Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds
| Published date | 08 February 2019 |
| Citation | 84 FR 2778 |
| Record Number | 2019-00797 |
| Section | Proposed rules |
| Court | Commodity Futures Trading Commission,The Comptroller Of The Currency Office,Treasury Department |
Federal Register, Volume 84 Issue 27 (Friday, February 8, 2019)
[Federal Register Volume 84, Number 27 (Friday, February 8, 2019)]
[Proposed Rules]
[Pages 2778-2791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00797]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 84, No. 27 / Friday, February 8, 2019 /
Proposed Rules
[[Page 2778]]
DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Part 44
[Docket No. OCC-2018-0029]
RIN 1557-AE47
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FEDERAL RESERVE SYSTEM
12 CFR Part 248
[Docket No. R-1643]
RIN 7100-AF 33
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 351
RIN 3064-AE88
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 75
RIN 3038-AE72
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 255
[Release no. BHCA-5; File no. S7-30-18]
RIN 3235-AM43
Proposed Revisions to Prohibitions and Restrictions on
Proprietary Trading and Certain Interests In, and Relationships With,
Hedge Funds and Private Equity Funds
AGENCY: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Securities and Exchange
Commission (SEC); and Commodity Futures Trading Commission (CFTC).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The OCC, Board, FDIC, SEC, and CFTC (individually, an Agency,
and collectively, the Agencies) are inviting comment on a proposal to
amend the regulations implementing the Bank Holding Company Act's (BHC
Act) prohibitions and restrictions on proprietary trading and certain
interests in, and relationships with, hedge funds and private equity
funds in a manner consistent with the statutory amendments made
pursuant to certain sections of the Economic Growth, Regulatory Relief,
and Consumer Protection Act. The statutory amendments exclude from
these restrictions certain firms that have total consolidated assets
equal to $10 billion or less and total trading assets and liabilities
equal to five percent or less of total consolidated assets and amend
the restrictions applicable to the naming of a hedge fund or private
equity fund to permit an investment adviser that is a banking entity to
share a name with the fund under certain circumstances.
DATES: Comment date: Comments must be received on or before March 11,
2019. Comments on the Paperwork Reduction Act burden estimates must be
received on or before April 9, 2019.
ADDRESSES: Interested parties are encouraged to submit written comments
jointly to all of the Agencies. Commenters are encouraged to use the
title ``Proposed Revisions to Restrictions on Proprietary Trading and
Certain Interests in, and Relationships with, Hedge Funds and Private
Equity Funds'' to facilitate the organization and distribution of
comments among the Agencies. Commenters are also encouraged to identify
the number of the specific question for comment to which they are
responding. Comments should be directed to:
OCC: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``Proposed Revisions to Prohibitions and Restrictions on Proprietary
Trading and Certain Interests in, and Relationships with, Hedge Funds
and Private Equity Funds'' to facilitate the organization and
distribution of the comments. You may submit comments by any of the
following methods:
Federal eRulemaking Portal--``regulations.gov'': Go to
www.regulations.gov. Enter ``Docket ID OCC-2018-0029'' in the Search
Box and click ``Search.'' Click on ``Comment Now'' to submit public
comments.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
Email: regs.comments@occ.treas.gov.
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2018-0029'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not include any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to
www.regulations.gov. Enter ``Docket ID OCC-2018-0029'' in the Search
box and click ``Search.'' Click on ``Open Docket Folder'' on the right
side of the screen. Comments and supporting materials can be viewed and
filtered by clicking on ``View all documents and comments in this
docket'' and then using the filtering tools on the left side of the
screen.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov. The docket may be viewed
after the
[[Page 2779]]
close of the comment period in the same manner as during the comment
period.
Viewing Comments Personally: You may personally inspect
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For
security reasons, the OCC requires that visitors make an appointment to
inspect comments. You may do so by calling (202) 649-6700 or, for
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon
arrival, visitors will be required to present valid government-issued
photo identification and submit to security screening in order to
inspect comments.
Board: You may submit comments, identified by [Docket No. R-1643;
RIN 7100-AF 33], by any of the following methods:
Agency Website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: regs.comments@federalreserve.gov. Include docket
and RIN numbers in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551. All public comments will be made available on the
Board's website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or
to remove personally identifiable information at the commenter's
request. Accordingly, comments will not be edited to remove any
identifying or contact information. Public comments may also be viewed
electronically or in paper in Room 3515, 1801 K Street NW (between 18th
and 19th Streets NW), between 9:00 a.m. and 5:00 p.m. on weekdays.
FDIC: You may submit comments, identified by [RIN 3064-AE88] by any
of the following methods:
Agency Website: https://www.FDIC.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on
the Agency website.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Hand Delivered/Courier: Comments may be hand-delivered to
the guard station at the rear of the 550 17th Street NW, building
(located on F Street) on business days between 7:00 a.m. and 5:00 p.m.
Email: comments@FDIC.gov. Include the [RIN 3064-AE88] on
the subject line of the message.
Public Inspection: All comments received must include the
agency name and [RIN 3064-AE88] for this rulemaking. All comments
received will be posted without change to http://www.fdic.gov/regulations/laws/federal/, including any personal information provided.
Paper copies of public comments may be ordered from the FDIC Public
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington,
VA 22226 or by telephone at (877) 275-3342 or (703) 562-2200.
SEC: You may submit comments by the following methods:
Electronic Comments
Use the SEC's internet comment form (http://www.sec.gov/rules/proposed.shtml); or Send an email to rule-comments@sec.gov.
Please include [File Number S7-30-18] on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to [File Number S7-30-18]. This file
number should be included on the subject line if email is used. To help
us process and review your comments more efficiently, please use only
one method. The SEC will post all comments on the SEC's website (http://www.sec.gov/rules/proposed.shtml). Comments are also available for
website viewing and printing in the SEC's Public Reference Room, 100 F
Street NE, Washington, DC 20549, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted
without change. Persons submitting comments are cautioned that the SEC
does not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly.
Studies, memoranda, or other substantive items may be added by the
SEC or SEC staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any materials will
be made available on the SEC's website. To ensure direct electronic
receipt of such notifications, sign up through the ``Stay Connected''
option at www.sec.gov to receive notifications by email.
CFTC: You may submit comments, identified by [RIN 3038-AE72] and
``Proposed Revisions to Prohibitions and Restrictions on Proprietary
Trading and certain Interests in, and Relationships with, Hedge Funds
and Private Equity Funds,'' by any of the following methods:
Agency Website: https://comments.cftc.gov. Follow the
instructions on the website for submitting comments.
Mail: Send to Christopher Kirkpatrick, Secretary,
Commodity Futures Trading Commission, 1155 21st Street, NW, Washington,
DC 20581.
Hand Delivery/Courier: Same as Mail above.
Please submit your comments using only one method. All comments
must be submitted in English, or if not, accompanied by an English
translation. Comments will be posted as received to www.cftc.gov and
the information you submit will be publicly available. If, however, you
submit information that ordinarily is exempt from disclosure under the
Freedom of Information Act, you may submit a petition for confidential
treatment of the exempt information according to the procedures set
forth in CFTC Regulation 145.9.1. The CFTC reserves the right, but
shall have no obligation, to review, pre-screen, filter, redact, refuse
or remove any or all of your submission from www.cftc.gov that it may
deem to be inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT:
OCC: Roman Goldstein, Risk Specialist, Treasury and Market Risk
Policy, 202-649-6360; Tabitha Edgens, Senior Attorney; Mark O'Horo,
Attorney, Chief Counsel's Office, (202) 649-5510; for persons who are
deaf or hearing impaired, TTY, (202) 649-5597, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
Board: Page Conkling, Senior Supervisory Financial Analyst, (202)
912-4647, Kevin Tran, Supervisory Financial Analyst, (202) 452-2309,
Amy Lorenc, Financial Analyst, (202) 452-5293, David Lynch, Deputy
Associate Director, (202) 452-2081, David McArthur, Senior Economist,
(202) 452-2985, Division of Supervision and Regulation; Flora Ahn,
Special Counsel, (202) 452-2317, Gregory Frischmann, Senior Counsel,
(202) 452-2803, or Kirin Walsh, Attorney, (202) 452-3058, Legal
Division, Board of Governors of
[[Page 2780]]
the Federal Reserve System, 20th and C Streets NW, Washington, DC
20551. For the hearing impaired only, Telecommunication Device for the
Deaf (TDD), (202) 263-4869.
FDIC: Bobby R. Bean, Associate Director, bbean@fdic.gov, Andrew D.
Carayiannis, Senior Policy Analyst, acarayiannis@fdic.gov, or Brian
Cox, Capital Markets Policy Analyst, brcox@fdic.gov, Capital Markets
Branch, (202) 898-6888; Michael B. Phillips, Counsel,
mphillips@fdic.gov, Benjamin J. Klein, Counsel, bklein@fdic.gov, or
Annmarie H. Boyd, Counsel, aboyd@fdic.gov, Legal Division, Federal
Deposit Insurance Corporation, 550 17th Street NW, Washington, DC
20429.
SEC: Andrew R. Bernstein, Senior Special Counsel, Sam Litz,
Attorney-Adviser, Aaron Washington, Special Counsel, Elizabeth Sandoe,
Senior Special Counsel, Carol McGee, Assistant Director, or Josephine
J. Tao, Assistant Director, at (202) 551-5777, Office of Derivatives
Policy and Trading Practices, Division of Trading and Markets, and
Nicholas Cordell, Senior Counsel, Matthew Cook, Senior Counsel, Aaron
Gilbride, Branch Chief, Brian McLaughlin Johnson, Assistant Director,
and Sara Cortes, Assistant Director, at (202) 551-6787 or
IArules@sec.gov, Division of Investment Management, U.S. Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.
CFTC: Cantrell Dumas, Special Counsel, (202) 418-5043,
cdumas@cftc.gov; Jeffrey Hasterok, Data and Risk Analyst, (646) 746-
9736, jhasterok@cftc.gov, Division of Swap Dealer and Intermediary
Oversight; Mark Fajfar, Assistant General Counsel, (202) 418-6636,
mfajfar@cftc.gov, Office of the General Counsel; Stephen Kane, Research
Economist, (202) 418-5911, skane@cftc.gov, Office of the Chief
Economist; Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
Section 13 of the Bank Holding Company Act of 1956 (``BHC
Act''),\1\ also known as the Volcker Rule, generally prohibits any
banking entity from engaging in proprietary trading or from acquiring
or retaining an ownership interest in, sponsoring, or having certain
relationships with a hedge fund or private equity fund, subject to
certain exemptions.\2\
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\1\ 12 U.S.C. 1851. The Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act) was enacted on July 21,
2010. Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010). Section 619 of the Dodd-
Frank Act added a new section 13 to the Bank Holding Company Act of
1956.
\2\ See 12 U.S.C. 1851.
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Under the statute, authority for developing and adopting
regulations to implement the prohibitions and restrictions of section
13 of the BHC Act is shared among the Agencies.\3\ The Agencies adopted
final rules implementing section 13 of the BHC Act in December 2013.\4\
The Agencies recently proposed amendments to these rules to provide
clarity about what activities are prohibited and to improve supervision
and implementation of section 13 of the BHC Act.\5\
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\3\ See 12 U.S.C. 1851(b)(2). Under section 13(b)(2)(B) of the
BHC Act, rules implementing section 13's prohibitions and
restrictions must be issued by: (i) The appropriate Federal banking
agencies (i.e., the Board, the OCC, and the FDIC), jointly, with
respect to insured depository institutions; (ii) the Board, with
respect to any company that controls an insured depository
institution, or that is treated as a bank holding company for
purposes of section 8 of the International Banking Act, any nonbank
financial company supervised by the Board, and any subsidiary of any
of the foregoing (other than a subsidiary for which an appropriate
Federal banking agency, the SEC, or the CFTC is the primary
financial regulatory agency); (iii) the CFTC with respect to any
entity for which it is the primary financial regulatory agency, as
defined in section 2 of the Dodd-Frank Act; and (iv) the SEC with
respect to any entity for which it is the primary financial
regulatory agency, as defined in section 2 of the Dodd-Frank Act.
See id.
\4\ See ``Prohibitions and Restrictions on Proprietary Trading
and Certain Interests in, and Relationships with, Hedge Funds and
Private Equity Funds; Final Rule,'' 79 FR 5535 (Jan. 31, 2014) (the
``2013 final rule'').
\5\ See ``Proposed Revisions to Prohibitions and Restrictions on
Proprietary Trading and Certain Interests in, and Relationships
With, Hedge Funds and Private Equity Funds,'' 83 FR 33432 (July 17,
2018).
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II. Recently Enacted Statutory Revisions to the Volcker Rule
The Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA), enacted on May 24, 2018, amended section 13 of the BHC Act
by modifying the definition of ``banking entity,'' to exclude certain
small firms from section 13's restrictions and by permitting a banking
entity to share a name with a hedge fund or private equity fund that it
organizes and offers under certain circumstances.\6\
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\6\ See Economic Growth, Regulatory Relief, and Consumer
Protection Act, Pub. L. 115-174, sections 203, 204 (May 24, 2018).
These provisions were effective upon EGRRCPA's enactment.
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The Agencies are proposing to amend the regulations implementing
section 13 of the BHC Act in a manner consistent with the statutory
amendments made by EGRRCPA.
A. Definition of Banking Entity
Prior to the enactment of EGRRCPA, the definition of ``banking
entity,'' for purposes of section 13 of the BHC Act, included any
insured depository institution, as defined in the Federal Deposit
Insurance Act (FDI Act),\7\ any company that controls an insured
depository institution, or that is treated as a bank holding company
for purposes of section 8 of the International Banking Act of 1978
(IBA), and any affiliate or subsidiary of such entity (excluding from
the term insured depository institution certain insured depository
institutions that function solely in a trust or fiduciary capacity,
subject to a variety of conditions).\8\
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\7\ Section 3(c)(2) of the FDI Act defines an insured depository
institution to include any bank or savings association the deposits
of which are insured by the FDIC under the FDI Act. 12 U.S.C.
1813(c)(2).
\8\ 12 U.S.C. 1813(c)(2), 1851(h)(1).
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EGRRCPA modifies the scope of the term ``banking entity'' to
exclude certain community banks and their affiliates. Therefore, an
insured depository institution and its affiliates generally are not
``banking entities'' if each affiliated insured depository institution
meets the statutory exclusion.\9\ However, EGRRCPA did not amend the
definition of ``banking entity'' as it relates to a company that is
treated as a bank holding company for purposes of section 8 of the IBA.
Therefore, the statutory exclusion does not apply to a foreign banking
organization with a U.S. branch or agency, which continues to be
subject to the prohibitions in section 13 of the BHC Act.
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\9\ Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, sections 203, 204 (May 24, 2018). Section
203 amended section 13(h)(1)(B) of the BHC Act to narrow the scope
of the term ``banking entity'' by excluding certain institutions
from the term ``insured depository institution'' exclusively for the
purposes of section 13. Insured banks and savings associations that
qualify for this exclusion for the purposes of section 13 of the BHC
Act remain insured depository institutions under section 3(c)(2) of
the FDI Act. Additionally, an institution that meets the criteria to
be excluded from the definition of insured depository institution
under EGRRCPA may still be a banking entity by virtue of its
affiliation with another insured depository institution or a company
that is treated as a bank holding company under section 8 of the
IBA.
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Pursuant to Section 203 of EGRRCPA, the term ``insured depository
institution'' does not include an institution that does not have, and
is not controlled by a company that has: (i) More than $10 billion in
total consolidated assets; and (ii) total trading assets and trading
liabilities, as reported on the most recent applicable regulatory
filing filed by the institution, that are more than 5 percent of total
consolidated assets. Consistent with the
[[Page 2781]]
statute, the Agencies are proposing to modify the definition of
``insured depository institution'' in Sec. __.2(r) of the 2013 final
rule in order to conform that definition with Section 203 of EGRRCPA.
Under the proposal, an insured depository institution would need to
satisfy two conditions to qualify for the exclusion from the definition
of ``banking entity.'' First, the insured depository institution, and
every entity that controls it, must have total consolidated assets
equal to or less than $10 billion. Second, total consolidated trading
assets and liabilities of the insured depository institution, and every
entity that controls it, must be equal to or less than five percent of
its total consolidated assets.
As described above, the exclusion would be available only if both
the threshold regarding total consolidated assets and the threshold
regarding total consolidated trading assets and liabilities are not
exceeded. The Agencies believe that insured depository institutions
that qualify for the exclusion in this proposal regularly monitor their
total consolidated assets and total trading assets and liabilities for
other purposes. Therefore, the Agencies do not believe that the test
described above would impose any new burden on banking institutions.
Rather, the Agencies would expect to use available information,
including information reported on regulatory reporting forms available
to each Agency, with respect to whether financial institutions qualify
for the exclusion described above.
B. Modification of Name-Sharing Restrictions of the Volcker Rule
Prior to enactment of EGRRCPA, section 13 provided that a banking
entity (or an affiliate of the banking entity), including an investment
adviser, that organized and offered a hedge fund or private equity fund
could not share the same name or a variation of the same name with the
fund (the name-sharing restriction).\10\ Section 204 of EGRRCPA amended
section 13 of the BHC Act to permit a hedge fund or private equity fund
\11\ organized and offered by a banking entity to share the same name
or a variation of the same name as a banking entity that is an
investment adviser to the hedge fund or private equity fund, if: (1)
The investment adviser is not an insured depository institution, a
company that controls an insured depository institution, or a company
that is treated as a bank holding company for purposes of section 8 of
the IBA; \12\ (2) the investment adviser does not share the same name
or a variation of the same name with any such entities; and (3) the
name does not contain the word ``bank.''
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\10\ 12 U.S.C. 1851(d)(1)(G)(vi) (2017).
\11\ 12 U.S.C. 1851(h)(2). See also 12 CFR 44.10(b); 12 CFR
248.10(b); 12 CFR 351.10(b); 17 CFR 255.10(b); 17 CFR 75.10(b).
\12\ 12 U.S.C. 3106.
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Consistent with the statute, the Agencies are proposing to modify
the 2013 final rule's name-sharing restriction to conform that
restriction with Section 204 of EGRRCPA. Under the proposal, a hedge
fund or private equity fund sponsored by a banking entity would be
permitted to share the same name or a variation of the same name with a
banking entity that is an investment adviser to the fund, subject to
the conditions specified in the statute.\13\ Specifically, these
conditions would require that the investment adviser is not, and does
not share the same name (or a variation of the same name) as, an
insured depository institution, a company that controls an insured
depository institution, or a company that is treated as a bank holding
company for purposes of section 8 of the International Banking Act of
1978.\14\ The third condition--that the name does not contain the word
``bank''--was included in the name-sharing restriction by Section 204
of EGRRCPA but already is a condition under the 2013 final rule.
Accordingly, the Agencies believe no additional modifications to the
2013 final rule are necessary to reflect this condition.
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\13\ Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, section 204 (May 24, 2018).
\14\ 12 U.S.C. 1851(d)(1)(G)(vi)(I); 12 U.S.C.
1851(d)(1)(G)(vi)(II).
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The proposal would also conform the 2013 final rule to the
statutory change to the definition of ``sponsor.'' \15\ Pursuant to
Section 204 of EGRRCPA, the definition of the term ``sponsor'' includes
a banking entity that shares the same name or a variation of the same
name with a fund, for corporate, marketing, promotional, or other
purposes, ``except as permitted under subsection (d)(1)(G)(vi)''--that
is, except as permitted pursuant to the name-sharing restriction as
amended by EGRRCPA. Consistent with the statute, the Agencies are
proposing to modify the definition of ``sponsor'' in Sec. __.10(d)(9)
of the 2013 final rule in order to conform that definition with Section
204 of EGRRCPA.
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\15\ Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, section 204 (May 24, 2018).
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III. Request for Comment
The Agencies invite comment from all members of the public
regarding all aspects of the proposal. This request for comment is
limited to this proposal. The Agencies will carefully consider all
comments that relate to the proposal. In particular, the Agencies
invite comment on the following questions:
Question [__]. Does the proposal provide sufficient clarity for
firms to determine whether they qualify for the exclusion from the
``banking entity'' definition? If not, please explain why.
Question [__]. Does the proposal provide sufficient clarity for
firms to determine whether a hedge fund or private equity fund
sponsored by a banking entity is permitted to share the same name or a
variation of the same name with an affiliated banking entity? If not,
please explain why.
IV. Administrative Law Matters
A. Paperwork Reduction Act
Certain provisions of the proposal contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
the requirements of the PRA, the Agencies may not conduct or sponsor,
and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The Agencies reviewed and determined
that the proposal would not change the current reporting, recordkeeping
or third-party disclosure requirements associated with section 13 of
the BHC Act under the PRA. However, the proposal would reduce the
number of respondents for the Board (including OCC-, FDIC-, SEC-, and
CFTC-supervised institutions under a holding company), FDIC (with
respect to supervised institutions not under a holding company), and
OCC (supervised institutions not under a holding company), which will
be addressed as a nonmaterial change to OMB.
B. Solicitation of Comments on the Use of Plain Language
Section 722 of the Gramm-Leach Bliley Act \16\ requires the OCC,
Board, and FDIC (Federal banking agencies) to use plain language in all
proposed and final rules published after January 1, 2000. The Federal
banking agencies invite comments on whether there are additional steps
the Federal banking agencies could take to make the
[[Page 2782]]
proposed rule easier to understand. For example:
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\16\ Public Law 106-102, section 722, 113 Stat. 1338, 1471, 12
U.S.C. 4809 (1999).
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Have the Agencies presented the material in an organized
manner that meets your needs? If not, how could this material be better
organized?
Are the requirements in the proposal clearly stated? If
not, how could the proposal be more clearly stated?
Does the proposal contain language or jargon that is not
clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the proposal easier to understand?
If so, what changes to the format would make the proposal easier to
understand?
What else could the Agencies do to make the regulation
easier to understand?
C. Initial Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA) \17\ imposes certain
requirements on agencies regarding any potential significant economic
impact that a proposal may have on a substantial number of small
entities. The U.S. Small Business Administration (SBA) establishes size
standards that define which entities are small businesses for purposes
of the RFA.\18\ Except as otherwise specified below, the size standard
to be considered a small business for banking entities subject to the
proposal is $550 million or less in consolidated assets.\19\ The
Agencies are separately publishing initial regulatory flexibility
analyses for the proposals as set forth in this proposal.
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\17\ 5 U.S.C. 601 et seq.
\18\ U.S. SBA, Table of Small Business Size Standards Matched to
North American Industry Classification System Codes, available at
https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
\19\ See id. Pursuant to SBA regulations, the asset size of a
concern includes the assets of the concern whose size is at issue
and all of its domestic and foreign affiliates. 13 CFR 121.103(6).
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Board
The Board is providing an initial regulatory flexibility analysis
with respect to this proposed rule. The RFA requires an agency to
consider whether the rules it proposes will have a significant economic
impact on a substantial number of small entities. In connection with a
proposed rule, the RFA requires an agency to prepare an Initial
Regulatory Flexibility Analysis describing the impact of the rule on
small entities or to certify that the proposed rule would not have a
significant economic impact on a substantial number of small entities.
An initial regulatory flexibility analysis must contain (1) a
description of the reasons why action by the agency is being
considered; (2) a succinct statement of the objectives of, and legal
basis for, the proposed rule; (3) a description of, and, where
feasible, an estimate of the number of small entities to which the
proposed rule will apply; (4) a description of the projected reporting,
recordkeeping, and other compliance requirements of the proposed rule,
including an estimate of the classes of small entities that will be
subject to the requirement and the type of professional skills
necessary for preparation of the report or record; (5) an
identification, to the extent practicable, of all relevant Federal
rules which may duplicate, overlap with, or conflict with the proposed
rule; and (6) a description of any significant alternatives to the
proposed rule which accomplish its stated objectives.
The Board has considered the potential impact of the proposed rule
on small entities in accordance with the RFA. Based on its analysis and
for the reasons stated below, the Board believes that this proposed
rule will not have a significant economic impact on a substantial
number of small entities. Nevertheless, the Board is publishing and
inviting comment on this initial regulatory flexibility analysis. A
final regulatory flexibility analysis will be conducted after comments
received during the public comment period have been considered.
The Board welcomes comment on all aspects of its analysis. In
particular, the Board requests that commenters describe the nature of
any impact on small entities and provide empirical data to illustrate
and support the extent of the impact.
1. Reasons for the Proposal
As discussed in the SUPPLEMENTARY INFORMATION, the Agencies are
proposing to revise the regulations implementing section 13 of the BHC
Act in conformance with the amendments to section 13 implemented by
EGRRCPA. The proposal would therefore exclude from the definition of
``banking entity'' certain firms that have total consolidated assets
equal to $10 billion or less and total trading assets and liabilities
equal to five percent or less of total consolidated assets. Qualifying
institutions eligible for this exclusion would consist of state member
banks, bank holding companies, and savings and loan holding companies
that meet the eligibility criteria for the exclusion. Such institutions
would be exempt from the prohibitions and restrictions under section 13
of the BHC Act.
2. Statement of Objectives and Legal Basis
As discussed above, the Agencies' objective in proposing amendments
to the regulations implementing section 13 of the BHC Act is to conform
the regulations to changes recently implemented by sections 203 and 204
of EGRRCPA. The Agencies are explicitly authorized under section
13(b)(2) of the BHC Act to adopt rules implementing section 13.\20\
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\20\ 12 U.S.C. 1851(b)(2).
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3. Description of Small Entities to Which the Regulation Applies
The Agencies' proposal would apply to state member banks, bank
holding companies, and savings and loan holding companies supervised by
the Board that are small entities for purposes of the RFA.\21\
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\21\ Under regulations issued by the Small Business
Administration, a small entity includes a depository institution,
bank holding company, or savings and loan holding company with total
assets of $550 million or less and trust companies with total assets
of $38.5 million or less. As of June 30, 2018, there were
approximately 3,053 small bank holding companies, 184 small savings
and loan holding companies, and 541 small state member banks.
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4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
As discussed previously in the Paperwork Reduction Act section, the
proposal would not change the current reporting, recordkeeping or
third-party disclosure requirements associated with section 13 of the
BHC Act under the PRA. However, the proposal would exempt small
entities supervised by the Board from the reporting, recordkeeping, and
all other requirements associated with section 13 of the BHC Act.
5. Identification of Duplicative, Overlapping, or Conflicting Federal
Regulations
The Board has not identified any federal statutes or regulations
that would duplicate, overlap, or conflict with the proposed revisions.
6. Discussion of Significant Alternatives
The Board believes the proposed amendments will not have a
significant economic impact on small banking entities supervised by the
Board and therefore believes that there are no significant alternatives
to the proposal that would reduce the economic impact on small banking
entities supervised by the Board.
OCC
The RFA requires an agency, in connection with a proposed rule, to
prepare an Initial Regulatory Flexibility
[[Page 2783]]
Analysis describing the impact of the proposed rule on small entities,
or to certify that the proposed rule would not have a significant
economic impact on a substantial number of small entities. For purposes
of the RFA, the SBA includes as small entities those with $550 million
or less in assets for commercial banks and savings institutions, and
$38.5 million or less in assets for trust companies.
The OCC currently supervises approximately 886 small entities.\22\
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\22\ The number of small entities supervised by the OCC is
determined using the SBA's size thresholds for commercial banks and
savings institutions, and trust companies, which are $550 million
and $38.5 million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), the OCC counts the
assets of affiliated financial institutions when determining if they
should classify an OCC-supervised institution as a small entity. The
OCC used December 31, 2017, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
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Pursuant to section 203 of EGRRCPA, OCC-supervised institutions are
not ``banking entities'' within the scope of Section 13 of the BHCA if
the OCC-supervised institution, and any company that controls the OCC-
supervised institution, meet the statutory exclusion. The EGRRCPA
statutory provisions took effect upon enactment. Because the statutory
provisions are already in effect, and this proposal would only revise
the OCC's existing regulations to conform to this statutory change,
this proposal would not affect a substantial number of small entities.
Section 204 of EGRRCPA generally does not apply to OCC-supervised
institutions.
The OCC's threshold for a significant effect is whether cost
increases associated with a proposed rule are greater than or equal to
either 5 percent of a small bank's total annual salaries and benefits
or 2.5 percent of a small bank's total non-interest expense. Even if
the proposal affected a substantial number of small banks, the OCC does
not believe that the proposal would have a significant economic impact
on small banks because OCC-supervised institutions that qualify for the
exclusion under section 203 of the EGRRCPA should not have compliance
costs associated with 12 CFR part 44. OCC-supervised institutions can
determine their eligibility for the exclusion at the national bank
level and federal savings association level on the basis of information
they are separately required to file in their Consolidated Reports of
Condition and Income.
For these reasons, the OCC certifies that the proposal would not
have a significant economic impact on a substantial number of small
entities.
FDIC
The RFA generally requires that, in connection with a proposed
rulemaking, an agency prepare and make available for public comment an
initial regulatory flexibility analysis describing the impact of the
rulemaking on small entities.\23\ A regulatory flexibility analysis is
not required, however, if the agency certifies that the rule would not
have a significant economic impact on a substantial number of small
entities. The SBA has defined ``small entities'' to include banking
organizations with total assets less than or equal to $550 million.\24\
The FDIC supervises 3,575 depository institutions,\25\ of which 2,763
are defined as small banking entities by the terms of the RFA.\26\ Of
the 2,763 small, FDIC-supervised institutions, all report having total
consolidated assets less than or equal to $10 billion, and total
trading assets and liabilities less than or equal to five percent of
total consolidated assets, and are therefore, covered by the proposed
rule.
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\23\ 5 U.S.C. 601 et seq.
\24\ The SBA defines a small banking organization as having $550
million or less in assets, where ``a financial institution's assets
are determined by averaging the assets reported on its four
quarterly financial statements for the preceding year.'' 13 CFR
121.201 n.8 (2018). ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates. . . .'' 13 CFR 121.103(a)(6)
(2018). Following these regulations, the FDIC uses a covered
entity's affiliated and acquired assets, averaged over the preceding
four quarters, to determine whether the covered entity is ``small''
for the purposes of RFA.
\25\ FDIC-supervised institutions are set forth in 12 U.S.C.
1813(q)(2).
\26\ Call Report: June 30, 2018.
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Although the proposed rule would conform the FDIC's regulation to
the statute in a way that is relevant to 2,763 small, FDIC-supervised
institutions, the effects of the proposed rule itself would not have a
significant economic impact. The statutory changes established by
EGRRCPA enabled certain institutions to engage in proprietary
trading,\27\ thereby potentially increasing the volume of such activity
for affected banking entities. The proposed rule would amend the FDIC's
regulations to conform to this exemption established in EGRRCPA.
Therefore, this component of the rule would have no direct effect on
small, FDIC-supervised institutions.
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\27\ 12 CFR 351.3(a).
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As previously stated, EGRRCPA permits a covered fund organized and
offered by a banking entity to share the same name, or a variation of
the same name, as a banking entity that is an affiliated investment
adviser to the hedge fund or private equity fund, with some
restrictions. By permitting a covered fund to share the name of a
banking entity, or variation thereof, the fund can utilize the
franchise value of the banking entity to more effectively market the
fund to the bank's current account holders or the public. The size of
this potential benefit is difficult to accurately estimate with
available data because it depends on the business model of individual
banks and funds, the propensity of those funds to advertise to
particular groups, and the decisions of customers, among other things.
However, since the proposed rule would conform FDIC regulations with
the statutory language enacted by EGRRCPA, this component of the
proposed rule would have no direct effect on small, FDIC-supervised
institutions.
Finally, the proposed rule would introduce conforming changes that
would reduce recordkeeping, reporting, and disclosure costs for
affected FDIC-supervised institutions. EGRRCPA states that certain
institutions with total consolidated assets less than or equal to $10
billion, and total trading assets and liabilities less than or equal to
five percent of total consolidated assets, are excluded from
restrictions on engaging in proprietary trading activity. The proposed
rule would amend the FDIC's regulations to conform to this exclusion
established in EGRRCPA. In so doing, the proposed rule would make
conforming changes to reduce the recordkeeping and reporting
requirements for small, FDIC-supervised institutions that were excluded
from proprietary trading restriction by EGRRCPA. Although the vast
majority of small, FDIC-supervised institutions are not currently
required to comply with the recordkeeping, reporting, or disclosure
requirements associated with proprietary trading, the proposed rule
would introduce conforming changes that would exclude some small, FDIC-
supervised institutions. Of these newly excluded institutions, the
proposed rule would conform the Section 203 of EGRRCPA, which reduced
recordkeeping, reporting, or disclosure requirements by up to 8 hours
per institution, or approximately $514.40 per year.28 29 The
estimated reduction in
[[Page 2784]]
recordkeeping, reporting, or disclosure costs per institution
represents less than 0.01 percent of non-interest expenses, on average,
for small, FDIC-supervised institution.\30\ Thus, the FDIC believes the
proposed rule would not have a significant economic impact on small,
FDIC-supervised institutions.
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\28\ 8 hours * $64.30 per hour = $514.40.
\29\ The estimated reduction in costs is calculated by
multiplying 8 hours by an estimated total hourly compensation rate
of $64.30 per hour. According to the May 2017 National Industry-
Specific Occupational Employment and Wage Estimates for the
Depository Credit Intermediation sector the 75th percentile wages
for a compliance officer is $40.55 per hour. The wage information
reported by the BLS in the Specific Occupational Employment and Wage
Estimates does not include health benefits and other non-monetary
benefits. According to the March 2018 Employer Cost of Employee
Compensation data compensation rates for health and other benefits
are 35.5 percent of total compensation. The wage is also inflation
adjusted according to the BLS data on the Consumer Price Index for
Urban Consumers (CPI-U) so that it is contemporaneous with the non-
wage compensation statistic. The inflation rate was 2.28 percent
between May 2017 and June 2018. Therefore, the adjusted average wage
for a compliance officer is $64.30 per hour.
\30\ Call Report, June 30, 2018.
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For the reasons described above and under section 605(b) of the
RFA, the FDIC certifies that the proposed rule would not have a
significant economic impact on a substantial number of small entities.
The FDIC invites comments on all aspects of the supporting
information provided in this RFA section. In particular, would this
rule have any significant effects on small entities that the FDIC has
not identified?
SEC
Pursuant to 5 U.S.C. 605(b), the SEC hereby certifies that the
proposed amendments to the 2013 final rule would not, if adopted, have
a significant economic impact on a substantial number of small
entities.
As discussed in the SUPPLEMENTARY INFORMATION, the Agencies are
proposing to revise the 2013 final rule in order to be consistent with
statutory amendments made by EGRRCPA to section 13 of the BHC Act. The
statutory amendments (a) modified the scope of the term ``banking
entity'' to exclude certain community banks and their affiliates and
(b) permitted any banking entity to share a name with a hedge fund or
private equity fund that it organizes and offers under certain
circumstances.
The proposed revisions would generally apply to banking entities,
including certain SEC-registered entities. These entities include bank-
affiliated SEC-registered broker-dealers, investment advisers,
security-based swap dealers, and major security-based swap
participants. Based on information in filings submitted by these
entities, the SEC preliminarily believes that there are no banking
entity registered investment advisers,\31\ broker-dealers \32\
security-based swap dealers, or major security-based swap participants
that are small entities for purposes of the RFA.\33\ For this reason,
the SEC believes that the proposed amendments to the 2013 final rule
would not, if adopted, have a significant economic impact on a
substantial number of small entities.
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\31\ For the purposes of an SEC rulemaking in connection with
the RFA, an investment adviser generally is a small entity if it:
(1) Has assets under management having a total value of less than
$25 million; (2) did not have total assets of $5 million or more on
the last day of the most recent fiscal year; and (3) does not
control, is not controlled by, and is not under common control with
another investment adviser that has assets under management of $25
million or more, or any person (other than a natural person) that
had total assets of $5 million or more on the last day of its most
recent fiscal year. See 17 CFR 275.0-7.
\32\ For the purposes of an SEC rulemaking in connection with
the RFA, a broker-dealer will be deemed a small entity if it: (1)
Had total capital (net worth plus subordinated liabilities) of less
than $500,000 on the date in the prior fiscal year as of which its
audited financial statements were prepared pursuant to 17 CFR
240.17a-5(d), or, if not required to file such statements, had total
capital (net worth plus subordinated liabilities) of less than
$500,000 on the last day of the preceding fiscal year (or in the
time that it has been in business, if shorter); and (2) is not
affiliated with any person (other than a natural person) that is not
a small business or small organization. See 17 CFR 240.0-10(c).
Under the standards adopted by the SBA, small entities also include
entities engaged in financial investments and related activities
with $38.5 million or less in annual receipts. See 13 CFR 121.201
(Subsector 523).
\33\ Based on SEC analysis of Form ADV data, the SEC
preliminarily believes that there are not a substantial number of
registered investment advisers affected by the proposed amendments
that would qualify as small entities under RFA. Based on SEC
analysis of broker-dealer FOCUS filings and NIC relationship data,
the SEC preliminarily believes that there are no SEC-registered
broker-dealers affected by the proposed amendments that would
qualify as small entities under RFA. With respect to security-based
swap dealers and major security-based swap participants, based on
feedback from market participants and information about the
security-based swap markets, the Commission believes that the types
of entities that would engage in more than a de minimis amount of
dealing activity involving security-based swaps--which generally
would be large financial institutions--would not be ``small
entities'' for purposes of the RFA. See Regulation SBSR--Reporting
and Dissemination of Security-Based Swap Information, 81 FR 53546,
53553 (Aug. 12, 2016).
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The SEC encourages written comments regarding this certification.
Specifically, the SEC solicits comment as to whether the proposed
amendments could have an impact on small entities that has not been
considered. Commenters should describe the nature of any impact on
small entities and provide empirical data to support the extent of such
impact.
CFTC
Pursuant to 5 U.S.C. 605(b), the CFTC hereby certifies that the
proposed amendments to the 2013 final rule would not, if adopted, have
a significant economic impact on a substantial number of small entities
for which the CFTC is the primary financial regulatory agency.
As discussed in this SUPPLEMENTARY INFORMATION, the Agencies are
proposing to revise the 2013 final rule in order to be consistent with
statutory amendments made by EGRRCPA to section 13 of the BHC Act. The
statutory amendments (a) modified the scope of the term ``banking
entity'' to exclude certain community banks and their affiliates and
(b) permitted any banking entity to share a name with a hedge fund or
private equity fund that it organizes and offers under certain
circumstances.
The proposed revisions would generally apply to banking entities,
including certain CFTC-registered entities. These entities include
bank-affiliated CFTC-registered swap dealers, futures commission
merchants, commodity trading advisors and commodity pool operators.\34\
The CFTC has previously determined that swap dealers, futures
commission merchants and commodity pool operators are not small
entities for purposes of the RFA and, therefore, the requirements of
the RFA do not apply to those entities.\35\ As for commodity trading
advisors, the CFTC has found it appropriate to consider whether such
registrants should be deemed small entities for purposes of the RFA on
a case-by-case basis, in the context of the particular regulation at
issue.\36\
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\34\ The proposed revisions may also apply to other types of
CFTC registrants that are banking entities, such as introducing
brokers, but the CFTC believes it is unlikely that such other
registrants will have significant activities that would implicate
the proposed revisions. See 79 FR 5808, 5813 (Jan. 31, 2014) (CFTC
version of 2013 final rule).
\35\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618 (Apr. 30, 1982) (futures commission merchants and
commodity pool operators); Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap dealers
and major swap participants).
\36\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618, 18620 (Apr. 30, 1982).
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In the context of the proposed revisions to the 2013 final rule,
the CFTC believes it is unlikely that a substantial number of the
commodity trading advisors that are potentially affected are small
entities for purposes of the RFA. In this regard, the CFTC notes that
only commodity trading advisors that are registered with the CFTC are
covered by the 2013 final rule, and generally those that are registered
have larger businesses. Similarly, the
[[Page 2785]]
2013 final rule applies to only those commodity trading advisors that
are affiliated with banks, which the CFTC expects are larger
businesses. The CFTC requests that commenters address in particular
whether any of these commodity trading advisors, or other CFTC
registrants covered by the proposed revisions to the 2013 final rule,
are small entities for purposes of the RFA.
Because the CFTC believes that there are not a substantial number
of registered, banking entity-affiliated commodity trading advisors
that are small entities for purposes of the RFA, and the other CFTC
registrants that may be affected by the proposed revisions have been
determined not to be small entities, the CFTC believes that the
proposed revisions to the 2013 final rule would not, if adopted, have a
significant economic impact on a substantial number of small entities
for which the CFTC is the primary financial regulatory agency.
The CFTC encourages written comments regarding this certification.
Specifically, the CFTC solicits comment as to whether the proposed
amendments could have a direct impact on small entities that were not
considered. Commenters should describe the nature of any impact on
small entities and provide empirical data to support the extent of such
impact.
D. Riegle Community Development and Regulatory Improvement Act
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\37\ in determining the effective
date and administrative compliance requirements for a new regulation
that imposes additional reporting, disclosure, or other requirements on
insured depository institutions, each Federal banking agency must
consider any administrative burdens that such regulation would place on
insured depository institutions and the benefits of such regulation. In
addition, section 302(b) of RCDRIA requires such new regulation to take
effect on the first day of a calendar quarter that begins on or after
the date on which the regulations are published in final form, with
certain exceptions.
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\37\ 12 U.S.C. 4802(a).
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The proposed rule would reduce burden and would not impose any
reporting, disclosure, or other new requirements on insured depository
institutions. Accordingly, the Agencies are not required by RCDRIA to
consider the administrative burdens and benefits of the rule or delay
its effective date.\38\ Because delaying the effective date of the rule
is not required and would serve no purpose, the Agencies propose to
make the threshold increase effective on the first day after
publication of the final rule in the Federal Register. The Agencies
invite any comments that would inform the Agencies' consideration of
RCDRIA.
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\38\ Additionally, the 30-day delayed effective date requirement
under the Administrative Procedure Act is not applicable to a rule,
such as the one proposed herein, that grants or recognizes an
exemption or relieves a burden. 5 U.S.C. 553(d)(1).
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E. OCC Unfunded Mandates Reform Act Determination
The OCC analyzed the proposed rule under the factors set forth in
the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the proposed rule includes a
federal mandate that may result in the expenditure by state, local, and
Tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted annually for inflation).
The proposed rule does not impose new mandates. Therefore, the OCC
concludes that implementation of the proposed rule would not result in
an expenditure of $100 million or more annually by state, local, and
tribal governments, or by the private sector.
F. SEC: Small Business Regulatory Enforcement Fairness Act
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \39\ the SEC requests comment on the
potential effect of the proposed amendments on the U.S. economy on an
annual basis; any potential increase in costs or prices for consumers
or individual industries; and any potential effect on competition,
investment or innovation. Commenters are requested to provide empirical
data and other factual support for their views to the extent possible.
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\39\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
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G. SEC Economic Analysis
The Agencies are proposing amendments to the 2013 final rule to
implement the statutory mandates of sections 203 and 204 of EGRRCPA. In
accordance with Section 203 of EGRRCPA,\40\ the proposal would amend
the definition of ``insured depository institution'' in Sec. ___.2(r)
of the 2013 final rule to exclude an institution so long as it, and
every company that controls it, has both (1) $10 billion or less in
total consolidated assets and (2) total consolidated trading assets and
liabilities that are 5 percent or less of total consolidated assets.
The proposal would also amend the 2013 final rule to reflect the
changes made by Section 204 of EGRRCPA. That provision modified section
13 of the BHC Act to permit, in certain circumstances, bank-affiliated
investment advisers to share their name with the hedge funds or private
equity funds they organize and offer.
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\40\ Specifically, Section 203 of EGRRCPA provides that the term
``insured depository institution,'' for purposes of the definition
of ``banking entity'' in section 13(h)(1) of the BHC Act (12 U.S.C.
1851(h)(1)), does not include an insured depository institution that
does not have, and is not controlled by a company that has: (1) More
than $10 billion in total consolidated assets; and (2) total trading
assets and trading liabilities, as reported on the most recent
applicable regulatory filing filed by the institution, that are more
than 5 percent of total consolidated assets.
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The amendments to the 2013 final rule would reflect the statutory
provisions of EGRRCPA that are already in effect, and we preliminarily
believe that market participants are already responding to the
statutory changes. Thus, the baseline against which we are assessing
the effects of these proposed amendments incorporates both: (i) The
enacted statutory provisions of sections 203 and 204 of EGRRCPA, and
(ii) our understanding that banking entities with both total
consolidated assets of $10 billion or less and total consolidated
trading assets and liabilities that are 5 percent or less of total
consolidated assets are, consistent with EGRRCPA, no longer complying
with the 2013 final rule. Any costs, benefits, and economic effects of
the proposed amendments, including those on efficiency, competition,
and capital formation, stem entirely from these statutory provisions
and not from the conforming amendments to the 2013 final rule.\41\
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\41\ Because EGRRCPA was enacted recently, the economic effects
of sections 203 and 204 may not yet be fully realized in the
relevant securities markets.
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The SEC is mindful of the costs and benefits imposed by its rules.
Certain SEC-regulated entities, such as broker-dealers (``BDs'') and
registered investment advisers (``RIAs''), that fell under the
definition of ``banking entity'' for the purposes of the Volcker Rule
before the enactment of EGRRCPA are within the scope of the proposed
amendments implementing sections 203 and 204 of EGRRCPA.\42\ We
estimate
[[Page 2786]]
that there are as many as 126 bank-affiliated BDs with aggregate assets
of approximately $126.2 billion and aggregate holdings of approximately
$12.3 billion that are within the scope of these proposed
amendments.\43\ We estimate that, at most, 308 bank-affiliated RIAs
could be affected by the proposed amendments.\44\
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\42\ We believe that all bank-affiliated entities that may
register with the SEC as security-based swap dealers and major
security-based swap participants are unaffected by the amendments
due to the size of the balance sheet and the amount of trading
activity of their affiliated banking entities. Our analysis is based
on DTCC Derivatives Repository Limited Trade Information Warehouse
data on single-name credit-default swaps. Throughout this economic
analysis, the term ``banking entity'' generally refers only to
banking entities that are subject to the Volcker Rule and for which
the SEC is the primary financial regulatory agency as defined in
section 2(12)(B) of the Dodd-Frank Act. See 12 U.S.C. 1851(b)(2); 12
U.S.C. 5301(12)(B). In addition, the use of the term ``we''
throughout this economic analysis refers only to the SEC and not to
the other Agencies, except where otherwise indicated.
\43\ These 126 broker-dealers are affiliated with 111 banks or
bank holding companies. This estimate has been revised since the
July 2018 release proposing amendments to the Volcker Rule based on
a manual reclassification of the number of entities affected by
EGRRCPA. This estimate includes broker-dealers for which data on
total assets and/or trading assets and liabilities are not
available. Based on a manual search of regulatory filings for
holding companies with missing assets and liabilities data and
current FR Y-9C and FR Y-9SP reporting requirements, we believe that
entities with missing data have low levels of trading activity and
are likely affected by section 203 of EGRRCPA. To the degree that
this may not be the case for some bank-affiliated broker-dealers,
these figures may overestimate the number of affected entities.
Broker-dealer holdings are estimated based on FOCUS reports data and
defined as securities and spot commodities owned at market value,
including: Bankers' acceptances, certificates of deposit and
commercial paper, state and municipal government obligations,
corporate obligations, stocks and warrants, options, arbitrage,
other securities, U.S. and Canadian government obligations, and spot
commodities.
\44\ As estimated in the July 2018 release proposing amendments
to the Volcker Rule (83 FR at 33525), there are, approximately, 308
bank-affiliated RIAs. We do not have information or data that would
allow us to estimate how many of these bank-affiliated RIAs would
have preferred to share a name with funds they advise. For the
purposes of this analysis, we estimate that these 308 banking-entity
RIAs and 126 bank-affiliated BDs are also the SEC-regulated entities
that may be able to engage in covered fund activities as a result of
section 203 of EGRRCPA. We do not have information or data that
would allow us to estimate how many of these entities would have
preferred to engage in covered fund activities.
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The statutory exemption in section 203 of EGRRCPA provided entities
thereby excluded from the Volcker Rule with greater flexibility in
pursuing certain types of trading and covered fund activities that
could be profitable and, thus, may have enhanced their profitability.
To the extent that the compliance costs related to the Volcker Rule
would otherwise have been passed along to clients and counterparties of
the affected entities, the cost reductions associated with section 203
of EGRRCPA may be flowing through to counterparties and clients in the
form of reduced transaction costs and increased willingness to engage
in trading activity, including intermediation that facilitates risk-
sharing, as well as covered fund activities.\45\ Additionally, to the
extent that the Volcker Rule may have reduced the ability or
willingness of affected entities to engage in permitted hedging,
underwriting or market-making due to compliance costs, the statutory
exemption may have facilitated access to capital and trading activity.
The costs of the 2013 final rule will no longer apply to the entities
affected by the statutory exemption, which, as discussed above, is
already fully in effect.\46\
---------------------------------------------------------------------------
\45\ See 79 FR 5778 for the Agencies' estimated ongoing
compliance and recordkeeping burdens related to the requirements of
the 2013 final rule.
\46\ Based on the hourly burdens estimated in the release
adopting the 2013 final rule (79 FR at 5778) and the BD weight
estimates in the July 2018 release proposing amendments to the
Volcker Rule (83 FR at 33539), annual compliance cost savings for
SEC-regulated entities due to section 203 of EGRRCPA may be as high
as approximately $16,626,385 (= 2,035 hours x 0.18 x (Attorney at
$409 per hour) x 111).
---------------------------------------------------------------------------
Some entities with $10 billion or less in total consolidated assets
and trading assets and liabilities equal to or less than 5 percent of
its total consolidated assets may have responded to the statutory
exemption by increasing or planning to increase their trading activity
and covered funds activities, while still remaining under the
applicable thresholds at the consolidated holding company level. We
estimate that 23 such holding companies with broker-dealer affiliates
and available information about trading assets and liabilities have, on
aggregate, total consolidated assets of approximately $94.9 billion and
gross consolidated trading assets and liabilities of approximately $0.6
billion.\47\ Although we do not have information about the remaining
holding companies, we know that 111 parent firms with affiliated
broker-dealers can have, on aggregate, total gross consolidated trading
assets and liabilities of no more than $55.5 billion without exceeding
either threshold and becoming subject to the Volcker Rule. Therefore,
we estimate that aggregate trading assets and liabilities of the
affected holding companies with SEC-regulated affiliates that would not
result in any of these companies becoming subject to the Volcker Rule
is likely no more than $54.9 billion.\48\ We note that, if an increase
in risk-taking by affected entities is observed by market participants
that provide capital to them, these capital providers may demand
additional compensation for bearing more financial risk, which may
decrease the profitability of the entity's trading and covered fund
activities.
---------------------------------------------------------------------------
\47\ The current FR Y-9C and FR Y-9SP filing requirements limit
data availability and, due to data completeness and delays, we base
estimates on filings for the third quarter of 2017. We have
information about trading assets and liabilities of 23 holding
companies with 24 broker-dealer affiliates.
\48\ This figure is calculated as follows: $55.5 bln--$0.6 bln =
$54.9 bln. We recognize that these estimates may under- or
overestimate the increases in trading activity that may occur as a
result of section 203 of EGRRCPA for four primary reasons. First,
the profitability of trading activity is likely to strongly
influence incentives to engage in trading activity and may vary
depending on trading strategy, market sector, and time period
measured. Second, growth in a holding company's total consolidated
assets is influenced by business models, prevailing market
conditions, industry competition, bank merger and acquisition
activity, among other factors. Third, this estimate assumes that no
affected entity will enter or exit the industry as a result of the
statutory exclusion. Fourth, this estimate assumes for purposes of
this economic analysis that small holding companies that file form
FR Y-9SP, which does not contain data on trading assets and
liabilities, do not currently have any trading assets or
liabilities.
---------------------------------------------------------------------------
Banking entities with more than $10 billion in total consolidated
assets and/or trading assets and liabilities greater than 5 percent of
total consolidated assets are incentivized to shrink their balance
sheets or trading activity under the thresholds.\49\ This may reduce
the willingness of such banking entities to serve as intermediaries. At
the same time, because the statutory exemption incentivizes such
banking entities to have smaller balance sheets and trading books,
section 203 may have reduced the potential for market impacts from the
failure of a given entity. On aggregate, potential decreases in the
balance sheets and trading activity of unaffected banking entities may
partly offset increases in balance sheets and trading activity of
affected entities. To the degree that statutory changes in section 203
of EGRRCPA increase the gross volume of trading assets and liabilities,
there may be an increase in risk-taking. However, this need not always
be the case. For example, a hedging transaction that offsets a risk
exposure from an existing asset would increase the reported gross
trading assets and liabilities without necessarily producing a net
increase in risk exposure. We note that the affected bank-affiliated
BDs account only for approximately 3.2% of aggregate BD assets and
1.24% of aggregate BD holdings. Thus, the statutory exemption affects
only a small fraction of the broker-dealer industry. Nevertheless, even
in the absence of significant aggregate effects, both the risks and the
returns from newly permissible trading and covered fund activity by
individual
[[Page 2787]]
BDs are likely to be passed along to their investors and customers.
---------------------------------------------------------------------------
\49\ The extent to which this happens will depend on the size
and complexity of each banking entity's trading activities and
organizational structure, along with those of its affiliated
entities and the magnitude of expected compliance savings from not
being subject to the Volcker Rule.
---------------------------------------------------------------------------
Potential shifts in risk-taking attributable to the statutory
changes contained in section 203 of EGRRCPA and discussed above may
result in two competing effects. On the one hand, if affected entities
are now able to bear risk at a lower cost than their customers,
increased risk-taking could promote secondary market trading activity
and capital formation in primary markets, and thus increase access to
capital for issuers. Similarly, the statutory exemption may increase
banking entities' covered fund activities, which may broaden investment
opportunities for investors in covered funds and facilitate access to
capital by companies in which those funds invest. On the other hand,
the statutory exemption may increase risk-taking by individual SEC-
regulated entities, the amount of covered fund activity in which they
engage, as well as total risk in the financial system, which may
ultimately negatively impact issuers and investors. However, as noted
above, the maximum potential increase in aggregate trading activity of
affected entities that would not trigger Volcker Rule compliance is
likely limited to $54.9 billion. We continue to recognize that, if
observed by providers of capital, an increase in risk-taking by
affected entities may increase their cost of capital and reduce the
profitability of such risk-taking.
Entities exempt from the Volcker Rule under EGRRCPA are no longer
required to incur related compliance costs and may, thus, have a
competitive advantage relative to similarly situated entities just
above the thresholds. This may incentivize entities above the
thresholds to decrease the size of their balance sheet, trading
activity, or both in order to become exempt from the Volcker Rule,
resulting in greater competition between entities with consolidated
assets and trading assets and liabilities near the thresholds.
Moreover, section 203 of EGRRCPA may have placed affected domestic
entities on a more even competitive footing with foreign firms that are
also not subject to the substantive prohibitions and compliance costs
related to the Volcker Rule and its implementing regulations. In
addition, it may have placed affected domestic entities in a
potentially better competitive position relative to foreign banking
entities that are subject to the Volcker Rule but may avail themselves
of the exemptions related to activity outside of the United States.\50\
---------------------------------------------------------------------------
\50\ See Sec. Sec. ___.6(e) and ___.13(b) of the 2013 final
rule; See 12 U.S.C. 1851(d)(1)(H) and (I) (2017).
---------------------------------------------------------------------------
Prior to the enactment of EGRRCPA, a banking-entity RIA could not
share the same name or a variation of the same name as a hedge fund or
private equity fund that it organized and offered under an exemption in
the Volcker Rule.\51\ Section 204 of EGRRCPA changed this condition for
banking-entity RIAs that meet certain requirements and provided them
with flexibility in name sharing for corporate, marketing, promotional,
or other purposes. To the extent that name sharing effectively and
easily conveys the identity of a fund's RIA and preserves the brand
value, section 204 of EGRRCPA improved bank-affiliated RIAs' ability to
compete for investor capital with RIAs that are not affiliated with
banks. Section 204 also provided bank-affiliated RIAs that can share a
name with a fund with a competitive advantage over those bank-
affiliated RIAs that cannot share a name with a fund because they do
not meet the statutory conditions for name sharing. In addition, the
statutory name-sharing provision may have made it easier for some
investors to identify the adviser of a fund, which may have reduced
search costs related to the capital allocation process for some
investors.
---------------------------------------------------------------------------
\51\ See Sec. _.11 of the 2013 final rule; 12 U.S.C.
1851(d)(1)(G) (2017).
---------------------------------------------------------------------------
We reiterate that the economic effects discussed above stem from
the statutory provisions of EGRRCPA that are fully in effect, and,
therefore, we believe that these effects may be already partially
realized. We believe that the conforming amendments to the implementing
regulations will have no additional costs, benefits, or effects on
efficiency, competition, and capital formation.
As discussed above, the proposed amendments conform the regulations
implementing section 13 of the BHC Act with the statutory amendments
made pursuant to sections 203 and 204 of EGRRCPA with no exercise of
agency discretion. As such, we believe there are no reasonable
alternatives to the proposed rules.
Request for Comment
The SEC requests comment on all aspects of the economic analysis of
the proposed amendments. In particular, the SEC asks commenters to
consider the following question:
1. Has the SEC accurately characterized the baseline, costs,
benefits, and effects on competition, efficiency, and capital formation
of the proposed amendments and alternatives with respect to SEC-
regulated entities and securities markets? If not, why not? Should any
of the costs or benefits be modified? What, if any, other costs or
benefits should the SEC take into account? Please provide quantitative
information and ways of estimating any of the costs and benefits
associated with the proposed amendments.
List of Subjects
12 CFR Part 44
Banks, Banking, Compensation, Credit, Derivatives, Government
securities, Insurance, Investments, National banks, Penalties,
Reporting and recordkeeping requirements, Risk, Risk retention,
Securities, Trusts and trustees.
12 CFR Part 248
Administrative practice and procedure, Banks, Banking, Conflict of
interests, Credit, Foreign banking, Government securities, Holding
companies, Insurance, Insurance companies, Investments, Penalties,
Reporting and recordkeeping requirements, Securities, State nonmember
banks, State savings associations, Trusts and trustees.
12 CFR Part 351
Banks, Banking, Capital, Compensation, Conflicts of interest,
Credit, Derivatives, Government securities, Insurance, Insurance
companies, Investments, Penalties, Reporting and recordkeeping
requirements, Risk, Risk retention, Securities, Trusts and trustees.
17 CFR Part 75
Banks, Banking, Compensation, Credit, Derivatives, Federal branches
and agencies, Federal savings associations, Government securities,
Hedge funds, Insurance, Investments, National banks, Penalties,
Proprietary trading, Reporting and recordkeeping requirements, Risk,
Risk retention, Securities, Swap dealers, Trusts and trustees, Volcker
rule.
17 CFR Part 255
Banks, Brokers, Dealers, Investment advisers, Recordkeeping,
Reporting, Securities.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the Common Preamble, the Office of the
Comptroller of the Currency proposes to amend chapter I of Title 12,
Code of Federal Regulations as follows:
[[Page 2788]]
PART 44--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS
0
1. The authority citation for part 44 continues to read as follows:
Authority: 7 U.S.C. 27 et seq., 12 U.S.C. 1, 24, 92a, 93a, 161,
1461, 1462a, 1463, 1464, 1467a, 1813(q), 1818, 1851, 3101 3102,
3108, 5412.
Subpart A--Authority and Definitions
0
2. In subpart A, Sec. 44.1 is amended by revising paragraph (c) to
read as follows:
Sec. 44.1 Authority, purpose, scope, and relationship to other
authorities.
* * * * *
(c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the OCC is
authorized to issue regulations under section 13(b)(2) of the Bank
Holding Company Act (12 U.S.C. 1851(b)(2)) and take actions under
section 13(e) of that Act (12 U.S.C. 1851(e)). These include national
banks, Federal branches and Federal agencies of foreign banks, Federal
savings associations, Federal savings banks, and any of their
respective subsidiaries (except a subsidiary for which there is a
different primary financial regulatory agency, as that term is defined
in this part), but do not include such entities to the extent they are
not within the definition of banking entity in Sec. 44.2(c) of this
subpart.
* * * * *
0
3. In subpart A, Sec. 44.2 is amended by revising paragraph (r) to
read as follows:
Sec. 44.2 Definitions
* * * * *
(r) Insured depository institution, unless otherwise indicated, has
the same meaning as in section 3(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(c)), but does not include:
(1) An insured depository institution that is described in section
2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)); or
(2) An insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
* * * * *
Subpart C--Covered Funds Activities and Investments
0
4. In subpart C, Sec. 44.10 is amended by revising paragraph
(d)(9)(iii) to read as follows:
Sec. 44.10 Prohibition on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund
* * * * *
(d) * * *
(9) * * *
(iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the
same name, except as permitted under Sec. 44.11(a)(6).
* * * * *
0
5. In subpart C, Sec. 44.11 is amended by revising paragraph (a)(6) to
read as follows:
Sec. 44.11 Permitted organizing and offering, underwriting, and
market making with respect to a covered fund
(a) * * *
(6) The covered fund, for corporate, marketing, promotional, or
other purposes:
(i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof) except that a covered
fund may share the same name or a variation of the same name with a
banking entity that is an investment adviser to the covered fund if:
(A) The investment adviser is not an insured depository
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a company
that is treated as a bank holding company for purposes of section 8 of
the International Banking Act of 1978 (12 U.S.C. 3106); and
(ii) Does not use the word ``bank'' in its name.
* * * * *
BOARD OF GOVERNORS OF THE FEDERAL RESERVE
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the Common Preamble the Board proposes
to amend chapter II of title 12 of the Code of Federal Regulations as
follows:
PART 248--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS (Regulation VV)
0
6. The authority citation for part 248 continues to read as follows:
Authority: 12 U.S.C. 1851, 12 U.S.C. 221 et seq., 12 U.S.C.
1818, 12 U.S.C. 1841 et seq., and 12 U.S.C. 3103 et seq.
Subpart A--Authority and Definitions
0
7. In subpart A, Sec. 248.1 is amended by revising paragraph (c) to
read as follows:
Sec. 248.1 Authority, purpose, scope, and relationship to other
authorities
* * * * *
(c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the Board is
authorized to issue regulations under section 13(b)(2) of the Bank
Holding Company Act (12 U.S.C. 1851(b)(2)) and take actions under
section 13(e) of that Act (12 U.S.C. 1851(e)). These include any state
bank that is a member of the Federal Reserve System, any company that
controls an insured depository institution (including a bank holding
company and savings and loan holding company), any company that is
treated as a bank holding company for purposes of section 8 of the
International Banking Act (12 U.S.C. 3106), and any subsidiary of the
foregoing other than a subsidiary for which the OCC, FDIC, CFTC, or SEC
is the primary financial regulatory agency (as defined in section 2(12)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (12 U.S.C. 5301(12)), but do not include such entities to the
extent they are not within the definition of banking entity in Sec.
248.2(c) of this subpart.
* * * * *
0
8. In subpart A, Sec. 248.2 is amended by revising paragraph (r) to
read as follows:
Sec. 248.2 Definitions
* * * * *
(r) Insured depository institution, unless otherwise indicated, has
the same meaning as in section 3(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(c)), but does not include:
(1) An insured depository institution that is described in section
2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)); or
(2) an insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
* * * * *
[[Page 2789]]
Subpart C--Covered Funds Activities and Investments
0
9. In subpart C, Sec. 248.10 is amended by revising paragraph
(d)(9)(iii) to read as follows:
Sec. 248.10 Prohibition on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund
* * * * *
(d) * * *
(9) * * *
(iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the
same name, except as permitted under Sec. 248.11(a)(6).
* * * * *
0
10. In subpart C, Sec. 248.11 is amended by revising paragraph (a)(6)
to read as follows:
Sec. 248.11 Permitted organizing and offering, underwriting, and
market making with respect to a covered fund
(a) * * *
(6) The covered fund, for corporate, marketing, promotional, or
other purposes:
(i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof) except that a covered
fund may share the same name or a variation of the same name with a
banking entity that is an investment adviser to the covered fund if:
(A) The investment adviser is not an insured depository
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a company
that is treated as a bank holding company for purposes of section 8 of
the International Banking Act of 1978 (12 U.S.C. 3106); and
(ii) Does not use the word ``bank'' in its name.
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the Common Preamble, the Federal
Deposit Insurance Corporation proposes to amend chapter III of Title
12, Code of Federal Regulations as follows:
PART 351--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS
0
11. The authority citation for part 351 continues to read as follows:
Authority: 12 U.S.C. 1851; 1811 et seq.; 3101 et seq.; and 5412.
Subpart A--Authority and Definitions
0
12. In Subpart A, Sec. 351.1 is amended by revising paragraph (c) to
read as follows:
Sec. 351.1 Authority, purpose, scope and relationship to other
authorities.
* * * * *
(c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to insured depository institutions for which
the FDIC is the appropriate Federal banking agency, as defined in
section 3(q) of the Federal Deposit Insurance Act, and certain
subsidiaries of the foregoing, but does not include such entities to
the extent they are not within the definition of banking entity in
Sec. 351.2(c) of this subpart.
* * * * *
0
13. In subpart A, Sec. 351.2 is amended by revising paragraph (r) to
read as follows:
Sec. 351.2 Definitions
* * * * *
(r) Insured depository institution, unless otherwise indicated, has
the same meaning as in section 3(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(c)), but does not include:
(1) an insured depository institution that is described in section
2(c)(2)(D) of the Bank Holding Company Act of 1956 (12 U.S.C.
1841(c)(2)(D)); or
(2) an insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
* * * * *
Subpart C--Covered Funds Activities and Investments
0
14. In subpart C, Sec. 351.10 is amended by revising paragraph
(d)(9)(iii) to read as follows:
Sec. 351.10 Prohibitions on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund.
* * * * *
(d) * * *
(9) * * *
(iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the
same name, except as permitted under Sec. 351.11(a)(6).
* * * * *
0
15. In subpart C, section 351.11 is amended by revising paragraph
(a)(6) to read as follows:
Sec. 351.11 Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.
(a) * * *
(6) The covered fund, for corporate, marketing, promotional, or
other purposes:
(i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof), except that a
covered fund may share the same name or a variation of the same name
with a banking entity that is an investment adviser to the covered fund
if:
(A) The investment adviser is not an insured depository
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a company
that is treated as a bank holding company for purposes of section 8 of
the International Banking Act of 1978 (12 U.S.C. 3106); and
(ii) Does not use the word ``bank'' in its name.
* * * * *
COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter I
Authority and Issuance
For the reasons set forth in the Common Preamble, the Commodity
Futures Trading Commission amends Part 75 to chapter I of Title 17 of
the Code of Federal Regulations as follows:
PART 75--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS
0
21. The authority citation for Part 75 continues to read as follows:
Authority: 12 U.S.C. 1851.
0
22. In Subpart A, Sec. 75.1 is amended by revising paragraph (c) to
read as follows:
[[Page 2790]]
Sec. 75.1 Authority, purpose, scope and relationship to other
authorities.
* * * * *
(c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the CFTC is the
primary financial regulatory agency, as defined in section 2(12) of the
Dodd-Frank Act, but does not include such entities to the extent they
are not within the definition of banking entity in Sec. 75.2(c) of
this subpart.
* * * * *
0
23. In subpart A, Sec. 75.2 is amended by revising paragraph (r) to
read as follows:
Sec. 75.2 Definitions
* * * * *
(r) Insured depository institution, unless otherwise indicated, has
the same meaning as in section 3(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(c)), but does not include:
(1) an insured depository institution that is described in section
2(c)(2)(D) of the Bank Holding Company Act of 1956 (12 U.S.C.
1841(c)(2)(D)); or
(2) an insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
* * * * *
Subpart C--Covered Funds Activities and Investments
0
24. In subpart C, Sec. 75.10 is amended by revising paragraph
(d)(9)(iii) to read as follows:
Sec. 75.10 Prohibitions on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund.
* * * * *
(d) * * *
(9) * * *
(iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the
same name, except as permitted under Sec. 75.11(a)(6).
* * * * *
0
25. In subpart C, Sec. 75.11 is amended by revising paragraph (a) to
read as follows:
Sec. 75.11 Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.
(a) * * *
(6) The covered fund, for corporate, marketing, promotional, or
other purposes:
(i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof), except that a
covered fund may share the same name or a variation of the same name
with a banking entity that is an investment adviser to the covered fund
if:
(A) The investment adviser is not an insured depository
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a company
that is treated as a bank holding company for purposes of section 8 of
the International Banking Act of 1978 (12 U.S.C. 3106); and
(ii) Does not use the word ``bank'' in its name.
* * * * *
SECURITIES AND EXCHANGE COMMISSION
17 CFR Chapter II
Authority and Issuance
For the reasons set forth in the Common Preamble, the Securities
and Exchange Commission proposes to amend Part 255 to chapter II of
Title 17 of the Code of Federal Regulations as follows:
PART 255--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS
0
16. The authority for part 255 continues to read as follows:
Authority: 12 U.S.C. 1851
Subpart A--Authority and Definitions
0
17. In Subpart A, Sec. 255.1 is amended by revising paragraph (c) to
read as follows:
Sec. 255.1 Authority, purpose, scope and relationship to other
authorities.
* * * * *
(c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the SEC is the
primary financial regulatory agency, as defined in this part, but does
not include such entities to the extent they are not within the
definition of banking entity in Sec. 255.2(c) of this subpart.
* * * * *
0
18. In subpart A, Sec. 255.2 is amended by revising paragraph (r) to
read as follows:
Sec. 255.2 Definitions
* * * * *
(r) Insured depository institution, unless otherwise indicated, has
the same meaning as in section 3(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1813(c)), but does not include:
(1) an insured depository institution that is described in section
2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)); or
(2) an insured depository institution if it has, and if every
company that controls it has, total consolidated assets of $10 billion
or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
* * * * *
Subpart C--Covered Funds Activities and Investments
0
19. In subpart C, section 255.10 is amended by revising paragraph
(d)(9)(iii) to read as follows:
Sec. 255.10 Prohibition on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund
* * * * *
(d) * * *
(9) * * *
(iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the
same name, except as permitted under Sec. 255.11(a)(6).
* * * * *
0
20. In subpart C, Sec. 255.11 is amended by revising paragraph (a)(6)
to read as follows:
Sec. 255.11 Permitted organizing and offering, underwriting, and
market making with respect to a covered fund
(a) * * *
(6) The covered fund, for corporate, marketing, promotional, or
other purposes:
(i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof) except that a covered
fund may share the same name or a variation of the same name with a
banking entity that is an investment adviser to the covered fund if:
(A) The investment adviser is not an insured depository
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
(B) The investment adviser does not share the same name or a
variation of the same name as an insured depository
[[Page 2791]]
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
(ii) Does not use the word ``bank'' in its name.
* * * * *
Dated: December 18, 2018
William A. Rowe,
Chief Risk Officer.
By order of the Board of Governors of the Federal Reserve
System, December 20, 2018.
Ann E. Misback,
Secretary of the Board.
Dated at Washington, DC, on December 18, 2018.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
By the Securities and Exchange Commission.
Date: December 20, 2018.
Brent J. Fields,
Secretary.
Issued in Washington, DC, on December 20, 2018, by the
Commodities Futures Trading Commission.
Christopher Kirkpatrick,
Secretary of the Commodities Futures Trading Commission.
[FR Doc. 2019-00797 Filed 2-7-19; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 8011-01-P; 6351-01-P
