SEC and Federal Reserve finalize Regulation R, bank broker and dealer exemptions

After nearly eight years of work, the Securities and Exchange Commission and Federal Reserve Board in late September adopted final rules implementing the bank "push out" provisions to the definitions of "broker" and "dealer" in Sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934 (the 1934 Act). The rules were necessitated by Title II of the Gramm-Leach-Bliley Act of 1999, which narrowed the scope of what formerly were complete bank exclusions from those definitions. Bank compliance with the requirements of the modified "broker" definition in Section 3(a)(4) has been placed on hold since 1999 while the rules were being developed. Conversely, an activity can be outside the definitions of "broker" and "dealer" and yet not be an eligible activity for a bank or an operating subsidiary of' a bank. Section 3(a)(B)(viii) of the 1934 Act contains an exemption from the definition of broker allowing banks to provide certain custody and safekeeping services.