[Federal Register: January 16, 1998 (Volume 63, Number 11)]
[Proposed Rules]               
[Page 2640-2642]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ja98-20]





Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================



[[Page 2640]]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 10

[Docket No. 98-01]
RIN 1557-AB62

 
Municipal Securities Dealers

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes 
to revise its Municipal Securities Dealers regulation to remove 
unnecessary provisions. This change would not have any substantive 
effect on the operations of national banks, but would simplify the 
OCC's rule regarding bank municipal securities dealers (MSDs) by 
removing a redundant restatement of rules found elsewhere.

DATES: Comments must be received by March 17, 1998.

ADDRESSES: Comments should be directed to: Office of the Comptroller of 
the Currency, Communications Division, 250 E Street, SW, Washington, DC 
20219, Attention: Docket No. 98-01. Comments will be available for 
public inspection and photocopying at the same location. In addition, 
comments may be sent by facsimile transmission to FAX number (202) 874-
5274 or by electronic mail to regs.comments@occ.treas.gov.

FOR FURTHER INFORMATION CONTACT: Joe Malott, National Bank Examiner, 
Capital Markets (202) 874-5070; Donald Lamson, Assistant Director, 
Securities and Corporate Practices; or Ursula Pfeil, Attorney, 
Legislative and Regulatory Activities (202) 874-5090.

SUPPLEMENTARY INFORMATION:

Background and Discussion of Proposal

    Section 15B(b) of the Securities Exchange Act of 1934 (Exchange 
Act) (15 U.S.C. 78o-4(b)) created the Municipal Securities Rulemaking 
Board (MSRB) and mandated that the MSRB adopt rules that establish 
qualification criteria for municipal securities brokers or dealers and 
associated persons. To implement section 15B(b), the MSRB adopted Rule 
G-7 (Information Concerning Associated Persons) (Rule G-7).<SUP>1</SUP> 
Rule G-7 requires, among other things, that municipal securities 
principals and representatives associated with a bank MSD file with the 
bank either (a) Form MSD-4 (Uniform Application for Municipal 
Securities Principal or Municipal Securities Representative Associated 
with a Bank Municipal Securities Dealer) or (b) a similar form 
prescribed by the bank's primary regulator. A national bank MSD is in 
turn required by Rule G-7 to submit to the OCC the form that the bank's 
associated municipal securities principals and representatives file 
with it. Rule G-7 also requires bank MSDs to update information as 
necessary, to retain records for specified periods of time, and to file 
with the appropriate banking agency ``such of the information 
prescribed by [Rule G-7] as such * * * agency * * * shall by rule or 
regulation require.'' Rule G-7(g).
---------------------------------------------------------------------------

    \1\ The MSRB rules may be obtained by contacting the Municipal 
Securities Rulemaking Board by telephone at (202) 223-9347 or by 
mail at 1150 18th Street, NW., Suite 400, Washington, DC 20036-3816.
---------------------------------------------------------------------------

    Shortly after the MSRB adopted Rule G-7, the OCC adopted part 10 in 
order to prescribe the information and forms that national bank MSDs 
are to submit. (42 FR 16813 (March 30, 1977)). Part 10 currently sets 
out the scope of the rule (Sec. 10.1); definitions used therein 
(Sec. 10.2); information about where and how to file the appropriate 
forms (Sec. 10.3); and requirements governing the submission and 
retention of Form MSD-4 and Form MSD-5 (Uniform Termination Notice for 
Municipal Securities Principal or Municipal Securities Representative 
Associated with a Bank Municipal Securities Dealer) (Sec. 10.4).
    As explained in the following section-by-section analysis, much of 
current part 10 either is substantively identical to the requirements 
contained in Rule G-7 or is otherwise unnecessary.

Section-by-Section Analysis

Section 10.1 of Current and Proposed Rules

    This section identifies the entities and individuals covered by 
part 10. Section 10.1 of the proposed rule clarifies that subsidiaries 
of national banks are not covered by the rule. This clarification is 
consistent with MSRB Rule G-7, which states that ``bank dealers'' are 
to comply with the rules and requirements adopted by the appropriate 
bank regulatory agency. The term ``bank dealer'' is defined in Rule D-8 
of the MSRB's rules to include ``a municipal securities dealer which is 
a bank or a separately identifiable department or division of a bank as 
defined in rule G-1 of the [Municipal Securities Rulemaking] Board.'' 
Subsidiaries of banks are not included in the definition of ``bank 
dealer,'' and are, therefore, governed directly by the MSRB's filing 
requirements. The proposed change to Sec. 10.1 reflects this fact. It 
does not, however, affect the content of what these subsidiaries are to 
file or who regulates their municipal securities 
activities.<SUP>2</SUP>
---------------------------------------------------------------------------

    \2\ Subsidiaries of national banks that engage in municipal 
securities activities must register with the NASD and are regulated 
by NASD Regulation, Inc., the subsidiary of NASD charged with 
regulating the securities industry and the Nasdaq Stock Market.
---------------------------------------------------------------------------

Section 10.2 of Current Rule

    The terms defined in current Sec. 10.2 are not used in part 10 as 
proposed. Accordingly, this section is removed.

Section 10.3 of Current Rule

    Section 10.3 provides information about the mechanics of filing the 
MSD-4 and MSD-5 forms with the OCC. This information is unnecessary in 
light of the filing instructions that accompany these forms. Therefore, 
the proposed rule removes this section.

Section 10.4 of Current Rule/Sec. 10.2 of Proposed Rule

    Section 10.4(a)(1) of the current rule states that Form MSD-4 is an 
appropriate means of carrying out the purposes of Rule G-7(b). Two 
provisions in Rule G-7 make it appropriate for the proposed rule to 
retain a provision identifying which form national bank MSDs are to use 
and what information is to be submitted in order to comply with Rule G-
7. First,

[[Page 2641]]

paragraph (b) of Rule G-7 states that ``in the case of a bank dealer a 
completed Form MSD-4 or similar form prescribed by the appropriate 
regulatory agency for such bank dealer, containing the foregoing 
information [i.e., the information listed in Rule G-7(b)(i)-(x)], shall 
satisfy the requirements of this paragraph [(b)].'' Given that Rule G-
7(b) provides bank regulators the option of using a form other than 
Form MSD-4, there remains a need for the OCC to clarify which form 
national banks should use. Second, as previously noted, paragraph (g) 
of Rule G-7 states that bank MSDs are to file with their appropriate 
regulatory agency ``such of the information prescribed by this rule 
[i.e., Rule G-7] as such * * * agency * * * shall by rule or regulation 
require.'' Repealing all of part 10 arguably would create an unintended 
gap in the filing requirements for bank MSDs, because there would be no 
rule or regulation requiring national banks to file.
    In light of paragraphs (b) and (g) of Rule G-7, the proposed rule 
retains a requirement, at Sec. 10.2(a), stating that a national bank is 
to use Form MSD-4 to submit the information required by Rule G-7(b)(i)-
(x) to be obtained from a person identified in Sec. 10.1(b). Section 
10.2(a) also states that a national bank receiving completed MSD-4 
forms must submit these forms to the OCC before permitting any person 
to be associated with it as a municipal securities principal or a 
municipal securities representative. Should the MSRB amend Rule G-7 to 
remove the reference to rules or regulations issued by the banking 
agencies, the OCC will revisit the need for a continued reference to 
the MSRB rules in part 10.<SUP>3</SUP>
---------------------------------------------------------------------------

    \3\ The Board of Governors of the Federal Reserve System (Board) 
and Federal Deposit Insurance Corporation (FDIC) recently published 
proposed amendments to each agency's MSD regulation. See 62 FR 15272 
(March 31, 1997) (Board) and 62 FR 26994 (May 16, 1997) (FDIC). Both 
the Board and the FDIC propose to repeal their MSD rules altogether. 
However, both agencies intend for banks within their respective 
jurisdictions to continue filing the MSD-4 and MSD-5 forms with 
those agencies. Accordingly, the OCC, Board, and FDIC intend to 
impose substantively identical requirements on bank MSDs. The 
stylistic differences between the OCC's proposed rule and those of 
the Board and FDIC reflect the OCC's view that it is necessary and 
helpful to national bank MSDs for the OCC's rule to address those 
areas identified in Rule G-7 where bank dealers are to look to the 
rules of their primary regulator.
---------------------------------------------------------------------------

    Section 10.4(a)(2) of the current rule repeats filing requirements 
found in Rule G-7 and, therefore, is removed.
    Section 10.4(b) of the current rule instructs national bank MSDs 
regarding how they should proceed if a Form MSD-4 contains materially 
inaccurate or incomplete information. This section is unnecessary, 
given that paragraph (c) of Rule G-7 requires that the information 
required to be submitted must remain accurate and complete. A national 
bank MSD receiving updated information from an associated municipal 
securities representative or municipal securities principal is 
obligated pursuant to Rule G-7 to submit the amended information to the 
OCC in order to ensure that the individuals are properly registered. 
Accordingly, the proposed rule removes current Sec. 10.4(b).
    Current Sec. 10.4(c) requires national bank MSDs to file Form MSD-5 
within 30 days of terminating a person's association with the bank as a 
municipal securities representative or principal. This requirement does 
not appear in Rule G-7. In order to facilitate the effective 
supervision of MSD activity by national banks, the proposal retains the 
requirement, at proposed Sec. 10.2(b), that a termination notice be 
submitted.
    Finally, current Sec. 10.4(d)(1) restates record retention 
requirements found in Rule G-7(e) while Sec. 10.4(d)(2) states that the 
MSD-4 and MSD-5 forms are covered by section 32(a) of the Exchange Act 
(15 U.S.C. 78ff). These provisions in current Sec. 10.4 are unnecessary 
and are, therefore, removed.

Comments

    The OCC invites general comments on all aspects of this proposal, 
including specific comments on the proposed changes.

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.
    As noted earlier, the OCC has only eliminated unnecessary 
provisions that appear in the current rule. This proposal will, 
therefore, reduce the regulatory burden on national banks, regardless 
of size. No new burden is added by the proposed changes.

Executive Order 12866

    The OCC has determined that this proposal is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates 
Act) requires that an agency prepare a budgetary impact statement 
before promulgating a proposal likely to result in a rule that includes 
a Federal mandate that may result in the annual expenditure of $100 
million or more in any one year by State, local, and tribal 
governments, in the aggregate, or by the private sector. If a budgetary 
impact statement is required, section 205 of the Unfunded Mandates Act 
requires an agency to identify and consider a reasonable number of 
alternatives before promulgating a proposal.
    The OCC has determined that the proposal, if adopted, 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. 
Accordingly, the OCC has not prepared a budgetary impact statement or 
specifically addressed the regulatory alternatives considered.

List of Subjects in 12 CFR Part 10

    National banks, Reporting and recordkeeping requirements, 
Securities.

Authority and Issuance

    For the reasons set out in the preamble, the OCC proposes to revise 
part 10 of chapter I of title 12 of the Code of Federal Regulations as 
set forth below:

PART 10--MUNICIPAL SECURITIES DEALERS

Sec.
10.1  Scope.
10.2  Filing requirements.

    Authority: 5 U.S.C. 93a, 481, and 1818; 15 U.S.C. 78o-4(c)(5) 
and 78q-78w.


Sec. 10.1  Scope.

    This part applies to:
    (a) Any national bank, District bank, and separately identifiable 
department or division of either (collectively, a national bank) that 
acts as a municipal securities dealer, as that term is defined in 
section 3(a)(30) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(30)); and
    (b) Any person who is associated or to be associated with a 
national bank in the capacity of a municipal securities principal or a 
municipal securities representative, as those terms are defined in Rule 
G-3 of the Municipal Securities Rulemaking Board (MSRB).<SUP>1</SUP>
---------------------------------------------------------------------------

    \1\ The MSRB rules may be obtained by contacting the Municipal 
Securities Rulemaking Board at 1150 18th Street, NW., Suite 400, 
Washington, DC 20036-3816.
---------------------------------------------------------------------------


Sec. 10.2  Filing requirements.

    (a) A national bank shall use Form MSD-4 (Uniform Application for 
Municipal Securities Principal or Municipal Securities Representative 
Associated with a Bank Municipal Securities Dealer) for obtaining the 
information required by MSRB Rule G-7(b)(i)-(x) from a person 
identified in

[[Page 2642]]

Sec. 10.1(b). A national bank receiving a completed MSD-4 form from a 
person identified in Sec. 10.1(b) must submit this form to the OCC 
before permitting the person to be associated with it as a municipal 
securities principal or a municipal securities representative.
    (b) A national bank must submit Form MSD-5 (Uniform Termination 
Notice for Municipal Securities Principal or Municipal Securities 
Representative Associated with a Bank Municipal Securities Dealer) to 
the OCC within 30 days of terminating a person's association with the 
bank as a municipal securities principal or municipal securities 
representative.
    (c) Forms MSD-4 and MSD-5, with instructions, may be obtained by 
contacting the OCC at 250 E Street, SW., Washington, DC 20219, 
Attention: Bank Dealer Activities.

    Dated: December 1, 1997.
Eugene A. Ludwig,
Comptroller of the Currency.
[FR Doc. 98-815 Filed 1-15-98; 8:45 am]
BILLING CODE 4810-33-P