BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE CORPORATION
OFFICE OF THE COMPTROLLER OF THE CURRENCY

July 17, 2002

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

Re: File No. S7-12-01-Request by Evangelical Christian Credit Union for an exemption from the Broker-Dealer Registration Requirements of Section 15(a) of the Securities Exchange Act of 1934

Dear Mr. Katz:

The Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency ("Banking Agencies") appreciate this opportunity to comment on the request by Evangelical Christian Credit Union ("ECCU") for an exemption from the broker-dealer registration requirements of section 15(a) of the Securities Exchange Act of 1934 ("Exchange Act").1 ECCU has requested an exemption under sections 15(a)(2) and 36 of the Exchange Act to permit ECCU to offer the sweep account services described in its request without registering with the Commission as a broker-dealer.2 The Release requests comment on, among other things, whether granting the requested exemptive relief to ECCU and potentially all federally insured credit unions would raise issues that should be considered by the Commission in connection with its ongoing rulemaking process related to the exceptions for banks from the definitions of "broker" and "dealer" in sections 3(a)(4) and 3(a)(5) of the Exchange Act.

The statutory bank exceptions adopted by Congress in the Gramm-Leach-Bliley Act ("GLB Act") were designed to allow banks to continue to provide their customers trust, fiduciary, custodial and other traditional banking products and services. One of these statutory exceptions expressly permits a bank, without registering as a broker-dealer, to offer its customers deposit sweep services so long as the bank sweeps the deposit funds into a "no-load, open-end management investment company registered under the Investment Company Act of 1940 that holds itself out as a money market mutual fund."3

Federally insured credit unions are not considered a "bank" for purposes of the Exchange Act.4 Accordingly, ECCU is not covered by the bank exceptions enacted by the GLB Act and may offer its customers deposit sweep services without registering as a broker-dealer only if the Commission grants ECCU an exemption from the registration requirements of the Exchange Act.

The Release indicates that ECCU would sweep deposit funds only into one or more mutual funds that qualify as both a "no-load" fund and a "money market fund" under the interim final rules initially adopted by the Commission to implement the bank exceptions in the GLB Act.5 The Release also indicates that ECCU would offer its deposit sweep services subject to other conditions that, among other things, restrict (i) the type of customers that may obtain sweep services from the credit union; (ii) the amount of fees that the credit union may charge a customer for maintaining a deposit account with sweep functions; (iii) the type of advertising and promotional activities that the credit union may conduct in connection with its sweep services; and (iv) the type and amount of fees that the credit union may receive from a money market fund into which deposit funds are swept.

Congress has expressly permitted banks that are not registered as broker-dealers to offer deposit sweep services to their customers so long as the deposit funds are swept into a no-load money market mutual fund. The statutory sweep exception for banks in the GLB Act places no additional restrictions on the manner in which a bank may operate its deposit sweep program, nor does it restrict the relationships a bank may have with the mutual funds offered through a sweep program or the types or amount of fees that a bank may receive for offering its customers a deposit product with sweep features.6 The conditions described in ECCU's request for exemptive relief other than those requiring ECCU to sweep deposit funds into a no-load money market mutual fund, therefore, have no bearing on the scope of activities that banks are permitted to conduct under section 3(a)(4)(B)(v) of the Exchange Act.

Moreover, the proper interpretation of the term "no-load" in the GLB Act's sweep exception for banks is an issue that currently is the subject of a separate and ongoing rulemaking process under the Administrative Procedure Act. In this regard, the Commission has indicated that it intends to amend the Interim Final Rules and is in the midst of developing new, proposed rules that would implement the bank exceptions in the GLB Act. These new proposed rules would then be issued for public comment and final rules implementing the bank exceptions would be issued only after the Commission has considered all the comments received on those proposed rules.7

One of the important issues that the Commission will have to consider during this ongoing rulemaking process is the proper definition of a "no-load" money market fund for purposes of the sweep exception in section 3(a)(4)(B)(v) in the Exchange Act. For example, our agencies previously have indicated that we believe the definition of a "no-load" fund in the Interim Final Rules is inappropriately narrow and would impose significant burdens on banks.8 Public commenters also have strongly opposed the definition of a "no-load" fund included in the Interim Final Rules.9

We do not have a position on whether the SEC should, or should not, grant ECCU or credit unions more generally a special exemption from the Exchange Act's broker-dealer registration requirements to permit such institution(s) to offer deposit sweep services. However, we strongly believe it would be inappropriate for the Commission, in the course of considering an exemption for an institution that is not covered by the GLB Act's amendments, to define a "no-load" fund for purposes of the bank sweep exception adopted by Congress. We believe the proper definition of terms included in the GLB Act's bank exceptions should be considered only in the context of the broader rulemaking process that the Commission currently is pursuing with respect to the bank exceptions adopted by Congress in the GLB Act. The Commission previously has indicated its desire to work constructively with the Banking Agencies in revising the Interim Final Rules, and we do not believe it would be

appropriate or desirable to resolve key issues related to the Interim Final Rules outside of that process. Although we express no opinion on ECCU's request, we also believe that the other conditions proposed by ECCU as part of its request for exemptive relief are inconsistent with the terms of the statutory sweep exception for banks in the GLB Act and should therefore have no bearing on the scope of activities that banks are permitted to conduct under section 3(a)(4)(B)(v) of the Exchange Act.

Sincerely,

_____/s/_________
J. Virgil Mattingly
General Counsel
Board of Governors of the Federal Reserve System

_____/s/_________
William F. Kroener, III
General Counsel
Federal Deposit Insurance Corporation

_____/s/_________
Julie L. Williams
First Senior Deputy Comptroller and Chief Counsel
Office of the Comptroller of the Currency

cc: Annette Nazareth
Robert Colby
Catherine McGuire

___________________________
1 Notice of Application of Evangelical Christian Credit Union for Exemptive Relief Under Sections 15 and 36 of the Exchange Act and Request for Comment, Exchange Act Release No. 34-46069, File No. S7-12-01 (June 12, 2002) ("Release").
2 See Letter from Paul Schott Stevens to Jonathan Katz, Secretary of the Commission, dated Sept. 21, 2001.
3 See 15 U.S.C. § 78c(a)(4)(B)(v).
4 See id. at § 78c(a)(6).
5 See Exchange Act Release No. 34-44291, 66 Federal Register 27760 (May 18, 2001) ("Interim Final Rules").
6 The Interim Final Rules, in fact, acknowledge that section 3(a)(4)(B)(v) does not place any limits on the amount that a bank may directly charge its customers for providing deposit sweep services. See Exchange Act Release No. 34-44291, 66 Federal Register 27760, at 27779 (May 18, 2001).
7 See Exchange Act Release No. 34-45897 (May 8, 2002).
8 See Joint Comment Letter from the Banking Agencies on the Interim Final Rules, dated June 29, 2001.
9 See, e.g., Comment letters submitted on the Interim Final Rules by the American Bankers Association and ABA Securities Association (July 17, 2001), Independent Community Bankers Association (July 17, 2001), Morrison & Foerster, LLP on behalf of the Bank Securities Association (July 17, 2001), Bank of America Corporation (July 17, 2001), and Community Banks of Southern Colorado (Aug. 22, 2001).