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8000 - Miscellaneous Statutes and Regulations


CHAPTER IV—DEPARTMENT OF THE TREASURY

SUBCHAPTER A—REGULATIONS UNDER SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934

Part

400 Rules of General Application
401 Exemptions
402 Financial Responsibility
403 Protection of Customer Securities and Balances
404 Recordkeeping and Preservation of Records
405 Reports and Audit
449 Forms, Section 15C of the Securities Exchange Act of 1934

SUBCHAPTER B—REGULATIONS UNDER TITLE 11 OF THE GOVERNMENT SECURITIES ACT OF 1986

450 Custodial Holdings of Government Securities by Depository Institutions

SUBCHAPTER A—REGULATIONS UNDER SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934

PART 400—RULES OF GENERAL APPLICATION

Sec.

400.1 Scope of regulations.
400.2 Office responsible for regulations; filing of requests for exemptions, for interpretations, and of other materials.
400.3 Definitions.
400.4 Information concerning associated persons of financial institutions that are government securities brokers or dealers.
400.5 Amendments to application for registration and to notice of status as a government securities broker or dealer.
400.6 Notice of withdrawal from business as a government securities broker or dealer by a financial institution.

AUTHORITY:  15 U.S.C. 78o--5.

SOURCE:  The provisions of this Part 400 appear at 52 Fed. Reg. 27926, July 24, 1987, except as otherwise noted.

§ 400.1  Scope of regulations.

(a)  Title I of the Government Securities Act of 1986 (Pub. L. 99--571, 100 Stat. 3208) amends the Securities Exchange Act of 1934 (48 Stat. 881--905; 15 U.S.C. chapter 2B) ("Act") by adding section 15C, authorizing the Secretary of the Treasury to promulgate regulations concerning the financial responsibility, protection of customer securities and balances, recordkeeping and reporting of brokers and dealers in government securities. Those regulations constitute subchapter A of this chapter. Unless otherwise explicitly provided, all regulations in this subchapter apply to all government securities brokers or dealers, including registered brokers or dealers and financial institutions. Registered brokers or dealers include OTC derivatives dealers.

(b)  Section 15C(a)(1)(A) of the Act (15 U.S.C. 78o--5(a)(1)(A)) requires all government securities brokers and government securities dealers, except those who are brokers or dealers registered pursuant to section 15 or section 15B of the Act or financial institutions, to register with the Securities and Exchange Commission ("Commission"). Regulations concerning registration are at § 240.15Ca2--1 et seq. of this title. The Commission is responsible for the interpretation of the definitions of government securities broker and government securities dealer and of the regulations at § 240.15Ca2--1 et seq.

(c)  Section 15C(a)(1)(B)(i) of the Act (15 U.S.C. 78o--5(a)(1)(B)(i)) requires all government securities brokers or dealers that are also registered brokers or dealers to notify the Commission of their status as government securities brokers or dealers. Regulations concerning notice are at § 240.15Ca1--1 of this title.

(d)  Section 15C(a)(1)(B)(i) of the Act also requires all government securities brokers or dealers that are financial institutions to notify the appropriate regulatory agency, as defined in section 3(a)(34)(G) of the Act (15 U.S.C. 78c(a)(34)(G)), of their status as government securities brokers or dealers. The form of notice, Form G--FIN, is at § 449.1 of this chapter. Forms are available from the appropriate regulatory agency.

(e)  Section 104 of the Government Securities Act Amendments of 1993 (Pub. L. 103--202, 107 Stat. 2344) amended Section 15C of the Act (15 U.S.C. 78o--5) by adding a new subsection (f), authorizing the Secretary of the Treasury to adopt rules to require specified persons holding, maintaining or controlling a large position in to-be-issued or recently-issued Treasury securities to report such a position and make and keep records related to such a position. Part 420 of this subchapter contains the rules governing large position reporting.

[Codified to 17 C.F.R. § 400.1]

[Section 400.1 amended at 61 Fed. Reg. 48348, September 12, 1996, effective July 15, 1996; 71 Fed. Reg. 54410 September 15, 2006]

§ 400.2  Office responsible for regulations; filing of requests for exemptions, for interpretations and of other materials.

(a)  Office responsible.  The regulations in this chapter are promulgated by the Assistant Secretary (Domestic Finance) pursuant to a delegation of authority from the Secretary of the Treasury. The office responsible for implementation of the regulations, including interpretations and action on requests for exemption, classification or modification, is the Office of the Commissioner, Bureau of the Public Debt.

(b)(1)  Exemptions and classifications.   Section 15C(a)(4) of the Act (15 U.S.C. 78o--5(a)(4)) authorizes the Secretary to exempt any government securities broker or dealer or class thereof, conditionally or unconditionally, from the requirements of registration or regulations promulgated under section 15C. In addition, section 15C(b)(3) of the Act (15 U.S.C. 78o--5(b)(3)) provides for classification, by the Secretary, of government securities brokers or dealers and authorizes the whole or partial exemption of classes from rules under section 15C or the application of different standards to different classes.

(2)  Interpretations.  Although the appropriate regulatory agencies, as defined in § 400.3, and the self-regulatory organizations, as defined in section 3(a)(26) of the Act (15 U.S.C. 78c(a)(26)), have enforcement responsibility under section 15C of the Act, Treasury is responsible for interpretation of section 15C(b) of the Act (15 U.S.C. 78o--5(b)) and related sections and for interpretation and amendment of the regulations under this chapter (with the exception of Forms G--FIN and G--FINW, §§ 449.1 and 449.2 of this chapter, which are the responsibility of the Board of Governors of the Federal Reserve System ("Board").

(c)  Requests for interpretations, exemptions, classifications.  (1)  Interpretations under this chapter may be provided, at the discretion of the Department, to firms or individuals actually or potentially affected by the Act or regulations, or to their representatives.

(2)  Exemptions and classifications under sections 15C(a), (b) and (d) of the Act (15 U.S.C. 78o--5(a), (b), and (d)) and related sections and Treasury regulations thereunder may be provided at the discretion of the Department and after consultation with the SEC and the Board, to firms or individuals actually or potentially affected by the Act or regulations, or to their representatives.

(3)  All requests for exemptions and classifications, and all requests for binding interpretations, shall be in writing, and shall conform to the following procedures.

(i)  The names of the company or companies and all other persons involved shall be stated. Letters pertaining to unnamed companies or persons or hypothetical situations will not be answered.

(ii)  The letter must contain a concise but complete statement of all material facts, a complete and accurate description of the entire transaction if the request is transactional (even though a request may apply to only a portion of a transaction), and a concise and unambiguous statement of the request, including precise statutory and regulatory citations.

(iii)  The letter shall indicate why the writer believes a problem exists or interpretation is needed, the writer's opinion on the matter, and the basis for such opinion.

(iv)  In addition to requests for confidential treatment under paragraph (c)(7)(ii) of this section, a person may request confidential treatment of information that is submitted as part of, or in support of, a request for interpretation, exemption, or classification. A separate request for confidential treatment of information that is submitted as part of, or in support of, a request for interpretation, exemption, or classification. A separate request for confidential treatment and the basis for such request shall be submitted at the time the information for which confidential treatment is requested is submitted. The request for confidential treatment must specifically identify the information for which such confidential treatment is requested. To the extent practicable, the information should be segregated from information for which confidential treatment is not requested and should be clearly marked as confidential.

(v)  Information designated as confidential in accordance with paragraph (c)(3)(iv) of this section shall not be disclosed to a person requesting such information other than in accordance with the procedures outlined in the Department's regulations published at 31 CFR 1.6.

(vi)  An original and two copies of each request letter shall be submitted to the Office of the Commissioner, Bureau of the Public Debt, 9th Floor, 799 9th Street N.W., Washington, DC 20239--0001. The envelope shall be marked "Government Securities Act Request." The letter shall indicate in the upper right hand corner of the first page the particular sections of the Act and of the regulations at issue.

(4)  A written response by the Department to a request filed as stated in paragraph (c)(3) of this section shall be binding, with respect to the requester, on the Department, but shall cease to be binding if the facts are not as stated in the request or, prospectively, if the Department issues a superseding interpretation. In responding to such a request, the Department will, where appropriate, consult with and may obtain the formal concurrence of the appropriate regulatory agencies or their staffs. The Department understands that even if formal concurrence is not received the appropriate regulatory agencies and self-regulatory organizations will give appropriate deference to binding interpretations of the Department. The Department also expects the SEC staff to reflect such interpretations in responding, pursuant to the established procedures of the Commission, to no-action requests concerning rules the SEC enforces.

(5)  The Department may decline to issue an interpretation for any reason and, in particular, may require that a requester make inquiry of its appropriate regulatory agency, the Commission or designated examining authority before the Department responds to a request.

(6)  The Department will also provide informal oral and written advice, but such advice is not binding on the Department or on any other agency or organization.

(7)(i)  Except as provided in paragraphs (c)(3)(iv) and (c)(7)(ii) of this section, every letter or other written communication requesting the Department to provide interpretive legal advice under the Act or to grant, deny or modify an exemption, classification or modification of the regulations, together with any written response thereto, shall be made available for inspection and copying as soon as practicable after the response has been sent or given to the person requesting it. These documents will be made available at the following location: Treasury Department Library, Room 1318, Main Treasury Building, 1500 Pennsylvania Avenue N.W., Washington, DC 20220.

(ii)  Any person submitting a letter or communication may also simultaneously submit a request that the letter or communication and the Department's response be accorded confidential treatment for a specified period of time not to exceed 120 days from the date the response has been made or given to such person. The request shall state the basis upon which the request for confidential treatment has been made. If the Department determines that the request for confidential treatment should be denied, the requestor will be given 30 days to withdraw either the request for confidential treatment or the letter or communication requesting an interpretation, classification, or exemption.

(d)  Effect of Commission interpretations.   Interpretations of the Commission and its staff (including no-action positions) and of the designated examining authorities, of any Commission regulation expressly adopted by reference in these regulations shall be of the same effect as if the regulation being interpreted were solely the Commission's regulation. However, in the event the Treasury has issued a formal interpretation on the subject, the Treasury understands that the Commission will give that interpretation appropriate deference, particularly with respect to both subsequent no-action positions and the continued validity of prior no-action positions.

[Codified to 17 C.F.R. § 400.2]

[Section 400.2 amended at 53 Fed. Reg. 28984, August 1, 1988; 71 Fed. Reg. 54410, September 15, 2006]

§ 400.3  Definitions.

Unless otherwise explicitly provided, in this subchapter and for the purposes of these regulations:

"Act" means the Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. chapter 2B, as amended);

"Appropriate regulatory agency" has the meaning set out in section 3(a)(34)(G) of the Act (15 U.S.C. 78c(a)(34)(G)), and, with respect to a financial institution for which an appropriate regulatory agency is not explicitly designated, the appropriate regulatory agency is the SEC;

"Associated person" means a person other than a person whose functions are solely clerical or ministerial:

(1)  Directly engaged in any of the following activities in either a supervisory or non-supervisory capacity:

(i)  Underwriting, trading or sales of government securities;

(ii)  Financial advisory or consultant services for issuers in connection with the issuance of government securities;

(iii)  Research or investment advice, other than general economic information or advice, with respect to government securities in connection with the activities described in paragraphs (c)(1)(i) and (c)(1)(ii) of this section;

(iv)  Activities other than those specifically mentioned which involve communication, directly or indirectly, with public investors in government securities in connection with the activities described in paragraphs (c)(1)(i) and (c)(1)(ii) of this section; or

(2)  Directly engaged in the following activities in a supervisory capacity:

(i)  Processing and clearance activities with respect to government securities;

(ii)  Maintenance of records involving any of the activities described in paragraph (c)(1) of this section;

Provided, however,

(3)  That in the case of a financial institution,

(i)  Persons whose government securities functions: (A) Consist solely of carrying out the financial institution's activities in a fiduciary capacity and (B) are subject to examination by the appropriate regulatory agency for compliance with requirements applicable to activities by the financial institution in a fiduciary capacity, shall not be considered "associated persons";

(ii)  Persons whose sole government securities activities are, without exercising any investment discretion and solely at the direction of customers, to receive and/or transmit customer orders to purchase or sell government securities, but who do not give investment advice or receive transaction-based compensation shall not be considered "associated persons"; and

(iii)  Directors and senior officers of the financial institution who may from time to time set broad policy guidelines affecting the financial institution as a whole that are not directly related to the conduct of the financial institution's government securities business are not considered to be "directly engaged" in the activities described in this paragraph (c);

"Board" means the Board of Governors of the Federal Reserve System;

"Branch or agency of a foreign bank" means a federal branch or federal agency of a foreign bank or a state branch or state agency of a foreign bank as such terms are used in the International Banking Act of 1978, Pub. L. 95--369, 92 Stat. 607;

"CFTC" means the Commodity Futures Trading Commission;

"Commission" or "SEC" means the Securities and Exchange Commission;

"Designated examining authority" and "Examining Authority" mean (1) in the case of a registered government securities broker or dealer that belongs to only one self-regulatory organization, such self-regulatory organization, and (2) in the case of a registered government securities broker or dealer that belongs to more than one self-regulatory organization, the self-regulatory organization designated by the Commission pursuant to section 17(d) of the Act (15 U.S.C. 78q(d)) as the entity with responsibility for examining such registered government securities broker or dealer;

"Fiduciary capacity" includes trustee, executor, administrator, registrar, transfer agent, guardian, assignee, receiver, managing agent, and any other similar capacity involving the sole or shared exercise of discretion by a financial institution having fiduciary powers that is supervised by a federal or state financial institution regulatory agency;

"Financial institution" has the meaning set out in section 3(a)(46) of the Act (15 U.S.C. 78c(a)(46)), and such term explicitly does not include a subsidiary or affiliate of an institution described in such section unless such subsidiary or affiliate is itself described in such section;

"Government securities broker" has the meaning set out in section 3(a)(43) of the Act (15 U.S.C. 78c(a)(43)), and explicitly includes not only registered government securities brokers, but also registered brokers and financial institutions;

"Government securities dealer" has the meaning set out in section 3(a)(44) of the Act (15 U.S.C. 78c(a)(44)), and explicitly includes not only registered government securities dealers, but also registered dealers and financial institutions;

"Government securities" has the meaning set out in section 3(a)(42) of the Act (15 U.S.C. 78c(a)(42));

OTC derivatives dealer has the same meaning set out in 17 CFR 240.3b--12.

"Registered broker or dealer" means a broker or dealer registered pursuant to section 15 or section 15B of the Act (15 U.S.C. 78o, 78o--4) but does not include a municipal securities dealer that is a bank or a separately identifiable department or division of a bank;

"Registered government securities broker or dealer" means a government securities broker or dealer registered pursuant to section 15C(a)(1)(A) of the Act (15 U.S.C. 78o--5(a)(1)(A));

"Secretary" means the Secretary of the Treasury; and

"Treasury" or "Department" means the Department of the Treasury, including in particular the Bureau of the Public Debt.

[Codified to 17 C.F.R. § 400.3]

[Section 400.3 amended at 55 Fed. Reg. 6604, February 26, 1990; 71 Fed. Reg. 54410, September 15, 2006]

§ 400.4  Information concerning associated persons of financial institutions that are government securities brokers or dealers.

(a)  Every associated person of a financial institution that is a government securities broker or dealer that is not exempt pursuant to Part 401 of this chapter shall file with such financial institution a completed Form G--FIN--4 (§ 449.4 of this chapter) unless such person has on file with such financial institution a completed and current Form U--4 (promulgated by a self-regulatory organization) or Form MSD--4 (as required for associated persons of bank municipal securities dealers).

(b)  To the extent any information furnished by an associated person pursuant to paragraph (a) of this section (including information on a Form U--4 or Form MSD--4) is or becomes materially inaccurate or incomplete, such associated person shall promptly furnish in writing to such financial institution, in a form acceptable to the appropriate regulatory agency for such financial institution, a statement correcting such information.

(c)  For the purpose of verifying the information furnished by an associated person pursuant to paragraph (a) of this rule, every government securities broker or dealer that is a financial institution shall make inquiry of all other employers of such associated person during the immediately preceding three years concerning the accuracy and completeness of such information.

(d)  Every government securities broker or dealer that is a financial institution not exempt from this section pursuant to Part 401 of this chapter shall:

(1)  Promptly obtain and, within 10 days thereafter, file with the appropriate regulatory agency, in a form acceptable to such appropriate regulatory agency, the information required by paragraph (a) of this section (which shall consist of all Forms G--FIN--4 filed and a list of all associated persons who have filed Forms MSD--4 or U--4 with the financial institution since the last such filing, designating whether the associated person is serving in a supervisory or non-supervisory capacity) and by paragraph (b) of this section; and

(2)  File with the appropriate regulatory agency within 30 days after the termination of the status of an individual as an associated person a Form G--FIN--5 (§ 449.4 of this chapter). unless---

(i)  The financial institution is required to and has filed a Form U--5 or Form MSD--5 with respect to such person; or

(ii)  The financial institution notifies the appropriate regulatory agency that the individual will remain in the financial institution's employment and the financial institution will continue to update the information about such individual as provided in paragraph (b) of this section and will file a Form G--FIN--5 within 30 days after the termination of such individual's employment with the financial institution.

(e)  Every notice and form filed pursuant to this section shall constitute a "report" within the meaning of sections 15, 15C and 32(a) of the Act (15 U.S.C. 78o, 78o--5, 78ff(a)).

(Approved by the Office of Management and Budget under Control No. 1535--0089)

[Codified to 17 C.F.R. §400.4]

[Section 400.4 amended at 60 Fed. Reg. 11026, March 1, 1995, effective March 31, 2005]

§ 400.5  Amendments to application for registration and to notice of status as a government securities broker or dealer.

(a)(1)  If the information contained in any application for registration as a government securities broker or dealer (other than the statements required by § 240.15Ca2--2 of this title) or in any amendment thereto, becomes inaccurate for any reason, the registered government securities broker or dealer shall file within 30 days thereafter an amendment on Form BD (§ 249.501 of this title) correcting such information, in accordance with the instructions provided therein.

(2)  If the information contained in any notice of status as a government securities broker or dealer filed by a registered broker or dealer, or in any amendment thereto, becomes inaccurate for any reason, the registered broker or dealer shall file within 30 days an amendment on Form BD (§ 249.501 of this title) correcting such information, in accordance with the instructions provided therein.

(b)  If the information contained in any notice of status as a government securities broker or dealer filed by a financial institution, or any amendment thereto, becomes inaccurate for any reason, the financial institution shall file within 30 days an amendment on Form G--FIN (§ 449.1 of this chapter) correcting such information, in accordance with the instructions provided therein.

(c)  Every amendment filed pursuant to this section shall constitute a "report" within the meaning of sections 15, 15C and 32(a) of the Act (15 U.S.C. 78o, 78o--5, 78ff(a)).

(Approved by the Office of Management and Budget under Control No. 1535-0089)

[Codified to 17 C.F.R. § 400.5]

[Section 400.5 amended at 60 Fed. Reg. 11026, March 1, 1995, effective March 31, 1995]

§ 400.6  Notice of withdrawal from business as a government securities broker or dealer by a financial institution.

(a)   Whenever a financial institution that is a government securities broker or dealer that is not exempt from the notice requirements of section 15C(a)(1)(B)(i) of the Act (15 U.S.C. 78o--5(a)(1)(B)(i)) and of § 400.5 pursuant to Part 401 of this chapter, ceases to act as a government securities broker or dealer, it shall file with the appropriate regulatory agency notice of such cessation on Form G--FINW (§ 449.2 of this chapter) in accordance with the instructions contained therein.

(b)  Except as provided in paragraph (c) of this section, a notice that a financial institution has ceased to act as a government securities broker or dealer shall become effective for all purposes on the 60th day after the filing thereof with the appropriate regulatory agency or within such shorter period of time as the appropriate regulatory agency determines.

(c)  If the notice described in paragraph (a) of this section is filed with the appropriate regulatory agency any time after the date of the issuance of a notice or order by the appropriate regulatory agency instituting proceedings pursuant to section 15C(c)(2)(A) of the Act (15 U.S.C. 78o--5(c)(2)(A)) to censure, suspend, limit, or bar from acting as a government securities broker or government securities dealer the entity filing such notice, or if the appropriate regulatory agency has instituted any action against the entity filing such notice pursuant to section 15C(2)(B) of the Act (15 U.S.C. § 78o--5(c)(2)(B)), the notice shall become effective pursuant to paragraph (b) of this section at such time and upon such terms and conditions as the appropriate regulatory agency deems necessary or appropriate in the public interest for the protection of investors.

(d)  Every notice filed pursuant to this section shall constitute a "report" within the meaning of sections 15, 15C and 32(a) of the Act (15 U.S.C. 78o, 78o--5, 78ff(a)).

(Approved by the Office of Management and Budget under control number 1535--0089)

[Codified to 17 C.F.R. § 400.6]

[Section 400.6 amended at 60 Fed. Reg. 18734, April 13, 1995, effective June 12, 1995]

PART 401—EXEMPTIONS

Sec.

401.1 Exemption for organizations handling transactions in United States Savings Bonds.
401.2 Exemption for depository institutions that submit tenders for the account of customers for purchase on original issue of United States Treasury securities.
401.3 Exemption for financial institutions that are engaged in limited government securities brokerage activities.
401.4 Exemption for financial institutions engaged in limited government securities dealer activities.
401.5 Exemption for corporate credit unions transacting limited government securities business with other credit unions.
401.6 Exemption for branches and agencies of foreign banks that deal solely with non-United States citizens resident offshore.
401.7 Temporary exemption for certain government securities brokers and dealers terminating business on or before October 31, 1987.
401.8 Temporary exemption for government securities brokers and dealers that are futures commission merchants registered with the CFTC.

AUTHORITY:  Sec. 101, Pub. L. 99--571, 100 Stat. 3209 (15 U.S.C. 78o--5(a)(4)).

SOURCE:  The provisions of this Part 401 appear at 52 Fed. Reg. 27930, July 24, 1987, except as otherwise noted.

§ 401.1  Exemption for organizations handling transactions in United States Savings Bonds.

An organization that handles United States Savings Bond transactions, including a qualified issuing or paying agent or an organization that accommodates customers or employees by forwarding requested transactions to qualified issuing or paying agents or the Treasury and whose transactions in government securities are limited to these transactions and such other activities that are exempted by the regulations under this subchapter, shall be exempt from the provisions of section 15C(a), (b) and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter. For the purposes of this section, the term "United States Savings Bond" means any savings-type security offered by the Treasury, including all series of United States Savings Bonds, United States Savings Notes and United States Savings Stamps.

§ 401.2  Exemption for depository institutions that submit tenders for the account of customers for purchase on original issue of United States Treasury securities.

(a)  Subject to the requirements of paragraph (b) of this section, a depository institution that submits tenders or subscriptions for purchase on original issue of United States Treasury securities for the account of customers on a fully disclosed basis, whose transactions in government securities are limited to such transactions and such other activities as have been exempted by regulation under this subchapter shall be exempt from the provisions of section 15C(a), (b) and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter.

(b)  A depository institution that relies on the exemption contained in paragraph (a) of this section is required to comply with the regulations of Part 450 of this chapter concerning custodial holdings of government securities.

(c)  For the purposes of this section, "depository institution" has the meaning stated in clauses (i) through (vi) of section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)(i)(vi)) and also includes a foreign bank, an agency or branch of a foreign bank and a commercial lending company owned or controlled by a foreign bank (as such terms are used in the International Banking Act of 1978, Pub. L. 95--369, 92 Stat. 607).

[Codified to 17 C.F.R. § 401.2]

§ 401.3  Exemption for financial institutions that are engaged in limited government securities brokerage activities.

(a)(1)  Subject to the requirements of paragraph (b) of this section, a financial institution shall be exempt from the provisions of sections 15C(a), (b), and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter, unless it acts as a government securities broker by:

(i)  Holding itself out as a government securities broker or interdealer broker; or

(ii)  Actively soliciting purchases or sales of government securities on an agency basis;

(2)  Notwithstanding the provisions of paragraph (a)(1) of this section, a financial institution shall not be regarded as acting as a government securities broker within the meaning of this section if it:

(i)  Effects fewer than 500 government securities brokerage transactions (other than transactions described in §§ 401.1 or 401.2) per year; or

(ii)  Effects all such transactions (other than transactions described in §§ 401.1 or 401.2) pursuant to a contractual or other arrangement with one or more government securities brokers or dealers each of which has registered or filed notice pursuant to section 15C(a)(1) of the Act (15 U.S.C. 78o--5(a)(1)) (each referred to as the "transacting government securities broker or dealer") under which the transacting government securities broker or dealer will offer securities services on or off the premises of the financial institution, provided that:

(A)  The transacting government securities broker or dealer is clearly identified to customers as the person performing the securities services;

(B)  Financial institution employees perform only clerical and ministerial or order-taking functions in connection with government securities transactions unless such employees are associated persons (as defined in § 400.3 of this chapter) or registered representatives of the transacting government securities broker or dealer;

(C)  Financial institution employees do not receive compensation for government securities activities other than clerical or ministerial functions unless such employees are associated persons (as defined in § 400.3 of this chapter) or registered representatives of the transacting government securities broker or dealer; and

(D)  Such services are provided on a fully disclosed basis by the transacting government securities broker or dealer, i.e., the transacting government securities broker or dealer receives and maintains all required information concerning each customer, its trading and account.

(b)(1)  A financial institution that relies on the exemption contained in paragraph (a) of this section is required to comply with the regulations of Part 450 of this chapter concerning custodial holdings of government securities for customers.

(2)  A branch or agency of a foreign bank that relies on the exemption contained in paragraph (a) of this section is in addition required to comply with § 403.5(e) of this chapter.

(c)  For the purposes of this section "financial institution" includes an insured credit union, as defined in 12 U.S.C. 1752(7).

[Codified to 17 C.F.R. § 401.3]

[Section 401.3 amended at 71 Fed. Reg. 54411, September 15, 2006]

§ 401.4  Exemption for financial institutions engaged in limited government securities dealer activities.

(a)  Subject to the requirements of paragraph (b) of this section, a financial institution shall be exempt from the provisions of sections 15C(a), (b), and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter if its government securities dealer activities are limited to one or more of the following activities:

(1)  Sales or purchases in a fiduciary capacity;

(2)  The sale and subsequent repurchase and the purchase and subsequent resale of government securities pursuant to a repurchase or reverse repurchase agreement; and

(3)  Such other activities as have been exempted by regulation under this subchapter.

(b)(1)  A financial institution that relies on the exemption contained in paragraph (a) of this section is required to comply with:

(i)  The regulations of Part 450 of this chapter concerning custodial holdings of government securities for customers; and

(ii)  Section 403.5(d) of this chapter concerning certain repurchase transactions with customers.

(2)  A branch or agency of a foreign bank that relies on the exemption contained in paragraph (a) of this section is in addition required to comply with § 403.5(e) of this chapter.

(c)  For the purposes of this section "financial institution" includes an insured credit union, as defined in 12 U.S.C. 1752(7).

[Codified to 17 C.F.R. § 401.4]

§ 401.5  Exemption for corporate credit unions transacting limited government securities business with other credit unions.

(a)(1)  Subject to the requirements of paragraph (b) of this section, a corporate credit union shall be exempt from the provisions of section 15C(a), (b) and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations thereunder if its government securities dealer activities are limited to the sale and subsequent repurchase and the purchase and subsequent resale, each pursuant to a repurchase or reverse repurchase agreement, of government securities to other credit unions and such other activities as have been exempted by regulation under this part.

(2)  For the purposes of this section, "corporate credit union" means a credit union whose membership consists primarily of other credit unions and that is (i) a federal credit union as defined in 12 U.S.C. 1752(1), (ii) an insured credit union as defined in 12 U.S.C. 1752(7), or (iii) a member of the National Credit Union Administration Central Liquidity Facility.

(b)  A credit union that relies on the exemption contained in paragraph (a) of this section is required to comply with:

(1)  The regulations of Part 450 of this chapter concerning custodial holdings of government securities; and

(2)  Section 403.5(d) concerning certain repurchase transactions with customers.

[Codified to 17 C.F.R. § 401.5]

§ 401.6  Exemption for branches and agencies of foreign banks that deal solely with non-United States citizens resident offshore.

(a)  Subject to the requirements of paragraph (b) of this section, a branch or agency of a foreign bank shall be exempt from the provisions of section 15C(a), (b), and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter, if all the customers with or on behalf of whom it engages in government securities transactions are limited to foreign governments, agencies of foreign governments and other persons and entities who are not citizens of the United States and who reside or, in the case of a corporation, partnership or other entity, have their principal place of business, outside of the United States.

(b)  A branch or agency that relies on the exemption contained in paragraph (a) of this section is required to comply with the regulations of Part 450 of this chapter concerning custodial holdings of government securities.

[Codified to 17 C.F.R. § 401.6]

§ 401.7  Temporary exemption for certain government securities brokers and dealers terminating business on or before October 31, 1987.

During the period ending October 31, 1987, a government securities broker or dealer shall be exempt from the provisions of section 15C(a), (b), and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter if:

(a)  Its government securities broker or dealer activities are limited to the performance of contractual obligations entered into prior to July 25, 1987;

(b)  It is the subsidiary or affiliate of a government securities broker or dealer that has registered or given notice pursuant to section 15C(a)(1) of the Act (15 U.S.C. 78o--5(a)(1)); and

(c)  It ceases all government securities broker or dealer activities on or before October 31, 1987.

[Codified to 17 C.F.R. § 401.7]

§ 401.8  Temporary exemption for government securities brokers and dealers that are futures commission merchants registered with the CFTC.

During the period ending October 31, 1987, a government securities broker or dealer that is a futures commission merchant shall be exempt from the provisions of section 15C(a), (b), and (d) of the Act (15 U.S.C. 78o--5(a), (b), (d)) and the regulations of this subchapter if:

(a)  It is registered with the Commodity Futures Trading Commission under section 4f of the Commodity Exchange Act (7 U.S.C. 6f) and the regulations thereunder; and

(b)  It is not currently the subject of any disciplinary action by any federal or state entity regulating persons dealing in securities or commodities.

[Codified to 17 C.F.R. § 401.8]

PART 402—FINANCIAL RESPONSIBILITY

Sec.

402.1 Application of part to registered brokers and dealers and financial institutions; special rules for futures commission merchants and government securities interdealer brokers; effective date.

AUTHORITY:  Sec. 101, Pub. L. 99--571, 100 Stat. 3209 (15 U.S.C. 78o--5(b)(1)(A), (b)(4)).

SOURCE:  The provisions of this Part 402 appear at 52 Fed. Reg. 27931, July 24, 1987, except as otherwise noted.

§ 402.1  Application of part to registered brokers and dealers and financial institutions; special rules for futures commission merchants and government securities interdealer brokers; effective date.

(a)  Application of part.  This part applies to all government securities brokers and dealers, except as otherwise provided herein.

(b)  Registered brokers or dealers.  This part does not apply to a registered broker or dealer (including an OTC derivatives dealer) that is subject to § 240.15c3--1 of this title (SEC Rule 15c3--1).

(c)  Financial institutions.  This part does not apply to a government securities broker or dealer that is a financial institution and that is:

(1)  Subject to the rules and regulations of its appropriate regulatory agency concerning capital requirements, or

(2)  A branch or agency of a foreign bank subject to regulation, supervision, and examination by state or federal authorities having regulatory or supervisory authority over commercial bank and trust companies.

(d)  Futures commission merchants.  A futures commission merchant subject to § 1.17 of this title that is a government securities broker or dealer but is not a registered broker or dealer shall not be subject to the limitations of § 402.2 but rather to the capital requirement of § 1.17 or § 240.15c3--1 except paragraph (e) (3) thereof, of this title, whichever is greater.

(e)  Government securities interdealer broker.   (1) A government securities interdealer broker, as defined in paragraph (e)(2) of this section, may, with the prior written consent of the Secretary, elect not to be subject to the limitations of § 402.2 but rather to be subject to the requirements of § 240.15c3--1 of this title (SEC Rule 15c3--1) except paragraphs (c)(2)(ix) and (e) (3) thereof, and paragraphs (e) (3), through (8) of this section by filing such election in writing with its designated examining authority. A government securities interdealer broker may not revoke such election without the written consent of its designated examining authority.

(2)(i)  "Government securities interdealer broker" means an entity engaged exclusively in business as a broker that effects, on an initially fully disclosed or identified group basis, transactions in government securities for counterparties that are government securities brokers or dealers who have registered or given notice pursuant to section 15C(a)(1) of the Act (15 U.S.C. 78o--5(a)(1)), and that promptly transmits all funds and delivers all securities received in connection with its activities as a government securities interdealer broker and does not otherwise hold funds or securities for or owe money or securities to its counterparties and, except as provided in paragraph (e)(2)(ii) of this section, does not have or maintain any government securities in its proprietary or other accounts. For the purpose of this paragraph (e)(2)(i), "identified group basis" means that a counterparty has consented to the identity of the specific group of entities from which the other counterparty is chosen.

(ii)  A government securities interdealer broker may have or maintain government securities in its proprietary or other accounts only as a result of:

(A)  Engaging in overnight reverse repurchase or securities borrowed transactions solely for the purpose of facilitating the process of clearing government securities transactions;

(B)  Engaging in overnight repurchase or securities loaned transactions solely for the purpose of reducing its financing expense in connection with the clearance of government securities transactions;

(C)  Subordinated loans subject to satisfactory subordination agreements pursuant to § 240.15c3--1(d) of this title;

(D)  Collateral or depository requirements of a clearing corporation or association with which it participates in the clearance of government securities transactions; or

(E)  The investment of its excess cash.

The maturities of any government securities held or maintained under paragraphs (e)(2)(ii)(C), (D), or (E) of this section may not exceed one year.

(3)  In order to qualify to operate under this paragraph (e), a government securities interdealer broker shall at all times have and maintain net capital, as defined in § 240.15c3--1(c)(2) of this title with the modifications of this paragraph (e), of not less than $1,000,000.

(4)  For purposes of this paragraph (e), a government securities interdealer broker need not deduct loans to commercial banks for one business day of immediately available funds (commonly referred to as "sales of federal funds") held by the government securities interdealer broker in connection with the clearance of securities on the day the loan is made.

(5)  For purposes of this paragraph (e), a government securities interdealer broker need not deduct net pair-off receivables and money differences until the close of business of the third business day following the day the funds are due and give-up receivables outstanding no more than 30 days from the billing date, which shall be no later than the last day of the month in which they arise, as otherwise would be required under § 240.15c3--1(c)(2)(iv)(B) of this title.

(6)  For purposes of this paragraph (e), a government securities interdealer broker shall deduct from net worth 1/4 of 1 percent of the contract value of each government securities failed-to-deliver contract which is outstanding 5 business days or longer. Such deduction shall be increased by any excess of the contract price of the failed-to-deliver contract over the market value of the underlying security.

(7)  For purposes of this paragraph (e), a government securities interdealer broker may exclude from its aggregate indebtedness computation indebtedness adequately collateralized by government securities outstanding for not more than one business day and offset by government securities failed to deliver of the same issue and quantity. In no event may a government securities interdealer broker exclude any overnight bank loan attributable to the same government securities failed-to-deliver contract for more than one business day. A government securities interdealer broker need not deduct from net worth the amount by which the market value of securities failed to receive outstanding longer than thirty (30) calendar days exceeds the contract value of those failed to receive as required by § 240.15c3--1(c)(2)(iv)(E) of this title.

(8)(i)  For purposes of this paragraph (e), a government securities interdealer broker shall deduct from net worth 5 percent of its net exposure to each counterparty.

(ii)  Net exposure.  For purposes of this paragraph (e), net exposure shall equal:

(A)  The sum of the dollar amount of funds, debt instruments, other securities, and other inventory at risk, in the first instance, to the government securities interdealer broker in the event of the counterparty's default,

(B)  Reduced, but not to less than zero, by the sum of:

(1)  The dollar amount of funds, debt instruments, other securities, and other inventory at risk, in the first instance, to the counterparty in the event of the government securities interdealer broker's default;

(2)  The deductions taken from net worth for unsecured receivables, repurchase and reverse repurchase deficits, aged fails to deliver, and aged fails to receive arising from transactions with the counterparty;

(3)  Demand deposits in the case where the counterparty is a commercial bank;

(4)  Loans for one business day of immediately available funds (commonly referred to as "sales of federal funds") held by the government securities interdealer broker in connection with the clearance of securities on the day the loan is made in the case where the counterparty is a commercial bank;

(5)  Custodial holdings of securities in the case where the counterparty is a clearing bank or clearing broker of the government securities interdealer broker; and

(6)  Exposure to a counterparty due to holding marketable instruments subject to market risk haircuts under appendix A to this section (§ 402.2a) for which the counterparty is the obligor.

(9)  On the application of the government securities interdealer broker, the designated examining authority may extend the periods of time in this paragraph (e) if it determines that the extension is warranted because of exceptional circumstances and that the government securities interdealer broker is acting in good faith.

(f)  Effective date.  This part shall be effective July 25, 1987, provided however, that until the last business day in October 1987, registered government securities brokers and dealers need not comply with § 402.2(a), (b), and (c) as long as:

(1)  A registered government securities broker or dealer that acts solely as an introducing broker within the meaning of § 240.15c3--1(a)(2) of this title has and maintains liquid capital, as defined in § 402.2(d), in an amount of not less than $5,000; and

(2)  Any other registered government securities broker or dealer has and maintains liquid capital, as defined in § 402.2(d), in an amount of not less than $50,000.

[Codified to 17 C.F.R. § 402.1]

[Section 402.1 amended at 60 Fed. Reg. 11024, March 1, 1995, effective March 31, 1995; 71 Fed. Reg. 54411, September 15, 2006]

PART 403—PROTECTION OF CUSTOMER SECURITIES AND BALANCES

Sec.

403.5 Custody of securities held by financial institutions that are government securities brokers or dealers.
403.7 Effective dates.

AUTHORITY:  Sec. 101, Pub. L. 99--571, 100 Stat. 3209 (15 U.S.C. 78o--5(b)(1)(A), (b)(4)).

SOURCE:  The provisions of this Part 403 appear at 52 Fed. Reg. 27947, July 24, 1987, except as otherwise noted.

§ 403.5  Custody of securities held by financial institutions that are government securities brokers or dealers.

(a)  A government securities broker or dealer that is a financial institution shall:

(1)  Comply with Part 450 with respect to all government securities held for the account of customers of the financial institution in its capacity as a fiduciary or custodian (unless otherwise exempt pursuant to § 450.3); and

(2)  Comply with Part 450 and with paragraphs (b), (c) and (d) of this section with respect to all fully paid and excess margin government securities held for customers of the financial institution in its capacity as government securities broker or dealer, and government securities that are the subject of a repurchase agreement between the financial institution and certain counterparties as described in paragraph (d) of this section.

(b)  A financial institution shall not be in violation of the possession or control requirements of paragraphs (c) and (d) of this section if, solely as the result of normal business operations, temporary lags occur between the time when a security is first required to be in the financial institution's possession or control and the time when it is actually placed in possession or control, provided that the financial institution takes timely steps in good faith to establish prompt possession or control. In the event that a financial institution has accepted funds from a customer for the purchase of securities and the financial institution does not initiate the purchase of the specified securities by the close of the next business day after receipt of such customer's funds, the financial institution shall immediately deposit or redeposit the funds in an account belonging to such customer and send the customer notice of such deposit or redeposit.

(c)(1)  On each business day a financial institution shall determine the quantity and issue of such securities, if any, that are required to be but are not in the financial institution's possession or control. As appropriate to bring such securities into possession or control, the financial institution shall:

(i)  Promptly obtain the release of any lien, charge, or other encumbrance against such securities;

(ii)  Promptly obtain the return of any securities loaned;

(iii)  Take prompt steps to obtain possession or control of securities failed to receive for more than 30 calendar days, or in the case of mortgage-backed securities, for more than 60 calendar days; or

(iv)  Take prompt steps to buy in securities as necessary to the extent any shortage of securities in possession or control cannot be resolved as required by any of the above procedures.

(2)  The financial institution shall prepare and maintain a current and detailed description of the procedures and internal controls that it utilizes to comply with the possession or control requirements of this paragraph (c), which shall be made available upon request to its appropriate regulatory agency.

(3)  Nothing stated in this section shall be construed as affecting the absolute right of a customer of a government securities broker or dealer, unless otherwise agreed in writing, in the normal course of business operations following demand made on the broker or dealer, to receive the physical delivery of certificates if the securities are issued in certificated form, or to direct a transfer of or otherwise to exercise control over any securities if they are:

(i)  Fully-paid securities to which the customer is entitled;

(ii)  Margin securities upon full payment by such customer to the broker or dealer of the customer's indebtedness to the broker or dealer; or

(iii)  Excess margin securities not reasonably required to collateralize such customer's indebtedness to the broker or dealer.

(d)(1)  A financial institution that retains custody of securities that are the subject of a repurchase agreement between the financial institution and a counterparty shall:

(i)  Obtain the repurchase agreement in writing;

(ii)  Confirm in writing the specific securities that are the subject of a repurchase transaction pursuant to such agreement at the end of the day of initiation of the transaction and at the end of any other day during which other securities are substituted if the substitution results in a change to issuer, maturity date, par amount or coupon rate specified in the previous confirmation;

(iii)  Advise the counterparty in the repurchase agreement that the funds held by the financial institution pursuant to a repurchase transaction are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation, or the National Credit Union Share Insurance Fund, as applicable;

(iv)  If the counterparty agrees to grant the financial institution the right to substitute securities, include in the written repurchase agreement the provision by which the financial institution retains the right to substitute securities;

(v)  If the counterparty agrees to grant the financial institution the right to substitute securities, include in the written repurchase agreement the following disclosure statement, which must be prominently displayed in the written repurchase agreement immediately preceding the provision governing the right to substitution:

"Required Disclosure

The [seller] is not permitted to substitute other securities for those subject to this agreement and therefore must keep the [buyer's] securities segregated at all times, unless in this agreement the [buyer] grants the [seller] the right to substitute other securities. If the [buyer] grants the right to substitute, this means that the [buyer's] securities will likely be commingled with the [seller's] own securities during the trading day. The [buyer] is advised that, during any trading day that the [buyer's] securities are commingled with the [seller's] securities, they may be subject to liens granted by the [seller] to third parties and may be used by the [seller] for deliveries on other securities transactions. Whenever the securities are commingled, the [seller's] ability to resegregate substitute securities for the [buyer] will be subject to the [seller's] ability to satisfy any lien or to obtain substitute securities."; and

(vi)  Maintain possession or control of securities that are the subject of the agreement in accordance with § 450.4(a) of this chapter, except when exercising its right of substitution in accordance with the provisions of the agreement and paragraph (d)(1)(iv) of this section.

(2)(i)  A confirmation issued in accordance with paragraph (d)(1)(ii) of this section shall specify the issuer, maturity date, coupon rate, par amount and market value of the security and shall further identify a CUSIP or mortgage-backed security pool number, as appropriate, except that a CUSIP or a pool number is not required on the confirmation if it is identified in internal records of the broker or dealer that designate the specific security of the counterparty. For purposes of this paragraph (d)(2), the market value of any security that is the subject of the repurchase transaction shall be the most recently available bid price plus accrued interest, obtained by any reasonable and consistent methodology.

(ii)  A person that is a non-U.S. citizen residing outside of the United States or a foreign corporation, partnership, or trust may waive, but only in writing, the right to receive the confirmation required by paragraph (d)(1)(ii) of this section.

(3)  This paragraph (d) shall not apply to a repurchase agreement between the financial institution and a broker or dealer (including a government securities broker or dealer), a registered municipal securities dealer, or a director or principal officer of the financial institution or any person to the extent that his claim is explicitly subordinated to the claims of creditors of the financial institution.

(e)(1)  A government securities broker or dealer that is a branch or agency of a foreign bank shall keep on deposit with an insured bank (as that term is defined in 12 U.S.C. 1813(h)) an amount equal to the amount that would be required to be set aside pursuant to § 240.15c3--3(e)(1) of this title with respect to government securities of customers of such branch or agency that are citizens or residents of the United States. The amount required to be deposited pursuant to this § 403.5(e)(1) may be reduced by the amount of assets pledged or deposited by the branch or agency pursuant to regulations promulgated by a federal or state banking regulatory agency that are attributable to liabilities to customers which are included both in the calculation of the required pledge or deposit of assets and in the calculation of the amount to be set aside pursuant to § 240.15c3--3(e)(1) of this title.

(2)  The amount deposited in accordance with this section shall be pledged to the appropriate regulatory agency of the branch or agency making the deposit for the exclusive benefit of the customers to whom the credit balances are owed.

(3)  For purposes of making the calculation pursuant to § 240.15c3--3(e)(1) of this title, the terms "free credit balances," "other credit balances" and ""credit balances" shall not include any funds placed in deposits or accounts enumerated at 12 CFR 204.2.

(4)  For purposes of making the calculation pursuant to § 240.15c3--3(e)(1) of this title, the formula set forth at § 240.15c3--3a of this title shall be modified as follows:

(i)  For purposes of this section, references to "securities account," "cash account," "margin account," or other customer accounts for purposes of this section shall not include any deposits or accounts enumerated at 12 CFR 204.2;

(ii)  References to "security" or "securities" shall mean U.S. government securities;

(iii)  References to net capital shall be inapplicable;

(iv)  Item 2 is modified to read as follows:

"2.  Monies borrowed by the branch or agency collateralized by securities carried for the account of customers. (See Note B.)";

(v)  Item 4 is modified to read as follows:

"4.  Customers' securities failed to receive only with respect to transactions for which payment has been received by and is under the control of the branch or agency. (See Note D.)";

(vi)  Note B is modified to read as follows:

"Note B.  Item 2 shall include the principal amount of Restricted Letters of Credit obtained by members of Options Clearing Corporation which are collateralized by customers' securities. Item 2 shall not include bank loans to customers in the ordinary course collateralized by the customers' U.S. government securities."; and

(vii)  Note C is modified to read as follows:

"Note C.  Item 3 shall include in addition to monies payable against customers' securities loaned the amount by which the market value of securities loaned exceeds the collateral value received from the lending of such securities. Item 3 shall exclude cash collateral received pursuant to a written securities lending agreement that complies fully with the supervisory guidelines of its appropriate regulatory agency that expressly govern securities lending practices.".

(5)  Computations necessary to determine the amount required to be deposited as specified in paragraph (e)(1) of this section shall be made weekly, as of the close of the last business day of this week, and the deposit so computed shall be made no later than one hour after the opening of banking business on the second following business day.

(6)  A government securities broker or dealer that is a branch or agency of a foreign bank shall make and maintain a record of each computation made pursuant to paragraph (e)(5) of this section and preserve each such record for a period of not less than three years, the first two years in an easily accessible place.

(f)(1)  For purposes of this section, the terms "fully paid securities," "margin securities," and "excess margin securities" shall have the meanings described in § 403.4(b), (c) and (d).

(2)  For purposes of this section, the term "customer" shall include any person from whom or on whose behalf a financial institution that is a government securities broker or dealer has received or acquired or holds securities for the account of that person or funds resulting from transactions in securities for or with such person or that represent principal, interest, or other proceeds of such securities. The term shall not include a broker or dealer that is registered pursuant to section 15, 15B or 15C (a)(1)(A) of the Act (15 U.S.C. 78o, 78o--4, 78o--5(a)(1)(A)) or that has filed notice of its status as a government securities broker or dealer pursuant to section 15C(a)(1)(B) of the Act (15 U.S.C. 78o--5(a)(1)(B)) except with respect to securities maintained by such broker or dealer in a Segregated Account as defined in § 403.4(f)(1) and with respect to securities otherwise identified by such broker or dealer as customer securities for purposes of maintaining possession or control of such securities as required by this part. The term "customer" shall not include a director or principal officer of the financial institution or any other person to the extent that that person has a claim for property or funds, which by contract, agreement or understanding, or by operation of law, is part of the capital of the financial institution or is subordinated to the claims of creditors of the financial institution.

(g)  If a financial institution executes a sell order of a customer (other than an order to execute a sale of securities which the seller does not own, which for the purposes of this paragraph shall mean that the customer placing the sell order has identified the sale as a short sale to the financial institution) and if for any reason whatever the financial institution has not obtained possession of the government securities, except mortgage-backed securities, from the customer within 30 calendar days, or in the case of mortgage-backed securities within 60 calendar days, after the settlement date, the financial institution shall immediately thereafter close the transaction with the customer by purchasing, or otherwise obtaining, securities of like kind and quantity.

(h)  The appropriate regulatory agency of a financial institution that is a government securities broker or dealer may extend the period specified in paragraphs (c)(1)(iii) and (g) of this section on application of the financial institution for one or more limited periods commensurate with the circumstances, provided the appropriate regulatory agency is satisfied that the financial institution is acting in good faith in making the application and that exceptional circumstances warrant such action. Each appropriate regulatory agency should make and preserve for a period of not less than three years a record of each extension granted pursuant to this paragraph, which contains a summary of the justification for the granting of the extension.

[Approved by the Office of Management and Budget under Control No. 1535--0089]

[Codified to 17 C.F.R. § 403.5]

[Source:  Section 403.5 amended at 53 Fed. Reg. 28986, August 1, 1988, effective September 1, 1988 except that, for financial institutions that have been relying on an exception contained in § 403.5(d) and (f)(3) as originally adopted, the amendments to that section are not effective until December 1, 1988 as the amendments apply to requirements for obtaining written agreements with existing customers and the timing requirements for the issuance of confirmations; 55 Fed. Reg. 6604, February 26, 1990; 59 Fed. Reg. 9406, February 28, 1994, effective April 29, 1994; 60 Fed. Reg. 11026, March 1, 1995, efective March 31, 1995]


§ 403.7 Effective dates.

(a)  General. Except as provided in paragraphs (b) through (e) of this section, this part shall be effective on the last business day in October 1987.

(b)  Confirmations. The requirements of §§ 403.4 and 403.5(d) to describe the specific securities that are the subject of a repurchase transaction, including the market value of such securities, on a confirmation at the initiation of a repurchase transaction or on substitution of other securities shall be effective January 31, 1988.

(c)  Written repurchase agreements. The requirement to obtain a repurchase agreement in writing with the provisions described in §§ 403.4 and 403.5(d) shall be effective October 31, 1987, in the case of new customers of a government securities broker or dealer and shall be effective January 31, 1988, in the case of existing customers of a government securities broker or dealer. For purposes of this paragraph, an "existing customer" of a government securities broker or dealer is any counterparty with whom the government securities broker or dealer has entered into a repurchase transaction on or after January 1, 1986, but before July 25, 1987. For purposes of this paragraph, a "new customer" of a government securities broker or dealer is any counterparty other than an existing customer.

(d)  Disclosures. (1)  For hold-in-custody repurchase transactions entered into before the effective date for obtaining a written repurchase agreement in accordance with paragraph (c) of this section, a government securities broker or dealer that is subject to § 403.4 shall furnish the counterparty with a separate interim disclosure document containing: (i) The disclosure referred to in § 403.4 concerning the Securities Investor Protection Act of 1970, and (ii) if applicable, the following disclosure:

REQUIRED DISCLOSURE

Unless the [buyer] and the [seller] have agreed to the contrary, the [buyer's] securities are likely to be commingled with the [seller's] own securities during the trading day. The [buyer] is advised that, during any trading day that the [buyer's] securities are commingled with the [seller's] securities, they will be subject to liens granted by the [seller] to its clearing bank and may be used by the [seller] for deliveries on other securities transactions. Whenever the securities are commingled, the [seller's] ability to resegregate substitute securities for the [buyer] will be subject to the [seller's] ability to satisfy the clearing lien or to obtain substitute securities.

(2)  For hold-in-custody repurchase transactions entered into before the effective date for obtaining a written repurchase agreement in accordance with paragraph (c) of this section, a financial institution that is subject to § 403.5(d) shall furnish the counterparty with a separate interim disclosure document containing: (i) The disclosure referred to in § 403.5(d) concerning the inapplicability of deposit insurance, and (ii) if applicable, the following disclosure:

REQUIRED DISCLOSURE

Unless the [buyer] and the [seller] have agreed to the contrary, the [buyer's] securities are likely to be commingled with the [seller's] own securities during the trading day. The [buyer] is advised that, during any trading day that the [buyer's] securities are commingled with the [seller's] securities, they will be subject to liens granted by the [seller] to third parties and may be used by the [seller] for deliveries on other securities transactions. Whenever the securities are commingled, the [seller's] ability to resegregate substitute securities for the [buyer] will be subject to the [seller's] ability to satisfy any lien or to obtain substitute securities.

(3)  In the case of hold-in-custody repurchase transactions initiated before August 31, 1987 and terminating on or after August 31, 1987, the disclosure document described in this paragraph (d) must be mailed to the counterparties involved on or before August 31, 1987. In the case of a hold-in-custody repurchase transaction initiated on or after August 31, the disclosure document described in this paragraph (d) must be provided to the counterparty involved no later than the day on which the first hold-in-custody repurchase transaction is initiated on or after August 31, 1987, unless the disclosure has already been provided to the counterparty in accordance with the preceding sentence.

(e)  Existing term repurchase transactions. Notwithstanding paragraphs (b), (c) and (d) of this section, the requirements of §§ 403.4 and 403.5(d) (with respect to hold-in-custody repurchase transactions), with the exception of the requirements to confirm the substitution of securities subject to a repurchase transaction, shall not be applicable to any repurchase transaction, initiated on or before August 31, 1987, that, by its terms, matures on a specific date after August 31, 1987.

[Codified to 17 C.F.R. § 403.7]

[Section 403.7 amended at 53 Fed. Reg. 28986, August 1, 1988]

PART 404—RECORDKEEPING AND PRESERVATION OF RECORDS

Sec.

404.4 Records to be made and preserved by government securities brokers and dealers that are financial institutions.

AUTHORITY:  15 U.S.C. 78o--5(b)(1)(B), (b)(1)(C), (b)(2), (b)(4).

SOURCE:  The provisions of this Part 404 appear at 52 Fed. Reg. 27952, July 24, 1987, except as otherwise noted.

§ 404.4  Records to be made and preserved by government securities brokers and dealers that are financial institutions.

(a)  Records to be made and kept.  Every financial institution that is a government securities broker or dealer and that is not exempt from this part pursuant to Part 401 of this chapter shall comply with the requirements of §§ 404.2 and 404.3 unless such financial institution:

(1)  Is subject to 12 CFR part 12 (relating to national banks), 12 CFR part 208 (relating to state member banks of the Federal Reserve System) or 12 CFR part 344 (relating to state banks that are not members of the Federal Reserve System), or is a United States branch or agency of a foreign bank and complies with 12 CFR part 12 (for federally licensed branches and agencies of foreign banks) or 12 CFR part 208 (for uninsured state-licensed branches and agencies of foreign banks) or 12 CFR part 344 (for insured state licensed branches and agencies of foreign banks);

(2)  Complies with the recordkeeping requirements of § 450.4(c), (d) and (f) of this chapter; and

(3)  Makes and keeps current:

(i)(A)  A securities record or ledger reflecting separately for each government security as of the settlement dates all "long" or "short" positions (including government securities that are the subjects of repurchase or reverse repurchase agreements) carried by such financial institution for its own account or for the account of its customers or others (except securities held in a fiduciary capacity) and showing the location of all government securities long and the offsetting position to all government securities short, including long security count differences and short security count differences classified by the date of the count and verification in which they were discovered, and in all cases the name or designation of the account in which each position is carried;

(B)  A complete and current Form G--FIN--4 (§ 449.3 of this chapter) or Form U--4 (promulgated by a self-regulatory organization) or Form MSD--4 (as required for associated persons of bank municipal securities dealers) for each associated person as defined in § 400.3 of this chapter;

(C)  A Form G--FIN--5 (§ 449.4 of this chapter) or Form U--5 (promulgated by a self-regulatory organization) or Form MSD--5 (as required for associated persons of bank municipal securities dealers) for each associated person whose association has been terminated as provided in § 400.4(d)(2) of this chapter; and

(D)  A complete and current Form G--FIN (§ 449.1 of this chapter) and, if applicable, a Form G--FINW (§ 449.2 of this chapter).

(ii)  For purposes of paragraph (a)(3)(i)(A) of this section, "safekeeping" may be shown as a location of any securities long as long as the financial institution complies with the requirements of Part 450 of this chapter with respect to such securities.

(b)  Preservation of records.  (1)  The records required by paragraph (a)(3)(i)(A) of this section shall be preserved for not less than six years, the first two years in an easily accessible place.

(2)  The records required by paragraphs (a)(3)(i)(B) and (C) of this section shall be preserved for at least three years after the person who is the subject of the record has terminated his employment and any other association with the government securities broker or dealer function of the financial institution.

(3)  The records required by paragraph (a)(3)(i)(D) of this section shall be preserved for at least three years after the financial institution has notified the appropriate regulatory agency that it has ceased to function as a government securities broker or dealer.

(c)  Effective date.  This section shall be effective on July 25, 1987, except that until October 31, 1987, a financial institution government securities broker or dealer is not required to make and keep current the securities position record required by paragraph (a)(3)(i)(A) of this section.

(Approved by the Office of Management and Budget under Control No. 1535--0089)

[Codified to 17 C.F.R. § 404.4]

[Section 404.4 amended at 53 Fed. Reg. 28987, August 1, 1988; Section 404.4 amended at 60 Fed. Reg. 11026, March 1, 1995, effective March 31, 1995; 61 Fed. Reg. 7155, February 18, 1997, effective April 30, 1997; 71 Fed. Reg. 54411, September 15, 2006]

PART 405—REPORTS AND AUDIT

Sec.

405.1 Application of part to registered brokers and dealers and to financial institutions; transition rule.
405.4 Financial recordkeeping and reporting of currency and foreign transactions by registered government securities brokers and dealers.

AUTHORITY:  15 U.S.C. 78o--5(b)(1)(B), (b)(1)(C), (b)(2), (b)(4).

SOURCE:  The provisions of this Part 405 appear at 52 Fed. Reg. 27954, July 24, 1987, except as otherwise noted.

§ 405.1  Application of part to registered brokers and dealers and to financial institutions; transition rule.

(a)  Compliance by registered brokers or dealers with §§ 240.17a--5, 240.17a--8, and 240.17a--11 of this title (Commission Rules 17a--5, 17a--8 and 17a--11), including provisions of those rules relating to OTC derivatives dealers, constitutes compliance with this part.

(b)  A government securities broker or dealer that is a financial institution and is subject to financial reporting rules of its appropriate regulatory agency is exempt from the provisions of §§ 405.2 and 405.3.

(c)  This part shall be effective July 25, 1987, provided however,

(1)  That registered government securities brokers or dealers shall first be required to file the reports required by § 240.17a--5(a), by virtue of § 405.2, for the month and the quarter during which they were first required to comply with Part 402 of this chapter other than the interim liquid capital requirements of § 402.1(f); but that

(2)  For any quarter ending prior to the quarter during which they were first required to comply with Part 402 of this chapter other than the interim liquid capital requirements of § 402.1(f), registered government securities brokers or dealers shall file with the designated examining authority for such registered broker or dealer, within 17 business days after the close of the quarter, an unaudited balance sheet (with appropriate notes) for such quarter, prepared in accordance with generally accepted accounting principles.

[Codified to 17 C.F.R. § 405.1]

[Section 405.1 amended at 71 Fed. Reg. 54411, September 15, 2006]

§ 405.4 Financial recordkeeping and reporting of currency and foreign transactions by registered government securities brokers and dealers.

Every registered government securities broker or dealer who is subject to the requirements of the Currency and Foreign Transactions Reporting Act of 1970 shall comply with the reporting, recordkeeping and record retention requirements of 31 CFR Part 103. Where 31 CFR Part 103 and § 404.3 of this chapter require the same records to be preserved for different periods of time, such records or reports shall be preserved for the longer period of time.

[Codified to 17 C.F.R. § 405.4]

PART 449—FORMS, SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934

Sec.

449.1 Form G–FIN, notification by financial institutions of status as government securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.
449.2 Form G–FINW, notification by financial institutions of cessation of status as government securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and
§ 400.6 of this chapter. 449.3 Form G–FIN–4, notification by persons associated with financial institutions that are government securities brokers and dealers pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and § 400.4 of this chapter.
449.4 Form G–FIN–5, notification of termination of association with a financial institution that is a government securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and
§ 400.4 of this chapter.

AUTHORITY:  15 U.S.C. 78o--5(a), (b)(1)(B), (b)(4).

SOURCE:  The provisions of this Part 449 appear at 52 Fed. Reg. 27956, July 24, 1987, except as otherwise noted.

§ 449.1  Form G--FIN, notification by financial institutions of status as government securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934.

This form is to be used by financial institutions that are government securities brokers or dealers not exempt under Part 401 of this chapter to notify their appropriate regulatory agency of their status. The form is promulgated by the Board of Governors of the Federal Reserve System and is available from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision and the SEC.

[Codified to 17 C.F.R. § 449.1]

[Section 449.1 amended at 55 Fed. Reg. 6604, February 26, 1990]

§ 449.2  Form G--FINW, notification by financial institutions of cessation of status as government securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and § 400.6 of this chapter.

This form is to be used by financial institutions that are government securities brokers or dealers to notify their appropriate regulatory agency that they have ceased to function as a government securities broker or dealer. The form is promulgated by the Board of Governors of the Federal Reserve System and is available from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision and the SEC.

[Codified to 17 C.F.R. § 449.2]

[Section 449.2 amended at 55 Fed. Reg. 6604, February 26, 1990]

§ 449.3  Form G--FIN--4, notification by persons associated with financial institutions that are government securities brokers and dealers pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and § 400.4 of this chapter.

This form is to be used by associated persons of financial institutions that are government securities brokers or dealers to provide certain information to the financial institution and the appropriate regulatory agency concerning employment, residence, and statutory disqualification. The form is promulgated by the Department of the Treasury and is available from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision and the SEC.

[Codified to 17 C.F.R. § 449.3]

[Section 449.3 amended at 55 Fed. Reg. 6604, February 26, 1990]

§ 449.4  Form G--FIN--5, notification of termination of association with a financial institution that is a government securities broker or dealer pursuant to section 15C(a)(1)(B)(i) of the Securities Exchange Act of 1934 and § 400.4 of this chapter.

This form is to be used by financial institutions that are government securities brokers or dealers to notify the appropriate regulatory agency of the fact that an associated person is no longer associated with the government securities broker or dealer function of the financial institution. The form is promulgated by the Department of the Treasury and is available from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision and the SEC.

[Codified to 17 C.F.R. § 449.4]

[Section 449.4 amended at 55 Fed. Reg. 6604, February 26, 1990]


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