Document ID: SEC-2007-0900-0001
Agency: sec
Document Type: Notice
Title: Securities: Broker and dealer definitions; order extending temporary exemption of banks
Posted Date: 2007-07-05T04:00Z

[Federal Register: July 5, 2007 (Volume 72, Number 128)]
[Notices]               
[Page 36742]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jy07-138]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55991/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

June 29, 2007.

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    The Gramm-Leach-Bliley Act (``GLBA'') repealed the blanket 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.''
---------------------------------------------------------------------------

    \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)].
---------------------------------------------------------------------------

    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 July 2, 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\
---------------------------------------------------------------------------

    \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); 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, 2007); and Exchange Act Release No. 
34-54948 (Dec. 18, 2006), 71 FR 247 (Dec. 18, 2006) (extending the 
exemption from the definition of ``broker'' until July 2, 2007); 
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.''
---------------------------------------------------------------------------

    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.\5\ It also requires the Commission and the 
Board jointly to issue proposed rules within 180 days of passage of the 
Regulatory Relief Act.\6\
---------------------------------------------------------------------------

    \4\ Pub. L. 109-351, 120 Stat. 1966 (2006).
    \5\ The Regulatory Relief Act also directs the Commission and 
the Board to consult with and seek the concurrence of the other 
Federal banking agencies on the content of the rulemaking. Section 
101(c) of the Exchange Act defines the term ``Federal banking 
agencies'' as ``the Office of the Comptroller of the Currency, the 
Office of Thrift Supervision, and the Federal Deposit Insurance 
Corporation.'' In another provision of the Regulatory Relief Act, 
Congress extended the bank exceptions and exemptions to thrifts by 
amending the definition of ``bank'' in Exchange Act Section 3(a)(6).
    \6\ 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).
---------------------------------------------------------------------------

    Consistent with the Regulatory Relief Act, on December 18, 2006, 
the Commission and the Board jointly proposed implementing rules, which 
were designated as Regulation R.\7\ At that time, the Commission also 
granted banks \8\ an exemption from compliance with the definition of 
broker until July 2, 2007 in order to permit the Commission and the 
Board time to receive and evaluate comments and to take final action on 
the implementing rules.
---------------------------------------------------------------------------

    \7\ See Exchange Act Release No. 54946 (Dec. 18, 2006), 71 FR 
77522 (Dec. 26, 2006).
    \8\ 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.
---------------------------------------------------------------------------

    To date, the Commission and the Board have received over 70 
comments on proposed Regulation R. The Commission and the Board are 
carefully considering the comments, in consultation with the other 
Federal banking agencies, and expect to take final action on proposed 
Regulation R shortly.

II. Extension of Temporary Exemption From Definition of ``Broker''

    In light of the need to carefully consider, together with the Board 
and the other Federal banking agencies, the comments on proposed 
Regulation R, the Commission finds that extending the temporary 
exemption for banks from the definition of ``broker'' until September 
28, 2007 is necessary and appropriate in the public interest, and is 
consistent with the protection of investors. The extension of this 
temporary exemption will prevent banks from incurring interim business 
disruption, as well as interim implementation and compliance costs 
before the Commission and the Board jointly adopt final implementing 
rules. It will also provide the Commission and the Board time fully to 
consider the comments, consult with and seek the concurrence of the 
other Federal banking regulators, and take final action on the 
proposal.

III. Conclusion

    Accordingly, pursuant to Section 36 of the Exchange Act,\9\ it is 
hereby ordered that banks are exempt from the definition of the term 
``broker'' under the Exchange Act until September 28, 2007.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78mm.

    By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-13058 Filed 7-3-07; 8:45 am]

BILLING CODE 8010-01-P