Capital Treatment for Qualifying Collateralized Debt Obligations Backed by Trust Preferred Securities under the "Volcker Rule"

Metrics Reporting Date

1. To comply with the requirement to record and report quantitative

measurements in § 351.20(d) and Appendix A, when must a banking entity

with $50 billion or greater in trading assets and liabilities begin to measure

and record the required metrics? When must the banking entity begin to

report metrics data to the FDIC?

Posted: 6/10/2014

A banking entity with trading assets and liabilities of at least $50 billion, as calculated under

§ 351.20(d)(1), must begin to measure and record the required metrics on a daily basis starting July 1, 2014.

As explained below, this banking entity must report its daily metrics recorded during the month of July to the

FDIC by September 2, 2014.

Section 351.20(d)(2) provides that the threshold for reporting quantitative measurements under

§ 351.20(d)(1) is $50 billion beginning on June 30, 2014. This means that the first day for which daily metrics

must be measured and recorded by a banking entity at the $50 billion threshold is July 1, 2014.

The final rule requires a banking entity at or above the $50 billion threshold to report metrics data for each

calendar month within 30 days of the end of the month unless the FDIC notifies the banking entity in writing that

it must report on a different basis. However, if the reporting deadline occurs on a Saturday, Sunday, or federal

holiday, then a banking entity may report the data on the next business day following the reporting deadline.

Thus, the relevant banking entity must collect metrics data for the month of July and report that data by

September 2, 2014. This banking entity has until September 2, 2014 to report metrics data under these

circumstances because August 30, 2014 (which is 30 days after July 31, 2014) is a Saturday, and the following

Monday on September 1, 2014 is a federal holiday

owing the reporting deadline.

Thus, the relevant banking entity must collect metrics data for the month of July and report that data by

September 2, 2014. This banking entity has until September 2, 2014 to report metrics data under these

circumstances because August 30, 2014 (which is 30 days after July 31, 2014) is a Saturday, and the following

Monday on September 1, 2014 is a federal holiday. Beginning with information for the month of January 2015,

the final rule requires this banking entity to report metrics data within 10 days of the end of each calendar

month, unless the FDIC notifies the banking entity in writing that it must report on a different basis.

Certain of the required metrics have a calculation period of 30 days, 60 days, and 90 days. For these

measurements, the initial metrics report for the month of July may provide data for only a 30-day calculation

period. Likewise, the metrics report due by September 30, 2014 may provide data for only a 30-day and 60-day

calculation period. Beginning with the report due October 30, 2014, metrics reports must include data for all

required calculation periods.

Trading Desk

2. May a trading desk span multiple affiliated banking entities? If a trading

desk spans multiple affiliated banking entities, to which Agency(ies) should a

banking entity report metrics?

Posted: 6/10/2014

The final rule defines trading desk to mean the smallest discrete unit of organization of a banking entity that

purchases or sells financial instruments for the trading account of the banking entity or an affiliate thereof. As

discussed in the preamble to the final rule, the Agencies expect that a trading desk would be managed and

operated as an individual unit and should reflect the level at which the profit and loss of the traders is attributed.

This approach allows more effective management of risks of trading activity by requiring the establishment of

limits, management oversight, and accountability at the level where the trading activity occurs

final rule, the Agencies expect that a trading desk would be managed and

operated as an individual unit and should reflect the level at which the profit and loss of the traders is attributed.

This approach allows more effective management of risks of trading activity by requiring the establishment of

limits, management oversight, and accountability at the level where the trading activity occurs. It also allows

banking entities to tailor the limits and procedures to the type of instruments traded and markets served by

each trading desk.

The definition of “trading desk” specifically recognizes that the desk may buy or sell financial instruments “for

the trading account of a banking entity or an affiliate thereof.” The preamble to the final rule explains that a

trading desk may span more than one legal entity and thus employees may be working on behalf of multiple

affiliated legal entities. Additionally, trades and positions managed by the desk may be booked in different

affiliated entities. The rules require that if a single trading desk books positions in different affiliated legal

entities, it must have records that identify all positions included in the trading desk’s financial exposure and the

legal entities where such positions are held.

Appendix A to the final rule provides that a banking entity with significant trading assets and liabilities must

furnish periodic reports to the Agencies regarding a variety of quantitative measurements of their covered

trading activities. If a trading desk spans multiple legal entities, it must report quantitative measurements to

each of the agencies with jurisdiction under section 13 of the BHC Act over any of the entities. For a trading

desk that spans multiple affiliated banking entities, the quantitative measurements of Appendix A should be

calculated at the level of the entire desk; calculations do not need to be performed separately for each subset

of positions booked at the various banking entities that compose the trading desk

ncies with jurisdiction under section 13 of the BHC Act over any of the entities. For a trading

desk that spans multiple affiliated banking entities, the quantitative measurements of Appendix A should be

calculated at the level of the entire desk; calculations do not need to be performed separately for each subset

of positions booked at the various banking entities that compose the trading desk. As indicated above, this

same set of desk-wide measurements should be reported to each Agency that has authority under section 13

of the BHC Act over any of the affiliated entities that compose the trading desk so that the Agency may

understand the context of the trading activity and discharge its responsibility for the legal entity that the Agency

supervises or regulates.

Conformance Period

3. How do the requirements of section 13 of the BHC Act and the final rule

apply to a banking entity during the conformance period? For instance, must

a banking entity deduct its investment in a covered fund from its tier 1 capital

prior to the end of the conformance period?

Posted: 6/10/2014

The Board extended the statute’s conformance period until July 21, 2015 (“Board Conformance Order”).1 The

Board also has issued a statement of policy in which the Board clarified the activities and investments that are

permissible during the conformance period.2

As explained in the Board Conformance Order, a banking entity must conform all of its proprietary trading

activities and covered fund activities and investments to the prohibitions and requirements of section 13 and

the final rule by no later than the end of the conformance period. During the conformance period, a banking

entity is expected to engage in good-faith efforts, appropriate for its activities and investments that will result in

the conformance of all of its activities and investments to the requirements of section 13 and the final rule no

later than the end of the conformance period

tion 13 and

the final rule by no later than the end of the conformance period. During the conformance period, a banking

entity is expected to engage in good-faith efforts, appropriate for its activities and investments that will result in

the conformance of all of its activities and investments to the requirements of section 13 and the final rule no

later than the end of the conformance period. Good-faith efforts include evaluating the extent to which the

banking entity is engaged in activities and investments that are covered by section 13 and the final rule, as well

as developing and implementing a conformance plan that is appropriately specific about how the banking entity

will fully conform all of its covered activities and investments by the end of the conformance period. In addition,

under the Board Conformance Order, banking entities that have stand-alone proprietary trading operations are

expected to promptly terminate or divest those operations. Moreover, banking entities should not expand

activities and make investments during the conformance period with the expectation that additional time to

conform those activities or investments will be granted.

As an example of how the conformance period works in practice, section 13(d)(4) of the BHC Act and

§ 351.12(d) of the final rule require a banking entity to deduct from the banking entity’s tier 1 capital, as

determined under § 351.12(c)(2) of the final rule, its permitted investments in all covered funds. A banking

entity would not be required to make this deduction until the end of the conformance period, which is currently

July 21, 2015. As noted above, a banking entity is expected to engage in good faith efforts during the

conformance period so that it can comply with this requirement no later than the end of the conformance

period

final rule, its permitted investments in all covered funds. A banking

entity would not be required to make this deduction until the end of the conformance period, which is currently

July 21, 2015. As noted above, a banking entity is expected to engage in good faith efforts during the

conformance period so that it can comply with this requirement no later than the end of the conformance

period. Notably, as specified in the final rule, certain metrics reporting requirements will be in place before the

end of the conformance period for banking entities with $50 billion or greater in trading assets and liabilities.

1 See Board Order Approving Extension of Conformance Period, available at

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf.

2 See Statement of Policy Regarding the Conformance Period for Entities Engaged in Proprietary Trading or Private Equity

Fund and Hedge Fund Activities, 77 Fed. Reg. 33,949 (June 8, 2012).

Loan Securitization Servicing Assets

4. Are the “rights or other assets” described in § 351.10(c)(8)(i)(B)

(“servicing assets”) limited to “permitted securities,” or can other assets be

servicing assets for purposes of the loan securitization exclusion?

Posted: 6/10/2014

The exclusion from the definition of covered fund for loan securitizations provides that, in addition to loans, a

loan securitization may hold rights or other assets designed to assure the servicing or timely distribution of

proceeds to holders of such securities and rights or other assets that are related or incidental to purchasing or

otherwise acquiring and holding the loans, provided that each asset meets the requirements of §

351.10(c)(8)(iii) of the final rule.

Under the final rule, servicing assets may be any type of asset. However, any servicing asset that is a security

must be a permitted security under § 351.10(c)(8)(iii)

of such securities and rights or other assets that are related or incidental to purchasing or

otherwise acquiring and holding the loans, provided that each asset meets the requirements of §

351.10(c)(8)(iii) of the final rule.

Under the final rule, servicing assets may be any type of asset. However, any servicing asset that is a security

must be a permitted security under § 351.10(c)(8)(iii). Permitted securities under this section include cash

equivalents and securities received in lieu of debts previously contracted as set forth in § 351.10(c)(8)(iii). The

preamble to the final rule provides additional detail on the meaning of cash equivalents, noting that the

Agencies interpret “cash equivalents” to mean high quality, highly liquid short term investments whose maturity

corresponds to the securitization’s expected or potential need for funds and whose currency corresponds to

either the underlying loans or the asset-backed securities.

Foreign Public Fund Seeding Vehicles

5. The final rule excludes from the definition of covered fund a registered

investment company and business development company, including an entity

that is formed and operated pursuant to a written plan to become one of these

entities. Would an entity that is formed and operated pursuant to a written

plan to become a foreign public fund receive the same treatment?

Posted: 6/10/2014

Section 351.10(c)(12) of the final rule explicitly excludes an issuer that is registered as an investment company

under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed and operated

pursuant to a written plan to become a registered investment company (“RIC”) in accordance with the banking

entity’s compliance program as described in § 351.20(e)(3), and that complies with the requirements of section

18 of the Investment Company Act (15 U.S.C

tered as an investment company

under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed and operated

pursuant to a written plan to become a registered investment company (“RIC”) in accordance with the banking

entity’s compliance program as described in § 351.20(e)(3), and that complies with the requirements of section

18 of the Investment Company Act (15 U.S.C. 80a-18).1 Section 351.10(c)(1) of the final rule also excludes

from the definition of covered fund a foreign public fund that is an issuer that is organized or established

outside of the United States; is authorized to offer and sell ownership interests to retail investors in the issuer’s

home jurisdiction; and sells ownership interests predominantly through one or more public offerings outside of

the United States. Foreign public funds that meet these qualifications are therefore treated the same as RICs

for purposes of the definition of “covered fund” under the final rule. Although the final rule excludes from the

definition of covered fund certain seeding vehicles that will become RICs, as discussed above, the final rule

does not address a seeding vehicle that will become a foreign public fund.

Staffs of the Agencies believe that, with respect to determining whether an entity is a covered fund, it would be

appropriate that an issuer that will become an excluded foreign public fund be treated during its seeding period

the same as an issuer that will become an excluded RIC. Accordingly, staffs of the Agencies do not intend to

advise the Agencies to treat as a covered fund under the final rule an issuer that is formed and operated

pursuant to a written plan to become a qualifying foreign public fund

appropriate that an issuer that will become an excluded foreign public fund be treated during its seeding period

the same as an issuer that will become an excluded RIC. Accordingly, staffs of the Agencies do not intend to

advise the Agencies to treat as a covered fund under the final rule an issuer that is formed and operated

pursuant to a written plan to become a qualifying foreign public fund. Any written plan would be expected to

document the banking entity’s determination that the seeding vehicle will become a foreign public fund, the

period of time during which the vehicle will operate as a seeding vehicle, the banking entity’s plan to market the

vehicle to third-party investors and convert it into a foreign public fund within the time period specified in §

351.12(a)(2)(i)(B) of subpart C, and the banking entity’s plan to operate the seeding vehicle in a manner

consistent with the investment strategy, including leverage, of the issuer upon becoming a foreign public fund.

For purposes of the definition of covered fund, this would treat an issuer that becomes a qualifying foreign

public fund the same as an issuer that becomes a RIC during the seeding period for the fund.

1 The final rule also explicitly excludes an issuer that has elected to be regulated as a business development company

(“BDC”) pursuant to section 54(a) of that Act (15 U.S.C. 80a-53) and has not withdrawn its election, or that is formed and

operated pursuant to a written plan to become a BDC as described in § 351.20(e)(3) and that complies with the

requirements of section 61 of the Investment Company Act of 1940 (15 U.S.C. 80a-60).

an issuer that has elected to be regulated as a business development company

(“BDC”) pursuant to section 54(a) of that Act (15 U.S.C. 80a-53) and has not withdrawn its election, or that is formed and

operated pursuant to a written plan to become a BDC as described in § 351.20(e)(3) and that complies with the

requirements of section 61 of the Investment Company Act of 1940 (15 U.S.C. 80a-60).

Namesharing Prohibition

6. Section 351.11 of the final rule provides that a banking entity may acquire

and retain an ownership interest in a covered fund that the banking entity

organizes and offers, subject to a number of conditions. Among other things,

these conditions require that the covered fund, for corporate, marketing,

promotional or other purposes does not share the same name or a variation of

the same name with the banking entity (or an affiliate thereof). What does it

mean for a covered fund to share the same name or a variation of the same

name with a banking entity?

Posted: 6/10/2014

A covered fund that is organized and offered by “banking entity A” may not share the same name or a variation

of the same name as “banking entity A,” nor may it share the same name or a variation of the same name as

any affiliate of “banking entity A.” Additionally, the final rule prohibits a covered fund from using the word “bank”

in its name.

Similar restrictions on a fund sharing the same name, or variation of the same name, with an insured

depository institution or company that controls an insured depository institution or having the word “bank” in its

name, have been used previously in order to prevent customer confusion regarding the relationship between

such companies and a fund1

fund from using the word “bank”

in its name.

Similar restrictions on a fund sharing the same name, or variation of the same name, with an insured

depository institution or company that controls an insured depository institution or having the word “bank” in its

name, have been used previously in order to prevent customer confusion regarding the relationship between

such companies and a fund1. In order to comply with § 351.11(a)(6) of the final rule and not be considered to

share the same name or variation of the same name with a banking entity, the name of a covered fund must be

sufficiently distinct from the name of the banking entity that the covered fund’s use of the name would not likely

lead to customer confusion regarding the relationship between the banking entity and the covered fund. For

instance, a covered fund would generally be considered to share the same name or a variation of the same

name with a banking entity if the name of the fund features the same root word, initials or a logo, trademark, or

other corporate symbol that is also used by, or that clearly references a connection with, the banking entity,

including any affiliate of the banking entity. Additionally, materials used to market, promote, or offer the fund

may not contain any statements that would mislead an investor into thinking that the banking entity or any of its

affiliates, directly or indirectly, guarantee, assume, or otherwise insure the obligations or performance of the

covered fund or any covered fund in which such covered fund invests.

1 See, e.g., 12 CFR 225.125(f); Bank of Ireland, 82 Fed. Res. Bull. 1129, 1132 (1996).

ad an investor into thinking that the banking entity or any of its

affiliates, directly or indirectly, guarantee, assume, or otherwise insure the obligations or performance of the

covered fund or any covered fund in which such covered fund invests.

1 See, e.g., 12 CFR 225.125(f); Bank of Ireland, 82 Fed. Res. Bull. 1129, 1132 (1996).

Annual CEO Attestation

7. Under the final rule, banking entities subject to the enhanced minimum

standards for compliance programs under Appendix B of the final rule must

provide an annual CEO attestation regarding the banking entity’s compliance

program. When must the first annual CEO attestation required under

Appendix B be provided to the relevant Agency?

Posted: 9/10/2014

Appendix B of the final rule provides that, based on a review by the CEO of the banking entity, the CEO of the

banking entity must, annually, attest in writing to the relevant Agency that the banking entity has in place

processes to establish, maintain, enforce, review, test and modify the compliance program established under

Appendix B and § 351.20 of the final rule in a manner reasonably designed to achieve compliance with section

13 of the BHC Act and the final rule.1

As noted in the Board Order extending the conformance period under section 13 of the BHC Act, each banking

entity must conform its proprietary trading activities and covered fund activities and investments to the

prohibitions and requirements of section 13 and the final rule by no later than the end of the conformance

period. As a result, banking entities must meet the compliance program requirements of the final rule by the

end of the conformance period, which is currently July 21, 2015.

The CEO attestation under Appendix B of the final rule is an annual requirement

activities and investments to the

prohibitions and requirements of section 13 and the final rule by no later than the end of the conformance

period. As a result, banking entities must meet the compliance program requirements of the final rule by the

end of the conformance period, which is currently July 21, 2015.

The CEO attestation under Appendix B of the final rule is an annual requirement. The staffs of the Agencies

believe that banking entities subject to Appendix B as of the end of the conformance period should submit the

first CEO attestation required under Appendix B after the end of the conformance period but no later than

March 31, 2016. A banking entity may provide the required annual attestation in writing at any time prior to the

March 31 deadline to the relevant Agency. This allows the CEO time to review the design and operation of the

entity’s compliance program after the program is fully implemented to ensure it is reasonably designed to

achieve compliance with section 13 and the final rule. Banking entities that become subject to Appendix B after

the end of the conformance period should submit their first CEO attestation within one year of becoming

subject to Appendix B.2 Thereafter, banking entities should provide the CEO attestation annually within one

year of its prior attestation.

1 12 CFR Part 351, Appendix B.

2 For example, a banking entity with between $25 billion and $50 billion in trading assets and liabilities, as described in

§§351.20(c)(1) and (d), will be required to implement an enhanced compliance program by April 30, 2016. This banking

entity would be required to provide its first CEO attestation to the relevant Agency by April 30, 2017.

1 12 CFR Part 351, Appendix B.

2 For example, a banking entity with between $25 billion and $50 billion in trading assets and liabilities, as described in

§§351.20(c)(1) and (d), will be required to implement an enhanced compliance program by April 30, 2016. This banking

entity would be required to provide its first CEO attestation to the relevant Agency by April 30, 2017.

Metrics Reporting During the Conformance Period

8. Appendix A of the final rule provides that certain of the metrics required to

be reported by banking entities under the final rule should include the limits

set out in §§ 351.4 and 351.5 of the final rule. Since the limits required by §§

351.4 and 351.5 of the final rule are not required to be established prior to the

end of the conformance period, when would a banking entity need to report

metrics that include these limits?

Posted: 11/13/2014

A banking entity must conform its activities and investments to the prohibitions and restrictions of the final rule

implementing section 13 of the Bank Holding Company Act no later than the end of the conformance period.1

During this conformance period, some banking entities are nonetheless required to report certain quantitative

measurements to the appropriate Agency under Appendix A of the final rule.2 Appendix A provides that Risk

and Position Limits and Usage should include the limits set out in §§ 351.4 and 351.5 of the final rule and

explains that a number of metrics such as Risk Factor Sensitivities, Value-at-Risk, and Stress Value-at-Risk

relate to a trading desk’s risk and position limits and are useful in evaluating and setting these limits in the

broader context of the trading desk’s overall activities, particularly for the market- making-related activities

under § 351.4(b) and the risk-mitigating hedging activities under § 351.5.3

The limits required under the underwriting, market-making, and risk-mitigating hedging sections of the final rule

must be in place by the end of the conformance peri

uating and setting these limits in the

broader context of the trading desk’s overall activities, particularly for the market- making-related activities

under § 351.4(b) and the risk-mitigating hedging activities under § 351.5.3

The limits required under the underwriting, market-making, and risk-mitigating hedging sections of the final rule

must be in place by the end of the conformance period. A banking entity that reports metrics under Appendix A

prior to the end of the conformance period need not report the limits required by §§ 351.4(a)(2)(iii),

351.4(b)(2)(iii), and 351.5(b)(1)(i) until the end of the conformance period. However, if such a banking entity

already has in place or develops limits of the type described in §§ 351.4 and 351.5 prior to the end of the

conformance period, the banking entity is urged to report such limits as part of its reporting of quantitative

measurements to the appropriate Agency.

1 See Federal Reserve System, Order Approving Extension of Conformance Period (Dec. 10, 2013), available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf.

2 See 12 CFR 351.20(d).

3 See Appendix A, 79 FR 5536 at 5798.

Mortgage-Backed Securities of Government-Sponsored Enterprises

9. How are certain mortgage-backed securities issuers sponsored by

government-sponsored enterprises (“GSEs”) treated under the final rule’s

covered funds provisions?

Posted: 11/13/2014

Section 351(10(c)(12)(ii) of the final rule excludes from the definition of a covered fund an issuer that may rely

on an exclusion or exemption from the definition of “investment company” under the Investment Company Act

of 1940 other than the exclusions contained in section 3(c)(1) and 3(c)(7) of that Act

(“GSEs”) treated under the final rule’s

covered funds provisions?

Posted: 11/13/2014

Section 351(10(c)(12)(ii) of the final rule excludes from the definition of a covered fund an issuer that may rely

on an exclusion or exemption from the definition of “investment company” under the Investment Company Act

of 1940 other than the exclusions contained in section 3(c)(1) and 3(c)(7) of that Act. The SEC has stated that,

“certain federally sponsored structured financings, such as those sponsored by the Federal National Mortgage

Association, are exempted from the [Investment Company] Act under section 2(b), which exempts, among

other things, activities of United States Government instrumentalities and wholly owned corporations of such

instrumentalities.”1 To the extent that an issuer may rely on section 2(b) of the Investment Company Act, the

issuer would be relying on an exemption from regulation under the Investment Company Act other than the

exclusions contained in section 3(c)(1) or 3(c)(7), and thus would qualify for the exclusion from the covered

fund definition provided by section 351.10(c)(12)(ii) of the final rule.

1 See Exclusion From the Definition of Investment Company for Certain Structured Financings, Investment Company Act

Rel. No. 18736 (June 5, 1992). In addition, staff in the SEC’s Division of Investment Management have taken the position,

based on the facts and representations presented to the staff in each case, that certain GSE-sponsored mortgage-backed

securities issuers would not be required to register under the Investment Company Act in reliance on section 2(b) of that Act

ncings, Investment Company Act

Rel. No. 18736 (June 5, 1992). In addition, staff in the SEC’s Division of Investment Management have taken the position,

based on the facts and representations presented to the staff in each case, that certain GSE-sponsored mortgage-backed

securities issuers would not be required to register under the Investment Company Act in reliance on section 2(b) of that Act.

See, e.g., Federal National Mortgage Association, SEC No-Action Letter (May 25, 1988) (expressing the staff’s view that the

Federal National Mortgage Association (“Fannie Mae”) “is excluded from the 1940 Act under Section 2(b) as an

instrumentality of the United States” and that Fannie Mae, rather than certain trusts, is the issuer for purposes of sections

3(a)(1) and 3(a)(3) of the Investment Company Act).

Metrics Reporting and Confidentiality

10. Are the quantitative measurements that a banking entity reports under

Appendix A of the final rule protected by the Freedom of Information Act

(“FOIA”)?

Posted: 12/23/2014

The staffs of the Agencies encourage banking entities subject to Appendix A to evaluate exemptions available

under the FOIA for their reported metrics information and to request confidential treatment as appropriate.

Some firms have stated that metrics data reported to the Agencies represent confidential proprietary

information of the banking entity. Exemption 4 of the FOIA protects matters that are trade secrets and

commercial or financial information obtained from a person that is privileged or confidential.1 Other exemptions

may also apply. We expect to maintain the confidentiality of the reported metrics information to the extent

permitted by law.

1 5 U.S.C. § 552(b)(4). The FDIC’s FOIA regulation regarding the treatment of confidential commercial information is codified

at 12 CFR §309.5(g)(4).

erson that is privileged or confidential.1 Other exemptions

may also apply. We expect to maintain the confidentiality of the reported metrics information to the extent

permitted by law.

1 5 U.S.C. § 552(b)(4). The FDIC’s FOIA regulation regarding the treatment of confidential commercial information is codified

at 12 CFR §309.5(g)(4).

30-Day Metrics Reporting During the Conformance Period

11. On what date do banking entities that currently are subject to metrics

reporting under Appendix A of the final rule implementing section 13 of the

BHC Act need to start reporting metrics within 10 days of the end of each

calendar month?

Posted: 1/29/2015

The final rule implementing section 13 of the BHC Act required certain of the largest banking entities to report

metrics for July 2014 data beginning in September 2014.1 In particular, § 351.20(d)(3) of the rule provides that,

unless the appropriate Agency notifies the banking entity in writing that it must report on a different basis,

banking entities with $50 billion or more in trading assets and liabilities must report the information required by

Appendix A for each calendar month within 30 days of the end of the relevant calendar month and beginning

with information for the month of January 2015, within 10 days of the end of each calendar month.

The Agencies have received five months of metrics submissions to-date. Several banking entities that currently

are subject to metrics reporting have requested that the Agencies maintain the 30-day period for reporting the

required metrics through July 2015 (the end of the conformance period for proprietary trading activities).

Banking entities have argued that additional time is needed to allow them to implement systems and processes

in order to ensure overall data integrity and reliability

t currently

are subject to metrics reporting have requested that the Agencies maintain the 30-day period for reporting the

required metrics through July 2015 (the end of the conformance period for proprietary trading activities).

Banking entities have argued that additional time is needed to allow them to implement systems and processes

in order to ensure overall data integrity and reliability.

The purpose of the shortened reporting schedule is to allow for more effective supervision of banking entities

for compliance with section 13 and the final rule.2 Staffs of the Agencies believe that, during the period firms

are building their compliance programs, delaying the shortened reporting period is consistent with that purpose.

Accordingly, banking entities required to report metrics may report such information within 30 days of the end of

the relevant calendar month through the report of metrics for the month of July 2015. This means that metrics

for the month of July 2015 must be reported within 30 days of the end of the month, or August 31, 2015.

Beginning with metrics for the month of August 2015, banking entities must submit metrics within 10 days of the

end of the month. As a result, metrics for the month of August 2015 must be reported by September 10, 2015.

1 See 12 CFR 351.20(d)(2). Staffs of the Agencies previously issued an FAQ stating that a banking entity with trading assets

and liabilities of at least $50 billion, as calculated under §351.20(d)(1), must begin to measure and record the required

metrics on a daily basis starting July 1, 2014 and report its daily metrics recorded during the month of July by September 2,

2014. See https://www.fdic.gov/regulations/reform/volcker/faq/metrics.html.

2 See 79 FR at 5765 n.2689.

that a banking entity with trading assets

and liabilities of at least $50 billion, as calculated under §351.20(d)(1), must begin to measure and record the required

metrics on a daily basis starting July 1, 2014 and report its daily metrics recorded during the month of July by September 2,

2014. See https://www.fdic.gov/regulations/reform/volcker/faq/metrics.html.

2 See 79 FR at 5765 n.2689.

Treasury STRIPS

12. Are interest-only and principal-only STRIPS of notes and bonds issued

by the U.S. Treasury considered “obligations of, or issued or guaranteed by,

the United States” under 12 CFR 351.6(a)(1) of the final rule implementing

section 13 of the BHC Act? Is the same true for securities reconstituted from

STRIPS of U.S. Treasury notes or bonds?

Posted: 1/29/2015

Yes. Under the Department of the Treasury’s Separate Trading of Registered Interest and Principal of

Securities program, eligible Treasury securities are authorized to be separated into principal and interest

components and transferred separately.1 These separate principal and interest components are also referred

to as “STRIPS.” Like the fully constituted security, payments of principal and interest under these STRIPS are

backed by the full faith and credit of the United States.2 Thus, the interest-only and principal-only components

are obligations of, or issued or guaranteed by, the United States that would qualify for the exemption provided

under § 351.6(a)(1) of the final rule implementing section 13 of the BHC Act.

In addition, Treasury regulations allow financial institutions and government securities brokers or dealers to

reassemble corresponding STRIPS into their fully constituted form.3 This reconstituted security is also an

obligation of, or issued or guaranteed by, the United States under § 351.6(a)(1) of the final rule.

1 31 CFR 356.4

2 See 51 Fed. Reg. 29085, 29088–89 (Aug. 14, 1986) (OCC interpretive ruling citing Memorandum from Walter T

ers to

reassemble corresponding STRIPS into their fully constituted form.3 This reconstituted security is also an

obligation of, or issued or guaranteed by, the United States under § 351.6(a)(1) of the final rule.

1 31 CFR 356.4

2 See 51 Fed. Reg. 29085, 29088–89 (Aug. 14, 1986) (OCC interpretive ruling citing Memorandum from Walter T. Eccard,

Assistant General Counsel for Banking and Finance, Department of the Treasury, to Jordan Luke, Deputy Chief Counsel

(Policy), OCC (May 29, 1986)); accord Call Report Glossary, at A-14b (Dec 2014) (“Even after the interest or principal

portions of U.S. Treasury STRIPS have been separately traded, they remain obligations of the U.S. Government.”).

3 31 CFR 356.31(d); see also http://www.treasurydirect.gov/instit/marketables/strips/strips.htm.

SOTUS Covered Fund Exemption: Marketing Restriction

13. Section 13(d)(1)(I) of the Bank Holding Company Act (“BHC Act”) and

section 351.13(b) of the final rule provide an exemption for certain covered

fund activities conducted by foreign banking entities (the “SOTUS covered

fund exemption”) provided that, among other conditions, “no ownership

interest in such hedge fund or private equity fund is offered for sale or sold to

a resident of the United States” (the “marketing restriction”). Does the

marketing restriction apply only to the activities of a foreign banking entity

that is seeking to rely on the SOTUS covered fund exemption or does it apply

more generally to the activities of any person offering for sale or selling

ownership interests in the covered fund? Sponsors of covered funds and

foreign banking entities have asked how this condition would apply to a

foreign banking entity that has made, or intends to make, an investment in a

covered fund where the foreign banking entity (including its affiliates) does

not sponsor, or serve, directly or indirectly, as the investment manager,

investment adviser, commodity pool operator or commodity tradin

Sponsors of covered funds and

foreign banking entities have asked how this condition would apply to a

foreign banking entity that has made, or intends to make, an investment in a

covered fund where the foreign banking entity (including its affiliates) does

not sponsor, or serve, directly or indirectly, as the investment manager,

investment adviser, commodity pool operator or commodity trading advisor

to, the covered fund (a “third-party covered fund”).

Posted: 2/27/2015

The staffs of the Agencies believe that the marketing restriction applies to the activities of the foreign banking

entity that is seeking to rely on the SOTUS covered fund exemption (including its affiliates). This is also

reflected in the preamble discussion of the marketing restriction and the structure of the final rule as discussed

below.

Consistent with Section 13(d)(1)(I) of the BHC Act, the marketing restriction in the final rule provides that “no

ownership interest in the covered fund is offered for sale or sold to a resident of the United States.” Section

351.13(b)(3) of the final rule provides that an ownership interest in a covered fund is not offered for sale or sold

to a resident of the United States for purposes of the marketing restriction if it is sold or has been sold pursuant

to an offering that does not target residents of the United States. In describing the marketing restriction in the

preamble, the Agencies stated that the marketing restriction serves to limit the SOTUS covered fund exemption

so that it “does not advantage foreign banking entities relative to U.S

the United States for purposes of the marketing restriction if it is sold or has been sold pursuant

to an offering that does not target residents of the United States. In describing the marketing restriction in the

preamble, the Agencies stated that the marketing restriction serves to limit the SOTUS covered fund exemption

so that it “does not advantage foreign banking entities relative to U.S. banking entities with respect to providing

their covered fund services in the United States by prohibiting the offer or sale of ownership interests in related

covered funds to residents of the United States.”1

The marketing restriction, as implemented in the final rule, constrains the foreign banking entity in connection

with its own activities with respect to covered funds rather than the activities of unaffiliated third parties, thereby

ensuring that the foreign banking entity seeking to rely on the SOTUS covered fund exemption does not

engage in an offering of ownership interests that targets residents of the United States.2

This view is consistent with limiting the extraterritorial application of section 13 to foreign banking entities while

seeking to ensure that the risks of covered fund investments by foreign banking entities occur and remain

solely outside of the United States.2 If the marketing restriction were applied to the activities of third parties,

such as the sponsor of a third-party covered fund (rather than the foreign banking entity investing in a third-

party covered fund), the SOTUS covered fund exemption may not be available in certain circumstances where

the risks and activities of a foreign banking entity with respect to its investment in the covered fund are solely

outside the United States.3

to the activities of third parties,

such as the sponsor of a third-party covered fund (rather than the foreign banking entity investing in a third-

party covered fund), the SOTUS covered fund exemption may not be available in certain circumstances where

the risks and activities of a foreign banking entity with respect to its investment in the covered fund are solely

outside the United States.3

A foreign banking entity (including its affiliates) that seeks to rely on the SOTUS covered fund exemption must

comply with all of the conditions to that exemption, including the marketing restriction. A foreign banking entity

that participates in an offer or sale of covered fund interests to a resident of the United States thus cannot rely

on the SOTUS covered fund exemption with respect to that covered fund. Further, where a banking entity

sponsors or serves, directly or indirectly, as the investment manager, investment adviser, commodity pool

operator or commodity trading advisor to a covered fund, that banking entity will be viewed by the staffs as

participating in any offer or sale by the covered fund of ownership interests in the covered fund, and therefore

such foreign banking entity would not qualify for the SOTUS covered fund exemption for that covered fund if

that covered fund offers or sells covered fund ownership interests to a resident of the United States.

1 See Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds

and Private Equity Funds, 79 FR 5536 at 5742 (Jan. 31, 2014). (emphasis added)

2 See id. at 5740

covered fund if

that covered fund offers or sells covered fund ownership interests to a resident of the United States.

1 See Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds

and Private Equity Funds, 79 FR 5536 at 5742 (Jan. 31, 2014). (emphasis added)

2 See id. at 5740.

3 The staffs also note that foreign funds that sell securities to residents of the United States in an offering that targets

residents of the United States will be covered funds under section 351.10(b)(i) of the final rule if such funds are unable to

rely on an exclusion or exemption under the Investment Company Act other than section 3(c)(1) or 3(c)(7) of that Act. If the

marketing restriction were to apply more generally to the activities of any person (including the covered fund itself), the

applicability of the SOTUS covered fund exemption would be significantly limited because a third-party foreign fund’s

offering that targets residents of the United States would make the SOTUS covered fund exemption unavailable for all

foreign banking entity investors in the fund. The Agencies’ discussion of the SOTUS covered fund exemption in the

preamble does not suggest that the Agencies understood the SOTUS covered fund exemption to have such a limited

application.

Foreign Public Funds Sponsored by Banking Entities

14. How does the final rule apply to a foreign public fund sponsored by a

banking entity?

Posted: 6/12/2015

The final rule excludes foreign public funds from the definition of covered fund.1 To qualify for this exclusion,

these funds must, among other conditions, be authorized to offer and sell ownership interests to retail investors

in the foreign public fund’s home jurisdiction and must sell ownership interests predominantly in public offerings

outside of the United States.2 The Agencies stated that this exclusion was “designed to prevent . .

m the definition of covered fund.1 To qualify for this exclusion,

these funds must, among other conditions, be authorized to offer and sell ownership interests to retail investors

in the foreign public fund’s home jurisdiction and must sell ownership interests predominantly in public offerings

outside of the United States.2 The Agencies stated that this exclusion was “designed to prevent . . . the

definition of covered fund from including foreign funds that are similar to U.S. registered investment companies,

which are by statute not covered by section 13.”3 The Agencies also stated that the “foreign public fund

exclusion is designed to treat foreign public funds consistently with similar U.S. funds and to limit the

extraterritorial application of section 13 of the BHC Act, including by permitting U.S. banking entities and their

foreign affiliates to carry on traditional asset management businesses outside of the United States.”4

Staffs of the Agencies understand that, unlike in the case of U.S. registered investment companies,5 sponsors

of foreign public funds in some foreign jurisdictions select the majority of the fund’s directors or trustees, or

otherwise control the fund for purposes of the BHC Act by contract or through a controlled corporate director.

These and other corporate governance structures abroad therefore have raised questions regarding whether

foreign public funds that are sponsored and distributed outside the U.S. and in accordance with foreign laws

are banking entities by virtue of their relationships with a banking entity.

As noted by the Agencies in the preamble to the final rule, the definition of private equity fund and hedge fund

in section 619 of the Dodd-Frank Act appears to reflect Congressional concerns regarding less regulated

private funds as well as an intention not to disrupt registered investment companies, such as U.S

aws

are banking entities by virtue of their relationships with a banking entity.

As noted by the Agencies in the preamble to the final rule, the definition of private equity fund and hedge fund

in section 619 of the Dodd-Frank Act appears to reflect Congressional concerns regarding less regulated

private funds as well as an intention not to disrupt registered investment companies, such as U.S. mutual

funds.6 The final implementing regulations issued by the Agencies adopted the same approach toward foreign

public funds in order to make clear that U.S. banking entities and their foreign affiliates, as well as foreign

banking organizations, could continue to carry on their traditional asset management businesses involving

foreign public funds outside of the United States.7 The final rule imposes conditions to ensure that the foreign

public fund is distributed predominantly through public offerings outside the United States, is offered to retail

investors in the issuer’s home jurisdiction, is distributed in accordance with all applicable requirements for

distributing public funds in the jurisdiction in which the distribution is being made, and includes publicly

available offering disclosure documents. These requirements were designed to mirror the characteristics of

U.S. mutual funds that are outside the applicability of section 619 of the Dodd-Frank Act.8

By referring to characteristics common to publicly distributed foreign funds rather than requiring that foreign

public funds organize themselves identically to U.S. mutual funds or other types of U.S. regulated investment

companies, the final rule recognized that foreign jurisdictions have established their own frameworks governing

the details for the operation and distribution of foreign public funds.

Section 351.12 of the final rule further provides that, for purposes of complying with the covered fund

investment limits, a U.S

elves identically to U.S. mutual funds or other types of U.S. regulated investment

companies, the final rule recognized that foreign jurisdictions have established their own frameworks governing

the details for the operation and distribution of foreign public funds.

Section 351.12 of the final rule further provides that, for purposes of complying with the covered fund

investment limits, a U.S. registered investment company, SEC-regulated business development company, or

foreign public fund will not be considered to be an affiliate of the banking entity so long as the banking entity: (i)

does not own, control, or hold with the power to vote 25 percent or more of the voting shares of the fund; and

(ii) provides investment advisory, commodity trading advisory, administrative, and other services to the fund in

compliance with the limitations under applicable regulation, order, or other authority. The staffs of the Agencies

note that these limitations would include those imposed by an authority in the relevant foreign jurisdiction.9

Staffs of the Agencies would not advise that the activities and investments of a foreign public fund that meets

the requirements in section 351.10(c)(1) and section 351.12(b)(1) of the final rule be attributed to the banking

entity for purposes of section 619 of the Dodd-Frank Act or the final rule where, consistent with section

351.12(b)(1) of the final rule, the banking entity does not own, control, or hold with the power to vote 25 percent

or more of the voting shares of the foreign public fund (after the seeding period)10, and provides investment

advisory, commodity trading advisory, administrative, and other services to the fund in compliance with

applicable limitations in the relevant foreign jurisdiction. Nor would the staffs advise that a foreign public fund

be deemed a banking entity under the final rule solely by virtue of its relationship with the sponsoring banking

blic fund (after the seeding period)10, and provides investment

advisory, commodity trading advisory, administrative, and other services to the fund in compliance with

applicable limitations in the relevant foreign jurisdiction. Nor would the staffs advise that a foreign public fund

be deemed a banking entity under the final rule solely by virtue of its relationship with the sponsoring banking

entity where the foreign public fund meets the requirements of section 351.10(c)(1) of the final rule and the

sponsoring banking entity’s relationship with the foreign public fund meets the requirements of section

351.12(b)(1) of the final rule, including the requirement that the sponsoring banking entity’s relationship with the

fund is in compliance with applicable limitations in the foreign jurisdiction in which the foreign public fund

operates.

1 See § 351.10(c)(1). The final rule defines the term “covered fund” to include certain funds that rely on section 3(c)(1) or

3(c)(7) of the Investment Company Act; certain commodity pools as defined in section 1a(10) of the Commodity Exchange

Act; and certain foreign funds. See § 351.10(b)(1).

2 See § 351.10(c)(1).

3 79 FR at 5673. The Agencies also noted more generally that the exclusions from the covered fund definition were

designed, among other purposes, “to address the potential over-breadth of the covered fund definition and related

requirements without such exclusions by permitting banking entities to invest in and have other relationships with entities

that do not relate to the statutory purpose of section 13.” 79 FR at 5677.

4 79 FR at 5678. The Agencies explained in the preamble that they “tailored the final definition [of covered fund] to include

entities of the type that the Agencies believe Congress intended to capture in its definition of private equity fund and hedge

fund in section 13(h)(2) of the BHC Act by reference to section 3(c)(1) and 3(c)(7) of the Investment Company Act

of section 13.” 79 FR at 5677.

4 79 FR at 5678. The Agencies explained in the preamble that they “tailored the final definition [of covered fund] to include

entities of the type that the Agencies believe Congress intended to capture in its definition of private equity fund and hedge

fund in section 13(h)(2) of the BHC Act by reference to section 3(c)(1) and 3(c)(7) of the Investment Company Act. Thus, the

final definition focuses on the types of entities formed for the purpose of investing in securities or derivatives for resale or

otherwise trading in securities or derivatives, and that are offered and sold in offerings that do not involve a public offering,

but typically involve offerings to institutional investors and high-net worth individuals (rather than to retail investors).” 79 FR

at 5666.

5 See 79 FR at 5676 (recognizing that the Federal Reserve Board’s regulations and orders have long recognized that a bank

holding company may organize, sponsor, and manage a registered investment company, including by serving as investment

adviser to the registered investment company, without controlling the registered investment company for purposes of the

BHC Act).

6 See, e.g., 79 FR at 5675 (“Section 13’s definition of private equity fund and hedge fund by reference to section 3(c)(1) and

3(c)(7) of the Investment Company Act appears to reflect Congress’ concerns about banking entities’ exposure to and

relationships with investment funds that explicitly are excluded from SEC regulation as investment companies.”). (emphasis

in original) See also e.g., 79 FR at 5666.

7 79 FR at 5678 (stating “the Agencies’ view that the foreign public fund exclusion is designed to treat foreign public funds

consistently with similar U.S. funds and to limit the extraterritorial application of section 13 of the BHC Act, including by

permitting U.S. banking entities and their foreign affiliates to carry on traditional asset management businesses outside of

the United States”).

8

79 FR at 5678

ating “the Agencies’ view that the foreign public fund exclusion is designed to treat foreign public funds

consistently with similar U.S. funds and to limit the extraterritorial application of section 13 of the BHC Act, including by

permitting U.S. banking entities and their foreign affiliates to carry on traditional asset management businesses outside of

the United States”).

8

79 FR at 5678.

9

See § 351.12(b)(1)(ii). See also 79 FR at 5732 (“[F]or purposes of section 13 of the BHC Act and the final rule, a registered

investment company, SEC-regulated business development company, and a foreign public fund as described in

§__.10(c)(1) of the final rule will not be considered to be an affiliate of the banking entity if the banking entity owns, controls,

or holds with the power to vote less than 25 percent of the voting shares of the company or fund, and provides investment

advisory, commodity trading advisory, administrative, and other services to the company or fund only in a manner that

complies with other limitations under applicable regulation, order, or other authority.”)

10 See §§ 351.10(c)(12) and 351.20(e). The preamble to the final rule makes clear that, consistent with the Board’s

precedent regarding bank holding company control of and relationships with funds, a seeding vehicle that will become a

registered investment company would not itself be viewed as violating the requirements of section 13 during the seeding

period so long as the banking entity that establishes the seeding vehicle operates the vehicle pursuant to a written plan,

developed in accordance with the banking entity’s compliance program, that reflects the banking entity’s determination that

the vehicle will become a registered investment company within the time period provided for seeding a covered fund. See 79

FR at 5676-77

the seeding

period so long as the banking entity that establishes the seeding vehicle operates the vehicle pursuant to a written plan,

developed in accordance with the banking entity’s compliance program, that reflects the banking entity’s determination that

the vehicle will become a registered investment company within the time period provided for seeding a covered fund. See 79

FR at 5676-77. The staffs of the Agencies have explained that an issuer that will become a foreign public fund would be

treated during its seeding period in the same manner as an issuer that will become an excluded registered investment

company. https://fdic.gov/regulations/reform/volcker/faq/foreign.html.

Joint Venture Exclusion for Covered Funds

15. May an issuer that would be a covered fund rely on the joint venture

exclusion from the definition of covered fund under § 351.10(c)(3) of the

final rule?

Posted: 6/12/2015

Section 351.10(c)(3) of the final rule provides that a covered fund does not include a joint venture between a

banking entity or any of its affiliates and one or more unaffiliated persons, provided that the joint venture:

•

Is comprised of no more than 10 unaffiliated co-venturers;

•

Is in the business of engaging in activities that are permissible for the banking entity or affiliate, other

than investing in securities for resale or other disposition; and

•

Is not, and does not hold itself out as being, an entity or arrangement that raises money from investors

primarily for the purpose of investing in securities for resale or other disposition or otherwise trading in

securities

he business of engaging in activities that are permissible for the banking entity or affiliate, other

than investing in securities for resale or other disposition; and

•

Is not, and does not hold itself out as being, an entity or arrangement that raises money from investors

primarily for the purpose of investing in securities for resale or other disposition or otherwise trading in

securities.

As explained in the preamble to the final rule, one of the purposes of section 13 of the Bank Holding Company

Act (“BHC Act”) is to limit investment and sponsorship activities of banking entities in hedge funds and private

equity funds, which section 13 of the BHC Act generally defines as entities that rely on certain specified

exclusions in the Investment Company Act of 1940.1 The final rule defines hedge funds and private equity

funds collectively as “covered funds.”2 The preamble to the final rule explains that the definition of covered

fund focuses on the types of entities formed for the purpose of investing in securities or derivatives for resale or

other trading activity that are not subject to all of the securities law protections applicable to funds that are

registered with the SEC as investment companies. A joint venture that qualifies for the joint venture exclusion in

the final rule, however, is excluded from the definition of covered fund.

The conditions to the joint venture exclusion reflect that the exclusion is designed to be used by a banking

entity to conduct businesses and operations in conjunction with a limited number of co-venturers and that the

exclusion is not intended to include entities that invest in securities for resale or other disposition. Similarly, the

exclusion would not apply to entities or arrangements that raise money from investors primarily for the purpose

of investing in securities for the benefit of one or more investors and sharing the income, gain or losses on

securities acquired by that entity

turers and that the

exclusion is not intended to include entities that invest in securities for resale or other disposition. Similarly, the

exclusion would not apply to entities or arrangements that raise money from investors primarily for the purpose

of investing in securities for the benefit of one or more investors and sharing the income, gain or losses on

securities acquired by that entity. The limitations in the joint venture exclusion are meant to ensure that the joint

venture is not an investment vehicle and that the joint venture exclusion is not used as a means to evade the

limitations in the BHC Act on investing in covered funds. 3

This exclusion is not met by an issuer that raises money from a small number of investors primarily for the

purpose of investing in securities, whether the securities are intended to be traded frequently, held for a longer

duration, held to maturity, or held until the dissolution of the entity. The exclusion also is not met by an entity

that raises money from investors primarily for the purpose of investing in securities for resale or other

disposition or otherwise trading in securities merely because one of the purposes for establishing the vehicle

may be to provide financing to an entity to obtain and hold securities. As the preamble explains, the exclusion

is designed to allow a banking entity to more efficiently manage the risks of its banking operations by, for

example, seeking to obtain or share complementary business expertise

position or otherwise trading in securities merely because one of the purposes for establishing the vehicle

may be to provide financing to an entity to obtain and hold securities. As the preamble explains, the exclusion

is designed to allow a banking entity to more efficiently manage the risks of its banking operations by, for

example, seeking to obtain or share complementary business expertise. The conditions imposed on the

exclusion are specifically intended to prevent the exclusion from being used as a vehicle to raise funds from

investors primarily for the purpose of profiting from investment activity in securities for resale or other

disposition or otherwise trading in securities.4 Thus, for example, a vehicle that raises funds from investors

primarily for the purpose of sharing in the benefits, income, gains or losses from ownership of securities – as

opposed to conducting a business or engaging in operations or other non-investment activities – would be

raising money from investors primarily for the purpose of “investing in securities,” even if the vehicle may have

other purposes.5

1 See, e.g., Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge

Funds and Private Equity Funds, 79 FR 5536 (Jan. 31, 2014) at 5670-5671.

2 The final rule generally defines the term “covered fund” to include certain funds that rely on § 3(c)(1) or 3(c)(7) of the

Investment Company Act of 1940; certain commodity pools as defined in section 1a(10) of the Commodity Exchange Act;

and certain foreign funds. See § 351.10(b)(1) of the final rule.

3 The joint venture exclusion is subject to conditions, as noted above. As an initial matter, the entity seeking to rely on the

exclusion must be a joint venture

ertain funds that rely on § 3(c)(1) or 3(c)(7) of the

Investment Company Act of 1940; certain commodity pools as defined in section 1a(10) of the Commodity Exchange Act;

and certain foreign funds. See § 351.10(b)(1) of the final rule.

3 The joint venture exclusion is subject to conditions, as noted above. As an initial matter, the entity seeking to rely on the

exclusion must be a joint venture. While the term “joint venture” is not defined separately in the final rule, the Agencies’

staffs note that the basic elements of a joint venture are well recognized, including under state law. Although any

determination of whether an arrangement is a joint venture will depend on the facts and circumstances, the Agencies’ staffs

generally would not expect that a person that does not have some degree of control over the business of an entity would be

considered to be participating in “a joint venture between a banking entity or any of its affiliates and one or more unaffiliated

persons” as specified in § 351.10(c)(3) of the final rule.

4 See 79 FR 5536 at 5680-82.

5 See, e.g., 79 FR 5536 at 5681 (stating that the limit on the number of co-venturers “allows flexibility in structuring larger

business ventures without involving such a large number of partners as to suggest the venture is in reality a hedge fund or

private equity fund established for investment purposes” and that “[t]he Agencies will monitor joint ventures—and other

excluded entities—to ensure that they are not used by banking entities to evade the provisions of section 13”; also stating

that “[t]he final rule’s requirement that a joint venture not be an entity or arrangement that raises money from investors

primarily for the purpose of investing in securities for resale or other disposition or otherwise trading in securities prevents a

banking entity from relying on this exclusion to evade section 13 of the BHC Act by owning or sponsoring what is or will

become a covered fund”).

t]he final rule’s requirement that a joint venture not be an entity or arrangement that raises money from investors

primarily for the purpose of investing in securities for resale or other disposition or otherwise trading in securities prevents a

banking entity from relying on this exclusion to evade section 13 of the BHC Act by owning or sponsoring what is or will

become a covered fund”).

Seeding Period Treatment for Registered Investment Companies and Foreign

Public Funds

16. Is a registered investment company or a foreign public fund a banking

entity subject to section 13 of the BHC Act and implementing rules during its

seeding period?

Posted: 7/16/2015

The rule implementing section 13 of the Bank Holding Company Act (“BHC Act”) and the accompanying

preamble make clear that a registered investment company (“RIC”) and a foreign public fund (“FPF”) are not

covered funds for purposes of the statute or implementing rules.1 The preamble to the implementing rules also

recognize that a banking entity may own a significant portion of the shares of a RIC or FPF during a brief period

during which the banking entity is testing the fund’s investment strategy, establishing a track record of the

fund’s performance for marketing purposes, and attempting to distribute the fund’s shares (the so-called

seeding period).2

Staff of the Agencies would not advise the Agencies to treat a RIC or FPF as a banking entity under the

implementing rules solely on the basis that the RIC or FPF is established with a limited seeding period, absent

other evidence that the RIC or FPF was being used to evade section 13 and the implementing rules

s, and attempting to distribute the fund’s shares (the so-called

seeding period).2

Staff of the Agencies would not advise the Agencies to treat a RIC or FPF as a banking entity under the

implementing rules solely on the basis that the RIC or FPF is established with a limited seeding period, absent

other evidence that the RIC or FPF was being used to evade section 13 and the implementing rules. The staffs

of the Agencies understand that the seeding period for an entity that is a RIC or FPF may take some time, for

example, three years, the maximum period of time expressly permitted for seeding a covered fund under the

implementing rules.3 The seeding period generally would be measured from the date on which the investment

adviser or similar entity begins making investments pursuant to the written investment strategy of the fund.4

Accordingly, staff of the Agencies would not advise the Agencies to treat a RIC or FPF as a banking entity

solely on the basis of the level of ownership of the RIC or FPF by a banking entity during a seeding period or

expect an application to be submitted to the Board to determine the length of the seeding period.5

1 See §351.10(c)(1) (excluding a FPF from the definition of covered fund); §351.10(c)(12) (excluding from the definition of

covered fund an issuer that is a RIC under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a-8)).

2 See 79 FR at 5676-77; see also §351.10(c)(12) (excluding from the definition of covered fund an issuer formed and

operated pursuant to a written plan to become a RIC); FAQ #5, available at:

3 See § 351.10(c)(12); § 351.12(a)(2)(i)(B)); § 351.12(e); § 351.20(e).

4 See § 351.12(a)(2) (describing seeding periods for a covered fund that is not issuing asset-backed securities)

15 U.S.C. 80a-8)).

2 See 79 FR at 5676-77; see also §351.10(c)(12) (excluding from the definition of covered fund an issuer formed and

operated pursuant to a written plan to become a RIC); FAQ #5, available at:

3 See § 351.10(c)(12); § 351.12(a)(2)(i)(B)); § 351.12(e); § 351.20(e).

4 See § 351.12(a)(2) (describing seeding periods for a covered fund that is not issuing asset-backed securities).

5 The final rule requires a vehicle that is a covered fund (as opposed to a RIC or a FPF) during its seeding period and that is

formed and operated pursuant to a written plan to become a RIC to apply to the Board for an extension of the one-year

seeding period already granted to such covered funds. See §§ 351.10(c)(12); § 351.12(a)(2)(i)(B)); § 351.12(e); §

351.20(e). The implementing rule also excludes from the definition of covered fund an issuer that has elected to be

regulated as a business development company pursuant to section 54(a) of the Investment Company Act and has not

withdrawn that election (“SEC-regulated BDC”), or that is formed and operated pursuant to a written plan to become a

business development company as described in § 351.20(e)(3) of subpart D and that complies with the requirements of

section 61 of the Investment Company Act of 1940 company. See § 351.10(c)(12)(iii). The staffs, consistent with the final

rule’s parallel treatment of RICs, FPFs, and SEC-regulated BDCs, also would not advise the Agencies to treat an SEC-

regulated BDC as a banking entity solely on the basis of the level of ownership of the SEC-regulated BDC by a banking

entity during a seeding period.

https://www.fdic.gov/regulations/reform/volcker/faq/foreign.html (stating that “it would be appropriate that an issuer that will

become an excluded foreign public fund be treated during its seeding period the same as an issuer that will become an

excluded RIC”).

entity solely on the basis of the level of ownership of the SEC-regulated BDC by a banking

entity during a seeding period.

https://www.fdic.gov/regulations/reform/volcker/faq/foreign.html (stating that “it would be appropriate that an issuer that will

become an excluded foreign public fund be treated during its seeding period the same as an issuer that will become an

excluded RIC”).

Compliance for Market Making and the Identification of Covered Funds

17. May a banking entity’s compliance program for market making-related

activities include objective factors on which a trading desk may reasonably

rely to determine whether a security is issued by a covered fund?

Furthermore, may a market maker meet its compliance program requirements

by making use of a shared utility or third party service provider that utilizes

objective factors if the market maker reasonably believes the system of the

shared utility or third party service provider will identify whether a security is

issued by a covered fund?

Posted: 9/25/2015

The final rule’s exemption for market making-related activity requires a banking entity to establish, implement,

maintain, and enforce a reasonably designed compliance program for a trading desk engaged in market

making-related activity that includes, among other things, strong internal controls and independent

testing.1 For purposes of meeting the final rule’s exemption for market-making,2 a reasonably designed

compliance program for a trading desk engaged in market making-related activity may include objective factors

on which the trading desk may reasonably rely to determine whether a security is issued by a covered fund

that includes, among other things, strong internal controls and independent

testing.1 For purposes of meeting the final rule’s exemption for market-making,2 a reasonably designed

compliance program for a trading desk engaged in market making-related activity may include objective factors

on which the trading desk may reasonably rely to determine whether a security is issued by a covered fund.

Objective factors are factual criteria that can be used to reliably identify whether an issuer or a particular type of

issuer is a covered fund.3 As an example, an objective factor would include whether the securities of the issuer

were offered in transactions registered under the Securities Act.4 Objective factors would not be considered

part of a reasonably designed compliance program if the banking entity designed or used such objective factors

to evade section 13 and the final rule.

On the other hand, the Agencies’ staffs do not believe it would be reasonable for a trading desk to rely solely

on either or both the name of the issuer or the title of the issuer’s securities; these factors alone would not

convey sufficient information about the issuer for a trading desk reasonably to determine whether a security is

issued by a covered fund.

A reasonably designed compliance program for a trading desk engaged in market making-related activity also

may permit the trading desk to use a shared utility or third party service provider that utilizes objective factors if

the banking entity reasonably believes the system of the shared utility or third party service provider will identify

whether a security is issued by a covered fund and use of the shared utility or third party service provider is

identified in the trading desk’s compliance program

permit the trading desk to use a shared utility or third party service provider that utilizes objective factors if

the banking entity reasonably believes the system of the shared utility or third party service provider will identify

whether a security is issued by a covered fund and use of the shared utility or third party service provider is

identified in the trading desk’s compliance program. The use of objective factors by a shared utility or third

party service provider should be evaluated by the banking entity in considering whether the banking entity

reasonably believes that the shared utility or third party service provider has a system that will identify whether

a security is issued by a covered fund.

Whether a compliance program is reasonably designed will depend on the facts and circumstances. A

compliance program that is reasonably designed for a trading desk engaged in market making-related activities

may not be reasonably designed for other activities conducted by a banking entity. This FAQ only addresses

the compliance program for a trading desk engaged in market making-related activity.5

Importantly, the banking entity’s reliance on objective factors, a shared utility, or a third party service provider

must be subject to independent testing and audit requirements applicable to the banking entity’s compliance

program.6 If independent testing or other review of the banking entity’s compliance program shows that the

objective factors used by the banking entity, shared utility, or third party service provider are not effective in

identifying whether a security is issued by a covered fund, then the banking entity must promptly update its

compliance program to remedy such issues and, as necessary, take action under § 351.21 of the final rule

implementing section 13 of the BHC Act

iance program shows that the

objective factors used by the banking entity, shared utility, or third party service provider are not effective in

identifying whether a security is issued by a covered fund, then the banking entity must promptly update its

compliance program to remedy such issues and, as necessary, take action under § 351.21 of the final rule

implementing section 13 of the BHC Act. Further, if at any time the banking entity discovers it holds an

ownership interest in a covered fund in violation of the final rule implementing section 13 of the BHC Act, it

must promptly dispose of the interest or otherwise conform it to the requirements of the final rule.7

1 See § 351.4(b)(2)(iii) of the final rule. See also § 351.20(a) of the final rule (providing that “each banking entity shall

develop and provide for the continued administration of a compliance program reasonably designed to ensure and monitor

compliance with the prohibitions and restrictions on proprietary trading and covered fund activities and investments set forth

in section 13 of the BHC Act and [the final rules]”).

2 § 351.11(c).

3 Notably, the reasonableness of a particular objective factor may vary based on the type of issuer, and relying on objective

factors may not be reasonable for all types of issuers. This may be the case, for example, for potential covered fund issuers

whose operations or structure are not consistent with market standards or practices for which objective factors could be

tailored.

4 See 79 FR at 5674 n.1717, 5687 n.1861

ess of a particular objective factor may vary based on the type of issuer, and relying on objective

factors may not be reasonable for all types of issuers. This may be the case, for example, for potential covered fund issuers

whose operations or structure are not consistent with market standards or practices for which objective factors could be

tailored.

4 See 79 FR at 5674 n.1717, 5687 n.1861.

5 In the context of market making-related activity, it generally would not be reasonable for the compliance program to permit

the trading desk to rely on objective factors, shared utilities, or third party service providers in determining whether an issuer

is a covered fund if the banking entity has already determined that the issuer is a covered fund in connection with

sponsoring the issuer or acquiring an ownership interest in the issuer as an investment. Where a banking entity organizes

and offers, including sponsors, an entity that may be a covered fund, the banking entity should know if the issuer is a

covered fund and may not rely on objective factors. See §§ 351.11(a)-(b).

6 See § 351.20(b)(4), Appendix B.

7 While market making-related activity in covered funds is permitted under § 351.11(c) of the final rule, such activity is

subject to certain limits on the amount of covered fund ownership interests the banking entity may hold.

CEO Certification for Prime Brokerage Transactions

18. When is a banking entity required to submit the annual CEO certification

for prime brokerage transactions required by §351.14(a)(2)(ii)(B) of the final

rule? What about legacy covered funds?

Posted: 9/25/2015

Section 351.14(a)(1) of the final rule prohibits a banking entity that serves, directly or indirectly, as the

investment manager, investment adviser, commodity trading advisor, or sponsor to a covered fund, that

organizes and offers a covered fund pursuant to §351.11 of the final rule or that holds an ownership interest in

accordance with §351.11(b), and any affiliate of the banking entity, from en

ion 351.14(a)(1) of the final rule prohibits a banking entity that serves, directly or indirectly, as the

investment manager, investment adviser, commodity trading advisor, or sponsor to a covered fund, that

organizes and offers a covered fund pursuant to §351.11 of the final rule or that holds an ownership interest in

accordance with §351.11(b), and any affiliate of the banking entity, from entering into a covered transaction as

defined in section 23A of the Federal Reserve Act (12 U.S.C. 371c(b)(7)) with the covered fund or with any

other covered fund that is controlled by such covered fund. Notwithstanding this prohibition, §351.14(a)(2)

provides that a banking entity may enter into any prime brokerage transaction1 with any covered fund in which

a covered fund managed, sponsored, or advised by such banking entity (or an affiliate) has taken an ownership

interest, so long as the conditions enumerated in the final rule are satisfied.2 One of the conditions requires a

written CEO certification annually.3

Staffs of the Agencies believe that banking entities that are required to provide the annual CEO certification for

prime brokerage transactions as of the end of the conformance period should submit the first CEO certification

required under §351.14 after the end of the conformance period but no later than March 31, 2016.4 A banking

entity may provide the required annual certification in writing at any time prior to the March 31 deadline to the

relevant Agency.

The conformance period for investments in and relationships with a legacy covered fund (i.e., a covered fund

sponsored or owned by a banking entity prior to December 31, 2013) currently ends on July 21, 2016.5

Banking entities that engage in prime brokerage transactions with legacy covered funds should submit their first

CEO certification by March 31 following the end of the relevant conformance period.

In any case, a banking entity should provide the CEO certification annually within one year of its prior

attestation

y a banking entity prior to December 31, 2013) currently ends on July 21, 2016.5

Banking entities that engage in prime brokerage transactions with legacy covered funds should submit their first

CEO certification by March 31 following the end of the relevant conformance period.

In any case, a banking entity should provide the CEO certification annually within one year of its prior

attestation. Moreover, under the final rule, the CEO has a duty to update the certification if the information in

the certification materially changes at any time during the year when he or she becomes aware of the material

change.

1 The final rule defines “prime brokerage transaction” to mean any transaction that would be a covered transaction, as

defined in section 23A(b)(7) of the Federal Reserve Act (12 U.S.C. 371c(b)(7)), that is provided in connection with custody,

clearance and settlement, securities borrowing or lending services, trade execution, financing, or data, operational, and

administrative support. See 12 CFR 351.10(d)(7).

2 See 12 CFR 351.14(a)(2) & (c); see also 79 FR at 5747.

3 See 12 CFR 351.14(a)(2)(ii)(B).

5 The Board granted banking entities until July 21, 2016 to conform investments in and relationships with covered funds that

were in place prior to December 31, 2013 and announced its intention to act next year to grant banking entities until July 21,

2017 to conform investments in and relationships with legacy covered funds. See Board Order Approving Extension of

Conformance Period under Section 13 of the Bank Holding Company Act (December 18, 2014), available at

4 See FAQ #7 https://www.fdic.gov/regulations/reform/volcker/faq/attestation.html (“The staffs of the Agencies believe that

banking entities subject to Appendix B as of the end of the conformance period should submit the first CEO attestation

required under Appendix B after the end of the conformance period but no later than March 31, 2016.”)

Company Act (December 18, 2014), available at

4 See FAQ #7 https://www.fdic.gov/regulations/reform/volcker/faq/attestation.html (“The staffs of the Agencies believe that

banking entities subject to Appendix B as of the end of the conformance period should submit the first CEO attestation

required under Appendix B after the end of the conformance period but no later than March 31, 2016.”).

http://www.federalreserve.gov/newsevents/press/bcreg/20141218a.htm. A banking entity would thus have until July 21,

2017 to conform its relationships with legacy covered funds.

Termination of Market-Making Activity: Treatment of Residual Positions

19. If a banking entity exits a market-making business permitted under the

final rule, how may the banking entity sell or unwind its residual market-

making positions? How may the banking entity hedge its residual market-

making positions under the final rule?

Posted: 11/20/2015

For business reasons or otherwise, a banking entity may determine to exit a particular line of business or

trading activity that is permissible under the final rule. In the event that a banking entity terminates a market-

making business that it conducted as a Volcker Rule permitted activity,1 a situation could occur where the

banking entity holds residual positions from its prior market-making activity.

In the view of the Agencies’ staffs, the banking entity may hold and dispose of these residual market-making

positions, provided (i) the banking entity hedges the risks of any such positions in accordance with the risk-

mitigating hedging exemption2 and (ii) the banking entity sells or unwinds the residual market-making positions

as soon as commercially practicable

prior market-making activity.

In the view of the Agencies’ staffs, the banking entity may hold and dispose of these residual market-making

positions, provided (i) the banking entity hedges the risks of any such positions in accordance with the risk-

mitigating hedging exemption2 and (ii) the banking entity sells or unwinds the residual market-making positions

as soon as commercially practicable. If a banking entity holds residual market-making positions and does not

hedge the risks of such positions, then the subsequent sales of those residual positions would generally be

considered proprietary trading under the final rule implementing section 13 of the BHC Act.3

When hedging the risks of the residual market-making positions, the banking entity must comply with the

requirements of the risk-mitigating hedging exemption.4 A banking entity cannot rely on the market-making

exemption to manage the risks of its residual market-making positions. The market-making exemption only

permits risk management activity conducted or directed by a trading desk in connection with the desk’s

permitted market making-related activities conducted in conformance with all of the requirements of the market-

making exemption set forth in the final rule.5

1 See § 351.4(b).

2 See § 351.5.

3 See § 351.3(b)(1).

4 See § 351.5.

5 See § 351.4(b)(2), 79 FR at 5576-5627.

r directed by a trading desk in connection with the desk’s

permitted market making-related activities conducted in conformance with all of the requirements of the market-

making exemption set forth in the final rule.5

1 See § 351.4(b).

2 See § 351.5.

3 See § 351.3(b)(1).

4 See § 351.5.

5 See § 351.4(b)(2), 79 FR at 5576-5627.

Applicability of the Restrictions in Section 13(f) of the BHC Act

20. When does a banking entity become subject to the restrictions of section

13(f) and section 351.14 of the final rule with respect to a covered transaction

with a covered fund? What about existing covered transactions?

Posted: 11/20/2015

Section 13(f) of the BHC Act provides that no banking entity that serves, directly or indirectly, as the investment

manager, investment adviser, or sponsor to a hedge fund or private equity fund (“covered fund”), or that

organizes and offers a covered fund pursuant to section 13(d)(1)(G), and no affiliate of such entity, may enter

into a transaction with the fund, or with any other covered fund that is controlled by such fund, that would be a

covered transaction as defined in section 23A of the Federal Reserve Act (12 U.S.C. 371c) (“covered

transaction”), as if such banking entity and the affiliate thereof were a member bank and the covered fund were

an affiliate thereof.1 Section 351.14 of the final rule implements this statutory restriction.2

The statute gave banking entities a conformance period until July 21, 2014 to comply with the requirements of

the Volcker Rule, and the Board extended this period by one year at the time of issuance of the final rule until

July 21, 2015.3 As a general matter, on or after July 21, 2015, a banking entity may not enter into a covered

transaction with a covered fund where the banking entity serves as investment manager, investment adviser, or

sponsor to the covered fund or relies on the exemption in section 13(d)(1)(G)

le, and the Board extended this period by one year at the time of issuance of the final rule until

July 21, 2015.3 As a general matter, on or after July 21, 2015, a banking entity may not enter into a covered

transaction with a covered fund where the banking entity serves as investment manager, investment adviser, or

sponsor to the covered fund or relies on the exemption in section 13(d)(1)(G). Staffs of the agencies believe

that this restriction would apply to any increase in the amount of, extension of the maturity of, or adjustment to

the interest-rate4 or other material term of, an existing extension of credit.5 In addition, with respect to any

existing covered transaction, a banking entity should evaluate whether the transaction guarantees, assumes or

otherwise insures the obligations or performance of the covered fund (or of any covered fund in which such

covered fund invests) as prohibited by section 351.11(a)(5) of the final rule.6

The conformance period for legacy investments in and relationships with a covered fund (i.e., investments

made and relationships entered into by a banking entity prior to December 31, 2013) currently ends on July 21,

2016.7 Staffs of the Agencies would expect a banking entity to engage in good-faith efforts during the

conformance period to ensure that its investments in and relationships with legacy covered funds conform to

section 351.14 of the final rule by the end of the applicable conformance period.8

1 See 12 U.S.C. 1851(f).

2 See 12 CFR 351.14(a).

3 See 12 U.S.C. 1851(c)(2); see also Board Order Approving Extension of Conformance Period (Dec. 10. 2013), available at

4 A floating-rate loan does not become a new covered transaction whenever the interest rate changes as a result of an

increase or decrease in the index rate

eriod.8

1 See 12 U.S.C. 1851(f).

2 See 12 CFR 351.14(a).

3 See 12 U.S.C. 1851(c)(2); see also Board Order Approving Extension of Conformance Period (Dec. 10. 2013), available at

4 A floating-rate loan does not become a new covered transaction whenever the interest rate changes as a result of an

increase or decrease in the index rate. If the banking entity and the borrower, however, amend the loan agreement to

change the interest rate term, for example, from “LIBOR plus 100 basis points” to “LIBOR plus 150 basis points,” or from

reference to the LIBOR index to the banking entity’s prime rate, the parties have engaged in a new covered transaction.

See, e.g., Transactions Between Member Banks and Their Affiliates, 67 FR 76,560, 76,570 n.67.

5 This is based on the definition of “extension of credit” under the Board’s Regulation W promulgated under the Federal

Reserve Act. See, e.g., 12 CFR 223.3(o)(5).

6 6 A banking entity must be in conformance with the requirements of the final rule, including as applicable the requirements

of section 13(d)(1)(G), with respect to non-legacy covered funds (i.e., a covered fund which a banking entity sponsored or

invested in after December 31, 2013) following July 21, 2015.

7 The Board granted banking entities until July 21, 2016, to conform investments in and relationships with covered funds that

were in place prior to December 31, 2013, and announced its intention to act next year to grant banking entities until July 21,

2017, to conform investments in and relationships with legacy covered funds. See Board Order Approving Extension of

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf.

conform investments in and relationships with covered funds that

were in place prior to December 31, 2013, and announced its intention to act next year to grant banking entities until July 21,

2017, to conform investments in and relationships with legacy covered funds. See Board Order Approving Extension of

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20131210b1.pdf.

Conformance Period under Section 13 of the Bank Holding Company Act (December 18 2014) (hereinafter “Board’s

Conformance Period Order”), available at

8 See Board’s Conformance Period Order.

http://www.federalreserve.gov/newsevents/press/bcreg/20141218a.htm.

Capital Treatment of Banking Entity Investments in TruPS CDOs

21. Is a banking entity required to deduct from its tier 1 capital an

investment in a collateralized debt obligation backed by trust preferred

securities retained pursuant to section 351.16(a) of the interim final rule

(“Qualifying TruPS CDO”)?

Posted: 3/4/2016

No, a banking entity is not required to deduct from its tier 1 capital an investment in a Qualifying TruPS CDO

retained pursuant to section 351.16(a) of the interim final rule. Section 13 of the BHC Act generally prohibits a

banking entity from acquiring or retaining any ownership interest in, or acting as a sponsor to, a hedge fund or

private equity fund (“covered fund”),1 subject to a number of exemptions. The Agencies issued final rules to

implement section 13 of the BHC Act in December 2013

uPS CDO

retained pursuant to section 351.16(a) of the interim final rule. Section 13 of the BHC Act generally prohibits a

banking entity from acquiring or retaining any ownership interest in, or acting as a sponsor to, a hedge fund or

private equity fund (“covered fund”),1 subject to a number of exemptions. The Agencies issued final rules to

implement section 13 of the BHC Act in December 2013. Shortly thereafter, in January 2014, the Agencies

adopted an interim final rule to add section 351.16 to the final rules implementing section 13 of the BHC Act.2

Section 351.16(a) of the interim final rule permitted banking entities to retain an interest in, or act as sponsor

(including as trustee), of an issuer of collateralized debt obligations backed by trust preferred securities (“TruPS

CDOs”), so long as: (i) the issuer was established, and the interest was issued, before May 19, 2010; (ii) the

banking entity reasonably believes that the offering proceeds received by the issuer were invested primarily in

Qualifying TruPS Collateral;3 and (iii) the banking entity’s interest in the vehicle was acquired on or before

December 10, 2013 (or acquired in connection with a merger or acquisition of a banking entity that acquired the

interest on or before December 10, 2013).4

Section 13(d)(4) of the BHC Act allows a banking entity to make and retain investments in a covered fund that

the banking entity organizes and offers subject to certain limitations and restrictions, which are enumerated in

subparagraph (B), for the purposes of: (1) establishing the fund and providing the fund with sufficient initial

equity for investment to permit the fund to attract unaffiliated investors; or (2) making a de minimis investment.5

Section 13(d)(4)(B)(iii) requires that the aggregate amount of outstanding investments made by a banking

entity in reliance on section 13(d)(4), including retained earnings, be deducted from the assets and tangible

equity of the banking entity.6 Section 351.12 of the final rule implements the

stment to permit the fund to attract unaffiliated investors; or (2) making a de minimis investment.5

Section 13(d)(4)(B)(iii) requires that the aggregate amount of outstanding investments made by a banking

entity in reliance on section 13(d)(4), including retained earnings, be deducted from the assets and tangible

equity of the banking entity.6 Section 351.12 of the final rule implements the exemption contained in section

13(d)(4) of the BHC Act from the prohibition on investment in covered funds for de minimis investments that

meet the statutory requirements and limitations, including the requirement that the banking entity deduct from

the banking entity’s tier 1 capital the full amount of its investment in the covered fund for purposes of

calculating compliance with applicable regulatory capital requirements.7

These requirements in section 351.12 of the final rule do not apply to Qualifying TruPS CDOs held in

accordance with section 351.16(a) of the final rules because section 351.16(a) provides an additional and

independent exemption for Qualifying TruPS CDOs.8 If, however, a banking entity acts as a market maker with

respect to interests in a Qualifying TruPS CDO that is a covered fund, then section 351.11(c) of the final rule

makes the capital deduction provision in section 351.12 applicable to those interests.9 Moreover, if a banking

entity relies on section 351.12 to hold an interest in a TruPS CDO that is a covered fund but is not a Qualifying

TruPS CDO, the banking entity would be required to comply with all the limits and restrictions in section 351.12,

including the requirement to deduct its investment from its tier 1 capital for purposes of determining compliance

with applicable regulatory capital requirements.

1 See 12 U.S.C. 1851(a)(1)(B); see also 12 CFR 351.10(a)

ing

TruPS CDO, the banking entity would be required to comply with all the limits and restrictions in section 351.12,

including the requirement to deduct its investment from its tier 1 capital for purposes of determining compliance

with applicable regulatory capital requirements.

1 See 12 U.S.C. 1851(a)(1)(B); see also 12 CFR 351.10(a).

2 See Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to

Prohibitions and Restrictions on Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds, 79 FR

5223 (Jan. 31, 2014).

3 Under the interim final rule, a “Qualifying TruPS Collateral” is defined by reference to the standards in section 171(b)(4)(C)

of the Dodd-Frank Act to mean any trust preferred security or subordinated debt instrument issued prior to May 19, 2010 by

a depository institution holding company that, for any reporting period within the 12 months immediately preceding the

issuance of such instrument, had total consolidated assets of less than $15,000,000,000 or issued prior to May 19, 2010 by

a mutual holding company. See 12 CFR 351.16(b).

4 See 12 CFR 351.16(a).

5 12 U.S.C. 1851(d)(4)(A)(i)-(ii).

6 12 U.S.C. 1851(d)(4)(B)(iii).

7 12 CFR 351.12.

8 The preamble to the final rule explained: “As in the statute, the proposed rule applied the capital deduction to ownership

interests in covered funds held as an investment by a banking entity pursuant to the provisions of section 13(d)(4) of the

BHC Act, and not to ownership interests acquired under other permitted authorities, such as a risk-mitigating hedge under

section 13 of the BHC Act.” See 79 FR at 5730

the final rule explained: “As in the statute, the proposed rule applied the capital deduction to ownership

interests in covered funds held as an investment by a banking entity pursuant to the provisions of section 13(d)(4) of the

BHC Act, and not to ownership interests acquired under other permitted authorities, such as a risk-mitigating hedge under

section 13 of the BHC Act.” See 79 FR at 5730. As noted above, section 13(d)(4) permits a banking entity to make and

retain an investment in a covered fund to establish the fund or to make a de minimis investment in connection with

organizing and offering the fund

9 See 12 CFR 351.11(c). See also 12 CFR 351.16(c) (“Notwithstanding paragraph (a)(3) of this section, a banking entity may

act as a market maker with respect to the interests of an issuer described in paragraph (a) of this section in accordance with

the applicable provisions of §§ __.4 and __.11.”).