Municipal Securities Dealers

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 10

[Docket No. 98-01]

RIN 1557-AB62

Municipal Securities Dealers

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

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

to revise its Municipal Securities Dealers regulation to remove

unnecessary provisions. This change would not have any substantive

effect on the operations of national banks, but would simplify the

OCC's rule regarding bank municipal securities dealers (MSDs) by

removing a redundant restatement of rules found elsewhere.

DATES: Comments must be received by March 17, 1998.

ADDRESSES: Comments should be directed to: Office of the Comptroller of

the Currency, Communications Division, 250 E Street, SW, Washington, DC

20219, Attention: Docket No. 98-01. Comments will be available for

public inspection and photocopying at the same location. In addition,

comments may be sent by facsimile transmission to FAX number (202) 874-

5274 or by electronic mail to [email protected].

FOR FURTHER INFORMATION CONTACT: Joe Malott, National Bank Examiner,

Capital Markets (202) 874-5070; Donald Lamson, Assistant Director,

Securities and Corporate Practices; or Ursula Pfeil, Attorney,

Legislative and Regulatory Activities (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background and Discussion of Proposal

Section 15B(b) of the Securities Exchange Act of 1934 (Exchange

Act) (15 U.S.C. 78o-4(b)) created the Municipal Securities Rulemaking

Board (MSRB) and mandated that the MSRB adopt rules that establish

qualification criteria for municipal securities brokers or dealers and

associated persons. To implement section 15B(b), the MSRB adopted Rule

G-7 (Information Concerning Associated Persons) (Rule G-7).1

Rule G-7 requires, among other things, that municipal securities

principals and representatives associated with a bank MSD file with the

bank either (a) Form MSD-4 (Uniform Application for Municipal

Securities Principal or Municipal Securities Representative Associated

with a Bank Municipal Securities Dealer) or (b) a similar form

prescribed by the bank's primary regulator. A national bank MSD is in

turn required by Rule G-7 to submit to the OCC the form that the bank's

associated municipal securities principals and representatives file

with it. Rule G-7 also requires bank MSDs to update information as

necessary, to retain records for specified periods of time, and to file

with the appropriate banking agency ``such of the information

prescribed by [Rule G-7] as such * * * agency * * * shall by rule or

regulation require.'' Rule G-7(g).

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\1\ The MSRB rules may be obtained by contacting the Municipal

Securities Rulemaking Board by telephone at (202) 223-9347 or by

mail at 1150 18th Street, NW., Suite 400, Washington, DC 20036-3816.

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Shortly after the MSRB adopted Rule G-7, the OCC adopted part 10 in

order to prescribe the information and forms that national bank MSDs

are to submit. (42 FR 16813 (March 30, 1977)). Part 10 currently sets

out the scope of the rule (Sec. 10.1); definitions used therein

(Sec. 10.2); information about where and how to file the appropriate

forms (Sec. 10.3); and requirements governing the submission and

retention of Form MSD-4 and Form MSD-5 (Uniform Termination Notice for

Municipal Securities Principal or Municipal Securities Representative

Associated with a Bank Municipal Securities Dealer) (Sec. 10.4).

As explained in the following section-by-section analysis, much of

current part 10 either is substantively identical to the requirements

contained in Rule G-7 or is otherwise unnecessary.

Section-by-Section Analysis

Section 10.1 of Current and Proposed Rules

This section identifies the entities and individuals covered by

part 10. Section 10.1 of the proposed rule clarifies that subsidiaries

of national banks are not covered by the rule. This clarification is

consistent with MSRB Rule G-7, which states that ``bank dealers'' are

to comply with the rules and requirements adopted by the appropriate

bank regulatory agency. The term ``bank dealer'' is defined in Rule D-8

of the MSRB's rules to include ``a municipal securities dealer which is

a bank or a separately identifiable department or division of a bank as

defined in rule G-1 of the [Municipal Securities Rulemaking] Board.''

Subsidiaries of banks are not included in the definition of ``bank

dealer,'' and are, therefore, governed directly by the MSRB's filing

requirements. The proposed change to Sec. 10.1 reflects this fact. It

does not, however, affect the content of what these subsidiaries are to

file or who regulates their municipal securities

activities.2

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\2\ Subsidiaries of national banks that engage in municipal

securities activities must register with the NASD and are regulated

by NASD Regulation, Inc., the subsidiary of NASD charged with

regulating the securities industry and the Nasdaq Stock Market.

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Section 10.2 of Current Rule

The terms defined in current Sec. 10.2 are not used in part 10 as

proposed. Accordingly, this section is removed.

Section 10.3 of Current Rule

Section 10.3 provides information about the mechanics of filing the

MSD-4 and MSD-5 forms with the OCC. This information is unnecessary in

light of the filing instructions that accompany these forms. Therefore,

the proposed rule removes this section.

Section 10.4 of Current Rule/Sec. 10.2 of Proposed Rule

Section 10.4(a)(1) of the current rule states that Form MSD-4 is an

appropriate means of carrying out the purposes of Rule G-7(b). Two

provisions in Rule G-7 make it appropriate for the proposed rule to

retain a provision identifying which form national bank MSDs are to use

and what information is to be submitted in order to comply with Rule G-

7. First,

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paragraph (b) of Rule G-7 states that ``in the case of a bank dealer a

completed Form MSD-4 or similar form prescribed by the appropriate

regulatory agency for such bank dealer, containing the foregoing

information [i.e., the information listed in Rule G-7(b)(i)-(x)], shall

satisfy the requirements of this paragraph [(b)].'' Given that Rule G-

7(b) provides bank regulators the option of using a form other than

Form MSD-4, there remains a need for the OCC to clarify which form

national banks should use. Second, as previously noted, paragraph (g)

of Rule G-7 states that bank MSDs are to file with their appropriate

regulatory agency ``such of the information prescribed by this rule

[i.e., Rule G-7] as such * * * agency * * * shall by rule or regulation

require.'' Repealing all of part 10 arguably would create an unintended

gap in the filing requirements for bank MSDs, because there would be no

rule or regulation requiring national banks to file.

In light of paragraphs (b) and (g) of Rule G-7, the proposed rule

retains a requirement, at Sec. 10.2(a), stating that a national bank is

to use Form MSD-4 to submit the information required by Rule G-7(b)(i)-

(x) to be obtained from a person identified in Sec. 10.1(b). Section

10.2(a) also states that a national bank receiving completed MSD-4

forms must submit these forms to the OCC before permitting any person

to be associated with it as a municipal securities principal or a

municipal securities representative. Should the MSRB amend Rule G-7 to

remove the reference to rules or regulations issued by the banking

agencies, the OCC will revisit the need for a continued reference to

the MSRB rules in part 10.3

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\3\ The Board of Governors of the Federal Reserve System (Board)

and Federal Deposit Insurance Corporation (FDIC) recently published

proposed amendments to each agency's MSD regulation. See 62 FR 15272

(March 31, 1997) (Board) and 62 FR 26994 (May 16, 1997) (FDIC). Both

the Board and the FDIC propose to repeal their MSD rules altogether.

However, both agencies intend for banks within their respective

jurisdictions to continue filing the MSD-4 and MSD-5 forms with

those agencies. Accordingly, the OCC, Board, and FDIC intend to

impose substantively identical requirements on bank MSDs. The

stylistic differences between the OCC's proposed rule and those of

the Board and FDIC reflect the OCC's view that it is necessary and

helpful to national bank MSDs for the OCC's rule to address those

areas identified in Rule G-7 where bank dealers are to look to the

rules of their primary regulator.

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Section 10.4(a)(2) of the current rule repeats filing requirements

found in Rule G-7 and, therefore, is removed.

Section 10.4(b) of the current rule instructs national bank MSDs

regarding how they should proceed if a Form MSD-4 contains materially

inaccurate or incomplete information. This section is unnecessary,

given that paragraph (c) of Rule G-7 requires that the information

required to be submitted must remain accurate and complete. A national

bank MSD receiving updated information from an associated municipal

securities representative or municipal securities principal is

obligated pursuant to Rule G-7 to submit the amended information to the

OCC in order to ensure that the individuals are properly registered.

Accordingly, the proposed rule removes current Sec. 10.4(b).

Current Sec. 10.4(c) requires national bank MSDs to file Form MSD-5

within 30 days of terminating a person's association with the bank as a

municipal securities representative or principal. This requirement does

not appear in Rule G-7. In order to facilitate the effective

supervision of MSD activity by national banks, the proposal retains the

requirement, at proposed Sec. 10.2(b), that a termination notice be

submitted.

Finally, current Sec. 10.4(d)(1) restates record retention

requirements found in Rule G-7(e) while Sec. 10.4(d)(2) states that the

MSD-4 and MSD-5 forms are covered by section 32(a) of the Exchange Act

(15 U.S.C. 78ff). These provisions in current Sec. 10.4 are unnecessary

and are, therefore, removed.

Comments

The OCC invites general comments on all aspects of this proposal,

including specific comments on the proposed changes.

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.

As noted earlier, the OCC has only eliminated unnecessary

provisions that appear in the current rule. This proposal will,

therefore, reduce the regulatory burden on national banks, regardless

of size. No new burden is added by the proposed changes.

Executive Order 12866

The OCC has determined that this proposal is not a significant

regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates

Act) requires that an agency prepare a budgetary impact statement

before promulgating a proposal likely to result in a rule that includes

a Federal mandate that may result in the annual expenditure of $100

million or more in any one year by State, local, and tribal

governments, in the aggregate, or by the private sector. If a budgetary

impact statement is required, section 205 of the Unfunded Mandates Act

requires an agency to identify and consider a reasonable number of

alternatives before promulgating a proposal.

The OCC has determined that the proposal, if adopted, 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.

Accordingly, the OCC has not prepared a budgetary impact statement or

specifically addressed the regulatory alternatives considered.

List of Subjects in 12 CFR Part 10

National banks, Reporting and recordkeeping requirements,

Securities.

Authority and Issuance

For the reasons set out in the preamble, the OCC proposes to revise

part 10 of chapter I of title 12 of the Code of Federal Regulations as

set forth below:

PART 10--MUNICIPAL SECURITIES DEALERS

Sec.

10.1 Scope.

10.2 Filing requirements.

Authority: 5 U.S.C. 93a, 481, and 1818; 15 U.S.C. 78o-4(c)(5)

and 78q-78w.

Sec. 10.1 Scope.

This part applies to:

(a) Any national bank, District bank, and separately identifiable

department or division of either (collectively, a national bank) that

acts as a municipal securities dealer, as that term is defined in

section 3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C.

78c(a)(30)); and

(b) Any person who is associated or to be associated with a

national bank in the capacity of a municipal securities principal or a

municipal securities representative, as those terms are defined in Rule

G-3 of the Municipal Securities Rulemaking Board (MSRB).1

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\1\ The MSRB rules may be obtained by contacting the Municipal

Securities Rulemaking Board at 1150 18th Street, NW., Suite 400,

Washington, DC 20036-3816.

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Sec. 10.2 Filing requirements.

(a) A national bank shall use Form MSD-4 (Uniform Application for

Municipal Securities Principal or Municipal Securities Representative

Associated with a Bank Municipal Securities Dealer) for obtaining the

information required by MSRB Rule G-7(b)(i)-(x) from a person

identified in

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Sec. 10.1(b). A national bank receiving a completed MSD-4 form from a

person identified in Sec. 10.1(b) must submit this form to the OCC

before permitting the person to be associated with it as a municipal

securities principal or a municipal securities representative.

(b) A national bank must submit Form MSD-5 (Uniform Termination

Notice for Municipal Securities Principal or Municipal Securities

Representative Associated with a Bank Municipal Securities Dealer) to

the OCC within 30 days of terminating a person's association with the

bank as a municipal securities principal or municipal securities

representative.

(c) Forms MSD-4 and MSD-5, with instructions, may be obtained by

contacting the OCC at 250 E Street, SW., Washington, DC 20219,

Attention: Bank Dealer Activities.

Dated: December 1, 1997.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 98-815 Filed 1-15-98; 8:45 am]

BILLING CODE 4810-33-P