This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

66759

Vol. 60, No. 247

Tuesday, December 26, 1995

1 44 FR 43258 (July 24, 1979).

2The OCC and the FDIC are considering similar

amendments to their versions of the regulation, 12

CFR Part 12, 44 FR 43252 (July 24, 1979) and 12

CFR Part 344, 44 FR 43261 (July 24, 1979)

respectively. Consideration of the amendments now

will ensure continued consistency among the three

regulations and obtain parity with securities

industry practices.

FEDERAL RESERVE SYSTEM

12 CFR Part 208

[Regulation H; Docket No. R–0909]

Membership of State Banking

Institutions in the Federal Reserve

System; Recordkeeping and

Confirmation of Certain Securities

Transactions Effected by State

Member Banks

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Proposed rule; request for

public comments.

SUMMARY: The Board of Governors of the

Federal Reserve System is proposing

amendments to Regulation H pertaining

to the recordkeeping and confirmation

of certain securities transactions. The

amendments would accommodate

developments in the securities markets

by adding certain yield-related

confirmation disclosure requirements

for transactions involving debt and

asset-backed securities effected by State

member banks for customers, and

providing for three day settlement of

those transactions. The proposed

amendments also would clarify that

State member banks that effect de

minimis government securities

brokerage transactions and are exempt

from registration under Department of

the Treasury regulations, also are

exempt from Regulation H. Finally, the

proposed amendments address the

minimum recordkeeping requirements

for State member banks exempt from the

paragraph, and include several new

definitions and various language edits.

DATES: Comments must be submitted on

or before February 28, 1996.

ADDRESSES: Comments should refer to

Docket No. R–0909, and may be mailed

to Mr. William W. Wiles, Secretary,

Board of Governors of the Federal

Reserve System, 20th Street and

Constitution Avenue, N.W.,

Washington, DC 20551. Comments also

may be delivered to Room B–2222 of the

Eccles Building between 8:45 a.m. and

5:15 p.m. weekdays, and to the guard

station in the Eccles Building courtyard

on 20th Street, NW (between

Constitution Avenue and C Street) at

any time. Comments received will be

available for inspection in room MP–

500 of the Martin Building between 9:00

a.m. and 5:00 p.m. weekdays, except as

provided in 12 CFR 261.8(a) of the

Board’s rules regarding availability of

information.

FOR FURTHER INFORMATION CONTACT:

Angela Desmond, Senior Counsel, or

Susan Meyers, Senior Securities

Analyst, (202) 452–2781. For users of

Telecommunications Device for the Deaf

(TTD), please contact Dorothea

Thompson, (202/452–3544), Board of

Governors of the Federal Reserve

System, Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION: Section

208.8(k) of Regulation H, 12 CFR part

208, was adopted in 1979 to ensure that

banks effecting securities transactions

for customers conform to securities

industry practices with respect to the

maintenance of records, and the content

and timing of confirmations and

account statements.1 Since that time, a

number of market and regulatory

changes have occurred that have

relevance to these provisions. As a

result, the Board has determined that

the recordkeeping and notification

requirements of Regulation H should be

amended to ensure that procedures

followed by State member banks

continue to conform with SEC and

Department of the Treasury regulations,

and are consistent with principles of

safe and sound banking practices. For

purposes of organization, the contents of

§ 208.8(k) would be moved into a new

§ 208.24.

Comments are requested on the

proposed amendments as described in

more detail below. The proposed

amendments are limited to new § 208.24

(current § 208.8(k)) of Regulation H and

are not meant to obviate the need for the

general review of the whole regulation

scheduled for the latter part of 1996.2

Accordingly, comments pertaining to

other provisions of Regulation H should

be withheld until notice of a general

review is announced.

Summary of Proposed Amendments

The provisions of § 208.8(k) would be

moved to a new section (§ 208.24) at the

end of subpart A of Regulation H and

paragraph (k) of § 208.8 would be

reserved.

§ 208.24(a) Definitions.

The draft amendments would add

definitions of: asset-backed security,

completion of the transaction, crossing

of buy and sell orders, debt security,

government security and municipal

security. In general, the new definitions

are based on definitions contained in

the Securities Exchange Act, 15 U.S.C.

78a et seq., or in the SEC’s confirmation

rule 10b-10, 17 CFR 240.10b-10, and are

necessary for applying the proposed

confirmation disclosure and the three

day settlement requirements. Finally,

the term dealer bank in the definition of

customer would be replaced with the

term municipal securities broker or

dealer to clarify that a bank acting as a

municipal securities broker is not a

customer for purposes of § 208.24 of

Regulation H.

§ 208.24(b) Recordkeeping.

New language would be added to

clarify that § 208.24 applies to

government securities transactions

effected for customers by State member

banks and to municipal securities

transactions effected by State member

banks that are not registered as

municipal securities dealers. The

amendments also would relocate all

confirmation recordkeeping

requirements into this section.

Explanatory language at the end of the

section would be moved to the first

paragraph to simplify the section.

§ 208.24(c) Content and Time of

Notification.

The amendments would rename the

section to clarify its subject matter.

Substantively, the amendments would

delete the old five business day

requirement for confirmation delivery in

former § 208.8 (k)(3) and (k)(4) and

provide that confirmations be given or

sent to customers ‘‘at or by completion

of the transaction,’’ defined as the

payment and delivery of the securities

in § 208.24(a).

In addition, the proposed

amendments would require
66760 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Proposed Rules

3Exceptions or other relief, and changes in the

standard settlement cycle adopted by the SEC under

rule 15c6–1 also would apply to State member

banks. MSRB rules require bank dealers to settle

municipal securities transactions by T+3.

confirmations to: (i) contain a legend

when the security is callable prior to

maturity indicating that an early

redemption could affect the yield stated

on the confirmation and offering

additional information on request

(proposed § 208.24(c)(2)(viii); (ii)

disclose the yield and/or resulting

dollar price of transactions involving

debt securities and asset-backed

securities (proposed § 208.24(c)(2) (ix)

and (x)); and, (iii) indicate when a debt

security, other than a government

security, is unrated by a nationally

recognized statistical rating organization

(proposed § 208.24(c)(2)(xi)). The

proposed disclosures would conform

bank confirmations with disclosures

now required of broker dealers under

SEC rule 10b–10. They also conform to

longstanding practice in the municipal

securities industry.

In proposing amendments to this

section, the Board is mindful of the

securities regulators’ determinations

that these confirmation disclosures

constitute material information

necessary to describe the securities or to

identify the transaction. Comment is

requested concerning the extent to

which banks already are making the

proposed confirmation disclosures to

customers. Comment also is requested

whether it would be preferable to

incorporate SEC rules 10b–10, 17a–3

and 17a–4 by reference for State

member banks to refer to, rather than

specify discrete items of confirmation

disclosure in the regulation. Finally,

§ 208.24 (c)(v)–(c)(vii) require State

member banks to disclose in agency

transactions the name of any broker

dealer utilized, the amount of such

broker dealer’s commission, and the

amount of commission or other

remuneration being received by the

bank. Some have argued that these

requirements have an anticompetitive

effect. Comment is requested whether

this provision is inappropriately

anticompetitive, and, if so, how a bank

should disclose its remuneration and

the remuneration going to other parties

on agency transactions.

§ 208.24(d) Notification by agreement;

alternative forms and times.

Section 208.24(d)(current section

208.8(k)(4)) would be renamed to

indicate that it deals with alternative

arrangements under which customers

receive notifications of securities

transactions effected by State member

banks. Other than conforming language

edits, a substantive change would be

made to § 208.24(d)(v), pertaining to

notifications of transactions in periodic

plans, to require that notification be

provided to customers ‘‘not less than

every three months’’ rather than the

current requirement of ‘‘as soon as

possible after each transaction.’’ This

would conform the section with SEC

rule 10b–10 (notifications required at

least quarterly) while creating flexibility

in scheduling notifications in periodic

plans.

§ 208.24(e) Securities Trading Policies and

Procedures.

A new § 208.24(e)(1)(iii) would be

added to require State member banks to

establish supervisory procedures and

reporting lines for back office personnel

that are separate from those established

to oversee personnel accepting orders

and effecting transactions under

§ 208.24 (e)(1)(i) and (e)(1)(ii).

§ 208.24(f) Settlement of Securities

Transactions.

Proposed § 208.24(f), on settlement of

securities transactions, would require

State member banks to provide for three

day (T+3) settlement for securities

transactions effected for customers

unless the parties agree to a different

settlement date at the time of the

transaction. The requirement would

apply to transactions in securities that

fall under SEC rule 15c6–1, 17 CFR

240.15c6–1, for broker dealers.3

The Board requests comment whether

the proposed section is needed for

banks to meet T+3 settlement, where

appropriate, of transactions effected for

customers. Finally, if the Board

determines to adopt the new section,

comment is requested whether banks

prefer that Regulation H incorporate

SEC rule 15c6–1 by reference rather

than the proposed language.

§ 208.24(g) Exceptions.

The exceptions previously found in

current § 208.8(k)(6) would be contained

in § 208.24(g). A new § 208.24(g)(2)

would clarify that State member banks

that effect up to 500 government

securities brokerage transactions and are

exempt from registration under

Department of the Treasury regulation

401.3(a)(2)(i), 17 CFR 401.3(a)(2), also

are exempt from § 208.24. This

exemption would not be available if a

bank has filed notice or is required to

file notice indicating that it acts as a

government securities broker or dealer.

Staff at the Bureau of Public Debt,

which is the organization within the

Department of the Treasury that is

responsible for administering 17 CFR

404.4(a), on recordkeeping by

government securities brokers and

dealers that are financial institutions,

has advised that they are considering

amending this regulation to clarify any

ambiguity with respect to the

recordkeeping requirements for

financial institutions that conduct

government securities transactions

resulting from the interplay of the

regulation with the recordkeeping

requirements of Regulation H.

§ 208.24(h) Safe and Sound Operations.

Finally, a new § 208.24(h), on safe and

sound operations, would be added

stating that principles of safety and

soundness require a bank to maintain

effective systems of records and controls

regarding customer securities

transactions that reflect accurate

information and are sufficient to

provide an adequate basis for an audit

of the information. This provision is

consistent with the longstanding

interpretation and would clarify what is

expected of banks that qualify for an

exception from § 208.24(h).

Regulatory Flexibility Act

The Board believes there will be no

significant economic impact on a

substantial number of small entities if

this proposal is adopted. Comments are

invited on this statement.

Paperwork Reduction Act

In accordance with § 3506 of the

Paperwork Reduction Act of 1995 (44

U.S.C. Ch. 35; 5 CFR 1320 Appendix

A.1), the Board reviewed the proposed

rule under the authority delegated to the

Board by the Office of Management and

Budget. Comments on the collections of

information should be sent to the Office

of Management and Budget, Paperwork

Reduction Project (7100–0196),

Washington, DC 20503, with copies of

such comments to be sent to Mary M.

McLaughlin, Federal Reserve Board

Clearance Officer, Division of Research

and Statistics, Mail Stop 97, Board of

Governors of the Federal Reserve

System, Washington, DC 20551.

The collection of information

requirements in this proposed

regulation are found in 12 CFR 208.8(k).

This information is required to evidence

compliance with the requirements of

section 208.8(k) of Regulation H. The

respondents are for-profit financial

institutions. Records must be retained

for three years.

The Federal Reserve may not conduct

or sponsor, and an organization is not

required to respond to, this information

collection unless it displays a currently

valid OMB control number. The OMB

control number is 7100–0196.
Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Proposed Rules 66761

The proposed amendments would

provide for only a minor addition in

disclosure practices of state member

banks, would not increase the banks’

reporting requirements to the Federal

Reserve, and would have a negligible

effect on respondent burden. The

estimated burden is 3 minutes per

response. There are 1,214 respondents

and the number of their recordkeeping

and notification occurrences varies with

the amount and type of securities

transactions. The total annual

recordkeeping and disclosure burden for

these respondents is estimated to be

165,520 hours. Based on an hourly cost

of $20, the annual cost to the public is

estimated to be $3,310,400.

Because the records would be

maintained at state member banks and

the notices are not provided to the

Federal Reserve, no issue of

confidentiality under the Freedom of

Information Act arises.

Comments are invited on: (a) whether

the proposed collection of information

is necessary for the proper performance

of the Federal Reserve’s functions;

including whether the information has

practical utility; (b) the accuracy of the

Federal Reserve’s estimate of the burden

of the proposed information collection,

including the cost of compliance; (c)

ways to enhance the quality, utility, and

clarity of the information to be

collected; and (d) ways to minimize the

burden of information collection on

respondents, including through the use

of automated collection techniques or

other forms of information technology.

List of Subjects in 12 CFR Part 208

Accounting, Agriculture, Banks,

banking, State member banks,

Confidential business information,

Crime, Currency, Federal Reserve

System, Flood insurance, Mortgages,

Reporting and recordkeeping

requirements, Securities.

For reasons set out in the preamble,

the Board proposes to amend 12 CFR

Part 208 as set forth below:

PART 208—MEMBERSHIP OF STATE

BANKING INSTITUTIONS IN THE

FEDERAL RESERVE SYSTEM

(REGULATION H)

1. The authority citation for Part 208

continues to read as follows:

Authority: 12 U.S.C. 36, 248(a), 248(c),

321–338a, 371d, 461, 481–486, 601, 611,

1814, 1823(j), 1828(o), 1831o, 1831p–1, 3105,

3310, 3331–3351 and 3906–3909; 15 U.S.C.

78b, 78l(b), 78l(g), 781(i), 78o–4(c)(5), 78q,

78q–1 and 78w; 31 U.S.C. 5318; 42 U.S.C.

4012a, 4101a, 4104b, 4106 and 4128.

§ 208.8 [Amended]

2. In § 208.8 paragraph (k) is removed

and reserved.

3. A new § 208.24 is added at the end

of subpart A to read as follows:

§ 208.24 Recordkeeping and confirmation

of certain securities transactions effected

by State member banks.

(a) Definitions. For purposes of this

§ 208.24:

Asset-backed security shall mean 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

or timely distribution of proceeds to the

security holders.

Collective investment fund shall

means funds held by a State member

bank as fiduciary and, consistent with

local law, invested collectively as

follows:

(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 (Title 26).

Completion of the transaction effected

by or through a state member bank shall

mean:

(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

banks makes payment into the account

of the customer.

Crossing of buy and sell orders shall

mean a security transaction in which

the same bank acts as agent for both the

buyer and the seller.

Customer shall mean any person or

account, including any agency, trust,

estate, guardianship, committee or other

fiduciary account, for which a State

member bank effects or participates in

effecting the purchase or sale of

securities, but shall not include a

broker, dealer, bank acting as a broker

or dealer bank or issuer of the securities

which are the subject of the

transactions.

Debt security as used in paragraph (c)

of this section shall mean any security,

such as a bond, debenture, note or any

other similar instrument which

evidences a liability of the issuer

(including any security of this type that

is convertible into stock or 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.

Exercise investment discretion with

respect to an account shall mean if the

State member bank, directly or

indirectly, is authorized to determine

what securities or other property shall

be purchased or sold by or for the

account, or 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 such investment

decisions.

Government security shall mean:

(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

Exchange Commission; or

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

privilege on a security as described in

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

definition 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 though an
66762 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Proposed Rules

automated quotation system operated by

a registered securities association.

Municipal security shall mean a

security which is a direct obligation of,

or obligation guaranteed as to principal

or interest by, a State or any political

subdivision thereof, or any agency or

instrumentality of a State or any

political subdivision thereof, or any

municipal corporate instrumentality of

one or more States, or any security

which is an industrial development

bond (as defined in § 103(c)(2) of the

Internal Revenue Code of 1954) the

interest on which is excludable from

gross income under § 103(a)(1) of such

Code if, by reason of the application of

paragraph (4) or (6) of § 103(c) of such

Code (determined as if paragraphs

(4)(A), (5) and (7) were not included in

such § 103(c), paragraph (1) of such

§ 103(c) does not apply to such security.

Periodic plan (including dividend

reinvestment plans, automatic

investment plans and employee stock

purchase plans) means any written

authorization for a State member bank

acting as agent to purchase or sell for a

customer a specific security or

securities, in specific amounts

(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 in

connection therewith or the manner of

calculating them.

Security means any interest or

instrument commonly known as a

security, whether in the nature of debt

or equity, including any stock, bond,

note, debenture, evidence of

indebtedness or any participation in 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.

(b) Recordkeeping. Except as provided

in paragraph (g) of this section, every

State member bank effecting securities

transactions for customers, including

transactions in government securities,

and municipal securities transactions by

banks not subject to registration as a

municipal securities dealers shall

maintain the following records with

respect to such transactions for at least

three years. Nothing contained in this

section shall require a bank to maintain

the records required by this paragraph

rule in any given manner, provided that

the information required to be shown is

clearly and accurately reflected and

provides an adequate basis for the audit

of such information.

(1) Chronological records of original

entry containing an itemized daily

record of all purchases and sales of

securities. The records of original entry

shall show the account or customer for

which each such transaction was

effected, the description of the

securities, the unit and aggregate

purchase or sale price (if any), the trade

date and the name or other designation

of the broker/dealer or other person

from whom purchased or to whom sold;

(2) Account records for each customer

which shall reflect all purchases and

sales of securities, all receipts and

deliveries of securities, and all receipts

and disbursements of cash with respect

to transactions in securities for such

account and all 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

cancelled), which shall include:

(i) The account(s) 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, the time the order was

executed or canceled;

(v) The price at which the order was

executed; and

(vi) The broker/dealer utilized;

(4) A record of all broker/dealers

selected by the bank to effect securities

transactions and the amount of

commissions paid or allocated to each

such broker during the calendar year;

and

(5) A copy of the written notification

required by paragraphs (c) and (d) of

this section.

(c) Content and time of notification.

Every State member bank effecting a

securities transaction for a customer at

or before completion of the transaction

shall give or send to such customer

either of the following types of

notifications:

(1) A copy of the confirmation of a

broker/dealer relating to the securities

transaction; and if the bank is to receive

remuneration from the customer or any

other source in connection with the

transaction, and the remuneration is not

determined pursuant to a prior written

agreement between the bank and the

customer, a statement of the source and

the amount of any remuneration to be

received; or

(2) A written notification disclosing:

(i) The name of the bank;

(ii) The name of the customer;

(iii) 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;

(iv) The date of execution and a

statement that the time of execution will

be furnished within a reasonable time

upon written request of such customer,

and the identity, price and number of

shares or units (or principal amount in

the case of debt securities) of such

security purchased or sold by such a

customer;

(v) 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;

(vi) 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 to be

received by the bank in connection with

the transaction, unless remuneration is

determined pursuant to a written

agreement between the bank and the

customer, provided, however, in the

case of Government securities and

municipal securities, this paragraph

(c)(2)(vi) shall apply only with respect

to remuneration received by the bank in

an agency transaction;

(vii) The 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 it was sold, or the fact that such

information will be furnished within a

reasonable time upon written request;

(viii) 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 on request;

(ix) In the case of a transaction in a

debt security effected exclusively on the

basis of a dollar price:

(A) The dollar price at which the

transaction was effected; and
Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Proposed Rules 66763

(B) The yield to maturity calculated

from the dollar price; provided,

however, that this paragraph

(c)(2)(ix)(B) 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 payable thereon, or is an assetbacked security that represents an

interest in or is secured by a pool of

receivables or other financial assets that

are subject to continuous prepayment;

(x) In the case of a transaction in a

debt security effected on the basis of

yield:

(A) 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,

the type of call, the call date, and the

call price; and

(B) The dollar price calculated from

the yield at which the transaction was

effected; and

(C) 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 (c)(2)(x)(C)

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 to continuous

prepayment;

(xi) 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, the estimated yield, weighted

average life, and the prepayment

assumptions underlying yield) will be

furnished upon written request of the

customer; and

(xii) 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.

(d) Notification by agreement;

alternative forms and times of

notification. A State member bank may

elect to use the following alternative

procedures if a transaction is effected

for:

(1) 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 notification; provided,

however, that such agreement makes

clear the customer’s right to receive the

written notification pursuant to

paragraph (c) of this section at no

additional cost to the customer;

(2) Accounts (except collective

investment funds) where the bank

exercises investment discretion in other

than 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;

(3) Accounts, where the bank

exercises investment discretion in an

agency capacity, in which instance:

(i) 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

(ii) If requested by the customer, the

bank shall give or send to each customer

within a reasonable time the written

notification described in paragraph (c)

of this section. The bank may charge a

reasonable fee for providing the

information described in paragraph (c)

of this section;

(4) A collective investment fund, in

which instance the bank shall at least

annually furnish 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;

(5) A periodic plan, in which instance

the bank shall give or send to the

customer not less than every three

months a written statement showing the

funds and securities in the custody or

possession of the bank, all service

charges and commissions paid by the

customer in connection with the

transaction, and all other debits and

credits of the customer’s account

involved in the transaction; provided

that upon the written request of the

customer the bank shall furnish the

information described in paragraph (c)

of this section, except that any such

information relating to remuneration

paid in connection with the transaction

need not be provided to the customer

when paid by a source other than the

customer. The bank may charge a

reasonable fee for providing the

information described in paragraph (c)

of this section.

(e) Securities trading policies and

procedures. Every State member 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;

(ii) Execute transactions in securities

for customers; or

(iii) Process orders for notification

and/or settlement purposes, or perform

other back office functions with respect

to securities transactions effected for

customers; provided that procedures

established under this paragraph

(e)(1)(iii) should provide for supervision

and reporting lines that are separate

from supervision of personnel under

paragraphs (e)(1)(i) and (e)(1)(ii) of this

section;

(2) 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;

(3) 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; and

(4) That bank officers and employees

who make investment recommendations

or decisions for the accounts of

customers, who participate in the

determination of such recommendations

or decisions, or who, in connection with

their duties, obtain information

concerning which securities are being

purchased or sold or recommended for

such action, must report to the bank,

within ten 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.

Excluded from this requirement are

transactions for the benefit of the officer
66764 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Proposed Rules

or employee over which the officer or

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 (e)(4), the

term securities does not include

government securities.

(f) Settlement of securities

transactions. All contracts for the

purchase or sale of a security shall

provide for completion of the

transaction within the number of

business days in the standard settlement

cycle for the security followed by

registered broker dealers in the United

States unless otherwise agreed to by the

parties at the time of the transaction.

(g) Exceptions. (1) De minimis

Transactions. The requirements of

paragraphs (b)(2)(ii) through (b)(2)(iv)

and paragraphs (e)(1) through (e)(3) of

this section shall not apply to banks

having an average of less than 200

securities transactions per year for

customers over the prior three calendar

year period, exclusive of transactions in

government securities;

(2) Government Securities. The

recordkeeping requirements of

paragraph (b) of this section shall not

apply to banks effecting fewer than 500

government securities brokerage

transactions per year; provided that this

exception shall not apply to government

securities transactions by a state

member bank that has filed a written

notice, or is required to file notice, with

the Federal Reserve that it acts as a

government securities broker or a

government securities dealer;

(3) Municipal Securities. The

municipal securities activities of a state

member bank that are subject to

regulations promulgated by the

Municipal Securities Rulemaking Board

shall not be subject to the requirements

of this section; and

(4) Foreign Branches. The

requirements of this section shall not

apply to the activities of foreign

branches of a state member bank.

(h) Safe and sound operations. Every

State member bank qualifying for an

exemption under paragraph (g) of this

section that conducts securities

transactions for customers shall, to

ensure safe and sound operations,

maintain effective systems of records

and controls regarding their customer

securities transactions that clearly and

accurately reflect appropriate

information and provide an adequate

basis for an audit of the information.

By order of the Board of Governors of the

Federal Reserve System, December, 19, 1995.

William W. Wiles,

Secretary of the Board.

[FR Doc. 95–31234 Filed 12–22–95; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 95–NM–214–AD]

Airworthiness Directives; McDonnell

Douglas Model DC–9 and DC–9–80

Series Airplanes, and Model MD–88

Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: This document proposes the

adoption of a new airworthiness

directive (AD) that is applicable to all

McDonnell Douglas DC–9 and DC–9–80

series airplanes, and Model MD–88

airplanes. Among other things, this

proposal would require repetitive leak

checks of the lavatory drain system and

repair, if necessary; would provide for

the option of revising the FAA-approved

maintenance program to include a

schedule of leak checks; would require

the installation of a cap on the flush/fill

line; and would require replacement or

modification of the vent system piping.

This proposal is prompted by

continuing reports of damage to engines

and airframes, separation of engines

from airplanes, and damage to property

on the ground, caused by ‘‘blue ice’’ that

forms from leaking lavatory drain

systems on transport category airplanes

and subsequently dislodges from the

airplane fuselage. The actions specified

by this proposed AD are intended to

prevent such damage associated with

the problems of ‘‘blue ice.’’

DATES: Comments must be received by

March 28, 1996.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–103,

Attention: Rules Docket No. 95–NM–

214–AD, 1601 Lind Avenue SW.,

Renton, Washington 98055–4056.

Comments may be inspected at this

location between 9:00 a.m. and 3:00

p.m., Monday through Friday, except

Federal holidays.

The service information referenced in

the proposed rule may be obtained from

McDonnell Douglas Corporation, 3855

Lakewood Boulevard, Long Beach,

California 90846, Attention: Technical

Publications Business Administration,

Department C1–L51 (2–60). This

information may be examined at the

FAA, Transport Airplane Directorate,

1601 Lind Avenue SW., Renton,

Washington; or at the FAA, Transport

Airplane Directorate, Los Angeles

Aircraft Certification Office, 3960

Paramount Boulevard, Lakewood,

California.

FOR FURTHER INFORMATION CONTACT:

Walter Eierman, Aerospace Engineer,

Systems and Equipment Branch, ANM–

130L, FAA, Los Angeles Aircraft

Certification Office, 3960 Paramount

Boulevard, Lakewood, California 90712;

telephone (310) 627–5336; fax (310)

627–5210.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to

participate in the making of the

proposed rule by submitting such

written data, views, or arguments as

they may desire. Communications shall

identify the Rules Docket number and

be submitted in triplicate to the address

specified above. All communications

received on or before the closing date

for comments, specified above, will be

considered before taking action on the

proposed rule. The proposals contained

in this notice may be changed in light

of the comments received.

Comments are specifically invited on

the overall regulatory, economic,

environmental, and energy aspects of

the proposed rule. All comments

submitted will be available, both before

and after the closing date for comments,

in the Rules Docket for examination by

interested persons. A report

summarizing each FAA-public contact

concerned with the substance of this

proposal will be filed in the Rules

Docket.

Commenters wishing the FAA to

acknowledge receipt of their comments

submitted in response to this notice

must submit a self-addressed, stamped

postcard on which the following

statement is made: ‘‘Comments to

Docket Number 95–NM–214–AD.’’ The

postcard will be date stamped and

returned to the commenter.

Availability of NPRMs

Any person may obtain a copy of this

NPRM by submitting a request to the

FAA, Transport Airplane Directorate,

ANM–103, Attention: Rules Docket No.

95–NM–214–AD, 1601 Lind Avenue

SW., Renton, Washington 98055–4056.