I. BROKER-DEALERS

A. REGISTRATION

Broker-dealers must register with the Commission under federal securities laws.

The guidelines set forth in the Interagency Statement apply to sales made by bank employees; sales made by employees of affiliated or unaffiliated entities on the bank's premises; and sales resulting from customer referrals when the bank receives a benefit for the referral. The guidelines do not establish clear and uniform standards of conduct for banks engaged directly in securities activities. The guidelines are general in nature and provide the banks with wide latitude to establish policies and procedures to implement them. Notably, the guidelines are not regulations. As "guidelines, they are not legally enforceable by the banking agencies or bank customers. (See Interagency Statement on Retail Sales of Nondeposit Investment Products (February 15, 1994))

"

Under §§ 3 (a) (4) and (5) of the
Exchange Act, banks are excluded
from the definitions of "broker"
and "dealer" and, therefore, are
outside of the broker-dealer
regulatory scheme of the federal
securities laws. However, the
bank exclusion only extends to
banks. It does not apply to
broker-dealer subsidiaries
or
affiliates of banks, bank holding
companies or foreign banking
institutions that are required to
register with the Commission.
Moreover, banks that engage in
municipal and government
securities business are subject
to the regulatory schemes for
government and municipal
securities brokers and dealers
imposed under
securities laws.

the

2. Membership in an SRO

federal

Broker-dealers and their
associated persons must register
with a SRO.

In addition to registration with
the Commission, § 15(b) (8) of the

Banks generally are required to
register with respect to their
overall banking activities.
example, national banks
chartered by the OCC and may only
engage in activities that are
within or incidental to the
business of banking or otherwise
authorized by statute, and are
consistent with principles of
safety and soundness. However,
there
no specific
requirements in the federal
banking statutes that banks
provide notice of their
participation in securities
activities to their appropriate
federal banking regulator.

are

It is noted that the FDIC
recently published changes to
Call Reports filed quarterly by
insured state nonmember
commercial and savings banks.
The revisions, scheduled to be
effective as of March 31, 1994,
would include a requirement that
the banks provide data on mutual
fund and annuity sales. The OCC
and the Federal Reserve Board are
making the same changes to the
Call Reports filed by the banks
under their supervision. (See 59
FR 2603, January 18, 1994)
Notably, the FDIC's publication
does not state the manner in
which banks would provide mutual
fund and annuity data under the
Call Report revisions,

under combined or Beparate
categories.

2. Membership in an SRO

• Banks and bank employees who
sell securities are not members
of a SRO.

Because only registered broker-
dealers and their associated

Exchange Act requires a brokerdealer to become a member of a SRO. Also, individuals who work for, or are "associated" with a broker-dealer firm must be registered with their brokerdealer firm's SRO by filing Form U-4. Section 3 (a) (18) of the Exchange Act defines "associated persons of a broker or dealer" as any partner, officer, director, branch manager, or employee of a broker-dealer, or any person controlled by, controlling, or under common control with the broker-dealer.

persons can be members of a SRO, banks and their employees who sell securities are not eligible to be members of a SRO. Banks and their associated persons are not subject to a SRO's rules of professional conduct based on just and equitable principles of trade, which are designed to prevent fraudulent and manipulative securities practices.