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‘‘(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 regu-
lar 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:
‘‘(i) 
PERMISSIBLE
SECURITIES
TRANSACTIONS.—The bank buys or
sells—
‘‘(I) 
commercial 
paper,
bankers acceptances, or com-
mercial bills;
‘‘(II) exempted securities,
other 
than 
purchases 
and
sales of municipal revenue
bonds that a national bank is
not explicitly authorized to
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•HR 10 RH2
buy or sell for its own account
by the Seventh paragraph of
section 5136 of the Revised
Statutes of the United States
(as in effect on September 1,
1997) without percentage limi-
tation on the amount of the
investment for its own ac-
count;
‘‘(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
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such foreign government to
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 otherwise, of securities backed
by or representing an interest in
notes, drafts, acceptances, loans,
leases, receivables, other obliga-
tions, or pools of any such obliga-
tions 
predominantly 
originated
by the bank, or a syndicate of
banks of which the bank is a
member, or an affiliate of any
515
•HR 10 RH2
such bank other than a broker or
dealer.
‘‘(iv) TRANSACTIONS IN BANKING
PRODUCTS.—The 
bank 
buys 
or
sells banking products, as defined
in paragraph (54) of this sub-
section.
‘‘(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
$10,000,000 in investments, or
to or from a qualified inves-
tor, except that if the instru-
ment provides for the delivery
of one or more securities
(other than a derivative in-
strument or government secu-
rity), the transaction shall be
effected with or through a
516
•HR 10 RH2
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).’’.
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-
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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
effecting such sales.’’.
SEC. 204. GRIEVANCE PROCESS.
Section 18 of the Federal Deposit Insur-
ance Act is amended by adding at the end the
following new subsection:
‘‘(s) GRIEVANCE PROCESS WITH RESPECT TO
SECURITIES ACTIVITIES.—
‘‘(1) PROCEDURES
REQUIRED.—The ap-
propriate Federal banking agencies shall
jointly establish procedures and facilities
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•HR 10 RH2
for receiving and expeditiously process-
ing complaints against any bank or em-
ployee of a bank arising in connection
with the purchase or sale of a security by
a customer. The use of any such proce-
dures and facilities by such a customer
shall be at the election of the customer.
‘‘(2) REQUIRED
ACTIONS.—The actions
required by the Federal banking agencies
under paragraph (1) shall include the fol-
lowing:
‘‘(A) establishing a group, unit, or
bureau within each such agency to
receive such complaints;
‘‘(B) developing and establishing
procedures 
for 
investigating 
such
complaints;
‘‘(C) developing and establishing
procedures for informing customers
of the rights they may have in con-
nection with such complaints; and
‘‘(D) developing and establishing
procedures for resolving such com-
plaints, including procedures for the
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recovery of losses to the extent ap-
propriate.
‘‘(3) PROCEDURES IN ADDITION TO OTHER
REMEDIES.—The procedures and remedies
provided under this subsection shall be
in addition to, and not in lieu of, any
other remedies available under law.
‘‘(4) DEFINITION.—As used in this sub-
section, the term ‘security’ has the mean-
ing provided in section 3(a)(10) of the Se-
curities Exchange Act of 1934.’’.
SEC. 205. 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.—
‘‘(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-
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•HR 10 RH2
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. 206. BANKING PRODUCTS, DERIVATIVE INSTRUMENT,
AND QUALIFIED INVESTOR DEFINED.
Section 3(a) of the Securities Exchange
Act of 1934 is amended by adding at the end
the following new paragraphs:
‘‘(54) BANKING PRODUCT.—
‘‘(A) DEFINITION.—The term ‘bank-
ing product’ means—
‘‘(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;
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•HR 10 RH2
‘‘(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) by an employee of a
bank who is not also an em-
ployee of a broker or dealer to
other persons that—
‘‘(aa) have the oppor-
tunity to review and as-
sess any material informa-
tion, including informa-
tion regarding the bor-
rower’s creditworthiness;
and
‘‘(bb) based on such
factors as financial so-
phistication, 
net 
worth,
and knowledge and expe-
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•HR 10 RH2
rience in financial mat-
ters, have the capability
to evaluate the informa-
tion available; or
‘‘(vi) any derivative instru-
ment, whether or not individually
negotiated, involving or relating
to foreign currencies, except op-
tions on foreign currencies that
trade on a national securities ex-
change.
‘‘(B) 
CLASSIFICATION
LIMITED.—
Classification of a particular product
as a banking product pursuant to this
paragraph 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, agreement, contract,
or transaction for any purpose under
the Commodity Exchange Act.
‘‘(55) DERIVATIVE INSTRUMENT.—
‘‘(A) DEFINITION.—The term ‘deriv-
ative instrument’ means any individ-
ually negotiated contract, agreement,
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•HR 10 RH2
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 a banking
product.
‘‘(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 Commod-
ity Exchange Act.
‘‘(56) QUALIFIED INVESTOR.—
‘‘(A) DEFINITION.—The term ‘quali-
fied investor’ means—
‘‘(i) any investment company
registered with the Commission
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•HR 10 RH2
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);
‘‘(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;
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•HR 10 RH2
‘‘(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;
‘‘(vii) 
any 
market
intermediary exempt under sec-
tion 3(c)(2) of the Investment
Company Act of 1940;
‘‘(viii) any associated person
of a broker or dealer other than a
natural person; or
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•HR 10 RH2
‘‘(ix) any foreign bank (as de-
fined in section 1(b)(7) of the
International 
Banking 
Act 
of
1978).
‘‘(B) 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.’’.
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:
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•HR 10 RH2
‘‘(E) for purposes of section 15C as
applied to a bank, a qualified Cana-
dian government obligation as de-
fined in section 5136 of the Revised
Statutes.’’.
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.
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 inserting the following:
‘‘(f) CUSTODY OF SECURITIES.—
‘‘(1) Every registered’’;
(3) by redesignating the 2d, 3d, 4th,
and 5th sentences of such subsection as
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•HR 10 RH2
paragraphs (2) through (5), respectively,
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—
(1) by redesignating subsections (b)
through (e) as subsections (c) through (f),
respectively; and
(2) by inserting after subsection (a)
the following new subsection:
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•HR 10 RH2
‘‘(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.’’.
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—
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•HR 10 RH2
(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-
pany) that, at any time during the
6-month 
period 
preceding 
the
date 
of 
the 
determination 
of
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•HR 10 RH2
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 compa-
ny’s investment adviser has
brokerage placement discre-
tion,’’;
(2) by redesignating clause (vi) as
clause (vii); and
(3) by inserting after clause (v) the
following new clause:
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•HR 10 RH2
‘‘(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
‘‘(III) 
any 
account 
for
which the investment compa-
ny’s investment adviser has
borrowing authority,’’.
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•HR 10 RH2
(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,
‘‘(II) any investment com-
pany holding itself out to in-
vestors, for purposes of in-
vestment or investor services,
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•HR 10 RH2
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,
has loaned money or other prop-
erty to—
‘‘(I) any investment com-
pany for which the invest-
535
•HR 10 RH2
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
defined in section 2 of the Bank Holding Com-
pany Act of 1956), except’’.
(d) EFFECTIVE
DATE.—The amendments
made by this section shall take effect at the
536
•HR 10 RH2
end of the 1-year period beginning 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 se-
curity of which a registered investment
company is the issuer, to represent or
imply in any manner whatsoever that
such security or company—
‘‘(A) has been guaranteed, spon-
sored, recommended, or approved by
the United States, or any agency, in-
strumentality or officer of the United
States;
‘‘(B) has been insured by the Fed-
eral Deposit Insurance Corporation;
or
‘‘(C) is guaranteed by or is other-
wise an obligation of any bank or in-
sured depository institution.
537
•HR 10 RH2
‘‘(2) DISCLOSURES.—Any person issu-
ing or selling the securities of a reg-
istered investment company that is ad-
vised by, or sold through, a bank shall
prominently disclose that an investment
in the company is not insured by the Fed-
eral Deposit Insurance Corporation or
any other government agency. The Com-
mission may adopt rules and regulations,
and issue orders, consistent with the pro-
tection of investors, prescribing the man-
ner in which the disclosure under this
paragraph shall be provided.
‘‘(3) DEFINITIONS.—The terms ‘insured
depository institution’ and ‘appropriate
Federal banking agency’ have the mean-
ing given to such terms 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 Com-
pany 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 the Securities Exchange
538
•HR 10 RH2
Act of 1934, except that such term does
not include any person solely by reason
of the fact that such person is an under-
writer for one or more investment com-
panies.’’.
SEC. 216. DEFINITION OF DEALER UNDER THE INVEST-
MENT COMPANY ACT OF 1940.
Section 2(a)(11) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–2(a)(11)) is
amended to read as follows:
‘‘(11) The term ‘dealer’ has the same
meaning as in the Securities Exchange
Act of 1934, but does not include an in-
surance company or investment com-
pany.’’.
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 com-
pany, except that the term ‘investment ad-
viser’ includes any bank or bank holding com-
539
•HR 10 RH2
pany to the extent that such bank or bank
holding company serves or acts as an invest-
ment adviser to a registered investment com-
pany, but if, in the case of a bank, such serv-
ices or actions are performed through a sepa-
rately identifiable department or division, the
department or division, and not the bank it-
self, shall be deemed to be the investment ad-
viser’’.
(b) SEPARATELY IDENTIFIABLE DEPARTMENT
OR DIVISION.—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
department or division’ of a bank means
a unit—
‘‘(A) that is under the direct su-
pervision of an officer or officers des-
ignated by the board of directors of
the bank as responsible for the day-
to-day conduct of the bank’s invest-
ment adviser activities for one or
more investment companies, includ-
ing the supervision of all bank em-
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•HR 10 RH2
ployees engaged in the performance
of such activities; and
‘‘(B) for which all of the records
relating to its investment adviser ac-
tivities are separately maintained in
or extractable from such unit’s own
facilities or the facilities of the bank,
and such records are so maintained
or otherwise accessible as to permit
independent 
examination 
and 
en-
forcement by the Commission of this
Act or the Investment Company Act
of 1940 and rules and regulations pro-
mulgated under this Act or the In-
vestment Company Act of 1940.’’.
SEC. 218. DEFINITION OF BROKER UNDER THE INVEST-
MENT ADVISERS ACT OF 1940.
Section 202(a)(3) of the Investment Advis-
ers Act of 1940 (15 U.S.C. 80b–2(a)(3)) is
amended to read as follows:
‘‘(3) The term ‘broker’ has the same
meaning as in the Securities Exchange
Act of 1934.’’.
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SEC. 219. DEFINITION OF DEALER UNDER THE INVEST-
MENT ADVISERS ACT OF 1940.
Section 202(a)(7) of the Investment Advis-
ers Act of 1940 (15 U.S.C. 80b–2(a)(7)) is
amended to read as follows:
‘‘(7) The term ‘dealer’ has the same
meaning as in the Securities Exchange
Act of 1934, but does not include an in-
surance company or investment com-
pany.’’.
SEC. 220. INTERAGENCY CONSULTATION.
The Investment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.) is amended by inserting
after section 210 the following new section:
‘‘SEC. 210A. CONSULTATION.
‘‘(a) EXAMINATION RESULTS AND OTHER IN-
FORMATION.—
‘‘(1) The appropriate Federal banking
agency shall provide the Commission
upon request the results of any examina-
tion, reports, records, or other informa-
tion to which such agency may have ac-
cess with respect to the investment advi-
sory activities—
‘‘(A) of any—
‘‘(i) bank holding company,
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•HR 10 RH2
‘‘(ii) bank, or
‘‘(iii) separately identifiable
department or division of a bank,
that is registered under section 203 of
this title; and
‘‘(B) in the case of a bank holding
company or bank that has a subsidi-
ary or a separately identifiable de-
partment or division registered under
that section, of such bank or bank
holding company.
‘‘(2) The Commission shall provide to
the appropriate Federal banking agency
upon request the results of any examina-
tion, reports, records, or other informa-
tion with respect to the investment advi-
sory activities of any bank holding com-
pany, bank, or separately identifiable de-
partment or division of a bank, any of
which is registered under section 203 of
this title.
‘‘(b) EFFECT ON OTHER AUTHORITY.—Noth-
ing in this section shall limit in any respect
the authority of the appropriate Federal
banking agency with respect to such bank
543
•HR 10 RH2
holding company, bank, or department or di-
vision under any provision of law.
‘‘(c) DEFINITION.—For purposes of this sec-
tion, the term ‘appropriate Federal banking
agency’ shall have the same meaning as in
section 3 of the Federal Deposit Insurance
Act.’’.
SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS.
(a) SECURITIES
ACT
OF
1933.—Section
3(a)(2) of the Securities Act of 1933 (15 U.S.C.
77c(a)(2)) is amended by striking ‘‘or any in-
terest or participation in any common trust
fund or similar fund maintained by a bank ex-
clusively for the collective investment and re-
investment of assets contributed thereto by
such bank in its capacity as trustee, executor,
administrator, or guardian’’ and inserting ‘‘or
any interest or participation in any common
trust fund or similar fund that is excluded
from the definition of the term ‘investment
company’ under section 3(c)(3) of the Invest-
ment Company Act of 1940’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—
Section 3(a)(12)(A)(iii) of the Securities Ex-
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change Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii))
is amended to read as follows:
‘‘(iii) any interest or participation
in any common trust fund or similar
fund that is excluded from the defini-
tion of the term ‘investment company’
under section 3(c)(3) of the Invest-
ment Company Act of 1940;’’.
(c) INVESTMENT COMPANY ACT OF 1940.—
Section 3(c)(3) of the Investment Company
Act of 1940 (15 U.S.C. 80a–3(c)(3)) is amended
by inserting before the period the following:
‘‘, if—
‘‘(A) such fund is employed by the
bank solely as an aid to the adminis-
tration of trusts, estates, or other ac-
counts created and maintained for a
fiduciary purpose;
‘‘(B) except in connection with the
ordinary advertising of the bank’s fi-
duciary services, interests in such
fund are not—
‘‘(i) advertised; or
‘‘(ii) offered for sale to the
general public; and
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•HR 10 RH2
‘‘(C) fees and expenses charged by
such fund are not in contravention of
fiduciary 
principles 
established
under applicable Federal or State
law’’.
SEC. 222. INVESTMENT ADVISERS PROHIBITED FROM HAV-
ING 
CONTROLLING 
INTEREST 
IN 
REG-
ISTERED INVESTMENT COMPANY.
Section 15 of the Investment Company Act
of 1940 (15 U.S.C. 80a–15) is amended by add-
ing at the end the following new subsection:
‘‘(g) CONTROLLING INTEREST IN INVESTMENT
COMPANY PROHIBITED.—
‘‘(1) IN GENERAL.—If an investment ad-
viser to a registered investment company,
or an affiliated person of that investment
adviser, holds a controlling interest in
that registered investment company in a
trustee or fiduciary capacity, such person
shall—
‘‘(A) if it holds the shares in a
trustee or fiduciary capacity with re-
spect to any employee benefit plan
subject to the Employee Retirement
Income Security Act of 1974, transfer
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•HR 10 RH2
the power to vote the shares of the in-
vestment company through to an-
other person acting in a fiduciary ca-
pacity with respect to the plan who is
not an affiliated person of that invest-
ment adviser or any affiliated person
thereof; or
‘‘(B) if it holds the shares in a
trustee or fiduciary capacity with re-
spect to any person or entity other
than an employee benefit plan subject
to the Employee Retirement Income
Security Act of 1974—
‘‘(i) transfer the power to vote
the shares of the investment com-
pany through to—
‘‘(I) the beneficial owners
of the shares;
‘‘(II) another person act-
ing in a fiduciary capacity
who is not an affiliated per-
son of that investment adviser
or any affiliated person there-
of; or
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•HR 10 RH2
‘‘(III) any person author-
ized to receive statements and
information with respect to
the trust who is not an affili-
ated person of that invest-
ment adviser or any affiliated
person thereof;
‘‘(ii) vote the shares of the in-
vestment company held by it in
the same proportion as shares
held by all other shareholders of
the investment company; or
‘‘(iii) vote the shares of the in-
vestment company as otherwise
permitted under such rules, regu-
lations, or orders as the Commis-
sion may prescribe or issue con-
sistent with the protection of in-
vestors.
‘‘(2) EXEMPTION.—Paragraph (1) shall
not apply to any investment adviser to a
registered investment company, or any
affiliated person of that investment ad-
viser, that holds shares of the investment
company in a trustee or fiduciary capac-
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•HR 10 RH2
ity if that registered investment company
consists solely of assets held in such ca-
pacities.
‘‘(3) SAFE HARBOR.—No investment ad-
viser to a registered investment company
or any affiliated person of such invest-
ment adviser shall be deemed to have
acted unlawfully or to have breached a fi-
duciary duty under State or Federal law
solely by reason of acting in accordance
with clause (i), (ii), or (iii) of paragraph
(1)(B).’’.
SEC. 223. CONFORMING CHANGE IN DEFINITION.
Section 2(a)(5) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–2(a)(5)) is
amended by striking ‘‘(A) a banking institu-
tion organized under the laws of the United
States’’ and inserting ‘‘(A) a depository insti-
tution (as defined in section 3 of the Federal
Deposit Insurance Act) or a branch or agency
of a foreign bank (as such terms are defined
in section 1(b) of the International Banking
Act of 1978)’’.
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SEC. 224. CONFORMING AMENDMENT.
Section 202 of the Investment Advisers
Act of 1940 (15 U.S.C. 80b–2) is amended by
adding at the end the following new sub-
section:
‘‘(c) CONSIDERATION OF PROMOTION OF EFFI-
CIENCY, COMPETITION, AND
CAPITAL
FORMA-
TION.—Whenever pursuant to this title the
Commission is engaged in rulemaking and is
required to consider or determine whether an
action is necessary or appropriate in the pub-
lic interest, the Commission shall also con-
sider, in addition to the protection of inves-
tors, whether the action will promote effi-
ciency, competition, and capital formation.’’.
SEC. 225. EFFECTIVE DATE.
This subtitle shall take effect 90 days after
the date of the enactment of this Act.
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Subtitle 
C—Securities 
and 
Ex-
change Commission Supervision
of 
Investment 
Bank 
Holding
Companies
SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING
COMPANIES BY THE SECURITIES AND EX-
CHANGE COMMISSION.
(a) AMENDMENT.—Section 17 of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78q) is
amended—
(1) by redesignating subsection (i) as
subsection (l); and
(2) by inserting after subsection (h)
the following new subsections:
‘‘(i) INVESTMENT
BANK
HOLDING
COMPA-
NIES.—
‘‘(1) MANDATORY
SUPERVISION
OF
ANY
INVESTMENT BANK HOLDING COMPANY SUB-
STANTIALLY
ENGAGED
IN
THE
SECURITIES
BUSINESS, HAVING AN AFFILIATE THAT IS A
WHOLESALE FINANCIAL INSTITUTION.—
‘‘(A) MANDATORY SUPERVISION.—An
investment bank holding company
that—
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•HR 10 RH2
‘‘(i) is substantially engaged in
the securities business;
‘‘(ii) controls one or more
wholesale 
financial 
institutions
that, in the aggregate, have—
‘‘(I) 
consolidated 
risk-
weighted assets that are less
than $15,000,000,000; and
‘‘(II) annual gross reve-
nues that represent less than
25 percent of the consolidated
annual gross revenues of the
company;
‘‘(iii) does not control—
‘‘(I) a bank other than a
wholesale 
financial 
institu-
tion;
‘‘(II) 
an 
insured 
bank
other than an institution per-
mitted under subparagraph
(D), (F), or (G) of section
2(c)(2) of the Bank Holding
Company Act of 1956; or
‘‘(III) a savings associa-
tion;
552
•HR 10 RH2
‘‘(iv) is not a foreign bank;
and
‘‘(v) has not elected to be su-
pervised by the Board of Gov-
ernors of the Federal Reserve
System,
shall be regulated by the Commission
as a supervised investment bank
holding company in accordance with
this section and comply with the
rules promulgated by the Commission
applicable to supervised investment
bank holding companies.
‘‘(B) METHOD OF CALCULATION.—
‘‘(i) RISK-WEIGHTED
ASSETS.—
For purposes of subparagraph
(A)(ii)(I), the consolidated risk-
weighted assets of a wholesale fi-
nancial institution shall—
‘‘(I) be based on the aver-
age consolidated risk-weight-
ed assets of the institution for
the four previous calendar
quarters; and
553
•HR 10 RH2
‘‘(II) include risk-weighted
claims on affiliates only to the
extent such claims, in the ag-
gregate, exceed the aggregate
risk-weighted claims of affili-
ates on the wholesale finan-
cial institution.
For purposes of this clause, the
term ‘affiliates’ shall not include
any subsidiary of the wholesale fi-
nancial institution.
‘‘(ii) 
INDEXED
GROWTH.—The
dollar amount contained in sub-
paragraph (A)(ii)(I) shall be ad-
justed annually after December
31, 1998, by the annual percent-
age increase in the Consumer
Price Index for Urban Wage Earn-
ers and Clerical Workers pub-
lished by the Bureau of Labor
Statistics.
‘‘(2) ELECTIVE
SUPERVISION
OF
AN
IN-
VESTMENT
BANK
HOLDING
COMPANY
NOT
HAVING A BANK OR SAVINGS ASSOCIATION AF-
FILIATE.—
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•HR 10 RH2
‘‘(A) IN
GENERAL.—An investment
bank holding company that is not—
‘‘(i) an affiliate of a wholesale
financial institution, an insured
bank (other than an institution
described 
in 
paragraph
(1)(A)(iii)(II)), or a savings asso-
ciation,
‘‘(ii) a foreign bank, foreign
company, or company that is de-
scribed in section 8(a) of the
International 
Banking 
Act 
of
1978, or
‘‘(iii) a foreign bank that con-
trols, directly or indirectly, a cor-
poration chartered under section
25A of the Federal Reserve Act,
may elect to become supervised by fil-
ing with the Commission a notice of
intention to become supervised, pur-
suant to subparagraph (B) of this
paragraph. 
Any 
investment 
bank
holding company filing such a notice
shall be supervised in accordance
with this section and comply with the
555
•HR 10 RH2
rules promulgated by the Commission
applicable to supervised investment
bank holding companies.
‘‘(B) NOTIFICATION OF STATUS AS A
SUPERVISED INVESTMENT BANK HOLDING
COMPANY.—An investment bank hold-
ing company that elects under sub-
paragraph (A) to become supervised
by the Commission shall file with the
Commission a written notice of inten-
tion to become supervised by the
Commission in such form and con-
taining such information and docu-
ments concerning such investment
bank holding company as the Com-
mission, by rule, may prescribe as
necessary or appropriate in further-
ance of the purposes of this section.
Unless the Commission finds that
such supervision is not necessary or
appropriate in furtherance of the
purposes of this section, such super-
vision shall become effective 45 days
after receipt of such written notice by
the Commission or within such short-
556
•HR 10 RH2
er time period as the Commission, by
rule or order, may determine.
‘‘(3) WITHDRAWAL FROM SUPERVISION BY
THE
COMMISSION
AS
AN
INVESTMENT
BANK
HOLDING
COMPANY
FOR
COMPANIES
THAT
MUST CONTINUE TO BE SUPERVISED.—
‘‘(A) MANDATORY
WITHDRAWAL.—A
supervised investment bank holding
company that owns or controls one or
more wholesale financial institutions,
and ceases to meet any requirements
of paragraph (1), shall—
‘‘(i) file a written notice of
withdrawal from Commission su-
pervision upon such terms and
conditions as the Commission,
after consultation with the Board
of Governors of the Federal Re-
serve System, deems necessary or
appropriate;
‘‘(ii) provide a copy of such
notice to the Board of Governors
of the Federal Reserve System;
and
557
•HR 10 RH2
‘‘(iii) be supervised by the
Board of Governors of the Fed-
eral Reserve System under appli-
cable 
provisions 
of 
the 
Bank
Holding Company Act of 1956.
‘‘(B) VOLUNTARY
WITHDRAWAL.—A
supervised investment bank holding
company 
described 
in 
paragraph
(1)(A), upon such terms and condi-
tions as the Commission deems nec-
essary or appropriate after consulta-
tion with the Board of Governors of
the Federal Reserve System, may
elect not to be supervised by the
Commission by filing with the Com-
mission a written notice of with-
drawal from Commission supervision,
and shall provide a copy of such no-
tice to the Board of Governors of the
Federal Reserve System.
‘‘(C) EFFECTIVE
DATE
OF
WITH-
DRAWAL.—A written notice of with-
drawal from Commission supervision
pursuant to this paragraph shall be-
come effective 45 days after receipt
558
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by the Commission or such shorter or
longer period as the Commission, by
order, deems necessary or appro-
priate to prevent evasion of the pur-
poses of this section.
‘‘(D) REQUIRED
PROCEDURES.—The
Commission, after consultation with
the Board of Governors of the Fed-
eral Reserve System, shall, by rule,
establish standards and procedures
to require or permit, as appropriate,
supervised investment bank holding
companies described in paragraph
(1)(A) to withdraw from Commission
supervision pursuant to this para-
graph.
‘‘(4) ELECTION NOT TO BE SUPERVISED
BY THE COMMISSION AS AN INVESTMENT BANK
HOLDING
COMPANY
FOR
COMPANIES
THAT
ARE VOLUNTARILY REGULATED.—
‘‘(A) VOLUNTARY
WITHDRAWAL.—A
supervised investment bank holding
company that is supervised pursuant
to paragraph (2) may, upon such
terms and conditions as the Commis-
559
•HR 10 RH2
sion deems necessary or appropriate,
elect not to be supervised by the
Commission by filing a written notice
of withdrawal from Commission su-
pervision. Such notice shall not be-
come effective until one year after re-
ceipt by the Commission, or such
shorter or longer period as the Com-
mission deems necessary or appro-
priate to ensure effective supervision
of the material risks to the super-
vised investment bank holding com-
pany and to the affiliated broker or
dealer, or to prevent evasion of the
purposes of this section.
‘‘(B) DISCONTINUATION OF COMMIS-
SION SUPERVISION FOR COMPANIES THAT
ARE
VOLUNTARILY
REGULATED.—If the
Commission finds that any supervised
investment bank holding company
that is supervised pursuant to para-
graph (2) is no longer in existence or
has ceased to be an investment bank
holding company, or if the Commis-
sion finds that continued supervision
560
•HR 10 RH2
of such a supervised investment bank
holding company is not consistent
with the purposes of this section, the
Commission may discontinue the su-
pervision pursuant to a rule or order,
if any, promulgated by the Commis-
sion under this section.
‘‘(5) SUPERVISION OF INVESTMENT BANK
HOLDING COMPANIES.—
‘‘(A) RECORDKEEPING AND REPORT-
ING.—
‘‘(i) IN GENERAL.—Every super-
vised investment bank holding
company and each affiliate there-
of shall make and keep for pre-
scribed periods such records, fur-
nish copies thereof, and make
such reports, as the Commission
may require by rule, in order to
keep the Commission informed as
to—
‘‘(I) the company’s or af-
filiate’s 
activities, 
financial
condition, 
policies, 
systems
for monitoring and control-
561
•HR 10 RH2
ling financial and operational
risks, and transactions and
relationships 
between 
any
broker, dealer, or wholesale
financial institution affiliate
of the supervised investment
bank holding company; and
‘‘(II) the extent to which
the company or affiliate has
complied with the provisions
of this Act and regulations
prescribed and orders issued
under this Act.
‘‘(ii) FORM
AND
CONTENTS.—
Such records and reports shall be
prepared in such form and ac-
cording to such specifications (in-
cluding certification by an inde-
pendent public accountant), as
the Commission may require and
shall be provided promptly at any
time upon request by the Com-
mission. Such records and reports
may include—
562
•HR 10 RH2
‘‘(I) a balance sheet and
income statement;
‘‘(II) an assessment of the
consolidated capital of the su-
pervised 
investment 
bank
holding company;
‘‘(III) 
an 
independent
auditor’s report attesting to
the 
supervised 
investment
bank holding company’s com-
pliance with its internal risk
management 
and 
internal
control objectives; and
‘‘(IV) reports concerning
the extent to which the com-
pany or affiliate has complied
with the provisions of this
title and any regulations pre-
scribed 
and 
orders 
issued
under this title.
‘‘(B) USE OF EXISTING REPORTS.—
‘‘(i) IN GENERAL.—The Commis-
sion shall, to the fullest extent
possible, accept reports in fulfill-
ment of the requirements under
563
•HR 10 RH2
this paragraph that the super-
vised investment bank holding
company or its affiliates have
been required to provide to an-
other 
appropriate 
regulatory
agency or self-regulatory organi-
zation.
‘‘(ii) AVAILABILITY.—A super-
vised investment bank holding
company or an affiliate of such
company shall provide to the
Commission, at the request of the
Commission, any report referred
to in clause (i).
‘‘(C) EXAMINATION AUTHORITY.—
‘‘(i) FOCUS OF EXAMINATION AU-
THORITY.—The Commission may
make examinations of any super-
vised investment bank holding
company and any affiliate of such
company in order to—
‘‘(I) inform the Commis-
sion regarding—
‘‘(aa) the nature of the
operations and financial
564
•HR 10 RH2
condition of the super-
vised 
investment 
bank
holding company and its
affiliates;
‘‘(bb) the financial and
operational risks within
the supervised investment
bank 
holding 
company
that 
may 
affect 
any
broker, dealer, or whole-
sale financial institution
controlled by such super-
vised 
investment 
bank
holding company; and
‘‘(cc) the systems of
the supervised investment
bank 
holding 
company
and its affiliates for mon-
itoring 
and 
controlling
those risks; and
‘‘(II) monitor compliance
with the provisions of this
subsection, provisions govern-
ing transactions and relation-
ships between any broker or
565
•HR 10 RH2
dealer or wholesale financial
institution affiliated with the
supervised investment bank
holding company and any of
the company’s other affiliates,
and applicable provisions of
subchapter II of chapter 53,
title 31, United States Code
(commonly referred to as the
‘Bank Secrecy Act’) and regu-
lations thereunder.
‘‘(ii) RESTRICTED FOCUS OF EX-
AMINATIONS.—The 
Commission
shall limit the focus and scope of
any examination of a supervised
investment bank holding com-
pany to—
‘‘(I) the company;
‘‘(II) any affiliate of the
company (other than a whole-
sale 
financial 
institution)
that, because of its size, condi-
tion, or activities, the nature
or size of the transactions be-
tween such affiliate and any
566
•HR 10 RH2
affiliated broker, dealer, or
wholesale 
financial 
institu-
tion, or the centralization of
functions within the holding
company system, could, in the
discretion of the Commission,
have a materially adverse ef-
fect on the operational or fi-
nancial 
condition 
of 
the
broker or dealer or any affili-
ated wholesale financial insti-
tution; and
‘‘(III) any wholesale finan-
cial institution affiliate of an
investment bank holding com-
pany, for the purpose of mon-
itoring and enforcing compli-
ance by such a wholesale fi-
nancial institution or any of
its affiliates with the Federal
securities laws.
‘‘(iii) NOTICE.—To the fullest
extent possible, the Commission
shall notify the appropriate regu-
latory agency prior to conducting
567
•HR 10 RH2
an examination of a wholesale fi-
nancial institution.
‘‘(iv) DEFERENCE TO OTHER EX-
AMINATIONS.—For purposes of this
subparagraph, 
the 
Commission
shall, to the fullest extent pos-
sible, use the reports of examina-
tion of a wholesale financial insti-
tution or an institution described
in subparagraph (D), (F), or (G) of
section 2(c)(2) of the Bank Hold-
ing Company Act of 1956 made by
the appropriate regulatory agen-
cy, or of a licensed insurance
company made by the appro-
priate State insurance regulator.
‘‘(D) INFORMATION
SHARING.—The
Commission shall, upon request, pro-
vide to the appropriate regulatory
agency such reports, records, or other
information as the Commission has
available concerning any supervised
investment bank holding company de-
scribed in paragraph (1) or any of its
affiliates to assist the appropriate
568
•HR 10 RH2
regulatory agency in carrying out its
responsibilities under the Federal
banking laws.
‘‘(6) HOLDING COMPANY CAPITAL.—
‘‘(A) AUTHORITY.—If the Commis-
sion finds that it is necessary to ade-
quately supervise investment bank
holding companies and their broker,
dealer, or wholesale financial institu-
tion affiliates consistent with the pur-
poses of this subsection, the Commis-
sion may adopt capital adequacy
rules for supervised investment bank
holding companies.
‘‘(B) METHOD OF CALCULATION.—In
developing rules under this para-
graph:
‘‘(i) 
DOUBLE
LEVERAGE.—The
Commission shall consider the
use by the supervised investment
bank holding company of debt
and other liabilities to fund cap-
ital investments in affiliates.
‘‘(ii) NO
UNWEIGHTED
CAPITAL
RATIO.—The Commission shall not
570
•HR 10 RH2
models into its capital adequacy rules
for supervised investment bank hold-
ing companies.
‘‘(D) 
CONSULTATION
WITH
THE
BOARD.—The Commission shall con-
sult with the Board of Governors of
the Federal Reserve System in devel-
oping capital adequacy requirements
for investment bank holding compa-
nies described in paragraph (1).
‘‘(7) ACTIVITIES AND INVESTMENTS.—
‘‘(A) IN
GENERAL.—Supervised in-
vestment bank holding companies de-
scribed in paragraph (1) may acquire
and own the shares of a wholesale fi-
nancial 
institution 
in 
accordance
with section 3 of the Bank Holding
Company Act of 1956 and of any insti-
tution described in subparagraphs
(D), (F), and (G) of section 2(c)(2) of
such Act. Such companies may also
engage in activities, and may acquire
or retain ownership or control of
shares of any company engaged in
any activities, to the extent author-
571
•HR 10 RH2
ized by subparagraphs (B), (C), (D),
(E), and (G). Such investment bank
holding companies may not otherwise
engage directly or indirectly in activi-
ties or acquire and retain ownership
or control of the shares of companies.
‘‘(B) PERMISSIBLE FINANCIAL ACTIVI-
TIES AND INVESTMENTS.—
‘‘(i) IN GENERAL.—A supervised
investment bank holding com-
pany described in paragraph (1)
may engage in any activity, and
may directly or indirectly acquire
and retain ownership and control
of shares of any company engaged
in any activity—
‘‘(I) that is permissible for
a 
bank 
holding 
company
under section 4(c) (1) through
(14) of the Bank Holding Com-
pany Act of 1956; or
‘‘(II) that are financial in
nature or incidental to such
financial activities, as deter-
mined under clause (ii), or
572
•HR 10 RH2
that the Commission deter-
mines by rule, regulation, or
order pursuant to clause (iii)
to be financial in nature or in-
cidental to such financial ac-
tivities.
‘‘(ii) ACTIVITIES
THAT
ARE
FI-
NANCIAL
IN
NATURE.—The follow-
ing activities shall be considered
to be financial in nature:
‘‘(I) Lending, exchanging,
transferring, 
investing 
for
others, or safeguarding money
or securities.
‘‘(II) Insuring, guarantee-
ing, or indemnifying against
loss, harm, damage, illness,
disability, or death, or provid-
ing and issuing annuities, and
acting as principal, agent, or
broker for purposes of the
foregoing.
‘‘(III) Providing financial,
investment, or economic advi-
sory services, including advis-
573
•HR 10 RH2
ing an investment company
(as defined in section 3 of the
Investment Company Act of
1940).
‘‘(IV) Issuing or selling in-
struments representing inter-
ests in pools of assets permis-
sible for a bank to hold di-
rectly.
‘‘(V) Underwriting, dealing
in, or making a market in se-
curities.
‘‘(VI) Engaging in any ac-
tivity that the Board of Gov-
ernors of the Federal Reserve
System has determined, by
order or regulation that is in
effect on the date of enact-
ment of the Financial Services
Act of 1997, to be so closely re-
lated to banking or managing
or controlling banks as to be a
proper incident thereto (sub-
ject to the same terms and
conditions contained in such
574
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order or regulation, unless
modified by the Board).
‘‘(VII) Engaging, in the
United States, in any activity
that—
‘‘(aa) a bank holding
company may engage in
outside the United States;
and
‘‘(bb) 
the 
Board 
of
Governors of the Federal
Reserve System has deter-
mined, under regulations
issued pursuant to section
4(c)(13) of Bank Holding
Company Act (as in effect
on the day before the date
of enactment of the Finan-
cial Services Act of 1997)
to be usual in connection
with the transaction of
banking or other financial
operations abroad.
‘‘(VIII) Directly or indi-
rectly acquiring or control-
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•HR 10 RH2
ling, whether as principal, on
behalf of 1 or more entities
(including entities, other than
a depository institution or
subsidiary of a depository in-
stitution, that the investment
bank holding company con-
trols) or otherwise, shares, as-
sets, or ownership interests
(including without limitation
debt or equity securities, part-
nership interests, trust certifi-
cates or other instruments
representing ownership) of a
company 
or 
other 
entity,
whether or not constituting
control of such company or
entity, engaged in any activity
not authorized pursuant to
this section if—
‘‘(aa) the shares, as-
sets, or ownership inter-
ests are not acquired or
held by a depository insti-
576
•HR 10 RH2
tution or subsidiary of a
depository institution;
‘‘(bb) such shares, as-
sets, or ownership inter-
ests are acquired and held
by a securities affiliate or
an affiliate thereof as part
of a bona fide underwrit-
ing or merchant banking
activity, including invest-
ment activities engaged in
for the purpose of appre-
ciation and ultimate re-
sale or disposition of the
investment;
‘‘(cc) such shares, as-
sets, or ownership inter-
ests, are held only for
such a period of time as
will permit the sale or dis-
position thereof on a rea-
sonable basis consistent
with the nature of the ac-
tivities described in divi-
sion (bb); and
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•HR 10 RH2
‘‘(dd) during the pe-
riod such shares, assets,
or ownership interests are
held, the investment bank
holding company does not
actively participate in the
day to day management or
operation of such com-
pany or entity, except in-
sofar 
as 
necessary 
to
achieve the objectives of
division (bb).
‘‘(IX) Directly or indirectly
acquiring 
or 
controlling,
whether as principal, on be-
half of 1 or more entities (in-
cluding entities, other than a
depository institution or sub-
sidiary of a depository institu-
tion, that the investment bank
holding company controls) or
otherwise, shares, assets, or
ownership interests (includ-
ing without limitation debt or
equity securities, partnership
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•HR 10 RH2
interests, trust certificates or
other instruments represent-
ing ownership) of a company
or other entity, whether or
not constituting control of
such company or entity, en-
gaged in any activity not au-
thorized pursuant to this sec-
tion if—
‘‘(aa) the shares, as-
sets, or ownership inter-
ests are not acquired or
held by a depository insti-
tution or a subsidiary of a
depository institution;
‘‘(bb) such shares, as-
sets, or ownership inter-
ests are acquired and held
by an insurance company
that is predominantly en-
gaged 
in 
underwriting
life, accident and health,
or property and casualty
insurance 
(other 
than
credit-related insurance);
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‘‘(cc) such shares, as-
sets, or ownership inter-
ests represent an invest-
ment made in the ordi-
nary course of business of
such insurance company
in accordance with rel-
evant State law governing
such investments; and
‘‘(dd) during the pe-
riod such shares, assets,
or ownership interests are
held, the investment bank
holding company does not
directly or indirectly par-
ticipate in the day-to-day
management or operation
of the company or entity
except 
insofar 
as 
nec-
essary to achieve the ob-
jectives of divisions (bb)
and (cc).
‘‘(iii) ACTIONS
REQUIRED.—The
Commission shall, by regulation
or order, define, consistent with
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•HR 10 RH2
the purposes of this Act, the fol-
lowing activities as, and the ex-
tent to which such activities are,
financial in nature or incidental
to activities which are financial
in nature:
‘‘(A) Lending, exchanging,
transferring, 
investing 
for
others, or safeguarding finan-
cial assets other than money
or securities.
‘‘(B) Providing any device
or other instrumentality for
transferring money or other
financial assets;
‘‘(C) Arranging, effecting,
or facilitating financial trans-
actions for the account of
third parties.
‘‘(iv) CONSISTENCY
OF
INTER-
PRETATION.—The 
Commission
shall consult with the Board of
Governors of the Federal Reserve
System concerning the exercise of
its authority and responsibility
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•HR 10 RH2
under this subparagraph with re-
spect to investment bank holding
companies to assure, to the fullest
extent possible, the consistency of
interpretation and the mainte-
nance of competitive equality.
‘‘(C) 
PERMISSIBLE
NONFINANCIAL
ACTIVITIES AND INVESTMENTS.—
‘‘(i) IN GENERAL.—A supervised
investment bank holding com-
pany described in paragraph (1)
may engage in any activity not
permitted 
under 
subparagraph
(B) (hereinafter in this subpara-
graph and subparagraph (D) re-
ferred to as ‘nonfinancial activi-
ties’), and acquire and retain
ownership and control of shares
of any company engaged in any
such nonfinancial activity, if—
‘‘(I) the aggregate annual
gross revenues derived from
all such activities and of all
such companies does not ex-
ceed 5 percent of the consoli-
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•HR 10 RH2
dated annual gross revenues
of the supervised investment
bank holding company;
‘‘(II) the consolidated total
assets of any company the
shares of which are acquired
by 
such 
investment 
bank
holding company pursuant to
this subparagraph are less
than $750,000,000 at the time
such shares are acquired; and
‘‘(III) such company pro-
vides notice to the Commis-
sion within 30 days of com-
mencing the activity or ac-
quiring the ownership or con-
trol.
‘‘(ii) 
INCLUSION
OF
GRAND-
FATHERED
ACTIVITIES.—For 
pur-
poses of determining compliance
with 
the 
limits 
contained 
in
clause (i) of this subparagraph,
the gross revenues derived from
all activities conducted, and com-
panies the shares of which are
583
•HR 10 RH2
held, 
under 
subparagraph 
(D)
shall be considered to be derived
or held under this subparagraph.
‘‘(D) GRANDFATHERED ACTIVITIES.—
‘‘(i) 
IN
GENERAL.—Notwith-
standing subparagraph (C)(i), a
company that becomes a super-
vised investment bank holding
company described in paragraph
(1) may continue to engage, di-
rectly or indirectly, in any non-
financial activity and may retain
ownership and control of shares
of a company engaged in any non-
financial activity, if—
‘‘(I) on the date of enact-
ment of the Financial Services
Act of 1997, such investment
bank holding company was
lawfully engaged in that non-
financial activity, held the
shares of such company, or
had entered into a contract to
acquire shares of any com-
584
•HR 10 RH2
pany engaged in such activity;
and
‘‘(II) the company engaged
in such nonfinancial activity
continues to engage only in
the same activities that such
company conducted on the
date of enactment of the Fi-
nancial Services Act of 1997,
and other activities permis-
sible under this subsection.
‘‘(ii) NO EXPANSION OF GRAND-
FATHERED
COMMERCIAL
ACTIVITIES
THROUGH
MERGER
OR
CONSOLIDA-
TION.—An investment bank hold-
ing company described in para-
graph (1) that engages in activi-
ties or holds shares pursuant to
this paragraph, or a subsidiary of
such investment bank holding
company, may not acquire, in any
merger, consolidation, or other
type of business combination, as-
sets of any other company which
is engaged in any activity which
585
•HR 10 RH2
the Commission has not deter-
mined to be financial in nature or
incidental to activities that are fi-
nancial in nature under subpara-
graph (B).
‘‘(iii) LIMITATION TO SINGLE EX-
EMPTION.—No company that en-
gages in any activity or controls
any shares under subsection (f) or
(g) of section 6 of the Bank Hold-
ing Company Act of 1956 may en-
gage in any activity or own any
shares pursuant to this subpara-
graph or subparagraph (C).
‘‘(E) COMMODITIES.—
‘‘(i) IN
GENERAL.—An invest-
ment 
bank 
holding 
company
which 
was 
predominately 
en-
gaged as of January 1, 1997, in se-
curities activities in the United
States (or any successor to any
such company) may engage in, or
directly or indirectly own or con-
trol shares of a company engaged
in, activities related to the trad-
586
•HR 10 RH2
ing, sale, or investment in com-
modities and underlying physical
properties that were not permis-
sible for bank holding companies
to conduct in the United States as
of January 1, 1997, if such invest-
ment bank holding company, or
any subsidiary of such holding
company, was engaged directly,
indirectly, or through any such
company in any of such activities
as of January 1, 1997, in the Unit-
ed States.
‘‘(ii) 
LIMITATION.—Notwith-
standing subparagraph (C)(i)(I),
the attributed aggregate invest-
ment by an investment bank hold-
ing company in activities per-
mitted under this subparagraph
and not otherwise permitted for
all investment bank holding com-
panies under this subsection may
not exceed 5 percent of the cap-
ital of the investment bank hold-
ing company, except that the
587
•HR 10 RH2
Commission may increase such
percentage of capital by such
amounts and under such cir-
cumstances as the Commission
considers appropriate, consistent
with the purposes of this Act.
‘‘(iii) ATTRIBUTED
INVESTMENT
AMOUNT.—For purposes of clause
(ii), the amount of the investment
by an investment bank holding
company which are attributable
to activities described in such
clause shall be determined pursu-
ant to regulations issued by the
Commission which attribute cap-
ital on the basis of such activities
in relation to all activities of the
company.
‘‘(F) CROSS
MARKETING
RESTRIC-
TIONS.—A supervised investment bank
holding company described in para-
graph (1) shall not permit—
‘‘(i) 
any 
company 
whose
shares it owns or controls pursu-
ant to subparagraph (C) or (D), to
588
•HR 10 RH2
offer or market any product or
service of an affiliated wholesale
financial institution; or
‘‘(ii) any affiliated wholesale
financial institution to offer or
market any product or service of
any company whose shares are
owned or controlled by such in-
vestment bank holding company
pursuant to such subparagraphs.
‘‘(G) DEVELOPING
ACTIVITIES.—An
investment bank holding company de-
scribed in paragraph (1) may engage,
or 
directly 
or 
indirectly 
acquire
shares of any company engaged, in
any activity that the Commission has
not determined to be financial in na-
ture or incidental to financial activi-
ties under subparagraph (B) if—
‘‘(i) the holding company rea-
sonably concludes that the activ-
ity is financial in nature or inci-
dental to financial activities;
‘‘(ii) the gross revenues from
all activities conducted under this
589
•HR 10 RH2
subparagraph represent less than
5 percent of the consolidated
gross revenues of the holding
company;
‘‘(iii) the aggregate total as-
sets of all companies the shares of
which are held under this sub-
paragraph do not exceed 5 per-
cent of the holding company’s
consolidated total assets;
‘‘(iv) the total capital invested
in activities conducted under this
subparagraph 
represents 
less
than 5 percent of the consolidated
total capital of the holding com-
pany;
‘‘(v) the Commission has not
previously determined that the
activity is not financial in nature
or incidental to financial activi-
ties under subparagraph (B); and
‘‘(vi) 
the 
holding 
company
provides written notification to
the Commission describing the
activity commenced or conducted
590
•HR 10 RH2
by the company acquired no later
than 10 business days after com-
mencing 
the 
activity 
or 
con-
summating the acquisition.
‘‘(8) FUNCTIONAL REGULATION OF BANK-
ING
AND
INSURANCE
ACTIVITIES
OF
SUPER-
VISED
INVESTMENT
BANK
HOLDING
COMPA-
NIES.—The Commission shall defer to—
‘‘(A) the appropriate regulatory
agency with regard to all interpreta-
tions of, and the enforcement of, ap-
plicable banking laws relating to the
activities, conduct, ownership, and
operations of banks, wholesale finan-
cial institutions, and institutions de-
scribed in subparagraph (D), (F), and
(G) of section 2(c)(2) of the Bank
Holding Company Act of 1956; and
‘‘(B) the appropriate State insur-
ance regulators with regard to all in-
terpretations of, and the enforcement
of, applicable State insurance laws re-
lating to the activities, conduct, and
operations of insurance companies
and insurance agents.
595
•HR 10 RH2
bank holding company with the Fed-
eral securities laws.
‘‘(B) LIMITATION.—The Commission
shall limit the focus and scope of any
inspection under subparagraph (A) to
those transactions, policies, proce-
dures, or records that are reasonably
necessary to monitor and enforce
compliance by the investment bank
holding company or any affiliate with
the Federal securities laws.
‘‘(C) 
DEFERENCE
TO
EXAMINA-
TIONS.—To the fullest extent possible,
the Commission shall use, for the pur-
poses of this subsection, the reports
of examinations—
‘‘(i) made by the Board of Gov-
ernors of the Federal Reserve
System of any investment bank
holding company that is super-
vised by the Board;
‘‘(ii) made by or on behalf of
any State regulatory agency re-
sponsible for the supervision of