Document ID: SEC-2006-1681-0001
Agency: sec
Document Type: Notice
Title: Securities: Broker definition; banks, savings associations, and savings banks; temporary exemptions
Posted Date: 2006-12-26T05:00Z

[Federal Register: December 26, 2006 (Volume 71, Number 247)]
[Notices]               
[Page 77557]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26de06-91]                         

[[Page 77557]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54948; File No. S7-12-01]

 
Order Extending Temporary Exemption of Banks From the Definition 
of ``Broker'' Under Section 3(a)(4) of the Securities Exchange Act of 
1934

December 18, 2006.

I. Background

    The Gramm-Leach-Bliley Act (``GLBA'') repealed the blanket 
exception of banks from the definitions of ``broker'' and ``dealer'' 
under the Securities Exchange Act of 1934 (``Exchange Act'') \1\ and 
replaced it with functional exceptions incorporated in amended 
definitions of ``broker'' and ``dealer.'' Under the GLBA, banks that 
engage in securities activities either must conduct those activities 
through a registered broker-dealer or ensure that their securities 
activities fit within the terms of a functional exception to the 
amended definition of ``broker.''
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    \1\ As defined in Exchange Act Sections 3(a)(4) and 3(a)(5) [15 
U.S.C. 78c(a)(4) and 78c(a)(5)].
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    The GLBA provided that the amended definitions of ``broker'' and 
``dealer'' were to become effective May 12, 2001. Starting on May 11, 
2001, in connection with various rulemaking proposals,\2\ the 
Securities and Exchange Commission (``Commission'') extended, most 
recently until January 15, 2007, a temporary exemption that gave banks 
time to come into full compliance with the more narrowly-tailored 
exceptions from broker-dealer registration under the GLBA.\3\
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    \2\ See Definition of Terms in and Specific Exemptions for 
Banks, Savings Associations, and Savings Banks Under Sections 
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934, Exchange 
Act Release No. 44291 (May 11, 2001), 66 FR 27760 (May 18, 2001) 
(the ``Interim Rules''). See also Exchange Act Release No. 49879 
(June 17, 2004), 69 FR 39682 (June 30, 2004) (``Regulation B''). In 
the Interim Rules, the Commission adopted Exchange Act Rule 15a-7, 
17 CFR 240.15a-7, which, as proposed to be amended, would provide 
banks and other financial institutions until January 1, 2006, to 
begin complying with the GLBA. In proposing Regulation B, the 
Commission proposed Rule 781 as a re-designation of Rule 15a-7. See 
17 CFR 242.781.
    \3\ See Exchange Act Release No. 44570 (July 18, 2001); Exchange 
Act Release No. 45897 (May 8, 2002); Exchange Act Release No. 46751 
(Oct. 30, 2002); Exchange Act Release No. 47649 (April 8, 2003); 
Exchange Act Release No. 50618 (Nov. 1, 2004); Exchange Act Release 
No. 51328 (March 8, 2005); Exchange Act Release No. 52405 (Sept. 9, 
2005); and Exchange Act Release No. 54544 (September 29, 2006), 71 
FR 58891 (October 5, 2006) (extending the exemption from the 
definition of ``broker'' until January 15, 2006); During this time, 
the Commission also extended the temporary exemption from the 
definition of ``dealer'' to September 30, 2003. See Exchange Act 
Release No. 47366 (Feb. 13, 2003). On February 13, 2003, the 
Commission adopted amendments to certain parts of the Interim Rules 
that define terms used in the dealer exceptions, as well as certain 
dealer exemptions (``Dealer Release''), see Exchange Act Release No. 
47364 (Feb. 13, 2003), 68 FR 8686 (Feb. 24, 2003). Therefore, this 
order is limited to an extension of the temporary exemption from the 
definition of ``broker.''
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    On October 13, 2006, President Bush signed into law the ``Financial 
Services Regulatory Relief Act of 2006 (``Regulatory Relief 
Act'').''\4\ Among other things, the Regulatory Relief Act requires the 
Commission and the Board of Governors of the Federal Reserve 
(``Board'') jointly to adopt final rules implementing the bank broker 
exceptions in Section 3(a)(4) of the Exchange Act. It also requires 
that within 180 days of passage of the Regulatory Relief Act, the 
Commission and the Board jointly issue proposed rules.\5\
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    \4\ Pub. L. 109-351, 120 Stat. 1966 (2006).
    \5\ Under the Regulatory Relief Act, a final single set of rules 
or regulations jointly adopted in accordance with that Act shall 
supersede any other proposed or final rule issued by the Commission 
on or after the date of enactment of Section 201 of the GLBA with 
regard to the definition of ``broker'' under Exchange Act Section 
3(a)(4).
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    Consistent with the Regulatory Relief Act, the Commission today 
proposes implementing rules jointly with the Board.\6\ As a result, the 
Commission is also granting banks \7\ an exemption from compliance with 
the definition of broker until July 2, 2007, to permit the Commission 
and the Board time to receive comments, evaluate the comments on the 
implementing rules, and to take final action on the implementing rules.
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    \6\ Exchange Act Release No. 54946 (Dec. 18, 2006).
    \7\ Section 401 of the Regulatory Relief Act also amended the 
definition of ``bank'' in Section 3(a)(6) of the Exchange Act to 
include any Federal savings association or other savings association 
the deposits of which are insured by the FDIC. Accordingly, as used 
in this order, the term ``bank'' includes any savings association 
that qualifies as a ``bank'' under Section 3(a)(6) of the Exchange 
Act, as amended.
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II. Extension of Temporary Exemption From Definition of ``Broker'

    In connection with the proposal of the implementing rules pursuant 
to the Regulatory Relief Act, the Commission finds that extending the 
temporary exemption for banks from the definition of ``broker'' is 
necessary and appropriate in the public interest, and is consistent 
with the protection of investors. In connection with this extension, 
the Commission notes that the implementing rules are being proposed 
with a request for comment and that the Commission and the Board will 
need time to give careful consideration to the comments and determine 
what changes, if any, should be made to the implementing rules. 
Recognizing that banks will need substantial time to come into 
compliance with final rules adopted by the Commission and the Board, we 
believe that extending the exemption from the definition of ``broker'' 
for banks until July 2, 2007, will prevent banks from unnecessarily 
incurring costs to comply before final implementing rules are jointly 
adopted. Further, the extension will give the Commission and the Board 
time to consider fully comments received on the implementing rules and 
take any final action on the proposal as necessary.

III. Conclusion

    Accordingly, pursuant to Section 36 of the Exchange Act,\8\
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    \8\ 15 U.S.C. 78mm.
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    It is hereby ordered that banks are exempt from the definition of 
the term ``broker'' under the Exchange Act until July 2, 2007.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 06-9841 Filed 12-22-06; 8:45 am]

BILLING CODE 8011-01-P