Recordkeeping and Confirmation Requirements for Securities Transactions

SUMMARY: The Office of the Comptroller of the Currency (OCC) is

proposing to revise its rules that prescribe recordkeeping and

confirmation requirements for securities transactions. This proposal is

another part of the OCC's Regulation Review Program to update and

streamline OCC regulations and reduce unnecessary regulatory costs and

other burdens. The proposal reorganizes the OCC's regulation by placing

related subjects together, clarifying areas where the rules are unclear

or confusing, incorporating significant OCC interpretations, and

updating various provisions to address market developments and

regulatory changes by other regulators that affect requirements for

recordkeeping and confirmation of securities transactions by national

banks.

DATES: Comments must be received by February 20, 1996.

ADDRESSES: Comments should be directed to: Communications Division,

Office of the Comptroller of the Currency, 250 E Street, SW,

Washington, DC 20219. Attention: Docket No. 95-30. In addition,

comments may be sent by fax to 202-874-5274 or by electronic mail to

[email protected] Comments will be available for public

inspection and photocopying at the same location.

FOR FURTHER INFORMATION CONTACT: Suzette H. Greco, Senior Attorney,

Securities and Corporate Practices Division (202-874-5210); Joseph W.

Malott, National Bank Examiner, Capital Markets Division (202-874-

5070); William L. Granovsky, National Bank Examiner, Compliance (202-

874-4861).

SUPPLEMENTARY INFORMATION:

Background

OCC Regulation Review Program

The OCC is proposing revisions to 12 CFR part 12 as part of its

Regulation Review Program. Pursuant to this Program, the OCC is

reviewing all its rules. Rules that are not necessary to protect

against unacceptable risks, that do not support equitable access to

banking services for all consumers, or that are not needed to

accomplish other statutory responsibilities of the OCC will be revised

or eliminated.

Where risks are meaningful and regulation is appropriate, the OCC

will examine its rules to determine if they achieve their purpose most

efficiently. In this regard, the OCC recognizes that one source of

regulatory cost is the failure of regulations to provide clear guidance

because they are difficult to follow and understand. Therefore, an

important component of the Regulation Review Program is to revise

regulations, where appropriate, to improve clarity and better

communicate the standards that the rules are intended to convey.

Revisions to 12 CFR part 12 present particular challenges in

several regards because the part implements requirements from different

statutory sources, addresses transactions of a specialized and often

technical nature, and currently is out of date in certain respects.

Recordkeeping and Confirmation Requirements for Securities Transactions

The OCC adopted part 12 on July 24, 1979 (44 FR 43252), to

establish requirements applicable to national banks effecting

securities transactions for customers, including recordkeeping and

confirmation requirements. The OCC amended part 12 on December 31, 1979

(44 FR 77137) to include additional suggestions recommended by

commenters, and the part became effective on January 1, 1980. The OCC

has not significantly changed part 12 since then.1

\1\ In 1979, the Board of Governors of the Federal Reserve

System (FRB) and the Federal Deposit Insurance Corporation (FDIC)

adopted regulations similar to part 12. See 12 CFR 208.8(k), 44 FR

43258 (July 24, 1979) (FRB regulation); 12 CFR part 344, 44 FR 43261

(July 24, 1979) (FDIC regulation). Since that time, neither of these

agencies has significantly changed these regulations, although

recently the FDIC adopted a regulation concerning authority to waive

certain requirements of part 344, similar to the authority in

Sec. 12.7(d) of part 12. See 60 FR 7111 (Feb. 7, 1995).

Consequently, the current regulations for all three Federal banking

agencies are very similar. The OCC and the other Federal banking

agencies have been meeting and discussing changes to the FRB's and

the FDIC's rules substantively similar to those proposed today by

the OCC.

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Since that time, there have been significant changes in securities

regulation and market practices. For example, Congress enacted the

Government Securities Act of 1986, 15 U.S.C. 78o-5, requiring the

registration of government securities brokers and dealers, including

financial institutions, and regulating transactions in government

securities. Recently, the Securities and Exchange Commission (SEC)

adopted amendments to its confirmation rule requiring additional

disclosures and restructuring the rule. See Securities Exchange Act of

1934 Rule 10b-10, 17 CFR 240.10b-10 (SEC Rule 10b-10).

Under SEC Rule 10b-10, the SEC requires a broker/dealer to send a

customer notification of a securities transaction at or before the

completion of the transaction. The SEC defines ``completion of the

transaction'' generally to be the time of payment or partial payment

and/or delivery of the security. See 17 CFR 240.10b-10(d)(2). The SEC

also has shortened the standard settlement period for broker/dealer

trades from five to three days (T+3 Settlement) effective on June 7,

1995. See Securities Exchange Act Release No. 33023, 58 FR 52891 (Oct.

13, 1993). In addition, for trades in government securities, next day

settlement is industry practice. Currently, part 12 generally requires

a national bank to send a customer notification of a securities

transaction within five business days from the date of the transaction.

Proposal

The proposal modernizes the rules in part 12 and reduces

unnecessary regulatory burdens, where possible. In

[[Page 66518]]

order to make part 12 more accessible and easier to use, the proposal

also restructures many sections and updates others by incorporating

significant OCC interpretive positions and reflecting regulatory

changes by other agencies. The following discussion identifies and

explains proposed changes. A Derivation Table identifying the proposed

changes and keying them to the current rule appears at the end of this

preamble.

The OCC requests comments on all aspects of the proposal, as well

as specific comments on changes in the rule.

Authority, Purpose, and Scope (Sec. 12.1)

The proposal revises the scope section (Sec. 12.1) to clarify the

securities transactions to which part 12 applies and identify the types

of transactions that are subject to other regulatory schemes. Paragraph

(c)(1) provides the rules of general applicability and paragraph (c)(2)

sets forth exemptions. Generally, any national bank effecting a

securities transaction for a customer is subject to the requirements of

part 12, unless the transaction specifically is exempted.

For example, the part 12 requirements apply to transactions in

mutual funds as well as other securities. While investment companies,

commonly referred to as mutual funds, must register with the SEC under

the Investment Company Act of 1940 (Investment Company Act), 15 U.S.C.

80a-1 et seq., and are subject to numerous legal requirements,2

the requirements of part 12 govern national banks effecting trades for

customers in mutual fund shares. Some requirements of the Investment

Company Act and its regulations also may apply to national banks

providing services to an investment company or acting as the investment

company's investment adviser. See e.g., 15 U.S.C. 80a-17; 15 U.S.C.

80a-30; 17 CFR 270.17j-1; 17 CFR 270.31a-1.

\2\ The Investment Company Act and its implementing regulations

contain various provisions relating to the formation and operation

of an investment company, including provisions on the distribution

and pricing of shares, fiduciary duties of directors, transactions

with affiliates, permissible capital structures, disclosure and

reporting requirements, and other requirements. See 15 U.S.C. 80a-1

et seq.; 17 CFR part 270. Investment companies also may need to

register their shares under the Securities Act of 1933. See 15

U.S.C. 77a et seq.

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The OCC recognizes that national banks may enter into various

arrangements with registered broker/dealers that permit the broker/

dealers to operate on the bank's premises. Part 12 generally does not

apply to securities transactions effected by these broker/dealers for

their customers. As registered broker/dealers, they already are subject

to the SEC's recordkeeping and confirmation rules. If, however, the

bank is using this broker/dealer to clear securities transactions

effected by the bank for the bank's own customers, then the

requirements of part 12 would apply to the bank.

Government Securities Transactions

National banks conducting government securities transactions for

their customers also are within the scope of part 12. Government

securities are defined in section 3(a)(42) of the Securities Exchange

Act of 1934 (15 U.S.C. 78c(a)(42)), and include but are not limited to

United States Treasury securities and securities issued or guaranteed

by Federal government agencies and government-sponsored enterprises.

The Department of the Treasury, under its authority pursuant to the

Government Securities Act of 1986 (GSA), 15 U.S.C. 78o-5, has issued

regulations in 17 CFR parts 400 through 405, 449, and 450, applicable

to many government securities transactions by national banks (GSA

regulations). The GSA regulations define the terms ``government

securities broker'' and ``government securities dealer'' to include

financial institutions. See 17 CFR 400.3 (k) and (l). Part 404 of the

GSA regulations provides specific recordkeeping requirements for

government securities brokers and dealers that are financial

institutions. See 17 CFR 404.4.

National banks, because they are subject to part 12 recordkeeping

requirements, are not required to follow the recordkeeping requirements

of the GSA regulations at 17 CFR 404.2 and 404.3. See 17 CFR 404.4(a).

National banks, however, must follow other recordkeeping requirements

under the GSA regulations. See 17 CFR 404.4(a)(3), (b), and 450.4(c),

(d), and (f). Part 12 confirmation requirements apply to all government

securities transactions by national banks.

Consistent with the GSA regulations, proposed Sec. 12.1(c)(2)(ii)

exempts a national bank that conducts fewer than 500 government

securities brokerage transactions per year from complying with the

recordkeeping requirements under proposed (and current) Sec. 12.3. See

17 CFR 401.3(a)(2)(i) and 404.4(a). This exemption does not apply to

government securities dealer transactions by national banks, however.

Staff at the Bureau of the Public Debt, which is the organization

within the Department of the Treasury that is responsible for

administering 17 CFR 404.4(a), has advised us that they are considering

amending this regulation to clarify any ambiguity resulting from the

interplay of the regulation and current Sec. 12.7(a) (proposed

Sec. 12.1(c)(2)(i)), with respect to recordkeeping requirements for

financial institutions that conduct government securities dealer

transactions.

Municipal Securities Transactions

The proposed ``scope'' section (Sec. 12.1(c)(1)) also clarifies

that a national bank's transactions in municipal securities that are

not subject to the Municipal Securities Rulemaking Board's (MSRB)

rules, are subject to part 12. The MSRB adopts rules with respect to

transactions in ``municipal securities'' effected by brokers, dealers,

and ``municipal securities dealers.'' See 15 U.S.C. 78o-4; Rules of the

MSRB, MSRB Manual (CCH) para. 3501 et seq. Municipal securities are

defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15

U.S.C. 78c(a)(29)) (Exchange Act), and include but are not limited to

debt obligations of a state of the United States or a political

subdivision, such as a county, city, town, village, or municipal

authority, and revenue bonds. As defined in the Exchange Act, a

``municipal securities dealer'' includes a bank, as well as a

``separately identifiable department or division of a bank,'' that is

engaged in the business of buying and selling municipal securities for

its own account through a broker or otherwise. See 15 U.S.C.

78c(a)(30). Under the SEC's regulatory scheme, however, a bank need not

register as a ``municipal securities broker.'' See 15 U.S.C. 78c(a)(4)

and (31).

Thus, under proposed Sec. 12.1(c)(2)(iii), transactions in

municipal securities conducted by a national bank registered with the

SEC as a ``municipal securities dealer'' are exempt from part 12.

However, municipal securities brokerage transactions by a national bank

not registered as a municipal securities dealer are subject to part 12

requirements.

Other Transactions and Exemptions

The ``scope'' section further provides that both 12 CFR parts 9 and

12 apply to a national bank's securities transactions effected as a

fiduciary, including transactions effected for a collective investment

fund (Sec. 12.1(c)(1)). Finally, the proposed ``scope'' section, in the

exemptions paragraph (Sec. 12.1(c)(2)), includes the current rule's

exception from certain requirements of part 12 for banks with an

average of

[[Page 66519]]

fewer than 200 securities transactions per year for customers, over the

prior three calendar year period, not including transactions in

government securities. The exemptions paragraph also restates the

current rule's exemption from part 12 requirements for activities of a

foreign branch of a national bank.

Safe and Sound Operations

Under proposed Sec. 12.1(c)(3), the proposal clarifies that

notwithstanding the exemptions from part 12, the OCC expects a national

bank conducting securities transactions for its customers to maintain

effective systems of records and controls to ensure safe and sound

operations. Since national banks already are obligated to conduct their

operations in a safe and sound manner, this addition does not impose

any new requirements; rather, it emphasizes the importance of effective

systems with respect to all securities transactions.

Definitions (Sec. 12.2)

The proposal clarifies and modernizes Sec. 12.2, the definitions

section, by adding several definitions and modifying several others.

The proposal defines ``crossing of buy and sell orders,'' a term used

in proposed Sec. 12.7(a)(3) (current Sec. 12.6(c)). It also adds a new

definition of ``completion of the transaction,'' a term used in

proposed Sec. 12.4 (a) and (b). The proposed definition is based on

that used in SEC Rule 10b-10, the SEC's rule for confirmation of

transactions by broker/dealers. See 17 CFR 240.10b-10(d)(2), citing

Securities Exchange Act of 1934 Rule 15c1-1, 17 CFR 240.15c1-1(b). The

proposal clarifies the definition of ``customer'' (Sec. 12.2(e)) by

removing the term ``dealer bank'' and inserting that a ``bank acting as

a broker or dealer'' is not a customer.

For purposes of Sec. 12.4(b) (8) and (9), the proposal adds a

definition of ``debt security'' consistent with the SEC's definition

under Rule 10b-10, 17 CFR 240.10b-10. The proposal also adds a

definition of ``asset-backed security,'' which is the same as that in

the SEC's Rule 10b-10, 17 CFR 240.10b-10.

The proposal also adds definitions of ``government security'' and

``municipal security'' which are intended to have the same meaning as

those terms have under the Securities Exchange Act of 1934. See 15

U.S.C. 78c(a)(42) and (a)(29). In addition, the proposed definition of

``security'' more closely tracks the definition of security in the

Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10), with an

exception for certain instruments, such as foreign currency and various

bank instruments. However, the proposal makes clear that the OCC may

determine whether an instrument is a security for purposes of part 12.

Recordkeeping (Sec. 12.3)

The proposed recordkeeping provision in Sec. 12.3 is similar to

current Sec. 12.3. A bank effecting securities transactions for

customers must maintain, for at least three years, chronological

records of original entry containing an itemized daily record of all

purchases and sales of securities, account records for customers, and

the written notifications to customers required by proposed (and

current) Sec. 12.4. The proposal also clarifies that a bank must

maintain a copy of any alternative form of written notification that it

uses pursuant to proposed Sec. 12.5.

The proposal retains the current provision permitting a bank to

maintain the required records in any manner, if the records clearly and

accurately reflect the information required and provide an adequate

basis for auditing the information (Sec. 12.3(b)).

The OCC seeks comments as to whether and in what manner banks rely

upon this provision (proposed Sec. 12.3(b)) and whether it serves a

useful purpose.

Form and Time of Customer Notification (Sec. 12.4); Alternative Forms

and Times of Customer Notification (Sec. 12.5)

The proposal reorganizes current Secs. 12.4 and 12.5. Under the

proposed sections, a bank has several alternatives from which it may

choose to provide the required written notification to a customer for

whom the bank has effected a securities transaction.

As under current part 12, a bank may elect to provide notification

through: (1) A copy of a broker/dealer confirmation and statement

regarding the source and amount of remuneration that the customer or

any other source is to provide the bank (Sec. 12.4(a)); (2) a written

notification that includes information such as the date of execution of

the transaction, the price and number of shares or units purchased or

sold, the capacity in which the bank is acting (as agent, principal, or

otherwise), and the amount of remuneration received by the bank and by

any broker/dealer in connection with the transaction (Sec. 12.4(b)); or

(3) an alternative form of notification permitted for a specific type

of customer transaction or account, for example, a transaction where

the bank exercises investment discretion in an agency capacity or

effects a transaction for a periodic plan (Sec. 12.5(a) through (d)).

The proposal moves current Sec. 12.5(a) regarding notification for a

transaction where the bank does not exercise investment discretion to

Sec. 12.4(c).

The proposal provides that if a bank opts to fulfill its customer

notification requirement through compliance with either of these first

two means (Sec. 12.4(a) and (b)), the bank must give or send the

notification at or before the completion of the transaction. Proposed

Sec. 12.2(c) defines the term ``completion of the transaction,'' which

generally means the payment of funds and delivery of securities, i.e.

the settlement of the securities transaction. Sending the notification

at or before completion of the transaction is consistent with the SEC's

confirmation rule, SEC Rule 10b-10. See 17 CFR 240.10b-10(a). The SEC

similarly defines ``completion of the transaction.'' See 17 CFR

240.10b-10(d)(2).

Currently, Sec. 12.5 requires a national bank that effects a

securities transaction to send written notification to its customer

within five business days from the date of the transaction or within

five business days from receipt by the bank of a broker/dealer's

confirmation (unless the bank uses a notification permitted for a

specific type of customer transaction or account). When the OCC first

adopted part 12, this five day period was consistent with the generally

recognized industry practice of having the settlement of a securities

transaction on the fifth business day after the trade day, (T+5). On

October 13, 1993, however, the SEC published a securities settlement

rule, effective June 7, 1995, requiring the payment of funds and

delivery of most securities by the third business day after the date of

the contract (T+3). See Securities and Exchange Act of 1934 Rule 15c6-

1, 17 CFR 240.15c6-1, 58 FR 52891. Thus, the current Sec. 12.5 five day

period is inconsistent with the new T+3 settlement cycle. Since

settlement will occur within three days, the OCC, by adopting the ``at

or before completion of the transaction'' timeframe, reflects current

securities industry practice. Consistent with the SEC, the OCC also is

adopting a T+3 securities settlement rule as discussed subsequently

under Sec. 12.9.

The OCC welcomes comments on whether providing written notification

``at or before completion of the transaction'' is an appropriate

requirement for a national bank in proposed Sec. 12.4(a) and (b).

The OCC also specifically requests comments on the need for

additional time by banks opting to provide notification by using a copy

of the broker/dealer's confirmation, as is currently permitted in

Sec. 12.5 (five business days from receipt).

[[Page 66520]]

Proposed Sec. 12.4(c) retains the current Sec. 12.5(a) option for

the bank and the customer to agree in writing to a different time and

form of notification for a securities transaction where the national

bank does not exercise investment discretion. This paragraph, captioned

``notification by agreement,'' also provides that the arrangement must

specify the customer's right to receive the written notification as

provided in Sec. 12.4(a) or (b) at no additional cost.

The form of the notification required under proposed Sec. 12.4(a)

is similar to current Sec. 12.4(a). Both require the bank to provide a

copy of the broker/dealer confirmation and a statement regarding

remuneration that the customer or any other source is to provide the

bank. Alternatively, the bank may choose to provide its customer a

written notification as described in proposed Sec. 12.4(b) (current

Sec. 12.4(b)). The proposed Sec. 12.4(b) form of notification requires

the bank to notify the customer about the amount of any remuneration

the customer or any other source is to provide the bank, and any

remuneration from the customer to any broker/dealer in connection with

the transaction. As with current Sec. 12.4(b), the notification under

proposed Sec. 12.4(b) also must include other information regarding the

securities involved in the transaction, the capacity in which the bank

is acting (as agent, principal, or otherwise), and the use of any

broker/dealer. By providing the notification, the bank gives its

customers an opportunity to verify the terms of their transactions and

evaluate the accuracy of the bank's execution.

Under proposed Sec. 12.4(b)(6), the bank may choose not to disclose

the source and amount of any other remuneration to the bank, if the

written notification contains the following two statements: first,

whether the bank has received or will receive any other remuneration;

and, second, that the bank will furnish the source and amount of the

other remuneration upon the customer's written request. A bank may not

use this option if, in the case of a purchase, the bank is

participating in a distribution of the security, or in the case of a

sale, the bank is participating in a tender offer. This proposed option

is new and reflects the option concerning disclosure of other

remuneration contained in SEC Rule 10b-10, 17 CFR 240.10b-

10(a)(2)(i)(D).

The OCC seeks specific comments on inclusion of this proposed

modification concerning the disclosure of other remuneration.

The SEC, on November 17, 1994, published a final rule adopting

amendments to SEC Rule 10b-10 requiring the disclosure of additional

information on the broker/dealer confirmation. See Securities Exchange

Act Release No. 34962, 59 FR 59612. Among other items, SEC Rule 10b-10

now requires disclosure concerning a debt security that has not been

rated by a nationally recognized statistical rating organization and

the fluctuation of yield with respect to certain asset-backed

securities. See 17 CFR 240.10b-10(a)(7) and (8). The SEC also expanded

the range of debt securities where yield need not be disclosed to

include any asset-backed security subject to continuous prepayment. See

17 CFR 240.10b-10(a)(5) and (6). The OCC recognizes that this type of

information may be important to bank customers evaluating the merits of

investing in various debt securities.

Consistent with SEC Rule 10b-10, the proposal adds Sec. 12.4(b)(8),

(9), (10), and (11), requiring disclosure of yield information on debt

securities. The proposal also adds Sec. 12.4(b)(12) requiring

disclosure that a debt security that has not been rated by a nationally

recognized statistical rating organization. While the proposal

incorporates these additional disclosures, the OCC is interested in

commenters' views on the applicability of these disclosures to national

banks' securities activities. The OCC may revise its proposal.

The OCC seeks comments on whether banks engage in transactions in

unrated securities and the need for requiring disclosure of information

in the written notification to customers regarding unrated securities

and yield information on debt securities, similar to the SEC

requirements under SEC Rule 10b-10.

The OCC also seeks comments on whether it should require the

disclosure of any other information describing the security in the

written notification to customers.

SEC Rule 10b-10(c) also contains a provision requiring broker/

dealers to furnish to customers requested information within five

business days of the receipt of the request, or within 15 business days

if the broker/dealer effected the transaction more than 30 days before

the receipt of the request. See 17 CFR 240.10b-10(c). Part 12 currently

does not contain a similar provision.

The OCC requests comments on whether it should include a provision

similar to SEC Rule 10b-10(c) stating the required period of time for a

bank to furnish information pursuant to a customer's request.

In addition to Sec. 12.4, the proposal also authorizes alternative

forms and times of notification under Sec. 12.5(a) through (d) for

certain specific types of transactions. These are: (1) Transactions in

which the bank exercises investment discretion in other than an agency

capacity (except for collective investment funds); (2) transactions in

which the bank exercises investment discretion in an agency capacity;

(3) transactions for a collective investment fund; and (4) transactions

for a periodic plan.

Proposed Sec. 12.5 includes captions generally characterizing the

transactions covered under each paragraph. For example, Sec. 12.5(a),

captioned ``trust transactions,'' concerns transactions for an account

in which the bank exercises investment discretion other than in an

agency capacity, e.g. a bank providing traditional trust services as

directed by a will or a trust. Under Sec. 12.5(b), captioned ``agency

transactions,'' the bank exercises investment discretion in an agency

capacity and may provide fiduciary services; however, the bank is not

named as trustee, e.g. the bank acting as a managing agent. The

captions are intended to provide practical assistance and are not

precise terms.

In a change from current Sec. 12.5, the availability of the first

two alternative forms of notification (Sec. 12.5(a) and (b)) depends on

the capacity in which the bank effects the securities transaction for

its customer, and not on the form of the account. Thus, this change

clarifies that the transaction triggers the part 12 requirements and

dictates the permissible form and time of notification.

The OCC invites comments about any effects of the proposed change

regarding alternative forms of notification based upon types of

transactions instead of accounts. The OCC also specifically requests

comments on the continuing need for the different forms of alternative

notification provided in proposed Sec. 12.5.

Consequently, under the proposal, if a bank effects a securities

transaction for a fiduciary account where the customer has the right to

direct the transaction and does so, the forms of notification available

for use by the bank are the same as for transactions where the bank

does not exercise investment discretion (except for periodic plans), in

other words, Sec. 12.4(a), (b), or (c). Hence, as an alternative to

Sec. 12.4(a) or (b), the bank could provide the notification under

Sec. 12.4(c). However, the bank could not provide notification in the

same manner as for a fiduciary account transaction that the customer

did not direct, as in Sec. 12.5(a). Therefore, the bank does not have

the option of providing notification as in Sec. 12.5(a) only upon the

[[Page 66521]]

request of the person having the power to terminate the account, or, if

there is no such person, upon the request of any person holding a

vested beneficial interest in the account.

The OCC seeks specific comments regarding whether this result

clarifies the existing part 12 requirements and is the appropriate form

of notification for securities transactions in a fiduciary account

where the customer directs the transaction.

With respect to transactions for a periodic plan (Sec. 12.5(d)),

the proposal changes the time for notification. Currently part 12

requires a national bank to furnish a written statement ``as promptly

as possible'' after each transaction for a periodic plan

(Sec. 12.5(e)). Instead, proposed Sec. 12.5(d) requires the bank to

furnish the written statement not less than once every three months.

This change is consistent with similar provisions under the securities

laws. Otherwise, the notification requirements for periodic plan

transactions remain the same.

The OCC request comments on the proposed change in notification to

not less than once every three months for periodic plan transactions

under Sec. 12.5(d) rather than notification as promptly as possible

after each transaction.

Fees (Sec. 12.6)

The proposal places the provisions regarding fees (Secs. 12.4 and

12.5) into Sec. 12.6. It does not change the substance of these

provisions.

Securities trading policies and procedures (Sec. 12.7)

The proposal retains the current requirement that a bank establish

written policies and procedures for trading practices, but places new

emphasis on following these written policies and procedures. The

proposal also relocates these provisions from Sec. 12.6 to Sec. 12.7.

With respect to proposed Sec. 12.7(a)(4), the proposal clarifies

that bank officers and employees must provide a report to the bank

containing specific information on certain trades, and the bank must

establish written policies and procedures requiring these reports.

While current Sec. 12.6(d) states that the report must ``identify'' the

securities purchased and sold, proposed Sec. 12.7(b) clarifies the

information necessary for banks to identify the securities, including

the title and number of shares, the principal amount of each security

involved, and the price at which the transaction was effected.

The OCC seeks comments as to whether enumeration of the information

required in these reports will assist banks, and officers and

employees, in complying with this requirement.

The proposal also revises one of the exceptions to the reporting

requirements for securities transactions for the benefit of certain

bank officers or employees to make clear that the reporting exception

applies only if the transactions involve an aggregate amount of

purchases and sales per officer or employee of $10,000 or less during a

calendar quarter.

The proposal also clarifies that a national bank acting as an

investment adviser to an investment company is subject to section 17 of

the Investment Company Act, 15 U.S.C. 80a-17, and, in particular, the

requirements of Rule 17j-1 of the Investment Company Act, 17 CFR

270.17j-1 (SEC Rule 17j-1). Generally, SEC Rule 17j-1 requires that an

investment adviser to a registered investment company adopt a written

code of ethics, and that certain defined ``access persons'' of the

investment adviser, including directors, officers, and certain

employees, report personal securities transactions to the investment

adviser. See 17 CFR 270.17j-1(e)(1).

The requirement under proposed Sec. 12.7(a)(4) concerning the

reporting by bank officers and employees of securities transactions in

which they have a beneficial interest is in addition to the applicable

requirements under the Investment Company Act and SEC Rule 17j-1. Banks

should recognize that the part 12 requirements, in some respects, are

broader than those under the Investment Company Act because they apply

to investment advisory activities by national banks whether the bank

provides the advice to an investment company or to another type of

customer.

The OCC welcomes any comments on this proposed addition to the

regulation.

Waivers (Sec. 12.8)

The proposal makes no substantive changes in the waiver provision

currently in Sec. 12.7(d). It relocates the provision to Sec. 12.8. As

is the current practice, the proposal makes clear that the procedure

for requesting a waiver is to submit a request in writing. The proposal

also clarifies that the OCC may grant a waiver from the requirements of

part 12 to any national bank, or any class of national banks, with

regard to specific transactions or specific classes of transactions.

Settlement of Securities Transactions (Sec. 12.9)

The proposal adds Sec. 12.9 to establish a securities settlement

timeframe for national banks effecting or entering into contracts for

the purchase or sale of securities for customers. The OCC intends this

rule to parallel the SEC's adoption of the ``T+3'' securities

settlement timeframe. In October 1993, the SEC adopted for the first

time a securities settlement rule, effective June 7, 1995, requiring

the payment of funds and delivery of most securities by the third

business day after the date of the contract (T+3). See Securities

Exchange Act of 1934 Rule 15c6-1, 17 CFR 240.15c6-1 (SEC Rule 15c6-1);

58 FR 52891 (Oct. 13, 1993); 60 FR 26604 (May 17, 1995) (amendments to

the rule). SEC Rule 15c6-1 is a separate securities settlement

requirement and is not part of the SEC's confirmation rule, SEC Rule

10b-10, 17 CFR 240.10b-10. The OCC believes that most national banks

effecting customer securities transactions use a clearing broker that

would be subject to the SEC's T+3 rule and national banks' securities

transactions thereby routinely would settle within three days. However,

some national banks may clear and settle their securities trades

directly. For this reason, the OCC proposes to revise part 12 to

include a separate T+3 settlement requirement that tracks the language

of the SEC's securities settlement rule. See 17 CFR 240.15c6-1.

As with SEC Rule 15c6-1, the OCC's rule does not apply to an

exempted security as defined in 15 U.S.C. 78c(a)(12), government

security, municipal security, commercial paper, bankers' acceptance, or

commercial bill. Proposed Sec. 12.9 also contains an identical override

provision to SEC Rule 15c6-1 permitting national banks to agree that

settlement will take place in more than three business days when the

agreement is express and reached at the time of the transaction.

Nonetheless, the OCC, similar to the intent expressed by the SEC,

intends the override provision to apply to unusual transactions and not

merely to permit national banks to specify before execution of specific

trades that a group of trades will settle in a timeframe other than

T+3. See Securities Exchange Act Release No. 33023, 58 FR 52891, 52901

(Oct. 13, 1993).

While proposed Sec. 12.9 conforms to the language of the SEC's T+3

settlement rule, the OCC notes there are alternatives to adopting the

language of the SEC's rule. For example, one possibility is not having

a separate OCC settlement rule and, instead, using three days as the

timeframe for sending the confirmation under part 12 rather than

following the SEC's ``completion of the transaction'' timeframe.

Another possibility is cross-referencing the language of SEC Rule 15c6-

1 instead of

[[Page 66522]]

incorporating the actual language of the rule.

The OCC seeks comments on the need for and the effect of proposed

Sec. 12.9 adopting the T+3 securities settlement requirement for

national banks.

The OCC also specifically invites comments on the feasibility and

appropriateness of alternative approaches to implement the T+3

securities settlement cycle.

Interpretations (Secs. 12.101 and 12.102)

The proposal adds two interpretative rulings at the end of part

12. The first interpretation (Sec. 12.101) relates to the disclosure of

remuneration for mutual fund transactions. The interpretation reflects

the view taken by the OCC in various letters granting a waiver from

compliance with part 12 remuneration disclosure requirements. In

particular, the OCC has allowed a bank to fulfill its disclosure

requirement of the source and amount of remuneration required by

current Sec. 12.4(a)(2) and (b) (proposed Sec. 12.4(a)(2) and (b)) for

mutual fund transactions by providing this information to the customer

in a current prospectus, at or before completion of the securities

transaction. The OCC's view is predicated on the SEC's position as

provided in a no-action letter dated March 19, 1979, and permits

national banks to use the same option for disclosure of remuneration as

is permitted for nonbank broker/dealers with respect to transactions in

mutual funds. See Letter to the Investment Company Institute, [1979

Transfer Binder] Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC

would reconsider its position upon any change in the SEC's practice.

The second interpretive ruling (Sec. 12.102) discusses the use of

electronic communications to satisfy part 12's customer notification

requirements. In appropriate situations, the OCC will allow a national

bank to satisfy the ``written'' notification requirement under

Secs. 12.4 and 12.5 through electronic communications. Where a customer

has a facsimile machine, a national bank may fulfill its notification

delivery requirement by sending the notification by facsimile

transmission. Similarly, a bank may satisfy the notification delivery

requirement by other electronic communications when: (1) The parties

agree to use electronic instead of hard-copy notifications; (2) the

parties have the ability to print or download the notification; (3) the

recipient affirms or rejects the trade through electronic notification;

(4) the system cannot automatically delete the electronic notification;

and (5) both parties have the capacity to receive electronic messages.

The SEC has taken a comparable approach to the use of electronic means

to deliver a confirmation under SEC Rule 10b-10, 17 CFR 240.10b-10. See

e.g., Letter regarding Thompson Financial Services, Inc. (Oct. 8,

1993). The OCC would consider the permissibility of other situations

using electronic notifications on a case-by-case basis.

Derivation Table

[Only substantive modifications, additions and changes are indicated.]

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

Revised provision Original provision Comments

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

Sec. 12.1(a)................... Sec. 12.1(a) .................

Sec. 12.1(b)................... Sec. 12.1(a) .................

Sec. 12.1(c)(1)................ ................... Added.

Sec. 12.1(c)(2)(i)............. Sec. 12.7(a) .................

Sec. 12.1(c)(2)(ii)............ ................... Added.

Sec. 12.1(c)(2)(iii)........... Sec. 12.7(b) Modified.

Sec. 12.1(c)(2)(iv)............ Sec. 12.7(c) .................

Sec. 12.1(c)(3)................ ................... Added.

Sec. 12.1(d)................... Sec. 12.1(b) .................

Sec. 12.2(a)................... ................... Added.

Sec. 12.2(b)................... Sec. 12.2(a) .................

Sec. 12.2(c)................... ................... Added.

Sec. 12.2(d)................... ................... Added.

Sec. 12.2(e)................... Sec. 12.2(b) Modified.

Sec. 12.2(f)................... ................... Added.

Sec. 12.2(g)................... ................... Added.

Sec. 12.2(h)................... Sec. 12.2(c) .................

Sec. 12.2(i)................... ................... Added.

Sec. 12.2(j)................... Sec. 12.2(d) .................

Sec. 12.2(k)................... Sec. 12.2(e) Modified.

Sec. 12.3...................... Sec. 12.3 .................

Sec. 12.4...................... Secs. 12.4, 12.5 Modified.

Sec. 12.5...................... Secs. 12.4, 12.5 Modified.

Sec. 12.6...................... Secs. 12.4, 12.5 .................

Sec. 12.7(a)................... Sec. 12.6(a), (b), .................

(c), and (d)

Sec. 12.7(b)................... Sec. 12.6(d) Modified.

Sec. 12.7(c)................... Sec. 12.6(d) Modified.

Sec. 12.7(d)................... ................... Added.

Sec. 12.8...................... Sec. 12.7(d) .................

Sec. 12.9...................... ................... Added.

Sec. 12.101.................... ................... Added.

Sec. 12.102.................... ................... Added.

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

Regulatory Flexibility Act

It is hereby certified that this proposal will not have a

significant economic impact on a substantial number of small entities.

Accordingly, a regulatory flexibility analysis is not required. This

proposal will have minimal economic impact on national banks,

regardless of size, since it makes no material changes to existing

regulatory requirements.

Executive Order 12866

The OCC has determined that this proposal is not a significant

regulatory action.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4, March 22, 1995, 109 Stat. 48 (Unfunded Mandates Act), requires

that an agency prepare a budgetary impact statement before promulgating

a rule that includes a Federal mandate that may result in the

expenditure by state, local, and tribal governments, in the aggregate,

or by the private sector, of $100 million or more in any one year. If a

budgetary impact statement is required, section 205 of the Unfunded

Mandates Act also requires an agency to identify and consider a

reasonable number of regulatory alternatives before promulgating a

rule. Because the OCC has determined that the proposed rule will not

result in expenditures by state, local, and tribal governments, or by

the private sector, of more than $100 million in any one year, the OCC

has not prepared a budgetary impact statement or specifically addressed

the regulatory alternatives considered. Nevertheless, as discussed in

the preamble, the rule has the effect of reducing unnecessary

regulatory costs and other burdens, where possible.

Paperwork Reduction Act of 1995

The OCC invites comments on:

(1) Whether the proposed collection of information contained in

this notice of proposed rulemaking is necessary for the proper

performance of the agency's functions, including whether the

information has practical utility;

(2) The accuracy of the agency's estimate of the burden of the

proposed information collection;

(3) Ways to enhance the quality, utility, and clarity of the

information to be collected; and

(4) Ways to minimize the burden of the information collection on

respondents, including through the use of automated collection

techniques or other forms of information technology.

Respondents/recordkeepers are not required to respond to this

collection of information unless it displays a currently valid OMB

control number.

The collection of information requirements contained in this notice

of proposed rulemaking have been submitted to the Office of Management

and Budget for review in accordance with the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)). Comments on the collection of information

should be sent to the Office of Management and Budget, Paperwork

Reduction Project 1557-0142, Washington DC 20503, with copies to the

Legislative and Regulatory Activities Division (1557-0142), Office of

the Comptroller of the Currency, 250 E Street, SW., Washington, DC

20219.

[[Page 66523]]

The collection of information requirements in this proposed rule

are found in Secs. 12.3 through 12.8. This information is required by

the OCC to establish an audit trail. That audit trail is used by the

OCC in its regulatory examinations as a tool to evaluate a bank's

compliance with banking and securities laws and regulations, such as

the anti-fraud provisions of the Federal securities laws. Further, the

records provide a basis for adequate disclosure to customers who effect

securities transactions through national banks. Other records provide a

basis for the OCC to waive some or all of the recordkeeping and

confirmation requirements of 12 CFR part 12. The recordkeepers are

national banks.

Estimated total annual recordkeeping burden: 56,019 hours.

The estimated annual burden per recordkeeper varies from 2 hours to

more than 700 hours, depending on individual circumstances, with an

estimated average of 53.3 hours.

Estimated number of recordkeepers: 1,047.

List of Subjects in 12 CFR Part 12

National banks, Reporting and recordkeeping requirements,

Securities.

Authority and Issuance

For the reasons set out in the preamble, part 12 of chapter I of

title 12 of the Code of Federal Regulations is proposed to be revised

to read as follows:

PART 12--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES

TRANSACTIONS

Sec.

12.1 Authority, purpose, scope, and OMB control number.

12.2 Definitions.

12.3 Recordkeeping.

12.4 Form and time of customer notification.

12.5 Alternative forms and times of customer notification.

12.6 Fees.

12.7 Securities trading policies and procedures.

12.8 Waivers.

12.9 Settlement of securities transactions.

Interpretations

12.101 National bank disclosure of remuneration for mutual fund

transactions.

12.102 National bank use of electronic communications as customer

notifications.

Authority: 12 U.S.C. 24, 92a, and 93a.

Sec. 12.1 Authority, purpose, scope, and OMB control number.

(a) Authority. This part is issued pursuant to 12 U.S.C. 24, 12

U.S.C. 92a, and 12 U.S.C. 93a.

(b) Purpose. This part establishes rules, policies, and procedures

applicable to recordkeeping and confirmation requirements for certain

securities transactions effected by national banks for customers.

(c) Scope--(1) General. Any security transaction effected for a

customer by a national bank is subject to this part unless exempted by

paragraph (c)(2) of this section. A national bank effecting

transactions in government securities is subject to the confirmation,

recordkeeping, and policies and procedures requirements of this part.

This part also applies to municipal securities transactions by a

national bank that is not registered as a ``municipal securities

dealer'' with the Securities and Exchange Commission. See 15 U.S.C.

78c(a)(30) and 78o-4. This part, as well as 12 CFR part 9, applies to a

national bank's securities transactions effected as a fiduciary.

(2) Exemptions--(i) Small number of transactions. The requirements

of Secs. 12.3(a)(2) through (4) and 12.7(a)(1) through (3) do not

apply to a national bank having an average of fewer than 200 securities

transactions per year for customers over the prior three calendar year

period. The calculation of this average does not include transactions

in government securities.

(ii) Government securities. The recordkeeping requirements of

Sec. 12.3 do not apply to national banks effecting fewer than 500

government securities brokerage transactions per year. This exemption

does not apply to government securities dealer transactions by national

banks.

(iii) Municipal securities. This part does not apply to

transactions in municipal securities conducted by a national bank

registered with the Securities and Exchange Commission as a ``municipal

securities dealer'' as defined in title 15 U.S.C. 78c(a)(30). See 15

U.S.C. 78o-4.

(iv) Foreign branches. This part does not apply to securities

transactions conducted by a foreign branch of a national bank.

(3) Safe and Sound Operations. Notwithstanding paragraph (c)(2) of

this section, every national bank conducting securities transactions

for customers shall maintain effective systems of records and controls

regarding their customer securities transactions to ensure safe and

sound operations. The systems maintained must clearly and accurately

reflect appropriate information and provide an adequate basis for an

audit.

(d) OMB control number. The collection of information requirements

in this part were approved by the Office and Management and Budget

under OMB control number 1557-0142.

Sec. 12.2 Definitions.

(a) Asset-backed security means a security that is primarily

serviced by the cashflows of a discrete pool of receivables or other

financial assets, either fixed or revolving that by their terms convert

into cash within a finite time period plus any rights or other assets

designed to assure the servicing or timely distribution of proceeds to

the security holders.

(b) Collective investment fund means any funds held by a national

bank as fiduciary and invested collectively in a ``collective

investment'' as described in 12 CFR 9.18(a).

(c) Completion of the transaction means:

(1) In the case of a customer who purchases a security through or

from a national bank, except as provided in paragraph (c)(2) of this

section, the time when the customer pays the bank any part of the

purchase price, or, if payment is made by a bookkeeping entry, the time

when the bank makes the bookkeeping entry for any part of the purchase

price;

(2) In the case of a customer who purchases a security through or

from a national bank and who makes payment for the security prior to

the time when payment is requested or notification is given that

payment is due, the time when the bank delivers the security to or into

the account of the customer;

(3) In the case of a customer who sells a security through or to a

national bank except as provided in paragraph (c)(4) of this section,

if the security is not in the custody of the bank at the time of sale,

the time when the security is delivered to the bank, and if the

security is in the custody of the bank at the time of sale, the time

when the bank transfers the security from the account of the customer;

(4) In the case of a customer who sells a security through or to a

national bank and who delivers the security to the bank prior to the

time when delivery is requested or notification is given that delivery

is due, the time when the bank makes payment to or into the account of

the customer.

(d) Crossing of buy and sell orders means a security transaction in

which the same bank acts as agent for both the buyer and the seller.

(e) Customer means any person or account, including any agency,

trust,

[[Page 66524]]

estate, guardianship, committee, or other fiduciary account for which a

national bank makes or participates in making the purchase or sale of

securities, but does not include a broker, dealer, bank acting as a

broker or dealer, or issuer of the securities that are the subject of

the transaction.

(f) Debt security as used in Sec. 12.4(b)(8) and (9) only, means

any security, such as a bond, debenture, note, or any other similar

instrument which evidences a liability of the issuer (including any

security of this type that is convertible into stock or a similar

security) and fractional or participation interests in one or more of

any of the foregoing; provided, however, that securities issued by an

investment company registered under the Investment Company Act of 1940,

15 U.S.C. 80a-1 et seq., shall not be included in this definition.

(g) Government security means:

(1) A security which is a direct obligation of, or obligation

guaranteed as to principal and interest by, the United States;

(2) A security which is issued or guaranteed by a corporation in

which the United States has a direct or indirect interest and which is

designated by the Secretary of the Treasury for exemption as necessary

or appropriate in the public interest or for the protection of

investors;

(3) A security issued or guaranteed as to principal and interest by

any corporation whose securities are designated, by statute

specifically naming the corporation, to constitute exempt securities

within the meaning of the laws administered by the Securities and

Exchange Commission; or

(4) Any put, call, straddle, option, or privilege on a security as

described in paragraph (g) (1), (2), or (3) of this section, other than

a put, call, straddle, option, or privilege:

(i) That is traded on one or more national securities exchanges; or

(ii) For which quotations are disseminated through an automated

quotation system operated by a registered securities association.

(h) Investment discretion means that, with respect to an account, a

bank directly or indirectly:

(1) Is authorized to determine what securities or other property

shall be purchased or sold by or for the account; or

(2) Makes decisions as to what securities or other property shall

be purchased or sold by or for the account even though some other

person may have responsibility for these investment decisions.

(i) Municipal security means:

(1) A security which is a direct obligation of, or an obligation

guaranteed as to principal or interest by, a State or any political

subdivision, or any agency or instrumentality of a State or any

political subdivision;

(2) A security which is a direct obligation of, or an obligation

guaranteed as to principal or interest by, any municipal corporate

instrumentality of one or more States; or

(3) A security which is an industrial development bond (as defined

in section 103(c)(2) of the Internal Revenue Code of 1954 (26 U.S.C.

103(c)(2) (1970)) (Code)) the interest on which is excludable from

gross income under section 103(a)(1) of the Code (26 U.S.C. 103(a)(1))

if, by reason of the application of paragraph (4) or (6) of section

103(c) of the Code (26 U.S.C. 103(c)) (determined as if paragraphs

(4)(A), (5), and (7) were not included in section 103(c) (26 U.S.C.

103(c)), paragraph (1) of section 103(c) (26 U.S.C. 103(c)) does not

apply to the security.

(j) Periodic plan (including dividend reinvestment plans, automatic

investment plans and employee stock purchase plans) means a written

authorization for a national bank to act as agent to purchase or sell

for a customer a specific security or securities, in a specific amount

(calculated in security units or dollars) or to the extent of dividends

and funds available, at specific time intervals, and setting forth the

commission or charges to be paid by the customer or the manner of

calculating them.

(k) Security: (1) Means any note, stock, treasury stock, bond,

debenture, certificate of interest or participation in any profit-

sharing agreement or in any oil, gas, or other mineral royalty or

lease, any collateral-trust certificate, preorganization certificate or

subscription, transferable share, investment contract, voting-trust

certificate, for a security, any put, call, straddle, option, or

privilege on any security, or group or index of securities (including

any interest therein or based on the value thereof), or, in general,

any instrument commonly known as a ``security''; or any certificate of

interest or participation in, temporary or interim certificate for,

receipt for, or warrant or right to subscribe to or purchase, any of

the foregoing;

(2) Does not mean currency; any note, draft, bill of exchange, or

banker's acceptance which has a maturity at the time of issuance of not

exceeding nine months, exclusive of days of grace, or any renewal

thereof, the maturity of which is likewise limited; a deposit or share

account in a Federal or State chartered depository institution; a loan

participation; units of a collective investment fund; interests in a

variable amount note as defined in 12 CFR 9.18(c)(2)(ii); U.S. Savings

Bonds; or any other instrument the OCC determines does not constitute a

security for purposes of this part.

Sec. 12.3 Recordkeeping.

(a) General rule. A national bank effecting securities transactions

for customers shall maintain the following records for at least three

years:

(1) Chronological records. A chronological record of each original

entry containing an itemized daily record of each purchase and sale of

securities, including:

(i) Account or customer name for which each transaction was

effected;

(ii) Description of the securities;

(iii) Unit and aggregate purchase or sale price (if any);

(iv) Trade date; and

(v) Name or other designation of the broker/dealer or other person

from whom the securities were purchased or to whom the securities were

sold;

(2) Account records. Account records for each customer, reflecting:

(i) Purchases and sales of securities;

(ii) Receipts and deliveries of securities;

(iii) Receipts and disbursements of cash with respect to

transactions in securities for each account; and

(iv) Other debits and credits pertaining to transactions in

securities;

(3) Memorandum order. A separate memorandum (order ticket) of each

order to purchase or sell securities (whether executed or cancelled),

including:

(i) Account or customer name for which the transaction was

effected;

(ii) Type of order (market order, limit order, or subject to

special instructions);

(iii) Time the trader or other bank employee responsible for

effecting the transaction received the order;

(iv) Time the trader placed the order with the broker/dealer, or if

there was no broker/dealer, time the order was executed or cancelled;

(v) Price at which the order was executed; and

(vi) Name of the broker/dealer utilized;

(4) Record of broker/dealers. A record of all broker/dealers

selected by the bank to effect securities transactions and the amount

of commissions paid or allocated to each broker during the calendar

year; and

(5) Notifications. A copy of the written notification required by

Secs. 12.4 and 12.5.

(b) Manner of maintenance. The records required by this section

must

[[Page 66525]]

clearly and accurately reflect the information required and provide an

adequate basis for the audit of the information.

Sec. 12.4 Form and time of customer notification.

A national bank effecting a securities transaction for its customer

shall give or send to the customer a notification. This section and

Sec. 12.5 describe the form and time of permissible types of

notifications. A bank may elect to provide notification through a copy

of a broker/dealer confirmation and statement regarding remuneration as

provided in Sec. 12.4(a), written notification as provided in

Sec. 12.4(b), notification by agreement as provided in Sec. 12.4(c), or

an alternative form of notification applicable to a specific type of

transaction as provided in Sec. 12.5.

(a) Confirmation of a broker/dealer. A national bank effecting a

securities transaction for a customer shall give or send to its

customer at or before the completion of the transaction a written

notification that includes:

(1) A copy of the confirmation of a broker/dealer relating to the

securities transaction; and

(2) If the customer or any other source will provide remuneration

to the bank in connection with the transaction, and a written agreement

between the bank and the customer does not determine the remuneration,

a statement of the source and amount of any remuneration that the

customer or any other source is to provide the bank.

(b) Written notification. A national bank effecting a securities

transaction for its customer that does not provide notification

pursuant to paragraph (a) of this section, shall give or send to its

customer at or before the completion of the transaction a written

notification that includes:

(1) Name of the bank;

(2) Name of the customer;

(3) Capacity in which the bank acts (as agent for the customer, as

agent for both the customer and some other person, as principal for its

own account, or in any other capacity);

(4) Date of execution, a statement that the bank will furnish the

time of execution within a reasonable time upon written request of the

customer, and the identity, price, and number of shares or units (or

principal amount in the case of debt securities) of the security

purchased or sold by the customer;

(5) Amount of any remuneration that the customer has provided or is

to provide any broker/dealer, directly or indirectly, in connection

with the transaction;

(6) Amount of any remuneration that the bank has received or will

receive from the customer, and the source and amount of any other

remuneration that the bank has received or will receive in connection

with the transaction;

(i) A bank need not provide the information in paragraph (b)(6) of

this section if:

(A) The bank and its customer have determined remuneration pursuant

to a written agreement; or

(B) In the case of government securities and municipal securities,

the bank received the remuneration in other than an agency transaction;

(ii) Unless the bank follows paragraph (b)(6) of this section, the

written notification must state whether the bank has received or will

receive any other remuneration and that the bank will furnish the

source and amount of the other remuneration upon written request of the

customer. A bank may not follow this paragraph (b)(6)(ii), if, in the

case of a purchase, the bank was participating in a distribution, or,

in the case of a sale, the bank was participating in a tender offer;

(7) Name of the broker/dealer utilized; or where there is no

broker/dealer, the name of the person from whom the security was

purchased or to whom the security was sold, or a statement that the

bank will furnish this information upon written request from the

customer. The bank shall furnish this information within a reasonable

time after receipt of a written request;

(8) In the case of any transaction in a debt security subject to

redemption before maturity, a statement to the effect that the debt

security may be redeemed in whole or in part before maturity, that the

redemption could affect the yield represented and the fact that

additional information is available upon request;

(9) In the case of a transaction in a debt security effected

exclusively on the basis of a dollar price:

(i) The dollar price at which the transaction was effected, and

(ii) The yield to maturity calculated from the dollar price:

Provided, however, that this paragraph (b)(9)(ii) shall not apply to a

transaction in a debt security that either:

(A) Has a maturity date that may be extended by the issuer thereof,

with a variable interest payable thereon; or

(B) Is an asset-backed security, that represents an interest in or

is secured by a pool of receivables or other financial assets that are

subject continuously to prepayment;

(10) In the case of a transaction in a debt security effected on

the basis of yield:

(i) The yield at which the transaction was effected, including the

percentage amount and its characterization (e.g. current yield, yield

to maturity, or yield to call) and if effected at yield to call, the

type of call, the call date and call price; and

(ii) The dollar price calculated from the yield at which the

transaction was effected; and

(iii) If effected on a basis other than yield to maturity and the

yield to maturity is lower than the represented yield, the yield to

maturity as well as the represented yield; Provided, however, that this

paragraph (b)(10)(iii) shall not apply to a transaction in a debt

security that either:

(A) Has a maturity date that may be extended by the issuer thereof,

with a variable interest rate payable thereon; or

(B) Is an asset-backed security, that represents an interest in or

is secured by a pool of receivables or other financial assets that are

subject continuously to prepayment;

(11) In the case of a transaction in a debt security that is an

asset-backed security, which represents an interest in or is secured by

a pool of receivables or other financial assets that are subject

continuously to prepayment, a statement indicating that the actual

yield of the asset-backed security may vary according to the rate at

which the underlying receivables or other financial assets are prepaid

and a statement of the fact that information concerning the factors

that affect yield (including at a minimum estimated yield, weighted

average life, and the prepayment assumptions underlying yield) will be

furnished upon written request of the customer; and

(12) In the case of a transaction in a debt security, other than a

government security, that the security is unrated by a nationally

recognized statistical rating organization, if that is the case.

(c) Notification by agreement. Unless the bank follows paragraphs

(a) or (b) of this section, a national bank effecting a securities

transaction for an account in which the bank does not exercise

investment discretion (except for periodic plans) shall give or send

the notification at the time and in the form agreed to in writing by

the bank and customer, provided that the agreement makes clear the

customer's right to receive the written notification pursuant to

paragraphs (a) or (b) of this section at no additional cost to the

customer.

Sec. 12.5 Alternative forms and times of customer notification.

(a) Trust transactions. Unless the bank follows Sec. 12.4(a) or

(b), a national bank effecting a securities transaction

[[Page 66526]]

for an account in which the bank exercises investment discretion other

than in an agency capacity (except for collective investment funds)

shall give or send the notification within a reasonable time if a

person having the power to terminate the account, or, if there is no

such person, any person holding a vested beneficial interest in the

account, requests written notification pursuant to Sec. 12.4(a) or (b).

Otherwise, notification is not required.

(b) Agency transactions. (1) Unless the bank follows Sec. 12.4(a)

or (b), a national bank effecting a securities transaction for an

account in which the bank exercises investment discretion in an agency

capacity shall give or send, not less than once every three months, an

itemized statement to each customer that specifies the funds and

securities in the custody or possession of the bank at the end of the

period and all debits, credits and transactions in the customer's

account during the period; and

(2) If requested by the customer, the bank shall give or send

written notification to the customer pursuant to Sec. 12.4(a) or (b)

within a reasonable time.

(c) Collective investment fund transactions. Unless the bank

follows Sec. 12.4(a) or (b), a national bank effecting a securities

transaction for a collective investment fund shall follow 12 CFR

9.18(b)(5).

(d) Periodic plan transactions. (1) Unless the bank follows

Sec. 12.4 (a) or (b), a national bank effecting a securities

transaction for a periodic plan shall give or send to its customer not

less than once every three months a written statement showing:

(i) The customer's funds and securities in the custody or

possession of the bank;

(ii) All service charges and commissions paid by the customer in

connection with the transaction; and

(iii) All other debits and credits of the customer's account

involved in the transaction.

(2) Upon written request of the customer, the bank shall give or

send the information described in Sec. 12.4 (a) or (b), except that the

bank need not provide to the customer any information relating to

remuneration paid in connection with the transaction when the

remuneration is paid by a source other than the customer.

Sec. 12.6 Fees.

(a) Permissible fees. A national bank may charge a reasonable fee

for providing notification pursuant to Sec. 12.5 (a), (b), and (d).

(b) Impermissible fees. A national bank may not charge a fee for

providing notification pursuant to Sec. 12.4 (a), (b), and (c), and

Sec. 12.5(c).

Sec. 12.7 Securities trading policies and procedures.

(a) Policies and procedures; reports of securities trading. A

national bank effecting securities transactions for customers shall

maintain and adhere to policies and procedures that:

(1) Assign responsibility for supervision of all officers or

employees who:

(i) Transmit orders to or place orders with broker/dealers; or

(ii) Execute transactions in securities for customers;

(2) Provide for the fair and equitable allocation of securities and

prices to accounts when the bank receives orders for the same security

at approximately the same time and places the orders for execution

either individually or in combination;

(3) Provide for the crossing of buy and sell orders on a fair and

equitable basis to the parties to the transaction, where applicable,

and where permissible under local law; and

(4) Require bank officers and employees to report to the bank,

within ten days after the end of the calendar quarter, all transactions

in securities made by them or on their behalf, either at the bank or

elsewhere, in which they have a beneficial interest, if the officers

and employees:

(i) Make investment recommendations or decisions for the accounts

of customers;

(ii) Participate in the determination of the recommendations or

decisions; or

(iii) In connection with their duties, obtain information

concerning which securities are purchased, sold, or recommended for

purchase or sale.

(b) Report required. A bank officer or employee shall file a

report, as referenced in paragraph (a)(4) of this section, that

contains the following information:

(1) The date of the transaction, the title and number of shares,

and the principal amount of each security involved;

(2) The nature of the transaction (i.e., purchase, sale, or other

type of acquisition or disposition);

(3) The price at which the transaction was effected; and

(4) The name of the broker, dealer, or bank with or through whom

the transaction was effected.

(c) Report not required. Paragraph (b) of this section does not

require a bank officer or employee to report transactions for the

benefit of the officer or employee if:

(1) The officer or employee has no direct or indirect influence or

control over the transaction;

(2) The transaction is in mutual fund shares;

(3) The transaction is in government securities; or

(4) The transactions involve an aggregate amount of purchases and

sales per officer or employee of $10,000 or less during the calendar

quarter.

(d) Additional reporting requirement. A national bank that acts as

an investment adviser to an investment company is subject to the

requirements of Securities and Exchange Commission (SEC) Rule 17j-1 (17

CFR 270.17j-1) of the Investment Company Act of 1940. SEC Rule 17j-1

requires certain personal securities transactions by ``access persons''

of the investment adviser, including directors, officers, and certain

employees, to be reported to the Securities and Exchange Commission.

The reporting requirement under paragraph (a)(4) of this section is in

addition to any applicable requirements under SEC Rule 17j-1.

Sec. 12.8 Waivers.

A national bank may file a written request with the OCC for waiver

of one or more of the requirements set forth in Secs. 12.2 through

12.7, either in whole or in part. The OCC may grant a waiver from the

requirements of this part to any national bank, or any class of

national banks, with regard to specific transactions or specific

classes of transactions.

Sec. 12.9 Settlement of securities transactions.

(a) Except as provided in paragraphs (b), (c), and (d) of this

section, a national bank shall not effect or enter into a contract for

the purchase or sale of a security (other than an exempted security as

defined in 15 U.S.C. 78c(a)(12), government security, municipal

security, commercial paper, bankers' acceptances, or commercial bills)

that provides for payment of funds and delivery of securities later

than the third business day after the date of the contract unless

otherwise expressly agreed to by the parties at the time of the

transaction.

(b) Paragraphs (a) and (c) of this section shall not apply to

contracts:

(1) For the purchase or sale of limited partnership interests that

are not listed on an exchange or for which quotations are not

disseminated through an automated quotation system of a registered

securities association;

(2) For the purchase or sale of securities that the Securities and

Exchange Commission (SEC) may from

[[Page 66527]]

time to time, taking into account then existing market practices,

exempt by order from the requirements of paragraph (a) of SEC Rule

15c6-1, 17 CFR 240.15c6-1, either unconditionally or on specified terms

and conditions, if the SEC determines that an exemption is consistent

with the public interest and the protection of investors.

(c) Paragraph (a) of this section shall not apply to contracts for

the sale for cash of securities that are priced after 4:30 p.m. Eastern

time on the date the securities are priced and that are sold by an

issuer to an underwriter pursuant to a firm commitment underwritten

offering registered under the Securities Act of 1933, 15 U.S.C. 77a et

seq., or sold to an initial purchaser by a national bank participating

in the offering provided that a national bank shall not effect or enter

into a contract for the purchase or sale of the securities that

provides for payment of funds and delivery of securities later than the

fourth business day after the date of the contract unless otherwise

expressly agreed to by the parties at the time of the transaction.

(d) For purposes of paragraphs (a) and (c) of this section, the

parties to a contract shall be deemed to have expressly agreed to an

alternate date for payment of funds and delivery of securities at the

time of the transaction for a contract for the sale for cash of

securities pursuant to a firm commitment offering if the managing

underwriter and the issuer have agreed to the date for all securities

sold pursuant to the offering and the parties to the contract have not

expressly agreed to another date for payment of funds and delivery of

securities at the time of the transaction.

Interpretations

Sec. 12.101 National bank disclosure of remuneration for mutual fund

transactions.

A national bank may fulfill its obligation to disclose information

on the source and amount of remuneration, required by Sec. 12.4(a)(2)

and (b), for mutual fund transactions by providing this information to

the customer in a current prospectus, at or before completion of the

securities transaction. The OCC's view is consistent with the position

of the Securities and Exchange Commission (SEC) as provided in a no-

action letter dated March 19, 1979, which permits confirmations for

mutual funds merely to refer to the sales load disclosed in the

prospectus. See Letter to the Investment Company Institute, (1979

Transfer Binder) Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC

would reconsider its position upon any change in the SEC's practice.

Sec. 12.102 National bank use of electronic communications as customer

notifications.

(a) In appropriate situations, a national bank may satisfy the

``written'' notification requirement under Secs. 12.4 and 12.5 through

electronic communications. Where a customer has a facsimile machine, a

national bank may fulfill its notification delivery requirement by

sending the notification by facsimile transmission. Similarly, a bank

may satisfy the notification delivery requirement by other electronic

communications when:

(1) The parties agree to use electronic instead of hard-copy

notifications;

(2) The parties have the ability to print or download the

notification;

(3) The recipient affirms or rejects the trade through electronic

notification;

(4) The system cannot automatically delete the electronic

notification; and

(5) Both parties have the capacity to receive electronic messages.

(b) The OCC would consider the permissibility of other situations

using electronic notifications on a case-by-case basis.

Dated: December 7, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95-30970 Filed 12-21-95; 8:45 am]

BILLING CODE 4810-33-P