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not a financial services institution and setting
forth the reasons for disapproval.
(B) EXTENSION
OF
PERIOD.—The Com-
mittee may extend the 60-day period referred to
in subparagraph (A) for an additional 30 days.
The Committee may further extend the period
with the agreement of the financial services
holding company submitting the notice pursu-
ant to this subsection.
(4) SHORTER PERIODS.—The Committee may
prescribe regulations which provide for a shorter no-
tice period than the periods described in subpara-
graphs (A) and (B).
(5) INCOMPLETE INFORMATION.—The Commit-
tee may determine that an activity or an institution
for which notice has been submitted pursuant to this
subsection, does not constitute a financial activity or
is not a financial services institution, if the financial
services holding company submitting such notice ne-
glects, fails, or refuses to furnish the Committee all
the information required by the Committee.
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Subtitle B—Securities Activities of Financial
Services Holding Companies
SEC. 121. LIMITATION ON SECURITIES ACTIVITIES OF DE-
POSITORY INSTITUTIONS AFFILIATED WITH
SECURITIES AFFILIATES.
(a) IN GENERAL.—A financial services holding com-
pany that is affiliated with a securities affiliate shall not
permit any depository institution, or any subsidiary of any
depository institution, which is controlled by such holding
company to engage, directly or indirectly in the United
States—
(1) in underwriting securities backed by or rep-
resenting interests in notes, drafts, acceptances,
loans, leases, receivables, other obligations, or pools
of any such obligations originated or purchased by
the institution or its affiliates; or
(2) in underwriting or dealing in any other se-
curities,
except securities expressly authorized by section 5136 of
the Revised Statutes of the United States as permissible
for a national bank to underwrite or deal in.
(b) RULE OF CONSTRUCTION.—No provision of this
section shall be construed as permitting a securities affili-
ate to accept deposits in contravention of section 21 of
the Banking Act of 1933.
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(c) DEFINITION OF SECURITY.—
(1) IN GENERAL.—For purposes of this section,
the term ‘‘security’’ has the meaning given to such
term in section 3(a)(10) of the Securities Exchange
Act of 1934.
(2) EXCEPTIONS.—Notwithstanding any other
provision of law, the term ‘‘security’’ does not in-
clude any of the following for purposes of this sec-
tion:
(A) A contract of insurance.
(B) A deposit account, savings account,
certificate of deposit, or other deposit instru-
ment issued by a depository institution.
(C) A share account issued by a savings
association if the account is insured by the Fed-
eral Deposit Insurance Corporation.
(D) A banker’s acceptance.
(E) A letter of credit issued by a deposi-
tory institution.
(F) A debit account at a depository insti-
tution arising from a credit card or similar ar-
rangement.
(G) A loan or loan participation (as deter-
mined by the appropriate Federal banking
agency), including any debt security issued in
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connection with sovereign debt restructuring
which a bank purchases and sells pursuant to
such bank’s lending authority.
(H) A qualified financial contract (as de-
fined in section 11(e)(8)(d)(i) of the Federal
Deposit Insurance Act), as determined by the
appropriate Federal Banking agency, after con-
sultation with and consideration of the views of
the Securities and Exchange Commission, ex-
cept that, for purposes of this section such term
does not include—
(i) any securities contract (as defined
in section 11(e)(8)(D)(ii) of such Act) that
is based on or directly relates to a security
that is not expressly authorized by section
5136 of the Revised Statutes of the United
States as permissible for a national bank
to underwrite or deal in unless the appro-
priate Federal banking agency determines,
after consultation with and consideration
of the views of the Securities and Ex-
change Commission, that such securities
contract is appropriate for a bank to un-
derwrite or deal in, taking into account
other qualified financial contracts which a
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bank is permitted to underwrite or deal in;
and
(ii) any agreement, contract, or trans-
action which is determined by the Federal
Deposit Insurance Corporation in a regula-
tion prescribed after the date of the enact-
ment of this Act to be a qualified financial
contract unless the appropriate Federal
banking agency determines, after consulta-
tion with and consideration of the views of
the Securities and Exchange Commission,
that such agreement, contract, or trans-
action shall be treated as a qualified finan-
cial contract for purposes of this section.
(3) AUTHORITY
TO
EXEMPT
BANKING
PROD-
UCTS.—Notwithstanding any other provision of law,
the appropriate Federal banking agency may, by
regulation or order, exempt a banking product from
the definition of security if the appropriate Federal
banking agency finds that—
(i) the product is available in the
course of a banking business and is more
appropriately regulated as a banking prod-
uct; and
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(ii) the exemption is otherwise consist-
ent with the purposes of this section, the
maintenance of fair and orderly markets,
and the protection of investors.
(4) DEFINITION FOR LIMITED PURPOSE.—The
fact that a particular instrument is excluded pursu-
ant to paragraph (2) or (3) from the definition of
security for purposes of this section shall not be con-
strued as finding or implying that such instrument
is or is not a security for purposes of—
(A) Federal securities law;
(B) section 5136 of the Revised Statutes
of the United States; or
(C) sections 20, 21, or 32 of the Banking
Act of 1933 (12 U.S.C. 377, 378, and 78).
(5) RESERVATION OF AUTHORITY TO CHARTER-
ING
AUTHORITY.—A determination by the appro-
priate Federal banking agency under this subsection
shall not be construed in any way as authorizing a
bank to provide any product or service that the bank
is not otherwise authorized to provide under relevant
law governing the activities and powers of the bank.
(6) CONSULTATION WITH COMMISSION.—
(A) NOTICE
AND
CONSULTATION
RE-
QUIRED.—In determining whether to exempt a
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banking product pursuant to paragraph (3), the
appropriate Federal banking agency shall pro-
vide written notice to, consult with, and con-
sider the views of the Securities and Exchange
Commission.
(B) RESPONSE AND PUBLICATION.—If the
Securities and Exchange Commission comments
in writing on a proposed determination of the
appropriate Federal banking agency, such agen-
cy shall—
(i) respond in writing to such written
comment; and
(ii) at the request of such Commis-
sion, publish such comment and response
in the Federal Register at the time the de-
termination becomes effective.
(7) APPROVAL OF NATIONAL FINANCIAL SERV-
ICES COMMITTEE.—
(A) IN GENERAL.—An appropriate Federal
banking agency may not issue a regulation or
order pursuant to paragraph (3) without the
approval of the National Financial Services
Committee.
(B) UNIFORM
STANDARDS.—Any regula-
tion or order subject to the approval of the Na-
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tional Financial Services Committee under
paragraph (1) shall be identical for each appro-
priate Federal banking agency, except as other-
wise permitted by such Committee.
SEC. 122. SAFEGUARDS RELATING TO SECURITIES AFFILI-
ATES.
(a) EXTENSIONS OF CREDIT AND ASSET PURCHASES
RESTRICTED.—
(1) IN GENERAL.—No depository institution af-
filiated with a securities affiliate shall, directly or in-
directly, do any of the following:
(A) Extend credit in any manner to the se-
curities affiliate.
(B) Issue a guarantee, acceptance, or let-
ter of credit, including an endorsement or a
standby letter of credit, for the benefit of the
securities affiliate.
(C) Except as provided in paragraph (3),
purchase for its own account, or for the account
of any subsidiary of such institution, financial
assets of the securities affiliate.
(2) EXCEPTION FOR CLEARING SECURITIES.—
Paragraph (1)(A) shall not apply with respect to an
extension of credit by a well capitalized depository
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institution to acquire or sell securities if the follow-
ing conditions are met:
(A) The extension of credit is incidental to
clearing transactions in those securities through
the depository institution.
(B) Both the principal of and the interest
on the extension of credit are fully secured by
those securities.
(C) Either—
(i) the extension of credit is to be re-
paid before the close of business on the
same business day; or
(ii) all of the following conditions are
satisfied:
(I) The securities cannot, in the
ordinary course of business, be cleared
on that business day.
(II) The extension of credit is to
be repaid before the close of business
on the next business day.
(III) Extensions of credit subject
to this clause, when aggregated with
all other covered transactions between
the institution and all affiliated secu-
rities affiliates do not exceed 10 per-
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cent of the institution’s capital stock
and surplus.
(D) Either—
(i) the securities are securities ex-
pressly authorized by section 5136 of the
Revised Statutes of the United States as
permissible for a national bank to under-
write or deal in; or
(ii) the appropriate Federal banking
agency for the depository institution per-
mits transactions under this paragraph in
securities not described in clause (i) and
the securities affiliate provides the deposi-
tory institution with such additional secu-
rity or other assurance of performance, if
any, as such agency shall require to pre-
vent such transactions from posing any ap-
preciable risk to the institution.
(3) EXCEPTIONS
FOR
CERTAIN
SECURITIES
PURCHASED FOR A DEPOSITORY INSTITUTION’S OWN
ACCOUNT.—Paragraph (1)(C) shall not apply with
respect to purchases at the current market value
(based on reliable and regularly available price
quotations, including those readily available on elec-
tronic quotation systems) of—
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(A) securities expressly authorized by sec-
tion 5136 of the Revised Statutes of the United
States as permissible for a national bank to un-
derwrite or deal in; or
(B) securities that—
(i) the securities affiliate has been
marking to market daily; and
(ii) are rated investment grade by at
least one nationally recognized statistically
rating organization.
(4) OTHER
EXCEPTIONS.—The appropriate
Federal banking agency may make exceptions to
paragraph (1) for well capitalized depository institu-
tions it regulates if—
(A) the transaction is fully secured in ac-
cordance with section 23A(c) of the Federal Re-
serve Act; and
(B) the aggregate amount of covered
transactions between the institution and all se-
curities affiliates of the financial services hold-
ing company, excluding transactions permitted
under paragraph (2)(C)(i) or (3)(A), does not
exceed 10 percent of the institution’s capital
stock and surplus.
(b) CREDIT ENHANCEMENT RESTRICTED.—
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(1) IN GENERAL.—No depository institution af-
filiated with a securities affiliate shall, directly or in-
directly, extend credit, or issue or enter into a stand-
by letter of credit, asset purchase agreement, indem-
nity, guarantee, insurance, or other facility, for the
purpose of enhancing the marketability of a securi-
ties issue underwritten by the securities affiliate.
(2) DEFINITION OF TERM BY BOARD.—The ap-
propriate Federal banking agency shall prescribe a
definition for the term ‘‘for the purpose of enhanc-
ing the marketability of a securities issue’’ for pur-
pose of paragraph (1).
(3) EXCEPTION FOR BANK ELIGIBLE SECURI-
TIES.—Paragraph (1) shall not apply with regard to
securities expressly authorized by section 5136 of
the Revised Statutes of the United States as permis-
sible for a national bank to underwrite or deal in.
(4) APPLICATION TO WELL CAPITALIZED DE-
POSITORY INSTITUTIONS.—
(A) IN GENERAL.—A well capitalized de-
pository institution may engage in a transaction
described in paragraph (1) if—
(i) the depository institution has
adopted appropriate limits on exposure on
a consolidated basis to any single customer
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whose securities are underwritten by the
securities affiliate; and
(ii) the institution and its securities
affiliate have adopted appropriate proce-
dures, including maintenance of necessary
documentary records, to assure that any
such extension of credit, standby letter of
credit, asset purchase agreement indem-
nity, guarantee, insurance or other facility,
is on arm’s length basis.
(B) ARM’S
LENGTH
TRANSACTION
DE-
SCRIBED.—An extension of credit may be con-
sidered to be on arm’s length basis if the terms
and conditions are substantially the same as
those prevailing at the time for comparable
transactions involving securities that are not
underwritten by the securities affiliate.
(C) COMPLIANCE WITH PARAGRAPH (1).—
The appropriate Federal banking agency may
require, by regulation or order, compliance with
paragraph (1) by well capitalized depository in-
stitutions exempt under this paragraph in order
to achieve any purpose specified in subsection
(k).
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(c) PROHIBITION OF FINANCING PURCHASE OF SE-
CURITY BEING UNDERWRITTEN.—
(1) IN GENERAL.—No financial services holding
company or subsidiary of a financial services holding
company (other than a securities affiliate) shall
knowingly extend or arrange for the extension of
credit, directly or indirectly, secured by or for the
purpose of purchasing any security while, or for 30
days after, that security is the subject of a distribu-
tion in which a securities affiliate of that financial
services holding company participates as an under-
writer or a member of a selling group.
(2) RELIANCE
ON
ACKNOWLEDGEMENT.—For
purposes of paragraph (1), a financial services hold-
ing company or subsidiary may rely on an express
written acknowledgement signed by the borrower
that the credit is not secured by or for the purpose
of purchasing a security described in this subpara-
graph.
(3) APPLICATION TO BANK ELIGIBLE SECURI-
TIES.—Paragraph (1) shall not apply with regard to
extensions of credit if the securities are securities ex-
pressly authorized by section 5136 of the Revised
Statutes of the United States as permissible for a
national bank to underwrite or deal in.
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(4) APPLICATION TO WELL CAPITALIZED DE-
POSITORY INSTITUTIONS.—The appropriate Federal
banking agency may make exceptions, by regulation
or order, to paragraph (1) for an extension of credit,
after consultation with and considering the views of
the Securities and Exchange Commission.
(5) CONSISTENCY WITH THE FEDERAL SECURI-
TIES LAWS.—No provision of this subsection shall be
construed as permitting a securities affiliate to ex-
tend or maintain credit, or arrange for an extension
of credit, except in compliance with applicable provi-
sions of the Securities Exchange Act of 1934 and
the regulations prescribed and interpretations issued
under such Act.
(d) RESTRICTION ON EXTENDING CREDIT TO MAKE
PAYMENTS ON SECURITIES.—
(1) IN GENERAL.—No depository institution af-
filiated with a securities affiliate shall, directly or in-
directly, extend credit to an issuer of securities un-
derwritten by such securities affiliate for the purpose
of paying the principal of those securities or interest
or dividends on those securities.
(2) EXCEPTIONS FOR CERTAIN EXTENSIONS OF
CREDIT.—Paragraph (1) shall not apply to an exten-
sion of credit for a documented purpose (other than
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paying principal, interest, or dividends) if the tim-
ing, maturity, and other terms of the credit, taken
as a whole, are substantially different from those of
the underwritten securities.
(3) EXCEPTIONS FOR BANK ELIGIBLE SECURI-
TIES.—Paragraph (1) shall not apply with respect to
any security expressly authorized by section 5136 of
the Revised Statutes of the United States as permis-
sible for a national bank to underwrite or deal in.
(4) APPLICATION TO WELL CAPITALIZED DE-
POSITORY INSTITUTIONS.—
(A) IN GENERAL.—Paragraph (1) shall not
apply with respect to well capitalized depository
institutions if—
(i) the depository institution has
adopted appropriate limits on exposure on
a consolidated basis to any single customer
whose securities are underwritten by the
securities affiliate; and
(ii) the depository institution has
adopted appropriate procedures, including
maintenance of necessary documentary
records, to assure that any extension of
credit by the depository institution to an
issuer for the purpose of paying the prin-
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cipal, interest or dividends on securities
underwritten by the securities affiliate is
on an arm’s length basis.
(B) ARM’S
LENGTH
TRANSACTION
DE-
SCRIBED.—An extension of credit may be con-
sidered to have been made on an arm’s length
basis if the terms and conditions are substan-
tially the same as those prevailing at the time
for comparable transactions with issuers whose
securities are not underwritten by the securities
affiliate.
(C) COMPLIANCE
WITH
SUBPARAGRAPH
(A).—The appropriate Federal banking agency
may require by regulation or order, compliance
with paragraph (1) by well capitalized deposi-
tory institutions exempt under this paragraph
in order to achieve any purpose specified in
subsection (k).
(e) COMMON DIRECTORS AND SENIOR EXECUTIVE
OFFICERS.—
(1) IN
GENERAL.—The appropriate Federal
banking agency shall, by regulation or order, pre-
scribe the circumstances under which directors and
senior executive officers of a securities affiliate may
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serve at the same time as directors or senior execu-
tive officers of any affiliated depository institutions.
(2) STANDARDS.—The appropriate Federal
banking agency, in issuing any regulation or order
pursuant to paragraph (1), shall consider appro-
priate factors including—
(A) any burdens imposed by restrictions on
director and senior executive officer interlocks;
(B) the safety and soundness of depository
institutions and securities affiliates;
(C) unfair competition in securities activi-
ties;
(D) improper exchange of customer infor-
mation; or
(E) harm to customers of securities affili-
ates or depository institutions that could rea-
sonably result from director and senior officer
interlocks.
(3) EXCEPTION FOR SMALL FINANCIAL SERV-
ICES HOLDING COMPANIES.—
(A) IN GENERAL.—Notwithstanding para-
graph (1), a director or senior executive officer
of a securities affiliate may serve at the same
time as a director or senior executive officer of
an affiliated depository institution if that insti-
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tution and all affiliated depository institutions
have, in the aggregate, total assets of not more
than $500,000,000.
(B) INFLATION ADJUSTMENT.—The dollar
limitation contained in subparagraph (A) shall
be adjusted annually after December 31, 1995,
by the annual percentage increase in the
Consumer Price Index for Urban Wage Earners
and Clerical Workers published by the Bureau
of Labor Statistics.
(4) EXCEPTION FOR CERTAIN FOREIGN AFFILI-
ATES.—Paragraph (1) shall not prohibit a director
or senior executive officer of a securities affiliate
from serving at the same time as a director or senior
executive officer of an entity which—
(A) is organized under section 25 or 25A
of the Federal Reserve Act;
(B) is an affiliate of such securities affili-
ate; and
(C) principally engages in business outside
the United States.
(f) DISCLOSURE REQUIRED BY SECURITIES AFFILI-
ATE.—
(1) IN GENERAL.—Pursuant to rules adopted
by the Securities and Exchange Commission in con-
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sultation with the appropriate Federal banking agen-
cies, a securities affiliate shall conspicuously disclose
in writing to each of its customers at the time a se-
curities account is opened, or within a reasonable
time thereafter if it is not practicable to provide
such notice at that time, that—
(A) 
securities 
sold, 
offered, 
or 
rec-
ommended by the securities affiliate—
(i) are not deposits;
(ii) are not insured by the Federal
Deposit Insurance Corporation;
(iii) are not guaranteed by an affili-
ated insured depository institution;
(iv) are not otherwise an obligation of
an insured depository institution (unless
such is the case); and
(v) with regard to any product that
includes any investment component, are
subject to investment risks including pos-
sible loss of principal invested;
(B) the securities affiliate is not an in-
sured depository institution, and is a corpora-
tion separate from any insured depository insti-
tution; and
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(C) the securities affiliate may be under-
writing or dealing in the securities being sold,
offered or recommended, and if so, would have
a financial interest in the transaction.
(2) FORM OF DISCLOSURE.—The disclosures re-
quired by paragraph (1) shall be made in clear and
concise language that—
(A) is readily comprehensible to customers
of the securities affiliate; and
(B) is designed to promote customer un-
derstanding that uninsured investment products
are not deposits insured by the Federal Deposit
Insurance Corporation.
(3) DISCLOSURE AUTHORITY.—Subject to para-
graph (2), the Securities and Exchange Commission,
after consultation with the appropriate Federal
banking agencies may, in its discretion, prescribe
disclosures in addition to the disclosures prescribed
by paragraph (1).
(g) DISCLOSURE REQUIRED BY DEPOSITORY INSTI-
TUTIONS.—
(1) IN GENERAL.—Pursuant to rules adopted
jointly by the appropriate Federal banking agencies
in consultation with the Securities and Exchange
Commission, no insured depository institution shall
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knowingly express any opinion on the value of, or
the advisability of purchasing or selling, nonbanking
products (as defined by the appropriate Federal
banking agency) sold by the insured depository insti-
tution or any affiliate of an insured depository insti-
tution unless the insured depository institution con-
spicuously discloses in writing to the customer
that—
(A) the insured depository institution or
affiliate (whichever is applicable) is selling the
nonbanking product and has a financial interest
in the transaction (if such is the case);
(B) the nonbanking products—
(i) are not deposits;
(ii) are not insured by the Federal
Deposit Insurance Corporation;
(iii) are not guaranteed by the institu-
tion or any other affiliated insured deposi-
tory institution;
(iv) are not otherwise an obligation of
an insured depository institution (unless
such is the case); and
(v) with regard to any nonbanking
product that includes any investment com-
ponent, are subject to investment risks in-
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cluding possible loss of principal invested;
and
(C) an affiliate, if involved, is not an in-
sured depository institution (unless such is the
case), and is a corporation separate from any
insured depository institution (unless such is
not the case).
(2) FORM OF DISCLOSURE.—The disclosures re-
quired by paragraph (1) shall be made in clear and
concise language that—
(A) is readily comprehensible to customers
of the insured depository institution, and
(B) is designed to promote customer un-
derstanding that nonbanking products are not
deposits insured by the Federal Deposit Insur-
ance Corporation.
(3) CUSTOMER ACKNOWLEDGMENT OF DISCLO-
SURE.—
(A) IN GENERAL.—Whenever any insured
depository institution or securities affiliate
opens an account for the purpose of selling a
nondeposit investment product or products to a
customer, such insured depository institution or
securities affiliate, as the case may be, shall ob-
tain a one-time acknowledgment of receipt by
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the customer of such disclosures, including the
date of receipt with the customer’s name, ad-
dress, and the account number.
(B) ONE-TIME
ACKNOWLEDGMENT.—The
one-time written acknowledgment required by
subparagraph (A) and obtained with respect to
one account from a customer shall satisfy the
requirement with respect to all other investment
accounts opened by that customer at that de-
pository institution or securities affiliate.
(C) TIMING OF ACKNOWLEDGMENT.—The
one-time acknowledgment required by subpara-
graph (A) must be obtained within a reasonable
time after the account is opened.
(D) SPECIAL RULE FOR ACCREDITED IN-
VESTORS.—This paragraph shall not apply to
any customer who is, or meets the requirements
for, an accredited investor (as defined in section
2(15) of the Securities Act of 1933).
(4) DISCLOSURE AUTHORITY.—Subject to para-
graph (2), the appropriate Federal banking agencies
may jointly prescribe, after consultation with the Se-
curities and Exchange Commission, disclosures in
addition to the disclosures required by paragraph
(1).
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(h) UNDERWRITING SECURITIES REPRESENTING OB-
LIGATIONS ORIGINATED BY AFFILIATE RESTRICTED.—A
securities affiliate shall not underwrite securities secured
by or representing an interest in mortgages or other obli-
gations originated or purchased by an affiliated depository
institution or subsidiary of such an institution—
(1) unless those securities—
(A) are rated by at least one unaffiliated,
nationally recognized statistical rating organiza-
tion;
(B) are issued or guaranteed by the Fed-
eral Home Loan Mortgage Corporation, the
Federal National Mortgage Association, or the
Government National Mortgage Association; or
(C) represent interests in securities de-
scribed in subparagraph (B); or
(2) except as permitted by the appropriate Fed-
eral banking agency.
(i) RECIPROCAL ARRANGEMENTS PROHIBITED.—No
financial services holding company and no subsidiary of
a financial services holding company may enter into any
agreement, understanding, or other arrangement under
which—
(1) One financial services holding company (or
subsidiary of that financial services holding com-
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pany) agrees to engage in a transaction with, or on
behalf of, another financial services holding company
(or subsidiary of that financial services holding com-
pany), in exchange for
(2) the agreement of the second financial serv-
ices holding company referred to in paragraph (1)
(or a subsidiary of that financial services holding
company) to engage in any transaction with, or on
behalf of, the first financial services holding com-
pany referred to in such paragraph (or any subsidi-
ary of that financial services holding company), for
the purpose of evading any requirement or restric-
tion of Federal law on transactions between, or for
the benefit of, affiliates of financial services holding
companies.
(j) SAFEGUARDS
APPLY
TO
CERTAIN
SUBSIDI-
ARIES.—Except as provided in this section—
(1) SECURITIES AFFILIATE.—No subsidiary of
a securities affiliate may do anything that this sec-
tion prohibits the securities affiliate from doing.
(2) DEPOSITORY INSTITUTION.—No subsidiary
of a depository institution may do anything that this
subsection prohibits the depository institution from
doing.
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(k) AUTHORITY TO MODIFY
AND IMPOSE ADDI-
TIONAL SAFEGUARDS; INTERPRETIVE AUTHORITY.—
(1) IN
GENERAL.—The appropriate Federal
banking agency may, by regulation or order—
(A) adopt additional limitations, restric-
tions or conditions on relationships or trans-
actions among depository institutions, their af-
filiates, and their customers; and
(B) make any modification to any limita-
tion, restriction, or condition imposed under
this section on relationships or transactions
among depository institutions, the affiliates of
depository institutions, and the customers of
such institutions or affiliates, including modi-
fications in addition to those expressly provided
for in this section.
(2) STANDARDS.—The appropriate Federal
banking agency may not exercise authority under
paragraph (1) unless such agency finds that such
action is consistent with the purposes of this act, in-
cluding—
(A) the avoidance of any significant risk to
the safety and soundness of depository institu-
tions or the Federal deposit insurance funds;
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(B) the enhancement of the financial sta-
bility of financial services holding companies;
(C) the prevention of the subsidization of
securities affiliates by depository institutions;
(D) the avoidance of conflicts of interest or
other abuses; and
(E) the application of the principle of na-
tional treatment and equality of competitive op-
portunity between securities affiliates owned or
controlled by domestic financial services holding
companies and securities affiliates owned or
controlled by foreign banks operating in the
United States.
(3) BIENNIAL
REVIEW.—Beginning 2 years
after the effective date of the Depository Institution
Affiliation Act, the appropriate Federal banking
agency shall, on a biennial basis—
(A) review all restrictions established pur-
suant to paragraph (1) to determine whether
any such restrictions are required any longer to
carry out the purposes of this Act; and
(B) modify or eliminate any such restric-
tion that such agency determines is no longer
required to carry out the purposes of this Act.
(l) COMPLIANCE PROGRAMS REQUIRED.—
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(1) IN
GENERAL.—Each appropriate Federal
banking agency and the Securities and Exchange
Commission shall establish a program for—
(A) sharing information, including reports
of examinations, concerning compliance with
this section or the amendments made by title
III of the Depository Institution Affiliation and
Thrift Charter Conversion Act, by—
(i) brokers, dealers, investment advis-
ers, or investment companies that are reg-
istered with the Securities and Exchange
Commission and that are affiliated with
depository institutions, or are separately
identifiable departments or divisions of de-
pository institutions registered as invest-
ment advisers; and
(ii) depository institutions and their
affiliates;
(B) enforcing compliance with this section
and the amendments made by this subtitle and
paragraphs (4) and (5) of section 3(a) of the
Securities Exchange Act of 1934 by entities
under its supervision; and
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(C) responding to any complaints from
customers about inappropriate cross-marketing
of securities products or inadequate disclosure.
(2) DATA COLLECTION.—
(A) IN GENERAL.—The appropriate Fed-
eral banking agencies, after consultation with
and consideration of the views of the Securities
and Exchange Commission, shall (except as oth-
erwise provided by the appropriate Federal
banking agency after such consultation) require
any depository institution that has effected se-
curities transactions pursuant to any exception
enumerated in paragraphs (4)(C) and (5)(D) of
section 3(a) of the Securities Exchange Act of
1934 to identify the exceptions relied upon and
to submit such information necessary to mon-
itor compliance under such paragraphs.
(B) COMMISSION
ACCESS.—The appro-
priate Federal banking agency shall make any
information referred to in subparagraph (A)
available to the Securities and Exchange Com-
mission, upon the request of the Commission.
(C) COMPLIANCE.—In implementing the
provisions of this paragraph, the appropriate
Federal banking agencies shall ensure that any
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information requests to depository institutions
take into account the size and activities of the
institutions and do not cause undue reporting
burdens.
(3) COMMISSION’S
ENFORCEMENT
AUTHOR-
ITY.—Without limiting in any way the authority of
the appropriate Federal banking agencies under this
section, the Securities and Exchange Commission
shall have the authority to enforce provision of this
section against a securities affiliate as if such provi-
sion were a provision of the Securities Exchange Act
of 1934 to the extent that the provision applies with
respect to the conduct or activities of the securities
affiliate.
(4) EXAMINATION REPORTS.—
(A) IN GENERAL.—The appropriate Fed-
eral banking agencies shall, to the fullest extent
possible, use the reports of examination of any
broker, dealer, investment adviser, or invest-
ment company made by or on behalf of the Se-
curities and Exchange Commission and reports
made by or on behalf of a registered securities
association or national securities exchange, and
shall defer to such examinations for compliance
with the Federal securities laws.
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(B) COMPLIANCE WITH SECTION 122 SAFE-
GUARDS.—The appropriate Federal banking
agencies shall—
(i) to the fullest extent possible, use
the reports of examination of any securi-
ties affiliate made by the appropriate Fed-
eral banking agency for such affiliate; and
(ii) defer to such examinations for
compliance with the provisions of this sec-
tion.
(5) INTERPRETATIONS OF THE FEDERAL SECU-
RITIES
LAWS.—The appropriate Federal banking
agencies shall defer to the Securities and Exchange
Commission regarding all interpretations and en-
forcement of the Federal securities laws relating to
the application of the Federal securities laws to the
activities and conduct of brokers, dealers, investment
advisers, and investment companies.
(6) NOTICE OF CERTAIN ACTIONS BY SEC.—
The Securities and Exchange Commission shall give
notice to the appropriate Federal banking agency
upon the commencement of any disciplinary or law
enforcement proceedings by the Commission and a
copy of any order entered by the Commission
against—
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(A) any broker, dealer, or investment ad-
viser that—
(i) is registered with the Securities
and Exchange Commission; and
(ii) is affiliated with, or is a sepa-
rately identifiable department or division
of, a depository institution;
(B) any investment company registered
with the Securities and Exchange Commission
that is an affiliate of or is advised by an invest-
ment adviser affiliated with a depository institu-
tion or by a separately identifiable department
or division of a depository institution that is a
registered investment adviser; or
(C) any financial services holding company,
depository institution, or subsidiary of such
company or institution, if the proposed action
relates to this section or the amendments made
by title III of the Depository Institution Affili-
ation and Thrift Charter Conversion Act.
(7) NOTICE OF CERTAIN ACTIONS BY APPRO-
PRIATE
FEDERAL
BANKING
AGENCIES.—Upon the
commencement of any disciplinary or law enforce-
ment proceedings to enforce the provisions of this
section by an appropriate Federal banking agency
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against any broker, dealer, investment adviser, or in-
vestment company that is registered under the Fed-
eral securities laws and is affiliated with a deposi-
tory institution or is a separately identifiable depart-
ment or division of a depository institution, the ap-
propriate Federal banking agency shall give notice to
the Securities and Exchange Commission of the pro-
posed action.
(8) IMMEDIATE ACTION ALLOWED BEFORE NO-
TICE.—The notice required under paragraph (6) or
(7) may be provided promptly after action by the Se-
curities and Exchange Commission or the appro-
priate Federal banking agency, if—
(A) the Commission determines that the
protection of investors requires immediate ac-
tion by the Commission and prior notice under
paragraph (6) is not practical under the cir-
cumstances; or
(B) the appropriate Federal banking agen-
cy determines that concerns for the safety and
soundness of a depository institution or its affil-
iate require immediate action by the agency and
prior notice under (7) is not practical under the
circumstances.
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(9) COORDINATED
ENFORCEMENT
ACTION.—
The Securities and Exchange Commission and the
appropriate Federal banking agencies shall, to the
extent practicable, coordinate supervisory actions
based on applicable law where the actions are based
on the same or related events or practices.
(10) INVESTMENT COMPANIES NOT AFFILIATED
WITH
A
DEPOSITORY
INSTITUTION.—The appro-
priate Federal banking agency shall not have au-
thority under this section or any other provision of
law to inspect or examine any investment company
registered under the Federal securities laws that is
not—
(A) affiliated with a depository institution;
or
(B) advised by an investment adviser affili-
ated with a depository institution or by a sepa-
rately identifiable department or division of a
depository institution that is a registered invest-
ment adviser.
(11) DEFINITION.—For purposes of this sub-
section, the term ‘‘Federal securities laws’’ means
the provisions of Federal law governing securities ac-
tivities that are within the jurisdiction of the Securi-
ties and Exchange Commission under the Securities
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Act of 1933, the Securities Exchange Act of 1934,
the Investment Company Act of 1940, the Invest-
ment Advisers Act of 1940, and the Trust Indenture
Act of 1939.
(m) FOREIGN BANK FIREWALLS.—
(1) IN GENERAL.—A branch, agency, or com-
mercial lending company that is operated by a for-
eign bank that is a financial services holding com-
pany shall not be subject to the restrictions of any
subsection of this section, other than subsections (k)
and (l), if—
(A) such branch, agency, or commercial
lending company accepts no deposits in the
United States that are insured under the Fed-
eral Deposit Insurance Act;
(B) such foreign bank meets risk-based
capital standards comparable to the capital
standards required for a wholesale financial in-
stitution, giving due regard to the principle of
national treatment and equality of competitive
opportunity; and
(C) the home country of such foreign bank
satisfies the national treatment standard de-
scribed in Section 102(l)(3).
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(2) APPLICABILITY OF SUBSECTION (K) TO FOR-
EIGN BANKS.—Any limitation, restriction, condition,
or modification adopted under subsection (k) may be
applied by the appropriate Federal banking agency
to—
(A) a foreign bank that operates a branch,
agency, or commercial lending company de-
scribed in paragraph (1) (and any company
that owns or controls such foreign bank);
(B) any branch, agency or commercial
lending company operated by such foreign bank
in the United States; or
(C) any other affiliate of such foreign bank
in the United States; if such limitation, restric-
tion, condition, or modification is applied by
regulation or order of general applicability
under subsection (n)(1) to wholesale financial
institutions and their securities affiliates, sub-
ject to such modifications, conditions, or exemp-
tions as the appropriate Federal banking agen-
cy of such wholesale financial institution deems
appropriate, giving due regard to the principle
of national treatment and equality of competi-
tive opportunity.
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(n) FIREWALLS APPLICABLE
TO WHOLESALE FI-
NANCIAL INSTITUTIONS AND NATIONAL MARKET LEND-
ING INSTITUTIONS.—
(1) IN GENERAL.—A wholesale financial institu-
tion, and transactions between a wholesale financial
institution and its securities affiliate, shall not be
subject to the provisions of this section, except that
a wholesale financial institution and its securities af-
filiate shall be subject to subsections (k) and (l) in
the same manner and to the same extent such sub-
sections would apply if the wholesale financial insti-
tution were an insured depository institution.
(2) PROHIBITION ON EVASION OF FIREWALLS
BY
AFFILIATED
INSURED
DEPOSITORY
INSTITU-
TIONS.—An insured depository institution that is af-
filiated with a wholesale financial institution shall
not evade any requirement or restriction imposed by
this section by engaging in transactions or arrange-
ments with its affiliated wholesale financial institu-
tion.
(3) SIMILAR TREATMENT FOR NATIONAL MAR-
KET
LENDING
INSTITUTIONS.—A national market
lending institution, as defined in section 5158 of the
Revised Statutes of the United States, that is con-
trolled by a financial services holding company shall
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be subject to this section in the same manner and
to the same extent as a wholesale financial institu-
tion.
(o) AUTHORITY OF NATIONAL FINANCIAL SERVICES
COMMITTEE.—
(1) IN GENERAL.—Except for rules issued pur-
suant to subsections (f) or (g), no rule, regulation,
or order authorized or required by this section shall
be issued without the approval of the National Fi-
nancial Services Committee.
(2) UNIFORM
STANDARDS.—Any regulation,
rule, or order subject to the approval of the National
Financial Services Committee under paragraph (1)
shall be identical for each appropriate Federal bank-
ing agency, except as otherwise permitted by such
Committee, taking into account existing require-
ments, coordination of new requirements, minimiza-
tion of duplicative regulation, the degree of uniform-
ity between regulation of securities affiliates or in-
vestment companies affiliated with or advised by de-
pository institutions or their affiliates and other
broker dealers or investment companies, and an
analysis of any of the benefits to be obtained by any
unique regulatory burdens placed on securities affili-
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ates or investment companies affiliated with or ad-
vised by depository institutions or their affiliates.
SEC. 123. JOINT STANDARDS RELATING TO RETAIL SALES
OF 
CERTAIN 
NONDEPOSIT 
INVESTMENT
PRODUCTS.
(a) IN GENERAL.—The National Financial Services
Committee shall prescribe standards applicable to any de-
pository institution which—
(1) is not registered as a broker under the Se-
curities Exchange Act of 1934;
(2) effects retail transactions in securities, in-
cluding securities issued by an investment company
or annuities; and
(3) is affiliated with a financial services holding
company.
(b) SCOPE OF STANDARDS.—The standards required
under paragraph (1) with respect to retail sales of securi-
ties and annuities referred to in such paragraph shall, at
a minimum, establish requirements with respect to—
(1) sales practices;
(2) disclosures and advertising in connection
with transactions in such securities and annuities,
including—
(A) the content, form, and timing of any
such disclosure; and
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(B) disclaimers concerning the noninsured
status of the security or annuity;
(3) the compensation of sales personnel with re-
spect to referrals or transactions;
(4) the training of and qualifications for per-
sonnel involved in such transactions, including train-
ing in making an accurate judgment about the suit-
ability of a particular investment product for a pro-
spective customer; and
(5) the setting in which and the circumstances
under which transactions may be effected, and refer-
rals made, by sales personnel with respect to such
securities and annuities.
(c) COMPARABILITY REQUIREMENT.—The standards
required under paragraph (1) shall be comparable to the
standards applicable to brokers and dealers registered
under the Securities Exchange Act of 1934 unless the Na-
tional Financial Services Committee determines that im-
plementation of comparable standards is not necessary or
appropriate for the maintenance of fair and orderly mar-
kets or the protection of investors or is not in the public
interest.
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Subtitle C—Insurance and Real Estate Devel-
opment Activities of Financial Services
Holding Companies
SEC. 131. LIMITATION ON INSURANCE UNDERWRITING AND
REAL ESTATE DEVELOPMENT ACTIVITIES OF
DEPOSITORY INSTITUTIONS.
(a) IN GENERAL.—No depository institution that is
an affiliate of a financial services holding company shall
directly engage in—
(1) insurance underwriting (other than credit-
related insurance udnerwriting); or
(2) real estate investment or development, ex-
cept to the extent that such activities are performed
in relation to the premises of the depository institu-
tion or in connection with securing or collecting a
debt previously contracted in good faith, or would be
authorized for a national bank under section 5137
of the Revised Statutes of the United States or the
first section of the Act of September 28, 1962 (12
U.S.C. 92a).
(b) CONSTRUCTION.—Nothing contained in this sec-
tion shall be construed to prohibit or impede—
(1) a financial services holding company or any
affiliate of a financial services holding company
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SEC. 202. AMENDMENT TO THE FEDERAL RESERVE ACT.
Section 23B(b)(1)(B) of the Federal Reserve Act (12
U.S.C. 371c–1(b)(1)(B)) is amended by inserting ‘‘and for
30 days thereafter’’ after ‘‘during the existence of any un-
derwriting or selling syndicate’’.
SEC. 203. AMENDMENTS TO THE BANKING ACT OF 1933.
(a) SECTION 20.—Section 20 of the Banking Act of
1933 (12 U.S.C. 377) is amended by inserting after the
first undesignated paragraph the following: ‘‘The provi-
sions of this section shall not apply to a financial services
holding company or any of its affiliates, as such terms
are defined in section 102 of the Financial Services Hold-
ing Company Act.’’
(b) SECTION 32.—Section 32 of the Banking Act of
1933 (12 U.S.C. 78) is amended by adding at the end
the following: ‘‘This section shall not apply so as to pro-
hibit an officer, director, or employee of a securities affili-
ate (as defined in section 102(r) of the Financial Services
Holding Company Act) from serving at the same time as
an officer, director, or employee of a member bank affili-
ated with the securities affiliate pursuant to such Act.
This section shall not apply so as to prohibit an officer,
director, or employee of an investment company registered
under the Investment Company Act of 1940 or an invest-
ment adviser registered under the Investment Advisers
Act of 1940 from serving at the same time as an officer,
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director, or employee of a member bank that is affiliated
with a financial services holding company (as defined in
section 102(a) of the Financial Services Holding Company
Act).’’.
SEC. 204. AMENDMENTS TO THE FEDERAL DEPOSIT INSUR-
ANCE ACT.
(a) SECTION 7.—Section 7(j) of the Federal Deposit
Insurance Act (12 U.S.C. 1817(j))) is amended—
(1) in paragraph (8), by striking subparagraph
(B) and inserting the following:
‘‘(B) the term ‘control’ means the power,
directly or indirectly, to direct the management
or policies of a company, or to vote 25 percent
or more of any class of voting securities of a
company, except that no company shall be
deemed to control or to have acquired control of
any other company by virtue of its ownership of
the voting securities of such other company—
‘‘(i) acquired or held in an agency,
trust, or other fiduciary capacity;
‘‘(ii) acquired or held in connection
with or incidental to—
‘‘(I) the underwriting of securi-
ties if such securities are held only for
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such person of time as will permit the
sale thereof on a reasonable basis; or
‘‘(II) market making, dealing,
trading, brokerage, or other securities-
related activities and not with a view
to acquiring, exercising, or transfer-
ring any control over the management
or policies of such company; or
‘‘(iii) acquired in securing or collect-
ing a debt previously contracted in good
faith, until 2 years after the date of acqui-
sition, except that no company formed for
the sole purpose of participating in a proxy
solicitation is in control of a company by
virtue of its acquisition of voting rights
with respect to shares of such company ac-
quired in the course of such solicitation.’’;
and
(2) by adding at the end the following new
paragraph:
‘‘(19) DEFINITION.—For purposes of this sub-
section, the term ‘insured depository institution’
shall include—
‘‘(A) any ‘bank holding company’, as that
term is defined in section 2 of the Bank Hold-
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ing Company Act of 1956, which has control of
any insured bank (as defined in that section 2),
and the appropriate Federal banking agency in
the case of a bank holding company shall be the
Board of Governors of the Federal Reserve Sys-
tem; and
‘‘(B) any ‘financial services holding com-
pany’, as that term is defined in section 102(a)
of the Financial Services Holding Company
Act, which has control of any such insured
bank, and the appropriate Federal banking
agency in the case of a financial services hold-
ing company shall be the appropriate Federal
banking agency of the lead depository institu-
tion (as defined in section 102(h) of the Finan-
cial Services Holding Company Act) of the fi-
nancial services holding company.
(b) SECTION 18.—Section 18(j)(1)(A) of the Federal
Deposit Insurance Act (12 U.S.C. 1828(j)(1)(A)) is
amended by striking ‘‘Sections’’ and inserting ‘‘Subject to
section 104(a)(2) of the Financial Services Holding Com-
pany Act, sections’’.
(c) APPROPRIATE FEDERAL BANKING AGENCY.—
(1) STATE MEMBER WHOLESALE FINANCIAL IN-
STITUTIONS.—Section 3(g)(2)(A) of the Federal De-
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posit Insurance Act (12 U.S.C. 1813 (q)(2)(A)) is
amended to read as follows:
‘‘(A) any State member insured bank (ex-
cept a District bank) and State member whole-
sale financial institution as authorized pursuant
to section 9B of the Federal Reserve Act.’’.
(2) NATIONAL WHOLESALE FINANCIAL INSTI-
TUTION.—Section 3(g)(1) of the Federal Deposit In-
surance Act (12 U.S.C. 1813(q)(1)) is amended by
inserting ‘‘(including any national wholesale finan-
cial institution and any national market funded lend-
ing institution, as authorized pursuant to sections
5136B and 5158 of the Revised Statutes of the
United States)’’.
(d) SECURITIES COMPANY AFFILIATIONS OF FDIC–
INSURED BANKS.—Section 18 of the Federal Deposit In-
surance Act (12 U.S.C. 1828) is amended by adding at
the end thereof the following new subsection:
‘‘(s) SECURITIES AFFILIATIONS OF BANKS.—
‘‘(1) IN GENERAL.—A bank shall not be an af-
filiate of any company that, directly or indirectly,
acts as an underwriter or dealer of any security,
other than—
‘‘(A) a bank;
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‘‘(B) a securities affiliate as defined in sec-
tion 102(r) of the Financial Services Holding
Company Act; or
‘‘C) a company that underwrites or deals
only in securities that are described in section
121 of the Depository Institution Affiliation
and Thrift Charter Conversion Act.
‘‘(2) EXCEPTIONS.—
‘‘(A) CERTAIN BANKS NOT INCLUDED.—
For purposes of this subsection, the term ‘bank’
does not include—
‘‘(i) an insured bank described in sub-
paragraph (D), (F), or (H) of section
2(c)(2) of the Bank Holding Company Act
of 1956; and
‘‘(ii) a Federal branch or an insured
branch (as defined in section 3 of the Fed-
eral Deposit Insurance Act).
‘‘(B) AFFILIATIONS WITH EDGE ACT AND
AGREEMENT
CORPORATIONS.—Paragraph (1)
shall not apply with respect to the affiliation of
a bank with a company held pursuant to section
25 or 25A of the Federal Reserve Act or section
4(c)(13) of the Bank Holding Company Act of
1956.
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‘‘(3) GRANDFATHER
PROVISION.—This sub-
section shall not apply with respect to—
‘‘(A) an affiliation between a bank and a
company that underwrites or deals in securities,
provided that—
‘‘(i) the affiliation is authorized pur-
suant to an order issued by the Board of
Governors of the Federal Reserved System
under section 4(c)(8) of the Bank Holding
Company Act of 1956; and
‘‘(ii) such company complies with the
limitations, restrictions, and conditions, in-
cluding the limitation on the revenue that
may be derived from underwriting or deal-
ing activities, that were generally applica-
ble to companies that, as of January 1,
1996, were subject to orders described in
clause (i);
‘‘(B) any other lawful affiliation that ex-
isted on January 1, 1996; or
‘‘(C) any new affiliation by an insured that
has an affiliation that would be prohibited if the
affiliation were not covered by subparagraph
(B).
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‘‘(4) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply:
‘‘(A) DEALER.—The term ‘dealer’ has the
meaning given to such term in section 3(a)(5)
of the Securities Exchange Act of 1934.
‘‘(B) SECURITY.—The term ‘security’ has
the meaning given to such term in section
121(c) of the Financial Services Holding Com-
pany Act.
‘‘(C) UNDERWRITER.—The term ‘under-
writer’ has the meaning given to such term in
section 2(11) of the Securities Act of 1933.’’.
SEC. 205. AMENDMENT TO THE COMMUNITY REINVEST-
MENT ACT.
Section 803(3) of the Community Reinvestment Act
of 1977 (12 U.S.C. 2902(3)) is amended—
(1) by inserting ‘‘or notice, as appropriate’’
after ‘‘an application’’;
(2) in subparagraph (E), by striking ‘‘or’’ at
the end;
(3) in subparagraph (F), by striking the period
at the end and inserting ‘‘; or’’; and
(4) by adding at the end the following new sub-
paragraph:
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‘‘(G) the acquisition of an insured deposi-
tory institution requiring prior notice under sec-
tion 103 of the Financial Services Holding
Company Act.’’.
SEC. 206. AMENDMENT TO THE FEDERAL POWER ACT.
Section 305(b) of the Federal Power Act shall not
apply to any person now holding, or proposing to hold,
at the same time the position of officer or director of a
public utility and the position of officer or director of a
bank, trust company, banking association, or firm per-
mitted by the Financial Services Holding Company Act
to underwrite or participate in the marketing of securities
of the public utility for which the person serves, or pro-
poses to serve, as an officer of director.
SEC. 207. AMENDMENT TO THE RIGHT TO FINANCIAL PRI-
VACY ACT.
Section 1112(e) of the Right to Financial Privacy Act
(12 U.S.C. 3412(e)) is amended as follows—
(1) by striking ‘‘this title’’ and inserting ‘‘law’’;
and
(2) by inserting ‘‘, examination reports,’’ after
‘‘financial records’’.
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SEC. 208. AMENDMENTS TO THE INTERNATIONAL BANKING
ACT.
(a) EXEMPTION FROM PROVISIONS OF BANK HOLD-
ING COMPANY ACT FOR FOREIGN BANKS QUALIFYING AS
FINANCIAL SERVICES HOLDING COMPANIES.—Section
8(a) of the International Banking Act (12 U.S.C.
32016(a)) is amended by adding at the end by striking
‘‘provisions.’’ and inserting the following: ‘‘provisions, ex-
cept that any such foreign bank or company that qualifies
and elects to be treated as a financial services holding
company under the Financial Services Holding Company
Act, and any affiliate of such financial services holding
company, shall not be so subject to the provisions of the
Bank Holding Company Act of 1956.’’.
(b) AUTHORITY
TO
TERMINATE
GRANDFATHER
RIGHTS.—Section 8(c) of the International Banking Act
of 1978 (12 U.S.C. 3106(c)) is amended by adding at the
end the following new paragraph:
‘‘(3) PARITY IN CONDUCT OF AUTHORIZED SE-
CURITIES ACTIVITIES.—
‘‘(A) IN
GENERAL.—Notwithstanding the
provisions of paragraph (1) or any other provi-
sion of law, any authority conferred under this
subsection on any foreign bank or company
with respect to securities activities authorized
for bank holding companies in the United
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States shall terminate 30 days after such for-
eign bank or company becomes a financial serv-
ices holding company under the Financial Serv-
ices Holding Company Act.’’.
TITLE 
III—FUNCTIONAL 
REGULATION
AMENDMENTS TO SECURITIES LAWS
FOR FINANCIAL SERVICES HOLDING
COMPANIES
Subtitle A—Broker Dealer Provisions
SEC. 301. 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 ac-
count of others.
‘‘(B) EXCLUSION
OF
BANKS.—The term
‘broker’ does not include a bank unless such
bank is affiliated with a financial services hold-
ing company, as defined in section 102(a) of
the Financial Services Holding Company Act
and—
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‘‘(i) publicly solicits the business of
effecting securities transactions for the ac-
count of others; or
‘‘(ii) is compensated for such business
by the payment of commissions or similar
remuneration based on effecting trans-
actions in securities (other than fees cal-
culated as a percentage of assets under
management) in excess of the bank’s incre-
mental 
costs 
directly 
attributable 
to
effecting such transactions (hereafter re-
ferred to as ‘incentive compensation’).
‘‘(C) EXEMPTION FOR CERTAIN BANK AC-
TIVITIES.—A bank shall not be considered to be
a broker because the bank engages in any of
the following activities under the conditions de-
scribed:
‘‘(i) THIRD
PARTY
BROKERAGE
AR-
RANGEMENTS.—The bank enters into a
contractual or other 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—
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‘‘(I) such broker or dealer is
clearly identified as the person per-
forming the brokerage services;
‘‘(II) the broker or dealer per-
forms brokerage services in an area
that is clearly marked, and unless
made impossible by space or personnel
considerations, 
physically 
separate
from the routine deposit-taking activi-
ties of the bank;
‘‘(III) any materials used by the
bank to advertise or promote generally
the availability of brokerage services
under the contractual or other ar-
rangement clearly 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 availability of brokerage services
under the contractual or other ar-
rangement are in compliance with the
Federal securities laws before dis-
tribution;
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‘‘(V) bank employees perform
only clerical or ministerial functions in
connection with brokerage actions, in-
cluding scheduling appointments with
the associated persons of a broker or
dealer, and on behalf of a broker or
dealer, transmitting orders or han-
dling customers’ funds or securities,
except that bank employees who are
not so qualified may describe in gen-
eral terms investment vehicles under
the contractual or other arrangement
and accept customers’ orders on be-
half of the broker or dealer if such
employees have received training that
is substantially equivalent to the
training required for personnel quali-
fied to sell securities pursuant to the
requirements of a self-regulatory orga-
nization (as defined in section 3(a) of
the Securities Exchange Act of 1934);
‘‘(VI) bank employees do not di-
rectly receive incentive compensation
for any brokerage transaction unless
such employees are associated persons
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of a broker or dealer and are qualified
pursuant to the requirements of a
self-regulatory organization (as so de-
fined) except that the bank employees
may 
receive 
nominal 
cash 
and
noncash compensation for customer
referrals if the cash compensation is a
one-time fee of a fixed dollar amount
and the payment of the fee is not con-
tingent 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; and
‘‘(VIII) the broker or dealer in-
forms each customer that the broker-
age services are provided by the
broker or dealer and not by the bank
and that the securities are not depos-
its or other obligations of the bank,
are not guaranteed by the bank, and
are not insured by the Federal De-
posit Insurance Corporation.
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‘‘(ii) TRUST
ACTIVITIES.—The bank
engages 
in 
trust 
activities 
(including
effecting transactions in the course of such
trust activities) permissible for national
banks under the first section of the Act of
September 28, 1962, or for State banks
under relevant State trust statutes or law
(including securities safekeeping, self-di-
rected individual retirement accounts, or
managed agency accounts or other func-
tionally equivalent accounts of a bank) un-
less the bank—
‘‘(I) publicly solicits brokerage
business, other than by advertising
that it effects transactions in securi-
ties in conjunction with advertising its
other activities; or
‘‘(II) 
receives 
incentive 
com-
pensation for such brokerage activi-
ties.
‘‘(iii) 
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank effects trans-
actions in exempted securities, other than
municipal securities, in commercial paper,
bankers 
acceptances, 
commercial 
bills,
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qualified Canadian Government obligations
as defined in section 5136 of the Revised
Statues, obligations of the Washington
Metropolitan Area Transit Authority which
are guaranteed by the Secretary of Trans-
portation under section 9 of the National
Capital Transportation Act of 1969, obli-
gations of the North American Develop-
ment Bank, and obligations of any local
public agency (as defined in section 110(h)
of the Housing Act of 1949) or any public
housing agency (as defined in the United
States Housing Act of 1937) that are ex-
pressly authorized by section 5136 of the
Revised Statutes of the United States as
permissible for a national bank to under-
write or deal in.
‘‘(iv) MUNICIPAL
SECURITIES.—The
bank effects transactions in municipal se-
curities.
‘‘(v) EMPLOYEE
AND
SHAREHOLDER
BENEFIT PLANS.—The bank effects trans-
actions as part of any bonus, profit-shar-
ing, pension, retirement, thrift, savings, in-
centive, stock purchase, stock ownership,
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stock appreciation, stock option, dividend
reinvestment, or similar plan for employees
or shareholders of an issuer or its subsidi-
aries.
‘‘(vi) SWEEP
ACCOUNTS.—The bank
effects transactions as part of a program
for the investment or reinvestment of bank
deposit funds into any no-load, open-end
management investment company reg-
istered under the Investment Company Act
of 1940 that holds itself out as a money
market fund.
‘‘(vii) AFFILIATE
TRANSACTIONS.—
The bank effects transactions for the ac-
count of any affiliate of the bank, as de-
fined in section 102(c) of the Financial
Services Holding Company Act.
‘‘(viii) PRIVATE
SECURITIES
OFFER-
INGS.—The bank—
‘‘(I) effects sales as part of pri-
mary offering of securities by an is-
suer, not involving a public offering,
pursuant to section 3(b), 4(2), or 4(6)
of the Securities Act of 1933 and the
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rules and regulations issued there-
under; and
‘‘(II) effects such sales exclu-
sively to an accredited investor, as de-
fined in section 3 of the Securities Act
of 1933.
‘‘(ix) DE
MINIMUS
EXEMPTION.—If
the bank does not have a subsidiary or af-
filiate registered as a broker or dealer
under section 15, the bank effects, other
than in transactions referred to in causes
(i) through (viii), not more than—
‘‘(I) 800 transactions in any cal-
endar year in securities for which a
ready market exists, and
‘‘(II) 200 other transactions in
securities in any calendar year.
‘‘(x) SAFEKEEPING
AND
CUSTODY
SERVICES.—The bank, as part of cus-
tomary banking activities—
‘‘(I) provides safekeeping or cus-
tody services with respect to securi-
ties, including the exercise of warrants
or other rights on behalf of customers;