4000 - Advisory Opinions
Brokered Deposits: Further Guidance for Listing Services
July 19, 1993
Valerie J. Best, Counsel
I am writing in response to your letter dated April 14, 1993. As we have discussed previously, however, the FDIC is simply enforcing the statute as it has been enacted into law by Congress. It should be remembered that the statute does not prohibit the acceptance of brokered deposits by any institution that is well capitalized. The majority of depository institutions are well capitalized and, consequently, could accept brokered deposits if they wished to do so.
You now wish to establish a "listing service." In your letter you outlined your operating guidelines and asked if they violate our guidelines for listing services. A copy of our guidelines is attached for ease of reference. (Letter dated August 3, 1992; Advisory Opinion FDIC--90--24).
As you know, FDIC staff has taken the position that where the only function of a deposit listing service is to provide information on the availability and terms of accounts, the listing service is not facilitating the placement of deposits. Rather, it facilitates the decision of the would-be buyer whether (and from whom) to buy a certificate of deposit; it is not facilitating the placement of deposits per se. Based upon the listing services we have examined to date, we identified several characteristics that we believe serve to distinguish a service that operates solely as an information-provider from a service that facilitates the placement of deposits. These characteristics are listed in the attached letters and form the basis for our guidelines. With regard to your proposal, I have the following concerns.
First. You write that you intend to offer the following component as part of the listing service: "Credit rates filter--can select no fee brokered rates' that can be purchased directly through the rate service." I am not sure that I understand what this feature is, but on the face of it it appears to violate the guidelines for listing services. A listing service must be "limited to the gathering and transmission of information concerning the availability of deposits." If deposits can be purchased directly through the rate service, then the service would be a deposit broker. On the other hand, if you mean that depository institutions would offer a "special" rate that is only available to subscribers of the listing service (but the customer could not purchase it through the listing service), it is my view that this feature would violate our guidelines; the service has gone beyond providing information and is now negotiating special treatment for its members. In our guidelines we specifically stated: "The listing service does not, for example, negotiate rates on behalf of subscribers or confirm the execution of trades."
Second. You also write that your service will have the "[c]apability of dialing the insured depository institution from within the computer software we provide." This appears to run counter to our guidelines. We stated:
Further, the listing service must not be involved in placing deposits. Consequently, a service that enables a customer to make on-line purchases--that is, a service that provides a link between the depository institution and the subscriber--is considered to be a deposit broker.
Third. You also describe a "Subscriber Portfolio Tracking Service." This service includes maturity tracking, yield analysis reports, and interest accrual reports. The part I find troublesome is the following notation in your letter: "Information for these services can be entered by the subscriber or by listing service technicians." I assume these technicians are your employees. Again, our guidelines state that a listing service must be limited to the gathering and transmission of information. In my view, it is unacceptable for listing service employees to provide any assistance to subscribers. (It might be acceptable for a service to provide technical assistance for new subscribers limited to an explanation of how to run the program. I would want more details of such assistance.)
I understand that some listing services also market software programs that allow an institution to account for its investments, including certificates of deposit. At this time I do not have sufficient details to state whether or not such software programs would be permissible, given our current guidelines.
Fourth. You write that you intend to charge fees as follows:
A. Investors on a sliding scale based on the number of Certificates of Deposit in their portfolio which should equate to the amount of usage of the system.
B. Deposit Brokers and Securities Brokers at the rate of large portfolio Investors.
Our guidelines state that:
The person or entity providing the listing service is compensated only by means of subscription fees (i.e., the fees paid by its subscribers as payment for their opportunity to see the rates which the listing service has gathered), and such fees are not calculated on the basis of the number or dollar amount of deposits placed as the result of information provided by the listing service.
When we first examined listing services in Advisory Opinion FDIC--90--24, we were told that the fee structure was "monthly subscription fees, similar to any print publication." I understood this to mean a flat rate applicable to all subscribers, as is the case for print publications. It has since come to my attention that some services may be deviating from the flat-rate structure. Based upon our guidelines and our understanding of how the fees would be structured when we first considered listing services, it is my personal opinion that it would not be acceptable to charge subscribers on a sliding scale based on the number of certificates of deposit in the subscribers portfolio. We are studying this issue and hope to provide further guidance in the near future.
I hope the above comments are helpful to you.