Recordkeeping and Confirmation Requirements for Securities Transactions

Summary

The Office of the Comptroller of the Currency (OCC) is proposing to revise its rules that prescribe recordkeeping and confirmation requirements for securities transactions. This proposal is another part of the OCC's Regulation Review Program to update and streamline OCC regulations and reduce unnecessary regulatory costs and other burdens. The proposal reorganizes the OCC's regulation by placing related subjects together, clarifying areas where the rules are unclear or confusing, incorporating significant OCC interpretations, and

Full text

SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
proposing to revise its rules that prescribe recordkeeping and 
confirmation requirements for securities transactions. This proposal is 
another part of the OCC's Regulation Review Program to update and 
streamline OCC regulations and reduce unnecessary regulatory costs and 
other burdens. The proposal reorganizes the OCC's regulation by placing 
related subjects together, clarifying areas where the rules are unclear 
or confusing, incorporating significant OCC interpretations, and 
updating various provisions to address market developments and 
regulatory changes by other regulators that affect requirements for 
recordkeeping and confirmation of securities transactions by national 
banks.

DATES: Comments must be received by February 20, 1996.

ADDRESSES: Comments should be directed to: Communications Division, 
Office of the Comptroller of the Currency, 250 E Street, SW, 
Washington, DC 20219. Attention: Docket No. 95-30. In addition, 
comments may be sent by fax to 202-874-5274 or by electronic mail to 
REG.COMMENTS@OCC.TREAS.GOV. Comments will be available for public 
inspection and photocopying at the same location.

FOR FURTHER INFORMATION CONTACT: Suzette H. Greco, Senior Attorney, 
Securities and Corporate Practices Division (202-874-5210); Joseph W. 
Malott, National Bank Examiner, Capital Markets Division (202-874-
5070); William L. Granovsky, National Bank Examiner, Compliance (202-
874-4861).

SUPPLEMENTARY INFORMATION:

Background

OCC Regulation Review Program

    The OCC is proposing revisions to 12 CFR part 12 as part of its 
Regulation Review Program. Pursuant to this Program, the OCC is 
reviewing all its rules. Rules that are not necessary to protect 
against unacceptable risks, that do not support equitable access to 
banking services for all consumers, or that are not needed to 
accomplish other statutory responsibilities of the OCC will be revised 
or eliminated.
    Where risks are meaningful and regulation is appropriate, the OCC 
will examine its rules to determine if they achieve their purpose most 
efficiently. In this regard, the OCC recognizes that one source of 
regulatory cost is the failure of regulations to provide clear guidance 
because they are difficult to follow and understand. Therefore, an 
important component of the Regulation Review Program is to revise 
regulations, where appropriate, to improve clarity and better 
communicate the standards that the rules are intended to convey.
    Revisions to 12 CFR part 12 present particular challenges in 
several regards because the part implements requirements from different 
statutory sources, addresses transactions of a specialized and often 
technical nature, and currently is out of date in certain respects.

Recordkeeping and Confirmation Requirements for Securities Transactions

    The OCC adopted part 12 on July 24, 1979 (44 FR 43252), to 
establish requirements applicable to national banks effecting 
securities transactions for customers, including recordkeeping and 
confirmation requirements. The OCC amended part 12 on December 31, 1979 
(44 FR 77137) to include additional suggestions recommended by 
commenters, and the part became effective on January 1, 1980. The OCC 
has not significantly changed part 12 since then.1

    \1\  In 1979, the Board of Governors of the Federal Reserve 
System (FRB) and the Federal Deposit Insurance Corporation (FDIC) 
adopted regulations similar to part 12. See 12 CFR 208.8(k), 44 FR 
43258 (July 24, 1979) (FRB regulation); 12 CFR part 344, 44 FR 43261 
(July 24, 1979) (FDIC regulation). Since that time, neither of these 
agencies has significantly changed these regulations, although 
recently the FDIC adopted a regulation concerning authority to waive 
certain requirements of part 344, similar to the authority in 
Sec. 12.7(d) of part 12. See 60 FR 7111 (Feb. 7, 1995). 
Consequently, the current regulations for all three Federal banking 
agencies are very similar. The OCC and the other Federal banking 
agencies have been meeting and discussing changes to the FRB's and 
the FDIC's rules substantively similar to those proposed today by 
the OCC.
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    Since that time, there have been significant changes in securities 
regulation and market practices. For example, Congress enacted the 
Government Securities Act of 1986, 15 U.S.C. 78o-5, requiring the 
registration of government securities brokers and dealers, including 
financial institutions, and regulating transactions in government 
securities. Recently, the Securities and Exchange Commission (SEC) 
adopted amendments to its confirmation rule requiring additional 
disclosures and restructuring the rule. See Securities Exchange Act of 
1934 Rule 10b-10, 17 CFR 240.10b-10 (SEC Rule 10b-10).
    Under SEC Rule 10b-10, the SEC requires a broker/dealer to send a 
customer notification of a securities transaction at or before the 
completion of the transaction. The SEC defines ``completion of the 
transaction'' generally to be the time of payment or partial payment 
and/or delivery of the security. See 17 CFR 240.10b-10(d)(2). The SEC 
also has shortened the standard settlement period for broker/dealer 
trades from five to three days (T+3 Settlement) effective on June 7, 
1995. See Securities Exchange Act Release No. 33023, 58 FR 52891 (Oct. 
13, 1993). In addition, for trades in government securities, next day 
settlement is industry practice. Currently, part 12 generally requires 
a national bank to send a customer notification of a securities 
transaction within five business days from the date of the transaction.

Proposal

    The proposal modernizes the rules in part 12 and reduces 
unnecessary regulatory burdens, where possible. In order to make part 12 more accessible and easier to use, the proposal 
also restructures many sections and updates others by incorporating 
significant OCC interpretive positions and reflecting regulatory 
changes by other agencies. The following discussion identifies and 
explains proposed changes. A Derivation Table identifying the proposed 
changes and keying them to the current rule appears at the end of this 
preamble.
    The OCC requests comments on all aspects of the proposal, as well 
as specific comments on changes in the rule.

Authority, Purpose, and Scope (Sec. 12.1)

    The proposal revises the scope section (Sec. 12.1) to clarify the 
securities transactions to which part 12 applies and identify the types 
of transactions that are subject to other regulatory schemes. Paragraph 
(c)(1) provides the rules of general applicability and paragraph (c)(2) 
sets forth exemptions. Generally, any national bank effecting a 
securities transaction for a customer is subject to the requirements of 
part 12, unless the transaction specifically is exempted.
    For example, the part 12 requirements apply to transactions in 
mutual funds as well as other securities. While investment companies, 
commonly referred to as mutual funds, must register with the SEC under 
the Investment Company Act of 1940 (Investment Company Act), 15 U.S.C. 
80a-1 et seq., and are subject to numerous legal requirements,2 
the requirements of part 12 govern national banks effecting trades for 
customers in mutual fund shares. Some requirements of the Investment 
Company Act and its regulations also may apply to national banks 
providing services to an investment company or acting as the investment 
company's investment adviser. See e.g., 15 U.S.C. 80a-17; 15 U.S.C. 
80a-30; 17 CFR 270.17j-1; 17 CFR 270.31a-1.

    \2\ The Investment Company Act and its implementing regulations 
contain various provisions relating to the formation and operation 
of an investment company, including provisions on the distribution 
and pricing of shares, fiduciary duties of directors, transactions 
with affiliates, permissible capital structures, disclosure and 
reporting requirements, and other requirements. See 15 U.S.C. 80a-1 
et seq.; 17 CFR part 270. Investment companies also may need to 
register their shares under the Securities Act of 1933. See 15 
U.S.C. 77a et seq.
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    The OCC recognizes that national banks may enter into various 
arrangements with registered broker/dealers that permit the broker/
dealers to operate on the bank's premises. Part 12 generally does not 
apply to securities transactions effected by these broker/dealers for 
their customers. As registered broker/dealers, they already are subject 
to the SEC's recordkeeping and confirmation rules. If, however, the 
bank is using this broker/dealer to clear securities transactions 
effected by the bank for the bank's own customers, then the 
requirements of part 12 would apply to the bank.
Government Securities Transactions
    National banks conducting government securities transactions for 
their customers also are within the scope of part 12. Government 
securities are defined in section 3(a)(42) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78c(a)(42)), and include but are not limited to 
United States Treasury securities and securities issued or guaranteed 
by Federal government agencies and government-sponsored enterprises.
    The Department of the Treasury, under its authority pursuant to the 
Government Securities Act of 1986 (GSA), 15 U.S.C. 78o-5, has issued 
regulations in 17 CFR parts 400 through 405, 449, and 450, applicable 
to many government securities transactions by national banks (GSA 
regulations). The GSA regulations define the terms ``government 
securities broker'' and ``government securities dealer'' to include 
financial institutions. See 17 CFR 400.3 (k) and (l). Part 404 of the 
GSA regulations provides specific recordkeeping requirements for 
government securities brokers and dealers that are financial 
institutions. See 17 CFR 404.4.
    National banks, because they are subject to part 12 recordkeeping 
requirements, are not required to follow the recordkeeping requirements 
of the GSA regulations at 17 CFR 404.2 and 404.3. See 17 CFR 404.4(a). 
National banks, however, must follow other recordkeeping requirements 
under the GSA regulations. See 17 CFR 404.4(a)(3), (b), and 450.4(c), 
(d), and (f). Part 12 confirmation requirements apply to all government 
securities transactions by national banks.
    Consistent with the GSA regulations, proposed Sec. 12.1(c)(2)(ii) 
exempts a national bank that conducts fewer than 500 government 
securities brokerage transactions per year from complying with the 
recordkeeping requirements under proposed (and current) Sec. 12.3. See 
17 CFR 401.3(a)(2)(i) and 404.4(a). This exemption does not apply to 
government securities dealer transactions by national banks, however. 
Staff at the Bureau of the Public Debt, which is the organization 
within the Department of the Treasury that is responsible for 
administering 17 CFR 404.4(a), has advised us that they are considering 
amending this regulation to clarify any ambiguity resulting from the 
interplay of the regulation and current Sec. 12.7(a) (proposed 
Sec. 12.1(c)(2)(i)), with respect to recordkeeping requirements for 
financial institutions that conduct government securities dealer 
transactions.
Municipal Securities Transactions
    The proposed ``scope'' section (Sec. 12.1(c)(1)) also clarifies 
that a national bank's transactions in municipal securities that are 
not subject to the Municipal Securities Rulemaking Board's (MSRB) 
rules, are subject to part 12. The MSRB adopts rules with respect to 
transactions in ``municipal securities'' effected by brokers, dealers, 
and ``municipal securities dealers.'' See 15 U.S.C. 78o-4; Rules of the 
MSRB, MSRB Manual (CCH) para. 3501 et seq. Municipal securities are 
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(29)) (Exchange Act), and include but are not limited to 
debt obligations of a state of the United States or a political 
subdivision, such as a county, city, town, village, or municipal 
authority, and revenue bonds. As defined in the Exchange Act, a 
``municipal securities dealer'' includes a bank, as well as a 
``separately identifiable department or division of a bank,'' that is 
engaged in the business of buying and selling municipal securities for 
its own account through a broker or otherwise. See 15 U.S.C. 
78c(a)(30). Under the SEC's regulatory scheme, however, a bank need not 
register as a ``municipal securities broker.'' See 15 U.S.C. 78c(a)(4) 
and (31).
    Thus, under proposed Sec. 12.1(c)(2)(iii), transactions in 
municipal securities conducted by a national bank registered with the 
SEC as a ``municipal securities dealer'' are exempt from part 12. 
However, municipal securities brokerage transactions by a national bank 
not registered as a municipal securities dealer are subject to part 12 
requirements.
Other Transactions and Exemptions
    The ``scope'' section further provides that both 12 CFR parts 9 and 
12 apply to a national bank's securities transactions effected as a 
fiduciary, including transactions effected for a collective investment 
fund (Sec. 12.1(c)(1)). Finally, the proposed ``scope'' section, in the 
exemptions paragraph (Sec. 12.1(c)(2)), includes the current rule's 
exception from certain requirements of part 12 for banks with an 
average of fewer than 200 securities transactions per year for customers, over the 
prior three calendar year period, not including transactions in 
government securities. The exemptions paragraph also restates the 
current rule's exemption from part 12 requirements for activities of a 
foreign branch of a national bank.
Safe and Sound Operations
    Under proposed Sec. 12.1(c)(3), the proposal clarifies that 
notwithstanding the exemptions from part 12, the OCC expects a national 
bank conducting securities transactions for its customers to maintain 
effective systems of records and controls to ensure safe and sound 
operations. Since national banks already are obligated to conduct their 
operations in a safe and sound manner, this addition does not impose 
any new requirements; rather, it emphasizes the importance of effective 
systems with respect to all securities transactions.

Definitions (Sec. 12.2)

    The proposal clarifies and modernizes Sec. 12.2, the definitions 
section, by adding several definitions and modifying several others. 
The proposal defines ``crossing of buy and sell orders,'' a term used 
in proposed Sec. 12.7(a)(3) (current Sec. 12.6(c)). It also adds a new 
definition of ``completion of the transaction,'' a term used in 
proposed Sec. 12.4 (a) and (b). The proposed definition is based on 
that used in SEC Rule 10b-10, the SEC's rule for confirmation of 
transactions by broker/dealers. See 17 CFR 240.10b-10(d)(2), citing 
Securities Exchange Act of 1934 Rule 15c1-1, 17 CFR 240.15c1-1(b). The 
proposal clarifies the definition of ``customer'' (Sec. 12.2(e)) by 
removing the term ``dealer bank'' and inserting that a ``bank acting as 
a broker or dealer'' is not a customer.
    For purposes of Sec. 12.4(b) (8) and (9), the proposal adds a 
definition of ``debt security'' consistent with the SEC's definition 
under Rule 10b-10, 17 CFR 240.10b-10. The proposal also adds a 
definition of ``asset-backed security,'' which is the same as that in 
the SEC's Rule 10b-10, 17 CFR 240.10b-10.
    The proposal also adds definitions of ``government security'' and 
``municipal security'' which are intended to have the same meaning as 
those terms have under the Securities Exchange Act of 1934. See 15 
U.S.C. 78c(a)(42) and (a)(29). In addition, the proposed definition of 
``security'' more closely tracks the definition of security in the 
Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10), with an 
exception for certain instruments, such as foreign currency and various 
bank instruments. However, the proposal makes clear that the OCC may 
determine whether an instrument is a security for purposes of part 12.

Recordkeeping (Sec. 12.3)

    The proposed recordkeeping provision in Sec. 12.3 is similar to 
current Sec. 12.3. A bank effecting securities transactions for 
customers must maintain, for at least three years, chronological 
records of original entry containing an itemized daily record of all 
purchases and sales of securities, account records for customers, and 
the written notifications to customers required by proposed (and 
current) Sec. 12.4. The proposal also clarifies that a bank must 
maintain a copy of any alternative form of written notification that it 
uses pursuant to proposed Sec. 12.5.
    The proposal retains the current provision permitting a bank to 
maintain the required records in any manner, if the records clearly and 
accurately reflect the information required and provide an adequate 
basis for auditing the information (Sec. 12.3(b)).
    The OCC seeks comments as to whether and in what manner banks rely 
upon this provision (proposed Sec. 12.3(b)) and whether it serves a 
useful purpose.

Form and Time of Customer Notification (Sec. 12.4); Alternative Forms 
and Times of Customer Notification (Sec. 12.5)

    The proposal reorganizes current Secs. 12.4 and 12.5. Under the 
proposed sections, a bank has several alternatives from which it may 
choose to provide the required written notification to a customer for 
whom the bank has effected a securities transaction.
    As under current part 12, a bank may elect to provide notification 
through: (1) A copy of a broker/dealer confirmation and statement 
regarding the source and amount of remuneration that the customer or 
any other source is to provide the bank (Sec. 12.4(a)); (2) a written 
notification that includes information such as the date of execution of 
the transaction, the price and number of shares or units purchased or 
sold, the capacity in which the bank is acting (as agent, principal, or 
otherwise), and the amount of remuneration received by the bank and by 
any broker/dealer in connection with the transaction (Sec. 12.4(b)); or 
(3) an alternative form of notification permitted for a specific type 
of customer transaction or account, for example, a transaction where 
the bank exercises investment discretion in an agency capacity or 
effects a transaction for a periodic plan (Sec. 12.5(a) through (d)). 
The proposal moves current Sec. 12.5(a) regarding notification for a 
transaction where the bank does not exercise investment discretion to 
Sec. 12.4(c).
    The proposal provides that if a bank opts to fulfill its customer 
notification requirement through compliance with either of these first 
two means (Sec. 12.4(a) and (b)), the bank must give or send the 
notification at or before the completion of the transaction. Proposed 
Sec. 12.2(c) defines the term ``completion of the transaction,'' which 
generally means the payment of funds and delivery of securities, i.e. 
the settlement of the securities transaction. Sending the notification 
at or before completion of the transaction is consistent with the SEC's 
confirmation rule, SEC Rule 10b-10. See 17 CFR 240.10b-10(a). The SEC 
similarly defines ``completion of the transaction.'' See 17 CFR 
240.10b-10(d)(2).
    Currently, Sec. 12.5 requires a national bank that effects a 
securities transaction to send written notification to its customer 
within five business days from the date of the transaction or within 
five business days from receipt by the bank of a broker/dealer's 
confirmation (unless the bank uses a notification permitted for a 
specific type of customer transaction or account). When the OCC first 
adopted part 12, this five day period was consistent with the generally 
recognized industry practice of having the settlement of a securities 
transaction on the fifth business day after the trade day, (T+5). On 
October 13, 1993, however, the SEC published a securities settlement 
rule, effective June 7, 1995, requiring the payment of funds and 
delivery of most securities by the third business day after the date of 
the contract (T+3). See Securities and Exchange Act of 1934 Rule 15c6-
1, 17 CFR 240.15c6-1, 58 FR 52891. Thus, the current Sec. 12.5 five day 
period is inconsistent with the new T+3 settlement cycle. Since 
settlement will occur within three days, the OCC, by adopting the ``at 
or before completion of the transaction'' timeframe, reflects current 
securities industry practice. Consistent with the SEC, the OCC also is 
adopting a T+3 securities settlement rule as discussed subsequently 
under Sec. 12.9.
    The OCC welcomes comments on whether providing written notification 
``at or before completion of the transaction'' is an appropriate 
requirement for a national bank in proposed Sec. 12.4(a) and (b).
    The OCC also specifically requests comments on the need for 
additional time by banks opting to provide notification by using a copy 
of the broker/dealer's confirmation, as is currently permitted in 
Sec. 12.5 (five business days from receipt). Proposed Sec. 12.4(c) retains the current Sec. 12.5(a) option for 
the bank and the customer to agree in writing to a different time and 
form of notification for a securities transaction where the national 
bank does not exercise investment discretion. This paragraph, captioned 
``notification by agreement,'' also provides that the arrangement must 
specify the customer's right to receive the written notification as 
provided in Sec. 12.4(a) or (b) at no additional cost.
    The form of the notification required under proposed Sec. 12.4(a) 
is similar to current Sec. 12.4(a). Both require the bank to provide a 
copy of the broker/dealer confirmation and a statement regarding 
remuneration that the customer or any other source is to provide the 
bank. Alternatively, the bank may choose to provide its customer a 
written notification as described in proposed Sec. 12.4(b) (current 
Sec. 12.4(b)). The proposed Sec. 12.4(b) form of notification requires 
the bank to notify the customer about the amount of any remuneration 
the customer or any other source is to provide the bank, and any 
remuneration from the customer to any broker/dealer in connection with 
the transaction. As with current Sec. 12.4(b), the notification under 
proposed Sec. 12.4(b) also must include other information regarding the 
securities involved in the transaction, the capacity in which the bank 
is acting (as agent, principal, or otherwise), and the use of any 
broker/dealer. By providing the notification, the bank gives its 
customers an opportunity to verify the terms of their transactions and 
evaluate the accuracy of the bank's execution.
    Under proposed Sec. 12.4(b)(6), the bank may choose not to disclose 
the source and amount of any other remuneration to the bank, if the 
written notification contains the following two statements: first, 
whether the bank has received or will receive any other remuneration; 
and, second, that the bank will furnish the source and amount of the 
other remuneration upon the customer's written request. A bank may not 
use this option if, in the case of a purchase, the bank is 
participating in a distribution of the security, or in the case of a 
sale, the bank is participating in a tender offer. This proposed option 
is new and reflects the option concerning disclosure of other 
remuneration contained in SEC Rule 10b-10, 17 CFR 240.10b-
10(a)(2)(i)(D).
    The OCC seeks specific comments on inclusion of this proposed 
modification concerning the disclosure of other remuneration.
    The SEC, on November 17, 1994, published a final rule adopting 
amendments to SEC Rule 10b-10 requiring the disclosure of additional 
information on the broker/dealer confirmation. See Securities Exchange 
Act Release No. 34962, 59 FR 59612. Among other items, SEC Rule 10b-10 
now requires disclosure concerning a debt security that has not been 
rated by a nationally recognized statistical rating organization and 
the fluctuation of yield with respect to certain asset-backed 
securities. See 17 CFR 240.10b-10(a)(7) and (8). The SEC also expanded 
the range of debt securities where yield need not be disclosed to 
include any asset-backed security subject to continuous prepayment. See 
17 CFR 240.10b-10(a)(5) and (6). The OCC recognizes that this type of 
information may be important to bank customers evaluating the merits of 
investing in various debt securities.
    Consistent with SEC Rule 10b-10, the proposal adds Sec. 12.4(b)(8), 
(9), (10), and (11), requiring disclosure of yield information on debt 
securities. The proposal also adds Sec. 12.4(b)(12) requiring 
disclosure that a debt security that has not been rated by a nationally 
recognized statistical rating organization. While the proposal 
incorporates these additional disclosures, the OCC is interested in 
commenters' views on the applicability of these disclosures to national 
banks' securities activities. The OCC may revise its proposal.
    The OCC seeks comments on whether banks engage in transactions in 
unrated securities and the need for requiring disclosure of information 
in the written notification to customers regarding unrated securities 
and yield information on debt securities, similar to the SEC 
requirements under SEC Rule 10b-10.
    The OCC also seeks comments on whether it should require the 
disclosure of any other information describing the security in the 
written notification to customers.
    SEC Rule 10b-10(c) also contains a provision requiring broker/
dealers to furnish to customers requested information within five 
business days of the receipt of the request, or within 15 business days 
if the broker/dealer effected the transaction more than 30 days before 
the receipt of the request. See 17 CFR 240.10b-10(c). Part 12 currently 
does not contain a similar provision.
    The OCC requests comments on whether it should include a provision 
similar to SEC Rule 10b-10(c) stating the required period of time for a 
bank to furnish information pursuant to a customer's request.
    In addition to Sec. 12.4, the proposal also authorizes alternative 
forms and times of notification under Sec. 12.5(a) through (d) for 
certain specific types of transactions. These are: (1) Transactions in 
which the bank exercises investment discretion in other than an agency 
capacity (except for collective investment funds); (2) transactions in 
which the bank exercises investment discretion in an agency capacity; 
(3) transactions for a collective investment fund; and (4) transactions 
for a periodic plan.
    Proposed Sec. 12.5 includes captions generally characterizing the 
transactions covered under each paragraph. For example, Sec. 12.5(a), 
captioned ``trust transactions,'' concerns transactions for an account 
in which the bank exercises investment discretion other than in an 
agency capacity, e.g. a bank providing traditional trust services as 
directed by a will or a trust. Under Sec. 12.5(b), captioned ``agency 
transactions,'' the bank exercises investment discretion in an agency 
capacity and may provide fiduciary services; however, the bank is not 
named as trustee, e.g. the bank acting as a managing agent. The 
captions are intended to provide practical assistance and are not 
precise terms.
    In a change from current Sec. 12.5, the availability of the first 
two alternative forms of notification (Sec. 12.5(a) and (b)) depends on 
the capacity in which the bank effects the securities transaction for 
its customer, and not on the form of the account. Thus, this change 
clarifies that the transaction triggers the part 12 requirements and 
dictates the permissible form and time of notification.
    The OCC invites comments about any effects of the proposed change 
regarding alternative forms of notification based upon types of 
transactions instead of accounts. The OCC also specifically requests 
comments on the continuing need for the different forms of alternative 
notification provided in proposed Sec. 12.5.
    Consequently, under the proposal, if a bank effects a securities 
transaction for a fiduciary account where the customer has the right to 
direct the transaction and does so, the forms of notification available 
for use by the bank are the same as for transactions where the bank 
does not exercise investment discretion (except for periodic plans), in 
other words, Sec. 12.4(a), (b), or (c). Hence, as an alternative to 
Sec. 12.4(a) or (b), the bank could provide the notification under 
Sec. 12.4(c). However, the bank could not provide notification in the 
same manner as for a fiduciary account transaction that the customer 
did not direct, as in Sec. 12.5(a). Therefore, the bank does not have 
the option of providing notification as in Sec. 12.5(a) only upon the request of the person having the power to terminate the account, or, if 
there is no such person, upon the request of any person holding a 
vested beneficial interest in the account.
    The OCC seeks specific comments regarding whether this result 
clarifies the existing part 12 requirements and is the appropriate form 
of notification for securities transactions in a fiduciary account 
where the customer directs the transaction.
    With respect to transactions for a periodic plan (Sec. 12.5(d)), 
the proposal changes the time for notification. Currently part 12 
requires a national bank to furnish a written statement ``as promptly 
as possible'' after each transaction for a periodic plan 
(Sec. 12.5(e)). Instead, proposed Sec. 12.5(d) requires the bank to 
furnish the written statement not less than once every three months. 
This change is consistent with similar provisions under the securities 
laws. Otherwise, the notification requirements for periodic plan 
transactions remain the same.
    The OCC request comments on the proposed change in notification to 
not less than once every three months for periodic plan transactions 
under Sec. 12.5(d) rather than notification as promptly as possible 
after each transaction.

Fees (Sec. 12.6)

    The proposal places the provisions regarding fees (Secs. 12.4 and 
12.5) into Sec. 12.6. It does not change the substance of these 
provisions.

Securities trading policies and procedures (Sec. 12.7)

    The proposal retains the current requirement that a bank establish 
written policies and procedures for trading practices, but places new 
emphasis on following these written policies and procedures. The 
proposal also relocates these provisions from Sec. 12.6 to Sec. 12.7.
    With respect to proposed Sec. 12.7(a)(4), the proposal clarifies 
that bank officers and employees must provide a report to the bank 
containing specific information on certain trades, and the bank must 
establish written policies and procedures requiring these reports. 
While current Sec. 12.6(d) states that the report must ``identify'' the 
securities purchased and sold, proposed Sec. 12.7(b) clarifies the 
information necessary for banks to identify the securities, including 
the title and number of shares, the principal amount of each security 
involved, and the price at which the transaction was effected.
    The OCC seeks comments as to whether enumeration of the information 
required in these reports will assist banks, and officers and 
employees, in complying with this requirement.
    The proposal also revises one of the exceptions to the reporting 
requirements for securities transactions for the benefit of certain 
bank officers or employees to make clear that the reporting exception 
applies only if the transactions involve an aggregate amount of 
purchases and sales per officer or employee of $10,000 or less during a 
calendar quarter.
    The proposal also clarifies that a national bank acting as an 
investment adviser to an investment company is subject to section 17 of 
the Investment Company Act, 15 U.S.C. 80a-17, and, in particular, the 
requirements of Rule 17j-1 of the Investment Company Act, 17 CFR 
270.17j-1 (SEC Rule 17j-1). Generally, SEC Rule 17j-1 requires that an 
investment adviser to a registered investment company adopt a written 
code of ethics, and that certain defined ``access persons'' of the 
investment adviser, including directors, officers, and certain 
employees, report personal securities transactions to the investment 
adviser. See 17 CFR 270.17j-1(e)(1).
    The requirement under proposed Sec. 12.7(a)(4) concerning the 
reporting by bank officers and employees of securities transactions in 
which they have a beneficial interest is in addition to the applicable 
requirements under the Investment Company Act and SEC Rule 17j-1. Banks 
should recognize that the part 12 requirements, in some respects, are 
broader than those under the Investment Company Act because they apply 
to investment advisory activities by national banks whether the bank 
provides the advice to an investment company or to another type of 
customer.
    The OCC welcomes any comments on this proposed addition to the 
regulation.

Waivers (Sec. 12.8)

    The proposal makes no substantive changes in the waiver provision 
currently in Sec. 12.7(d). It relocates the provision to Sec. 12.8. As 
is the current practice, the proposal makes clear that the procedure 
for requesting a waiver is to submit a request in writing. The proposal 
also clarifies that the OCC may grant a waiver from the requirements of 
part 12 to any national bank, or any class of national banks, with 
regard to specific transactions or specific classes of transactions.

Settlement of Securities Transactions (Sec. 12.9)

    The proposal adds Sec. 12.9 to establish a securities settlement 
timeframe for national banks effecting or entering into contracts for 
the purchase or sale of securities for customers. The OCC intends this 
rule to parallel the SEC's adoption of the ``T+3'' securities 
settlement timeframe. In October 1993, the SEC adopted for the first 
time a securities settlement rule, effective June 7, 1995, requiring 
the payment of funds and delivery of most securities by the third 
business day after the date of the contract (T+3). See Securities 
Exchange Act of 1934 Rule 15c6-1, 17 CFR 240.15c6-1 (SEC Rule 15c6-1); 
58 FR 52891 (Oct. 13, 1993); 60 FR 26604 (May 17, 1995) (amendments to 
the rule). SEC Rule 15c6-1 is a separate securities settlement 
requirement and is not part of the SEC's confirmation rule, SEC Rule 
10b-10, 17 CFR 240.10b-10. The OCC believes that most national banks 
effecting customer securities transactions use a clearing broker that 
would be subject to the SEC's T+3 rule and national banks' securities 
transactions thereby routinely would settle within three days. However, 
some national banks may clear and settle their securities trades 
directly. For this reason, the OCC proposes to revise part 12 to 
include a separate T+3 settlement requirement that tracks the language 
of the SEC's securities settlement rule. See 17 CFR 240.15c6-1.
    As with SEC Rule 15c6-1, the OCC's rule does not apply to an 
exempted security as defined in 15 U.S.C. 78c(a)(12), government 
security, municipal security, commercial paper, bankers' acceptance, or 
commercial bill. Proposed Sec. 12.9 also contains an identical override 
provision to SEC Rule 15c6-1 permitting national banks to agree that 
settlement will take place in more than three business days when the 
agreement is express and reached at the time of the transaction. 
Nonetheless, the OCC, similar to the intent expressed by the SEC, 
intends the override provision to apply to unusual transactions and not 
merely to permit national banks to specify before execution of specific 
trades that a group of trades will settle in a timeframe other than 
T+3. See Securities Exchange Act Release No. 33023, 58 FR 52891, 52901 
(Oct. 13, 1993).
    While proposed Sec. 12.9 conforms to the language of the SEC's T+3 
settlement rule, the OCC notes there are alternatives to adopting the 
language of the SEC's rule. For example, one possibility is not having 
a separate OCC settlement rule and, instead, using three days as the 
timeframe for sending the confirmation under part 12 rather than 
following the SEC's ``completion of the transaction'' timeframe. 
Another possibility is cross-referencing the language of SEC Rule 15c6-
1 instead of incorporating the actual language of the rule.
    The OCC seeks comments on the need for and the effect of proposed 
Sec. 12.9 adopting the T+3 securities settlement requirement for 
national banks.
    The OCC also specifically invites comments on the feasibility and 
appropriateness of alternative approaches to implement the T+3 
securities settlement cycle.

Interpretations (Secs. 12.101 and 12.102)

     The proposal adds two interpretative rulings at the end of part 
12. The first interpretation (Sec. 12.101) relates to the disclosure of 
remuneration for mutual fund transactions. The interpretation reflects 
the view taken by the OCC in various letters granting a waiver from 
compliance with part 12 remuneration disclosure requirements. In 
particular, the OCC has allowed a bank to fulfill its disclosure 
requirement of the source and amount of remuneration required by 
current Sec. 12.4(a)(2) and (b) (proposed Sec. 12.4(a)(2) and (b)) for 
mutual fund transactions by providing this information to the customer 
in a current prospectus, at or before completion of the securities 
transaction. The OCC's view is predicated on the SEC's position as 
provided in a no-action letter dated March 19, 1979, and permits 
national banks to use the same option for disclosure of remuneration as 
is permitted for nonbank broker/dealers with respect to transactions in 
mutual funds. See Letter to the Investment Company Institute, [1979 
Transfer Binder] Fed. Sec. L. Rep. (CCH) 82041 (Mar. 19, 1979). The OCC 
would reconsider its position upon any change in the SEC's practice.
    The second interpretive ruling (Sec. 12.102) discusses the use of 
electronic communications to satisfy part 12's customer notification 
requirements. In appropriate situations, the OCC will allow a national 
bank to satisfy the ``written'' notification requirement under 
Secs. 12.4 and 12.5 through electronic communications. Where a customer 
has a facsimile machine, a national bank may fulfill its notification 
delivery requirement by sending the notification by facsimile 
transmission. Similarly, a bank may satisfy the notification delivery 
requirement by other electronic communications when: (1) The parties 
agree to use electronic instead of hard-copy notifications; (2) the 
parties have the ability to print or download the notification; (3) the 
recipient affirms or rejects the trade through electronic notification; 
(4) the system cannot automatically delete the electronic notification; 
and (5) both parties have the capacity to receive electronic messages. 
The SEC has taken a comparable approach to the use of electronic means 
to deliver a confirmation under SEC Rule 10b-10, 17 CFR 240.10b-10. See 
e.g., Letter regarding Thompson Financial Services, Inc. (Oct. 8, 
1993). The OCC would consider the permissibility of other situations 
using electronic notifications on a case-by-case basis.

                            Derivation Table                            
 [Only substantive modifications, additions and changes are indicated.] 
------------------------------------------------------------------------
        Revised provision          Original provision       Comments    
------------------------------------------------------------------------
Sec.  12.1(a)...................  Sec.  12.1(a)        .................
Sec.  12.1(b)...................  Sec.  12.1(a)        .................
Sec.  12.1(c)(1)................  ...................  Added.           
Sec.  12.1(c)(2)(i).............  Sec.  12.7(a)        .................
Sec.  12.1(c)(2)(ii)............  ...................  Added.           
Sec.  12.1(c)(2)(iii)...........  Sec.  12.7(b)        Modified.        
Sec.  12.1(c)(2)(iv)............  Sec.  12.7(c)        .................
Sec.  12.1(c)(3)................  ...................  Added.           
Sec.  12.1(d)...................  Sec.  12.1(b)        .................
Sec.  12.2(a)...................  ...................  Added.           
Sec.  12.2(b)...................  Sec.  12.2(a)        .................
Sec.  12.2(c)...................  ...................  Added.           
Sec.  12.2(d)...................  ...................  Added.           
Sec.  12.2(e)...................  Sec.  12.2(b)        Modified.        
Sec.  12.2(f)...................  ...................  Added.           
Sec.  12.2(g)...................  ...................  Added.           
Sec.  12.2(h)...................  Sec.  12.2(c)        .................
Sec.  12.2(i)...................  ...................  Added.           
Sec.  12.2(j)...................  Sec.  12.2(d)        .................
Sec.  12.2(k)...................  Sec.  12.2(e)        Modified.        
Sec.  12.3......................  Sec.  12.3           .................
Sec.  12.4......................  Secs.  12.4, 12.5    Modified.        
Sec.  12.5......................  Secs.  12.4, 12.5    Modified.        
Sec.  12.6......................  Secs.  12.4, 12.5    .................
Sec.  12.7(a)...................  Sec.  12.6(a), (b),  .................
                                   (c), and (d)                         
Sec.  12.7(b)...................  Sec.  12.6(d)        Modified.        
Sec.  12.7(c)...................  Sec.  12.6(d)        Modified.        
Sec.  12.7(d)...................  ...................  Added.           
Sec.  12.8......................  Sec.  12.7(d)        .................
Sec.  12.9......................  ...................  Added.           
Sec.  12.101....................  ...................  Added.           
Sec.  12.102....................  ...................  Added.           
------------------------------------------------------------------------

Regulatory Flexibility Act

    It is hereby certified that this proposal will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, a regulatory flexibility analysis is not required. This 
proposal will have minimal economic impact on national banks, 
regardless of size, since it makes no material changes to existing 
regulatory requirements.

Executive Order 12866

    The OCC has determined that this proposal is not a significant 
regulatory action.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4, March 22, 1995, 109 Stat. 48 (Unfunded Mandates Act), requires 
that an agency prepare a budgetary impact statement before promulgating 
a rule that 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. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. Because the OCC has determined that the proposed rule will not 
result in expenditures by state, local, and tribal governments, or by 
the private sector, of more than $100 million in any one year, the OCC 
has not prepared a budgetary impact statement or specifically addressed 
the regulatory alternatives considered. Nevertheless, as discussed in 
the preamble, the rule has the effect of reducing unnecessary 
regulatory costs and other burdens, where possible.

Paperwork Reduction Act of 1995

    The OCC invites comments on:
    (1) Whether the proposed collection of information contained in 
this notice of proposed rulemaking is necessary for the proper 
performance of the agency's functions, including whether the 
information has practical utility;
    (2) The accuracy of the agency's estimate of the burden of the 
proposed information collection;
    (3) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    (4) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    Respondents/recordkeepers are not required to respond to this 
collection of information unless it displays a currently valid OMB 
control number.
    The collection of information requirements contained in this notice 
of proposed rulemaking have been submitted to the Office of Management 
and Budget for review in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)). Comments on the collection of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project 1557-0142, Washington DC 20503, with copies to the 
Legislative and Regulatory Activities Division (1557-0142), Office of 
the Comptroller of the Currency, 250 E Street, SW., Washington, DC 
20219. The collection of information requirements in this proposed rule 
are found in Secs. 12.3 through 12.8. This information is required by 
the OCC to establish an audit trail. That audit trail is used by the 
OCC in its regulatory examinations as a tool to evaluate a bank's 
compliance with banking and securities laws and regulations, such as 
the anti-fraud provisions of the Federal securities laws. Further, the 
records provide a basis for adequate disclosure to customers who effect 
securities transactions through national banks. Other records provide a 
basis for the OCC to waive some or all of the recordkeeping and 
confirmation requirements of 12 CFR part 12. The recordkeepers are 
national banks.
    Estimated total annual recordkeeping burden: 56,019 hours.
    The estimated annual burden per recordkeeper varies from 2 hours to 
more than 700 hours, depending on individual circumstances, with an 
estimated average of 53.3 hours.
    Estimated number of recordkeepers: 1,047.

List of Subjects in 12 CFR Part 12

    National banks, Reporting and recordkeeping requirements, 
Securities.
Authority and Issuance
    For the reasons set out in the preamble, part 12 of chapter I of 
title 12 of the Code of Federal Regulations is proposed to be revised 
to read as follows:

PART 12--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES 
TRANSACTIONS

Sec.
12.1  Authority, purpose, scope, and OMB control number.
12.2  Definitions.
12.3  Recordkeeping.
12.4  Form and time of customer notification.
12.5  Alternative forms and times of customer notification.
12.6  Fees.
12.7  Securities trading policies and procedures.
12.8  Waivers.
12.9  Settlement of securities transactions.

Interpretations

12.101  National bank disclosure of remuneration for mutual fund 
transactions.
12.102  National bank use of electronic communications as customer 
notifications.

    Authority: 12 U.S.C. 24, 92a, and 93a.

Sec. 12.1  Authority, purpose, scope, and OMB control number.

    (a) Authority. This part is issued pursuant to 12 U.S.C. 24, 12 
U.S.C. 92a, and 12 U.S.C. 93a.
    (b) Purpose. This part establishes rules, policies, and procedures 
applicable to recordkeeping and confirmation requirements for certain 
securities transactions effected by national banks for customers.
    (c) Scope--(1) General. Any security transaction effected for a 
customer by a national bank is subject to this part unless exempted by 
paragraph (c)(2) of this section. A national bank effecting 
transactions in government securities is subject to the confirmation, 
recordkeeping, and policies and procedures requirements of this part. 
This part also applies to municipal securities transactions by a 
national bank that is not registered as a ``municipal securities 
dealer'' with the Securities and Exchange Commission. See 15 U.S.C. 
78c(a)(30) and 78o-4. This part, as well as 12 CFR part 9, applies to a 
national bank's securities transactions effected as a fiduciary.
    (2) Exemptions--(i) Small number of transactions. The requirements 
of Secs.  12.3(a)(2) through (4) and 12.7(a)(1) through (3) do not 
apply to a national bank having an average of fewer than 200 securities 
transactions per year for customers over the prior three calendar year 
period. The calculation of this average does not include transactions 
in government securities.
    (ii) Government securities. The recordkeeping requirements of 
Sec. 12.3 do not apply to national banks effecting fewer than 500 
government securities brokerage transactions per year. This exemption 
does not apply to government securities dealer transactions by national 
banks.
    (iii) Municipal securities. This part does not apply to 
transactions in municipal securities conducted by a national bank 
registered with the Securities and Exchange Commission as a ``municipal 
securities dealer'' as defined in title 15 U.S.C. 78c(a)(30). See 15 
U.S.C. 78o-4.
    (iv) Foreign branches. This part does not apply to securities 
transactions conducted by a foreign branch of a national bank.
    (3) Safe and Sound Operations. Notwithstanding paragraph (c)(2) of 
this section, every national bank conducting securities transactions 
for customers shall maintain effective systems of records and controls 
regarding their customer securities transactions to ensure safe and 
sound operations. The systems maintained must clearly and accurately 
reflect appropriate information and provide an adequate basis for an 
audit.
     (d) OMB control number. The collection of information requirements 
in this part were approved by the Office and Management and Budget 
under OMB control number 1557-0142.


Sec. 12.2  Definitions.

    (a) Asset-backed security means a security that is primarily 
serviced by the cashflows of a discrete pool of receivables or other 
financial assets, either fixed or revolving that by their terms convert 
into cash within a finite time period plus any rights or other assets 
designed to assure the servicing or timely distribution of proceeds to 
the security holders.
    (b) Collective investment fund means any funds held by a national 
bank as fiduciary and invested collectively in a ``collective 
investment'' as described in 12 CFR 9.18(a).
    (c) Completion of the transaction means:
    (1) In the case of a customer who purchases a security through or 
from a national bank, except as provided in paragraph (c)(2) of this 
section, the time when the customer pays the bank any part of the 
purchase price, or, if payment is made by a bookkeeping entry, the time 
when the bank makes the bookkeeping entry for any part of the purchase 
price;
    (2) In the case of a customer who purchases a security through or 
from a national bank and who makes payment for the security prior to 
the time when payment is requested or notification is given that 
payment is due, the time when the bank delivers the security to or into 
the account of the customer;
    (3) In the case of a customer who sells a security through or to a 
national bank except as provided in paragraph (c)(4) of this section, 
if the security is not in the custody of the bank at the time of sale, 
the time when the security is delivered to the bank, and if the 
security is in the custody of the bank at the time of sale, the time 
when the bank transfers the security from the account of the customer;
    (4) In the case of a customer who sells a security through or to a 
national bank and who delivers the security to the bank prior to the 
time when delivery is requested or notification is given that delivery 
is due, the time when the bank makes payment to or into the account of 
the customer.
    (d) Crossing of buy and sell orders means a security transaction in 
which the same bank acts as agent for both the buyer and the seller.
    (e) Customer means any person or account, including any agency, 
trust, estate, guardianship, committee, or other fiduciary account for which a 
national bank makes or participates in making the purchase or sale of 
securities, but does not include a broker, dealer, bank acting as a 
broker or dealer, or issuer of the securities that are the subject of 
the transaction.
    (f) Debt security as used in Sec. 12.4(b)(8) and (9) only, means 
any security, such as a bond, debenture, note, or any other similar 
instrument which evidences a liability of the issuer (including any 
security of this type that is convertible into stock or a similar 
security) and fractional or participation interests in one or more of 
any of the foregoing; provided, however, that securities issued by an 
investment company registered under the Investment Company Act of 1940, 
15 U.S.C. 80a-1 et seq., shall not be included in this definition.
     (g) Government security means:
     (1) A security which is a direct obligation of, or obligation 
guaranteed as to principal and interest by, the United States;
    (2) A security which is issued or guaranteed by a corporation in 
which the United States has a direct or indirect interest and which is 
designated by the Secretary of the Treasury for exemption as necessary 
or appropriate in the public interest or for the protection of 
investors;
    (3) A security issued or guaranteed as to principal and interest by 
any corporation whose securities are designated, by statute 
specifically naming the corporation, to constitute exempt securities 
within the meaning of the laws administered by the Securities and 
Exchange Commission; or
    (4) Any put, call, straddle, option, or privilege on a security as 
described in paragraph (g) (1), (2), or (3) of this section, other than 
a put, call, straddle, option, or privilege:
    (i) That is traded on one or more national securities exchanges; or
    (ii) For which quotations are disseminated through an automated 
quotation system operated by a registered securities association.
    (h) Investment discretion means that, with respect to an account, a 
bank directly or indirectly:
    (1) Is authorized to determine what securities or other property 
shall be purchased or sold by or for the account; or
    (2) Makes decisions as to what securities or other property shall 
be purchased or sold by or for the account even though some other 
person may have responsibility for these investment decisions.
    (i) Municipal security means:
    (1) A security which is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, a State or any political 
subdivision, or any agency or instrumentality of a State or any 
political subdivision;
    (2) A security which is a direct obligation of, or an obligation 
guaranteed as to principal or interest by, any municipal corporate 
instrumentality of one or more States; or
    (3) A security which is an industrial development bond (as defined 
in section 103(c)(2) of the Internal Revenue Code of 1954 (26 U.S.C. 
103(c)(2) (1970)) (Code)) the interest on which is excludable from 
gross income under section 103(a)(1) of the Code (26 U.S.C. 103(a)(1)) 
if, by reason of the application of paragraph (4) or (6) of section 
103(c) of the Code (26 U.S.C. 103(c)) (determined as if paragraphs 
(4)(A), (5), and (7) were not included in section 103(c) (26 U.S.C. 
103(c)), paragraph (1) of section 103(c) (26 U.S.C. 103(c)) does not 
apply to the security.
    (j) Periodic plan (including dividend reinvestment plans, automatic 
investment plans and employee stock purchase plans) means a written 
authorization for a national bank to act as agent to purchase or sell 
for a customer a specific security or securities, in a specific amount 
(calculated in security units or dollars) or to the extent of dividends 
and funds available, at specific time intervals, and setting forth the 
commission or charges to be paid by the customer or the manner of 
calculating them.
    (k) Security:  (1) Means any note, stock, treasury stock, bond, 
debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or 
lease, any collateral-trust certificate, preorganization certificate or 
subscription, transferable share, investment contract, voting-trust 
certificate, for a security, any put, call, straddle, option, or 
privilege on any security, or group or index of securities (including 
any interest therein or based on the value thereof), or, in general, 
any instrument commonly known as a ``security''; or any certificate of 
interest or participation in, temporary or interim certificate for, 
receipt for, or warrant or right to subscribe to or purchase, any of 
the foregoing;
    (2) Does not mean currency; any note, draft, bill of exchange, or 
banker's acceptance which has a maturity at the time of issuance of not 
exceeding nine months, exclusive of days of grace, or any renewal 
thereof, the maturity of which is likewise limited; a deposit or share 
account in a Federal or State chartered depository institution; a loan 
participation; units of a collective investment fund; interests in a 
variable amount note as defined in 12 CFR 9.18(c)(2)(ii); U.S. Savings 
Bonds; or any other instrument the OCC determines does not constitute a 
security for purposes of this part.


Sec. 12.3  Recordkeeping.

    (a) General rule. A national bank effecting securities transactions 
for customers shall maintain the following records for at least three 
years:
    (1) Chronological records. A chronological record of each original 
entry containing an itemized daily record of each purchase and sale of 
securities, including:
    (i) Account or customer name for which each transaction was 
effected;
    (ii) Description of the securities;
    (iii) Unit and aggregate purchase or sale price (if any);
    (iv) Trade date; and
    (v) Name or other designation of the broker/dealer or other person 
from whom the securities were purchased or to whom the securities were 
sold;
    (2) Account records. Account records for each customer, reflecting:
    (i) Purchases and sales of securities;
    (ii) Receipts and deliveries of securities;
    (iii) Receipts and disbursements of cash with respect to 
transactions in securities for each account; and
    (iv) Other debits and credits pertaining to transactions in 
securities;
    (3) Memorandum order. A separate memorandum (order ticket) of each 
order to purchase or sell securities (whether executed or cancelled), 
including:
    (i) Account or customer name for which the transaction was 
effected;
    (ii) Type of order (market order, limit order, or subject to 
special instructions);
    (iii) Time the trader or other bank employee responsible for 
effecting the transaction received the order;
    (iv) Time the trader placed the order with the broker/dealer, or if 
there was no broker/dealer, time the order was executed or cancelled;
    (v) Price at which the order was executed; and
    (vi) Name of the broker/dealer utilized;
    (4) Record of broker/dealers. A record of all broker/dealers 
selected by the bank to effect securities transactions and the amount 
of commissions paid or allocated to each broker during the calendar 
year; and
    (5) Notifications. A copy of the written notification required by 
Secs. 12.4 and 12.5.
    (b) Manner of maintenance. The records required by this section 
must clearly and accurately reflect the information required and provide an 
adequate basis for the audit of the information.


Sec. 12.4  Form and time of customer notification.

    A national bank effecting a securities transaction for its customer 
shall give or send to the customer a notification. This section and 
Sec. 12.5 describe the form and time of permissible types of 
notifications. A bank may elect to provide notification through a copy 
of a broker/dealer confirmation and statement regarding remuneration as 
provided in Sec. 12.4(a), written notification as provided in 
Sec. 12.4(b), notification by agreement as provided in Sec. 12.4(c), or 
an alternative form of notification applicable to a specific type of 
transaction as provided in Sec. 12.5.
    (a) Confirmation of a broker/dealer. A national bank effecting a 
securities transaction for a customer shall give or send to its 
customer at or before the completion of the transaction a written 
notification that includes:
    (1) A copy of the confirmation of a broker/dealer relating to the 
securities transaction; and
    (2) If the customer or any other source will provide remuneration 
to the bank in connection with the transaction, and a written agreement 
between the bank and the customer does not determine the remuneration, 
a statement of the source and amount of any remuneration that the 
customer or any other source is to provide the bank.
    (b) Written notification. A national bank effecting a securities 
transaction for its customer that does not provide notification 
pursuant to paragraph (a) of this section, shall give or send to its 
customer at or before the completion of the transaction a written 
notification that includes:
    (1) Name of the bank;
    (2) Name of the customer;
    (3) Capacity in which the bank acts (as agent for the customer, as 
agent for both the customer and some other person, as principal for its 
own account, or in any other capacity);
    (4) Date of execution, a statement that the bank will furnish the 
time of execution within a reasonable time upon written request of the 
customer, and the identity, price, and number of shares or units (or 
principal amount in the case of debt securities) of the security 
purchased or sold by the customer;
    (5) Amount of any remuneration that the customer has provided or is 
to provide any broker/dealer, directly or indirectly, in connection 
with the transaction;
    (6) Amount of any remuneration that the bank has received or will 
receive from the customer, and the source and amount of any other 
remuneration that the bank has received or will receive in connection 
with the transaction;
    (i) A bank need not provide the information in paragraph (b)(6) of 
this section if:
    (A) The bank and its customer have determined remuneration pursuant 
to a written agreement; or
    (B) In the case of government securities and municipal securities, 
the bank received the remuneration in other than an agency transaction;
    (ii) Unless the bank follows paragraph (b)(6) of this section, the 
written notification must state whether the bank has received or will 
receive any other remuneration and that the bank will furnish the 
source and amount of the other remuneration upon written request of the 
customer. A bank may not follow this paragraph (b)(6)(ii), if, in the 
case of a purchase, the bank was participating in a distribution, or, 
in the case of a sale, the bank was participating in a tender offer;
    (7) Name of the broker/dealer utilized; or where there is no 
broker/dealer, the name of the person from whom the security was 
purchased or to whom the security was sold, or a statement that the 
bank will furnish this information upon written request from the 
customer. The bank shall furnish this information within a reasonable 
time after receipt of a written request;
    (8) In the case of any transaction in a debt security subject to 
redemption before maturity, a statement to the effect that the debt 
security may be redeemed in whole or in part before maturity, that the 
redemption could affect the yield represented and the fact that 
additional information is available upon request;
    (9) In the case of a transaction in a debt security effected 
exclusively on the basis of a dollar  

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