Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 9915

1 1 See 12 CFR 208.8(k), 44 FR 43258 (July 24,

1979) (FRB regulation); 12 CFR part 12, 44 FR

43254 (July 24, 1979)(OCC regulation).

employee has no direct or indirect

influence or control, transactions in

mutual fund shares, and all transactions

involving in the aggregate $10,000 or

less during the calendar quarter. For

purposes of this paragraph (g)(4), the

term securities does not include

government securities.

By order of the Board of Governors of the

Federal Reserve System, February 27, 1997.

William W. Wiles,

Secretary of the Board.

[FR Doc. 97–5423 Filed 3–4–97; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 344

RIN 3064–AB74

Recordkeeping and Confirmation

Requirements for Securities

Transactions

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Final rule.

SUMMARY: The Federal Deposit

Insurance Corporation (FDIC) is

amending its regulations governing the

procedures for recordkeeping and

confirmation requirements with respect

to effecting securities transactions for

customers of an insured state

nonmember bank or a foreign bank

having an insured branch (Bank). The

final rule updates, clarifies and

streamlines the FDIC regulations and

reduces unnecessary regulatory costs

and other burdens. The final rule also

reorganizes and clarifies the regulation

in areas where it previously was

confusing. In addition, the FDIC has

incorporated significant interpretive

positions and updated various

provisions to address market

developments and regulatory changes

by other regulators that affect

requirements for recordkeeping and

confirmation of securities transactions

by Banks.

DATES: Effective date. The final rule is

effective April 1, 1997. Early

compliance. These revisions may be

followed immediately by the affected

party.

FOR FURTHER INFORMATION CONTACT:

Miguel D. Browne, Manager—Risk

Policy Development, (202) 898–6789;

Keith A. Ligon, Chief, Policy Unit, (202)

898–3618; and John F. Harvey, Review

Examiner (Trust), Securities, Capital

Markets and Trust Branch, Division of

Supervision (202) 898–6762; and Patrick

J. McCarty, Counsel, Regulations and

Legislation Section, Legal Division,

(202) 898–8708.

SUPPLEMENTARY INFORMATION:

Background

In 1979, the FDIC adopted part 344 to

require Banks under its jurisdiction to

establish uniform procedures and

recordkeeping and confirmation

requirements with respect to effecting

securities transactions for customers.

The requirements reflected, in part, the

recommendations of the Securities and

Exchange Commission’s (SEC) Final

Report of the Securities and Exchange

Commission on Bank Securities

Activities (June 30, 1977). Part 344’s

recordkeeping and confirmation

requirements were patterned after the

SEC’s rules applicable to broker/dealers

and were intended to serve similar

purposes for Banks involved in effecting

customers’ securities transactions. See

44 FR 43261 (July 24, 1979). The Board

of Governors of the Federal Reserve

System (FRB) and the Office of the

Comptroller of the Currency (OCC) also

adopted regulations substantially

identical to part 344 in 1979.1

The FDIC and the other federal

banking agencies are required by section

303 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRI) to

review and streamline their regulations

to improve efficiency, reduce

unnecessary costs and eliminate

unwarranted constraints on credit

availability. 12 U.S.C. 4803(a). Section

303(a) also requires the federal banking

agencies to work jointly to make

uniform all regulations and guidelines

implementing common statutory or

supervisory policies.

On December 22, 1995, the OCC

published a notice of proposed

rulemaking (60 FR 66517) to revise 12

CFR part 12, the OCC’s Recordkeeping

and Confirmation Requirements for

Securities Transactions regulation. The

purpose of the proposal was to

modernize part 12, address various

market developments and regulatory

changes, and reduce regulatory burden,

where possible. The OCC published its

final rule on December 2, 1996. See 61

FR 63958. The FRB published a

substantially similar yet somewhat

differently worded proposed rule on

December 26, 1995. See 60 FR 66759.

The FDIC published an advance

notice of proposed rulemaking on May

24, 1996, soliciting comment on issues

similar to those raised in the OCC’s and

FRB’s proposed rules, as well as issues

which the OCC and FRB proposals did

not address. See 61 FR 26135. On

December 24, 1996, the FDIC published

a notice of proposed rulemaking (61 FR

67729) to amend part 344 to address

various market developments and

regulatory changes, and reduce

regulatory burden, where possible.

Consistent with Section 303 of CDRI,

the FDIC reviewed the OCC rule and the

FRB proposal in connection with the

preparation of its notice of proposed

rulemaking. The FDIC has endeavored

to create a rule that is uniform with the

other agencies. As part of that effort, the

staff of the FDIC has been in contact

with the staffs of the FRB and the OCC

in connection with the drafting of the

final rule. The FDIC’s final rule is closer

in structure, definitions, language and

form to the FRB’s proposal than the

OCC’s final rule, however, all of the

agencies’ rules are substantively very

similar.

Comments Received and Changes Made

The FDIC received six comments on

the proposal. One comment came from

a bank, one from a bank holding

company and four comments came from

trade associations representing banks,

investment companies and accountants.

In general, the commenters strongly

supported the proposal as promoting

uniformity among the Federal bank

regulatory agencies, reducing regulatory

burdens as well as addressing recent

developments in the securities market.

Most commenters specifically supported

the provision of the proposal that

excluded from the scope of part 344

customer transactions conducted

directly with a broker/dealer where the

customer has a written account

agreement with the broker-dealer and

the broker-dealer is fully disclosed to

the customer. This change would

exclude from part 344’s coverage

commonly utilized contractual

relationships between banks and broker/

dealers whereby the broker/dealers

conducts securities transactions on bank

premises, known as networking

arrangements.

In addition, certain of the commenters

requested specific changes to the

proposal. The FDIC has considered each

of the comments carefully and has made

a number of changes in response to the

comments received. Overall, the final

rule adopts most of the changes to part

344 as proposed by the FDIC although

certain changes have been made in an

attempt to increase uniformity with

regard to recordkeeping and

confirmation requirements among the

federal banking regulatory agencies. The

section-by-section discussion of this

preamble describes the final regulation
9916 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

2Sweep accounts are different in kind from

typical periodic plans such as dividend

reinvestment plans (DRIPs) and automatic

investment plans. Sweep accounts do not normally

invest in securities at the regular intervals (i.e.

monthly or quarterly) as do DRIPs and automatic

investment plans. Second, sweep accounts are a

significant product/service in their own right which

account for several billions of dollars worth of

transactions on a daily basis and probably exceed

the dollar volume in traditional periodic plans. Due

to these differences, the FDIC believes it is not

appropriate to include sweep accounts in the

definition of periodic plans.

and identifies and discusses the

comments received and changes made

to certain sections of the proposal.

Section-by-Section Discussion

Purpose and Scope. (Section 344.1)

The purpose of part 344 is twofold: to

ensure that purchasers of securities from

Banks are provided with certain

necessary information about the

transaction; and to ensure that Banks

engaging in such transactions maintain

adequate records and controls with

respect to such transactions. In general,

part 344 applies to securities

transactions effected by Banks on behalf

of customers unless the transaction is

specifically exempted in § 344.2, such

as, to a limited extent, transactions in

government securities and transactions

in municipal securities conducted by

Banks that are not registered as

municipal securities dealers with the

SEC.

Exceptions. (Section 344.2)

The final rule provides five

exceptions from the requirements of

certain provisions of part 344. The

specific exceptions, which are

unchanged from the proposal, are: (1)

Banks conducting a small number of

securities transactions; (2) certain

government securities transactions; (3)

certain municipal securities

transactions; (4) securities transactions

conducted by a foreign branch of a bank;

and (5) certain securities transactions

with a broker/dealer. The first four

exceptions already exist in part 344. The

proposal added the exemption covering

certain securities transactions with a

broker/dealer. In order for the exception

to apply, the broker/dealer must be fully

disclosed to the customer and the

customer must have a direct contractual

agreement with the broker/dealer, that

is, a signed account agreement. This

exception makes clear that under the

circumstances described dual employee

arrangements are not subject to part 344.

This exemption is similar to that found

in the OCC’s rule. See 12 CFR

§ 12.1(c)(2)(v). The rule also clarifies

that even though certain transactions are

excepted from compliance with all, or

certain sections, of part 344, the FDIC

expects a Bank conducting securities

transactions for its customers to

maintain effective systems of records

and controls to ensure safe and sound

operations.

In connection with the broker/dealer

networking exception, the FDIC

requested comment on whether part 344

should apply to banks which impose

surcharges or additional fees on

customers in addition to the transaction

volume compensation they normally

receive under a networking agreements.

The only comment received on this

issue indicated support for requiring

banks to disclose to customers that such

surcharges or additional fees were being

imposed. It is the FDIC’s understanding

that these type of surcharges and

additional fees are not common,

however, the FDIC expects banks to

disclose the imposition of these

surcharges or fees to customers and will

monitor this area to determine if further

supervisory action is necessary.

The FDIC received comment on the

small number of securities transactions

exceptions. This exception applies to

banks effecting an average of fewer than

200 securities transactions per year for

customers over the prior three calendar

year period and excepts the bank from

certain record maintenance

requirements as well as the need to

establish most required written policies

and procedures. One commenter

proposed that this limited transactions

exemption be expanded to allow a Bank

to effect 500 rather than 200

transactions in securities that are

neither municipal securities or

government securities. In light of the

FDIC’s desire for uniformity of its

recordkeeping and disclosure

requirements with those of the other

Federal banking regulators and the lack

of a compelling basis by the commenter

to make the suggested change, the FDIC

has determined to maintain the

exemption for limited transactions at an

average of 200 of such transactions per

year.

Definitions. (Section 344.3)

Section 344.3 sets forth the

definitions of 13 terms used in the rule.

The FDIC’s advance notice of proposed

rule making described six new

definitions—‘‘asset-backed security’’,

‘‘completion of the transaction’’,

‘‘crossing of buy and sell orders’’, ‘‘debt

security’’, ‘‘government security’’ and

‘‘municipal security.’’ The proposal

added two additional new definitions:

‘‘bank’’ and ‘‘cash management sweep

account’’. The proposed definitions are

the similar to those proposed by the

FRB. The OCC’s final rule also uses the

same terms, but the structure and

language used are somewhat different.

The final rule adopts the definitions as

set forth in the proposal with the

following minor modifications in

response to comments received

As proposed, the term ‘‘cash

management sweep account’’ would

cover any prearranged, automatic

transfer 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

dollar level with the proceeds being

transferred into a deposit account. The

term would only cover transactions

involving the purchase or sale of

securities. The FDIC received two

comments on its proposed definition of

a ‘‘cash management sweep account’’

found at § 344.3(c). One commenter

expressed appreciation for the clarity

provided by having a separately defined

term; the other raised concern that

while the FDIC proposes to treat cash

management sweep accounts in a

manner identical to the OCC, an

additional definition may cause

uncertainty. The OCC defined a cash

management sweep account within its

definition of ‘‘periodic plan’’. For the

reasons stated in the proposed

rulemaking 2, the FDIC believes that

there are benefits to separately defining

the term ‘‘cash management sweep

account’’. Furthermore, we do not

foresee confusion resulting from the

distinction used in the OCC’s

regulation. With respect to cash

management sweep accounts, both the

OCC’s and the FDIC’s rules will require

monthly statements to be furnished to a

customer for each month in which a

security is purchased or sold, but not

less than quarterly.

The FDIC has amended the definition

of the term ‘‘security’’ at § 344.3(m) so

that it conforms to the definition used

by the other federal banking regulatory

agencies. The new definition more

closely tracks the definition of

‘‘security’’ in the Securities Exchange

Act of 1934. See 17 U.S.C. 78a et seq.

No substantive change in the definition

or meaning of the term ‘‘security’’ is

intended from the definition of the term

as published in the FDIC’s proposal and

the term as used in the existing

regulation. The FDIC is conforming

where possible the terms of part 344

with the rules of the other federal

banking regulatory agencies so that any

regulatory burden resulting from the use

of different terminology can be

minimized.
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 9917

3See ‘‘Waiver of Burdensome Disclosures for

Certain Securities Transactions for Bank

Customers’’, FDIC Financial Institutions Letter 29–

95 (April 7, 1995).

Recordkeeping. (Section 344.4)

Section 344.4 sets forth the

requirements for maintenance of records

of securities transactions by Banks or a

third party service provider for the

Bank. The rule specifically permits the

use of electronic or automated records

as long as the records are easily

retrievable and readily available for

inspection and the Bank has the

capability to reproduce the records in

hard copy form. The FDIC received no

comments on this section, and therefore

it is being adopted as proposed.

Content and Timing of Customer

Notification. (Section 344.5)

Section 344.5 of the regulation

identifies the information that a Bank

must provide to a customer at or before

the completion of a securities

transaction. When a broker/dealer is

utilized in a transaction, Banks have the

option of either having a broker/dealer

that executes a transaction for the Bank

send a confirmation directly to the

Bank’s customer or choosing to forward

a copy of the broker/dealer confirmation

to the Bank customer when it is

received. Banks opting to have

confirmations sent directly to their

customers by the broker/dealer are

ultimately responsible for the timely

delivery of confirmations as well as

accurate disclosure of all information

required therein. The FDIC received

several comments concerning this

section of the proposal. One commenter

supported the provision allowing

notices to be furnished to customers via

facsimile or other electronic means. The

FDIC notes its intent that references—in

§ 344.5 as well as § 344.6—to the ‘‘give’’

or ‘‘send’’ notices includes notice

provided via facsimile or other

electronic transmission.

Several commenters had concerns

with the partial exemption to the

customer notification requirement of the

source and amount of remuneration

received by a Bank from a third party.

The source and amount of remuneration

that the Bank receives, other than from

its customer, must be disclosed to the

extent required under paragraph (b)(6)

of § 344.5. Paragraph 344.5(b)(6)

describes three circumstances in which

a Bank need only disclose to a customer

that the Bank has received remuneration

from a third party and that the Bank will

provide such information upon the

written request of the customer. If a

transaction falls within one of the three

enumerated exceptions in

§ 344.5(b)(6)(i), a simple disclosure that

the Bank received remuneration from a

third party and that the source and

amount of such remuneration received

by the Bank from a third party is

available upon written request of the

customer will satisfy the disclosure

requirements of § 344.5(a)(2). One

commenter indicated that the rule could

be read so that § 344.5(a)(2) would

vitiate the exemption under

§ 344.5(b)(6)(ii). The FDIC does not

agree. As discussed, § 344.5 (a)(2) is

clear that notice need be provided only

to the extent that such notice would be

required under § 344.5(b)(6), including

any notice based on the request of a

customer as permitted in paragraph

(b)(6)(ii).

Another commenter suggested that

the § 344.5(b)(6)(ii) partial exemption to

the customer notification requirement

regarding remuneration to the Bank by

a source other than the customer be

extended to permit a Bank not to

disclose this information to the

customer at all. The commenter

expressed the belief that the specific

source of such remuneration would not

be of interest to the majority of

customers. After consideration, the

FDIC has determined not to change the

rule from its proposed form. The final

rule will reduce regulatory burden

because a Bank is required to provide

amount and source of remuneration

information only upon specific written

request by the customer. It is also noted

that the final rule is consistent with

similar rules of the other federal

banking regulatory agencies. Moreover,

because the Bank will only need to

provide such information to customers

who affirmatively request it, the burden

on the Bank should be minimal,

particularly if—as the commenter

suggests—third party remuneration to

the Bank is not of interest to a majority

of customers.

In addition, we note that the ‘‘source

and amount of remuneration’’ issue

which led to the FDIC issuing a partial

waiver of part 344 in 1995 3 has been

resolved in the final rule. Previously, a

literal reading of part 344 could have

required a Bank to disclose the

remuneration it obtained from a broker/

dealer that dealt directly with the

customer even if the Bank’s

remuneration was solely based on the

broker/dealer’s volume of transactions

with Bank customers. Due to the

impossibility of providing such

disclosure to customers at the time of

the transaction, the FDIC had granted a

partial waiver of the requirements of

part 344. Id. The FDIC now exempts for

the scope of part 344 those securities

transactions where the customer has a

direct contractual agreement with a

fully disclosed broker/dealer. See 12

CFR § 344.2(a)(5). This exemption will

remove from part 344’s scope most, if

not all, networking arrangements

between registered broker/dealers and

financial institutions. Banks will not be

obligated to disclose the source and

amount of remuneration since the

customer is actually a customer of the

broker/dealer, not the Bank, and will

receive a confirmation from the broker/

dealer as required by SEC regulations.

Notification by Agreement; Alternative

Forms and Times of Notification.

(Section 344.6)

In addition to the standard

notification requirements in § 344.5, the

final regulation, in § 344.6, generally

authorizes a Bank, in cases in which it

does not exercise investment discretion,

to enter into a written agreement with

its customer for an alternative

arrangement as to the time and content

of written notification. Section 344.6

also sets forth alternative forms and

times of notification for certain specific

types of accounts. These are: (1)

accounts in which the bank exercises

investment discretion in other than an

agency capacity; (2) accounts in which

the bank exercises investment discretion

in an agency capacity; (3) cash

management sweep accounts; (4)

transactions for a collective investment

fund account; and (5) transactions for a

periodic plan account. The FDIC has

added language to the final regulation

amending the requirements for certain

cash management sweep accounts set

forth in § 344.6(d) in order to ensure

that banks are aware that if they retain

custody of securities that are the subject

of a hold-in-custody repurchase

agreement, they are subject to certain

Treasury Department regulations

governing confirmation requirements

with respect to government securities

transactions.

The FDIC received one comment

regarding the financial disclosure

required for collective investment fund

accounts in § 344.6(e) suggesting that

such disclosure be required to be made

only by independent auditors in

accordance with generally accepted

auditing standards. The final rule allows

either independent public accountants

or internal auditors responsible only to

the board of directors of the bank to

prepare the financial information. The

FDIC notes that § 344.6(e) is identical to

language used in the OCC’s rule and the

FRB’s proposal. Moreover, the potential

benefits resulting from the mandated

use of external auditors does not

outweigh the costs associated with
9918 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

imposing such a regulatory burden upon

the industry. Banks should be allowed

the flexibility to effect the required

disclosure through the use of external

auditors as suggested by the commenter,

or internal auditors that are responsible

to only the board of directors. The final

regulation adopts the language of the

proposal.

Settlement of Securities Transactions.

(Section 344.7)

The proposal provided for a

settlement period of T+3 and requires

Banks to send broker/dealer

confirmations within one business day

of receipt. These requirements are being

adopted in the final rule without

change. The requirements are identical

to those of the SEC and the other federal

banking regulatory agencies and were

generally supported by the commenters.

One commenter suggested crossreferencing the rules of the Securities

and Exchange Commission governing

the settlement period for securities

transactions into part 344 so that

regulatory amendments by the SEC

would automatically amend the FDIC’s

regulations. The FDIC has determined

not to incorporate citations to the SEC’s

settlement regulations. Rather, the FDIC

will review any regulatory amendments

by the SEC on a case-by-case basis to

determine whether such changes would

be appropriate for Banks. The FDIC

received no other comments on this

section, and therefore it is being

adopted as proposed.

Securities Trading Policies and

Procedures. (Section 344.8)

Section 344.8 of the final regulation

requires Banks to establish written

policies and procedures assigning

supervisory responsibility for personnel

engaged in different aspects of the

trading process. Specifically, this

section addresses orders and execution

of trades, the equitable allocation of

securities and prices for accounts and

the crossing of buy and sell orders. In

addition, § 344.8(a)(2) requires the

separation of order and execution

functions from the traditional back

office clearing functions in order to

ensure that Banks maintain adequate

internal controls for securities trading.

The FDIC received no comments on this

section, and therefore it is being

adopted as proposed.

Personal Securities Trading Reported by

Bank Officers and Employees. (Section

344.9)

The proposal relocated to § 344.9

without substantive change the personal

trading reporting requirements for

certain officers and employees. The

notice of proposed rulemaking also

included a new requirement that certain

directors report their transactions in

securities. As proposed, § 344.9(a)

would have required Bank directors,

under certain limited and specified

circumstances, to report a limited

number of transactions in securities.

The OCC’s rule and the FRB’s proposal

do not specifically address the issue of

director reporting requirements in this

area.

As proposed, the reporting

requirements of § 344.9 would have

applied equally to directors, officers, or

employees who have access to

information in such a fashion so as to

enable the person to gain an improper

advantage or abuse the information

obtained. The reporting requirement

would not extend to individuals who

routinely obtain such information but

are never in a position to abuse it.

The two comments received on the

provision indicated uncertainty as to the

scope and application of this provision

of the proposed rule. One commenter

indicated the rule could be interpreted

more broadly than anticipated, and

another comment indicated a reading

more narrow than intended. Given the

different interpretations of the proposed

changes, it is clear that additional

clarification is required if the FDIC were

to retain the requirement. Upon review,

the FDIC believes that additional

revision to the proposed regulatory

language would be necessary to

accomplish the FDIC’s intent. The FDIC

recognizes that implementing the

proposed amendatory language could

result in reports being submitted by

individual directors who are not

intended to be subject to the reporting

requirements. Other directors may

innocently fail to report who are

intended to be subject to the rule.

Accordingly, in order to not

unnecessarily increase the burden of

regulatory reporting requirements, and

in a continuing effort to maintain

uniformity in the reporting

requirements imposed by the federal

banking regulators, the final rule does

not contain specific reporting

requirements for directors. The FDIC

will, in consultation with the other

federal banking regulators, study the

issue of employee, officer, and director

disclosures further and address the

issue in a future rulemaking as

appropriate. Any changes to the

reporting requirements to be imposed

upon bank directors, if proposed in the

future, will be implemented following

appropriate notice and comment.

Waivers. (Section 344.10)

This section maintains the current

provision that enables the FDIC to waive

any provision of part 344 for good

cause. No comments were received on

this provision and it is being adopted as

proposed.

Effective Date

This regulation will become effective

on April 1, 1997 in accordance with the

requirements of the Paper Work

Reduction and Regulatory Improvement

Act (PWRRIA). Section 302(b) requires

that the effectiveness of new rules be

delayed until the beginning of the

following calendar quarter in order to

give depository institutions adequate

time to adjust to new requirements,

such as in this instance, the T+3

settlement requirement. Nevertheless, as

permitted by Section 302 of the

PWRRIA, 12 U.S.C. 4802, banks may

comply with the final rule before the

effective date. In particular, the FDIC

would not object to a Bank immediately

taking advantage of § 344.2(a)(5) of the

final rule that exempts transactions in

which a bank receives remuneration

from a registered broker dealer so long

as the broker/dealer is fully disclosed to

the bank customer and the bank

customer has a direct contractual

agreement with the broker/dealer may

be utilized.

Regulatory Flexibility Act

Under section 605(b) of the

Regulatory Flexibility Act (RFA) (5

U.S.C. 605(b)), the final regulatory

flexibility analysis otherwise required

under section 604 of the RFA (5 U.S.C.

604) is not required if the head of the

agency certifies that the rule will not

have a significant economic impact on

a substantial number of small entities

and the agency publishes such

certification in the Federal Register

along with its general notice of

proposed rulemaking or at the time of

publication of the final rule.

The Board of Directors has concluded

after reviewing the final regulation that

it will not have a significant economic

impact on a substantial number of small

institutions. The Board of Directors

therefore hereby certifies pursuant to

section 605 of the RFA that the

regulation will not have a significant

economic impact on a substantial

number of small entities within the

meaning of the RFA. The FDIC

anticipates that the final rule will result

in a net benefit to all banks regardless

of size due to the clarification provided

by the rule. Small banks, in particular

should be benefited by these changes.

Most banks with total assets of under
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 9919

$100 million are not engaged in

securities activities in a manner covered

by this regulation. Rather, a small bank

typically will use either a registered

broker/dealer who has rented space on

the bank’s premises in what is

commonly referred to as a ‘‘networking

arrangement’’ or an ‘‘introducing

broker’’ who will refer a customer to a

dealer that can effect the desired

transaction, both of which situations are

outside the scope of part 344 as

adopted.

Small Business Regulatory Enforcement

Fairness Act

The Small Business Regulatory

Enforcement Fairness Act of 1996

(SBREFA) (Public Law 104–121)

provides generally for agencies to report

rules to Congress and for Congress to

review rules. The reporting requirement

is triggered when agencies issue a final

rule as defined by the Administrative

Procedure Act (APA) at 5 U.S.C. 551.

Because the FDIC is issuing a final rule

as defined by the APA, the FDIC will

file the reports required by SBREFA.

The Office of Management and Budget

(OMB) has determined that this final

revision to part 344 does not constitute

a ‘‘major rule’’ as defined by SBREFA.

Paperwork Reduction Act

The collection of information

contained in this final rule has been

reviewed and approved by the OMB

under control number 3064–0028

pursuant to section 3504(h) of the

Paperwork Reduction Act of 1980 (44

U.S.C. 3501 et seq.). Comments on the

collections of information should be

directed to the OMB, Paperwork

Reduction Project (3064–0028)

Washington, D.C. 20503 Attention: Desk

officer for the Federal Deposit Insurance

Corporation, with copies of such

comments to be sent to Steven F. Hanft,

Office of the Executive Secretary, room

F–400, Federal Deposit Insurance

Corporation, 550 17th Street, NW,

Washington, D.C. 20429.

The collection of information

requirements in this final rule are found

in 12 CFR 344.2(b), 344.4(a), 344.5 (a)

and (b), 344.8, and 344.9. The

collections consist of recordkeeping

requirements, §§ 344.2(b) and 344.4(a);

the provision of written confirmations,

§§ 344.5 (a) and (b) and 344.6; the

establishment of written policies and

procedures for placing orders and

executing trades as well as back office

functions, § 344.8; the reporting of

personal securities trading by certain

bank officers and employees, § 344.9.

The likely respondents/recordkeepers

are state nonmember insured banks.

Estimated average annual burden

hours per respondent/recordkeeper:

19.43 hours.

Estimated number of respondents

and/or recordkeepers: 5,663 state

nonmember insured banks.

Estimated total annual reporting and

recordkeeping burden: 109,818 hours.

Start-up costs to respondents: None.

Records under this part are to be

maintained for at least three years.

List of Subjects in 12 CFR Part 344

Banks, banking, Reporting and

recordkeeping requirements, Securities.

For the reasons set forth above, the

FDIC hereby revises 12 CFR part 344 to

read as follows.

PART 344—RECORDKEEPING AND

CONFIRMATION REQUIREMENTS FOR

SECURITIES TRANSACTIONS

Sec.

344.1 Purpose and scope.

344.2 Exceptions.

344.3 Definitions.

344.4 Recordkeeping.

344.5 Content and time of notification.

344.6 Notification by agreement; alternative

forms and times of notification.

344.7 Settlement of securities transactions.

344.8 Securities trading policies and

procedures.

344.9 Personal securities trading reporting

by bank officers and employees.

344.10 Waivers.

Authority: 12 U.S.C. 1817, 1818 and 1819.

§ 344.1 Purpose and scope.

(a) Purpose. The purpose of this part

is to ensure that purchasers of securities

in transactions effected by a state

nonmember insured bank (except a

District bank) or a foreign bank having

an insured branch are provided

adequate information regarding

transactions. This part is also designed

to ensure that banks subject to this part

maintain adequate records and controls

with respect to the securities

transactions they effect.

(b) Scope; general. Any security

transaction effected for a customer by a

bank is subject to this part unless

excepted by § 344.2. A bank effecting

transactions in government securities is

subject to the notification,

recordkeeping, and policies and

procedures requirements of this part.

This part also applies to municipal

securities transactions by a bank that is

not registered as a ‘‘municipal securities

dealer’’ with the Securities and

Exchange Commission. See 15 U.S.C.

78c(a)(30) and 78o–4.

§ 344.2 Exceptions.

(a) A bank effecting securities

transactions for customers is not subject

to all or part of this part 344 to the

extent that they qualify for one or more

of the following exceptions:

(1) Small number of transactions. The

requirements of §§ 344.4(a) (2) through

(4) and 344.8(a) (1) through (3) do not

apply to a bank effecting an average of

fewer than 200 securities transactions

per year for customers over the prior

three calendar year period. The

calculation of this average does not

include transactions in government

securities.

(2) Government securities. The

recordkeeping requirements of § 344.4

do not apply to banks effecting fewer

than 500 government securities

brokerage transactions per year. This

exemption does not apply to

government securities dealer

transactions by banks.

(3) Municipal securities. This part

does not apply to transactions in

municipal securities effected by a bank

registered with the Securities and

Exchange Commission as a ‘‘municipal

securities dealer’’ as defined in title 15

U.S.C. 78c(a)(30). See 15 U.S.C. 78o–4.

(4) Foreign branches. Activities of

foreign branches of a bank shall not be

subject to the requirements of this part.

(5) Transactions effected by registered

broker/dealers. (i) This part does not

apply to securities transactions effected

for a bank customer by a registered

broker/dealer if:

(A) The broker/dealer is fully

disclosed to the bank customer; and

(B) The bank customer has a direct

contractual agreement with the broker/

dealer.

(ii) This exemption extends to bank

arrangements with broker/dealers which

involve bank employees when acting as

employees of, and subject to the

supervision of, the registered broker/

dealer when soliciting, recommending,

or effecting securities transactions.

(b) Safe and sound operations.

Notwithstanding this section, every

bank effecting securities transactions for

customers shall maintain, directly or

indirectly, effective systems of records

and controls regarding their customer

securities transactions to ensure safe

and sound operations. The records and

systems maintained must clearly and

accurately reflect the information

required under this part and provide an

adequate basis for an audit.

§ 344.3 Definitions.

(a) Asset-backed security means a

security that is serviced primarily 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 plus any rights or other

assets designed to assure the servicing
9920 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

or timely distribution of proceeds to the

security holders.

(b) Bank means a state nonmember

insured bank (except a District bank) or

a foreign bank having an insured

branch.

(c) Cash management sweep account

means a prearranged, automatic transfer

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.

(d) Collective investment fund means

funds held by a bank as fiduciary and,

consistent with local law, invested

collectively:

(1) In a common trust fund

maintained by such bank exclusively for

the collective investment and

reinvestment of monies contributed

thereto by the bank in its capacity as

trustee, executor, administrator,

guardian, or custodian under the

Uniform Gifts to Minors Act; or

(2) In a fund consisting solely of

assets of retirement, pension, profit

sharing, stock bonus or similar trusts

which are exempt from Federal income

taxation under the Internal Revenue

Code (26 U.S.C.).

(e) Completion of the transaction

means:

(1) For purchase transactions, the time

when the customer pays the bank any

part of the purchase price (or the time

when the bank makes the book-entry for

any part of the purchase price, if

applicable), however, if the customer

pays for the security prior to the time

payment is requested or becomes due,

then the transaction shall be completed

when the bank transfers the security

into the account of the customer; and

(2) For sale transactions, the time

when the bank transfers the security out

of the account of the customer or, if the

security is not in the bank’s custody,

then the time when the security is

delivered to the bank, however, if the

customer delivers the security to the

bank prior to the time delivery is

requested or becomes due then the

transaction shall be completed when the

bank makes payment into the account of

the customer.

(f) Crossing of buy and sell orders

means a security transaction in which

the same bank acts as agent for both the

buyer and the seller.

(g) Customer means any person or

account, including any agency, trust,

estate, guardianship, or other fiduciary

account for which a bank effects or

participates in effecting the purchase or

sale of securities, but does not include

a broker, dealer, bank acting as a broker

or a dealer, issuer of the securities that

are the subject of the transaction or a

person or account having a direct,

contractual agreement with a fully

disclosed broker/dealer.

(h) 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) and

fractional or participation interests in

one or more of any of the foregoing;

provided, however, that securities

issued by an investment company

registered under the Investment

Company Act of 1940, 15 U.S.C. 80a–1

et seq., shall not be included in this

definition.

(i) Government security means:

(1) A security that is a direct

obligation of, or obligation 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 and which is designated by the

Secretary of the Treasury 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 any

corporation whose securities are

designated, by statute specifically

naming the corporation, to constitute

exempt securities within the meaning of

the laws administered by the Securities

and Exchange Commission; or

(4) Any put, call, straddle, option, or

privilege on a security described in

paragraph (i) (1), (2), or (3) of this

section other than a put, call, straddle,

option, or privilege that is traded on one

or more national securities exchanges,

or for which quotations are

disseminated through an automated

quotation system operated by a

registered securities association.

(j) Investment discretion means that,

with respect to an account, a bank

directly or indirectly:

(1) Is authorized to determine what

securities or other property shall be

purchased or sold by or for the account;

or

(2) Makes decisions as to what

securities or other property shall be

purchased or sold by or for the account

even though some other person may

have responsibility for these investment

decisions.

(k) Municipal security means a

security which 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, or any municipal

corporate instrumentality of one or more

States or any security which is an

industrial development bond (as

defined in 26 U.S.C. 103(c)(2)) the

interest on which is excludable from

gross income under 26 U.S.C. 103(a)(1)

if, by reason of the application of

paragraph (4) or (6) of 26 U.S.C. 103(c)

(determined as if paragraphs (4)(A), (5)

and (7) were not included in 26 U.S.C.

103(c), paragraph (1) of 26 U.S.C. 103(c)

does not apply to such security.

(l) Periodic plan means any written

authorization for a bank to act as agent

to purchase or sell for a customer a

specific security or securities, in a

specific amount (calculated in security

units or dollars) or to the extent of

dividends and funds available, at

specific time intervals, and setting forth

the commission or charges to be paid by

the customer or the manner of

calculating them. Periodic plans include

dividend reinvestment plans, automatic

investment plans, and employee stock

purchase plans.

(m) 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. The term security does

not include:

(1) A deposit or share account in a

federally or state insured depository

institution;

(2) A loan participation;

(3) A letter of credit or other form of

bank indebtedness incurred in the

ordinary course of business;

(4) Currency;

(5) Any note, draft, bill of exchange,

or bankers acceptance which has a

maturity at the time of issuance of not

exceeding nine months, exclusive of

days of grace, or any renewal thereof the

maturity of which is likewise limited;

(6) Units of a collective investment

fund;

(7) Interests in a variable amount

(master) note of a borrower of prime

credit; or

(8) U.S. Savings Bonds.
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 9921

§ 344.4 Recordkeeping.

(a) General rule. A bank effecting

securities transactions for customers

shall maintain the following records for

at least three years:

(1) Chronological records. An

itemized daily record of each purchase

and sale of securities maintained in

chronological order, and including:

(i) Account or customer name for

which each transaction was effected;

(ii) Description of the securities;

(iii) Unit and aggregate purchase or

sale price;

(iv) Trade date; and

(v) Name or other designation of the

broker/dealer or other person from

whom the securities were purchased or

to whom the securities were sold;

(2) Account records. Account records

for each customer, reflecting:

(i) Purchases and sales of securities;

(ii) Receipts and deliveries of

securities;

(iii) Receipts and disbursements of

cash; and

(iv) Other debits and credits

pertaining to transactions in securities;

(3) A separate memorandum (order

ticket) of each order to purchase or sell

securities (whether executed or

canceled), which shall include:

(i) The accounts for which the

transaction was effected;

(ii) Whether the transaction was a

market order, limit order, or subject to

special instructions;

(iii) The time the order was received

by the trader or other bank employee

responsible for effecting the transaction;

(iv) The time the order was placed

with the broker/dealer, or if there was

no broker/dealer, time the order was

executed or canceled;

(v) The price at which the order was

executed; and

(vi) The broker/dealer utilized;

(4) Record of broker/dealers. A record

of all broker/dealers selected by the

bank to effect securities transactions and

the amount of commissions paid or

allocated to each broker during the

calendar year; and

(5) Notifications. A copy of the

written notification required by §§ 344.5

and 344.6.

(b) Manner of maintenance. Records

may be maintained in whatever manner,

form or format a bank deems

appropriate, provided however, the

records required by this section must

clearly and accurately reflect the

information required and provide an

adequate basis for the audit of the

information. Records may be

maintained in hard copy, automated or

electronic form provided the records are

easily retrievable, readily available for

inspection, and capable of being

reproduced in a hard copy. A bank may

contract with third party service

providers, including broker/dealers, to

maintain records required under this

part.

§ 344.5 Content and time of notification.

Every bank effecting a securities

transaction for a customer shall give or

send, by mail, facsimile or other means

of electronic transmission, to the

customer at or before completion of the

transaction one of the types of written

notification identified below:

(a) Broker/dealer’s confirmations. (1)

A copy of the confirmation of a broker/

dealer relating to the securities

transaction. A bank may either have the

broker/dealer send the confirmation

directly to the bank’s customer or send

a copy of the broker/dealer’s

confirmation to the customer upon

receipt of the confirmation by the bank.

If a bank chooses to send a copy of the

broker/dealer’s confirmation, it must be

sent within one business day from the

bank’s receipt of the broker/dealer’s

confirmation; and

(2) If the bank is to receive

remuneration from the customer or any

other source in connection with the

transaction, a statement of the source

and amount of any remuneration to be

received if such would be required

under paragraph (b)(6) of this section; or

(b) Written notification. A written

notification disclosing:

(1) Name of the bank;

(2) Name of the customer;

(3) Whether the bank is acting as

agent for such customer, as agent for

both such customer and some other

person, as principal for its own account,

or in any other capacity;

(4) The date and time of execution, or

the fact that the time of execution will

be furnished within a reasonable time

upon written request of the customer,

and the identity, price, and number of

shares or units (or principal amount in

the case of debt securities) of the

security purchased or sold by the

customer;

(5) The amount of any remuneration

received or to be received, directly or

indirectly, by any broker/dealer from

such customer in connection with the

transaction;

(6)(i) The amount of any remuneration

received or to be received by the bank

from the customer, and the source and

amount of any other remuneration

received or to be received by the bank

in connection with the transaction,

unless:

(A) Remuneration is determined

pursuant to a prior written agreement

between the bank and the customer; or

(B) In the case of government

securities and municipal securities, the

bank received the remuneration in other

than an agency transaction; or

(C) In the case of open end investment

company securities, the bank has

provided the customer with a current

prospectus which discloses all current

fees, loads and expenses at or before

completion of the transaction;

(ii) If the bank elects not to disclose

the source and amount of remuneration

it has or will receive from a party other

than the customer pursuant to

paragraph (b)(6)(i) (A), (B), or (C) of this

section, the written notification must

disclose whether the bank has received

or will receive remuneration from a

party other than the customer, and that

the bank will furnish within a

reasonable time the source and amount

of this remuneration upon written

request of the customer. This election is

not available, however, if, with respect

to a purchase, the bank was

participating in a distribution of that

security; or, with respect to a sale, the

bank was participating in a tender offer

for that security;

(7) Name of the broker/dealer utilized;

or where there is no broker/dealer, the

name of the person from whom the

security was purchased or to whom the

security was sold, or a statement that

the bank will furnish this information

within a reasonable time upon written

request;

(8) In the case of a transaction in a

debt security subject to redemption

before maturity, a statement to the effect

that the debt security may be redeemed

in whole or in part before maturity, that

the redemption could affect the yield

represented and that additional

information is available upon request;

(9) In the case of a transaction in a

debt security effected exclusively on the

basis of a dollar price:

(i) The dollar price at which the

transaction was effected; and

(ii) The yield to maturity calculated

from the dollar price, provided

however, that this shall not apply to a

transaction in a debt security that either

has a maturity date that may be

extended by the issuer thereof, with a

variable interest payable thereon, or 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;

(10) In the case of a transaction in a

debt security effected on the basis of

yield:

(i) The yield at which the transaction

was effected, including the percentage

amount and its characterization (e.g.,

current yield, yield to maturity, or yield

to call) and if effected at yield to call,
9922 Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations

the type of call, the call date and call

price;

(ii) The dollar price calculated from

the yield at which the transaction was

effected; and

(iii) If effected on a basis other than

yield to maturity and the yield to

maturity is lower than the represented

yield, the yield to maturity as well as

the represented yield; provided

however, that this paragraph (b)(10)

shall not apply to a transaction in a debt

security that either has a maturity date

that may be extended by the issuer with

a variable interest rate payable thereon,

or 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;

(11) In the case of a transaction in a

debt security that is an asset-backed

security, which represents an interest in

or is secured by a pool of receivables or

other financial assets that are subject

continuously to prepayment, a

statement indicating that the actual

yield of the asset-backed security may

vary according to the rate at which the

underlying receivables or other financial

assets are prepaid and a statement of the

fact that information concerning the

factors that affect yield (including at a

minimum estimated yield, weighted

average life, and the prepayment

assumptions underlying yield) will be

furnished upon written request of the

customer; and

(12) In the case of a transaction in a

debt security, other than a government

security, that the security is unrated by

a nationally recognized statistical rating

organization, if that is the case.

§ 344.6 Notification by agreement;

alternative forms and times of notification.

A bank may elect to use the following

alternative notification procedures if the

transaction is effected for:

(a) Notification by agreement.

Accounts (except periodic plans) where

the bank does not exercise investment

discretion and the bank and the

customer agree in writing to a different

arrangement as to the time and content

of the written notification; provided

however, that such agreement makes

clear the customer’s right to receive the

written notification pursuant to § 344.5

(a) or (b) at no additional cost to the

customer.

(b) Trust accounts. Accounts (except

collective investment funds) where the

bank exercises investment discretion in

other than in an agency capacity, in

which instance the bank shall, upon

request of the person having the power

to terminate the account or, if there is

no such person, upon the request of any

person holding a vested beneficial

interest in such account, give or send to

such person the written notification

within a reasonable time. The bank may

charge such person a reasonable fee for

providing this information.

(c) Agency accounts. Accounts where

the bank exercises investment discretion

in an agency capacity, in which

instance:

(1) The bank shall give or send to each

customer not less frequently than once

every three months an itemized

statement which shall specify the funds

and securities in the custody or

possession of the bank at the end of

such period and all debits, credits and

transactions in the customer’s accounts

during such period; and

(2) If requested by the customer, the

bank shall give or send to each customer

within a reasonable time the written

notification described in § 344.5. The

bank may charge a reasonable fee for

providing the information described in

§ 344.5.

(d) Cash management sweep

accounts. A bank effecting a securities

transaction for a cash management

sweep account shall give or send its

customer a written statement, in the

same form as required under paragraph

(f) of this section, for each month in

which a purchase or sale of a security

takes place in the account and not less

than once every three months if there

are no securities transactions in the

account. Notwithstanding the

provisions of this paragraph (d), banks

that retain custody of government

securities that are the subject of a holdin-custody repurchase agreement are

subject to the requirements of 17 CFR

403.5(d).

(e) Collective investment fund

accounts. The bank shall at least

annually give or send to the customer a

copy of a financial report of the fund,

or provide notice that a copy of such

report is available and will be furnished

upon request to each person to whom a

regular periodic accounting would

ordinarily be rendered with respect to

each participating account. This report

shall be based upon an audit made by

independent public accountants or

internal auditors responsible only to the

board of directors of the bank.

(f) Periodic plan accounts. The bank

shall give or send to the customer not

less than once every three months a

written statement showing:

(1) The funds and securities in the

custody or possession of the bank;

(2) All service charges and

commissions paid by the customer in

connection with the transaction; and

(3) All other debits and credits of the

customer’s account involved in the

transaction; provided that upon written

request of the customer, the bank shall

give or send the information described

in § 344.5, except that any such

information relating to remuneration

paid in connection with the transaction

need not be provided to the customer

when the remuneration is paid by a

source other than the customer. The

bank may charge a reasonable fee for

providing information described in

§ 344.5.

§ 344.7 Settlement of securities

transactions.

(a) A bank shall not effect or enter

into a contract for the purchase or sale

of a security (other than an exempted

security as defined in 15 U.S.C.

78c(a)(12), government security,

municipal security, commercial paper,

bankers’ acceptances, or commercial

bills) that provides for payment of funds

and delivery of securities later than the

third business day after the date of the

contract unless otherwise expressly

agreed to by the parties at the time of

the transaction.

(b) Paragraphs (a) and (c) of this

section shall not apply to contracts:

(1) For the purchase or sale of limited

partnership interests that are not listed

on an exchange or for which quotations

are not disseminated through an

automated quotation system of a

registered securities association; or

(2) For the purchase or sale of

securities that the Securities and

Exchange Commission (SEC) may from

time to time, taking into account then

existing market practices, exempt by

order from the requirements of

paragraph (a) of SEC Rule 15c6–1, 17

CFR 240.15c6–1(a), either

unconditionally or on specified terms

and conditions, if the SEC determines

that an exemption is consistent with the

public interest and the protection of

investors.

(c) Paragraph (a) of this section shall

not apply to contracts for the sale for

cash of securities that are priced after

4:30 p.m. Eastern time on the date the

securities are priced and that are sold by

an issuer to an underwriter pursuant to

a firm commitment underwritten

offering registered under the Securities

Act of 1933, 15 U.S.C. 77a et seq., or

sold to an initial purchaser by a bank

participating in the offering. A bank

shall not effect or enter into a contract

for the purchase or sale of the securities

that provides for payment of funds and

delivery of securities later than the

fourth business day after the date of the

contract unless otherwise expressly

agreed to by the parties at the time of

the transaction.
Federal Register / Vol. 62, No. 43 / Wednesday, March 5, 1997 / Rules and Regulations 9923

(d) For purposes of paragraphs (a) and

(c) of this section, the parties to a

contract shall be 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 pursuant to a firm

commitment offering if the managing

underwriter and the issuer have agreed

to the date for all securities sold

pursuant to 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.

§ 344.8 Securities trading policies and

procedures.

(a) Policies and procedures. Every

bank effecting securities transactions for

customers shall establish written

policies and procedures providing:

(1) Assignment of responsibility for

supervision of all officers or employees

who:

(i) Transmit orders to or place orders

with broker/dealers; or

(ii) Execute transactions in securities

for customers;

(2) Assignment of responsibility for

supervision and reporting, separate from

those in paragraph (a)(1) of this section,

with respect to all officers or employees

who process orders for notification or

settlement purposes, or perform other

back office functions with respect to

securities transactions effected for

customers;

(3) For the fair and equitable

allocation of securities and prices to

accounts when orders for the same

security are received at approximately

the same time and are placed for

execution either individually or in

combination; and

(4) Where applicable, and where

permissible under local law, for the

crossing of buy and sell orders on a fair

and equitable basis to the parties to the

transaction.

§ 344.9 Personal securities trading

reporting by bank officers and employees.

(a) Officers and employees subject to

reporting. Bank officers and employees

who:

(1) Make investment

recommendations or decisions for the

accounts of customers;

(2) Participate in the determination of

such recommendations or decisions; or

(3) In connection with their duties,

obtain information concerning which

securities are being purchased or sold or

recommend such action, must report to

the bank, within ten business days after

the end of the calendar quarter, all

transactions in securities made by them

or on their behalf, either at the bank or

elsewhere in which they have a

beneficial interest. The report shall

identify the securities purchased or sold

and indicate the dates of the

transactions and whether the

transactions were purchases or sales.

(b) Exempt transactions. Excluded

from this reporting requirement are:

(1) Transactions for the benefit of the

officer or employee over which the

officer or employee has no direct or

indirect influence or control;

(2) Transactions in registered

investment company shares;

(3) Transactions in government

securities; and

(4) All transactions involving in the

aggregate $10,000 or less during the

calendar quarter.

(c) Alternative report. Where a bank

acts as an investment adviser to an

investment company registered under

the Investment Company Act of 1940,

the bank’s officers and employees may

fulfill their reporting requirement under

paragraph (a) of this section by filing

with the bank the ‘‘access persons’’

personal securities trading report

required by (SEC) Rule 17j–1, 17 CFR

270.17j–1.

§ 344.10 Waivers.

The Board of Directors of the FDIC, in

its discretion, may waive for good cause

all or any part of this part 344.

By Order of the Board of Directors.

Dated at Washington, D.C., this 25th day of

February, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 97–5425 Filed 3–4–97; 8:45 am]

BILLING CODE 6714–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 21

[Docket No. AIR–100–9601]

Replacement and Modification Parts:

‘‘Standard’’ Parts; Interpretation

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Notice of interpretation.

SUMMARY: The FAA is notifying the

public that the interpretation of an

acceptable U.S. government or Industry

accepted specification may include

specifications that may be limited to

detailed performance criteria, complete

testing procedures, and uniform

marking criteria. Manufacturers of parts

that conform to such specifications are

excepted as ‘‘standard parts’’ from the

requirement to obtain FAA Parts

Manufacturer Approval. The FAA is

aware that specifications meeting the

above criteria exist for discrete electric

or electrical component parts.

EFFECTIVE DATE: January 31, 1997.

FOR FURTHER INFORMATION CONTACT:

Bruce Kaplan, Aerospace Engineer,

Aircraft Engineering Division, AIR–100,

FAA, 800 Independence Avenue, SW.,

Washington, DC 20591, (202) 267–9588.

SUPPLEMENTARY INFORMATION: Section

21.303(a) of Title 14 of the Code of

Federal Regulations (CFR), Replacement

and Modification Parts, prohibits a

person from producing a part for sale for

installation on a type certificated

product unless that person produces the

part pursuant to an FAA Parts

Manufacturer Approval (PMA). Section

21.303(b) provides four exceptions to

the requirement in § 21.303(a). One of

these exceptions is for ‘‘Standard parts

(such as bolts and nuts) conforming to

established industry or U.S.

specifications.’’ (14 CFR § 21.303(b)(4).)

‘‘Standard part’’ is not otherwise

defined in Title 14. Section 21.303(b)(4)

has come to be understood by the

aviation and manufacturing public as

meaning a part, the specification for

which has been published by a standard

setting organization or by the U.S.

government, and the FAA has

traditionally regulated parts production

with that understanding. Examples of

such ‘‘traditional’’ standard part

specifications include National

Aerospace Standards (NAS), Air ForceNavy Aeronautical Standard (AN),

Society of Automotive Engineers (SAE),

SAE Aerospace Standard (AS), and

Military Standard (MS). The FAA will

continue to consider parts conforming

to these specifications as standard parts.

Prior to this notice, for a specification

to be acceptable, it had to include

information on the design, materials,

manufacture, and uniform identification

requirements. The specification had to

include all the information necessary to

produce the part and ensure its

conformity to the specification.

Furthermore, the specification must be

publicly available, so that any party is

capable of manufacturing the part. The

above examples of accepted

specifications fulfill those criteria.

In the past the FAA has applied

§ 21.303(b)(4) to parts that have

specifications where a determination of

physical conformity to a design could be

made. This application largely excluded

classes of parts where the parts are

conformed not on the basis of their

physical configuration but by meeting