481
‘‘(2) DEFINITIONS.—As used in this subsection
the term ‘Commission’ means the Securities and Ex-
change Commission.’’.
SEC. 206. DEFINITION AND TREATMENT OF BANKING PROD-
UCTS.
(a) DEFINITION
OF TRADITIONAL BANKING PROD-
UCT.—For purposes of paragraphs (4) and (5) of section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a) (4), (5)), the term ‘‘traditional banking product’’
means—
(1) a deposit account, savings account, certificate
of deposit, or other deposit instrument issued by a
bank;
(2) a banker’s acceptance;
(3) a letter of credit issued or loan made by a
bank;
(4) a debit account at a bank arising from a
credit card or similar arrangement;
(5) 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—
(A) to qualified investors; or
(B) to other persons that—
(i) have the opportunity to review and
assess any material information, including
482
information regarding the borrower’s credit-
worthiness; and
(ii) based on such factors as financial
sophistication, net worth, and knowledge
and experience in financial matters, have
the capability to evaluate the information
available, as determined under generally
applicable banking standards or guidelines;
(6) any derivative instrument, whether or not
individually negotiated, involving or relating to—
(A) foreign currencies, except options on
foreign currencies that trade on a national secu-
rities exchange;
(B) interest rates, except interest rate deriv-
ative instruments that—
(i) are based on a security or a group
or index of securities (other than govern-
ment securities or a group or index of gov-
ernment securities);
(ii) provide for the delivery of one or
more securities (other than government se-
curities); or
(iii) trade on a national securities ex-
change; or
483
(C) commodities, other rates, indices, or
other assets, except derivative instruments that—
(i) are securities or that are based on
a group or index of securities (other than
government securities or a group or index of
government securities);
(ii) provide for the delivery of one or
more securities (other than government se-
curities); or
(iii) trade on a national securities ex-
change; or
(7) any product or instrument that the Board of
Governors of the Federal Reserve System (hereafter in
this subsection referred to as the ‘‘Board’’), after con-
sultation with the Securities and Exchange Commis-
sion (hereafter in this section referred to as the ‘‘Com-
mission’’) determines to be a new banking product, by
regulation or order published in the Federal Register.
(b) OBJECTION BY THE SEC.—
(1) FILING
OF
PETITION
FOR
REVIEW.—The
Commission may obtain review of any regulation or
order described in subsection (a)(7) in the United
States Court of Appeals for the District of Columbia
Circuit by filing in such court, not later than 60 days
after the date of publication of the regulation or
484
order, a written petition requesting that the regula-
tion or order be set aside.
(2) TRANSMITTAL OF PETITION AND RECORD.—
A copy of a petition described in paragraph (1) shall
be transmitted as soon as possible by the Clerk of the
Court, to an officer or employee of the Board des-
ignated for that purpose. Upon receipt of the petition,
the Board shall file in the court the regulation or
order under review and any documents referred to
therein, and any other relevant materials prescribed
by the court.
(3) EXCLUSIVE JURISDICTION.—On the date of
the filing of the petition under paragraph (1), the
court has jurisdiction, which becomes exclusive on the
filing of the materials set forth in paragraph (2), to
affirm and enforce or to set aside the regulation or
order.
(4) STANDARD OF REVIEW.—
(A) IN
GENERAL.—The court shall deter-
mine to affirm and enforce or set aside the regu-
lation or order of the Board, based on the deter-
mination of the court as to whether the subject
product or instrument would be more appro-
priately regulated under the Federal banking
laws or the Federal securities laws, giving equal
485
deference to the views of the Board and the Com-
mission.
(B) CONSIDERATIONS.—In making a deter-
mination under subparagraph (A), the court
shall consider—
(i) the nature of the subject product or
instrument;
(ii) the history, purpose, extent, and
appropriateness of the regulation of the
product or instrument under the Federal
banking laws; and
(iii) the history, purpose, extent, and
appropriateness of the regulation of the
product or instrument under the Federal se-
curities laws.
(5) JUDICIAL
STAY.—The filing of a petition
pursuant to paragraph (1) shall operate as a judicial
stay of—
(A) any Commission requirement that a
bank register as a broker or dealer under section
15 of the Securities Exchange Act of 1934, be-
cause the bank engages in any transaction in, or
buys or sells, the product or instrument that is
the subject of the petition; and
486
(B) any Commission action against a bank
for a failure to comply with a requirement de-
scribed in subparagraph (A).
(c) CLASSIFICATION LIMITED.—Classification of a
particular product as a traditional banking product pursu-
ant to this section shall not be construed as finding or im-
plying that such product is or is not a security for any
purpose under the securities laws, or is or is not an account,
agreement, contract, or transaction for any purpose under
the Commodity Exchange Act.
(d) NO LIMITATION ON OTHER AUTHORITY TO CHAL-
LENGE.—Nothing in this section shall affect the right or
authority that the Securities and Exchange Commission,
any appropriate Federal banking agency, or any interested
party has under any other provision of law to object to or
seek judicial review as to whether a product or instrument
is or is not appropriately classified as a ‘‘traditional bank-
ing product’’ under paragraphs (1) through (7) of sub-
section (a).
(e) DEFINITIONS.—For purposes of this section—
(1) the term ‘‘bank’’ has the same meaning as in
section 3(a)(6) of the Securities Exchange Act of
1934;
487
(2) the term ‘‘qualified investor’’ has the same
meaning as in section 3(a)(55) of the Securities Ex-
change Act of 1934;
(3) the term ‘‘government securities’’ has the
same meaning as in section 3(a)(42) of the Securities
Exchange Act of 1934, and, for purposes of this sub-
section, commercial paper, bankers acceptances, and
commercial bills shall be treated in the same manner
as government securities;
(4) the term ‘‘Federal banking agency’’ has the
same meaning as in section 3(z) of the Federal De-
posit Insurance Act; and
(5) the term ‘‘new banking product’’ means a
product or instrument that—
(A) was not subject to regulation by the Se-
curities and Exchange Commission as a security
under the Securities Exchange Act of 1934, be-
fore the date of enactment of this Act; and
(B) is not a traditional banking product, as
defined in subparagraphs (A) through (F) of
paragraph (1).
488
SEC. 207. DERIVATIVE INSTRUMENT AND QUALIFIED INVES-
TOR DEFINED.
Section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)) is amended by adding at the end the
following new paragraphs:
‘‘(54) DERIVATIVE INSTRUMENT.—
‘‘(A) DEFINITION.—The term ‘derivative in-
strument’ means any individually 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 commodities, securities, currencies, interest
or other rates, indices, or other assets, but does
not include a traditional banking product, as de-
fined in section 206(a) of the Financial Services
Act of 1998.
‘‘(B) CLASSIFICATION
LIMITED.— Classi-
fication of a particular contract as a derivative
instrument pursuant to this paragraph shall not
be construed as finding or implying that such
instrument is or is not a security for any pur-
pose under the securities laws, or is or is not an
account, agreement, contract, or transaction for
any purpose under the Commodity Exchange
Act.
489
‘‘(55) QUALIFIED INVESTOR.—
‘‘(A) DEFINITION.—For purposes of this
title and section 206(a)(1)(E) of the Financial
Services Act of 1998, the term ‘qualified investor’
means—
‘‘(i) any investment company reg-
istered with the Commission under section 8
of the Investment Company Act of 1940;
‘‘(ii) any issuer eligible for an exclu-
sion from the definition of investment com-
pany pursuant to section 3(c)(7) of the In-
vestment Company Act of 1940;
‘‘(iii) any bank (as defined in para-
graph (6) of this subsection), savings and
loan association (as defined in section 3(b)
of the Federal Deposit Insurance Act),
broker, dealer, insurance company (as de-
fined in section 2(a)(13) of the Securities
Act of 1933), or business development com-
pany (as defined in section 2(a)(48) of the
Investment Company Act of 1940);
‘‘(iv) any small business investment
company licensed by the United States
Small Business Administration under sec-
490
tion 301(c) or (d) of the Small Business In-
vestment Act of 1958;
‘‘(v) any State sponsored employee
benefit plan, or any other employee benefit
plan, within the meaning of the Employee
Retirement Income Security Act of 1974,
other than an individual retirement ac-
count, if the investment decisions are made
by a plan fiduciary, as defined in section
3(21) of that Act, which is either a bank,
savings and loan association, insurance
company, or registered investment adviser;
‘‘(vi) any trust whose purchases of se-
curities are directed by a person described
in clauses (i) through (v) of this subpara-
graph;
‘‘(vii) any market intermediary ex-
empt under section 3(c)(2) of the Investment
Company Act of 1940;
‘‘(viii) any associated person of a
broker or dealer other than a natural per-
son;
‘‘(ix) any foreign bank (as defined in
section 1(b)(7) of the International Banking
Act of 1978);
491
‘‘(x) the government of any foreign
country;
‘‘(xi) any corporation, company, or
partnership that owns and invests on a dis-
cretionary basis, not less than $10,000,000
in investments;
‘‘(xii) any natural person who owns
and invests on a discretionary basis, not
less than $10,000,000 in investments;
‘‘(xiii) any government or political
subdivision, agency, or instrumentality of a
government who owns and invests on a dis-
cretionary basis not less than $50,000,000
in investments; or
‘‘(xiv) any multinational or supra-
national entity or any agency or instru-
mentality thereof.
‘‘(B) ADDITIONAL AUTHORITY.—The Com-
mission may, by rule or order, define a ‘qualified
investor’ as any other person, taking into consid-
eration such factors as the financial sophistica-
tion of the person, net worth, and knowledge and
experience in financial matters.’’.
493
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;
(2) by striking ‘‘(f) Every registered’’ and insert-
ing the following:
‘‘(f) CUSTODY OF SECURITIES.—
‘‘(1) Every registered’’;
(3) by redesignating the second, third, fourth,
and fifth sentences of such subsection as paragraphs
(2) through (5), respectively, and indenting the left
margin of such paragraphs appropriately; and
(4) by adding at the end the following new para-
graph:
‘‘(6) SERVICES AS TRUSTEE OR CUSTODIAN.—
The Commission may adopt rules and regulations,
and issue orders, consistent with the protection of in-
vestors, prescribing the conditions under which a
bank, or an affiliated person of a bank, either of
which is an affiliated person, promoter, organizer, or
494
sponsor of, or principal underwriter for, a registered
management company may serve as custodian of that
registered management company.’’.
(b) UNIT INVESTMENT TRUSTS.—Section 26 of the In-
vestment Company Act of 1940 (15 U.S.C. 80a–26) is
amended—
(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 regula-
tions, and issue orders, consistent with the protection of in-
vestors, prescribing the conditions under which a bank, or
an affiliated person of a bank, either of which is an affili-
ated person of a principal underwriter for, or depositor of,
a registered unit investment trust, may serve as trustee or
custodian under subsection (a)(1).’’.
(c) FIDUCIARY DUTY OF CUSTODIAN.—Section 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
495
(3) by inserting after paragraph (2) the follow-
ing:
‘‘(3) as custodian.’’.
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 paragraph (2);
(2) by striking the period at the end of para-
graph (3) and inserting ‘‘; or’’; and
(3) by adding at the end the following new para-
graph:
‘‘(4) to loan money or other property to such reg-
istered 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 in-
vestors.’’.
SEC. 213. INDEPENDENT DIRECTORS.
(a) IN GENERAL.—Section 2(a)(19)(A) of the Invest-
ment Company Act of 1940 (15 U.S.C. 80a–2(a)(19)(A))
is amended—
(1) by striking clause (v) and inserting the fol-
lowing new clause:
496
‘‘(v) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing 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 transactions for,
engaged in any principal transactions with,
or distributed shares for—
‘‘(I) the investment company;
‘‘(II) any other investment com-
pany having the same investment ad-
viser as such investment company or
holding itself out to investors as a re-
lated company for purposes of invest-
ment or investor services; or
‘‘(III) any account over which the
investment company’s investment ad-
viser has brokerage placement discre-
tion,’’;
(2) by redesignating clause (vi) as clause (vii);
and
(3) by inserting after clause (v) the following
new clause:
497
‘‘(vi) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
ing 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 property to—
‘‘(I) the investment company;
‘‘(II) any other investment com-
pany having the same investment ad-
viser as such investment company or
holding itself out to investors as a re-
lated company for purposes of invest-
ment or investor services; or
‘‘(III) any account for which the
investment company’s investment ad-
viser 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 inserting the fol-
lowing new clause:
‘‘(v) any person or any affiliated per-
son of a person (other than a registered in-
vestment company) that, at any time dur-
498
ing 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 transactions for,
engaged in any principal transactions with,
or distributed shares for—
‘‘(I) any investment company for
which the investment adviser or prin-
cipal underwriter serves as such;
‘‘(II) any investment company
holding itself out to investors, for pur-
poses of investment or investor services,
as a company related to any invest-
ment company for which the invest-
ment adviser or principal underwriter
serves as such; or
‘‘(III) any account over which the
investment adviser has brokerage place-
ment discretion,’’;
(2) by redesignating clause (vi) as clause (vii);
and
(3) by inserting after clause (v) the following
new clause:
‘‘(vi) any person or any affiliated per-
son of a person (other than a registered in-
499
vestment company) that, at any time dur-
ing 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 property to—
‘‘(I) any investment company for
which the investment adviser or prin-
cipal underwriter serves as such;
‘‘(II) any investment company
holding itself out to investors, for pur-
poses of investment or investor services,
as a company related to any invest-
ment company for which the invest-
ment adviser or principal underwriter
serves as such; or
‘‘(III) any account for which the
investment adviser has borrowing au-
thority,’’.
(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 affiliates and sub-
sidiaries) (as such terms are defined in section 2 of the
Bank Holding Company Act of 1956), except’’.
500
(d) EFFECTIVE DATE.—The amendments made by this
section shall take effect at the end of the 1-year period begin-
ning on the date of enactment of this subtitle.
SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY.
Section 35(a) of the Investment Company Act of 1940
(15 U.S.C. 80a–34(a)) is amended to read as follows:
‘‘(a) MISREPRESENTATION OF GUARANTEES.—
‘‘(1) IN GENERAL.—It shall be unlawful for any
person, issuing or selling any security of which a reg-
istered investment company is the issuer, to represent
or imply in any manner whatsoever that such secu-
rity or company—
‘‘(A) has been guaranteed, sponsored, rec-
ommended, or approved by the United States, or
any agency, instrumentality or officer of the
United States;
‘‘(B) has been insured by the Federal De-
posit Insurance Corporation; or
‘‘(C) is guaranteed by or is otherwise an ob-
ligation of any bank or insured depository insti-
tution.
‘‘(2) DISCLOSURES.—Any person issuing or sell-
ing the securities of a registered investment company
that is advised by, or sold through, a bank shall
prominently disclose that an investment in the com-
501
pany is not insured by the Federal Deposit Insurance
Corporation or any other government agency. The
Commission may adopt rules and regulations, and
issue orders, consistent with the protection of inves-
tors, prescribing the manner in which the disclosure
under this paragraph shall be provided.
‘‘(3) DEFINITIONS.—The terms ‘insured deposi-
tory institution’ and ‘appropriate Federal banking
agency’ have the same meanings as in section 3 of the
Federal Deposit Insurance Act.’’.
SEC. 215. DEFINITION OF BROKER UNDER THE INVEST-
MENT COMPANY ACT OF 1940.
Section 2(a)(6) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(6)) is amended to read as follows:
‘‘(6) The term ‘broker’ has the same meaning as
in section 3 of the Securities Exchange Act of 1934,
except that such term does not include any person
solely by reason of the fact that such person is an un-
derwriter for one or more investment companies.’’.
SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT
COMPANY ACT OF 1940.
Section 2(a)(11) of the Investment Company Act of
1940 (15 U.S.C. 80a–2(a)(11)) is amended to read as fol-
lows:
502
‘‘(11) The term ‘dealer’ has the same meaning as
in section 3 of the Securities Exchange Act of 1934,
but does not include an insurance company or invest-
ment company.’’.
SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINI-
TION OF INVESTMENT ADVISER FOR BANKS
THAT ADVISE INVESTMENT COMPANIES.
(a) INVESTMENT ADVISER.—Section 202(a)(11) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11))
is amended in subparagraph (A), by striking ‘‘investment
company’’ and inserting ‘‘investment company, except that
the term ‘investment adviser’ includes any bank or bank
holding company to the extent that such bank or bank hold-
ing company serves or acts as an investment adviser to a
registered investment company, but if, in the case of a bank,
such services or actions are performed through a separately
identifiable department or division, the department or divi-
sion, and not the bank itself, shall be deemed to be the in-
vestment adviser’’.
(b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DI-
VISION.—Section 202(a) of the Investment Advisers Act of
1940 (15 U.S.C. 80b–2(a)) is amended by adding at the
end the following:
‘‘(26) The term ‘separately identifiable depart-
ment or division’ of a bank means a unit—