers or
dealers that are also registered brokers or dealers to notify the
Commission of their status as government securities brokers or dealers.
Regulations concerning notice are at § 240.15Ca1--1 of this title.
(d) Section 15C(a)(1)(B)(i) of the Act also requires all government
securities brokers or dealers that are financial institutions to notify
the appropriate regulatory agency, as defined in section 3(a)(34)(G) of
the Act (15 U.S.C. 78c(a)(34)(G)), of their status as government
securities brokers or dealers. The form of notice, Form G--FIN, is at
§ 449.1 of this chapter.
Forms are available from the appropriate regulatory agency.
(e) Section 104 of the Government Securities Act Amendments of 1993
(Pub. L. 103--202, 107 Stat. 2344) amended Section 15C of the Act (15
U.S.C. 78o--5) by adding a new subsection (f), authorizing
the Secretary of the Treasury to adopt rules to require specified
persons holding, maintaining or controlling a large position in
to-be-issued or recently-issued Treasury securities to report such a
position and make and keep records related to such a position. Part 420
of this subchapter contains the rules governing large position
reporting.
[Codified to 17 C.F.R. § 400.1]
[Section 400.1 amended at 61 Fed. Reg. 48348, September
12, 1996, effective July 15, 1996; 71 Fed. Reg. 54410 September 15,
2006]
§ 400.2 Office responsible for regulations; filing of requests
for exemptions, for interpretations and of other materials.
(a) Office responsible. The regulations in this chapter
are promulgated by the Assistant Secretary (Domestic Finance) pursuant
to a delegation of authority from the Secretary of the Treasury. The
office responsible for implementation of the regulations, including
interpretations and action on requests for exemption, classification or
modification, is the Office of the Commissioner, Bureau of the Public
Debt.
(b)(1) Exemptions and classifications. Section
15C(a)(4) of the Act (15 U.S.C.
78o--5(a)(4)) authorizes the Secretary to exempt any government
securities broker or dealer or class thereof, conditionally or
unconditionally, from the requirements of registration or regulations
promulgated under section 15C. In addition, section 15C(b)(3) of the
Act (15 U.S.C. 78o--5(b)(3)) provides for classification, by the
Secretary, of government securities brokers or dealers and authorizes
the whole or partial exemption of classes from rules under section 15C
or the application of different standards to different classes.
(2) Interpretations. Although the appropriate
regulatory agencies, as defined in § 400.3, and the self-regulatory
organizations, as defined in section 3(a)(26) of the Act
(15 U.S.C. 78c(a)(26)), have
enforcement responsibility under section 15C of the Act, Treasury is
responsible for interpretation of section 15C(b) of the Act (15 U.S.C.
78o--5(b)) and related sections and for interpretation and amendment of
the regulations under this chapter (with the exception of Forms G--FIN
and G--FINW, §§ 449.1 and
449.2 of this chapter, which
are the responsibility of the Board of Governors of the Federal Reserve
System ("Board").
(c) Requests for interpretations, exemptions,
classifications. (1) Interpretations under this chapter may be
provided, at the discretion of the Department, to firms or individuals
actually or potentially affected by the Act or regulations, or to their
representatives.
(2) Exemptions and classifications under sections 15C(a), (b) and
(d) of the Act (15 U.S.C. 78o--5(a), (b), and (d)) and related sections
and Treasury regulations thereunder may be provided at the discretion
of the Department and after consultation with the SEC and the Board, to
firms or individuals actually or potentially affected by the Act or
regulations, or to their representatives.
(3) All requests for exemptions and classifications, and all
requests for binding interpretations, shall be in writing, and shall
conform to the following procedures.
(i) The names of the company or companies and all other persons
involved shall be stated. Letters pertaining to unnamed companies or
persons or hypothetical situations will not be answered.
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(ii) The letter must contain a concise but complete statement of
all material facts, a complete and accurate description of the entire
transaction if the request is transactional (even though a request may
apply to only a portion of a transaction), and a concise and
unambiguous statement of the request, including precise statutory and
regulatory citations.
(iii) The letter shall indicate why the writer believes a problem
exists or interpretation is needed, the writer's opinion on the matter,
and the basis for such opinion.
(iv) In addition to requests for confidential treatment under
paragraph (c)(7)(ii) of this section, a person may request confidential
treatment of information that is submitted as part of, or in support
of, a request for interpretation, exemption, or classification. A
separate request for confidential treatment of information that is
submitted as part of, or in support of, a request for interpretation,
exemption, or classification. A separate request for confidential
treatment and the basis for such request shall be submitted at the time
the information for which confidential treatment is requested is
submitted. The request for confidential treatment must specifically
identify the information for which such confidential treatment is
requested. To the extent practicable, the information should be
segregated from information for which confidential treatment is not
requested and should be clearly marked as confidential.
(v) Information designated as confidential in accordance with
paragraph (c)(3)(iv) of this section shall not be disclosed to a person
requesting such information other than in accordance with the
procedures outlined in the Department's regulations published at 31 CFR
1.6.
(vi) An original and two copies of each request letter shall be
submitted to the Office of the Commissioner, Bureau of the Public Debt,
9th Floor, 799 9th Street N.W., Washington, DC 20239--0001. The
envelope shall be marked "Government Securities Act Request." The
letter shall indicate in the upper right hand corner of the first page
the particular sections of the Act and of the regulations at issue.
(4) A written response by the Department to a request filed as
stated in paragraph (c)(3) of this section shall be binding, with
respect to the requester, on the Department, but shall cease to be
binding if the facts are not as stated in the request or,
prospectively, if the Department issues a superseding interpretation.
In responding to such a request, the Department will, where
appropriate, consult with and may obtain the formal concurrence of the
appropriate regulatory agencies or their staffs. The Department
understands that even if formal concurrence is not received the
appropriate regulatory agencies and self-regulatory organizations will
give appropriate deference to binding interpretations of the
Department. The Department also expects the SEC staff to reflect such
interpretations in responding, pursuant to the established procedures
of the Commission, to no-action requests concerning rules the SEC
enforces.
(5) The Department may decline to issue an interpretation for any
reason and, in particular, may require that a requester make inquiry of
its appropriate regulatory agency, the Commission or designated
examining authority before the Department responds to a request.
(6) The Department will also provide informal oral and written
advice, but such advice is not binding on the Department or on any
other agency or organization.
(7)(i) Except as provided in paragraphs (c)(3)(iv) and (c)(7)(ii)
of this section, every letter or other written communication requesting
the Department to provide interpretive legal advice under the Act or to
grant, deny or modify an exemption, classification or modification of
the regulations, together with any written response thereto, shall be
made available for inspection and copying as soon as practicable after
the response has been sent or given to the person requesting it. These
documents will be made available at the following location: Treasury
Department Library, Room 1318, Main Treasury Building, 1500
Pennsylvania Avenue N.W., Washington, DC 20220.
(ii) Any person submitting a letter or communication may also
simultaneously submit a request that the letter or communication and
the Department's response be accorded confidential treatment for a
specified period of time not to exceed 120 days from the date the
response has been made or given to such person. The request shall state
the basis upon which the request for confidential treatment has been
made. If the Department determines that the request for confidential
treatment should be denied, the requestor will be given 30 days to
withdraw either the request for confidential treatment or the letter or
communication requesting an interpretation, classification, or
exemption.
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(d) Effect of Commission interpretations.
Interpretations of the Commission and its staff (including no-action
positions) and of the designated examining authorities, of any
Commission regulation expressly adopted by reference in these
regulations shall be of the same effect as if the regulation being
interpreted were solely the Commission's regulation. However, in the
event the Treasury has issued a formal interpretation on the subject,
the Treasury understands that the Commission will give that
interpretation appropriate deference, particularly with respect to both
subsequent no-action positions and the continued validity of prior
no-action positions.
[Codified to 17 C.F.R. § 400.2]
[Section 400.2 amended at 53 Fed. Reg. 28984, August 1, 1988; 71
Fed. Reg. 54410, September 15, 2006]
§ 400.3 Definitions.
Unless otherwise explicitly provided, in this subchapter and for the
purposes of these regulations:
"Act" means the Securities Exchange Act of 1934 (48 Stat. 881,
15 U.S.C. chapter 2B, as amended);
"Appropriate regulatory agency" has the meaning set out in
section 3(a)(34)(G) of the Act (15
U.S.C. 78c(a)(34)(G)), and, with respect to a financial
institution for which an appropriate regulatory agency is not
explicitly designated, the appropriate regulatory agency is the SEC;
"Associated person" means a person other than a person whose
functions are solely clerical or ministerial:
(1) Directly engaged in any of the following activities in either
a supervisory or non-supervisory capacity:
(i) Underwriting, trading or sales of government securities;
(ii) Financial advisory or consultant services for issuers in
connection with the issuance of government securities;
(iii) Research or investment advice, other than general economic
information or advice, with respect to government securities in
connection with the activities described in paragraphs (c)(1)(i) and
(c)(1)(ii) of this section;
(iv) Activities other than those specifically mentioned which
involve communication, directly or indirectly, with public investors in
government securities in connection with the activities described in
paragraphs (c)(1)(i) and (c)(1)(ii) of this section; or
(2) Directly engaged in the following activities in a supervisory
capacity:
(i) Processing and clearance activities with respect to
government securities;
(ii) Maintenance of records involving any of the activities
described in paragraph (c)(1) of this section;
Provided, however,
(3) That in the case of a financial institution,
(i) Persons whose government securities functions: (A) Consist
solely of carrying out the financial institution's activities in a
fiduciary capacity and (B) are subject to examination by the
appropriate regulatory agency for compliance with requirements
applicable to activities by the financial institution in a fiduciary
capacity, shall not be considered "associated persons";
(ii) Persons whose sole government securities activities are,
without exercising any investment discretion and solely at the
direction of customers, to receive and/or transmit customer orders to
purchase or sell government securities, but who do not give investment
advice or receive transaction-based compensation shall not be
considered "associated persons"; and
(iii) Directors and senior officers of the financial institution
who may from time to time set broad policy guidelines affecting the
financial institution as a whole that are not directly related to the
conduct of the financial institution's government securities business
are not considered to be "directly engaged" in the activities
described in this paragraph (c);
"Board" means the Board of Governors of the Federal Reserve
System;
"Branch or agency of a foreign bank" means a federal branch or
federal agency of a foreign bank or a state branch or state agency of a
foreign bank as such terms are used in the International Banking Act of
1978, Pub. L. 95--369, 92 Stat. 607;
{{10-31-07 p.8247}}
"CFTC" means the Commodity Futures Trading Commission;
"Commission" or "SEC" means the Securities and Exchange
Commission;
"Designated examining authority" and "Examining
Authority" mean (1) in the case of a registered government
securities broker or dealer that belongs to only one self-regulatory
organization, such self-regulatory organization, and (2) in the case of
a registered government securities broker or dealer that belongs to
more than one self-regulatory organization, the self-regulatory
organization designated by the Commission pursuant to section 17(d) of
the Act (15 U.S.C. 78q(d)) as
the entity with responsibility for examining such registered government
securities broker or dealer;
"Fiduciary capacity" includes trustee, executor,
administrator, registrar, transfer agent, guardian, assignee, receiver,
managing agent, and any other similar capacity involving the sole or
shared exercise of discretion by a financial institution having
fiduciary powers that is supervised by a federal or state financial
institution regulatory agency;
"Financial institution" has the meaning set out in section
3(a)(46) of the Act (15 U.S.C.
78c(a)(46)), and such term explicitly does not include a
subsidiary or affiliate of an institution described in such section
unless such subsidiary or affiliate is itself described in such
section;
"Government securities broker" has the meaning set out in
section 3(a)(43) of the Act (15 U.S.C. 78c(a)(43)), and explicitly
includes not only registered government securities brokers, but also
registered brokers and financial institutions;
"Government securities dealer" has the meaning set out in
section 3(a)(44) of the Act (15 U.S.C. 78c(a)(44)), and explicitly
includes not only registered government securities dealers, but also
registered dealers and financial institutions;
"Government securities" has the meaning set out in section
3(a)(42) of the Act (15 U.S.C. 78c(a)(42));
OTC derivatives dealer has the same meaning set out in 17
CFR 240.3b--12.
"Registered broker or dealer" means a broker or dealer
registered pursuant to section 15 or section 15B of the Act
(15 U.S.C. 78o,
78o--4) but does not include a
municipal securities dealer that is a bank or a separately identifiable
department or division of a bank;
"Registered government securities broker or dealer" means a
government securities broker or dealer registered pursuant to section
15C(a)(1)(A) of the Act (15 U.S.C.
78o--5(a)(1)(A));
"Secretary" means the Secretary of the Treasury; and
"Treasury" or "Department" means the Department of the
Treasury, including in particular the Bureau of the Public Debt.
[Codified to 17 C.F.R. § 400.3]
[Section 400.3 amended at 55 Fed. Reg. 6604, February 26, 1990; 71
Fed. Reg. 54410, September 15, 2006]
§ 400.4 Information concerning associated persons of financial
institutions that are government securities brokers or dealers.
(a) Every associated person of a financial institution that is a
government securities broker or dealer that is not exempt pursuant to
Part 401 of this chapter shall file with such financial institution a
completed Form G--FIN--4
(§ 449.4 of this chapter)
unless such person has on file with such financial institution a
completed and current Form U--4 (promulgated by a self-regulatory
organization) or Form MSD--4 (as required for associated persons of
bank municipal securities dealers).
(b) To the extent any information furnished by an associated person
pursuant to paragraph (a) of this section (including information on a
Form U--4 or Form MSD--4) is or becomes materially inaccurate or
incomplete, such associated person shall promptly furnish in writing to
such financial institution, in a form acceptable to the appropriate
regulatory agency for such financial institution, a statement
correcting such information.
(c) For the purpose of verifying the information furnished by an
associated person pursuant to paragraph (a) of this rule, every
government securities broker or dealer that is a financial institution
shall make inquiry of all other employers of such associated person
during the immediately preceding three years concerning the accuracy
and completeness of such information.
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(d) Every government securities broker or dealer that is a
financial institution not exempt from this section pursuant to
Part 401 of this chapter
shall:
(1) Promptly obtain and, within 10 days thereafter, file with the
appropriate regulatory agency, in a form acceptable to such appropriate
regulatory agency, the information required by paragraph (a) of this
section (which shall consist of all Forms G--FIN--4 filed and a list of
all associated persons who have filed Forms MSD--4 or U--4 with the
financial institution since the last such filing, designating whether
the associated person is serving in a supervisory or non-supervisory
capacity) and by paragraph (b) of this section; and
(2) File with the appropriate regulatory agency within 30 days
after the termination of the status of an individual as an associated
person a Form G--FIN--5 (§ 449.4 of this chapter). unless---
(i) The financial institution is required to and has filed a Form
U--5 or Form MSD--5 with respect to such person; or
(ii) The financial institution notifies the appropriate
regulatory agency that the individual will remain in the financial
institution's employment and the financial institution will continue to
update the information about such individual as provided in paragraph
(b) of this section and will file a Form G--FIN--5 within 30 days after
the termination of such individual's employment with the financial
institution.
(e) Every notice and form filed pursuant to this section shall
constitute a "report" within the meaning of sections 15, 15C and
32(a) of the Act (15 U.S.C.
78o, 78o--5,
78ff(a)).
(Approved by the Office of Management and Budget under Control No.
1535--0089)
[Codified to 17 C.F.R. §400.4]
[Section 400.4 amended at 60 Fed. Reg. 11026, March 1, 1995,
effective March 31, 2005]
§ 400.5 Amendments to application for registration and to
notice of status as a government securities broker or dealer.
(a)(1) If the information contained in any application for
registration as a government securities broker or dealer (other than
the statements required by § 240.15Ca2--2 of this title) or in any
amendment thereto, becomes inaccurate for any reason, the registered
government securities broker or dealer shall file within 30 days
thereafter an amendment on Form BD (§ 249.501 of this title)
correcting such information, in accordance with the instructions
provided therein.
(2) If the information contained in any notice of status as a
government securities broker or dealer filed by a registered broker or
dealer, or in any amendment thereto, becomes inaccurate for any reason,
the registered broker or dealer shall file within 30 days an amendment
on Form BD (§ 249.501 of this title) correcting such information, in
accordance with the instructions provided therein.
(b) If the information contained in any notice of status as a
government securities broker or dealer filed by a financial
institution, or any amendment thereto, becomes inaccurate for any
reason, the financial institution shall file within 30 days an
amendment on Form G--FIN
(§ 449.1 of this chapter)
correcting such information, in accordance with the instructions
provided therein.
(c) Every amendment filed pursuant to this section shall constitute
a "report" within the meaning of sections 15, 15C and 32(a) of
the Act (15 U.S.C. 78o,
78o--5,
78ff(a)).
(Approved by the Office of Management and Budget under Control No.
1535-0089)
[Codified to 17 C.F.R. § 400.5]
[Section 400.5 amended at 60 Fed. Reg. 11026, March 1, 1995,
effective March 31, 1995]
§ 400.6 Notice of withdrawal from business as a government
securities broker or dealer by a financial institution.
(a) Whenever a financial institution that is a government
securities broker or dealer that is not exempt from the notice
requirements of section 15C(a)(1)(B)(i) of the Act
{{6-30-05 p.8248.01}}(15
U.S.C. 78o--5(a)(1)(B)(i)) and of § 400.5 pursuant to Part
401 of this chapter, ceases to act as a government securities broker or
dealer, it shall file with the appropriate regulatory agency notice of
such cessation on Form G--FINW (§ 449.2 of this chapter) in
accordance with the instructions contained therein.
(b) Except as provided in paragraph (c) of this section, a notice
that a financial institution has ceased to act as a government
securities broker or dealer shall become effective for all purposes on
the 60th day after the filing thereof with the appropriate regulatory
agency or within such shorter period of time as the appropriate
regulatory agency determines.
(c) If the notice described in paragraph (a) of this section is
filed with the appropriate regulatory agency any time after the date of
the issuance of a notice or order by the appropriate regulatory agency
instituting proceedings pursuant to section 15C(c)(2)(A) of the Act (15
U.S.C. 78o--5(c)(2)(A)) to censure, suspend, limit, or bar from acting
as a government securities broker or government securities dealer the
entity filing such notice, or if the appropriate regulatory agency has
instituted any action against the entity filing such notice pursuant to
section 15C(2)(B) of the Act (15 U.S.C. § 78o--5(c)(2)(B)), the
notice shall become effective pursuant to paragraph (b) of this section
at such time and upon such terms and conditions as the appropriate
regulatory agency deems necessary or appropriate in the public interest
for the protection of investors.
(d) Every notice filed pursuant to this section shall constitute a
"report" within the meaning of sections 15, 15C and 32(a) of the
Act (15 U.S.C. 78o,
78o--5,
78ff(a)).
(Approved by the Office of Management and Budget under control
number 1535--0089)
[Codified to 17 C.F.R. § 400.6]
[Section 400.6 amended at 60 Fed. Reg. 18734, April 13,
1995, effective June 12, 1995]
{{10-31-07 p.8249}}
PART 401—EXEMPTIONS
Sec.
401.1
Exemption for organizations handling transactions in United States
Savings Bonds.
401.2
Exemption for depository institutions that submit tenders for the
account of customers for purchase on original issue of United States
Treasury securities.
401.3
Exemption for financial institutions that are engaged in limited
government securities brokerage activities.
401.4
Exemption for financial institutions engaged in limited government
securities dealer activities.
401.5
Exemption for corporate credit unions transacting limited government
securities business with other credit unions.
401.6
Exemption for branches and agencies of foreign banks that deal solely
with non-United States citizens resident offshore.
401.7
Temporary exemption for certain government securities brokers and
dealers terminating business on or before October 31, 1987.
401.8
Temporary exemption for government securities brokers and dealers that
are futures commission merchants registered with the CFTC.
AUTHORITY: Sec. 101, Pub. L. 99--571, 100 Stat. 3209
(15 U.S.C. 78o--5(a)(4)).
SOURCE: The provisions of this Part 401 appear at 52 Fed. Reg.
27930, July 24, 1987, except as otherwise
noted.
§ 401.1 Exemption for organizations handling transactions in
United States Savings Bonds.
An organization that handles United States Savings Bond
transactions, including a qualified issuing or paying agent or an
organization that accommodates customers or employees by forwarding
requested transactions to qualified issuing or paying agents or the
Treasury and whose transactions in government securities are limited to
these transactions and such other activities that are exempted by the
regulations under this subchapter, shall be exempt from the provisions
of section 15C(a), (b) and (d) of the Act (15 U.S.C. 78o--5(a), (b),
(d)) and the regulations of this subchapter. For the purposes of this
section, the term "United States Savings Bond" means any
savings-type security offered by the Treasury, including all series of
United States Savings Bonds, United States Savings Notes and United
States Savings Stamps.
§ 401.2 Exemption for depository institutions that submit
tenders for the account of customers for purchase on original issue of
United States Treasury securities.
(a) Subject to the requirements of paragraph (b) of this section, a
depository institution that submits tenders or subscriptions for
purchase on original issue of United States Treasury securities for the
account of customers on a fully disclosed basis, whose transactions in
government securities are limited to such transactions and such other
activities as have been exempted by regulation under this subchapter
shall be exempt from the provisions of section 15C(a), (b) and (d) of
the Act (15 U.S.C. 78o--5(a),
(b), (d)) and the regulations of this subchapter.
(b) A depository institution that relies on the exemption contained
in paragraph (a) of this section is required to comply with the
regulations of Part 450 of
this chapter concerning custodial holdings of government securities.
(c) For the purposes of this section, "depository
institution" has the meaning stated in clauses (i) through (vi) of
section 19(b)(1)(A) of the Federal Reserve Act
(12 U.S.C. 461(b)(1)(A)(i)(vi))
and also includes a foreign bank, an agency or branch of a foreign bank
and a commercial lending company owned or controlled by a foreign bank
(as such terms are used in the International Banking Act of 1978, Pub.
L. 95--369, 92 Stat. 607).
[Codified to 17 C.F.R. § 401.2]
{{10-31-07 p.8250}}
§ 401.3 Exemption for financial institutions that are engaged
in limited government securities brokerage activities.
(a)(1) Subject to the requirements of paragraph (b) of this
section, a financial institution shall be exempt from the provisions of
sections 15C(a), (b), and (d) of the Act
(15 U.S.C. 78o--5(a), (b),
(d)) and the regulations of this subchapter, unless it acts as a
government securities broker by:
(i) Holding itself out as a government securities broker or
interdealer broker; or
(ii) Actively soliciting purchases or sales of government
securities on an agency basis;
(2) Notwithstanding the provisions of paragraph (a)(1) of this
section, a financial institution shall not be regarded as acting as a
government securities broker within the meaning of this section if it:
(i) Effects fewer than 500 government securities brokerage
transactions (other than transactions described in
§§ 401.1 or
401.2) per year; or
(ii) Effects all such transactions (other than transactions
described in §§ 401.1 or 401.2) pursuant to a contractual or other
arrangement with one or more government securities brokers or dealers
each of which has registered or filed notice pursuant to section
15C(a)(1) of the Act (15 U.S.C. 78o--5(a)(1)) (each referred to as the
"transacting government securities broker or dealer") under which
the transacting government securities broker or dealer will offer
securities services on or off the premises of the financial
institution, provided that:
(A) The transacting government securities broker or dealer is
clearly identified to customers as the person performing the securities
services;
(B) Financial institution employees perform only clerical and
ministerial or order-taking functions in connection with government
securities transactions unless such employees are associated persons
(as defined in § 400.3 of
this chapter) or registered representatives of the transacting
government securities broker or dealer;
(C) Financial institution employees do not receive compensation
for government securities activities other than clerical or ministerial
functions unless such employees are associated persons (as defined in
§ 400.3 of this chapter) or registered representatives of the
transacting government securities broker or dealer; and
(D) Such services are provided on a fully disclosed basis by the
transacting government securities broker or dealer, i.e., the
transacting government securities broker or dealer receives and
maintains all required information concerning each customer, its
trading and account.
(b)(1) A financial institution that relies on the exemption
contained in paragraph (a) of this section is required to comply with
the regulations of Part
450 of this chapter concerning custodial holdings of government
securities for customers.
(2) A branch or agency of a foreign bank that relies on the
exemption contained in paragraph (a) of this section is in addition
required to comply with § 403.5(e) of this chapter.
(c) For the purposes of this section "financial institution"
includes an insured credit union, as defined in 12 U.S.C. 1752(7).
[Codified to 17 C.F.R. § 401.3]
[Section 401.3 amended at 71 Fed. Reg. 54411, September 15,
2006]
§ 401.4 Exemption for financial institutions engaged in limited
government securities dealer activities.
(a) Subject to the requirements of paragraph (b) of this section, a
financial institution shall be exempt from the provisions of sections
15C(a), (b), and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the
regulations of this subchapter if its government securities dealer
activities are limited to one or more of the following activities:
(1) Sales or purchases in a fiduciary capacity;
(2) The sale and subsequent repurchase and the purchase and
subsequent resale of government securities pursuant to a repurchase or
reverse repurchase agreement; and
(3) Such other activities as have been exempted by regulation
under this subchapter.
{{8-31-98 p.8251}}
(b)(1) A financial institution that relies on the exemption
contained in paragraph (a) of this section is required to comply with:
(i) The regulations of Part 450 of this chapter concerning
custodial holdings of government securities for customers; and
(ii) Section 403.5(d) of this chapter concerning certain
repurchase transactions with customers.
(2) A branch or agency of a foreign bank that relies on the
exemption contained in paragraph (a) of this section is in addition
required to comply with § 403.5(e) of this chapter.
(c) For the purposes of this section "financial institution"
includes an insured credit union, as defined in 12 U.S.C. 1752(7).
[Codified to 17 C.F.R. § 401.4]
§ 401.5 Exemption for corporate credit unions transacting
limited government securities business with other credit unions.
(a)(1) Subject to the requirements of paragraph (b) of this
section, a corporate credit union shall be exempt from the provisions
of section 15C(a), (b) and (d) of the Act
(15 U.S.C. 78o--5(a), (b),
(d)) and the regulations thereunder if its government securities dealer
activities are limited to the sale and subsequent repurchase and the
purchase and subsequent resale, each pursuant to a repurchase or
reverse repurchase agreement, of government securities to other credit
unions and such other activities as have been exempted by regulation
under this part.
(2) For the purposes of this section, "corporate credit
union" means a credit union whose membership consists primarily of
other credit unions and that is (i) a federal credit union as defined
in 12 U.S.C. 1752(1), (ii) an insured credit union as defined in 12
U.S.C. 1752(7), or (iii) a member of the National Credit Union
Administration Central Liquidity Facility.
(b) A credit union that relies on the exemption contained in
paragraph (a) of this section is required to comply with:
(1) The regulations of Part 450 of this chapter concerning
custodial holdings of government securities; and
(2) Section 403.5(d) concerning certain repurchase transactions
with customers.
[Codified to 17 C.F.R. § 401.5]
§ 401.6 Exemption for branches and agencies of foreign banks
that deal solely with non-United States citizens resident offshore.
(a) Subject to the requirements of paragraph (b) of this section, a
branch or agency of a foreign bank shall be exempt from the provisions
of section 15C(a), (b), and (d) of the Act
(15 U.S.C. 78o--5(a), (b),
(d)) and the regulations of this subchapter, if all the customers with
or on behalf of whom it engages in government securities transactions
are limited to foreign governments, agencies of foreign governments and
other persons and entities who are not citizens of the United States
and who reside or, in the case of a corporation, partnership or other
entity, have their principal place of business, outside of the United
States.
(b) A branch or agency that relies on the exemption contained in
paragraph (a) of this section is required to comply with the
regulations of Part 450 of
this chapter concerning custodial holdings of government securities.
[Codified to 17 C.F.R. § 401.6]
{{8-31-98 p.8252}}
§ 401.7 Temporary exemption for certain government securities
brokers and dealers terminating business on or before October 31, 1987.
During the period ending October 31, 1987, a government securities
broker or dealer shall be exempt from the provisions of section 15C(a),
(b), and (d) of the Act (15 U.S.C.
78o--5(a), (b), (d)) and the regulations of this subchapter if:
(a) Its government securities broker or dealer activities are
limited to the performance of contractual obligations entered into
prior to July 25, 1987;
(b) It is the subsidiary or affiliate of a government securities
broker or dealer that has registered or given notice pursuant to
section 15C(a)(1) of the Act (15 U.S.C. 78o--5(a)(1)); and
(c) It ceases all government securities broker or dealer activities
on or before October 31, 1987.
[Codified to 17 C.F.R. § 401.7]
§ 401.8 Temporary exemption for government securities brokers
and dealers that are futures commission merchants registered with the
CFTC.
During the period ending October 31, 1987, a government securities
broker or dealer that is a futures commission merchant shall be exempt
from the provisions of section 15C(a), (b), and (d) of the Act
(15 U.S.C. 78o--5(a), (b),
(d)) and the regulations of this subchapter if:
(a) It is registered with the Commodity Futures Trading Commission
under section 4f of the Commodity Exchange Act (7 U.S.C. 6f) and the
regulations thereunder; and
(b) It is not currently the subject of any disciplinary action by
any federal or state entity regulating persons dealing in securities or
commodities.
[Codified to 17 C.F.R. § 401.8]
* * * * *
[The page following this is 8255.]
{{10-31-07 p.8255}}
PART 402—FINANCIAL RESPONSIBILITY
Sec.
402.1
Application of part to registered brokers and dealers and financial
institutions; special rules for futures commission merchants and
government securities interdealer brokers; effective date.
* * * * *
AUTHORITY: Sec. 101, Pub. L. 99--571, 100 Stat. 3209
(15 U.S.C. 78o--5(b)(1)(A),
(b)(4)).
SOURCE: The provisions of this Part 402 appear at 52 Fed. Reg.
27931, July 24, 1987, except as otherwise
noted.
§ 402.1 Application of part to registered brokers and dealers
and financial institutions; special rules for futures commission
merchants and government securities interdealer brokers; effective
date.
(a) Application of part. This part applies to all
government securities brokers and dealers, except as otherwise provided
herein.
(b) Registered brokers or dealers. This part does not
apply to a registered broker or dealer (including an OTC derivatives
dealer) that is subject to § 240.15c3--1 of this title (SEC Rule
15c3--1).
(c) Financial institutions. This part does not apply to
a government securities broker or dealer that is a financial
institution and that is:
(1) Subject to the rules and regulations of its appropriate
regulatory agency concerning capital requirements, or
(2) A branch or agency of a foreign bank subject to regulation,
supervision, and examination by state or federal authorities having
regulatory or supervisory authority over commercial bank and trust
companies.
(d) Futures commission merchants. A futures commission
merchant subject to § 1.17 of this title that is a government
securities broker or dealer but is not a registered broker or dealer
shall not be subject to the limitations of § 402.2 but rather to the
capital requirement of § 1.17 or § 240.15c3--1 except paragraph (e)
(3) thereof, of this title, whichever is greater.
(e) Government securities interdealer broker. (1) A
government securities interdealer broker, as defined in paragraph
(e)(2) of this section, may, with the prior written consent of the
Secretary, elect not to be subject to the limitations of § 402.2 but
rather to be subject to the requirements of § 240.15c3--1 of this
title (SEC Rule 15c3--1) except paragraphs (c)(2)(ix) and (e) (3)
thereof, and paragraphs (e) (3), through (8) of this section by filing
such election in writing with its designated examining authority. A
government securities interdealer broker may not revoke such election
without the written consent of its designated examining authority.
(2)(i) "Government securities interdealer broker" means an
entity engaged exclusively in business as a broker that effects, on an
initially fully disclosed or identified group basis, transactions in
government securities for counterparties that are government securities
brokers or dealers who have registered or given notice pursuant to
section 15C(a)(1) of the Act (15 U.S.C. 78o--5(a)(1)), and that
promptly transmits all funds and delivers all securities received in
connection with its activities as a government securities interdealer
broker and does not otherwise hold funds or securities for or owe money
or securities to its counterparties and, except as provided in
paragraph (e)(2)(ii) of this section, does not have or maintain any
government securities in its proprietary or other accounts. For the
purpose of this paragraph (e)(2)(i), "identified group basis"
means that a counterparty has consented to the identity of the specific
group of entities from which the other counterparty is chosen.
(ii) A government securities interdealer broker may have or
maintain government securities in its proprietary or other accounts
only as a result of:
(A) Engaging in overnight reverse repurchase or securities
borrowed transactions solely for the purpose of facilitating the
process of clearing government securities transactions;
{{10-31-07 p.8256}}
(B) Engaging in overnight repurchase or securities loaned
transactions solely for the purpose of reducing its financing expense
in connection with the clearance of government securities transactions;
(C) Subordinated loans subject to satisfactory subordination
agreements pursuant to § 240.15c3--1(d) of this title;
(D) Collateral or depository requirements of a clearing
corporation or association with which it participates in the clearance
of government securities transactions; or
(E) The investment of its excess cash.
The maturities of any government securities held or maintained under
paragraphs (e)(2)(ii)(C), (D), or (E) of this section may not exceed
one year.
(3) In order to qualify to operate under this paragraph (e), a
government securities interdealer broker shall at all times have and
maintain net capital, as defined in § 240.15c3--1(c)(2) of this title
with the modifications of this paragraph (e), of not less than
$1,000,000.
(4) For purposes of this paragraph (e), a government securities
interdealer broker need not deduct loans to commercial banks for one
business day of immediately available funds (commonly referred to as
"sales of federal funds") held by the government securities
interdealer broker in connection with the clearance of securities on
the day the loan is made.
(5) For purposes of this paragraph (e), a government securities
interdealer broker need not deduct net pair-off receivables and money
differences until the close of business of the third business day
following the day the funds are due and give-up receivables outstanding
no more than 30 days from the billing date, which shall be no later
than the last day of the month in which they arise, as otherwise would
be required under § 240.15c3--1(c)(2)(iv)(B) of this title.
(6) For purposes of this paragraph (e), a government securities
interdealer broker shall deduct from net worth 1/4 of 1 percent
of the contract value of each government securities failed-to-deliver
contract which is outstanding 5 business days or longer. Such deduction
shall be increased by any excess of the contract price of the
failed-to-deliver contract over the market value of the underlying
security.
(7) For purposes of this paragraph (e), a government securities
interdealer broker may exclude from its aggregate indebtedness
computation indebtedness adequately collateralized by government
securities outstanding for not more than one business day and offset by
government securities failed to deliver of the same issue and quantity.
In no event may a government securities interdealer broker exclude any
overnight bank loan attributable to the same government securities
failed-to-deliver contract for more than one business day. A government
securities interdealer broker need not deduct from net worth the amount
by which the market value of securities failed to receive outstanding
longer than thirty (30) calendar days exceeds the contract value of
those failed to receive as required by § 240.15c3--1(c)(2)(iv)(E) of
this title.
(8)(i) For purposes of this paragraph (e), a government
securities interdealer broker shall deduct from net worth 5 percent of
its net exposure to each counterparty.
(ii) Net exposure. For purposes of this paragraph
(e), net exposure shall equal:
(A) The sum of the dollar amount of funds, debt instruments,
other securities, and other inventory at risk, in the first instance,
to the government securities interdealer broker in the event of the
counterparty's default,
(B) Reduced, but not to less than zero, by the sum of:
(1) The dollar amount of funds, debt instruments,
other securities, and other inventory at risk, in the first instance,
to the counterparty in the event of the government securities
interdealer broker's default;
(2) The deductions taken from net worth for unsecured
receivables, repurchase and reverse repurchase deficits, aged fails to
deliver, and aged fails to receive arising from transactions with the
counterparty;
(3) Demand deposits in the case where the counterparty
is a commercial bank;
(4) Loans for one business day of immediately
available funds (commonly referred to as "sales of federal
funds") held by the government securities interdealer
broker
{{10-31-07 p.8257}}in connection with the
clearance of securities on the day the loan is made in the case where
the counterparty is a commercial bank;
(5) Custodial holdings of securities in the case where
the counterparty is a clearing bank or clearing broker of the
government securities interdealer broker; and
(6) Exposure to a counterparty due to holding
marketable instruments subject to market risk haircuts under appendix A
to this section (§ 402.2a) for which the counterparty is the obligor.
(9) On the application of the government securities interdealer
broker, the designated examining authority may extend the periods of
time in this paragraph (e) if it determines that the extension is
warranted because of exceptional circumstances and that the government
securities interdealer broker is acting in good faith.
(f) Effective date. This part shall be effective July
25, 1987, provided however, that until the last business day
in October 1987, registered government securities brokers and dealers
need not comply with § 402.2(a), (b), and (c) as long as:
(1) A registered government securities broker or dealer that acts
solely as an introducing broker within the meaning of
§ 240.15c3--1(a)(2) of this title has and maintains liquid capital,
as defined in § 402.2(d), in an amount of not less than $5,000; and
(2) Any other registered government securities broker or dealer
has and maintains liquid capital, as defined in § 402.2(d), in an
amount of not less than $50,000.
[Codified to 17 C.F.R. § 402.1]
[Section 402.1 amended at 60 Fed. Reg. 11024, March 1, 1995,
effective March 31, 1995; 71 Fed. Reg. 54411, September 15, 2006]
[The page following this is 8259.]
{{ 6-30-05 p.8259}}
PART 403—PROTECTION OF CUSTOMER SECURITIES AND BALANCES
* * * * *
Sec.
403.5
Custody of securities held by financial institutions that are
government securities brokers or dealers.
403.7
Effective dates.
* * * * *
AUTHORITY: Sec. 101, Pub. L. 99--571, 100 Stat. 3209
(15 U.S.C. 78o--5(b)(1)(A),
(b)(4)).
SOURCE: The provisions of this Part 403 appear at 52 Fed. Reg.
27947, July 24, 1987, except as otherwise noted.
* * * * *
§ 403.5 Custody of securities held by financial institutions
that are government securities brokers or dealers.
(a) A government securities broker or dealer that is a financial
institution shall:
(1) Comply with Part
450 with respect to all government securities held for the
account of customers of the financial institution in its capacity as a
fiduciary or custodian (unless otherwise exempt pursuant to § 450.3);
and
(2) Comply with Part 450 and with paragraphs (b), (c) and (d) of
this section with respect to all fully paid and excess margin
government securities held for customers of the financial institution
in its capacity as government securities broker or dealer, and
government securities that are the subject of a repurchase agreement
between the financial institution and certain counterparties as
described in paragraph (d) of this section.
(b) A financial institution shall not be in violation of the
possession or control requirements of paragraphs (c) and (d) of this
section if, solely as the result of normal business operations,
temporary lags occur between the time when a security is first required
to be in the financial institution's possession or control and the time
when it is actually placed in possession or control, provided that the
financial institution takes timely steps in good faith to establish
prompt possession or control. In the event that a financial institution
has accepted funds from a customer for the purchase of securities and
the financial institution does not initiate the purchase of the
specified securities by the close of the next business day after
receipt of such customer's funds, the financial institution shall
immediately deposit or redeposit the funds in an account belonging to
such customer and send the customer notice of such deposit or
redeposit.
(c)(1) On each business day a financial institution shall determine
the quantity and issue of such securities, if any, that are required to
be but are not in the financial institution's possession or control. As
appropriate to bring such securities into possession or control, the
financial institution shall:
(i) Promptly obtain the release of any lien, charge, or other
encumbrance against such securities;
(ii) Promptly obtain the return of any securities loaned;
(iii) Take prompt steps to obtain possession or control of
securities failed to receive for more than 30 calendar days, or in the
case of mortgage-backed securities, for more than 60 calendar days; or
(iv) Take prompt steps to buy in securities as necessary to the
extent any shortage of securities in possession or control cannot be
resolved as required by any of the above procedures.
(2) The financial institution shall prepare and maintain a
current and detailed description of the procedures and internal
controls that it utilizes to comply with the possession or control
requirements of this paragraph (c), which shall be made available upon
request to its appropriate regulatory agency.
{{6-30-05 p.8260}}
(3) Nothing stated in this section shall be construed as
affecting the absolute right of a customer of a government securities
broker or dealer, unless otherwise agreed in writing, in the normal
course of business operations following demand made on the broker or
dealer, to receive the physical delivery of certificates if the
securities are issued in certificated form, or to direct a transfer of
or otherwise to exercise control over any securities if they are:
(i) Fully-paid securities to which the customer is entitled;
(ii) Margin securities upon full payment by such customer to the
broker or dealer of the customer's indebtedness to the broker or
dealer; or
(iii) Excess margin securities not reasonably required to
collateralize such customer's indebtedness to the broker or dealer.
(d)(1) A financial institution that retains custody of securities
that are the subject of a repurchase agreement between the financial
institution and a counterparty shall:
(i) Obtain the repurchase agreement in writing;
(ii) Confirm in writing the specific securities that are the
subject of a repurchase transaction pursuant to such agreement at the
end of the day of initiation of the transaction and at the end of any
other day during which other securities are substituted if the
substitution results in a change to issuer, maturity date, par amount
or coupon rate specified in the previous confirmation;
(iii) Advise the counterparty in the repurchase agreement that
the funds held by the financial institution pursuant to a repurchase
transaction are not a deposit and therefore are not insured by the
Federal Deposit Insurance Corporation, or the National Credit Union
Share Insurance Fund, as applicable;
(iv) If the counterparty agrees to grant the financial
institution the right to substitute securities, include in the written
repurchase agreement the provision by which the financial institution
retains the right to substitute securities;
(v) If the counterparty agrees to grant the financial institution
the right to substitute securities, include in the written repurchase
agreement the following disclosure statement, which must be prominently
displayed in the written repurchase agreement immediately preceding the
provision governing the right to substitution:
"Required Disclosure
The [seller] is not permitted to substitute other securities for
those subject to this agreement and therefore must keep the [buyer's]
securities segregated at all times, unless in this agreement the
[buyer] grants the [seller] the right to substitute other
securities. If the [buyer] grants the right to substitute, this means
that the [buyer's] securities will likely be commingled with the
[seller's] own securities during the trading day. The [buyer] is
advised that, during any trading day that the [buyer's] securities
are commingled with the [seller's] securities, they may be subject to
liens granted by the [seller] to third parties and may be used by the
[seller] for deliveries on other securities transactions. Whenever
the securities are commingled, the [seller's] ability to resegregate
substitute securities for the [buyer] will be subject to the
[seller's] ability to satisfy any lien or to obtain substitute
securities."; and
(vi) Maintain possession or control of securities that
are the subject of the agreement in accordance with
§ 450.4(a) of this
chapter, except when exercising its right of substitution in accordance
with the provisions of the agreement and paragraph (d)(1)(iv) of this
section.
(2)(i) A confirmation issued in accordance with paragraph
(d)(1)(ii) of this section shall specify the issuer, maturity date,
coupon rate, par amount and market value of the security and shall
further identify a CUSIP or mortgage-backed security pool number, as
appropriate, except that a CUSIP or a pool number is not required on
the confirmation if it is identified in internal records of the broker
or dealer that designate the specific security of the counterparty. For
purposes of this paragraph (d)(2), the market value of any security
that is the subject of the repurchase transaction shall be the most
recently available bid price plus accrued interest, obtained by any
reasonable and consistent methodology.
{{6-30-05 p.8261}}
(ii) A person that is a non-U.S. citizen residing outside of the
United States or a foreign corporation, partnership, or trust may
waive, but only in writing, the right to receive the confirmation
required by paragraph (d)(1)(ii) of this section.
(3) This paragraph (d) shall not apply to a repurchase agreement
between the financial institution and a broker or dealer (including a
government securities broker or dealer), a registered municipal
securities dealer, or a director or principal officer of the financial
institution or any person to the extent that his claim is explicitly
subordinated to the claims of creditors of the financial institution.
(e)(1) A government securities broker or dealer that is a branch or
agency of a foreign bank shall keep on deposit with an insured bank (as
that term is defined in 12 U.S.C.
1813(h)) an amount equal to the amount that would be required
to be set aside pursuant to § 240.15c3--3(e)(1) of this title with
respect to government securities of customers of such branch or agency
that are citizens or residents of the United States. The amount
required to be deposited pursuant to this § 403.5(e)(1) may be
reduced by the amount of assets pledged or deposited by the branch or
agency pursuant to regulations promulgated by a federal or state
banking regulatory agency that are attributable to liabilities to
customers which are included both in the calculation of the required
pledge or deposit of assets and in the calculation of the amount to be
set aside pursuant to § 240.15c3--3(e)(1) of this title.
(2) The amount deposited in accordance with this section shall be
pledged to the appropriate regulatory agency of the branch or agency
making the deposit for the exclusive benefit of the customers to whom
the credit balances are owed.
(3) For purposes of making the calculation pursuant to
§ 240.15c3--3(e)(1) of this title, the terms "free credit
balances," "other credit balances" and ""credit balances"
shall not include any funds placed in deposits or accounts enumerated
at 12 CFR 204.2.
(4) For purposes of making the calculation pursuant to
§ 240.15c3--3(e)(1) of this title, the formula set forth at
§ 240.15c3--3a of this title shall be modified as follows:
(i) For purposes of this section, references to "securities
account," "cash account," "margin account," or other
customer accounts for purposes of this section shall not include any
deposits or accounts enumerated at 12 CFR 204.2;
(ii) References to "security" or "securities" shall
mean U.S. government securities;
(iii) References to net capital shall be inapplicable;
(iv) Item 2 is modified to read as follows:
"2. Monies borrowed by the branch or agency collateralized by
securities carried for the account of customers. (See Note B.)";
(v) Item 4 is modified to read as follows:
"4. Customers' securities failed to receive only with respect
to transactions for which payment has been received by and is under the
control of the branch or agency. (See Note D.)";
(vi) Note B is modified to read as follows:
"Note B. Item 2 shall include the
principal amount of Restricted Letters of Credit obtained by members of
Options Clearing Corporation which are collateralized by customers'
securities. Item 2 shall not include bank loans to customers in the
ordinary course collateralized by the customers' U.S. government
securities."; and
(vii) Note C is modified to read as follows:
"Note C. Item 3 shall include in
addition to monies payable against customers' securities loaned the
amount by which the market value of securities loaned exceeds the
collateral value received from the lending of such securities. Item 3
shall exclude cash collateral received pursuant to a written securities
lending agreement that complies fully with the supervisory guidelines
of its appropriate regulatory agency that expressly govern securities
lending practices.".
(5) Computations necessary to determine the amount
required to be deposited as specified in paragraph (e)(1) of this
section shall be made weekly, as of the close of the
last
{{6-30-05 p.8262}}business day of this week, and the
deposit so computed shall be made no later than one hour after the
opening of banking business on the second following business day.
(6) A government securities broker or dealer that is a branch or
agency of a foreign bank shall make and maintain a record of each
computation made pursuant to paragraph (e)(5) of this section and
preserve each such record for a period of not less than three years,
the first two years in an easily accessible place.
(f)(1) For purposes of this section, the terms "fully paid
securities," "margin securities," and "excess margin
securities" shall have the meanings described in § 403.4(b), (c)
and (d).
(2) For purposes of this section, the term "customer" shall
include any person from whom or on whose behalf a financial institution
that is a government securities broker or dealer has received or
acquired or holds securities for the account of that person or funds
resulting from transactions in securities for or with such person or
that represent principal, interest, or other proceeds of such
securities. The term shall not include a broker or dealer that is
registered pursuant to section 15, 15B or 15C (a)(1)(A) of the Act
(15 U.S.C. 78o,
78o--4,
78o--5(a)(1)(A)) or that has
filed notice of its status as a government securities broker or dealer
pursuant to section 15C(a)(1)(B) of the Act (15 U.S.C. 78o--5(a)(1)(B))
except with respect to securities maintained by such broker or dealer
in a Segregated Account as defined in § 403.4(f)(1) and with respect
to securities otherwise identified by such broker or dealer as customer
securities for purposes of maintaining possession or control of such
securities as required by this part. The term "customer" shall
not include a director or principal officer of the financial
institution or any other person to the extent that that person has a
claim for property or funds, which by contract, agreement or
understanding, or by operation of law, is part of the capital of the
financial institution or is subordinated to the claims of creditors of
the financial institution.
(g) If a financial institution executes a sell order of a customer
(other than an order to execute a sale of securities which the seller
does not own, which for the purposes of this paragraph shall mean that
the customer placing the sell order has identified the sale as a short
sale to the financial institution) and if for any reason whatever the
financial institution has not obtained possession of the government
securities, except mortgage-backed securities, from the customer within
30 calendar days, or in the case of mortgage-backed securities within
60 calendar days, after the settlement date, the financial institution
shall immediately thereafter close the transaction with the customer by
purchasing, or otherwise obtaining, securities of like kind and
quantity.
(h) The appropriate regulatory agency of a financial institution
that is a government securities broker or dealer may extend the period
specified in paragraphs (c)(1)(iii) and (g) of this section on
application of the financial institution for one or more limited
periods commensurate with the circumstances, provided the appropriate
regulatory agency is satisfied that the financial institution is acting
in good faith in making the application and that exceptional
circumstances warrant such action. Each appropriate regulatory agency
should make and preserve for a period of not less than three years a
record of each extension granted pursuant to this paragraph, which
contains a summary of the justification for the granting of the
extension.
[Approved by the Office of Management and Budget under Control No.
1535--0089]
[Codified to 17 C.F.R. § 403.5]
[Source: Section 403.5 amended at 53 Fed. Reg. 28986,
August 1, 1988, effective September 1, 1988 except that, for financial
institutions that have been relying on an exception contained in
§ 403.5(d) and (f)(3) as originally adopted, the amendments to that
section are not effective until December 1, 1988 as the amendments
apply to requirements for obtaining written agreements with existing
customers and the timing requirements for the issuance of
confirmations; 55 Fed. Reg. 6604, February 26, 1990; 59 Fed. Reg. 9406,
February 28, 1994, effective April 29, 1994; 60 Fed. Reg. 11026, March
1, 1995, efective March 31, 1995]
{{6-30-05 p.8263}}
* * * * *
§ 403.7 Effective dates.
(a) General. Except as provided in paragraphs (b)
through (e) of this section, this part shall be effective on the last
business day in October 1987.
(b) Confirmations. The requirements of §§ 403.4 and
403.5(d) to describe the specific securities that are the subject of a
repurchase transaction, including the market value of such securities,
on a confirmation at the initiation of a repurchase transaction or on
substitution of other securities shall be effective January 31, 1988.
(c) Written repurchase agreements. The requirement
to obtain a repurchase agreement in writing with the provisions
described in §§ 403.4 and 403.5(d) shall be effective October 31,
1987, in the case of new customers of a government securities broker or
dealer and shall be effective January 31, 1988, in the case of existing
customers of a government securities broker or dealer. For purposes of
this paragraph, an "existing customer" of a government securities
broker or dealer is any counterparty with whom the government
securities broker or dealer has entered into a repurchase transaction
on or after January 1, 1986, but before July 25, 1987. For purposes of
this paragraph, a "new customer" of a government securities
broker or dealer is any counterparty other than an existing customer.
(d) Disclosures. (1) For hold-in-custody repurchase
transactions entered into before the effective date for obtaining a
written repurchase agreement in accordance with paragraph (c) of this
section, a government securities broker or dealer that is subject to
§ 403.4 shall furnish the counterparty with a separate interim
disclosure document containing: (i) The disclosure referred to in
§ 403.4 concerning the Securities Investor Protection Act of 1970,
and (ii) if applicable, the following disclosure:
REQUIRED DISCLOSURE
Unless the [buyer] and the [seller] have agreed to the contrary,
the [buyer's] securities are likely to be commingled with the
[seller's] own securities during the trading day. The [buyer] is
advised that, during any trading day that the [buyer's] securities
are commingled with the [seller's] securities, they will be subject
to liens granted by the [seller] to its clearing bank and may be used
by the [seller] for deliveries on other securities transactions.
Whenever the securities are commingled, the [seller's] ability to
resegregate substitute securities for the [buyer] will be subject to
the [seller's] ability to satisfy the clearing lien or to obtain
substitute securities.
(2) For hold-in-custody repurchase transactions entered into
before the effective date for obtaining a written repurchase agreement
in accordance with paragraph (c) of this section, a financial
institution that is subject to § 403.5(d) shall furnish the
counterparty with a separate interim disclosure document containing:
(i) The disclosure referred to in § 403.5(d) concerning the
inapplicability of deposit insurance, and (ii) if applicable, the
following disclosure:
REQUIRED DISCLOSURE
Unless the [buyer] and the [seller] have agreed to the contrary,
the [buyer's] securities are likely to be commingled with the
[seller's] own securities during the trading day. The [buyer] is
advised that, during any trading day that the [buyer's] securities
are commingled with the [seller's] securities, they will be subject
to liens granted by the [seller] to third parties and may be used by
the [seller] for deliveries on other securities transactions.
Whenever the securities are commingled, the [seller's] ability to
resegregate substitute securities for the [buyer] will be subject to
the [seller's] ability to satisfy any lien or to obtain substitute
securities.
(3) In the case of hold-in-custody repurchase transactions
initiated before August 31, 1987 and terminating on or after August 31,
1987, the disclosure document described in this paragraph (d) must be
mailed to the counterparties involved on or before August 31, 1987. In
the case of a hold-in-custody repurchase transaction initiated on or
after August 31, the disclosure document described in this paragraph
(d) must be provided to the
{{6-30-05 p.8264}}counterparty involved no later than the
day on which the first hold-in-custody repurchase transaction is
initiated on or after August 31, 1987, unless the disclosure has
already been provided to the counterparty in accordance with the
preceding sentence.
(e) Existing term repurchase transactions.
Notwithstanding paragraphs (b), (c) and (d) of this section, the
requirements of §§ 403.4 and 403.5(d) (with respect to
hold-in-custody repurchase transactions), with the exception of the
requirements to confirm the substitution of securities subject to a
repurchase transaction, shall not be applicable to any repurchase
transaction, initiated on or before August 31, 1987, that, by its
terms, matures on a specific date after August 31, 1987.
[Codified to 17 C.F.R. § 403.7]
[Section 403.7 amended at 53 Fed. Reg. 28986, August 1, 1988]
* * * * *
{{10-31-07 p.8265}}
PART 404—RECORDKEEPING AND PRESERVATION OF RECORDS
* * * * *
Sec.
404.4
Records to be made and preserved by government
securities brokers and dealers that are financial institutions.
* * * * *
AUTHORITY: 15 U.S.C.
78o--5(b)(1)(B), (b)(1)(C), (b)(2), (b)(4).
SOURCE: The provisions of this Part 404 appear at 52 Fed. Reg.
27952, July 24, 1987, except as otherwise noted.
* * * * *
§ 404.4 Records to be made and preserved by government
securities brokers and dealers that are financial institutions.
(a) Records to be made and kept. Every financial
institution that is a government securities broker or dealer and that
is not exempt from this part pursuant to
Part 401 of this chapter
shall comply with the requirements of §§ 404.2 and 404.3 unless such
financial institution:
(1) Is subject to 12 CFR part 12 (relating to national banks), 12
CFR part 208 (relating to state member banks of the Federal Reserve
System) or 12 CFR part 344
(relating to state banks that are not members of the Federal Reserve
System), or is a United States branch or agency of a foreign bank and
complies with 12 CFR part 12 (for federally licensed branches and
agencies of foreign banks) or 12 CFR part 208 (for uninsured
state-licensed branches and agencies of foreign banks) or 12 CFR part
344 (for insured state licensed branches and agencies of foreign
banks);
(2) Complies with the recordkeeping requirements of § 450.4(c),
(d) and (f) of this chapter; and
(3) Makes and keeps current:
(i)(A) A securities record or ledger reflecting separately for
each government security as of the settlement dates all "long" or
"short" positions (including government securities that are the
subjects of repurchase or reverse repurchase agreements) carried by
such financial institution for its own account or for the account of
its customers or others (except securities held in a fiduciary
capacity) and showing the location of all government securities long
and the offsetting position to all government securities short,
including long security count differences and short security count
differences classified by the date of the count and verification in
which they were discovered, and in all cases the name or designation of
the account in which each position is carried;
(B) A complete and current Form G--FIN--4 (§ 449.3 of this
chapter) or Form U--4 (promulgated by a self-regulatory organization)
or Form MSD--4 (as required for associated persons of bank municipal
securities dealers) for each associated person as defined in
§ 400.3 of this chapter;
(C) A Form G--FIN--5 (§ 449.4 of this chapter) or Form U--5
(promulgated by a self-regulatory organization) or Form MSD--5 (as
required for associated persons of bank municipal securities dealers)
for each associated person whose association has been terminated as
provided in § 400.4(d)(2)
of this chapter; and
(D) A complete and current Form G--FIN
(§ 449.1 of this chapter)
and, if applicable, a Form G--FINW
(§ 449.2 of this chapter).
(ii) For purposes of paragraph (a)(3)(i)(A) of this section,
"safekeeping" may be shown as a location of any securities long
as long as the financial institution complies with the requirements of
Part 450 of this chapter with respect to such securities.
(b) Preservation of records. (1) The records required
by paragraph (a)(3)(i)(A) of this section shall be preserved for not
less than six years, the first two years in an easily accessible
place.
{{10-31-07 p.8266}}
(2) The records required by paragraphs (a)(3)(i)(B) and (C) of
this section shall be preserved for at least three years after the
person who is the subject of the record has terminated his employment
and any other association with the government securities broker or
dealer function of the financial institution.
(3) The records required by paragraph (a)(3)(i)(D) of this
section shall be preserved for at least three years after the financial
institution has notified the appropriate regulatory agency that it has
ceased to function as a government securities broker or dealer.
(c) Effective date. This section shall be effective on
July 25, 1987, except that until October 31, 1987, a
financial institution government securities broker or dealer is not
required to make and keep current the securities position record
required by paragraph (a)(3)(i)(A) of this section.
(Approved by the Office of Management and Budget under Control No.
1535--0089)
[Codified to 17 C.F.R. § 404.4]
[Section 404.4 amended at 53 Fed. Reg. 28987, August 1, 1988;
Section 404.4 amended at 60 Fed. Reg. 11026, March 1, 1995, effective
March 31, 1995; 61 Fed. Reg. 7155, February 18, 1997, effective April
30, 1997; 71 Fed. Reg. 54411, September 15, 2006]
* * * * *
[The page following this is 8269.]
{{10-31-07 p.8269}}
PART 405—REPORTS AND AUDIT
Sec.
405.1
Application of part to registered brokers and
dealers and to financial institutions; transition rule.
405.4
Financial recordkeeping and reporting of
currency and foreign transactions by registered government securities
brokers and dealers.
* * * * *
AUTHORITY: 15 U.S.C. 78o--5(b)(1)(B), (b)(1)(C), (b)(2), (b)(4).
SOURCE: The provisions of this Part 405 appear at 52 Fed. Reg.
27954, July 24, 1987, except as otherwise noted.
§ 405.1 Application of part to registered brokers and dealers
and to financial institutions; transition rule.
(a) Compliance by registered brokers or dealers with
§§ 240.17a--5, 240.17a--8, and 240.17a--11 of this title (Commission
Rules 17a--5, 17a--8 and 17a--11), including provisions of those rules
relating to OTC derivatives dealers, constitutes compliance with this
part.
(b) A government securities broker or dealer that is a financial
institution and is subject to financial reporting rules of its
appropriate regulatory agency is exempt from the provisions of
§§ 405.2 and 405.3.
(c) This part shall be effective July 25, 1987, provided
however,
(1) That registered government securities brokers or dealers
shall first be required to file the reports required by
§ 240.17a--5(a), by virtue of § 405.2, for the month and the
quarter during which they were first required to comply with Part 402
of this chapter other than the interim liquid capital requirements of
§ 402.1(f); but that
(2) For any quarter ending prior to the quarter during which they
were first required to comply with Part 402 of this chapter other than
the interim liquid capital requirements of § 402.1(f), registered
government securities brokers or dealers shall file with the designated
examining authority for such registered broker or dealer, within 17
business days after the close of the quarter, an unaudited balance
sheet (with appropriate notes) for such quarter, prepared in accordance
with generally accepted accounting principles.
[Codified to 17 C.F.R. § 405.1]
[Section 405.1 amended at 71 Fed. Reg. 54411, September 15, 2006]
* * * * *
§ 405.4 Financial recordkeeping and reporting of currency and
foreign transactions by registered government securities brokers and
dealers.
Every registered government securities broker or dealer who is
subject to the requirements of the Currency and Foreign Transactions
Reporting Act of 1970 shall comply with the reporting, recordkeeping
and record retention requirements of
31 CFR Part 103. Where 31 CFR
Part 103 and § 404.3 of this chapter require the same records to be
preserved for different periods of time, such records or reports shall
be preserved for the longer period of time.
[Codified to 17 C.F.R. § 405.4]
[The page following this is 8271.]
{{ 4-28-95 p.8271}}
PART 449—FORMS, SECTION 15C OF THE SECURITIES EXCHANGE ACT OF
1934
Sec.
449.1
Form G–FIN, notification by financial
institutions of status as government securities broker or dealer
pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of
1934.
449.2
Form G–FINW, notification by financial
institutions of cessation of status as government securities broker or
dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange
Act of 1934 and
§ 400.6 of
this chapter. 449.3
Form G–FIN–4, notification by persons
associated with financial institutions that are government securities
brokers and dealers pursuant to section 15C(a)(1)(B)(i) of the
Securities Exchange Act of 1934 and § 400.4 of this chapter.
449.4
Form G–FIN–5, notification of termination of
association with a financial institution that is a government
securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the
Securities Exchange Act of 1934 and
§ 400.4 of this chapter.
* * * * *
AUTHORITY: 15 U.S.C. 78o--5(a), (b)(1)(B), (b)(4).
SOURCE: The provisions of this Part 449 appear at 52 Fed. Reg.
27956, July 24, 1987, except as otherwise
noted.
§ 449.1 Form G--FIN, notification by financial institutions of
status as government securities broker or dealer pursuant to section
15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.
This form is to be used by financial institutions that are
government securities brokers or dealers not exempt under
Part 401 of this chapter to
notify their appropriate regulatory agency of their status. The form is
promulgated by the Board of Governors of the Federal Reserve System and
is available from the Board of Governors of the Federal Reserve System,
the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Director of the Office of Thrift Supervision and the
SEC.
[Codified to 17 C.F.R. § 449.1]
[Section 449.1 amended at 55 Fed. Reg. 6604, February 26,
1990]
§ 449.2 Form G--FINW, notification by financial institutions of
cessation of status as government securities broker or dealer pursuant
to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and
§ 400.6 of this chapter.
This form is to be used by financial institutions that are
government securities brokers or dealers to notify their appropriate
regulatory agency that they have ceased to function as a government
securities broker or dealer. The form is promulgated by the Board of
Governors of the Federal Reserve System and is available from the Board
of Governors of the Federal Reserve System, the Comptroller of the
Currency, the Federal Deposit Insurance Corporation, the Director of
the Office of Thrift Supervision and the SEC.
[Codified to 17 C.F.R. § 449.2]
[Section 449.2 amended at 55 Fed. Reg. 6604, February 26,
1990]
§ 449.3 Form G--FIN--4, notification by persons associated with
financial institutions that are government securities brokers and
dealers pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange
Act of 1934 and § 400.4 of
this chapter.
This form is to be used by associated persons of financial
institutions that are government securities brokers or dealers to
provide certain information to the financial
{{4-28-95 p.8272}}institution and the appropriate
regulatory agency concerning employment, residence, and statutory
disqualification. The form is promulgated by the Department of the
Treasury and is available from the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Director of the Office of Thrift Supervision
and the SEC.
[Codified to 17 C.F.R. § 449.3]
[Section 449.3 amended at 55 Fed. Reg. 6604, February 26,
1990]
§ 449.4 Form G--FIN--5, notification of termination of
association with a financial institution that is a government
securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the
Securities Exchange Act of 1934 and
§ 400.4 of this chapter.
This form is to be used by financial institutions that are
government securities brokers or dealers to notify the appropriate
regulatory agency of the fact that an associated person is no longer
associated with the government securities broker or dealer function of
the financial institution. The form is promulgated by the Department of
the Treasury and is available from the Board of Governors of the
Federal Reserve System, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the Director of the Office of Thrift
Supervision and the SEC.
[Codified to 17 C.F.R. § 449.4]
[Section 449.4 amended at 55 Fed. Reg. 6604, February 26, 1990]
* * * * *
[The page following this is 8275.]
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