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

66517

Vol. 60, No. 246

Friday, December 22, 1995

1 In 1979, the Board of Governors of the Federal

Reserve System (FRB) and the Federal Deposit

Insurance Corporation (FDIC) adopted regulations

similar to part 12. See 12 CFR 208.8(k), 44 FR 43258

(July 24, 1979) (FRB regulation); 12 CFR part 344,

44 FR 43261 (July 24, 1979) (FDIC regulation). Since

that time, neither of these agencies has significantly

changed these regulations, although recently the

FDIC adopted a regulation concerning authority to

waive certain requirements of part 344, similar to

the authority in § 12.7(d) of part 12. See 60 FR 7111

(Feb. 7, 1995). Consequently, the current

regulations for all three Federal banking agencies

are very similar. The OCC and the other Federal

banking agencies have been meeting and discussing

changes to the FRB’s and the FDIC’s rules

substantively similar to those proposed today by the

OCC.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 12

[Docket No. 95–30]

RIN 1557–AB42

Recordkeeping and Confirmation

Requirements for Securities

Transactions

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is proposing to

revise its rules that prescribe

recordkeeping and confirmation

requirements for securities transactions.

This proposal is another part of the

OCC’s Regulation Review Program to

update and streamline OCC regulations

and reduce unnecessary regulatory costs

and other burdens. The proposal

reorganizes the OCC’s regulation by

placing related subjects together,

clarifying areas where the rules are

unclear or confusing, incorporating

significant OCC interpretations, and

updating various provisions to address

market developments and regulatory

changes by other regulators that affect

requirements for recordkeeping and

confirmation of securities transactions

by national banks.

DATES: Comments must be received by

February 20, 1996.

ADDRESSES: Comments should be

directed to: Communications Division,

Office of the Comptroller of the

Currency, 250 E Street, SW,

Washington, DC 20219. Attention:

Docket No. 95–30. In addition,

comments may be sent by fax to 202–

874–5274 or by electronic mail to

REG.COMMENTS@OCC.TREAS.GOV.

Comments will be available for public

inspection and photocopying at the

same location.

FOR FURTHER INFORMATION CONTACT:

Suzette H. Greco, Senior Attorney,

Securities and Corporate Practices

Division (202–874–5210); Joseph W.

Malott, National Bank Examiner, Capital

Markets Division (202–874–5070);

William L. Granovsky, National Bank

Examiner, Compliance (202–874–4861).

SUPPLEMENTARY INFORMATION:

Background

OCC Regulation Review Program

The OCC is proposing revisions to 12

CFR part 12 as part of its Regulation

Review Program. Pursuant to this

Program, the OCC is reviewing all its

rules. Rules that are not necessary to

protect against unacceptable risks, that

do not support equitable access to

banking services for all consumers, or

that are not needed to accomplish other

statutory responsibilities of the OCC

will be revised or eliminated.

Where risks are meaningful and

regulation is appropriate, the OCC will

examine its rules to determine if they

achieve their purpose most efficiently.

In this regard, the OCC recognizes that

one source of regulatory cost is the

failure of regulations to provide clear

guidance because they are difficult to

follow and understand. Therefore, an

important component of the Regulation

Review Program is to revise regulations,

where appropriate, to improve clarity

and better communicate the standards

that the rules are intended to convey.

Revisions to 12 CFR part 12 present

particular challenges in several regards

because the part implements

requirements from different statutory

sources, addresses transactions of a

specialized and often technical nature,

and currently is out of date in certain

respects.

Recordkeeping and Confirmation

Requirements for Securities

Transactions

The OCC adopted part 12 on July 24,

1979 (44 FR 43252), to establish

requirements applicable to national

banks effecting securities transactions

for customers, including recordkeeping

and confirmation requirements. The

OCC amended part 12 on December 31,

1979 (44 FR 77137) to include

additional suggestions recommended by

commenters, and the part became

effective on January 1, 1980. The OCC

has not significantly changed part 12

since then.1

Since that time, there have been

significant changes in securities

regulation and market practices. For

example, Congress enacted the

Government Securities Act of 1986, 15

U.S.C. 78o-5, requiring the registration

of government securities brokers and

dealers, including financial institutions,

and regulating transactions in

government securities. Recently, the

Securities and Exchange Commission

(SEC) adopted amendments to its

confirmation rule requiring additional

disclosures and restructuring the rule.

See Securities Exchange Act of 1934

Rule 10b-10, 17 CFR 240.10b-10 (SEC

Rule 10b–10).

Under SEC Rule 10b-10, the SEC

requires a broker/dealer to send a

customer notification of a securities

transaction at or before the completion

of the transaction. The SEC defines

‘‘completion of the transaction’’

generally to be the time of payment or

partial payment and/or delivery of the

security. See 17 CFR 240.10b-10(d)(2).

The SEC also has shortened the

standard settlement period for broker/

dealer trades from five to three days

(T+3 Settlement) effective on June 7,

1995. See Securities Exchange Act

Release No. 33023, 58 FR 52891 (Oct.

13, 1993). In addition, for trades in

government securities, next day

settlement is industry practice.

Currently, part 12 generally requires a

national bank to send a customer

notification of a securities transaction

within five business days from the date

of the transaction.

Proposal

The proposal modernizes the rules in

part 12 and reduces unnecessary

regulatory burdens, where possible. In
66518 Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules

2The Investment Company Act and its

implementing regulations contain various

provisions relating to the formation and operation

of an investment company, including provisions on

the distribution and pricing of shares, fiduciary

duties of directors, transactions with affiliates,

permissible capital structures, disclosure and

reporting requirements, and other requirements. See

15 U.S.C. 80a–1 et seq.; 17 CFR part 270.

Investment companies also may need to register

their shares under the Securities Act of 1933. See

15 U.S.C. 77a et seq.

order to make part 12 more accessible

and easier to use, the proposal also

restructures many sections and updates

others by incorporating significant OCC

interpretive positions and reflecting

regulatory changes by other agencies.

The following discussion identifies and

explains proposed changes. A

Derivation Table identifying the

proposed changes and keying them to

the current rule appears at the end of

this preamble.

The OCC requests comments on all

aspects of the proposal, as well as

specific comments on changes in the

rule.

Authority, Purpose, and Scope (§ 12.1)

The proposal revises the scope section

(§ 12.1) to clarify the securities

transactions to which part 12 applies

and identify the types of transactions

that are subject to other regulatory

schemes. Paragraph (c)(1) provides the

rules of general applicability and

paragraph (c)(2) sets forth exemptions.

Generally, any national bank effecting a

securities transaction for a customer is

subject to the requirements of part 12,

unless the transaction specifically is

exempted.

For example, the part 12 requirements

apply to transactions in mutual funds as

well as other securities. While

investment companies, commonly

referred to as mutual funds, must

register with the SEC under the

Investment Company Act of 1940

(Investment Company Act), 15 U.S.C.

80a–1 et seq., and are subject to

numerous legal requirements,2 the

requirements of part 12 govern national

banks effecting trades for customers in

mutual fund shares. Some requirements

of the Investment Company Act and its

regulations also may apply to national

banks providing services to an

investment company or acting as the

investment company’s investment

adviser. See e.g., 15 U.S.C. 80a–17; 15

U.S.C. 80a–30; 17 CFR 270.17j–1; 17

CFR 270.31a–1.

The OCC recognizes that national

banks may enter into various

arrangements with registered broker/

dealers that permit the broker/dealers to

operate on the bank’s premises. Part 12

generally does not apply to securities

transactions effected by these broker/

dealers for their customers. As

registered broker/dealers, they already

are subject to the SEC’s recordkeeping

and confirmation rules. If, however, the

bank is using this broker/dealer to clear

securities transactions effected by the

bank for the bank’s own customers, then

the requirements of part 12 would apply

to the bank.

Government Securities Transactions

National banks conducting

government securities transactions for

their customers also are within the

scope of part 12. Government securities

are defined in section 3(a)(42) of the

Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(42)), and include but are

not limited to United States Treasury

securities and securities issued or

guaranteed by Federal government

agencies and government-sponsored

enterprises.

The Department of the Treasury,

under its authority pursuant to the

Government Securities Act of 1986

(GSA), 15 U.S.C. 78o–5, has issued

regulations in 17 CFR parts 400 through

405, 449, and 450, applicable to many

government securities transactions by

national banks (GSA regulations). The

GSA regulations define the terms

‘‘government securities broker’’ and

‘‘government securities dealer’’ to

include financial institutions. See 17

CFR 400.3 (k) and (l). Part 404 of the

GSA regulations provides specific

recordkeeping requirements for

government securities brokers and

dealers that are financial institutions.

See 17 CFR 404.4.

National banks, because they are

subject to part 12 recordkeeping

requirements, are not required to follow

the recordkeeping requirements of the

GSA regulations at 17 CFR 404.2 and

404.3. See 17 CFR 404.4(a). National

banks, however, must follow other

recordkeeping requirements under the

GSA regulations. See 17 CFR

404.4(a)(3), (b), and 450.4(c), (d), and (f).

Part 12 confirmation requirements apply

to all government securities transactions

by national banks.

Consistent with the GSA regulations,

proposed § 12.1(c)(2)(ii) exempts a

national bank that conducts fewer than

500 government securities brokerage

transactions per year from complying

with the recordkeeping requirements

under proposed (and current) § 12.3. See

17 CFR 401.3(a)(2)(i) and 404.4(a). This

exemption does not apply to

government securities dealer

transactions by national banks,

however. Staff at the Bureau of the

Public Debt, which is the organization

within the Department of the Treasury

that is responsible for administering 17

CFR 404.4(a), has advised us that they

are considering amending this

regulation to clarify any ambiguity

resulting from the interplay of the

regulation and current § 12.7(a)

(proposed § 12.1(c)(2)(i)), with respect to

recordkeeping requirements for

financial institutions that conduct

government securities dealer

transactions.

Municipal Securities Transactions

The proposed ‘‘scope’’ section

(§ 12.1(c)(1)) also clarifies that a national

bank’s transactions in municipal

securities that are not subject to the

Municipal Securities Rulemaking

Board’s (MSRB) rules, are subject to part

12. The MSRB adopts rules with respect

to transactions in ‘‘municipal

securities’’ effected by brokers, dealers,

and ‘‘municipal securities dealers.’’ See

15 U.S.C. 78o-4; Rules of the MSRB,

MSRB Manual (CCH) ¶ 3501 et seq.

Municipal securities are defined in

section 3(a)(29) of the Securities

Exchange Act of 1934 (15 U.S.C.

78c(a)(29)) (Exchange Act), and include

but are not limited to debt obligations of

a state of the United States or a political

subdivision, such as a county, city,

town, village, or municipal authority,

and revenue bonds. As defined in the

Exchange Act, a ‘‘municipal securities

dealer’’ includes a bank, as well as a

‘‘separately identifiable department or

division of a bank,’’ that is engaged in

the business of buying and selling

municipal securities for its own account

through a broker or otherwise. See 15

U.S.C. 78c(a)(30). Under the SEC’s

regulatory scheme, however, a bank

need not register as a ‘‘municipal

securities broker.’’ See 15 U.S.C.

78c(a)(4) and (31).

Thus, under proposed § 12.1(c)(2)(iii),

transactions in municipal securities

conducted by a national bank registered

with the SEC as a ‘‘municipal securities

dealer’’ are exempt from part 12.

However, municipal securities

brokerage transactions by a national

bank not registered as a municipal

securities dealer are subject to part 12

requirements.

Other Transactions and Exemptions

The ‘‘scope’’ section further provides

that both 12 CFR parts 9 and 12 apply

to a national bank’s securities

transactions effected as a fiduciary,

including transactions effected for a

collective investment fund (§ 12.1(c)(1)).

Finally, the proposed ‘‘scope’’ section,

in the exemptions paragraph

(§ 12.1(c)(2)), includes the current rule’s

exception from certain requirements of

part 12 for banks with an average of
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules 66519

fewer than 200 securities transactions

per year for customers, over the prior

three calendar year period, not

including transactions in government

securities. The exemptions paragraph

also restates the current rule’s

exemption from part 12 requirements

for activities of a foreign branch of a

national bank.

Safe and Sound Operations

Under proposed § 12.1(c)(3), the

proposal clarifies that notwithstanding

the exemptions from part 12, the OCC

expects a national bank conducting

securities transactions for its customers

to maintain effective systems of records

and controls to ensure safe and sound

operations. Since national banks already

are obligated to conduct their operations

in a safe and sound manner, this

addition does not impose any new

requirements; rather, it emphasizes the

importance of effective systems with

respect to all securities transactions.

Definitions (§ 12.2)

The proposal clarifies and modernizes

§ 12.2, the definitions section, by adding

several definitions and modifying

several others. The proposal defines

‘‘crossing of buy and sell orders,’’ a term

used in proposed § 12.7(a)(3) (current

§ 12.6(c)). It also adds a new definition

of ‘‘completion of the transaction,’’ a

term used in proposed § 12.4 (a) and (b).

The proposed definition is based on that

used in SEC Rule 10b–10, the SEC’s rule

for confirmation of transactions by

broker/dealers. See 17 CFR 240.10b–

10(d)(2), citing Securities Exchange Act

of 1934 Rule 15c1–1, 17 CFR 240.15c1–

1(b). The proposal clarifies the

definition of ‘‘customer’’ (§ 12.2(e)) by

removing the term ‘‘dealer bank’’ and

inserting that a ‘‘bank acting as a broker

or dealer’’ is not a customer.

For purposes of § 12.4(b) (8) and (9),

the proposal adds a definition of ‘‘debt

security’’ consistent with the SEC’s

definition under Rule 10b–10, 17 CFR

240.10b–10. The proposal also adds a

definition of ‘‘asset-backed security,’’

which is the same as that in the SEC’s

Rule 10b–10, 17 CFR 240.10b–10.

The proposal also adds definitions of

‘‘government security’’ and ‘‘municipal

security’’ which are intended to have

the same meaning as those terms have

under the Securities Exchange Act of

1934. See 15 U.S.C. 78c(a)(42) and

(a)(29). In addition, the proposed

definition of ‘‘security’’ more closely

tracks the definition of security in the

Securities Exchange Act of 1934, 15

U.S.C. 78c(a)(10), with an exception for

certain instruments, such as foreign

currency and various bank instruments.

However, the proposal makes clear that

the OCC may determine whether an

instrument is a security for purposes of

part 12.

Recordkeeping (§ 12.3)

The proposed recordkeeping

provision in § 12.3 is similar to current

§ 12.3. A bank effecting securities

transactions for customers must

maintain, for at least three years,

chronological records of original entry

containing an itemized daily record of

all purchases and sales of securities,

account records for customers, and the

written notifications to customers

required by proposed (and current)

§ 12.4. The proposal also clarifies that a

bank must maintain a copy of any

alternative form of written notification

that it uses pursuant to proposed § 12.5.

The proposal retains the current

provision permitting a bank to maintain

the required records in any manner, if

the records clearly and accurately reflect

the information required and provide an

adequate basis for auditing the

information (§ 12.3(b)).

The OCC seeks comments as to

whether and in what manner banks rely

upon this provision (proposed § 12.3(b))

and whether it serves a useful purpose.

Form and Time of Customer

Notification (§ 12.4); Alternative Forms

and Times of Customer Notification

(§ 12.5)

The proposal reorganizes current

§§ 12.4 and 12.5. Under the proposed

sections, a bank has several alternatives

from which it may choose to provide the

required written notification to a

customer for whom the bank has

effected a securities transaction.

As under current part 12, a bank may

elect to provide notification through: (1)

A copy of a broker/dealer confirmation

and statement regarding the source and

amount of remuneration that the

customer or any other source is to

provide the bank (§ 12.4(a)); (2) a

written notification that includes

information such as the date of

execution of the transaction, the price

and number of shares or units

purchased or sold, the capacity in

which the bank is acting (as agent,

principal, or otherwise), and the amount

of remuneration received by the bank

and by any broker/dealer in connection

with the transaction (§ 12.4(b)); or (3) an

alternative form of notification

permitted for a specific type of customer

transaction or account, for example, a

transaction where the bank exercises

investment discretion in an agency

capacity or effects a transaction for a

periodic plan (§ 12.5(a) through (d)).

The proposal moves current § 12.5(a)

regarding notification for a transaction

where the bank does not exercise

investment discretion to § 12.4(c).

The proposal provides that if a bank

opts to fulfill its customer notification

requirement through compliance with

either of these first two means (§ 12.4(a)

and (b)), the bank must give or send the

notification at or before the completion

of the transaction. Proposed § 12.2(c)

defines the term ‘‘completion of the

transaction,’’ which generally means the

payment of funds and delivery of

securities, i.e. the settlement of the

securities transaction. Sending the

notification at or before completion of

the transaction is consistent with the

SEC’s confirmation rule, SEC Rule 10b10. See 17 CFR 240.10b-10(a). The SEC

similarly defines ‘‘completion of the

transaction.’’ See 17 CFR 240.10b10(d)(2).

Currently, § 12.5 requires a national

bank that effects a securities transaction

to send written notification to its

customer within five business days from

the date of the transaction or within five

business days from receipt by the bank

of a broker/dealer’s confirmation (unless

the bank uses a notification permitted

for a specific type of customer

transaction or account). When the OCC

first adopted part 12, this five day

period was consistent with the generally

recognized industry practice of having

the settlement of a securities transaction

on the fifth business day after the trade

day, (T+5). On October 13, 1993,

however, the SEC published a securities

settlement rule, effective June 7, 1995,

requiring the payment of funds and

delivery of most securities by the third

business day after the date of the

contract (T+3). See Securities and

Exchange Act of 1934 Rule 15c6–1, 17

CFR 240.15c6–1, 58 FR 52891. Thus, the

current § 12.5 five day period is

inconsistent with the new T+3

settlement cycle. Since settlement will

occur within three days, the OCC, by

adopting the ‘‘at or before completion of

the transaction’’ timeframe, reflects

current securities industry practice.

Consistent with the SEC, the OCC also

is adopting a T+3 securities settlement

rule as discussed subsequently under

§ 12.9.

The OCC welcomes comments on

whether providing written notification

‘‘at or before completion of the

transaction’’ is an appropriate

requirement for a national bank in

proposed § 12.4(a) and (b).

The OCC also specifically requests

comments on the need for additional

time by banks opting to provide

notification by using a copy of the

broker/dealer’s confirmation, as is

currently permitted in § 12.5 (five

business days from receipt).
66520 Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules

Proposed § 12.4(c) retains the current

§ 12.5(a) option for the bank and the

customer to agree in writing to a

different time and form of notification

for a securities transaction where the

national bank does not exercise

investment discretion. This paragraph,

captioned ‘‘notification by agreement,’’

also provides that the arrangement must

specify the customer’s right to receive

the written notification as provided in

§ 12.4(a) or (b) at no additional cost.

The form of the notification required

under proposed § 12.4(a) is similar to

current § 12.4(a). Both require the bank

to provide a copy of the broker/dealer

confirmation and a statement regarding

remuneration that the customer or any

other source is to provide the bank.

Alternatively, the bank may choose to

provide its customer a written

notification as described in proposed

§ 12.4(b) (current § 12.4(b)). The

proposed § 12.4(b) form of notification

requires the bank to notify the customer

about the amount of any remuneration

the customer or any other source is to

provide the bank, and any remuneration

from the customer to any broker/dealer

in connection with the transaction. As

with current § 12.4(b), the notification

under proposed § 12.4(b) also must

include other information regarding the

securities involved in the transaction,

the capacity in which the bank is acting

(as agent, principal, or otherwise), and

the use of any broker/dealer. By

providing the notification, the bank

gives its customers an opportunity to

verify the terms of their transactions and

evaluate the accuracy of the bank’s

execution.

Under proposed § 12.4(b)(6), the bank

may choose not to disclose the source

and amount of any other remuneration

to the bank, if the written notification

contains the following two statements:

first, whether the bank has received or

will receive any other remuneration;

and, second, that the bank will furnish

the source and amount of the other

remuneration upon the customer’s

written request. A bank may not use this

option if, in the case of a purchase, the

bank is participating in a distribution of

the security, or in the case of a sale, the

bank is participating in a tender offer.

This proposed option is new and

reflects the option concerning

disclosure of other remuneration

contained in SEC Rule 10b-10, 17 CFR

240.10b-10(a)(2)(i)(D).

The OCC seeks specific comments on

inclusion of this proposed modification

concerning the disclosure of other

remuneration.

The SEC, on November 17, 1994,

published a final rule adopting

amendments to SEC Rule 10b-10

requiring the disclosure of additional

information on the broker/dealer

confirmation. See Securities Exchange

Act Release No. 34962, 59 FR 59612.

Among other items, SEC Rule 10b-10

now requires disclosure concerning a

debt security that has not been rated by

a nationally recognized statistical rating

organization and the fluctuation of yield

with respect to certain asset-backed

securities. See 17 CFR 240.10b-10(a)(7)

and (8). The SEC also expanded the

range of debt securities where yield

need not be disclosed to include any

asset-backed security subject to

continuous prepayment. See 17 CFR

240.10b-10(a)(5) and (6). The OCC

recognizes that this type of information

may be important to bank customers

evaluating the merits of investing in

various debt securities.

Consistent with SEC Rule 10b-10, the

proposal adds § 12.4(b)(8), (9), (10), and

(11), requiring disclosure of yield

information on debt securities. The

proposal also adds § 12.4(b)(12)

requiring disclosure that a debt security

that has not been rated by a nationally

recognized statistical rating

organization. While the proposal

incorporates these additional

disclosures, the OCC is interested in

commenters’ views on the applicability

of these disclosures to national banks’

securities activities. The OCC may

revise its proposal.

The OCC seeks comments on whether

banks engage in transactions in unrated

securities and the need for requiring

disclosure of information in the written

notification to customers regarding

unrated securities and yield information

on debt securities, similar to the SEC

requirements under SEC Rule 10b-10.

The OCC also seeks comments on

whether it should require the disclosure

of any other information describing the

security in the written notification to

customers.

SEC Rule 10b-10(c) also contains a

provision requiring broker/dealers to

furnish to customers requested

information within five business days of

the receipt of the request, or within 15

business days if the broker/dealer

effected the transaction more than 30

days before the receipt of the request.

See 17 CFR 240.10b-10(c). Part 12

currently does not contain a similar

provision.

The OCC requests comments on

whether it should include a provision

similar to SEC Rule 10b-10(c) stating the

required period of time for a bank to

furnish information pursuant to a

customer’s request.

In addition to § 12.4, the proposal also

authorizes alternative forms and times

of notification under § 12.5(a) through

(d) for certain specific types of

transactions. These are: (1) Transactions

in which the bank exercises investment

discretion in other than an agency

capacity (except for collective

investment funds); (2) transactions in

which the bank exercises investment

discretion in an agency capacity; (3)

transactions for a collective investment

fund; and (4) transactions for a periodic

plan.

Proposed § 12.5 includes captions

generally characterizing the transactions

covered under each paragraph. For

example, § 12.5(a), captioned ‘‘trust

transactions,’’ concerns transactions for

an account in which the bank exercises

investment discretion other than in an

agency capacity, e.g. a bank providing

traditional trust services as directed by

a will or a trust. Under § 12.5(b),

captioned ‘‘agency transactions,’’ the

bank exercises investment discretion in

an agency capacity and may provide

fiduciary services; however, the bank is

not named as trustee, e.g. the bank

acting as a managing agent. The

captions are intended to provide

practical assistance and are not precise

terms.

In a change from current § 12.5, the

availability of the first two alternative

forms of notification (§ 12.5(a) and (b))

depends on the capacity in which the

bank effects the securities transaction

for its customer, and not on the form of

the account. Thus, this change clarifies

that the transaction triggers the part 12

requirements and dictates the

permissible form and time of

notification.

The OCC invites comments about any

effects of the proposed change regarding

alternative forms of notification based

upon types of transactions instead of

accounts. The OCC also specifically

requests comments on the continuing

need for the different forms of

alternative notification provided in

proposed § 12.5.

Consequently, under the proposal, if a

bank effects a securities transaction for

a fiduciary account where the customer

has the right to direct the transaction

and does so, the forms of notification

available for use by the bank are the

same as for transactions where the bank

does not exercise investment discretion

(except for periodic plans), in other

words, § 12.4(a), (b), or (c). Hence, as an

alternative to § 12.4(a) or (b), the bank

could provide the notification under

§ 12.4(c). However, the bank could not

provide notification in the same manner

as for a fiduciary account transaction

that the customer did not direct, as in

§ 12.5(a). Therefore, the bank does not

have the option of providing

notification as in § 12.5(a) only upon the
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules 66521

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 the account.

The OCC seeks specific comments

regarding whether this result clarifies

the existing part 12 requirements and is

the appropriate form of notification for

securities transactions in a fiduciary

account where the customer directs the

transaction.

With respect to transactions for a

periodic plan (§ 12.5(d)), the proposal

changes the time for notification.

Currently part 12 requires a national

bank to furnish a written statement ‘‘as

promptly as possible’’ after each

transaction for a periodic plan

(§ 12.5(e)). Instead, proposed § 12.5(d)

requires the bank to furnish the written

statement not less than once every three

months. This change is consistent with

similar provisions under the securities

laws. Otherwise, the notification

requirements for periodic plan

transactions remain the same.

The OCC request comments on the

proposed change in notification to not

less than once every three months for

periodic plan transactions under

§ 12.5(d) rather than notification as

promptly as possible after each

transaction.

Fees (§ 12.6)

The proposal places the provisions

regarding fees (§§ 12.4 and 12.5) into

§ 12.6. It does not change the substance

of these provisions.

Securities trading policies and

procedures (§ 12.7)

The proposal retains the current

requirement that a bank establish

written policies and procedures for

trading practices, but places new

emphasis on following these written

policies and procedures. The proposal

also relocates these provisions from

§ 12.6 to § 12.7.

With respect to proposed § 12.7(a)(4),

the proposal clarifies that bank officers

and employees must provide a report to

the bank containing specific information

on certain trades, and the bank must

establish written policies and

procedures requiring these reports.

While current § 12.6(d) states that the

report must ‘‘identify’’ the securities

purchased and sold, proposed § 12.7(b)

clarifies the information necessary for

banks to identify the securities,

including the title and number of

shares, the principal amount of each

security involved, and the price at

which the transaction was effected.

The OCC seeks comments as to

whether enumeration of the information

required in these reports will assist

banks, and officers and employees, in

complying with this requirement.

The proposal also revises one of the

exceptions to the reporting requirements

for securities transactions for the benefit

of certain bank officers or employees to

make clear that the reporting exception

applies only if the transactions involve

an aggregate amount of purchases and

sales per officer or employee of $10,000

or less during a calendar quarter.

The proposal also clarifies that a

national bank acting as an investment

adviser to an investment company is

subject to section 17 of the Investment

Company Act, 15 U.S.C. 80a–17, and, in

particular, the requirements of Rule 17j–

1 of the Investment Company Act, 17

CFR 270.17j–1 (SEC Rule 17j–1).

Generally, SEC Rule 17j–1 requires that

an investment adviser to a registered

investment company adopt a written

code of ethics, and that certain defined

‘‘access persons’’ of the investment

adviser, including directors, officers,

and certain employees, report personal

securities transactions to the investment

adviser. See 17 CFR 270.17j–1(e)(1).

The requirement under proposed

§ 12.7(a)(4) concerning the reporting by

bank officers and employees of

securities transactions in which they

have a beneficial interest is in addition

to the applicable requirements under

the Investment Company Act and SEC

Rule 17j–1. Banks should recognize that

the part 12 requirements, in some

respects, are broader than those under

the Investment Company Act because

they apply to investment advisory

activities by national banks whether the

bank provides the advice to an

investment company or to another type

of customer.

The OCC welcomes any comments on

this proposed addition to the regulation.

Waivers (§ 12.8)

The proposal makes no substantive

changes in the waiver provision

currently in § 12.7(d). It relocates the

provision to § 12.8. As is the current

practice, the proposal makes clear that

the procedure for requesting a waiver is

to submit a request in writing. The

proposal also clarifies that the OCC may

grant a waiver from the requirements of

part 12 to any national bank, or any

class of national banks, with regard to

specific transactions or specific classes

of transactions.

Settlement of Securities Transactions

(§ 12.9)

The proposal adds § 12.9 to establish

a securities settlement timeframe for

national banks effecting or entering into

contracts for the purchase or sale of

securities for customers. The OCC

intends this rule to parallel the SEC’s

adoption of the ‘‘T+3’’ securities

settlement timeframe. In October 1993,

the SEC adopted for the first time a

securities settlement rule, effective June

7, 1995, requiring the payment of funds

and delivery of most securities by the

third business day after the date of the

contract (T+3). See Securities Exchange

Act of 1934 Rule 15c6–1, 17 CFR

240.15c6–1 (SEC Rule 15c6–1); 58 FR

52891 (Oct. 13, 1993); 60 FR 26604 (May

17, 1995) (amendments to the rule). SEC

Rule 15c6–1 is a separate securities

settlement requirement and is not part

of the SEC’s confirmation rule, SEC Rule

10b-10, 17 CFR 240.10b–10. The OCC

believes that most national banks

effecting customer securities

transactions use a clearing broker that

would be subject to the SEC’s T+3 rule

and national banks’ securities

transactions thereby routinely would

settle within three days. However, some

national banks may clear and settle their

securities trades directly. For this

reason, the OCC proposes to revise part

12 to include a separate T+3 settlement

requirement that tracks the language of

the SEC’s securities settlement rule. See

17 CFR 240.15c6–1.

As with SEC Rule 15c6–1, the OCC’s

rule does not apply to an exempted

security as defined in 15 U.S.C.

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

municipal security, commercial paper,

bankers’ acceptance, or commercial bill.

Proposed § 12.9 also contains an

identical override provision to SEC Rule

15c6–1 permitting national banks to

agree that settlement will take place in

more than three business days when the

agreement is express and reached at the

time of the transaction. Nonetheless, the

OCC, similar to the intent expressed by

the SEC, intends the override provision

to apply to unusual transactions and not

merely to permit national banks to

specify before execution of specific

trades that a group of trades will settle

in a timeframe other than T+3. See

Securities Exchange Act Release No.

33023, 58 FR 52891, 52901 (Oct. 13,

1993).

While proposed § 12.9 conforms to

the language of the SEC’s T+3

settlement rule, the OCC notes there are

alternatives to adopting the language of

the SEC’s rule. For example, one

possibility is not having a separate OCC

settlement rule and, instead, using three

days as the timeframe for sending the

confirmation under part 12 rather than

following the SEC’s ‘‘completion of the

transaction’’ timeframe. Another

possibility is cross-referencing the

language of SEC Rule 15c6–1 instead of
66522 Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules

incorporating the actual language of the

rule.

The OCC seeks comments on the need

for and the effect of proposed § 12.9

adopting the T+3 securities settlement

requirement for national banks.

The OCC also specifically invites

comments on the feasibility and

appropriateness of alternative

approaches to implement the T+3

securities settlement cycle.

Interpretations (§§ 12.101 and 12.102)

The proposal adds two interpretative

rulings at the end of part 12. The first

interpretation (§ 12.101) relates to the

disclosure of remuneration for mutual

fund transactions. The interpretation

reflects the view taken by the OCC in

various letters granting a waiver from

compliance with part 12 remuneration

disclosure requirements. In particular,

the OCC has allowed a bank to fulfill its

disclosure requirement of the source

and amount of remuneration required

by current § 12.4(a)(2) and (b) (proposed

§ 12.4(a)(2) and (b)) for mutual fund

transactions by providing this

information to the customer in a current

prospectus, at or before completion of

the securities transaction. The OCC’s

view is predicated on the SEC’s position

as provided in a no-action letter dated

March 19, 1979, and permits national

banks to use the same option for

disclosure of remuneration as is

permitted for nonbank broker/dealers

with respect to transactions in mutual

funds. See Letter to the Investment

Company Institute, [1979 Transfer

Binder] Fed. Sec. L. Rep. (CCH) 82041

(Mar. 19, 1979). The OCC would

reconsider its position upon any change

in the SEC’s practice.

The second interpretive ruling

(§ 12.102) discusses the use of electronic

communications to satisfy part 12’s

customer notification requirements. In

appropriate situations, the OCC will

allow a national bank to satisfy the

‘‘written’’ notification requirement

under §§ 12.4 and 12.5 through

electronic communications. Where a

customer has a facsimile machine, a

national bank may fulfill its notification

delivery requirement by sending the

notification by facsimile transmission.

Similarly, a bank may satisfy the

notification delivery requirement by

other electronic communications when:

(1) The parties agree to use electronic

instead of hard-copy notifications; (2)

the parties have the ability to print or

download the notification; (3) the

recipient affirms or rejects the trade

through electronic notification; (4) the

system cannot automatically delete the

electronic notification; and (5) both

parties have the capacity to receive

electronic messages. The SEC has taken

a comparable approach to the use of

electronic means to deliver a

confirmation under SEC Rule 10b-10, 17

CFR 240.10b–10. See e.g., Letter

regarding Thompson Financial Services,

Inc. (Oct. 8, 1993). The OCC would

consider the permissibility of other

situations using electronic notifications

on a case-by-case basis.

DERIVATION TABLE

[Only substantive modifications, additions and

changes are indicated.]

Revised provision Original provision Comments

§ 12.1(a) .............. § 12.1(a)

§ 12.1(b) .............. § 12.1(a)

§ 12.1(c)(1) ......... Added.

§ 12.1(c)(2)(i) ...... § 12.7(a)

§ 12.1(c)(2)(ii) ..... Added.

§ 12.1(c)(2)(iii) ..... § 12.7(b) Modified.

§ 12.1(c)(2)(iv) .... § 12.7(c)

§ 12.1(c)(3) ......... Added.

§ 12.1(d) .............. § 12.1(b)

§ 12.2(a) .............. Added.

§ 12.2(b) .............. § 12.2(a)

§ 12.2(c) .............. Added.

§ 12.2(d) .............. Added.

§ 12.2(e) .............. § 12.2(b) Modified.

§ 12.2(f) ............... Added.

§ 12.2(g) .............. Added.

§ 12.2(h) .............. § 12.2(c)

§ 12.2(i) ............... Added.

§ 12.2(j) ............... § 12.2(d)

§ 12.2(k) .............. § 12.2(e) Modified.

§ 12.3 .................. § 12.3

§ 12.4 .................. §§ 12.4,

12.5

Modified.

§ 12.5 .................. §§ 12.4,

12.5

Modified.

§ 12.6 .................. §§ 12.4,

12.5

§ 12.7(a) .............. § 12.6(a),

(b), (c),

and (d)

§ 12.7(b) .............. § 12.6(d) Modified.

§ 12.7(c) .............. § 12.6(d) Modified.

§ 12.7(d) .............. Added.

§ 12.8 .................. § 12.7(d)

§ 12.9 .................. Added.

§ 12.101 .............. Added.

§ 12.102 .............. Added.

Regulatory Flexibility Act

It is hereby certified that this proposal

will not have a significant economic

impact on a substantial number of small

entities. Accordingly, a regulatory

flexibility analysis is not required. This

proposal will have minimal economic

impact on national banks, regardless of

size, since it makes no material changes

to existing regulatory requirements.

Executive Order 12866

The OCC has determined that this

proposal is not a significant regulatory

action.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded

Mandates Reform Act of 1995, Pub. L.

104–4, March 22, 1995, 109 Stat. 48

(Unfunded Mandates Act), requires that

an agency prepare a budgetary impact

statement before promulgating a rule

that includes a Federal mandate that

may result in the expenditure by state,

local, and tribal governments, in the

aggregate, or by the private sector, of

$100 million or more in any one year.

If a budgetary impact statement is

required, section 205 of the Unfunded

Mandates Act also requires an agency to

identify and consider a reasonable

number of regulatory alternatives before

promulgating a rule. Because the OCC

has determined that the proposed rule

will not result in expenditures by state,

local, and tribal governments, or by the

private sector, of more than $100

million in any one year, the OCC has

not prepared a budgetary impact

statement or specifically addressed the

regulatory alternatives considered.

Nevertheless, as discussed in the

preamble, the rule has the effect of

reducing unnecessary regulatory costs

and other burdens, where possible.

Paperwork Reduction Act of 1995

The OCC invites comments on:

(1) Whether the proposed collection

of information contained in this notice

of proposed rulemaking is necessary for

the proper performance of the agency’s

functions, including whether the

information has practical utility;

(2) The accuracy of the agency’s

estimate of the burden of the proposed

information collection;

(3) Ways to enhance the quality,

utility, and clarity of the information to

be collected; and

(4) Ways to minimize the burden of

the information collection on

respondents, including through the use

of automated collection techniques or

other forms of information technology.

Respondents/recordkeepers are not

required to respond to this collection of

information unless it displays a

currently valid OMB control number.

The collection of information

requirements contained in this notice of

proposed rulemaking have been

submitted to the Office of Management

and Budget for review in accordance

with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)). Comments on

the collection of information should be

sent to the Office of Management and

Budget, Paperwork Reduction Project

1557–0142, Washington DC 20503, with

copies to the Legislative and Regulatory

Activities Division (1557–0142), Office

of the Comptroller of the Currency, 250

E Street, SW., Washington, DC 20219.
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules 66523

The collection of information

requirements in this proposed rule are

found in §§ 12.3 through 12.8. This

information is required by the OCC to

establish an audit trail. That audit trail

is used by the OCC in its regulatory

examinations as a tool to evaluate a

bank’s compliance with banking and

securities laws and regulations, such as

the anti-fraud provisions of the Federal

securities laws. Further, the records

provide a basis for adequate disclosure

to customers who effect securities

transactions through national banks.

Other records provide a basis for the

OCC to waive some or all of the

recordkeeping and confirmation

requirements of 12 CFR part 12. The

recordkeepers are national banks.

Estimated total annual recordkeeping

burden: 56,019 hours.

The estimated annual burden per

recordkeeper varies from 2 hours to

more than 700 hours, depending on

individual circumstances, with an

estimated average of 53.3 hours.

Estimated number of recordkeepers:

1,047.

List of Subjects in 12 CFR Part 12

National banks, Reporting and

recordkeeping requirements, Securities.

Authority and Issuance

For the reasons set out in the

preamble, part 12 of chapter I of title 12

of the Code of Federal Regulations is

proposed to be revised to read as

follows:

PART 12—RECORDKEEPING AND

CONFIRMATION REQUIREMENTS FOR

SECURITIES TRANSACTIONS

Sec.

12.1 Authority, purpose, scope, and OMB

control number.

12.2 Definitions.

12.3 Recordkeeping.

12.4 Form and time of customer

notification.

12.5 Alternative forms and times of

customer notification.

12.6 Fees.

12.7 Securities trading policies and

procedures.

12.8 Waivers.

12.9 Settlement of securities transactions.

Interpretations

12.101 National bank disclosure of

remuneration for mutual fund

transactions.

12.102 National bank use of electronic

communications as customer

notifications.

Authority: 12 U.S.C. 24, 92a, and 93a.

§ 12.1 Authority, purpose, scope, and OMB

control number.

(a) Authority. This part is issued

pursuant to 12 U.S.C. 24, 12 U.S.C. 92a,

and 12 U.S.C. 93a.

(b) Purpose. This part establishes

rules, policies, and procedures

applicable to recordkeeping and

confirmation requirements for certain

securities transactions effected by

national banks for customers.

(c) Scope—(1) General. Any security

transaction effected for a customer by a

national bank is subject to this part

unless exempted by paragraph (c)(2) of

this section. A national bank effecting

transactions in government securities is

subject to the confirmation,

recordkeeping, and policies and

procedures requirements of this part.

This part also applies to municipal

securities transactions by a national

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. This

part, as well as 12 CFR part 9, applies

to a national bank’s securities

transactions effected as a fiduciary.

(2) Exemptions—(i) Small number of

transactions. The requirements of §§

12.3(a)(2) through (4) and 12.7(a)(1)

through (3) do not apply to a national

bank having 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.

(ii) Government securities. The

recordkeeping requirements of § 12.3 do

not apply to national banks effecting

fewer than 500 government securities

brokerage transactions per year. This

exemption does not apply to

government securities dealer

transactions by national banks.

(iii) Municipal securities. This part

does not apply to transactions in

municipal securities conducted by a

national 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.

(iv) Foreign branches. This part does

not apply to securities transactions

conducted by a foreign branch of a

national bank.

(3) Safe and Sound Operations.

Notwithstanding paragraph (c)(2) of this

section, every national bank conducting

securities transactions for customers

shall maintain effective systems of

records and controls regarding their

customer securities transactions to

ensure safe and sound operations. The

systems maintained must clearly and

accurately reflect appropriate

information and provide an adequate

basis for an audit.

(d) OMB control number. The

collection of information requirements

in this part were approved by the Office

and Management and Budget under

OMB control number 1557–0142.

§ 12.2 Definitions.

(a) Asset-backed security means a

security that is primarily serviced by the

cashflows 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.

(b) Collective investment fund means

any funds held by a national bank as

fiduciary and invested collectively in a

‘‘collective investment’’ as described in

12 CFR 9.18(a).

(c) Completion of the transaction

means:

(1) In the case of a customer who

purchases a security through or from a

national bank, except as provided in

paragraph (c)(2) of this section, the time

when the customer pays the bank any

part of the purchase price, or, if

payment is made by a bookkeeping

entry, the time when the bank makes the

bookkeeping entry for any part of the

purchase price;

(2) In the case of a customer who

purchases a security through or from a

national bank and who makes payment

for the security prior to the time when

payment is requested or notification is

given that payment is due, the time

when the bank delivers the security to

or into the account of the customer;

(3) In the case of a customer who sells

a security through or to a national bank

except as provided in paragraph (c)(4) of

this section, if the security is not in the

custody of the bank at the time of sale,

the time when the security is delivered

to the bank, and if the security is in the

custody of the bank at the time of sale,

the time when the bank transfers the

security from the account of the

customer;

(4) In the case of a customer who sells

a security through or to a national bank

and who delivers the security to the

bank prior to the time when delivery is

requested or notification is given that

delivery is due, the time when the bank

makes payment to or into the account of

the customer.

(d) 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.

(e) Customer means any person or

account, including any agency, trust,
66524 Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules

estate, guardianship, committee, or

other fiduciary account for which a

national bank makes or participates in

making the purchase or sale of

securities, but does not include a broker,

dealer, bank acting as a broker or dealer,

or issuer of the securities that are the

subject of the transaction.

(f) Debt security as used in § 12.4(b)(8)

and (9) only, means 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 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.

(g) Government security means:

(1) A security which is a direct

obligation of, or obligation guaranteed

as to principal and interest by, the

United States;

(2) A security which 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 as described in

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

section, other than a put, call, straddle,

option, or privilege:

(i) That is traded on one or more

national securities exchanges; or

(ii) For which quotations are

disseminated through an automated

quotation system operated by a

registered securities association.

(h) 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.

(i) Municipal security means:

(1) 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;

(2) A security which is a direct

obligation of, or an obligation

guaranteed as to principal or interest by,

any municipal corporate instrumentality

of one or more States; or

(3) A security which is an industrial

development bond (as defined in

section 103(c)(2) of the Internal Revenue

Code of 1954 (26 U.S.C. 103(c)(2)

(1970)) (Code)) the interest on which is

excludable from gross income under

section 103(a)(1) of the Code (26 U.S.C.

103(a)(1)) if, by reason of the application

of paragraph (4) or (6) of section 103(c)

of the Code (26 U.S.C. 103(c))

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

and (7) were not included in section

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

of section 103(c) (26 U.S.C. 103(c)) does

not apply to the security.

(j) Periodic plan (including dividend

reinvestment plans, automatic

investment plans and employee stock

purchase plans) means a written

authorization for a national 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.

(k) Security: (1) 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, for a security, 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;

(2) Does not mean currency; any note,

draft, bill of exchange, or banker’s

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; a deposit or

share account in a Federal or State

chartered depository institution; a loan

participation; units of a collective

investment fund; interests in a variable

amount note as defined in 12 CFR

9.18(c)(2)(ii); U.S. Savings Bonds; or any

other instrument the OCC determines

does not constitute a security for

purposes of this part.

§ 12.3 Recordkeeping.

(a) General rule. A national bank

effecting securities transactions for

customers shall maintain the following

records for at least three years:

(1) Chronological records. A

chronological record of each original

entry containing an itemized daily

record of each purchase and sale of

securities, 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 (if any);

(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 with respect to transactions in

securities for each account; and

(iv) Other debits and credits

pertaining to transactions in securities;

(3) Memorandum order. A separate

memorandum (order ticket) of each

order to purchase or sell securities

(whether executed or cancelled),

including:

(i) Account or customer name for

which the transaction was effected;

(ii) Type of order (market order, limit

order, or subject to special instructions);

(iii) Time the trader or other bank

employee responsible for effecting the

transaction received the order;

(iv) Time the trader placed the order

with the broker/dealer, or if there was

no broker/dealer, time the order was

executed or cancelled;

(v) Price at which the order was

executed; and

(vi) Name of 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 §§ 12.4

and 12.5.

(b) Manner of maintenance. The

records required by this section must
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules 66525

clearly and accurately reflect the

information required and provide an

adequate basis for the audit of the

information.

§ 12.4 Form and time of customer

notification.

A national bank effecting a securities

transaction for its customer shall give or

send to the customer a notification. This

section and § 12.5 describe the form and

time of permissible types of

notifications. A bank may elect to

provide notification through a copy of a

broker/dealer confirmation and

statement regarding remuneration as

provided in § 12.4(a), written

notification as provided in § 12.4(b),

notification by agreement as provided in

§ 12.4(c), or an alternative form of

notification applicable to a specific type

of transaction as provided in § 12.5.

(a) Confirmation of a broker/dealer. A

national bank effecting a securities

transaction for a customer shall give or

send to its customer at or before the

completion of the transaction a written

notification that includes:

(1) A copy of the confirmation of a

broker/dealer relating to the securities

transaction; and

(2) If the customer or any other source

will provide remuneration to the bank

in connection with the transaction, and

a written agreement between the bank

and the customer does not determine

the remuneration, a statement of the

source and amount of any remuneration

that the customer or any other source is

to provide the bank.

(b) Written notification. A national

bank effecting a securities transaction

for its customer that does not provide

notification pursuant to paragraph (a) of

this section, shall give or send to its

customer at or before the completion of

the transaction a written notification

that includes:

(1) Name of the bank;

(2) Name of the customer;

(3) Capacity in which the bank acts

(as agent for the customer, as agent for

both the customer and some other

person, as principal for its own account,

or in any other capacity);

(4) Date of execution, a statement that

the bank will furnish the time of

execution 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) Amount of any remuneration that

the customer has provided or is to

provide any broker/dealer, directly or

indirectly, in connection with the

transaction;

(6) Amount of any remuneration that

the bank has received or will receive

from the customer, and the source and

amount of any other remuneration that

the bank has received or will receive in

connection with the transaction;

(i) A bank need not provide the

information in paragraph (b)(6) of this

section if:

(A) The bank and its customer have

determined remuneration pursuant to a

written agreement; or

(B) In the case of government

securities and municipal securities, the

bank received the remuneration in other

than an agency transaction;

(ii) Unless the bank follows paragraph

(b)(6) of this section, the written

notification must state whether the bank

has received or will receive any other

remuneration and that the bank will

furnish the source and amount of the

other remuneration upon written

request of the customer. A bank may not

follow this paragraph (b)(6)(ii), if, in the

case of a purchase, the bank was

participating in a distribution, or, in the

case of a sale, the bank was participating

in a tender offer;

(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

upon written request from the customer.

The bank shall furnish this information

within a reasonable time after receipt of

a written request;

(8) In the case of any 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 the fact 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 paragraph (b)(9)(ii)

shall not apply to a transaction in a debt

security that either:

(A) Has a maturity date that may be

extended by the issuer thereof, with a

variable interest payable thereon; or

(B) 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,

the type of call, the call date and call

price; and

(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)(iii)

shall not apply to a transaction in a debt

security that either:

(A) Has a maturity date that may be

extended by the issuer thereof, with a

variable interest rate payable thereon; or

(B) 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.

(c) Notification by agreement. Unless

the bank follows paragraphs (a) or (b) of

this section, a national bank effecting a

securities transaction for an account in

which the bank does not exercise

investment discretion (except for

periodic plans) shall give or send the

notification at the time and in the form

agreed to in writing by the bank and

customer, provided that the agreement

makes clear the customer’s right to

receive the written notification pursuant

to paragraphs (a) or (b) of this section at

no additional cost to the customer.

§ 12.5 Alternative forms and times of

customer notification.

(a) Trust transactions. Unless the

bank follows § 12.4(a) or (b), a national

bank effecting a securities transaction
66526 Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules

for an account in which the bank

exercises investment discretion other

than in an agency capacity (except for

collective investment funds) shall give

or send the notification within a

reasonable time if a person having the

power to terminate the account, or, if

there is no such person, any person

holding a vested beneficial interest in

the account, requests written

notification pursuant to § 12.4(a) or (b).

Otherwise, notification is not required.

(b) Agency transactions. (1) Unless

the bank follows § 12.4(a) or (b), a

national bank effecting a securities

transaction for an account in which the

bank exercises investment discretion in

an agency capacity shall give or send,

not less than once every three months,

an itemized statement to each customer

that specifies the funds and securities in

the custody or possession of the bank at

the end of the period and all debits,

credits and transactions in the

customer’s account during the period;

and

(2) If requested by the customer, the

bank shall give or send written

notification to the customer pursuant to

§ 12.4(a) or (b) within a reasonable time.

(c) Collective investment fund

transactions. Unless the bank follows

§ 12.4(a) or (b), a national bank effecting

a securities transaction for a collective

investment fund shall follow 12 CFR

9.18(b)(5).

(d) Periodic plan transactions. (1)

Unless the bank follows § 12.4 (a) or (b),

a national bank effecting a securities

transaction for a periodic plan shall give

or send to its customer not less than

once every three months a written

statement showing:

(i) The customer’s funds and

securities in the custody or possession

of the bank;

(ii) All service charges and

commissions paid by the customer in

connection with the transaction; and

(iii) All other debits and credits of the

customer’s account involved in the

transaction.

(2) Upon written request of the

customer, the bank shall give or send

the information described in § 12.4 (a)

or (b), except that the bank need not

provide to the customer any information

relating to remuneration paid in

connection with the transaction when

the remuneration is paid by a source

other than the customer.

§ 12.6 Fees.

(a) Permissible fees. A national bank

may charge a reasonable fee for

providing notification pursuant to § 12.5

(a), (b), and (d).

(b) Impermissible fees. A national

bank may not charge a fee for providing

notification pursuant to § 12.4 (a), (b),

and (c), and § 12.5(c).

§ 12.7 Securities trading policies and

procedures.

(a) Policies and procedures; reports of

securities trading. A national bank

effecting securities transactions for

customers shall maintain and adhere to

policies and procedures that:

(1) Assign 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) Provide for the fair and equitable

allocation of securities and prices to

accounts when the bank receives orders

for the same security at approximately

the same time and places the orders for

execution either individually or in

combination;

(3) Provide for the crossing of buy and

sell orders on a fair and equitable basis

to the parties to the transaction, where

applicable, and where permissible

under local law; and

(4) Require bank officers and

employees to 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, if the officers

and employees:

(i) Make investment recommendations

or decisions for the accounts of

customers;

(ii) Participate in the determination of

the recommendations or decisions; or

(iii) In connection with their duties,

obtain information concerning which

securities are purchased, sold, or

recommended for purchase or sale.

(b) Report required. A bank officer or

employee shall file a report, as

referenced in paragraph (a)(4) of this

section, that contains the following

information:

(1) The date of the transaction, the

title and number of shares, and the

principal amount of each security

involved;

(2) The nature of the transaction (i.e.,

purchase, sale, or other type of

acquisition or disposition);

(3) The price at which the transaction

was effected; and

(4) The name of the broker, dealer, or

bank with or through whom the

transaction was effected.

(c) Report not required. Paragraph (b)

of this section does not require a bank

officer or employee to report

transactions for the benefit of the officer

or employee if:

(1) The officer or employee has no

direct or indirect influence or control

over the transaction;

(2) The transaction is in mutual fund

shares;

(3) The transaction is in government

securities; or

(4) The transactions involve an

aggregate amount of purchases and sales

per officer or employee of $10,000 or

less during the calendar quarter.

(d) Additional reporting requirement.

A national bank that acts as an

investment adviser to an investment

company is subject to the requirements

of Securities and Exchange Commission

(SEC) Rule 17j–1 (17 CFR 270.17j–1) of

the Investment Company Act of 1940.

SEC Rule 17j–1 requires certain

personal securities transactions by

‘‘access persons’’ of the investment

adviser, including directors, officers,

and certain employees, to be reported to

the Securities and Exchange

Commission. The reporting requirement

under paragraph (a)(4) of this section is

in addition to any applicable

requirements under SEC Rule 17j–1.

§ 12.8 Waivers.

A national bank may file a written

request with the OCC for waiver of one

or more of the requirements set forth in

§§ 12.2 through 12.7, either in whole or

in part. The OCC may grant a waiver

from the requirements of this part to any

national bank, or any class of national

banks, with regard to specific

transactions or specific classes of

transactions.

§ 12.9 Settlement of securities

transactions.

(a) Except as provided in paragraphs

(b), (c), and (d) of this section, a national

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;

(2) For the purchase or sale of

securities that the Securities and

Exchange Commission (SEC) may from
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 / Proposed Rules 66527

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, 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 national

bank participating in the offering

provided that a national 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.

(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.

Interpretations

§ 12.101 National bank disclosure of

remuneration for mutual fund transactions.

A national bank may fulfill its

obligation to disclose information on the

source and amount of remuneration,

required by § 12.4(a)(2) and (b), for

mutual fund transactions by providing

this information to the customer in a

current prospectus, at or before

completion of the securities transaction.

The OCC’s view is consistent with the

position of the Securities and Exchange

Commission (SEC) as provided in a noaction letter dated March 19, 1979,

which permits confirmations for mutual

funds merely to refer to the sales load

disclosed in the prospectus. See Letter

to the Investment Company Institute,

(1979 Transfer Binder) Fed. Sec. L. Rep.

(CCH) 82041 (Mar. 19, 1979). The OCC

would reconsider its position upon any

change in the SEC’s practice.

§ 12.102 National bank use of electronic

communications as customer notifications.

(a) In appropriate situations, a

national bank may satisfy the ‘‘written’’

notification requirement under §§ 12.4

and 12.5 through electronic

communications. Where a customer has

a facsimile machine, a national bank

may fulfill its notification delivery

requirement by sending the notification

by facsimile transmission. Similarly, a

bank may satisfy the notification

delivery requirement by other electronic

communications when:

(1) The parties agree to use electronic

instead of hard-copy notifications;

(2) The parties have the ability to

print or download the notification;

(3) The recipient affirms or rejects the

trade through electronic notification;

(4) The system cannot automatically

delete the electronic notification; and

(5) Both parties have the capacity to

receive electronic messages.

(b) The OCC would consider the

permissibility of other situations using

electronic notifications on a case-bycase basis.

Dated: December 7, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95–30970 Filed 12–21–95; 8:45 am]

BILLING CODE 4810–33–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 95–NM–142–AD]

Airworthiness Directives; Beech

(Raytheon) Model BAe 125–800A and

Hawker 800 Series 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

certain Beech (Raytheon) Model BAe

125–800A and Hawker 800 series

airplanes. This proposal would require

a detailed visual inspection of the fuel

feed hose assemblies of the auxiliary

power unit (APU) to detect overheating,

degradation, proper routing, and

adequate clearance; and the correction

of any discrepancies found. This

proposal is prompted by reports of heat

damage to the fuel feed hose assembly

of the APU due to contact between the

hose assembly and hot surfaces. The

actions specified by the proposed AD

are intended to prevent such heat

damage, which could lead to a possible

fire/smoke hazard when failure of the

hose assembly occurs and subsequent

fuel mist or spray is emitted into the

rear equipment bay.

DATES: Comments must be received by

January 30, 1996.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–103,

Attention: Rules Docket No. 95–NM–

142–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

Raytheon Aircraft Company, Manger

Service Engineering, Hawker Customer

Support Department, P.O. Box 85,

Wichita, Kansas 67201–0085. This

information may be examined at the

FAA, Transport Airplane Directorate,

1601 Lind Avenue, SW., Renton,

Washington.

FOR FURTHER INFORMATION CONTACT: Tim

Backman, Aerospace Engineer,

Standardization Branch, ANM–113,

FAA, Transport Airplane Directorate,

1601 Lind Avenue, SW., Renton,

Washington 98055–4056; telephone

(206) 227–2797; fax (206) 227–1149.

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.