SECURITIES AND EXCHANGE COMMISSION
Release No. 34-47649 / April 8, 2003
File No. S7-12-01
Order Extending Temporary Exemption of Banks, Savings Associations, and Savings Banks from the Definition of "Broker" under Section 3(a)(4) of the Securities Exchange Act of 1934; Notice of Intent to Amend Rules
The Gramm-Leach-Bliley Act ("GLBA") repealed the blanket exception of banks from the definitions of "broker" and "dealer" under the Securities Exchange Act of 1934 ("Exchange Act")1 and replaced this full exception with functional exceptions incorporated in amended definitions of "broker" and "dealer." Under the statute, banks that engage in securities activities either must conduct those activities through a registered broker-dealer or assure that their securities activities fit within the terms of a functional exception to the amended definitions of "broker" and "dealer."
Under the GLBA, the amended definitions of "broker" and "dealer" were to become effective May 12, 2001. On May 11, 2001, the Securities and Exchange Commission ("Commission") issued interim final rules ("Rules") to define certain terms used in, and grant additional exemptions from, the amended definitions of "broker" and "dealer."2 In order to give banks time to ensure that their securities transactions conform to the requirements of the GLBA, the Rules included a temporary exemption that effectively extended the general bank exception from broker-dealer registration.3 To further accommodate the industry's continuing compliance concerns, the Commission delayed the effective date of the bank "broker" and "dealer" rules through a series of orders that ultimately extended the temporary exemption from the definition of "broker" to May 12, 2003 and from the definition of "dealer" to February 10, 2003.4
On February 13, 2003, the Commission adopted amendments to certain parts of the Rules that define terms used in the dealer exceptions, as well as certain dealer exemptions ("Dealer Release").5 The Commission also issued a separate Order temporarily exempting banks, savings associations, and savings banks from the definition of the term "dealer" until September 30, 2003, thus giving them additional time to conform their dealer activities to the definition of "dealer" as supplemented by the definitions and exemptions adopted by the Commission in the Dealer Release.6 In the second stage of this rulemaking process, the Commission will focus on amending certain terms used in the definition of "broker," as well as providing any necessary exemptions.
II. Extension of Temporary Exemption from Definitions of "Broker"
In light of the on-going dialogue between the Commission and industry participants, the Commission recognizes that some of the Rules in their current form will need to be amended. As such, banks could be faced with the challenge of complying with the new statutory scheme based on the guidance (and exemptions) provided under the current Rules only to have that guidance (and exemptions) change when the Rules are amended.
In an effort to find workable solutions to the issues presented, the Commission is carefully considering industry comments to determine what changes should be made to the Rules. Additional time is needed to propose those changes, analyze comments, and adopt final rules.
For these reasons, the Commission finds that extending the temporary exemption of banks, savings associations, and savings banks from the definition of "broker" is necessary and appropriate in the public interest, and is consistent with the protection of investors. The Commission believes that extending the exemption from the definition of "broker" until November 12, 2004 will prevent banks from unnecessarily incurring costs to comply with the statutory scheme based on the current Rules rather than the Rules when amended and will give the Commission time to fully consider comments received on the Rules and amend the Rules as necessary.
III. Notice of Intent to Amend Rules
The Commission expects to amend the Rules and further extend the temporary exemption from the definition of "broker," as appropriate, so that banks will have a sufficient transition period to bring their operations into compliance with the new statutory scheme based on the guidance (and exemptions) provided in the amended Rules.7 We note that comments received to date have indicated that banks may need as much as a year to develop compliance systems to adapt to the GLBA in light of amended Rules.8 The Commission does not expect banks to develop compliance systems for the provisions of the GLBA discussed in the Rules until the Commission has amended the Rules. The Commission believes that banks should continue to focus on the transition to full implementation of functional regulation, including seeking compliance advice regarding issues under the GLBA and exploring forming relationships with broker-dealers if needed.
Accordingly, pursuant to Section 36 of the Exchange Act [15 U.S.C. 78mm],
IT IS HEREBY ORDERED that banks, savings associations, and savings banks are exempt from the definition of the term "broker" under the Exchange Act until November 12, 2004.
By the Commission.
Jill M. Peterson