National Association of Federal Credit Unions
P.O. Box 3769 Washington, DC 20007-0269
(703) 522-4770 · (800) 336-4644 · Fax (703) 524-1082

July 17, 2001

Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609

Re: File No. S7-12-01

Dear Mr. Katz:

I am writing on behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents the interests of federal credit unions, in response to the Securities and Exchange Commission's request for comment on the interim final rule on the bank exemptions from the Gramm-Leach-Bliley Act definitions of "broker" and "dealer."

Sections 201 and 202 of the Gramm-Leach-Bliley Act of 1999 created specific exemptions from broker-dealer registration requirements of the Bank Exchange Act of 1934 for certain bank securities activities. The Securities and Exchange Commission (Commission) has issued an interim final rule expanding on these exemptions and solicits comments on all aspects of the rule.

The interim final rule contains new rule 15a-9, which extends the exemptions from the definitions of broker and dealer to savings associations and savings banks. For the reasons discussed below, NAFCU believes the exemption should be extended to federal credit unions as well and that this extension of the exemption is appropriate in the public interest and consistent with the need for protection of investors.

Many federal credit unions offer investment services to their member-owners as authorized by law and under the effective regulatory oversight of the National Credit Union Administration (NCUA). Federal credit unions have a consistent track record of exemplary service to their members, as well as unparalleled safety and soundness. Many members look to their federal credit unions, as trusted service providers, to provide certain investment services in addition to the traditional services such as loans and share accounts. The thorough regulatory oversight of NCUA combined with the high level of service provided to federal credit union members warrants extension of this exemption to federal credit unions.

There are currently three federal deposit insurance funds for financial institutions: the Bank Insurance Fund (BIF), the Savings Association Insurance Fund (SAIF) and the National Credit Union Share Insurance Fund (NCUSIF). All three funds were created by Congress to insure deposits and are backed by the "full faith and credit" of the U.S. Government. The Commission has specified that savings associations and savings banks must have deposits insured by the FDIC in order to obtain the exemption from the definitions of "broker" and "dealer." NAFCU believes the requirement of federal deposit insurance is entirely appropriate and encourages the Commission to extend the exemption to federal credit unions, which are insured by the NCUSIF, ensuring that financial institutions insured by all three of the federal deposit insurance funds are eligible for the exemption.

The Commission notes the legal uncertainty that is created by some of the exceptions, such as those relating to safekeeping and custodial accounts and sweep accounts, by the possible suggestion that registration would be necessary for certain limited conduct by financial institutions. NAFCU is concerned about the impact of this legal uncertainty on federal credit unions if the exemption is not extended to them. Further, it is likely that the administrative/financial burden that credit unions face without the exemptions places them at a competitive disadvantage to other financial institutions. Therefore, NAFCU urges the Commission to extend this exemption to federal credit unions.

NAFCU appreciates the opportunity to share its views on this issue. Should you have any questions or require additional information, please call me or Gwen Baker, NAFCU's Director of Regulatory Affairs, at (703) 522-4770 or (800) 336-4644 ext. 266.

Sincerely,

Fred R. Becker, Jr.
President and CEO