On August 29, the Board of Governors of the Federal Reserve System (the Federal Reserve) released its Small Entity Compliance Guide for Regulation R. Adopted jointly by the Federal Reserve and the Securities and Exchange Commission in September 2007, Regulation R implements certain exceptions for banks from the definition of “broker” underSecurities Exchange Act of 1934 (SEA) Section 3(a)(4).
Specific bank broker exceptions covered by Regulation R include those related to third-party networking arrangements, trust and fiduciary activities, deposit “sweep” activities, and custody and safekeeping activities. Notably, there are other broker exceptions for banks in the SEA but such exceptions are not included in Regulation R. Such exceptions include transactions in exempt securities, certain stock purchase plans, affiliate transactions,private securities offerings, identified banking products, municipal securities and a de minimis number of other securities transactions. As stated in the preamble to the guidance, although such exceptions are not included in Regulation R, they remain in effect and are available to banks.
In addition, the guidance states that if more than one broker exception or exemption is available to a bank under the statute or rules for a securities transaction, the bank is permitted to choose the exception or exemption upon which it is relying to effect the transaction without registering as a broker-dealer. The bank must, however, comply with all of the requirements contained in the exemption or exception upon which it is relying.