July 17, 2001
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Re: File Number: S-7-12-01
SEC Interim Final Rules: Exceptions From the Broker-Dealer Definition
Dear Mr. Katz:
The Ohio Credit Union League appreciates the opportunity to file comments on the Security and Exchange Commission's ("SEC") interim final rules that provides guidance on a series of exceptions from the broker-dealer definition. The Ohio Credit Union League ("OCUL") is the trade association for credit unions in the State of Ohio representing approximately 500 credit unions, both federal and state chartered.
Credit unions are not-for-profit member-owned financial cooperatives governed by unpaid volunteers that predominately engage and provide various financial services to their members. As member-owned financial cooperatives, credit unions are restricted in their ability to serve individuals outside of their fields of membership through which it has a relationship with its members as a result of a "common bond." More importantly, like all financial institutions Ohio's credit unions are regulated by their respective federal and state agencies. Federally chartered credit unions are regulated by the National Credit Union Administration ("NCUA") and the Ohio Division of Financial Institutions ("ODFI") regulates state chartered credit unions.
As stated above, the SEC's interim final rules provide guidance on a series of exceptions from the broker-dealer definition that is based on specific functional activities. These exceptions were included in the Gramm-Leach-Bliley Act ("GLB Act") enacted in 1999 to replace the complete exemption that applied to banks prior to 1999.
Some of the exceptions apply only to the "broker" definition; others apply only to the "dealer" definition, while others apply to both definitions. Below is a summary of these exceptions:
Exceptions From Both The "Broker" And "Dealer" Definition
Other Exceptions From The "Broker" Definition Only
Other Exceptions From The "Dealer" Definition Only
The interim final rules will also extend the above exceptions to thrifts, but not to credit unions. While this extension for thrifts is not required under the GLB Act it will provide thrifts with significant regulatory flexibility. However, credit unions may still offer security products without registering as a broker-dealer, if offered through a contractual arrangement in which a registered broker-dealer provides services under certain conditions as permitted under the SEC and NCUA issued opinion.
In reviewing the interim final rule issued by the SEC, OCUL supports the SEC in recognizing the need for financial institutions to be covered under specific exceptions from the broker-dealer definition based on specific functional activities. However, while the SEC has continued to consider banks under those exceptions and has extended those exceptions to thrifts, it has not extended these exceptions to credit unions. As a result, credit unions, unlike thrifts which now fall within the exceptions, must still continue to rely on opinions issued by the SEC and/or NCUA that permit credit unions to offer security products without registering as a broker-dealer, if offered through a contractual arrangement in which a registered broker-dealer provides services under certain conditions.
Consequently, credit unions, as non-profit cooperative financial institutions, must depend on a process that, at times, can be cumbersome and potentially limiting to a credit union's ability to engage in these activities.
Therefore, OCUL respectfully requests that the SEC consider the inclusion of credit unions in extending the exceptions to the broker-dealer requirements as full-service financial institutions regulated by the respective federal and/or state agencies. More importantly, inclusion of credit unions would also be consistent with the Ohio state legislators' extension of specific exceptions to the broker-dealer definition pursuant to state security laws, to banks, thrifts, and credit unions as evidenced by legislation that has been signed into law.
The above represents the comments of the Ohio Credit Union League. OCUL appreciates the opportunity to comment on the SEC's interim final rules that provides guidance on a series of exceptions from the broker-dealer definition based on specific functional activities. OCUL would also be willing to provide additional comments, if requested.
If you have any questions, comments or if I can be of further assistance please do not hesitate to contact me.
John F. Kozlowski, General Counsel
Ohio Credit Union System
cc: Kathleen Kanipe
Paul L. Mercer
OCUL Advocacy Committee