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SEC Clarifies Permitted Securities Activities For Banks

by Glen Shapiro, LawAndTax-News.com, New York

20 December 2006


The US Securities and Exchange Commission (SEC) and Board of Governors of the Federal Reserve System on Monday announced the release of joint proposed rules to implement the 'broker' exceptions for banks under Section 3(a)(4) of the Securities Exchange Act of 1934.

These exceptions were adopted as part of the Gramm-Leach-Bliley Act of 1999 (GLB Act). The SEC and the Board approved issuing the joint proposed rules for public comment at separate open meetings held on December 13, 2006, and December 18, 2006, respectively.

The proposed rules help to define the scope of securities activities that banks may conduct without registering with the SEC as a securities broker, and would implement the most important "broker" exceptions for banks adopted by the GLB Act.

Specifically, the proposed rules would implement the statutory exceptions that allow a bank, subject to certain conditions, to continue to conduct securities transactions for its customers as part of the bank's trust and fiduciary, custodial and deposit "sweep" functions, and to refer customers to a securities broker-dealer pursuant to a networking arrangement with the broker-dealer.

The proposed rules are designed to accommodate the business practices of banks and to protect investors. In developing these proposed joint rules, the agencies consulted extensively with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.

Comments on the proposed rules are invited for 90 days after their publication in the Federal Register.


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