[Federal Register: June 11, 2002 (Volume 67, Number 112)]
[Proposed Rules]
[Page 39886-39900]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jn02-20]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 550 and 551
[No. 2002-22]
RIN 1550-AB49
Recordkeeping and Confirmation Requirements for Securities
Transactions; Fiduciary Powers of Savings Associations
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of Thrift Supervision (OTS) is proposing new
regulations specifying the recordkeeping and confirmation requirements
for savings associations that effect securities transactions. Under a
recent rule issued by the Securities and Exchange Commission (SEC),
savings associations may perform certain broker-dealer activities
without registering with the SEC. Today's proposal 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.
OTS also is proposing to amend its regulations governing the
fiduciary powers of federal savings associations. The proposed
amendments codify a series of OTS legal opinions regarding the
fiduciary powers of federal savings associations. This action is
consistent with the Office of the Comptroller of the Currency's (OCC)
recent codification of a similar series of legal opinions regarding the
fiduciary powers of national banks. The rule would also streamline
application procedures, clarify when a federal savings association may
act in a fiduciary capacity without obtaining fiduciary powers from
OTS, and make other minor or technical changes to OTS's fiduciary
powers regulations.
DATES: Comments must be received on or before August 12, 2002.
ADDRESSES: Mail: Send comments to Regulation Comments, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552, Attention: Docket No. 2002-22. Commenters should be aware
that there have been some unpredictable and lengthy delays in postal
deliveries to the Washington, DC area in recent weeks and may prefer to
make their comments via facsimile, e-mail, or hand delivery.
Delivery: Hand deliver comments to the Guard's Desk, East Lobby
Entrance, 1700 G Street, NW., from 9:00 a.m. to 4:00 p.m. on business
days, Attention: Regulation Comments, Chief Counsel's Office, Docket
No. 2002-22.
Facsimiles: Send facsimile transmissions to FAX Number (202) 906-
6518, Attention: Docket No. 2002-22.
E-Mail: Send e-mails to regs.comments@ots.treas.gov, Attention:
Docket No. 2002-22, and include your name and telephone number.
Availability of comments: OTS will post comments and the related
index on the OTS Internet Site at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.ots.treas.gov. In addition, you
may inspect comments at the Public Reading Room, 1700 G Street, NW., by
appointment. To make an appointment for access, call (202) 906-5922,
send an e-mail to public.info@ots.treas.gov, or send a facsimile
transmission to (202) 906-7755. (Please identify the materials you
would like to inspect to assist us in serving you.) We schedule
appointments on business days between 10:00 a.m. and 4:00 p.m. In most
cases, appointments will be available the business day after the date
we receive a request.
FOR FURTHER INFORMATION CONTACT: 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; or Judith
McCormick, Trust Specialist, (202) 906-5636, Examination Policy
Division, Office of Supervision, Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Discussion
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 perform certain
broker-dealer activities without registering with the SEC as broker-
dealers.
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\1\ The SEC recently extended until May 12, 2003 the savings
association exemption from the definition of ``broker'' under the
Exchange Act, and extended until November 12, 2002 the savings
association exemption from the definition of ``dealer'' under the
Exchange Act. SEC Release No. 34-45897 (May 8, 2002); see also SEC
Release No. 34-44570 (July 18, 2001).
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The OCC, Federal Deposit Insurance Corporation (FDIC), and Federal
Reserve Board (FRB) regulations include recordkeeping and confirmation
requirements for securities transactions effected by banks. Until the
recent SEC rule, OTS did not need similar requirements. Today's
proposal affords savings association customers the same protections and
disclosures provided to bank customers. Proposed part 551 establishes
recordkeeping and confirmation requirements for a savings association
that effects securities transactions. Proposed part 551 is based on the
recordkeeping and confirmation requirements of the other federal
banking agencies.\2\ Where appropriate, however, OTS has modified the
proposed requirements to reflect SEC regulatory requirements for
registered broker-dealers. A section-by-section description of the
proposed recordkeeping and confirmation regulations follows.
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\2\ See 12 CFR part 12 (2001) (OCC); 12 CFR 208.24 (2001) (FRB);
12 CFR part 344 (2001) (FDIC).
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What Does This Part Do? (Proposed Sec. 551.10)
Proposed Sec. 551.10 states that part 551 establishes recordkeeping
and confirmation requirements for a savings association that effects
securities transactions for customers. The new part would apply to all
savings associations.
Must I Comply With This Part? (Proposed Sec. 551.20)
Proposed Sec. 551.20 sets out the scope of part 551. Generally, any
savings
[[Page 39887]]
association effecting a securities transaction for a customer must
comply with part 551, unless the transaction is specifically excepted.
Proposed Sec. 551.20(b) contains five exceptions to this general
rule. Four of the five proposed exceptions--for an institution that
effects a small number of securities transactions,\3\ for certain
government securities transactions, for certain municipal securities
transactions, and for transactions conducted at a foreign branch of a
savings association--are found in all of the other federal banking
regulators' requirements. The OCC and FDIC regulations also include a
fifth exception for a transaction effected for a bank by an SEC-
registered broker-dealer who provides a confirmation directly to the
customer. OTS agrees this is an appropriate exception and has included
it in the proposed rule.
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\3\ The number in the proposed rule, 500 transactions, is based
on the de minimis exception found in Sec. 201 of the Gramm-Leach-
Bliley Act, amending the definition of ``broker'' in Sec. 3(a)(4) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)(B)(xi)).
The other banking agencies' regulations contain a de minimis
transaction limit of 250 that predates GLBA.
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This last exception would apply to transactions effected by a
savings association employee who also acts as an employee of an SEC-
registered broker-dealer (dual employee), if the dual employee works
for and is under the control of a registered broker-dealer when he or
she effects the transaction. However, if the dual employee works for
and is under the control of the savings association when he or she
effects the transaction, the proposed exception would not apply.
A savings association may enter into various arrangements with a
registered broker-dealer that permit the broker-dealer to operate on
the association's premises. As noted above, proposed part 551 generally
would not apply to securities transactions executed by these registered
broker-dealers for their customers. As registered broker-dealers, they
already are subject to the SEC's recordkeeping and confirmation rules.
However, if the savings association effects a securities transaction
for a customer, but uses the registered broker-dealer to perform purely
administrative functions (e.g., clearing the transaction), proposed
part 551 would apply because the savings association has executed the
transactions.
OTS invites comment on these exceptions and whether they are
appropriate in the context of the day-to-day operations of a savings
association.
What Requirements Apply To All Transactions? (Proposed Sec. 551.30)
Proposed Sec. 551.30 states that a savings association must effect
all transactions, including excepted transactions, safely and soundly.
Specifically, the savings association must maintain effective systems
of records and controls that clearly and accurately reflect all
appropriate information and provide an adequate basis for an audit. The
other federal banking regulators have similar provisions.
What Definitions Apply to This Part? (Proposed Sec. 551.40).
Proposed Sec. 551.30 contains the definitions of terms used in part
551. The proposed definitions of ``asset-backed security,''
``completion of the transaction,'' ``customer,'' ``debt security,''
``government security,'' ``municipal security,'' and ``security'' track
definitions in the OCC, FDIC, and FRB regulations.
OTS's proposed rule cross-references the definition of ``investment
discretion'' in its fiduciary powers rule at 12 CFR 550.40. By
contrast, OCC established separate definitions of investment discretion
for its recordkeeping and confirmation rule and its fiduciary rule.
Although they are phrased slightly differently, the definitions of
``investment discretion'' in OCC's two rules are substantially
similar.\4\ In OTS's view, the two concepts are identical. As such, OTS
has elected to use the same definition for both rules.
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\4\ Compare 12 CFR 9.2(i) (which is similar to OTS's definition
at 12 CFR 550.40) with 12 CFR 12.2(h) (which is similar to the
definitions in the other federal banking regulators' recordkeeping
and confirmation regulations).
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The proposed rule also defines ``investment company plan.'' This
definition comes from SEC Rule 10b-10, the SEC's rule for confirmation
of transactions by registered broker-dealers. See 17 CFR 240.10b-
10(d)(6).
OTS, like FDIC, would define ``sweep account'' separately from
``periodic plan.'' Many sweep accounts differ from typical periodic
plans such as dividend reinvestment plans and automatic investment
plans. Accordingly, proposed Sec. 551.30 includes a definition of
``sweep account'' based on the FDIC's regulation. See 12 CFR 344.3(c).
The proposed definition of ``periodic plan'' is based on SEC Rule 10b-
10. See 17 CFR 240.10b-10(d)(5). Finally, OTS has included a definition
of ``common or collective investment fund,'' which cross-references
applicable OTS and OCC rules.
Subpart A--Recordkeeping Requirements
What Records Must I Maintain for Securities Transactions? (Proposed
Sec. 551.50)
Proposed Sec. 551.50 describes the records a savings association
must maintain for securities transactions. A savings association
effecting securities transactions for customers must maintain, for at
least three years, chronological records containing an itemized daily
record of each purchase and sale of securities; account records for
each customer; the memorandum (order ticket) of each order or any other
instruction given or received for the purchase or sale of securities;
and a record of all registered broker-dealers the association selected
to effect transactions and the commissions paid or allotted to each
registered broker-dealer during each calendar year. The savings
association must also maintain copies of the written notice required
under proposed subpart B, which is discussed below.
How Must I Maintain My Records? (Proposed Sec. 551.60)
Proposed Sec. 551.60(a) states that a savings association may
maintain required records in any manner, form, or format, as long as
the records clearly and accurately reflect the required information and
provide an adequate basis for auditing the information.
Proposed Sec. 551.60(b) is patterned after a recent SEC rule
governing recordkeeping requirements by investment companies and
investment advisers.\5\ Under the proposed rule, a savings association
or the person that maintains and preserves records for the association
must arrange and index the records in a way that permits easy access
and retrieval, separately store a duplicate copy of the records, and
promptly provide, upon an examiner's or the association director's
request, copies of the record in the medium in which the record is
stored, a printout of the record, and means to access, view, and print
the record.
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\5\ See 17 CFR 270.31a-2(f) and 275.204-2(g).
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Proposed paragraph (b) also addresses electronic records. A savings
association would be required to establish procedures to maintain and
preserve electronic records in a way that reasonably safeguards the
records from loss, alteration, or destruction; to limit access to the
records to authorized personnel, the association's directors, and OTS
examiners; and to reasonably ensure that electronic copies of the non-
[[Page 39888]]
electronic originals are complete, true, and legible.
Finally, proposed Sec. 551.60(c) states that a savings association
may contract with third party service providers to maintain records.
Subpart B--Content and Timing of Notice
What Type of Notice Must I Provide When I Effect a Securities
Transaction for a Customer? (Proposed Sec. 551.70)
Under proposed Sec. 551.70, whenever a savings association effects
a securities transaction for a customer, the association must notify
the customer by providing the customer with: (1) The registered broker-
dealer confirmation; (2) a written notice; or (3) an alternate notice
for certain types of transactions. These three types of notices are
described in proposed Secs. 551.80-100.
How Do I Provide a Registered Broker-dealer Confirmation? (Proposed
Sec. 551.80)
Under proposed Sec. 551.80, a savings association may elect to
provide the customer with a copy of the registered broker-dealer's
confirmation. The registered broker-dealer may send the confirmation
directly to the customer, or the savings association may send the
customer a copy of the confirmation within one day of receiving it from
the registered broker-dealer. If the registered broker-dealer sends the
confirmation directly to the customer, the savings association would
remain responsible for the timely delivery of confirmations and the
accurate disclosure of the required information. Proposed
Sec. 551.80(b) requires additional disclosures if the association
receives remuneration in connection with the transaction. In such a
case, the association must provide the customer a statement of the
source and amount of any remuneration. This information is generally
required in a registered broker-dealer confirmation under SEC Rule 10b-
10(a).\6\
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\6\ 17 CFR 240.10b-10(a)(2)(i)(C) and (D) (2001).
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How Do I Provide a Written Notice? (Proposed Sec. 551.90)
Under proposed Sec. 551.90, the association may elect to provide a
written confirmation disclosing certain information. These
informational requirements are based on the SEC's rule on confirmation
of transactions by registered broker-dealers, SEC Rule 10b-10.\7\ Under
proposed Sec. 551.90(a) through (e), the written confirmation must
indicate: (1) The savings association's and customer's name; (2) the
capacity in which the savings association acted; (3) the date and time
the transaction was executed (or a statement that the association will
furnish this information upon written request), and the identity,
price, and number of shares or units purchased or sold; (4) the person
from whom the association purchased or to whom the association sold the
security (or a statement that the association will furnish this
information upon request); and (5) the amount and source of
remuneration the association has received in connection with the
transaction. Under proposed Sec. 551.90(g), the association also must
include a statement that the association is not a member of the
Securities Investor Protection Corporation, if that is the case, unless
the transaction involved shares of a registered open-end investment
company or unit investment trust. Subparagraphs (f) and (g) are drawn
from SEC Rule 10b-10, see 17 CFR 240.10b-10(a)(2)(i)(D) and (a)(9).
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\7\ 17 CFR 240.10b-10(a) (2001).
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Paragraph (h) of proposed Sec. 551.90 imposes additional disclosure
requirements on certain transactions in debt securities. These
additional requirements, which generally involve disclosing price and
yield information about particular types of debt securities, are
consistent with the recordkeeping requirements of the other federal
banking regulators and SEC Rule 10b-10.\8\ OTS has put these additional
disclosure requirements in the form of a chart. If a transaction falls
within more than one of the types of transactions listed in paragraphs
(h)(1) through (5), the savings association must provide the
information required for each type.
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\8\ See, e.g., 12 CFR 12.4(a)(12) (2001); 17 CFR 240.1b-
10(a)(4)--(a)(7) (2001).
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What Are the Alternate Notice Requirements? (Proposed Sec. 551.100)
Under proposed Sec. 551.100, a savings association may elect to
provide alternate notices for certain types of transactions. These
include transactions effected: (1) For or with the account of a
customer under a periodic plan, sweep account, or investment company
plan; (2) for or with the account of a customer in shares in certain
open-ended management companies registered under the Investment Company
Act of 1940 that hold themselves out as a money market fund and attempt
to maintain a stable net asset value per share; (3) for an account for
which the savings association does not exercise investment discretion
and the customer has agreed in writing to an arrangement concerning the
time and content of the notice; (4) for an account, other than common
or collective investment funds, for which the savings association
exercises investment discretion in other than an agency capacity; (5)
for an account for which the savings association exercises investment
discretion in an agency capacity; and (6) for a common or collective
investment fund.
These categories are based on the alternate notice options provided
by the other federal banking regulators and the SEC.\9\ Most of the
information requirements for all these accounts are based on the other
federal banking agencies' rules. The information requirements for
periodic plans and sweep accounts, however, are drawn from SEC Rule
10b-10(b), and the requirements for collective or common investment
funds are drawn from FDIC regulation 12 CFR 344.6(e). OTS has set out
the alternate notice requirements in a chart.
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\9\ See 12 CFR 12.5 (OCC); 12 CFR 208.24(d) (FRB); 12 CFR 344.5
(FDIC); 17 CFR 240.10b-10(b) (SEC).
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May I Provide a Notice Electronically? (Proposed Sec. 551.110)
Proposed Sec. 551.110 provides that a savings association may
satisfy the written notice requirements in subpart B electronically.
Proposed Sec. 551.110 is based on a similar regulation in the OCC's
rules at 12 CFR 12.102. A savings association may use electronic
communications if the parties agree, the parties are able to print or
download the notice, the system cannot automatically delete the notice,
and both parties are able to receive electronic messages.
May I Charge a Fee for a Notice? (Proposed Sec. 551.120)
OTS has included a provision addressing whether a savings
association may charge a fee for a required notice. Proposed
Sec. 551.120, which is based on a related OCC provision,\10\ states
that a savings association may not charge a fee for providing a notice
required under proposed subpart B, except in three instances. A savings
association may charge a reasonable fee for providing notice under
proposed Sec. 551.100(a) (notice for periodic plans, sweep accounts, or
investment company plans), (d) (notice for fiduciary accounts), and (e)
(notice for agency accounts).
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\10\ 12 CFR 12.6 (2001).
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[[Page 39889]]
Subpart C--Settlement of Securities Transactions
When Must I Settle a Securities Transaction? (Proposed Sec. 551.130)
Proposed Sec. 551.130 establishes a settlement period of three days
after the date of the transaction (``T+3'') for savings associations
effecting securities transactions. This time frame is consistent with
that of the other federal banking regulators and mirrors the SEC's T+3
settlement time frame. See SEC Rule 15c6-1, 17 CFR 240.15c6-1 (2001).
The proposal also provides that the parties may expressly agree to
another time frame at the time of the transaction, or use some other
time period as the SEC may specify by rule.
OTS considered incorporating settlement rules by cross-referencing
the SEC rule. However, many small institutions may not have access to
SEC rules. As a result, OTS has concluded that the better practice is
to set forth a settlement rule tracking the SEC rule. This is
consistent with the OCC and FDIC rules.
Subpart D--Securities Trading Policies and Procedures
What Policies and Procedures Must I Maintain and Follow for Securities
Transactions? (Proposed Sec. 551.140)
Proposed Sec. 551.140 requires a savings association that effects
securities transactions to maintain and follow written policies and
procedures addressing several areas of operation. This section is based
on similar provisions in the other banking regulators' recordkeeping
regulations.
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.
Proposed Sec. 551.140(d) describes who must file the quarterly
reports and is similar to the reporting requirements of the other
regulators. Under that paragraph, an officer or employee must file a
report if he or she makes investment recommendations or decisions for
the accounts of customers, participates in the determination of these
recommendations or decisions, or, in connection with his or her duties,
obtains information concerning which securities the savings association
intends to purchase, sell, or recommend for purchase or sale. OTS has
also relied on the SEC's reporting requirements for investment company
personnel who engage in personal investment activities found at 17 CFR
270.17j-1(d).
How Do My Officers and Employees File Reports of Personal Securities
Trading Transactions? (Proposed Sec. 551.150)
Proposed Sec. 551.150(a) details the contents of the quarterly
report. For each transaction, an officer or employee described in
proposed Sec. 551.140(d) would be required to report: (1) The date of
the transaction, the title and number of shares, the interest rate and
maturity date (if applicable), and the principal amount of each
security; (2) the nature of the transaction (i.e., purchase, sale, or
other type of acquisition or disposition); (3) the price at which the
transaction was effected; (4) the name of the broker, dealer, or other
intermediary effecting the transaction; and (5) the date the officer or
employee submitted the report. The report is due within ten days after
the close of the calendar quarter.
The officer or employee would not be required to report: (1) A
transaction if he or she has no direct or indirect influence or control
over the account or over the securities held in the account; (2) a
transaction in shares issued by an open-end investment company
registered under the Investment Company Act of 1940; (3) a transaction
in direct obligations of the United States government; or (4) a
transaction in bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short term debt instruments,
including repurchase agreements. In addition, the officer or employee
would not be required to file a report if the aggregate amount of his
or her purchases and sales is $10,000 or less during the calendar
quarter.
When a savings association acts as an investment advisor to an
investment company, paragraph (c) would permit an officer or employee
to fulfill the filing requirement by filing the report required by SEC
Rule 17j-1(d), 17 CFR 270.17j-1(d). SEC Rule 17j-1 applies whenever a
savings association acts as an investment adviser to an investment
company. Proposed part 551, by contrast, applies more broadly to the
investment advisory activities of a savings association, whether the
association provides the advice to an investment company or to any
other customer. Savings associations should be aware when they may be
conducting advisory activities that would subject them to both SEC and
OTS reporting requirements. OTS specifically requests comment whether
the rule should specifically address this point.
B. Fiduciary Powers of Federal Savings Associations (Part 550)
OTS also proposes amendments to its regulations governing the
fiduciary powers of federal savings associations at 12 CFR part 550.
The proposed rules codify a series of OTS legal opinions regarding the
fiduciary powers of federal savings associations. This action also is
consistent with the OCC's recent codification of a similar series of
legal opinions regarding the fiduciary powers of national banks.\11\
The rule would also streamline application procedures, clarify when a
federal savings association may act in a fiduciary capacity without
obtaining fiduciary powers from OTS, and make other minor or technical
changes. These changes are discussed below.
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\11\ See 66 FR 34792 (July 2, 2001).
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1. Fiduciary Operations (Proposed Secs. 550.130 and 550.135)
a. Scope of Fiduciary Powers (Proposed Sec. 550.135(a))
A federal savings association's authority to exercise fiduciary
powers derives from section 5(n) of the Home Owners' Loan Act (HOLA)
(12 U.S.C. 1464(n)). Section 5(n)(1) of the HOLA states that OTS may
authorize a federal savings association:
To 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.
Thus, under the HOLA, the scope of a federal savings association's
fiduciary powers is expressly tied to the laws of the state in which
the federal association is ``located.'' That location determines which
state laws define the permissible scope of a federal savings
association's fiduciary powers.
There is no case law specifically discussing the meaning of
``located'' in section 5(n). However, OTS has provided guidance
regarding this term in a series of legal opinions.\12\ OTS has opined
that a federal savings association
[[Page 39890]]
will be located for trust purposes in those states where it has an
office in which it conducts fiduciary activities. OTS has indicated
that a trust office may be in the form of a brick and mortar office or
a fiduciary presence in the state that is the functional equivalent of
operating a brick and mortar trust office--a so-called de facto trust
office. To determine whether an association is operating an actual or
de facto trust office in a particular state, OTS has looked at the
nature of activities performed in the state. OTS has distinguished
between fiduciary activities (such as executing documents, providing
investment advice, making investments, and approving new accounts),
which would establish location for trust purposes, and mere marketing
activities, which would not. For example, OTS has concluded that a
federal savings association is not located where its only activities
are marketing its fiduciary services and performing specified
incidental duties pursuant to its appointment as testamentary trustee
or trustee holding real estate.
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\12\ See, e.g., OTS Op. Chief Counsel (June 13, 1994); OTS Op.
Chief Counsel (June 21, 1996); and OTS Op. Chief Counsel (August 8,
1996).
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OTS has incorporated these interpretations in today's proposed
rule. For the purposes of section 5(n), the proposed rule interprets
``location'' as the state in which a federal savings association
``conducts fiduciary activities.'' Specifically, proposed
Sec. 550.135(a) provides that the state laws that apply to federal
savings associations under section 5(n) of the HOLA are the laws of the
state in which the association conducts fiduciary activities.\13\ For
each individual state, the proposed rule would state that a federal
savings association may conduct fiduciary activities in the four
fiduciary capacities specifically authorized by the HOLA (trustee,
executor, administrator, or guardian), and in any other fiduciary
capacity the state permits for state banks, trust companies, or other
corporations that compete with federal savings associations in that
state. Consistent with OTS opinions, the proposed rule indicates that a
federal savings association conducts fiduciary activities where it
accepts a fiduciary appointment, executes documents accepting a
fiduciary appointment, provides investment advice regarding fiduciary
assets, or makes discretionary decisions regarding investment or
distribution of fiduciary assets. See proposed Sec. 550.60.
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\13\ As a related technical change, the proposed rule deletes
the second sentence of current Sec. 550.20. That sentence provides
that the scope of permissible fiduciary powers for federal savings
associations depends on the powers that the state in which the
association is located grants to competing fiduciaries in that
state. OTS believes that this sentence is unnecessary in light of
proposed Sec. 550.135(a).
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The proposed rule also provides that for each fiduciary
relationship, the state referred to in section 5(n) of the HOLA is the
state(s) in which the federal savings association conducts fiduciary
activities for that relationship. We have not included a provision
similar to that of the OCC, providing that if the federal savings
association acts in a fiduciary capacity for a particular relationship
in more than one state, the association may designate in which state
the association is acting in a fiduciary capacity.\14\ Many commenters
on the OCC's rule expressed concern that the provision might implicate
state choice of law issues. We invite specific comment on whether such
a provision is necessary and within the scope of section 5(n) of the
HOLA.
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\14\ See 12 CFR 9.7(d). In all other respects, proposed
Secs. 550.130 and 550.135 are consistent with the OCC rule at 12 CFR
9.7.
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b. Multi-State Operations (Proposed Sec. 550.130)
OTS legal interpretations have also analyzed the extent to which a
federal savings association may conduct multi-state fiduciary
activities, market services to customers in multiple states, and
establish offices in multiple states. These opinions have concluded
that the HOLA places no geographic limitation on the ability of a
federal savings association to exercise fiduciary authority on a multi-
state basis.\15\ Proposed Sec. 550.130(a) codifies these opinions and
provides that a federal savings association may conduct fiduciary
activities in any state.\16\
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\15\ OTS Op. Chief Counsel (March 28, 1996).
\16\ A federal savings association would be required to comply
with the applicable application and notice procedures described at
section I.B.3 of this preamble.
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As noted above, OTS has determined that a federal savings
association is not located for trust purposes in a state where it only
conducts activities ancillary to its fiduciary business.\17\
Accordingly, proposed Sec. 550.130(b) clarifies that when a federal
savings association conducts fiduciary activities in one state, it may
market its fiduciary services to, and act as a fiduciary for, customers
located in any state, and may act as a fiduciary for relationships that
include property located in other states, or as a testamentary trustee
for a testator located in another state. In conducting these ancillary
activities, the federal savings association must generally comply with
the laws of the state in which it is located.\18\
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\17\ OTS Op. Chief Counsel (June 13, 1994); and OTS Op. Chief
Counsel (June 21, 1996).
\18\ See proposed Sec. 550.135(b).
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The proposed rule further provides that a federal savings
association may establish or utilize an office in another state to
provide ancillary services.\19\ Proposed Sec. 550.60 describes examples
of ancillary activities drawn from recent interpretive opinions. These
activities would include advertising, marketing, soliciting fiduciary
business, answering questions and providing information to customers
related to their accounts, acting as liaison between the association
and the customer (such as 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.\20\ If a federal savings association, however,
also conducts fiduciary activities in a state, it would be located in
that state.
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\19\ OTS Op. Chief Counsel (May 5, 1995) at n.13.
\20\ OTS Op. Chief Counsel (June 13, 1994); OTS Op. Chief
Counsel (June 21, 1996); OTS Chief Counsel (August 8, 1996); and OTS
Op. Chief Counsel (July 1, 1998).
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c. Impact of Federal Law (Proposed Sec. 550.135(b))
The fiduciary operations of federal savings associations are
subject to a complex interplay between federal and state law. As noted
above, section 5(n) of the HOLA indicates that OTS must look to state
law to determine the scope of the fiduciary powers that may be granted
to a federal savings association.\21\ The HOLA, however, also grants
OTS plenary authority to regulate all aspects of the operations of
federal savings associations, including fiduciary operations (12 U.S.C.
1464(a)), and expressly confers upon OTS the power to authorize federal
savings associations to exercise fiduciary powers (12 U.S.C. 1464(n)).
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\21\ Section 5(n) of the HOLA also specifically incorporates
certain other state laws. For example, OTS may not grant fiduciary
powers to a federal savings association if it has less capital than
state law requires for state chartered fiduciaries. 12 U.S.C.
1464(n)(8). Moreover, a federal savings association must comply with
any state law requiring a deposit of securities or an oath or
affidavit from fiduciaries. 12 U.S.C. 1464(n)(5) and (n)(6).
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OTS has issued a number of opinions addressing the interaction of
these provisions. Specifically, OTS has opined that a federal savings
association with OTS-authorized fiduciary powers does not need to
obtain a license or permission from a state in order to conduct
fiduciary activities in that state.\22\ Further, consistent with its
role as exclusive regulator of federal savings
[[Page 39891]]
associations, OTS has issued detailed fiduciary regulations at part
550.
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\22\ See, e.g., OTS Op. Chief Counsel (March 28, 1996).
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Other than with respect to those state laws specifically referenced
in HOLA Sec. 5(n), the fiduciary activities of federal savings
associations are governed solely by federal law and OTS. This position
is consistent with the oft-stated principle that OTS totally occupies
the field of the regulation of federal savings associations.\23\ Under
this approach, a state law purporting, for example, to restrict the
advertising or affect the recordkeeping practices of a federal savings
association's fiduciary operations, would not apply to the association.
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\23\ See, e.g., 12 CFR 560.2 (2002); see also Fidelity Federal
Savings and Loan Ass'n v. de la Cuesta, 458 U.S. 141 (1982).
---------------------------------------------------------------------------
Accordingly, proposed Sec. 550.135(b) states that, except for those
particular state laws that apply to a federal savings association by
virtue of section 5(n) of the HOLA, state laws that purport to regulate
any other aspect of a federal savings association's fiduciary
activities do not apply to a federal savings association's fiduciary
operations.
2. Application and Notice Requirements (Proposed Secs. 550.70 and
550.125)
In this rulemaking, OTS also proposes to revise the application and
notice requirements applicable to fiduciary operations. Under existing
rules, a federal savings association must obtain prior approval from
the OTS before exercising fiduciary powers, unless its activities are
exempt under subpart E. 12 CFR 550.70. Under current Sec. 550.130, a
federal savings association may exercise only those fiduciary powers
specified in the OTS approval. In addition, unless otherwise provided
in the approval, a federal savings association may exercise fiduciary
powers only from those offices listed in the application.\24\ As a
result, if a federal savings association wishes to exercise fiduciary
powers that are not specified in the OTS approval or exercise fiduciary
powers from a new office, the federal savings association must
generally seek additional OTS review.
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\24\ When OTS adopted this provision in 1997, it noted that a
federal savings association did not need to file a new application
every time it opens a new office. For example, OTS approval of an
application to obtain fiduciary powers could establish a procedure
for expansion into new states under a notice process. See 62 FR at
67699.
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When OTS reviews an initial application for fiduciary powers, it
analyzes a number of factors including, among others, the federal
savings association's financial and managerial resources, its history
of regulatory compliance, and level of fiduciary expertise. See 12 CFR
550.100. In light of this initial review, OTS believes that a new
application is not always necessary to ensure safe and sound fiduciary
operations when a federal savings association with existing trust
powers expands its operations.
Application and notice requirements under the proposed rule would
distinguish between new activities that materially differ from
previously approved fiduciary activities and other types of activities.
A federal savings association would engage in materially different
activities, for example, if the business plan supporting the approved
trust application contemplated only personal trust services and the
savings association proposed to expand its activities to manage
employee benefit accounts.
When a federal savings association conducts fiduciary activities
that differ materially from previously approved fiduciary activities,
OTS believes that its review of a complete trust application is
necessary to ensure that the proposed operations are consistent with
the association's experience, resources, and expertise. Accordingly,
the proposed rule would require a federal savings association with
previously approved trust powers to submit a complete trust application
and obtain prior OTS approval before it may conduct fiduciary
activities that are materially different from activities approved in
the initial trust application.
OTS does not believe that a federal savings association engages in
materially different activities when it merely expands the geographic
scope of previously approved activities. Accordingly, the proposed rule
would not require a new application before the federal savings
association commences such activities. However, to ensure that OTS is
adequately informed when an association expands the geographic scope of
its activities into a new jurisdiction, the proposed rule would require
a federal savings association to notify the OTS within ten days after
commencing such fiduciary activities in a new state.\25\ A federal
savings association would not be required to notify OTS, however, to
move previously approved activities within a state. Similarly, no
notice is required if the activities in a new state will consist only
of activities ancillary to the exercise of the association's fiduciary
business.
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\25\ Proposed Sec. 550.125 sets out the requirements for this
notice. Specifically, the savings association would be required to
identify each new state, describe the fiduciary activities the
association is or will be conducting in each new state, and provide
sufficient information to support a conclusion that the activities
are permissible in each new state. Sufficient information to support
a conclusion that the activities are permissible in the new state
will depend on the specific circumstances of each case. Where state
law is clear and the proposed activities are straightforward, a more
limited discussion may suffice. A complicated business plan in a
state with unclear law may require an opinion of counsel.
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OTS has incorporated the application and notice requirements in a
chart at proposed Sec. 550.70. OTS would also make other technical
revisions to existing part 550 to reflect the described changes.
3. Deposit of Fiduciary Funds Awaiting Investment or Distribution
(Proposed Sec. 550.310)
Existing Sec. 550.300 permits a federal savings association to
deposit funds of a fiduciary account that are awaiting investment or
distribution in self-deposits or in deposits with an affiliate. If the
FDIC does not insure the entire amount of the self-deposit or the
affiliate deposit, the association must set aside collateral as
security. 12 CFR 550.310.
OCC has a similar rule at 12 CFR 9.10. OCC's rule, however, states
that if the FDIC does not insure the funds deposited with the
institution, the bank must set aside collateral as security for a self-
deposit, but may set aside collateral for the deposit with an
affiliate. The OCC has interpreted this section to mean that the
collateral for fiduciary funds deposited with an affiliate may come
from either the bank or its affiliate.\26\
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\26\ OCC Interpretive Letter 699, dated November 6,
1995.
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When it revised Sec. 550.310 in 1997, OTS clearly expressed its
intent to conform the substance of its rules to the OCC's rules. See 62
FR 39477 (July 23, 1997). Accordingly, OTS proposes to amend its rules
to state that if FDIC does not insure the entire amount of an affiliate
deposit, either the savings association or the affiliate must set aside
collateral as security.
4. Activities Exempt From Part 550 (Proposed Sec. 550.580)
Existing Sec. 550.580 describes when a federal savings association
may conduct fiduciary activities without obtaining fiduciary powers
from OTS. The purpose of this section is to exempt those fiduciary
relationships authorized in section 5(l) of the HOLA, 12 U.S.C.
1464(l). Section 5(l) states:
A Federal savings association is authorized to act as trustee of
any trust created or organized in the United States and forming part
of a stock bonus, pension, or profit-sharing plan which qualifies or
qualified for specific tax treatment under section 401(d) of [the
Internal Revenue Code], and as trustee
[[Page 39892]]
or custodian of an individual retirement account within the meaning
of section 408 of [the Internal Revenue Code] if the funds of such
trust or account are invested only in savings accounts or deposits
in such Federal savings association or in obligations or securities
issued by such Federal savings association.
These types of accounts are addressed under existing Secs. 550.580(a)
and (b).
Existing Sec. 550.580(c), however, also exempts a federal savings
association when it acts as trustee of a fiduciary account that
involves no active fiduciary duties, provided that applicable law
authorizes the savings association to act in that capacity. Several
associations have attempted to rely on paragraph (c) to argue they do
not need to obtain fiduciary powers when acting as a directed trustee
for non-IRA accounts. Since these activities are beyond the scope of
section 5(l) of the HOLA, OTS is proposing to delete Sec. 550.580(c).
OTS also proposes to amend Sec. 550.580 to clarify that a federal
savings association conducting fiduciary activities in an exempt
capacity may only invest the funds in the trust or account in the
investments described in Sec. 550.600. Finally, the proposal includes
additional clarifying amendments to this section and Sec. 550.600.
II. Solicitation of Comments Regarding the Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires federal banking
agencies to use ``plain language'' in all proposed and final rules
published after January 1, 2000. OTS invites your comments on how to
make this proposed rule easier to understand. For example:
Did we organize the material to suit your needs? For example,
several of the proposed rules set out requirements in a chart, rather
than in standard regulation text. See proposed Secs. 550.70, 551.90 and
551.100. OTS specifically requests comment whether these charts are
clearer and more helpful. If not, how could the material be better
organized?
Do we clearly state the requirements in the rule? If not, how could
the rule be more clearly stated?
Does the rule contain technical language or jargon that is not
clear? If so, what language requires clarification?
Would a different format (grouping and order of sections, use of
headings, paragraphing) make the rule easier to understand? If so, what
changes to the format would make the rule easier to understand?
Would more (but shorter) sections be better? If so, what sections
should be changed?
What else could we do to make the rule easier to understand?
III. Regulatory Flexibility Act
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (RFA) requires the agency to ``prepare and make
available for public comment an initial regulatory flexibility
analysis'' which will ``describe the impact of the proposed rule on
small entities.'' 5 U.S.C. 603(a). Section 605 of the RFA allows an
agency to certify a rule, in lieu of preparing an analysis, if the
proposed rulemaking is not expected to have a significant economic
impact on a substantial number of small entities.
OTS has prepared an IRFA for part 551 but not for part 550. Most of
the proposed changes to part 550 merely codify OTS existing regulatory
interpretations regarding the scope of fiduciary powers, multi-state
operations, and the impact of federal law. To the extent that proposed
part 550 modifies existing requirements, the proposed rule would reduce
burden by eliminating application requirements under certain
circumstances, by substituting notices for applications in other
circumstances, and by providing greater flexibility regarding the
collateralization of deposits of fiduciary funds. The rule would also
clarify the scope of activities that are exempt from part 550 under
section 5(l) of the HOLA. While the proposed rule would eliminate
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
this provision. Accordingly, OTS certifies to the Chief Counsel of
Advocacy of the Small Business Administration that the proposed changes
to part 550 will not have a significant economic impact on a
substantial number of small entities.
Because the recordkeeping and confirmation requirements are new for
savings associations, OTS cannot determine whether the proposed
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 proposed rule on the OCC's recordkeeping and confirmation
rules, OTS believes that 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 considering this action,
and a statement of the objectives of, and legal basis for, proposed
part 551 are included in the supplementary material above.
A. Small Entities to Which the Proposed Rule Would Apply
Proposed part 551 would apply to savings associations that effect
securities transactions for customers. OTS calculates that as of April
26, 2002, it regulates approximately 1,009 savings associations. Of
these savings associations approximately 557 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 may be effected by the
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.
Accordingly, OTS specifically seeks comment on the number and size of
small savings associations that may be affected by this rule.
B. Requirements of the Proposed Rule
As described more fully in the supplementary information section,
the proposed rule would require 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 proposed 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
[[Page 39893]]
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 would establish requirements for confirmation notices and
subpart C would address 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 would require 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
proposed rules (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 personal, 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.\27\ The
development of policies and procedures, however, may require the
assistance of legal or securities professionals which were not included
in OCC's estimate. Accordingly, OTS has included additional costs of
$305 to $403 to reflect the efforts of these professionals.\28\
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.
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\27\ 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.
\28\ 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 http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://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.
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OTS solicits comment on its estimates of the costs of the potential
burdens and on ways to minimize burden.
C. Significant Alternatives
Section 603(c) of the RFA requires OTS to describe any significant
alternatives to the proposed rule that accomplish the stated objectives
of the rule while minimizing any significant economic impact of the
rule on small entities. Section 603(c) lists several examples of
significant alternatives, including: (1) Establishing different
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) clarifying,
consolidating, or simplifying compliance and reporting requirements for
small entities; (3) using performance standards rather than design
standards; and (4) excepting small entities from coverage of the rule
or a part of the rule.
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
proposed rules 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, proposed
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, proposed
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 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 proposed Secs. 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.
OTS requests comment on the burdens associated with the proposed
rule and whether any further exceptions for small institutions would be
appropriate.
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.
OTS invites comments on the burdens associated with the proposed
rule that affect small savings associations, and whether any
modifications or exemptions from the rules for small savings
associations would be appropriate.
IV. Paperwork Reduction Act
OTS has a continuing interest in the public's opinion of our
collections of information. OTS welcomes any comments on the collection
requirements in the proposal. OTS specifically invites comment on:
(1) Whether the proposed collection of information contained in
this notice
[[Page 39894]]
of proposed rulemaking is necessary for the proper performance of the
agency's functions, including whether the information has practical
utility;
(2) The accuracy of the agency's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number. The collection of information requirements contained in
this notice of proposed rulemaking have been submitted to the Office of
Management and Budget for review in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)). Send comments on the
collection of information to the Office of Management and Budget,
Office of Information and Regulatory Affairs, Attention: Alexander T.
Hunt, Washington, DC 20503, or e-mail to ahunt@omb.eop.gov, with copies
to Information Collection Comments, Chief Counsel's Office, Office of
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, or e-mail
to infocollection.comments@ots.treas.gov.
The collection of information requirements regarding fiduciary
activities in this proposed rule are found in Sec. 550.125. OTS
requires the information called for under Sec. 550.125 in order to know
when a federal savings association is acting in a fiduciary capacity in
a new state or conducting fiduciary activities that differ from those
that OTS has already approved. Under a paperwork submission OTS filed
in 2001 (OMB Control No. 1550-0037), OTS has estimated that 10
respondents file trust powers applications annually and spend
approximately 9 hours compiling the application. Although the number of
respondents should not change under the proposal, the hours needed to
file the streamlined notice required in Sec. 550.125 should be
significantly less than the time needed to file a complete trust powers
application. Substituting the notice requirement for a complete
application should decrease the burden hours from 9 to approximately 3,
resulting in a decrease in burden hours from 90 to 30.
OTS requires the information called for under Secs. 551.50,
551.70-.100, 551.140, and 551.150 of the proposal to establish an audit
trail. OTS uses this audit trail in its regulatory examinations as a
tool to evaluate a savings association's compliance with banking and
securities laws and regulations, such as the anti-fraud provisions of
the federal securities laws. Further, the records provide a basis for
adequate disclosure to customers who effect securities transactions
through savings associations.
Under 12 U.S.C. 1464(n), OTS has supervisory responsibility for the
fiduciary powers of federal savings associations. Further, under 12
U.S.C. 1463(a) and 12 U.S.C. 1464(a), the Director of OTS may prescribe
rules and regulations to carry out its responsibility to provide for
the operation and regulation of savings associations. The proposed
recordkeeping and confirmation rules are necessary for OTS to
effectively carry out its statutory responsibilities.
In estimating the potential number of respondents, OTS has used the
number of OTS-supervised savings associations as of April 26, 2002.
That number is 1009. Our estimate of the burden hours for respondents
is based on the OCC's and FDIC's paperwork discussions in their final
rules published in 1995 and 1996, respectively, as well as those
agencies' updates of their paperwork analyses in 1999.
The recordkeepers/respondents are federal and state savings
associations.
Estimated number of recordkeepers and/or respondents: 1009.
Estimated average annual burden hours per recordkeeper/respondent:
11.
Estimated total annual recordkeeping burden: 11,099 hours.
As noted, many savings associations contract with third-party
registered broker-dealers to effect securities transactions. Moreover,
at the request of OTS trust examiners, many federal savings
associations with trust departments have been keeping records similar
to those required by the proposal on recordkeeping and confirmation
requirements. Accordingly, OTS anticipates that the start up costs to
savings associations of the recordkeeping and confirmation requirements
will be minimal. Records under part 551 are to be maintained for at
least three years.
V. Unfunded Mandates Act
OTS has determined that the proposed rule will not result in
expenditures by state, local, or tribal governments or by the private
sector of $100 million or more. Accordingly, this rulemaking is not
subject to section 202 of the Unfunded Mandates Act.
VI. Executive Order 12866
OTS has determined that the proposed rule does not constitute a
``significant regulatory action'' for purposes of Executive Order
12866.
List of Subjects
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 550--[AMENDED]
1. The authority citation for part 550 continues to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464.
2. Section 550.20 is revised to read as follows:
Sec. 550.20 What are fiduciary powers?
Fiduciary powers are the authority that the OTS permits you to
exercise under 12 U.S.C. 1464(n).
3. 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.
* * * * *
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.
* * * * *
4. Section 550.70 is revised to read as follows:
[[Page 39895]]
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 first You must obtain prior approval
time. from OTS under Secs. 550.80-
550.120 before you conduct the
activities.
(b) Fiduciary activities that are You must obtain prior approval
materially different from the from OTS under Secs. 550.80-
activities that OTS has previously 550.120 before you conduct the
approved for you. activities.
(c) Fiduciary activities that are not You must file a written notice
materially different from the described at Sec. 550.125 if
activities that OTS has previously you commence the activities in
approved for you. a new 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 to You do not have to obtain prior
your fiduciary business. OTS approval or file a notice
with OTS.
------------------------------------------------------------------------
5. A new 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.
6. 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.
7. Section 550.135 is added to read as follows:
Sec. 550.135 What State laws apply to my operations?
(a)(1) 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.
(2) 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.
(b) Except for State laws made applicable to you by virtue of 12
U.S.C. 1464(n), State laws that purport to regulate any other aspect of
your fiduciary activities do not apply to your fiduciary operations.
8. Section 550.310 is amended by removing the first sentence and
adding two 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.* * *
9. In Sec. 550.580, paragraph (c) is removed and the heading and
introductory text of Sec. 550.580 are amended 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 of this part if you conduct fiduciary
activities in the following fiduciary capacities:
* * * * *
10. The 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:
* * * * *
11. 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 excepted 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?
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
[[Page 39896]]
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:
(1) Act as a broker or dealer;
(2) Act as a fiduciary with investment discretion over an account;
(3) Are a trustee that acts as the shareholder of record for the
purchase or sale of securities; or
(4) 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 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 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:
[[Page 39897]]
(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.
Investment discretion means the same as under 12 CFR 550.40(a).
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 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 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
[[Page 39898]]
(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 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
If you effect a transaction involving . additional information in your
. . written notice . . .
------------------------------------------------------------------------
(1) A debt security subject to A statement that the issuer may
redemption before maturity. redeem the debt security in
whole or in part before
maturity, that the redemption
could affect the represented
yield, and that additional
information is available upon
request.
(2) A debt security that you effected (i) The dollar price at which
exclusively on the basis of a dollar you effected the transaction;
price. and
(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 effected (i) The yield at which you
on basis of yield. effected the transaction,
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.
[[Page 39899]]
(4) A debt security that is an asset- (i) A statement that the actual
backed security that represents an yield of the asset-backed
interest in, or is secured by, a pool security may vary according to
of receivables or other financial the rate at which the
assets that are subject continuously underlying receivables or
to prepayment. other financial assets are
prepaid; and
(ii) A statement that you will
furnish information concerning
the factors that affect yield
(including at a minimum
estimated yield, weighted
average life, and the
prepayment assumptions
underlying yield) upon the
customer's written request.
(5) A debt security, other than a A statement that the security
government security. is unrated 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 collectively investment the written notice described
funds . . . 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) The 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
[[Page 39900]]
a reasonable fee for the notices provided under Secs. 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 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:
(i) 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
(ii) 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 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: May 23, 2002.
By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 02-14317 Filed 6-10-02; 8:45 am]
BILLING CODE 6720-01-P