626
(1) INSURED DEPOSITORY INSTITUTION.—
The term ‘‘insured depository institution’’
has the same meaning as in section 3(c)
of the Federal Deposit Insurance Act.
(2) BIF AND SAIF MEMBERS.—The terms
‘‘Bank Insurance Fund member’’ and
‘‘Savings 
Association 
Insurance 
Fund
member’’ have the same meanings as in
section 7(l) of the Federal Deposit Insur-
ance Act.
SEC. 187. ELIMINATION OF SAIF AND DIF SPECIAL RE-
SERVES.
(a) 
SAIF 
SPECIAL
RESERVES.—Section
11(a)(6) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(a)(6)) is amended by striking
subparagraph (L).
(b) DIF SPECIAL RESERVES.—Section 2704
of the Deposit Insurance Funds Act of 1996 (12
U.S.C. 1821 note) is amended—
(1) by striking subsection (b); and
(2) in subsection (d)—
(A) by striking paragraph (4);
(B) in paragraph (6)(C)(i), by
striking ‘‘(6) and (7)’’ and inserting
‘‘(5), (6), and (7)’’; and
627
(C) in paragraph (6)(C), by strik-
ing clause (ii) and inserting the fol-
lowing:
‘‘(ii) by redesignating para-
graph (8) as paragraph (5).’’.
Subtitle K—Miscellaneous
Provisions
SEC. 191. TERMINATION OF ‘‘KNOW YOUR CUSTOMER’’ REG-
ULATIONS.
(a) IN GENERAL.—None of the proposed
regulations described in subsection (b) may
be published in final form and, to the extent
any such regulation has become effective be-
fore the date of the enactment of this Act,
such regulation shall cease to be effective as
of such date.
(b) PROPOSED REGULATIONS DESCRIBED.—
The proposed regulations referred to in sub-
section (a) are as follows:
(1) The regulation proposed by the
Comptroller of the Currency to amend
part 21 of title 12 of the Code of Federal
Regulations, as published in the Federal
Register on December 7, 1998.
628
(2) The regulation proposed by the
Director of the Office of Thrift Super-
vision to amend part 563 of title 12 of the
Code of Federal Regulations, as pub-
lished in the Federal Register on Decem-
ber 7, 1998.
(3) The regulation proposed by the
Board of Governors of the Federal Re-
serve System to amend parts 208, 211,
and 225 of title 12 of the Code of Federal
Regulations, as published in the Federal
Register on December 7, 1998.
(4) The regulation proposed by the
Federal Deposit Insurance Corporation
to amend part 326 of title 12 of the Code
of Federal Regulations, as published in
the Federal Register on December 7,
1998.
SEC. 192. STUDY AND REPORT ON FEDERAL ELECTRONIC
FUND TRANSFERS.
(a) STUDY.—The Secretary of the Treasury
shall 
conduct 
a 
feasibility 
study 
to
determine—
(1) whether all electronic payments
issued by Federal agencies could be rout-
629
ed through the Regional Finance Centers
of the Department of the Treasury for
verification and reconciliation;
(2) whether all electronic payments
made by the Federal Government could
be subjected to the same level of rec-
onciliation as United States Treasury
checks, including matching each payment
issued with each corresponding deposit
at financial institutions;
(3) whether the appropriate computer
security controls are in place in order to
ensure the integrity of electronic pay-
ments;
(4) the estimated costs of imple-
menting, if so recommended, the proc-
esses and controls described in para-
graphs (1), (2), and (3); and
(5) a possible timetable for imple-
menting 
those 
processes 
if 
so 
rec-
ommended.
(b) REPORT TO CONGRESS.—Not later than
October 1, 2000, the Secretary of the Treasury
shall submit a report to Congress containing
630
the results of the study required by sub-
section (a).
(c) DEFINITION.—For purposes of this sec-
tion, the term ‘‘electronic payment’’ means
any transfer of funds, other than a trans-
action originated by check, draft, or similar
paper instrument, which is initiated through
an electronic terminal, telephonic instru-
ment, or computer or magnetic tapes so as to
order, instruct, or authorize a debit or credit
to a financial account.
SEC. 193. STUDY AND REPORT ON ADAPTING EXISTING
LEGISLATIVE REQUIREMENTS TO ONLINE
BANKING AND LENDING.
(a) STUDY REQUIRED.—The Federal bank-
ing agencies shall conduct a study of banking
regulations regarding the delivery of finan-
cial services, including those regulations that
may assume that there will be person-to-per-
son contact during the course of a financial
services transaction, and report their rec-
ommendations on adapting those existing re-
quirements to online banking and lending.
(b) REPORT REQUIRED.—Within 1 year of
the date of the enactment of this Act, the Fed-
631
eral banking agencies shall submit a report to
the Congress on the findings and conclusions
of the agencies with respect to the study re-
quired under subsection (a), together with
such recommendations for legislative or regu-
latory action as the agencies may determine
to be appropriate.
(c) DEFINITION.—For purposes of this sec-
tion, the term ‘‘Federal banking agencies’’
means each Federal banking agency (as de-
fined in section 3(z) of the Federal Deposit In-
surance Act).
TITLE II—FUNCTIONAL
REGULATION
Subtitle A—Brokers and Dealers
SEC. 201. DEFINITION OF BROKER.
Section 3(a)(4) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(4)) is amended to
read as follows:
‘‘(4) BROKER.—
‘‘(A) 
IN
GENERAL.—The 
term
‘broker’ means any person engaged in
the business of effecting transactions
in securities for the account of oth-
ers.
632
‘‘(B) EXCEPTION FOR CERTAIN BANK
ACTIVITIES.—A bank shall not be con-
sidered to be a broker because the
bank engages in any one or more of
the following activities under the
conditions described:
‘‘(i) THIRD
PARTY
BROKERAGE
ARRANGEMENTS.—The bank enters
into a contractual or other writ-
ten arrangement with a broker or
dealer registered under this title
under which the broker or dealer
offers brokerage services on or off
the premises of the bank if—
‘‘(I) such broker or dealer
is clearly identified as the
person performing the bro-
kerage services;
‘‘(II) the broker or dealer
performs brokerage services
in an area that is clearly
marked and, to the extent
practicable, physically sepa-
rate from the routine deposit-
taking activities of the bank;
633
‘‘(III) any materials used
by the bank to advertise or
promote generally the avail-
ability of brokerage services
under the arrangement clear-
ly indicate that the brokerage
services are being provided
by the broker or dealer and
not by the bank;
‘‘(IV) any materials used
by the bank to advertise or
promote generally the avail-
ability of brokerage services
under the arrangement are in
compliance with the Federal
securities 
laws 
before 
dis-
tribution;
‘‘(V) 
bank 
employees
(other than associated per-
sons of a broker or dealer
who are qualified pursuant to
the rules of a self-regulatory
organization) 
perform 
only
clerical or ministerial func-
tions in connection with bro-
634
kerage transactions including
scheduling appointments with
the associated persons of a
broker or dealer, except that
bank employees may forward
customer funds or securities
and may describe in general
terms the types of investment
vehicles available from the
bank and the broker or dealer
under the arrangement;
‘‘(VI) bank employees do
not receive incentive com-
pensation for any brokerage
transaction unless such em-
ployees are associated per-
sons of a broker or dealer and
are qualified pursuant to the
rules of a self-regulatory orga-
nization, except that the bank
employees may receive com-
pensation for the referral of
any 
customer 
if 
the 
com-
pensation is a nominal one-
time cash fee of a fixed dollar
635
amount and the payment of
the fee is not contingent on
whether the referral results
in a transaction;
‘‘(VII) such services are
provided by the broker or
dealer on a basis in which all
customers which receive any
services are fully disclosed to
the broker or dealer;
‘‘(VIII) the bank does not
carry a securities account of
the customer except as per-
mitted under clause (ii) or
(viii) of this subparagraph;
and
‘‘(IX) the bank, broker, or
dealer informs each customer
that the brokerage services
are provided by the broker or
dealer and not by the bank
and that the securities are not
deposits or other obligations
of the bank, are not guaran-
teed by the bank, and are not
636
insured by the Federal De-
posit Insurance Corporation.
‘‘(ii) 
TRUST
ACTIVITIES.—The
bank effects transactions in a
trustee or fiduciary capacity in
its trust department, or another
department where the trust or fi-
duciary activity is regularly ex-
amined by bank examiners under
the same standards and in the
same way as such activities are
examined in the trust depart-
ment, and—
‘‘(I) is chiefly compensated
for such transactions, con-
sistent with fiduciary prin-
ciples and standards, on the
basis of an administration or
annual 
fee 
(payable 
on 
a
monthly, quarterly, or other
basis), a percentage of assets
under management, or a flat
or capped per order proc-
essing fee equal to not more
than the cost incurred by the
637
bank in connection with exe-
cuting securities transactions
for trustee and fiduciary cus-
tomers, or any combination of
such fees; and
‘‘(II) does not solicit bro-
kerage business, other than
by advertising that it effects
transactions in securities in
conjunction with advertising
its other trust activities.
‘‘(iii) PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank effects
transactions in—
‘‘(I) 
commercial 
paper,
bankers acceptances, or com-
mercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian
government obligations as de-
fined in section 5136 of the
Revised 
Statutes, 
in 
con-
formity with section 15C of
this title and the rules and
regulations thereunder, or ob-
638
ligations of the North Amer-
ican Development Bank; or
‘‘(IV) 
any 
standardized,
credit enhanced debt security
issued by a foreign govern-
ment pursuant to the March
1989 plan of then Secretary of
the Treasury Brady, used by
such foreign government to
retire outstanding commercial
bank loans.
‘‘(iv) CERTAIN STOCK PURCHASE
PLANS.—
‘‘(I) 
EMPLOYEE
BENEFIT
PLANS.—The 
bank 
effects
transactions, as a registered
transfer agent (including as a
registrar of stocks), in the se-
curities of an issuer as part of
any pension, retirement, prof-
it-sharing, bonus, thrift, sav-
ings, incentive, or other simi-
lar benefit plan for the em-
ployees of that issuer or its af-
filiates, if—
639
‘‘(aa) the bank does
not solicit transactions or
provide investment advice
with respect to the pur-
chase or sale of securities
in connection with the
plan; and
‘‘(bb) the bank’s com-
pensation for such plan or
program consists chiefly
of administration fees, or
flat or capped per order
processing fees, or both.
‘‘(II) DIVIDEND
REINVEST-
MENT PLANS.—The bank effects
transactions, as a registered
transfer agent (including as a
registrar of stocks), in the se-
curities of an issuer as part of
that issuer’s dividend rein-
vestment plan, if—
‘‘(aa) the bank does
not solicit transactions or
provide investment advice
with respect to the pur-
640
chase or sale of securities
in connection with the
plan;
‘‘(bb) the bank does
not net shareholders’ buy
and sell orders, other than
for programs for odd-lot
holders 
or 
plans 
reg-
istered with the Commis-
sion; and
‘‘(cc) the bank’s com-
pensation for such plan or
program consists chiefly
of administration fees, or
flat or capped per order
processing fees, or both.
‘‘(III) ISSUER
PLANS.—The
bank effects transactions, as a
registered transfer agent (in-
cluding 
as 
a 
registrar 
of
stocks), in the securities of an
issuer as part of that issuer’s
plan for the purchase or sale
of that issuer’s shares, if—
641
‘‘(aa) the bank does
not solicit transactions or
provide investment advice
with respect to the pur-
chase or sale of securities
in connection with the
plan or program;
‘‘(bb) the bank does
not net shareholders’ buy
and sell orders, other than
for programs for odd-lot
holders 
or 
plans 
reg-
istered with the Commis-
sion; and
‘‘(cc) the bank’s com-
pensation for such plan or
program consists chiefly
of administration fees, or
flat or capped per order
processing fees, or both.
‘‘(IV) PERMISSIBLE
DELIV-
ERY OF MATERIALS.—The excep-
tion to being considered a
broker for a bank engaged in
activities described in sub-
642
clauses (I), (II), and (III) will
not be affected by a bank’s de-
livery of written or electronic
plan materials to employees
of the issuer, shareholders of
the issuer, or members of af-
finity groups of the issuer, so
long as such materials are—
‘‘(aa) 
comparable 
in
scope or nature to that
permitted by the Commis-
sion as of the date of the
enactment of the Finan-
cial Services Act of 1999;
or
‘‘(bb) 
otherwise 
per-
mitted by the Commission.
‘‘(v) 
SWEEP
ACCOUNTS.—The
bank effects transactions as part
of a program for the investment
or reinvestment of deposit funds
into any no-load, open-end man-
agement investment company reg-
istered 
under 
the 
Investment
643
Company Act of 1940 that holds
itself out as a money market fund.
‘‘(vi) 
AFFILIATE
TRANS-
ACTIONS.—The bank effects trans-
actions for the account of any af-
filiate (as defined in section 2 of
the Bank Holding Company Act of
1956) of the bank other than—
‘‘(I) a registered broker or
dealer; or
‘‘(II) an affiliate that is en-
gaged in merchant banking,
as 
described 
in 
section
6(c)(3)(H) of the Bank Holding
Company Act of 1956.
‘‘(vii) PRIVATE
SECURITIES
OF-
FERINGS.—The bank—
‘‘(I) effects sales as part of
a primary offering of securi-
ties not involving a public of-
fering, pursuant to section
3(b), 4(2), or 4(6) of the Securi-
ties Act of 1933 or the rules
and regulations issued there-
under;
644
‘‘(II) at any time after one
year after the date of enact-
ment of the Financial Services
Act of 1999, is not affiliated
with a broker or dealer that
has been registered for more
than one year; and
‘‘(III) effects transactions
exclusively with qualified in-
vestors.
‘‘(viii) SAFEKEEPING
AND
CUS-
TODY ACTIVITIES.—
‘‘(I) 
IN
GENERAL.—The
bank, as part of customary
banking activities—
‘‘(aa) 
provides 
safe-
keeping or custody serv-
ices with respect to secu-
rities, including the exer-
cise of warrants and other
rights on behalf of cus-
tomers;
‘‘(bb) 
facilitates 
the
transfer of funds or secu-
rities, as a custodian or a
645
clearing agency, in con-
nection with the clearance
and settlement of its cus-
tomers’ transactions in se-
curities;
‘‘(cc) effects securities
lending 
or 
borrowing
transactions with or on
behalf 
of 
customers 
as
part of services provided
to customers pursuant to
division (aa) or (bb) or in-
vests 
cash 
collateral
pledged 
in 
connection
with such transactions; or
‘‘(dd) holds securities
pledged by a customer to
another person or securi-
ties subject to purchase or
resale agreements involv-
ing a customer, or facili-
tates 
the 
pledging 
or
transfer of such securities
by book entry or as other-
wise provided under ap-
646
plicable law, if the bank
maintains records sepa-
rately identifying the se-
curities and the customer.
‘‘(II) EXCEPTION
FOR
CAR-
RYING BROKER ACTIVITIES.—The
exception to being considered
a broker for a bank engaged
in activities described in sub-
clause (I) shall not apply if
the bank, in connection with
such activities, acts in the
United States as a carrying
broker (as such term, and dif-
ferent formulations thereof,
are used in section 15(c)(3) of
this title and the rules and
regulations 
thereunder) 
for
any broker or dealer, unless
such carrying broker activi-
ties are engaged in with re-
spect to government securi-
ties (as defined in paragraph
(42) of this subsection).
647
‘‘(ix) 
EXCEPTED
FINANCIAL
PRODUCTS.—The 
bank 
effects
transactions in excepted financial
products, as defined in paragraph
(56)(A) of this subsection.
‘‘(x) MUNICIPAL
SECURITIES.—
The bank effects transactions in
municipal securities.
‘‘(xi) DE
MINIMIS
EXCEPTION.—
The bank effects, other than in
transactions 
referred 
to 
in
clauses (i) through (x), not more
than 500 transactions in securi-
ties in any calendar year, and
such transactions are not effected
by an employee of the bank who
is also an employee of a broker or
dealer.
‘‘(C) BROKER DEALER EXECUTION.—
The exception to being considered a
broker for a bank engaged in activi-
ties described in clauses (ii), (iv), and
(viii) of subparagraph (B) shall not
apply if the activities described in
such provisions result in the trade in
648
the United States of any security that
is a publicly traded security in the
United States, unless—
‘‘(i) the bank directs such
trade to a registered broker or
dealer for execution;
‘‘(ii) the trade is a cross trade
or 
other 
substantially 
similar
trade of a security that—
‘‘(I) is made by the bank
or between the bank and an
affiliated fiduciary; and
‘‘(II) is not in contraven-
tion of fiduciary principles es-
tablished 
under 
applicable
Federal or State law; or
‘‘(iii) the trade is conducted in
some 
other 
manner 
permitted
under rules, regulations, or or-
ders as the Commission may pre-
scribe or issue.
‘‘(D) 
FIDUCIARY
CAPACITY.—For
purposes of subparagraph (B)(ii), the
term ‘fiduciary capacity’ means—
649
‘‘(i) in the capacity as trustee,
executor, 
administrator, 
guard-
ian, assignee, receiver, or custo-
dian under a uniform gift to
minor act, or as an investment ad-
viser if the bank receives a fee for
its investment advice;
‘‘(ii) in any capacity in which
the bank possesses investment
discretion on behalf of another; or
‘‘(iii) in any other similar ca-
pacity.
‘‘(F) EXCEPTION FOR ENTITIES SUB-
JECT
TO
SECTION
15(e).—The 
term
‘broker’ does not include a bank
that—
‘‘(i) was, immediately prior to
the enactment of the Financial
Services Act of 1999, subject to
section 15(e) of this title; and
‘‘(ii) is subject to such restric-
tions and requirements as the
Commission 
considers 
appro-
priate.’’.
650
SEC. 202. DEFINITION OF DEALER.
Section 3(a)(5) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(5)) is amended to
read as follows:
‘‘(5) DEALER.—
‘‘(A) IN GENERAL.—The term ‘deal-
er’ means any person engaged in the
business of buying and selling securi-
ties for such person’s own account
through a broker or otherwise.
‘‘(B) EXCEPTION
FOR
PERSON
NOT
ENGAGED
IN
THE
BUSINESS
OF
DEAL-
ING.—The term ‘dealer’ does not in-
clude a person that buys or sells secu-
rities for such person’s own account,
either individually or in a fiduciary
capacity, but not as a part of a reg-
ular business.
‘‘(C) EXCEPTION FOR CERTAIN BANK
ACTIVITIES.—A bank shall not be con-
sidered to be a dealer because the
bank engages in any of the following
activities under the conditions de-
scribed:
651
‘‘(i) 
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank buys or
sells—
‘‘(I) 
commercial 
paper,
bankers acceptances, or com-
mercial bills;
‘‘(II) exempted securities;
‘‘(III) qualified Canadian
government obligations as de-
fined in section 5136 of the
Revised Statutes of the United
States, in conformity with sec-
tion 15C of this title and the
rules and regulations there-
under, or obligations of the
North American Development
Bank; or
‘‘(IV) 
any 
standardized,
credit enhanced debt security
issued by a foreign govern-
ment pursuant to the March
1989 plan of then Secretary of
the Treasury Brady, used by
such foreign government to
652
retire outstanding commercial
bank loans.
‘‘(ii) INVESTMENT, TRUSTEE, AND
FIDUCIARY
TRANSACTIONS.—The
bank buys or sells securities for
investment purposes—
‘‘(I) for the bank; or
‘‘(II) 
for 
accounts 
for
which the bank acts as a
trustee or fiduciary.
‘‘(iii) 
ASSET-BACKED
TRANS-
ACTIONS.—The bank engages in
the issuance or sale to qualified
investors, through a grantor trust
or other separate entity, of securi-
ties backed by or representing an
interest in notes, drafts, accept-
ances, loans, leases, receivables,
other obligations (other than se-
curities of which the bank is not
the issuer), or pools of any such
obligations predominantly origi-
nated by the bank, or an affiliate
of any such bank other than a
broker or dealer, or, in the case of
653
mortgage 
obligations 
or 
con-
sumer-related receivables, a syn-
dicate of banks of which the bank
is a member (other than as an in-
significant member).
‘‘(iv) 
EXCEPTED
FINANCIAL
PRODUCTS.—The 
bank 
buys 
or
sells excepted financial products,
as defined in paragraph (56)(A) of
this subsection.
‘‘(v) 
DERIVATIVE
INSTRU-
MENTS.—The bank issues, buys, or
sells any derivative instrument to
which the bank is a party—
‘‘(I) to or from a corpora-
tion, 
limited 
liability 
com-
pany, 
or 
partnership 
that
owns and invests on a discre-
tionary basis, not less than
$100,000,000 in investments,
or to or from a qualified in-
vestor, except that if the in-
strument provides for the de-
livery of one or more securi-
ties (other than a derivative
654
instrument or government se-
curity), the transaction shall
be effected with or through a
registered broker or dealer;
or
‘‘(II) to or from other per-
sons, except that if the deriva-
tive instrument provides for
the delivery of one or more
securities (other than a deriv-
ative instrument or govern-
ment security), or is a secu-
rity (other than a government
security), 
the 
transaction
shall 
be 
effected 
with 
or
through a registered broker
or dealer; or
‘‘(III) to or from any per-
son if the instrument is nei-
ther a security nor provides
for the delivery of one or
more securities (other than a
derivative instrument).’’.
655
SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURI-
TIES OFFERINGS.
Section 15A of the Securities Exchange
Act of 1934 (15 U.S.C. 78o–3) is amended by in-
serting after subsection (i) the following new
subsection:
‘‘(j) REGISTRATION FOR SALES OF PRIVATE
SECURITIES OFFERINGS.—A registered securi-
ties association shall create a limited quali-
fication category for any associated person of
a member who effects sales as part of a pri-
mary offering of securities not involving a
public offering, pursuant to section 3(b), 4(2),
or 4(6) of the Securities Act of 1933 and the
rules and regulations thereunder, and shall
deem qualified in such limited qualification
category, without testing, any bank employee
who, in the six month period preceding the
date of enactment of this Act, engaged in ef-
fecting such sales.’’.
SEC. 204. INFORMATION SHARING.
Section 18 of the Federal Deposit Insur-
ance Act is amended by adding at the end the
following new subsection:
‘‘(t) RECORDKEEPING REQUIREMENTS.—
656
‘‘(1) 
REQUIREMENTS.—Each 
appro-
priate Federal banking agency, after con-
sultation with and consideration of the
views of the Commission, shall establish
recordkeeping requirements for banks
relying on exceptions contained in para-
graphs (4) and (5) of section 3(a) of the
Securities Exchange Act of 1934. Such
recordkeeping requirements shall be suf-
ficient to demonstrate compliance with
the terms of such exceptions and be de-
signed to facilitate compliance with such
exceptions. 
Each 
appropriate 
Federal
banking agency shall make any such in-
formation available to the Commission
upon request.
‘‘(2) DEFINITIONS.—As used in this sub-
section the term ‘Commission’ means the
Securities and Exchange Commission.’’.
SEC. 205. TREATMENT OF NEW HYBRID PRODUCTS.
Section 15 of the Securities Exchange Act
of 1934 (15 U.S.C. 78o) is amended by adding
at the end the following new subsection:
‘‘(i) RULEMAKING TO EXTEND REQUIREMENTS
TO NEW HYBRID PRODUCTS.—
657
‘‘(1) 
LIMITATION.—The 
Commission
shall not—
‘‘(A) require a bank to register as
a broker or dealer under this section
because the bank engages in any
transaction in, or buys or sells, a new
hybrid product; or
‘‘(B) bring an action against a
bank for a failure to comply with a
requirement described in subpara-
graph (A);
unless the Commission has imposed such
requirement by rule or regulation issued
in accordance with this section.
‘‘(2) CRITERIA
FOR
RULEMAKING.—The
Commission shall not impose a require-
ment under paragraph (1) of this sub-
section with respect to any new hybrid
product unless the Commission deter-
mines that—
‘‘(A) the new hybrid product is a
security; and
‘‘(B) imposing such requirement is
necessary or appropriate in the pub-
lic interest and for the protection of
658
investors, consistent with the re-
quirements of section 3(f).
‘‘(3) NEW
HYBRID
PRODUCT.—For pur-
poses of this subsection, the term ‘new
hybrid product’ means a product that—
‘‘(A) was not subjected to regula-
tion by the Commission as a security
prior to the date of enactment of this
subsection; and
‘‘(B) is not an excepted financial
product, as such term is defined in
section 3(a)(56)(A) of this title.
‘‘(4) CONSULTATION.—In promulgating
rules under this subsection, the Commis-
sion shall consult with and consider the
views of the appropriate regulatory agen-
cies concerning the proposed rule and
the impact on the banking industry.’’.
SEC. 206. ADDITIONAL DEFINITIONS.
Section 3(a) of the Securities Exchange
Act of 1934 is amended by adding at the end
the following new paragraphs:
‘‘(54) DERIVATIVE INSTRUMENT.—
‘‘(A) DEFINITION.—The term ‘deriv-
ative instrument’ means any individ-
659
ually negotiated contract, agreement,
warrant, note, or option that is based,
in whole or in part, on the value of,
any interest in, or any quantitative
measure or the occurrence of any
event relating to, one or more com-
modities, securities, currencies, inter-
est or other rates, indices, or other
assets, but does not include an ex-
cepted financial product, as defined
in clauses (i) through (v) of para-
graph (56)(A) of this subsection.
‘‘(B) 
CLASSIFICATION
LIMITED.—
Classification of a particular contract
as a derivative instrument pursuant
to this paragraph shall not be con-
strued as finding or implying that
such instrument is or is not a secu-
rity for any purpose under the securi-
ties laws, or is or is not an account,
agreement, contract, or transaction
for any purpose under the Com-
modity Exchange Act.
‘‘(55) QUALIFIED INVESTOR.—
660
‘‘(A) DEFINITION.—For purposes of
this title, the term ‘qualified investor’
means—
‘‘(i) any investment company
registered with the Commission
under section 8 of the Investment
Company Act of 1940;
‘‘(ii) any issuer eligible for an
exclusion from the definition of
investment company pursuant to
section 3(c)(7) of the Investment
Company Act of 1940;
‘‘(iii) any bank (as defined in
paragraph (6) of this subsection),
savings and loan association (as
defined in section 3(b) of the Fed-
eral 
Deposit 
Insurance 
Act),
broker, dealer, insurance com-
pany 
(as 
defined 
in 
section
2(a)(13) of the Securities Act of
1933), or business development
company (as defined in section
2(a)(48) of the Investment Com-
pany Act of 1940);
661
‘‘(iv) any small business in-
vestment company licensed by
the United States Small Business
Administration 
under 
section
301(c) or (d) of the Small Business
Investment Act of 1958;
‘‘(v) any State sponsored em-
ployee benefit plan, or any other
employee benefit plan, within the
meaning of the Employee Retire-
ment Income Security Act of 1974,
other than an individual retire-
ment account, if the investment
decisions are made by a plan fidu-
ciary, as defined in section 3(21)
of that Act, which is either a
bank, savings and loan associa-
tion, insurance company, or reg-
istered investment adviser;
‘‘(vi) any trust whose pur-
chases of securities are directed
by a person described in clauses
(i) through (v) of this subpara-
graph;
662
‘‘(vii) 
any 
market 
inter-
mediary exempt under section
3(c)(2) of the Investment Com-
pany Act of 1940;
‘‘(viii) any associated person
of a broker or dealer other than a
natural person;
‘‘(ix) any foreign bank (as de-
fined in section 1(b)(7) of the
International 
Banking 
Act 
of
1978); or
‘‘(x) the government of any
foreign country.
‘‘(B) 
ADDITIONAL
QUALIFICATIONS
DEFINED.—For purposes of paragraphs
(4)(B)(vii), (5)(C)(iii), and (56)(A)(v) of
this subsection, the term ‘qualified in-
vestor’ also means—
‘‘(i) any corporation, company,
or partnership that owns and in-
vests on a discretionary basis, not
less than $10,000,000 in invest-
ments;
‘‘(ii) any natural person who
owns and invests on a discre-
663
tionary 
basis, 
not 
less 
than
$10,000,000 in investments;
‘‘(iii) any government or polit-
ical subdivision, agency, or in-
strumentality of a government
who owns and invests on a discre-
tionary 
basis 
not 
less 
than
$50,000,000 in investments; or
‘‘(iv) any multinational or su-
pranational entity or any agency
or instrumentality thereof.
‘‘(C) ADDITIONAL
AUTHORITY.—The
Commission may, by rule or order,
define a ‘qualified investor’ as any
other person, other than a natural
person, 
taking 
into 
consideration
such factors as the person’s financial
sophistication, net worth, and knowl-
edge and experience in financial mat-
ters.
‘‘(56) EXCEPTED FINANCIAL PRODUCTS.—
‘‘(A) IN GENERAL.—For purposes of
paragraphs (4) and (5) of this sub-
section, the term ‘excepted financial
product’ means—
664
‘‘(i) a deposit account, savings
account, certificate of deposit, or
other deposit instrument issued
by a bank;
‘‘(ii) a banker’s acceptance;
‘‘(iii) a letter of credit issued
or loan made by a bank;
‘‘(iv) a debit account at a bank
arising from a credit card or simi-
lar arrangement;
‘‘(v) a participation in a loan
which the bank or an affiliate of
the bank (other than a broker or
dealer) funds, participates in, or
owns that is sold—
‘‘(I) to qualified investors;
or
‘‘(II) 
to 
other 
persons
that—
‘‘(aa) have the oppor-
tunity to review and as-
sess any material informa-
tion, including informa-
tion regarding the bor-
665
rower’s creditworthiness;
and
‘‘(bb) based on such
factors as financial so-
phistication, 
net 
worth,
and knowledge and expe-
rience in financial mat-
ters, have the capability
to evaluate the informa-
tion available, as deter-
mined under generally ap-
plicable 
banking 
stand-
ards or guidelines; or
‘‘(vi) a derivative instrument
that involves or relates to—
‘‘(I) currencies, except op-
tions on currencies that trade
on a national securities ex-
change;
‘‘(II) interest rates, except
interest rate derivative in-
struments that—
‘‘(aa) are based on a
security or a group or
index of securities (other
666
than government securi-
ties or a group or index of
government securities);
‘‘(bb) provide for the
delivery of one or more se-
curities (other than gov-
ernment securities); or
‘‘(cc) trade on a na-
tional securities exchange;
or
‘‘(III) commodities, other
rates, indices, or other assets,
except derivative instruments
that—
‘‘(aa) are securities or
that are based on a group
or 
index 
of 
securities
(other than government
securities or a group or
index of government secu-
rities);
‘‘(bb) provide for the
delivery of one or more se-
curities (other than gov-
ernment securities); or
667
‘‘(cc) trade on a na-
tional securities exchange.
‘‘(B) 
CLASSIFICATION
LIMITED.—
Classification of a particular product
as a excepted financial product pur-
suant to this subsection shall not be
construed as finding or implying that
such product is or is not a security
for any purpose under the securities
laws, or is or is not an account, agree-
ment, contract, or transaction for any
purpose under the Commodity Ex-
change Act.’’.
SEC. 207. GOVERNMENT SECURITIES DEFINED.
Section 3(a)(42) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)(42)) is
amended—
(1) by striking ‘‘or’’ at the end of sub-
paragraph (C);
(2) by striking the period at the end
of subparagraph (D) and inserting ‘‘; or’’;
and
(3) by adding at the end the following
new subparagraph:
668
‘‘(E) for purposes of sections 15,
15C, and 17A as applied to a bank, a
qualified Canadian government obli-
gation as defined in section 5136 of
the Revised Statutes of the United
States.’’.
SEC. 208. EFFECTIVE DATE.
This subtitle shall take effect at the end
of the 270-day period beginning on the date of
the enactment of this Act.
SEC. 209. RULE OF CONSTRUCTION.
Nothing in this Act shall supersede, affect,
or otherwise limit the scope and applicability
of the Commodity Exchange Act (7 U.S.C. 1 et
seq.).
Subtitle B—Bank Investment
Company Activities
SEC. 211. CUSTODY OF INVESTMENT COMPANY ASSETS BY
AFFILIATED BANK.
(a) 
MANAGEMENT
COMPANIES.—Section
17(f) of the Investment Company Act of 1940
(15 U.S.C. 80a–17(f)) is amended—
(1) by redesignating paragraphs (1),
(2), and (3) as subparagraphs (A), (B), and
(C), respectively;
669
(2) by striking ‘‘(f) Every registered’’
and inserting the following:
‘‘(f) CUSTODY OF SECURITIES.—
‘‘(1) Every registered’’;
(3) by redesignating the second, third,
fourth, and fifth sentences of such sub-
section as paragraphs (2) through (5), re-
spectively, and indenting the left margin
of such paragraphs appropriately; and
(4) by adding at the end the following
new paragraph:
‘‘(6) The Commission may adopt rules
and regulations, and issue orders, con-
sistent with the protection of investors,
prescribing the conditions under which a
bank, or an affiliated person of a bank,
either of which is an affiliated person,
promoter, organizer, or sponsor of, or
principal underwriter for, a registered
management company may serve as cus-
todian of that registered management
company.’’.
(b) UNIT INVESTMENT TRUSTS.—Section 26
of the Investment Company Act of 1940 (15
U.S.C. 80a–26) is amended—
670
(1) by redesignating subsections (b)
through (e) as subsections (c) through (f),
respectively; and
(2) by inserting after subsection (a)
the following new subsection:
‘‘(b) The Commission may adopt rules and
regulations, and issue orders, consistent with
the protection of investors, prescribing the
conditions under which a bank, or an affili-
ated person of a bank, either of which is an
affiliated person of a principal underwriter
for, or depositor of, a registered unit invest-
ment trust, may serve as trustee or custodian
under subsection (a)(1).’’.
(c) FIDUCIARY DUTY
OF CUSTODIAN.—Sec-
tion 36(a) of the Investment Company Act of
1940 (15 U.S.C. 80a–35(a)) is amended—
(1) in paragraph (1), by striking ‘‘or’’
at the end;
(2) in paragraph (2), by striking the
period at the end and inserting ‘‘; or’’;
and
(3) by inserting after paragraph (2)
the following:
‘‘(3) as custodian.’’.
671
SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COM-
PANY.
Section 17(a) of the Investment Company
Act of 1940 (15 U.S.C. 80a–17(a)) is amended—
(1) by striking ‘‘or’’ at the end of para-
graph (2);
(2) by striking the period at the end
of paragraph (3) and inserting ‘‘; or’’; and
(3) by adding at the end the following
new paragraph:
‘‘(4) to loan money or other property
to such registered company, or to any
company controlled by such registered
company, in contravention of such rules,
regulations, or orders as the Commission
may prescribe or issue consistent with
the protection of investors.’’.
SEC. 213. INDEPENDENT DIRECTORS.
(a) IN GENERAL.—Section 2(a)(19)(A) of the
Investment Company Act of 1940 (15 U.S.C.
80a–2(a)(19)(A)) is amended—
(1) by striking clause (v) and insert-
ing the following new clause:
‘‘(v) any person or any affili-
ated person of a person (other
than a registered investment com-
672
pany) that, at any time during the
6-month 
period 
preceding 
the
date 
of 
the 
determination 
of
whether that person or affiliated
person is an interested person,
has executed any portfolio trans-
actions for, engaged in any prin-
cipal transactions with, or distrib-
uted shares for—
‘‘(I) the investment com-
pany;
‘‘(II) any other investment
company having the same in-
vestment adviser as such in-
vestment company or holding
itself out to investors as a re-
lated company for purposes of
investment or investor serv-
ices; or
‘‘(III) any account over
which the investment com-
pany’s investment adviser has
brokerage placement discre-
tion,’’;
673
(2) by redesignating clause (vi) as
clause (vii); and
(3) by inserting after clause (v) the
following new clause:
‘‘(vi) any person or any affili-
ated person of a person (other
than a registered investment com-
pany) that, at any time during the
6-month 
period 
preceding 
the
date 
of 
the 
determination 
of
whether that person or affiliated
person is an interested person,
has loaned money or other prop-
erty to—
‘‘(I) the investment com-
pany;
‘‘(II) any other investment
company having the same in-
vestment adviser as such in-
vestment company or holding
itself out to investors as a re-
lated company for purposes of
investment or investor serv-
ices; or
674
‘‘(III) 
any 
account 
for
which the investment com-
pany’s investment adviser has
borrowing authority,’’.
(b) 
CONFORMING
AMENDMENT.—Section
2(a)(19)(B) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(19)(B)) is amended—
(1) by striking clause (v) and insert-
ing the following new clause:
‘‘(v) any person or any affili-
ated person of a person (other
than a registered investment com-
pany) that, at any time during the
6-month 
period 
preceding 
the
date 
of 
the 
determination 
of
whether that person or affiliated
person is an interested person,
has executed any portfolio trans-
actions for, engaged in any prin-
cipal transactions with, or distrib-
uted shares for—
‘‘(I) any investment com-
pany for which the invest-
ment adviser or principal un-
derwriter serves as such;
675
‘‘(II) any investment com-
pany holding itself out to in-
vestors, for purposes of in-
vestment or investor services,
as a company related to any
investment 
company 
for
which the investment adviser
or 
principal 
underwriter
serves as such; or
‘‘(III) any account over
which the investment adviser
has brokerage placement dis-
cretion,’’;
(2) by redesignating clause (vi) as
clause (vii); and
(3) by inserting after clause (v) the
following new clause:
‘‘(vi) any person or any affili-
ated person of a person (other
than a registered investment com-
pany) that, at any time during the
6-month 
period 
preceding 
the
date 
of 
the 
determination 
of
whether that person or affiliated
person is an interested person,
676
has loaned money or other prop-
erty to—
‘‘(I) any investment com-
pany for which the invest-
ment adviser or principal un-
derwriter serves as such;
‘‘(II) any investment com-
pany holding itself out to in-
vestors, for purposes of in-
vestment or investor services,
as a company related to any
investment 
company 
for
which the investment adviser
or 
principal 
underwriter
serves as such; or
‘‘(III) 
any 
account 
for
which the investment adviser
has borrowing authority,’’.
(c) AFFILIATION
OF
DIRECTORS.—Section
10(c) of the Investment Company Act of 1940
(15 U.S.C. 80a–10(c)) is amended by striking
‘‘bank, except’’ and inserting ‘‘bank (together
with its affiliates and subsidiaries) or any one
bank holding company (together with its af-
filiates and subsidiaries) (as such terms are