Regulation R "Push Out Rules"
Overview:The SEC and the Federal Reserve Board adopted final Regulation R in September 2007. Regulation R implements the bank broker exceptions in the Gramm-Leach-Bliley Act (GLB Act) and includes other conditional regulatory exemptions for certain securities-related activities of banks. This is a significant development for banks because the GLB Act removed the total exemption from the definition of broker that banks had previously had and replaced the exemption with specific activity-based exceptions. Banks should have a comprehensive understanding of the new regulation to ensure that their securities activities comply with the GLB Act and Regulation R.
The Knowledge Congress is assembling a panel of experts to tackle the important aspects of this rule in a two-hour teleconference and webinar.
<strong id="ep-name-of-speaker">Andrea R. Tokheim, Counsel, Legal Division,</strong>
<em id="ep-speaker-firm">Board of Governors of the Federal Reserve System </em>
- Overview (At beginning of presentation)
• Purpose of statutory exceptions and Regulation R.
• How the exceptions and exemptions work together.
• Common questions.
• Implementation and future steps.
- Custody Exception (To follow trust and fiduciary exception discussion)
• Overview of statutory custody exception.
• Overview of custody order-taking exemption.
• Limits applicable to different types of accounts.
<strong id="ep-name-of-speaker">Linda Sundberg, Senior Special Counsel (Banking and Derivatives),</strong>
<em id="ep-speaker-firm">U.S. Securities and Exchange Commission (SEC) </em>
- GLBA Networking exception and Rule 700
- The Dealer Rules, generally, and Regulation S and Securities Lending in particular
<strong id="ep-name-of-speaker">Judi McCormick, Director, Trust and Specialty Programs,</strong>
<em id="ep-speaker-firm">Office of Thrift Supervision </em>
- Trust & Fiduciary Activities Exception - Rule 721
- Bank Wide Chiefly Compensated Test - Rule 722
- Exemptions - Rule 723
1. Exception is only for banks and thrifts not operating subsidiaries or other subordinate entities.
2. Three main parts to the trust & fiduciary exception:
a. Effecting securities transactions in trust department or other department that is regularly
examined by bank examiners for compliance with fiduciary principles and standards.
b. Banks and thrifts must be "chiefly compensated" for securities transactions, consistent with
fiduciary principles and standards.
c. Banks and thrifts must not solicit brokerage business, other than by advertising that it effects
transactions in securities in conjunction with advertising its other trust activities.
3. Chiefly compensated test - formula based.
a. Numerator - relationship compensation
b. Denominator - all trust department compensation
4. Account by account test & bank wide test
5. Exclusions from account by account test & bank wide test
<strong id="ep-name-of-speaker">Victoria Pawelski, Compliance Policy Analyst, Division of Supervision and Consumer Protection,</strong>
<em id="ep-speaker-firm">Federal Deposit Insurance Corporation (FDIC) </em>
- Overview of the GLBA Third-Party Brokerage (Networking) Arrangement statutory exception
- Connection with Regulation R Rules 700 and 701 (subparagraph VI in particular)
- Explanation of Rule 700, with a focus on:
1) contingent on whether the referral results in a transaction
2) incentive compensation: the exception and the safe harbor
3) four formulas for nominal, one-time cash fee of a fixed dollar amount
- Explanation of Rule 701, with a focus on:
1) definitions of High Net Worth and Institutional customers
2) bank employee criteria
3) bank determinations and obligations
4) required contents of bank-broker-dealer agreement
5) required disclosures
<strong id="ep-name-of-speaker">Charles M. Horn, Partner,</strong>
<em id="ep-speaker-firm">Mayer Brown LLP </em>
- Bank employee incentive programs
• Performance-based bonus programs
• Sales contests
• Mixed product compensation programs
- Fiduciary and custody accounts
• Computing relationship and non-relationship compensation
• Custody accounts with a discretionary component
- Dual employee issues
• Compliance with FINRA Rule 3040
• Compensation issues
• Marketing issues
- General compliance/implementation programs
• Assuring enterprise-level compliance
• Need for review of “traditional” product lines and services
• Implementation timelines
<strong id="ep-name-of-speaker">Martin E. Lybecker, Partner,</strong>
<em id="ep-speaker-firm">WilmerHale </em>
- Regulation R: Money Market Funds, Accommodation Trades, and “Publicly Traded Securities” in Section 3(a)(4)(C).
• The Gramm-Leach-Bliley Act itself provides an exception for “sweep” accounts. Rule 740 provides some needed clarity for certain terms in the statutory exception: “deferred sales load,” “money market fund,” “no-load,” “open-end company,” and “sales load.”
• Rule 741 provides an additional exemption that permits a bank to offer and sell any money market mutual fund, whether or not it is attached to a “sweep,” so long as the bank provides the customer with any other product or service which would not require the bank to register as a broker or a dealer, and if the class or series is not no-load, the bank provides the customer with a prospectus for the securities.
• Rule 760(b) permits a bank to accept orders for securities transactions for custodial accounts (other than custody accounts for employee benefit plans and IRAs) if the bank accepts the order as an accommodation, bank employees do not receive transaction-based compensation, the fee received by the bank does not vary in a manner that is related to the quantity or price of the transaction or the fact that the bank accepted the order, the bank does not advertise the accommodation service, the bank does not emphasize the accommodation service in sales literature describing the bank’s custodial or safekeeping services, and the bank does not give investment advice or make recommendations to the relevant custody account.
• Several of the statutory exceptions (trust and fiduciary, stock purchase plans, and custody and safekeeping) impose a restriction upon a transaction being effected by the bank pursuant to that exception. Specifically, Section 3(a)(4)(C) of the Exchange Act provides that a bank effecting a transaction in any “publicly traded security” in the United States in reliance on any of these exceptions must direct the resulting trade to a registered broker-dealer for execution.
<strong id="ep-name-of-speaker">Christopher Cole, Senior Regulatory Counsel,</strong>
<em id="ep-speaker-firm">Independent Community Bankers of America </em>
- Issues Important to Community Banks
• Networking Exception—bank employee referral programs
• Trust & Fiduciary Exception-chiefly compensated test
• Custody and Money Market Funds Exception
- Questions from Community Bankers
• Compliance issues—what should community banks do
• Operational issues—how will banks be examined
• Specific questions concerning the exceptions
Who Should Attend:
- Bank/Broker executives
- Broker-dealer Legal Compliance Departments
- Financial Services Companies
- Banking Regulation and Finance Lawyers
- Investment Management Attorneys
** Speaker Bio to be added soon.. Keep checking back for updates. **
** Speaker Bio to be added soon.. Keep checking back for updates. **
Linda Stamp Sundberg is a Senior Special Counsel (Banking and Derivatives) in the Division of Trading and Markets, Office of Chief Counsel at the U.S. Securities and Exchange Commission. Before joining the Securities and Exchange Commission, she worked in Federal Deposit Insurance Corporation from 1987 – 2002 and in Private practice in Denver, Colorado from 1982-1987.
Ms. Sundberg has had substantial responsibility for drafting and speaking on Regulation R and the bank dealer rules; substantial responsibility for drafting the CSE rules; substantial Responsibility for Drafting 12 CFR Part 362; and was a deposit insurance consultant for IFAD to Moldova.
J.D. University of Colorado, licensed as an attorney in Colorado since 1981 B.S. in Accounting from the University of Denver, CPA license in Colorado since 1981 (inactive)".
Linda Stamp Sundberg is a Senior Special Counsel (Banking and Derivatives) in the Division of Trading and Markets, Office of …
Judi McCormick has been working in Washington D.C. focusing on trust and asset management issues since 1989. Her DC career started with the American Bankers Association (ABA) as senior trust counsel in the government relations division. Judi joined the Office of Thrift Supervision 8 years ago as a trust policy specialist and is now the Director of Trust & Specialty Programs. As Director, Judi is responsible for making recommendations for changes to regulations, policies, examination programs and other guidance as required; assisting in identifying supervisory problem areas and developing appropriate responses; managing the development, implementation and maintenance of regulations, policies, examination programs and other guidance; implementing regulatory and policy changes; advising and providing guidance to OTS staff, savings associations, other regulatory agencies, Congress, and various trade groups on policies and issues; and advising on complex and controversial issues.
Judi is a lawyer with a degree from the University of Pittsburgh School of Law.
Judi McCormick has been working in Washington D.C. focusing on trust and asset management issues since 1989. Her DC career …
Victoria Pawelski joined the FDIC in 2007 as a Compliance Policy Analyst in the Division of Supervision and Consumer Protection, and focuses on securities, insurance, mortgage and overdraft protection issues. Prior to joining the FDIC, she worked for almost a decade as a securities regulatory counsel, mainly in the areas of broker-dealer regulation and market regulation. She spent five years at the U.S. Securities and Exchange Commission (SEC), first drafting decisions and orders in the Office of Administrative Law Judges, then serving as Special Counsel in the Division of Market Regulation’s Office of Risk Management and Control. She then spent four years in the National Association of Securities Dealers’ (NASD’s) Registration and Disclosure Department, initially as Senior Attorney then as Assistant Chief Counsel, where she handled in-house legal and regulatory policy matters for the Web-based registration and disclosure system for broker-dealers and investment advisers. She also addressed broker-dealer, investment adviser, hedge fund, corporate securities registration and bank regulatory issues in the Finance Group at a large, Washington, D.C. law firm.
Victoria received an undergraduate Bachelor of Commerce degree from McGill University in Montreal, Canada, as well as a joint law and M.B.A degree from American University in Washington, D.C. She is a member of the Maryland and District of Columbia Bars.
Victoria Pawelski joined the FDIC in 2007 as a Compliance Policy Analyst in the Division of Supervision and Consumer Protection, …
Charles Horn is a regulatory and transactional attorney whose practice focuses primarily on banking and financial services matters. Charles represents domestic and global financial services firms of all sizes on regulatory and transactional issues affecting their organization, structure, governance, management and operations. In addition, he provides sophisticated regulatory counseling to banks and other financial services firms relative to federal and state financial regulation, supervision, and compliance matters affecting their corporate, institutional, and retail business activities.
Charles has extensive experience in the development of new capital markets and other financial products and services. He also supplies comprehensive counseling across a wide range of transactions and activities involving the convergence of financial services sectors (banking, securities, and insurance), including merger and acquisition transactions, strategic alliances, and business integrations. In 2007, Chambers USA noted that “. . . clients report that they ‘rely heavily on Charles Horn’s wisdom, judgment and experience’ . . .”.
Prior to joining Mayer Brown in 1992, Charles worked with another major law firm. Previously, he served first as Senior Attorney (1983), then as Assistant Director (1983–1986), and finally as Director (1986–1989) of the Securities & Corporate Practices Division of the US Department of Treasury’s Office of the Comptroller of the Currency. Earlier, Charles held positions of progressively greater responsibility with the US Securities and Exchange Commission, Washington, DC, including Branch Chief (1982–1983); Senior Counsel (1980–1982); Attorney, Division of Enforcement (1978–1982); and Attorney, Division of Market Regulation (1976–1978).
He attended Cornell University Law School, JD, 1976, Harvard College, AB, magna cum laude, 1973.
He was admitted to US Supreme Court, 1980; US Court of Appeals for the District of Columbia Circuit, 1977 and District of Columbia, 1976.
Charles Horn is a regulatory and transactional attorney whose practice focuses primarily on banking and financial services matters. Charles represents …
Mr. Lybecker is a partner in the Washington, D.C., office of Wilmer Cutler Pickering Hale and Dorr LLP. Mr. Lybecker received his B.B.A. (in Accounting) and J.D. degrees from the University of Washington in 1967 and 1970, respectively; Mr. Lybecker also received an LL.M. (in Taxation) degree from New York University in 1971, and an LL.M. degree from the University of Pennsylvania in 1973 where he was a Graduate Fellow of the Center for the Study of Financial Institutions and the Securities Markets. Mr. Lybecker served as Associate Director of the SEC's Division of Investment Management from 1978 to 1981; previously, he had been an Attorney, Office of Chief Counsel, in that Division (1972-1975). From 1974 to 1980, Mr. Lybecker was also a law teacher at Georgetown University, State University of New York at Buffalo, Duke University, and the University of North Carolina, and since 2000 has served as a Senior Lecturing Fellow in Law at Duke University. Mr. Lybecker is a member of the Council of the Section of Business Law (2005-2009), has been Chairman of the Committee on Banking Law (2002-2005), has been Chairman of the Committee on Developments in Investment Services (1994-2002), and is a member of the Committee on the Federal Regulation of Securities of the Business Law Section of the American Bar Association. Mr. Lybecker is a member of the American Law Institute, a member of the Editorial Board of The Investment Lawyer, a member of the Advisory Board of the Duke University Global Capital Markets Center, and Co-Chair of the Investment Management Committee and a member of the Advisory Council of the SEC Historical Society. Mr. Lybecker was profiled in Chambers USA: America’s Leading Lawyers for Business, Investment Management, 2005, 2006, 2007 editions, and selected by his peers for inclusion in The Best Lawyers in America 2005-2006 (Corporate, M&A, and Securities Law), 2007, 2008 (Mutual Fund Law, Banking Law).
Mr. Lybecker is a partner in the Washington, D.C., office of Wilmer Cutler Pickering Hale and Dorr LLP. Mr. Lybecker …
Chris Cole joined ICBA as regulatory counsel in May 2003. Before joining ICBA, Chris served for many years as vice president and assistant general counsel for a large regional bank holding company based in Virginia and prior to that, was an attorney at Marriott Corporation and at the Treasury Department's Office of Chief Counsel. Chris received his bachelor's and law degrees from the University of Virginia and a masters degree in tax law from Georgetown University Law School.
Chris Cole joined ICBA as regulatory counsel in May 2003. Before joining ICBA, Chris served for many years as vice …
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Board of Governors of the Federal Reserve System
U.S. Securities and Exchange Commission (SEC)
Office of Thrift Supervision
Federal Deposit Insurance Corporation (FDIC)
About Board of Governors of the Federal Reserve System
About U.S. Securities and Exchange Commission (SEC)
About Office of Thrift Supervision
About Federal Deposit Insurance Corporation (FDIC)
About Mayer Brown LLP
About Independent Community Bankers of America