Conformed to Federal Register Version - SEC.gov

1 I Conformed to Federal Register Version DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 44 Docket No. OCC-2011-0014 RIN: 1557-AD44 BOARD OF GOVERNORS OF THE Federal RESERVE SYSTEM 12 CFR Part 248 Docket No. R-1432 RIN: 7100 AD82 Federal DEPOSIT INSURANCE CORPORATION 12 CFR Part 351 RIN: 3064-AD85 SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 255 Release No. BHCA-1; File No. S7-41-11 RIN: 3235-AL07 Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and Relationships With, hedge Funds and Private Equity Funds AGENCIES: Office of the Comptroller of the Currency, Treasury ( OCC ); Board of Governors of the Federal Reserve System ( Board ); Federal Deposit Insurance Corporation ( FDIC ); and Securities and Exchange Commission ( SEC ).

2 ACTION: Final Rule. SUMMARY: The OCC, Board, FDIC, and SEC (individually, an Agency, and collectively, the Agencies ) are adopting a rule t hat would implement section 13 of the BHC Act, which was added by section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank Act ). Section 13 contains certain prohibitions and restrictions on the ability of a ii banking entity and nonbank financial company supervised by the Board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund. DATES: The final rule is effective April 1, 2014. FOR FURTHER INFORMATION CONTACT: OCC: Ursula Pfeil, Counsel, or Deborah Katz, Assistant Director, Legislative and Regulatory Activities Division, (202) 649-5490; Ted Dowd, Assistant Director, or Roman Goldstein, Senior Attorney, Securities and Corporate Practices Division, (202) 649-5510; Kurt Wilhelm, Director for Financial Markets Group, (202) 649-6360; Stephanie Boccio, Technical Expert for Credit and Market Risk Group, (202) 649-6360, Office of the Comptroller of the Currency, 250 E Street SW.

3 , Washington, DC 20219. Board: Christopher M. Paridon, Counsel, (202) 452-3274, or Anna M. Harrington, Senior Attorney, Legal Division, (202) 452-6406; Mark E. Van Der Weide, Deputy Director, Division of Bank Supervision and Regulation, (202) 452-2263; or Sean D. Campbell, Deputy Associate Director, Division of Research and Statistics, (202) 452-3760, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. FDIC: Bobby R. Bean, Associate Director, or Karl R. Reitz, Chief, Capital Markets Strategies Section, Capital Markets Branch, Division of Risk Management Supervision, (202) 898-6888; Michael B. Phillips, Counsel, or Gregory S. Feder, Counsel, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street, NW.

4 , Washington, DC 20429. SEC: Josephine J. Tao, Assistant Director, Angela R. Moudy, Branch Chief, John Guidroz, Branch Chief, Jennifer Palmer or Lisa Skrzycki, Attorney Advisors, Office of Trading Practices, iii Catherine McGuire, Counsel, Division of Trading and Markets, (202) 551-5777; W. Danforth Townley, Attorney Fellow, Jane H. Kim, Brian McLaughlin Johnson or Marian Fowler, Senior Counsels, Division of Investment Management, (202) 551-6787; David Beaning, Special Counsel, Office of Structured Finance, Division of Corporation Finance, (202) 551-3850; John Cross, Office of Municipal Securities, (202) 551-5680; or Adam Yonce, Assistant Director, or Matthew Kozora, Financial Economist, Division of Economic and Risk Analysis, (202) 551-6600, Securities and Exchange Commission, 100 F Street NE.

5 , Washington, DC 20549. SUPPLEMENTARY INFORMATION: Table of Contents I. Background II. Notice of Proposed Rulemaking: III. Overview of Final Rule A. General Approach and Summary of Final Rule B. Proprietary Trading Restrictions C. Restrictions on Covered Fund Activities and Investments D. Metrics Reporting Requirement E. Compliance Program Requirement IV. Final Rule A. Subpart B Proprietary Trading Restrictions 1. Section : Prohibition on Proprietary Trading and Related Definitions a. Definition of Trading Account b. Rebuttable Presumption for the Short-Term Trading Account c. Definition of Financial Instrument d. Proprietary Trading Exclusions 1. Repurchase and reverse repurchase arrangements and securities lending 2.

6 Liquidity management activities 3. Transactions of derivatives clearing organizations and clearing agencies iv 4. Excluded clearing-related activities of clearinghouse members 5. Satisfying an existing delivery obligation 6. Satisfying an obligation in connection with a judicial, administrative, self-regulatory organization, or arbitration proceeding 7. Acting solely as agent, broker, or custodian 8. Purchases or sales through a deferred compensation or similar plan 9. Collecting a debt previously contracted 10. Other requested exclusions 2. Section (a): Underwriting Exemption a. Introduction b. Overview 1. Proposed underwriting exemption 2. Comments on proposed underwriting exemption 3. Final underwriting exemption c.

7 Detailed Explanation of the Underwriting Exemption 1. Acting as an underwriter for a distribution of securities a. Proposed requirements that the purchase or sale be effected solely in connection with a distribution of securities for which the banking entity acts as an underwriter and that the covered financial position be a security95 i. Proposed definition of distribution ii. Proposed definition of underwriter iii. Proposed requirement that the covered financial position be a security b. Comments on the proposed requirements that the trade be effected solely in connection with a distribution for which the banking entity is acting as an underwriter and that the covered financial position be a security i.

8 Definition of distribution ii. Definition of underwriter iii. Solely in connection with standard c. Final requirement that the banking entity act as an underwriter for a distribution of securities and the trading desk s underwriting position be related to such distribution i. Definition of underwriting position v ii. Definition of trading desk iii. Definition of distribution iv. Definition of underwriter v. Activities conducted in connection with a distribution 2. Near term customer demand requirement a. Proposed near term customer demand requirement b. Comments regarding the proposed near term customer demand requirement c. Final near term customer demand requirement 3. Compliance program requirement a.

9 Proposed compliance program requirement b. Comments on the proposed compliance program requirement c. Final compliance program requirement 4. Compensation requirement a. Proposed compensation requirement b. Comments on the proposed compensation requirement c. Final compensation requirement 5. Registration requirement a. Proposed registration requirement b. Comments on proposed registration requirement c. Final registration requirement 6. Source of revenue requirement a. Proposed source of revenue requirement b. Comments on the proposed source of revenue requirement c. Final rule s approach to assessing source of revenue 3. Section (b): Market-Making Exemption a. Introduction b. Overview 1. Proposed market-making exemption 2.

10 Comments on the proposed market-making exemption a. Comments on the overall scope of the proposed exemption b. Comments regarding the potential market impact of the proposed exemption vi 3. Final market-making exemption c. Detailed Explanation of the Market-Making Exemption 1. Requirement to routinely stand ready to purchase and sell a. Proposed requirement to hold self out b. Comments on the proposed requirement to hold self out i. The proposed indicia ii. Treatment of block positioning activity iii. Treatment of anticipatory market making iv. High-frequency trading c. Final requirement to routinely stand ready to purchase and sell i. Definition of trading desk ii. Definitions of financial exposure and market-maker inventory iii.