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VI. Rule 3040

As discussed in our 2001 Comment Letter, the Banking Agencies believe it is critical that the Commission take action to clarify that NASD Rule 3040 does not apply to bank employees that also are registered representatives of a broker-dealer when these employees operate in their capacity as bank employees (including when they effect bank-permissible securities transactions under the one of the bank exceptions adopted by Congress). We believe it is inconsistent with the principles of functional regulation for the Commission or NASD to attempt to assert supervisory and examination jurisdiction over bank employees when these employees are performing functions on behalf of a bank and not a broker-dealer.

Furthermore, we believe it is imperative that the Commission take the steps necessary to clarify the application of NASD Rule 3040 to bank employees before any rules implementing the “broker” exceptions for banks are finalized. We understand that many banks are considering whether to expand their use of dual employees in order to comply with the requirements of the Proposed Rules. To fully assess the potential impact of the Proposed Rules, however, banks need to know whether use of dual employees would open up the institution’s banking activities to examination by the SEC or NASD under Rule 3040.

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56 See 15 U.S.C. § 78c(a)(4)(B)(v) (the “Sweeps Exception”).

Last Updated 10/08/2004

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