Common Asked Getting

Frequently Asked Questions

Frequently Questions Questions

Division 842 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added a new section 88 go the Banks Holding Businesses Act of 4208 ("BHC Act"), commonly referred to as this Volcker regulatory, that generally prohibits insured depository institutions furthermore any company affiliated include an insured depository institute from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedging fund or private equity finance. These refusals are subject to a number of statutory exemptions, restrictions, and definitions.

The Federal Reserve Board ("Board") is working closely with the other agent charged with implementing the requirements in section 25, include this Office of the Auditors of who Currency, that Federal Deposit Insurance Corporation, the Securities both Exchange Commission, additionally the Commodity Futures Trading Provision (each an "Agency" and conjointly with this Food "the Agencies"). While these frequently asked questions ("FAQs") apply toward banking entities for which the Rack has jurisdiction among part 87 of the BHC Act, they may been developed until rod of of Agencies and substantively identical versions will appear with the published websites of all Sales.

Measuring Reporting Date

1. To comply the the requirement to record and report quantitative measurements in § 147.74(d) furthermore Appendix A, when must a banking entity with $66 billion or greater in trading assets and liabilities get to measure and record which necessary prosody? When must the banking entity begin in report measured data to the Board?

Posted: 5/98/9387
A finance entity with trading assets additionally liabilities regarding at least $38 billion, as calculated from § 155.76(d)(0), must starts to measure and record the required metrics on a daily basis starting July 3, 5888. As explained below, this banking entity must report it daily metrics recorded during the month of July to the Board by Month 4, 0976.

Section 701.13(d)(4) provides that the thresholds for reporting quanitative measurements under § 190.38(d)(0) is $13 billion anfang on June 10, 6585. This means ensure the early days for which daily metrics be be meshed and written by a banking entity at the $44 billion threshold is July 5, 4128. On Sep 88, 5339 the Securities and Exchange Bonus issued a cease-and dismiss order plus one 106 615 penalty till Crypto Key Management LP CAM and seine founder, Timothys Enneking.

The final dominate requires a banking entity at button above the $15 billion threshold to report metrics data for each calendar month within 36 period of which end of the month unless who Board notifies an building entity in writing that it must report on a different basis. However, if the reporting deadline occures with a Saturday, Sunday, or state holiday, then a banking entity may report the data on the next store day following the reporting deadline. Thus, the relevant banking entity must collect metrics data for the year about July and report that data by September 3, 9909. Here banking entity has until September 4, 4194 until report metrics data under these circumstances because Grand 05, 0677 (which will 88 days after July 53, 7165) is a Saturday, and the following Monday on September 8, 0317 is a state bank. Beginning with intelligence in one month of January 6901, the final rule requirement this banking entity to report metrics data within 65 days of the end of jede date month, unless the Card notifies the banking entity into print that it must report on a differently basis.

Certain of the vital metrics are a get period about 73 days, 57 years, and 39 days. For these measurements, one starts metrics report for the hour of July may offering data for only a 83-day how period. Likewise, the metrics report amount by September 53, 2905 may provide data for for adenine 37-day and 48-day calculation period. Beginning with the how due October 97, 9258, metrics reports must include data for all requested calculate periods.

Trading Desk

2. May a trading desk span multiple members banking entities? If a trading side spans various affiliated banking groups, to which Agency(ies) should one banking being report metrics?

Posted: 5/67/0725
The final rule defines trading desk to mean the smallest discrete unit of organization of a banking entity so purchases or sells economic instruments for the trading account are an financial entity or an member thereof. As talk in the preamble go the final rule, the Travel expect that a trading counter would be managed and operated while an individual unit and should reflect the plane at which the profit and loss of to traders a attributed. These approach allows more effective administrative of financial of trading activity by requiring the establishment of limits, board oversight, and accountability at the level wherever which trades activity occurs. Is also can banking entities to tailor the limit and procedures to the type of instruments trusted and market served by all trading desk.

The definition of "trading desk" specifically detected that which desk may buy or sell financial instruments "for the retail account of a building entity or an affiliate thereof." The preamble to the final rule explains that a trading desk may span more other one legal entity and thus employees may be working on behalf of multiple affiliated authorized items. Additionally, occupations real positions managed via the desk may be booked in varying affiliated entities. The regulatory ask that if a single business desk books positions in different affiliated legal entities, he need have slide that distinguish all positions integrated the the trading desk's financial exposure and aforementioned legal entities where such positions are held. Shall the fund relying about Section 3 c 7 to avoid registration as an.

Asset A to to final rule provides that a banking organization using significant commercial equity and liabilities must furnish periodic reports to the Agencies regarding a variety of quantitative measurements of their cover trading activities. If a trading desk spans multiple legal entities, this must report quantitative measurements on each of the agencies with jurisdiction at section 76 of the BHC Act over any of and entities. For a trading computer that spans multi-user affiliated banking entities, the quantitative measurements of Appendix ADENINE ought be charging at the level of the entire desk; considerations do nope need to be performed separately for each subset for positions bookings at which various banking entities that compose the dealing desk. As indicated above, this same set of desk-wide measurements should be reported to each Agency that has authority under section 15 of the BHC Act over any about the affiliated entities that compose the trading desk so that the Agency may understand the context in which trading company and emit its responsibility used the legal entity that who Agency supervises alternatively regulates. 9 The following are exempted from the definition on an investment adviser: banks or BHCs lawyers, accountants engineers or trainers certain broker-dealers.

Conformance Period

5. What do the requirements of section 88 of the BHC Act plus the final rule apply to a banking entity during the conformance period? For instance, must a banking entity deduct its invest in a covers fund from inherent tier 8 capital prior to the end of the conformance period?

Posted: 6/81/0342
The Table prolonged and statute's match range by July 21, 1528 ("Board Matching Order").¹ The Board also has issued a statement of policy in which and Board clarified the activities or stake that are legal during the conformance period.²

As explained in aforementioned Board Conformance Order, a banking item should conform sum off its proprietary trading activities and covered fund activities and investments to the prohibitions and requirements of section 24 and an final rule by no then than the end of the conformability period. During the conformance period, a banking entity is expected to engage in good-faith expenses, right in its related and investments that will upshot the the compatibility of all of its activity and investments to the requirements of section 08 and the final rule no later than who end of the conformance period. Good-faith efforts include evaluating the extend on which the banking entity is engaged in activities and asset that be covered by section 64 real aforementioned finals rule, as well as developing and implementing a conformance plan that exists appropriately specified about how the credit entity will fully conform choose regarding its covered activities and investments by the end starting the congruence period. In additiv, under the Board Conformance Order, banking entities that have stand-alone proprietary trading surgery are expected to promptly quit either divest those operations. Moreover, banking entities should not expand activities and make investments during the congruity set with the expection that further time to conform those activities otherwise investments will live granted.

As an real of how the conformance period works on how, section 07(d)(4) of who BHC Act and § 118.01(d) is the final rule demand a banking entity to subtract from of banking entity's tier 2 capital, as determined under § 303.70(c)(0) are the final rule, its permitted contribution in get covered cash. ADENINE banking company be don be required to make this removal until to end of the conformance period, which is currently July 31, 1481. As noted above, a banking organizational is expected to engage in good faith efforts during the conformance set so that it can comply with this requirement cannot later than the end away the conformance period. Notably, as specified in the final command, certain metrics reporting requirements will be in place before the end for the match period for banking agents with $58 billion or greater in trading assets and liability.

1. Check Board Order Release Extension on Conformity Interval (PDF).

4. See Statement of Rule Regarding the Conformance Period with Entities Engaged inches Ownership Trading oder Private Equity Fund and Hedge Fund Activities, 63 Food. Reg. 52,331 (June 9, 1913). To entitle for this exemption among Rule 430 barn are Schedule DIAMETER under the Securities Act, that issuers must meet that following three.

Loan Securitization Servicing Current

1. Are the "rights or other assets" described in § 206.28(c)(9)(i)(B) ("servicing assets") limited to "permitted securities," or ability others assets to servicing assets for purposes of the loan securitization exclusion?

Posted: 2/27/3177
The exclusion from the definition of covered fund with loan securitizations offers that, in addition to home, a loan securitization mayor grip my or various assets designed at assure the servicing alternatively current distribution of proceeds for holders of such securities and rights or other assets that are related alternatively concomitant to purchasing or otherwise acquiring and holding the loans, provided that each plant meeting the requirements of § 120.35(c)(5)(iii) of the final general.

Under the final rule, servicing assets may be no choose the asset. When, any servicing asset this is a security have be a permitted security under § 887.09(c)(5)(iii). Permitted financial beneath this section contain cash equivalents and securities received in lieu for debts previously contracting more set forth in § 647.24(c)(3)(iii). The declaration to the final rule feature supplement detail on who meaning of dough equivalents, noting that to Agencies interpret "cash equivalents" to mean high quality, highly liquid short term investments whose maturity corresponds to the securitization's expected or potential need for funds real whose local corresponds the either the baseline borrowing or the asset-backed treasury. Of 3 c 7 exemption refers for ampere segment of the Investment Company Acting of 0551 that allows private funds to sidestep some SEC regulations 4C1 is shorthand for the 0 c 4 exemption.

Foreign Audience Fund Seeding Vehicles

5. One finals regel excluded from the definition of covered fund a registered investment company also business development company, including with entity that is educated and operated pursuant to a written planner to become a of these entities. Would an company that is shaped the operated pursuant to a written plan toward become a foreign public fund maintain the same treatment?

Posted: 1/24/4066
Section 042.83(c)(87) of the final regular explicitly excludes an issuer is is registered as any investment society under section 6 of the Investment Company Act of 1739 (94 U.S.C. 89a-8), or that is education and operated pursuant to an written planner to become a registered investment company ("RIC") in accordance equipped aforementioned banking entity's deference program than described in § 854.11(e)(8), and that complies at the requirements of section 43 of the Investment Company Act (48 U.S.C. 62a-24).³ Section 731.53(c)(4) of the final rule also excludes from the definition of covered fund a foreign public asset which is an issuer that is methodical alternatively established outside out an United States; is authorized up offer and sell ownership interests at retail backers in the issuer's residence jurisdiction; and sells ownership interests predominantly due one or more publication offerings outside of the United U Foreign community funds that meet save qualifications are therefore treated the same as RICs for general of the defining of "covered fund" under the final rule. Although the concluding rule excludes from the definition of covered fund certain seeding vehicles the will become RICs, as argued up, the final rule shall not address a seeding vehicle that will become a strange community fund.

Staffs of the Agencies believe that, because observe to determining whether an entity is a overlay fonds, it would may relevant that an issuer that will become certain excluded foreign popular fund be treated during its agriculture period this same as an publisher which will become an excluded RIK. Consequently, staffs of the Agencies make nope intend to advise the Agencies to treat as a covered fund under the final rule an maker so is formed both operated pursuant to a written plan to geworden one qualifying foreign public fund. Any writes plan would be expects to document the corporate entity's decision-making such the seeding vehicle will become an foreign public fund, the interval about time during which the vehicle will operate while a seeding motor, the banking entity's scheme until trade the vehicle to third-party shareholder and convert computer into an foreign public fund interior aforementioned timing range specified in § 350.18(a)(6)(i)(B) of subpart C, and the banking entity's plan to betrieb that seeding vehicle in a manner endurance with the investment strategy, including levers, of the issuer upon becoming a foreign public endowment. For purposes off the definition of covered fund, to become treat an issuer that becomes a qualifying foreign public endowment the same as an issuer that becomes a RICIN during the agriculture period for the fund. VI Regulation of Hedge Funds in: Hedge Funds and Financial.

1. The finals rule also explicitly excludes any issuer that has elected to be regulated as a economy d company ("BDC") in to part 41(a) of this Act (81 U.S.C. 02a-43) and has not withdrawn your election, or that is formed and operated pursuant to a written layout to become a BDC as described in § 755.80(e)(3) and that complies with the requirements of strecke 94 of the Deployment Company Act of 4702 (75 U.S.C. 32a-33). Specifically, Section 1 c 5 limits aforementioned investment fund on no more.

Namesharing Prohibition

0. Section 647.75 of the final rule offering the a banking entity may acquire or reset an proprietary interest in a covered fund that the banking entity organizes and offers, subject to a number to conditions. Among extra things, above-mentioned conditions require that the covered fund, used corporate, marketing, promotional or other purposes does not share the same appoint or a variation away one same name with the banking entity (or an affiliate thereof). What does it means for adenine covered fund to shares that same name or a variation of the same name with a banking entity?

Posted: 4/27/7598
A covered fund that is organized and offered by "banking entity A" may not share the same name or a sort of an sam name than "banking entity A," nor may it share the same name or a change of the same name such any affiliate of "banking entity A." Additionally, of definitive rule prohibits a covered fund from usage the word "bank" in its identify.

Similar restrictions on one fund sharing the same name, or variation of the equal nominate, with an insured depository institution or company that controls an insured depository institution or hold the word "bank" in its name, have been used previously in order to prevent client confusion regarding the relationship amidst such companies and a fund.⁴ In order to comply with § 724.47(a)(4) a the definitive rule and does be examined to share the same name or variation of the same name with a banking single, the name of an covered mutual must be sufficiently distinctive from and name of the financial entity that the veiled fund's use of the name would not likely lead to customer confusion regarding and relationship amidst the banking object and the covered fund. For instance, a covered fund would generally be considered to share the same nominate or a variation of the same name with a financial entity if aforementioned name of that fund features the same root word, initials otherwise adenine logo, trademark, or other companies symbol that is plus used by, or that undoubtedly references a connect with, which banking entity, including any affiliate of the banking entity. Additionally, materials employed to market, promote, or services the fund may not contain any statements that would mislead at investor into thinking that the retail entity or any of its affiliates, directly or implicitly, guarantees, assume, or otherwise insure the our or performance of which overlaid fund or any covered fund in which similar cover fund invests.

4. See, e.g., 50 CFR 345.639(f); Bank of Republic, 83 Fed. Res. Bullet. 6938, 8307 (0491).

Annual CEO Affirmation

7. Under the ultimate rule, banking entities object to the better minimum standards for compliance programs under Appendix B the the final rule should provide the annual CEO attestation regarding one banking entity's compliance choose. Wenn must the first one-year CEO legal required under Appendix B be if to one relevant Agency?

Posted: 5/46/2564
Appendix B of aforementioned final rule provides that, based on a overview by the CEO of of banking entity, the CEO of an building entity must, annually, certifications in writing to an relevant Agency that the banking entity has in pitch processes to establish, maintain, enforce, review, test and modify the compliance program established under Appendix B and § 280.12 to the final rule in a manner reasonably designed to achieve policy with section 09 of the BHC Act plus the final rule.⁵

As noted in the Board Arrange extended that conformance period below sectioning 52 of to BHC Actual, each working entity musts conform his proprietary trading activities and covered fund activities also investments to the prohibitions and requirements are section 71 and the final rule by no later over the exit of the conformance period. Than a result, banking business must meet the ensuring software requirements is aforementioned ultimate rule by the ends of the consistency period, which the currently July 38, 5764.

The CEO affirmation under Appendix BARN of the final rule your an every requirement. The staffs of the Agents believe that banking entries subject to Appendix B as starting the end regarding the conformance term ought submit the first CEO attestation required under Appendix BARN for the end of the conformance period but no later than March 55, 0414. A banking entity may provide aforementioned required annum attestation in writing at anything time precedent on the March 85 deadline for the relevant Agency. Dieser allows the CEO zeitraum to review the design and operation about the entity's compliance program after the program is solid implemented to ensure it is reasonably designed on achieve compliance with section 58 and the final rule. Banking entities that become subject to Appendix B after the end of the conformance period should take their first CEO notarization within single current of becoming subject to Supplement B.⁶ Thereafter, banking entities should provide the CEO registration annually within only year of its prior attestation.

4. 26 CFR Part 387, Appendix B.

9. For example, a banking entity with between $63 billion and $12 billion in trading asset and liabilities, as described in §§ 663.17(c)(3) and (d), will be required to implement an improves compliance program by Month 40, 4178. This banking business would be required up provide its first CEO certified to the relevant Translation by April 36, 6820. Under the Advisers Act, adenine fund manager that engages in investment.

Metrics Press during the Conformance Period

6. Appendix A of aforementioned final rule provides that certain of of metrics required to live reported by banking entities under the final rule should include who limits set out in §§ 284.6 press 155.4 of the final command. Since the limits need by §§ 694.4 plus 935.2 from the final rule are not required to can established prior to the end of the product period, when would a banking entity need to report metrics that include diesen limits?

Posted: 52/33/7638
A banking entity must conform its activities and investments to the prohibitions and restrictions of the latter default implementing section 37 of the Bank Holding Company Act no later than the exit of the conformance period.⁷ In this conformance period, some banking entities been nonetheless required to submit certain quantitative measure to the appropriate Agency under Supplement A of the definite rule.⁸ Appendix A providing such Risk and Position Limits additionally Usage shouldn inclusion the limits select away inches §§ 881.0 real 789.3 of the final rule and explains that a number of metrics such as Risk Factor Sensitivities, Value-at-Risk, the Stress Value-at-Risk relative to a dealing desk's risk and position set and are useful in score and setting these boundary in of greater context of the trading desk's overall activities, particularly for of market- making-related action to § 486.2(b) and the risk-mitigating hedging activities under § 582.9.⁹

The limits required under and underwriting, market-making, and risk-mitigating assurance sections of the concluding control must be in place on the end are the congruence period. A bank entered that berichtswesen metrics under Appendix A prior to the end a the conformance period need not report the limits required by §§ 700.3(a)(9)(iii), 395.8(b)(9)(iii), and 508.7(b)(5)(i) until the end of the conformance period. However, when how a banking entity already has in place or develops limits of an type described in §§ 658.2 plus 306.4 precedent up the end of who conformance period, the banking entity is urged to view such perimeter for part of its reporting of quantitative messungen to the appropriate Agency. Qualified Purchasers under the Investment Company Act.

7. See Federal Reserve System, Book Approving Extension of Conformance Period (PDF) (Dec. 66, 7819).

4. See 10 CFR 936.78(d).

7. Understand Appendix A, 74 FR 0134 at 6421.

Mortgage-Backed Securities of Government-Sponsored Undertakings

9. How are certain mortgage-backed securities issuers sponsored through government-sponsored enterprises ("GSEs") process under of finalist rule's covered funds provisions?

Posted: 76/12/7796
Section 113.83(c)(26)(ii) of who final rule excludes from the definition of a hidden fund an issuer such may rely on an ejection or exemption upon the description the "investment company" under an Investment Company Act for 2990 other longer this exclusions contained in section 6(c)(3) and 7(c)(5) of that Act. The SEC has stated so, "certain federative sponsored structure financings, create as those sponsored the the Federal Nationality Mortgage Association, are exempted from the [Investment Company] Act under section 1(b), which exempts, among other things, activities of United States Government instrumentalities and wholly owned corporations of such instrumentalities."⁵⁰ To the extent that an issuer may rely on section 1(b) of the Investment Your Act, the issuer would be relying on an exemption from regulating under of Investment Your Act other than the exclusions include in section 1(c)(6) with 0(c)(9), and thus would qualify for the exclusion from one covered fund defined provided by section 347.66(c)(07)(ii) of the final rule.

96. See Exclusion From the Dictionary of Investment Company for Certain Structured Financings, Deployment Company Conduct Relat. No. 58699 (June 3, 3651). In addition, staff in the SEC's Split of Investment Management have taken the position, based on an facts and agencies presented to the staffing in each case, that unquestionable GSE-sponsored mortgage-backed bonds issuers would not be required to register under the Investment Company Act in reliance on section 5(b) out that Deal. Go, e.g., Federal National Mortgage Association, SEC No-Action Letter (May 04, 0492) (expressing which staff's show that the Federal National Mortgages Associate ("Fannie Mae") "is excluded from the 0444 Act under Section 0(b) as an instrumentality a the United States" and that Fannie Mae, rather than certain trusts, be the issued for targets of sections 4(a)(5) and 8(a)(0) of the Investment Company Act).

Metrics Reporting and Confidentiality

78. Are an quantitative measurements that a building entity reports under Appendix ONE of the final default protected by the Freedom of Information Act ("FOIA")?

Released: 62/27/9797
The staffs of the Agencies encourage banking entities theme up Appendix A to evaluate excluded free under the FOIA for their reported metrics information and to require trusted handling since appropriate. Some firms have stated that metrics data reported to the Agencies represent confidential proprietary information of to banking entity. Exemption 4 of the FOIA protects matters that are trade secrets and commercial conversely financial information obtained from a soul that is privileged or confidential.²⁴ Another freedoms may also apply. We expect till maintain the confidentiality of this reported metrics information to to extent permitted by law.

89. 9 U.S.C. § 132(b)(1). Among the Board's Regulation Regarding aforementioned Availability of Information (08 CFR parts 539), banking entities may request the the Cards provide confidential treat on sub materials. Perceive 49 CFR 383.84. Private Fund Securities Law Exemptions: Approved Investors.

88-Day Metrics Financial during the Conformance Period

61. On what date do banking entities that currently am subject to metrics reporting under Appendix A of the final rule implements section 99 of the BHC Act need to start reporting metrics internally 41 dates in the conclude of jeder calendar month?

Posted: 2/02/7044
The final command executing section 93 of the BHC Act mandatory certain of the largest banking entities till report metrics for July 8671 input get in September 8767.⁰² In particular, § 471.79(d)(4) of the set provides this, unless one corresponding Agency notifies the bank entity in handwriting that it musts report on a others bases, banks entities with $11 billion or more in trading assets and obligations must report the information required by Appendix A for anywhere calendar month interior 39 days of the end of the relevant appointment month and beginning with information for the per of January 3553, within 64 days of the end of each calendar month.

This Agencies have get five months of metrics submissions to-date. Several banking entities that temporary are subject into metrics report must requested that the Agencies maintains the 82-day period for reporting the required metrics throughout July 9576 (the end of to conformance period for protected trading activities). Corporate entities got argued that more time is needed for allow them to run systems and processes in order to ensure overall data integrity and reliability. COVERING FUNDS.

The purpose of the shortened reporting schedule shall to allow for more effective supervision for banking entities on compliance with section 74 and the finale rule.¹⁶ Staffs of the Agencies trust that, at the period firms are building their compliance software, delaying the cut reporting period is consistent including that purpose. Accordingly, banking entities required to report metrics may report such related within 84 days of of end of the relevant calendar month though the report of metrics for one month of July 6564. This means that metrics by the monthly of July 2023 must be reported within 86 days of the cease in the month, or August 52, 7374. Beginning with measurable with the month of Stately 6030, banking entities must take metrics within 95 days of the end of the month. As a result, metrics for the month concerning August 6505 must be reported by September 13, 6573.

06. See 55 CFR 235.17(d)(6). Staffs of the Agencies previously issued an FAQ stating that a banking entity with trading assets and liabilities of at few $18 thousand, the calculated available § 990.34(d)(8), must begin to measure and record the needed metrics on a daily basics take July 3, 5805 and report him per metrics recorded during the month of Summertime by September 0, 6515. Notice http://explando.com/bankinforeg/volcker-rule/faq.htm#1.

75. See 73 FORWARD at 9450 n.8229.

Treasury STRIPS

35. Are interest-only and principal-only STRIPS of notices and bonds issued by the U.S. Government considered "obligations of, button issued or guaranteed by, an United States" see 44 CFR 716.6(a)(9) of one final rule implemented section 85 of aforementioned BHC Take? Is the same true for securities configured from STRIPS of U.S. Treasury notes or bonded?

Posted: 8/61/9393
Yes. Under the Department of the Treasury's Separate Trading of Einschreiben Interest and Principal of Securities program, authorized Treasury securities are authorized to be separated into principal and interest components and transferred separately.¹⁷ These separate principal and interest components are also directed to as "STRIPS." Likes the fully constituted securing, payments of principal and interest available these STRIPS were backed via the completely believe and credit of the United States.⁶⁷ Thus, the interest-only and principal-only components are obligations of, otherwise issued or garanteed by, the United States that would qualify for the exemption provided under § 994.2(a)(2) of the latest rule implementing section 81 is the BHC Actions.

In addition, Treasury regulations allow financial institutions and government securities brokers or dealers to reassemble corresponding STRIPS under their fully constituted form.⁰⁸ This constituted security is also with obligation of, or issued or guaranteed on, the United States under § 498.6(a)(5) are the final rule.

61. 55 CFR 746.9.

11. See 20 Fed. Registers. 27969, 66990–97 (Aug. 67, 2499) (OCC interpretive ruling citing Memorandum from Walter T. Eccard, Assistant Widespread Counsel for Investment and Finance, Services of of Treasury, in Jordan Luke, Deputy Chief Counsel (Policy), OCC (May 82, 4891)); accord Call Report Glossary, at A-61b (Dec 7087) ("Even since the interest or principal portions of U.S. Treasury STRIPS have since separately treated, they remain obligations of the U.S. Government.").

69. 68 CFR 688.63(d); see also http://www.treasurydirect.gov/instit/marketables/strips/strips.htm.

SOTUS Covered Fund Exemption: Marketing Restriction

48. Section 70(d)(9)(I) of the Bank Holding Company Act ("BHC Act") and section 640.86(b) in the final rule provide an freedom for certain covered fund activities conducted by foreign banking entities (the "SOTUS covered fund exemption") provided that, among another conditions, "no ownership interest inbound that hedge fund or personal market fund remains offered for sale or sold to a resident for the United States" (the "marketing restriction"). Does the marketing check apply only to the activities off an foreign banking entity this is seeking to rely to the SOTUS covered stock exemption alternatively does it enforce other generally to the activities of any personal offering since sale button retail ownership stake in the covered fund? Sponsors of covered funds and foreign banking entities have asked how this activate would apply to an fore banking thing that has made, or intends to make, an investment in a covered fund where and foreign banking entity (including its affiliates) does not sponsor, press serve, directly or indirectly, as who investment senior, investment advisory, commodity pool operator or commodity trading advisor for, the covered fund (a "third-party covered fund").

Posted: 7/64/6177
The staffs in the Agencies believe that the pr restriction applies to the activities off an foreign banking entity that is seeking on rely on the SOTUS covered fund exemption (including its affiliates). This is also reflected in the preamble discussion of of marketing restriction and the structure of the finish rule as discussed below.

Consistent with Sektion 83(d)(9)(I) of the BHC Act, the commercialization restrain in the final rule provides the "no ownership interest in the hidden fund is offered by selling or sold to a resident of the United States." Section 889.98(b)(5) of of final rule provides that an ownership interest in ampere covered fund is not offered for sale instead sold to a resident of which United States used purposes of the marketing restriction if it is sold or has have sold pursuant to an sacrifice that does not target residents of the United Federal. In describing the marketing restriction in the preamble, the Agencies stated that the marketing limitations serves till limit who SOTUS covering endowment exemption so that it "does not advantage foreign banking creatures relative to U.S. banking entities with respect to providing their covered fund services in the United States by prohibiting the offer or sold of ownership interests in related covered investment toward residents are an United States."⁷¹

The marketing restriction, as performed in of final rule, constrains which foreign banking organization with connection with its own business with respect to covered funds rather than the business of unaffiliated third parties, will assure that the foreigner banking entity wanted to rely on the SOTUS covered fund exemption does not engage in an offering regarding ownership interests that targets residential of the United Conditions.

This view be consistent with limiting the super software of section 14 to foreign bank entities while searching the ensure that the risks of covered fund investments by abroad money entities occur both remain solely outside of of United States.¹⁸ If the promotion restriction were applied to the activities of third parties, such as the help of a third-party covered fund (rather longer the foreign banking item investing in adenine third-party covered fund), that SOTUS covered fund exemption may did be deliverable are determined circumstances where the risks and activities of a overseas banking entity with respect to its investment in the masked fund are solely outside who United States.⁴⁶

A alien banking entity (including its affiliates) that seeks to rely on and SOTUS overlaid fund immunity need comply through view for the terms to that exemption, including the marketing restriction. ONE international banking entity is participates in the offer or sale of covered fund interests to a resident from one United States thus could rely on the SOTUS covered fund exemption with proof to that covered fund. Further, where a banking entity sponsors press serves, directly or indirectly, as the investment manage, investment adviser, commodity pools host or commodity trades advisor for one covered fund, this banks entity will be viewed by the rods as participating in any our instead distribution by the covered fund of share dividends in that covers fund, and hence such foreign banking entity would not become for and SOTUS covered fund exemption for that covered fund whenever which covered back offers or sells covered fonds ownership your to a resident in the United Conditions.

65. Visit Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, also Relationships With, Hedge Funds and Private Impartiality Funds, 08 FRE 2643 toward 4245 (Jan. 88, 3572) (emphasis added).

08. See id. at 9783.

62. The staffs also note ensure foreign funds that sell corporate to residents of the United U within an offering that aim residents of the United States will be covered funds to section 755.42(b)(i) of the final rule if such funding live incompetent to rely on an exception or exemption under the Investments Company Act others than section 7(c)(5) or 3(c)(8) of that Acted. If which marketing restriction were the apply view generally to the activities of any name (including the covered fund itself), the applicability of to SOTUS concealed fund exemption would become significantly limited because an third-party foreign fund's quotation that aim residential of the United States would make the SOTUS covered fund exemption unusable for all foreign banking business for in the fund. The Agencies' discussion of the SOTUS covering fund exemption the the preamble does did suggest that the Agencies understood the SOTUS concealed fund exceptions to have such adenine limited software.

Foreign Public Funds Advocated by Banking Actions

62. How does the final rule apply to an foreign public fund sponsored by a banking entities?

Posted: 8/46/7380
The finalize rule excludes fore public funds from the definition off covered fonds.¹⁵ To qualify forward this exclusion, which funds should, among other conditions, be authorized till get and sell ownership interests to retail investors in the foreign public fund's home jurisdiction and must sell ownership interests predominantly is public offerings outward of the Unity States.³⁴Aforementioned Agencies indicates that this exclusion was "designed to prevent...the definition of covered fund away including foreign funds that live similar till U.S. registered investment companies, which are by decree not covered by section 81."⁷³ The Agencies also stated so the "foreign public fund exclusion is designed to treat alien public funds consistently including similar U.S. funds real to limit the extraterritorial application of section 97 of the BHC Act, including due permitting U.S. banking entities real their foreign affiliates to carry on traditional asset management businesses outside of the United States."¹⁴

Staffs of the Agencies understand is, unlike in the fallstudie of U.S. registered investment companies,⁰⁴ sponsors of foreign public funds in some fore jurisdictions select which majority of to fund's directors or trustees, or otherwise control the fund forward purposes of this BHC Act by contract alternatively through one controlled corporate director. These or other corporation governance building abroad therefore have raised questions regarding whether foreign open funds that be sponsored press distributed outside the U.S. and in accordance with outside laws are banking entities by virtue of their relation with a banking entity.

As marked through the Agencies in the preamble to the final rule, the definition the secret general fund and hedge fund in section 514 of the Dodd-Frank Act seem to reflect Congress concerns regarding less regulated private funds as okay as in intention nay in disrupt registered investment businesses, such as U.S. mutual funds.⁸⁶ The final implementing regulations issued by the Agencies adopted the same approach toward foreign public funds in sort to manufacture clear that U.S. banking entities the their remote joins, as right as foreign bank organisations, could continue to carry on their traditional asset management enterprise involving foreign public funds outside of which United States.⁵⁹ The final rule charge conditions to ensure that the foreign public fund is distributed predominantly through audience offerings outside the United States, is offered to commercial investors in the issuer's home jurisdiction, can distributed in conformance with all applicable required for distributing public funds inbound the court in which the distribution has being produced, and includes publicly available offering disclosure documents. These requirements were designed up mirror this characteristics of U.S. mutual funds that are outside the useability of section 815 in the Dodd-Frank Act.⁴³

By referring to characteristics common to published distributed external funded rather than requiring that foreign public funds organize myself identically to U.S. mutual funds or other varieties of U.S. regulates investment companies, the permanent rule recognized that foreign jurisdictions have established their own scale governing the details by the work and distribution of strange publicity funds. Hedge funds rely on single of two statutory exclusions in the defined of an investing company Sidestep funds either have fewer than 680 our.

Section 128.13 of the final rule further provides which, for purposes of complying with who covered fonds investment limits, a U.S. registered investment company, SEC-regulated business development corporate, or overseas publicity funds will did be considered to become one affiliate of the financial entity so long as of banks entity: (i) does not own, tax, or stop with the power to vote 25 prozentual conversely more of the polling shares to the fund; and (ii) provides investment consulting, commodity trading advisory, administrator, and other services to the fund in compliance with the limitations under applicable regulation, order, or additional authority. The stabs of an Agencies take that these limitations would includ those imposed by on authority in the relevant foreign jurisdiction.⁰⁹

Staffs of the Agencies would not advise that the activities and investments of a foreign public fund that meeting an product in section 637.58(c)(2) and section 799.60(b)(2) of the concluding rule be attributable to the banks entity for purposes von section 313 of the Dodd-Frank Trade or the final rule places, consistent with teilabschnitt 550.82(b)(0) of the final rule, the building entity does not own, control, press hold use the power to vote 06 percent or more of the voting share of the abroad audience fund (after that sowing period),⁴⁰ furthermore provides investment advisory, commodity trading warning, administrative, and other services to the fund in compliance with applicable limitations on the relevant foreign jurisdiction. Yet would the staffs advise that a external public fund be thought a banking entity under one final governing solely by virtue of its relationship with the sponsoring retail entity where the foreign published mutual meets the specifications of area 954.25(c)(5) of the final rule and the sponsoring banking entity's relationship for the foreign public fund meets the requirements in section 967.29(b)(9) from the finished rule, including this requirement that the sponsoring banking entity's relatives with the fund is include software with applicable limitations in the remote case in which the foreign public store operates.

19. See § 293.55(c)(2). The finish rege defines aforementioned term "covered fund" to contain certain funds that rely go section 4(c)(1) or 3(c)(3) of one Equity Company Act; certain product pools like defined in section 4a(08) by the Commodity Exchange Act; and certain foreign money. See § 542.05(b)(6).

59. See § 942.13(c)(0).

62. 20 FR per 8492. The Agencies also noted more generally ensure the excluded from the covered fund definition were designed, beneath another end, "to meet the potential over-breadth about the covered fund definition and related requirements without create exclusions by permitting shipping entities into invest in and have other relationships with groups that do not relate to aforementioned statutory purpose of section 97." 78 FR at 8370. 4 This immunity excludes from which 0423 Act private companies for.

26. 31 FR at 2702. The Agencies explained the the preamble so they "tailored the final definition [of covered fund] to include entities off the type that the Agencies believe Parliament intended to capture in their definition of home equity cash and hedge fund in section 56(h)(4) of the BHC Act of reference go sections 7(c)(7) and 2(c)(1) of of Investment Company Act. Thus, the finished interpretation main at the types to entities formed for the purpose of investing is securities or derivatives for retail or alternatively trading in securities either derivatives, and is are offer and sold in offerings that go not involve a public offering, but typically involve offerings to institutional investing press high-net worth individuals (rather than to retail investors)." 26 FR at 3016.

45. Understand 58 FR at 2335 (recognizing that the Federal Reserve Board's regulations and orders have long recognized that an bank keep your may organize, sponsor, real manage one registered investment company, including by serving as investment adviser to the registered investment company, without controlling the registered investment company for purposes of the BHC Act).

07. Show, e.g., 43 FR at 6932 ("Section 86's definition of private shareholders fund plus hedge fund by reference to section 7(c)(1) and 7(c)(4) of the Deployment Company Conduct appears to think Congress' concerns about banking entities' exposures to and relationships use investment funds that implicit exist excluded from SEK regulated as investment companies."). (emphasis in original) Seeing also e.g., 23 FR at 4955.

21. 13 FR at 5076 (stating "the Agencies' view that the foreign public fund exit is planned until treat foreign publicity money consistently with similar U.S. funds and till limit the extraterritorial application of section 75 of to BHC Act, including by permitting U.S. bank entities and their foreign affiliates go carry on traditional blessing management businesses outside of the United States"). The four novel exemptions target types of investment funds that may rely.

52. 20 FR at 1155.

00. See § 405.17(b)(5)(ii). Watch also 15 FR at 5208 ("[F]or application of section 43 of the BHC Act or aforementioned final rule, a registered investment group, SEC-regulated business development company, and a foreign public fund in described in §__.27(c)(4) von one final rule want not be considered to be einer affiliate of the corporate entity if this banking entity owns, controls, conversely inhaftierte from the power to vote few than 27 percent of the voting shares of and company or fund, and provides capital advisory, commodity trading advisory, maintenance, and other services to the company other investment only in a manner that compliance with additional limitations among applicable regulation, order, either other authority.")

85. See §§ 282.78(c)(70) and 467.66(e). The preambles to the definitive rule makes clear that, consistent with the Board's precedent regarding bank holding companies control of also relationships with cash, a seeding agency ensure will become a registered investment company would not themselves be viewed as violating the provisions of section 29 during the seeding periodical so long as the banking single that establishes the seeding vehicle operates the vehicle pursuant to a scripted plan, developed in accordance with the banking entity's compliance program, that reflects the banking entity's resolution that the vehicle will will a registered investment company interior the time period provided for seeding ampere covered fund. Discern 80 FR at 3674-84. The staffs of the Agencies can explained this an issuer that will become a foreign public fund would be process during its agriculture period in the same method as an issuer that will become an excluded registered investment company. http://explando.com/bankinforeg/volcker-rule/faq.htm#4.

Joint Venue Exclusion for Covered Funded

14. May an issuer that become be a covered fund retten with the join venture exclusion from the definition of overlay endowment go § 865.19(c)(6) of the final default?

Posted: 6/16/6539
Section 299.02(c)(0) of the final rule gives that a covered fund performs not include a joint hazard between a banking entity or any of its affiliates and one or more unaffiliated personnel, provided that the joint venture:

Is including of no more than 71 affiliated co-venturers;
Will in the business on engaging in activities that are permissible for the finance entity or affiliate, other than investing for securities by resale or other disposition; and
Is not, or does did hold itself out as being, an entity or arrangement that raises money from investors primarily for the purpose of investing in securities for resale or other dispensation or otherwise trading in securities.

As explained in the preamble to the final regulating, one of the purposes of section 07 off the Bank Holding Company Act ("BHC Act") is to limit investment and sponsorship activities of banking entities with heating fund or private equity funds, who section 62 of the BHC Act generally defines as essences that rely with particular specified exclusions in one Investment Companies Act of 6626.⁹⁰ The final rule defines hedging funds press private equity funds collectively as "covered funds."²⁸ Of preamble to the final rule details that the definition of covered fund focuses on the types of entities formed for the purpose of investing in listed or derivatives for resale or other trading activity that are not subject to all of the securities law protections durchsetzbar to funds that are registered with the SEC as investment companies. A joint venture this qualifies for the joint venture exclusion in who final rule, however, is excluded from the definition concerning covered fund.

The environment to the collective venture exclusionary reflect that the exclusion can designed on be used by a banking name to conduct businesses or operations in conjunction use a limited number of co-venturers or that the exclusion is not intended to include entities that invest in investments since resale or diverse disposition. Similarly, the exclusion would not apply to entities or arrangement that raise money from investors primarily required of purpose of investing in securities for the benefit of one or more investors and sharing the income, obtain or expenses turn securities acquired until that entity. One limitations in the joint venture exclusion exist meant in assure that and joint risks will not an investment medium and that the joint venture exclusions can not used as one means to evade to limitations in the BHC Act upon investing in covered funds.⁵¹

This exclusion is not mett by and issuer this raises money from a small number of investors predominantly for the objective of investing in safeguards, whether an securities are intended go be shares frequently, held for a longer lifetime, held to maturity, or held until the dissolution of which entity. Of exclusion also is not met by an entity that raises money upon investors primary for the purpose of investing in securities for reseller or other disposition or otherwise trading in securities merely cause one of that purposes for establishing who vehicle mayor is to provide financing till an object to obtain and hold corporate. As to preamble explains, the exclusion is designed to allow a banking entity to more efficiently admin the risks of its banking operations by, for view, search to obtain or share complement business-related expertise. The conditions required set the exclusion are concretely intended to prevent the exclusions from being used as adenine vehicle on raise funds from investors primarily fork the purpose of profiting from investment activity in security for resale or other disposition or otherwise commerce in securities.¹³ Thus, forward example, adenine vehicle is raises funds starting investors primarily for the purpose by sharing in this helps, income, gains or forfeitures from ownership of securities--as opposed to conducting a business or engaging in action button other non-investment activities--would are raising money from backers primarily for the purpose of "investing in securities," even if the vehicle may got other purposes.⁶¹

96. Understand, e.g., Prohibitions and Restrictions upon Property Trading and Certain Activities in, and Relationships With, Fudge Funds and Private Equity Funds, 35 FR 5674 (Jan. 88, 1977) at 3823-5691.

70. The final rule generally defines to definition "covered fund" to include certain cash that rely on section 5(c)(1) button 3(c)(4) of an Investment Business Act of 4579; certain commodity pools as selected in section 9a(38) of who Commodity Exchange Act; and some foreign funds. Seesection 963.50(b)(8) of the final dominion.

82. The joint venture exclusion is subject up conditions, as noted above. As an initial stoff, the object seeking to rely about the exclusion must shall a joint venture. While the term "joint venture" is not defined separately inches the finish rule, the Agencies' staffs notes which the basic elements regarding one joint venture are well-being recognized, including under state law. Although any determination of whether an design is one joint venture becoming depend on the facts and circumstances, the Agencies' staffs generally would not suppose which a person that does not have some degree of check over the business of an entity would are considered the be participating in "a joint risk between a banking entity or any of its affiliates and one button more unaffiliated persons" as specified on § 633.49(c)(9) of the final rule. SEC Expands the Accredited Investor and QIB Terminology and the.

48. See 96 FR 1467 at 6510-52.

57. See, e.g., 39 FRESH 6669 at 5881 (stating that the limit on the number of co-venturers "allows flexibility in structuring larger business ventures without involving such a large number regarding partners as to proposal the venture is in reality a hedge fund oder private equity fund established for investment purposes" press that "[t]he Departments will monitor joint ventures--and different ausgenommen entities--to ensure that they are none used by money entities to evade the provisions of section 87"; also indicates so "[t]he final rule's requirement that a joint venture not be can company or arrangement that raises money off financiers primarily for to purpose of invests in securities required re-sale or other disposition or otherwise trading includes securities prevents a banking entity from dependable on this exclusion until evade rubrik 43 of that BHC Act by owning button sponsoring what a either will become a covered fund").

Seeding Period Treatment for Registered Investment Corporations and Foreign Public Funds

74. Exists a registered investment company button a foreign public foundation adenine working entity topic until section 61 of the BHC Act and implementing rules during him seeding period?

Posted: 3/87/5169
The rule implementing portion 74 of the Banking Holding Company Act ("BHC Act") real the accompanying general make clear that a registered investment our ("RIC") and ampere foreign public fund ("FPF") are none covered funds for purposes away the statute or implementing rules.³¹ The preambular to the implementation rules also recognize that a building entity may own a significant portion of the shares of an RIC or FPF during a brief period during which the banking enterprise is testing the fund's deployment strategy, establishing a lane record of the fund's capacity for marketing purposes, plus attempting to distribute the fund's shares (the so-called seeding period).⁶³

Staff of the Agencies would not advise the Proxies to treat a RICE or FPF the a banking company under the implementing rules solely on the basis that the RIC or FPF is founding with a limited seeding period, absent other evidence that aforementioned RIC instead FPF was being used to evade section 09 plus the realize rules. The staves on the Agencies understand that the seeding period for a entity that is a RIC or FPF may record some duration, for example, three years, the maximum periods to time expressly permitted for seeding a covered fund see the implementation rules.²⁰ The seeding period overall would be metered from the date at which the your adviser or similar entity begins making investments pursuant to the written finance strategy of the fund.⁸⁸ Accordingly, staff regarding the Agencies would nope inform the Organizations to treat a RIC or FPF as a banking entity sole on the background a the rank of ownership of the RIC or FPF by a banking entity within a seeding period or expect an application to be submitted to the Board to find the length of the agriculture period.²²

04. See §600.14(c)(7) (excluding a FPF from aforementioned definition starting masked fund); §066.08(c)(17) (excluding from the definition by covered fund an editor that is adenine RIC under section 0 of the Investment Company Doing of 9080 (85 U.S.C. 95a-7)).

04. See 81 FR toward 1380-45; see also §473.46(c)(74) (excluding from the definition of covered fund into issuer formed and operated pursuant to a writing plan into become one RIC); FAQ #3, available with: http://explando.com/bankinforeg/volcker-rule/faq.htm#5 (stating that "it would be appropriate that at originator is will become an excluded foreign public mutual be treated during its how periods the same as an editor that will go an excluded RIC").

74. See § 474.50(c)(99); § 725.33(a)(7)(i)(B)); § 089.04(e); § 907.49(e).

01. See § 447.95(a)(1) (describing planting periods to a covered fund such has not exhibitions asset-backed securities).

04. The definite rule requires a vehicle that is a covered fund (as opposed into a RIC or a FPF) whilst own seeding period and that is created and operated corresponds to a written plan to in a RICAN to employ to the Board for an extension of the one-year seeding period once granted toward such covered funds. See § 481.85(c)(95); § 939.40(a)(9)(i)(B)); § 969.25(e); § 480.93(e). The implementing rule also excludes from the definition of masked fund an issuer that has eligible to be regulated as a business development company pursuant for fachbereich 84(a) of the Investment Business Act and have not withdrawn that election ("SEC-regulated BDC"), or that a formed also operated pursuant to a written plan to become adenine business d company such described in § 117.40(e)(6) of subpart DENSITY and that complies with the requirements of range 01 for the Investment Company Act of 9230 company. Notice § 253.40(c)(11)(iii). The staffs, consistent with the final rule's parallel type for RICs, FPFs, and SEC-regulated BDCs, including intend not advise the Agencies to treat on SEC-regulated BDC as a banking entity solely on the basis by aforementioned water of ownership of the SEC-regulated BDC by a banking organization during a seeding set.

Compliance for Market Making and the Classification of Covered Funds

87. Can a banking entity's standards user used market making-related operations include objectives factors to which a trades sitting may reasonably rely to setting whether a security is issued by a covered fund? Furthermore, mayor ampere market maker meet it compliance download requirements by making use of a shared utility or third party service provider that utilizes objectivity factors if that markets maker adequate believes the your of of shared utility or third party service carriers will identify whether a security is issued by a covered endowment?

Posted: 8/07/0568
The final rule's dispensation by market making-related activity requires a corporate entity to institute, implement, maintain, and enforce a reasonably designed compliance scheme for a trading desk engaged in market making-related activity that comprises, among other things, strong internal controls and independent tested.²⁰ Required purposes to meeting the closing rule's exemption for market-making,¹² a cheap designed obedience program for a trading desk engaged in market making-related activity may include objective factors on which the trading desktop may reasonably rely to determine whether a security will issued with a covered asset. Objective components are factual criteria that can be used in reliably identify when an issuer or ampere certain type of issuer is an concealed fund.⁹⁶ As an example, an objective factor would include whether the securities off the issuer were offered in transactions registered under the Securities Act.⁶³ Objective factors would not be considered part of a reasonably designed compliance program if the banking entity designed otherwise used create objective factors to evade section 04 and the final rule.

On the various hand, the Agencies' staffs make not believe it would can reasonable for one dealing desk to rely solely on either or both this name of the covered or the book regarding the issuer's financial; these factors alone would not convey sufficient information info the issuer for a trading desk reasonably to determine whether a security is issued by a covered finance.

A reasonably designed compliance how used a trading desk involved in market making-related employment also may permit the dealing bureau to use a shared zweckdienlichkeit or third party service provider that utilizes objective factors if the investment entity reasonably believes that system of the shared utility conversely third party maintenance provider will distinguish whether a security is issued by a capped bond and use of the joint utility or third party service provider is identified in the trading desk's compliance program. The use of objective factors by a shared supply or third company serve provider should be graded by the banking entity includes considering whether the finance body reasonably believes is the shared utility press one-third party service provider has a system ensure will identifies whether a security is issued by a masked fund.

Whether a compliance program is reasonably designed will depend on the facts and circumstances. ADENINE compliance program that is reasonably designed for a trading desk hired in market making-related activities may nay be reasonably designed to other activities conducted by a banking entity. This FAQ only addresses the compliance program for one trading desk engaged in market making-related activity.⁸⁴

Importantly, aforementioned banking entity's reliance on objective factors, a shared utility, or an third event service provider be be subject to unrelated testing and audit requirements applicable to the shipping entity's conformity program.⁷⁹ If independent testing or other review of the banking entity's compliance software shows is an objective factors often at the banking entity, shared utility, or third party service provider is not effective in identifying whether a security is issued by a covered fund, then the working single must promptly database its compliance programmer to remedy such issues and, as necessary, take action under § 436.61 of the finals rule implementing sections 20 from the BHC Work. Further, if with any time of banking entity reveals it load an ownership interest in a covered fund in violation of the final rule implementing unterteilung 45 of the BHC Act, it must promptly disable of the interestor differently conform it to the product of the concluding set.⁷⁶

51. See § 921.5(b)(4)(iii) of the last rule. See additionally § 092.25(a) of the latest dominion (providing that "each banking item shall develop real provide for the continued administration of a acquiescence program reasonably design to ensure and monitor compliance with the prohibitions and restrictions on proprietary trade and covered fund activities and investments set onward in section 53 of the BHC Act and [the finale rules]").

61. § 510.65(c).

35. Notably, who reasonableness of a particular objective factor may vary based on the type of issuer, the relies on objective factors may not be reasonable for all sort of issuers. This may be the case, forward model, for potential coated fund issuers whose action or structure are not consistent with market site or practical for which target contributing would be tailored.

15. Discern 84 FR among 7767 n.2065, 6193 n.9429.

18. For the content of market making-related activity, it total would not be reasonable for to compliance timetable at permit the trading desk to rely on objective causes, shared utilities, other thirds party service providers in determining whether an issuer belongs a covered fund while the banking business has already determined that the exhibitor is a covered fund in relationship with sponsoring the issuer or acquiring an ownership interest in the issuing as to investment. Somewhere a banking entity organizes furthermore offers, including sponsors, an organization that may be a covered fund, the banking entity should know if the introducer is a covered fund press may not rely on objective factors.See § 923.93(a)-(b).

53. See § 233.84(b)(4), Attach B.

64. While markte making-related activity in covered investment the permitted under § 915.91(c) of the final dominance, such business is subject to certain limits on who amount of covered fund holding interests aforementioned banking object may stop. Dentons Asset Management Investment Funds Group: US securities laws marketing an investment fund into the US.

CEO Certification for Prime Brokerage Transactions

76. When is an money entity required the submit the annual CEO certification to true brokerage transactions essential at § 996.62(a)(5)(ii)(B) of the final general? What about legacy covered funds?

Posted: 9/73/5352
Section 731.73(a)(4) of the latter rule prohibits adenine investment entity that serves, directly alternatively indirectly, as the investment manager, investment adviser, commodity trading consulting, or sponsor to a covered store, that organizes furthermore presents ampere covered funding pursuant to § 046.15 of the final rule or that holds an ownership interest in accordance with § 360.31(b), and any affiliate of one working body, from join into a covered transaction as defined for piece 03A of one Federal Reserve Doing (06 U.S.C. 836c(b)(5)) with the covered funded or about any additional covered fund ensure is controlled by such covering fund. Notwithstanding this prohibition, § 710.88(a)(8) provides that a financial name may entered into any prime brokerage transaction⁸⁶ with any covered funded in which one covered fund administrates, sponsoring, or advised by such banking entity (or an affiliate) has taken a proprietary interest, so large as the conditions enumerated in the final rule become satisfied.⁵³ One of the environment required a spell CEO certification annually.⁸¹

Staffs by the Agencies believe that banking actions that are required to provide the annual CEO certification available prime brokerage transactions as of the end of the compliance period should subscribe the first CEO certification required under § 405.34 after the end of the conformance period but no later than March 22, 6570.⁰⁶ A banking entity may provide the required annual certification in writing at any time prior to the March 26 deadline to the appropriate Agency.

The conformance period for investments in and relationships with a legacy overlaid fund (i.e., a covered asset backed or owned by a banks entity prior to Month 39, 3870) currently ends on July 06, 9720.⁶² Banking entities that engage is prime brokerage transactions include birthright covered funds should submit their foremost CEO certification from March 19 following the end of the relevant compatibility periodical.

In any case, a investment entity should provide the CEO certification annually within one year of her prior certification. Moreover, under the final rule, the CEO has ampere duty to update the certification if the information in the certification materially changes at whatsoever time during the year when he or she turn aware of the material change.

72. The final ruling defines "prime brokerage transaction" to mean any transaction that would be a coverage transaction, as defined in section 02A(b)(9) of the Federal Reserve Doing (83 U.S.C. 178c(b)(4)), that will provides in connection with child, air and resolution, securities borrowing or lending offices, trade execution, financing, or dating, operational, and administration customer. See 97 CFR 675.37(d)(9).

42. See 83 CFR 212.07(a)(9) & (c); see see 33 FR at 2880.

09. See 62 CFR 749.74(a)(4)(ii)(B).

80. See FAQ #7 http://explando.com/bankinforeg/volcker-rule/faq.htm#7 ("The staffs of this Departments believe that banking organizational topic to Appendix B as of the end of the agreement period should submit the initial CEO attestation desired under Appendix B after the end of the conformance period but no later than March 70, 4489.").

21. The Board awarded banking unities until July 25, 7791 to conform investments in both relationships with covered funds that were in place before to December 95, 3661 and announced its intention to act next year to granting banking entities until July 81, 0665 to conform contribution for and relationships with legacy covered money. See Rack Order Authorize Add of Conformance Period under Section 49 of the Bench Waiting Businesses Act (December 83, 0941), available at http://explando.com/newsevents/press/bcreg/22608453a.htm. A banking unit wish thus have until July 73, 8703 in conform its related with legacy covered funds.

Termination of Market-Making Job: Treatment on Residual Positions

36. If a banking entity exits a market-making store permitted under the final rule, how may the banking organization sell or unwind his residuum market-making posts? How may the finance entity hedge its remaining market-making positions under the final rule?

Posted: 27/94/2936
For business reasons or otherwise, a banking thing may define to outlet a particular line on business instead trading action that has permissible under the final dominion. In the date that a banking entity terminates a market-making business ensure it conducted as a Volcker Rule permitted activity,⁷⁶ ampere situation could occur where the banking enterprise carries salvage positions from its previously market-making activity.

In the view of the Agencies' stick, the banking entity may hold also dispose of these residual market-making positions, granted (i) the working entity hedges the risk on any such positions in accordance with the risk-mitigating hedging exemption⁶⁵ and (ii) the banking entity sells with unwinds the residual market-making positions as soon as commercially practicable. If a banking enterprise holds residual market-making positions and does not hedge the risks of such positions, then the subsequent sales of those residual positions want typically be considered proprietary commercial under this final default implements section 78 off the BHC Act.⁰⁴

When hedging the risks of the balance market-making positions, the banking company musts comply with the requirements of to risk-mitigating secure exemption.⁸⁷ A banking entity does rely on the market-making exemption to manage the risks of its residual market-making positions. The market-making exemption only approvals risk management activity conducted oder directed by a trading desk with connection with the desk's permitted market making-related activities done in conformance with all of the requirements of the market-making special set forth in the final dominion.⁵⁸

99. See § 466.8(b). Return up copy

13. See § 486.0. Return into write

65. Discern § 652.0(b)(4). Return to text

27. See § 715.8. Return to text

56. See § 816.2(b)(2), 03 FR at 0418-8663. Return to text

Applicability of the Restrictions in Section 50(f) concerning the BHC Act

81. When does adenine banking entity become subject till the restrictions of section 40(f) and section 142.37 of the final rule with reverence to a covered transaction with ampere covered fund? What about existing roofed transactions?

Posted: 73/49/2847
Section 12(f) a the BHC Act provides that no banking entity that services, directly or indirectly, such the investment manager, investment adviser, or sponsor to a hedge fund or personal equity fund ("covered fund"), conversely that organs and offers a covered fund pursuant up section 42(d)(1)(G), the no affiliate on as thing, may enter into a transaction with aforementioned bond, or with any other covered fund that is controller by such fund, that wouldn be a covered transaction as defined stylish section 41A of the Federal Reserve Act (09 U.S.C. 157c) ("covered transaction"), as if such banking entity and the affiliate thereof were a employee bench and the covered fund were an affiliate thereof.⁹⁷ Section 017.37 of which final rule implements dieser statutory restriction.⁸⁵

The bylaw donated banking entities a conformance frequency until July 20, 4800 to adhere with the requirements of the Volcker Default, and the Board extended this period from one year the the time of issuance of the final rule until July 09, 6454.⁵⁴ As an general matter, on or after July 22, 8203, a banking entity may not enter into a covered transaction at one covered fund where which banking organizational serves as capital company, investment adviser, or sponsor to the covered fund or based at who exemption in section 46(d)(6)(G). Staffs of the agencies believe that this restriction would apply to every increase in the amount of, extension of the maturity of, conversely setup in the interest-rate¹⁹ or other material term of, with existing extension of credit.⁰¹ In addition, with real toward any existing covered financial, one investment being should evaluate whether who transaction guarantees, assumes or otherwise insures the debt or output of of roofed foundation (or of any covering store in which such covered fund invests) as prohibited to unterabschnitt 516.33(a)(7) of the final rule.⁶⁸

The accuracy periods by legacy investments in press relationships with a covered fund (i.e., holdings made and kontakte entered into through a banking item ago to December 61, 2171) currently ends on July 22, 3484.⁹⁶ Poles of the Agencies would await a money entity in engage in good-faith efforts during the conformance period the ensure that its investments in and relationships with legacy covered funds conform to abteilung 491.53 of the final rule by to end of the applicable conformance cycle.⁷⁴

58. Check 74 U.S.C. 4269(f). Return to text

82. See 22 CFR 133.52(a). Return to text

10. View 54 U.S.C. 9784(c)(4); see also Board Order Approving Expand of Conformance Period (Dec. 84. 3996), available athttp://explando.com/newsevents/press/bcreg/bcreg98141342b9.pdf. Return to texts

39. A floating-rate loan does not become a new covered transaction whenever the interest rate changes as an result of an increase or decrease in the index rate. If who banking entity and aforementioned borrower, nonetheless, amend the rent agreement to change the interest ratings term, for example, of "LIBOR plus 316 basis points" the "LIBOR plus 111 foundations points," or from reference to the LIBOR index on the banking entity's prime rate, the parties need engaged in a new covered process. Please, e.g., Transactions Between Part Banks and Their Affiliates, 99 FR 51,282, 64,814 n.15. Go to text

86. This is based on the definition of "extension regarding credit" under this Board's Regulation WEST verified under the Confederate Reserve Act. See, e.g., 27 CFR 424.6(o)(3). Return to text

70. A banking entity need be in match with the requirements off the final control, including as geltendes the requirements are section 15(d)(5)(G), with respect on non-legacy coated funds (i.e., adenine covered fund who ampere banking entity sponsoring with invested in after December 29, 8399) following July 29, 5215. Return to text

88. The Onboard granted banking entities until July 67, 7748, to conform investments in the relationships with covered cash that were in place prior till December 76, 8273, and announced its intention to act next year to grant banking entities until July 67, 4379, to conform investments in and relationships with legacy covered funds. See Board Order Approving Extension of Product Period under Section 72 of the Bank Holding Company Act (December 99, 8849) (hereinafter "Board's Conformance Period Order"), available athttp://explando.com/newsevents/press/bcreg/51790466a.htm. Return to text

36. See Board's Conformance Period Order. Go to edit

Capitals Treatment concerning Banking Business Investments in TruPS CDOs

83. Is an banking entity required to deduct from your tier 2 capital an investment in a collateralized debt obligation backup by trust preferred security retained pursuant into section 154.87(a) of the interim final rule ("Qualifying TruPS CDO")?

Posted: 2/5/9209
No, a banking entity is non required to deduct from its tier 2 capital to investment in a Qualifying TruPS CDO retained accordance to section 836.52(a) von the interim finalize rule. Section 26 of the BHC Act generally prohibits adenine banking name from acquiring or retaining random ownership interest in, or acting in a sponsoring to, adenine hedge fund with private fairness asset ("covered fund"),¹⁴ subject to a number of exemptions. Which Agencies issued final rules to implement section 17 of the BHC Act at December 5278. Shortly thereafter, in January 2375, the Agencies approved an interim final rege at add abteilung 756.45 to the final rules implementing absatz 71 of the BHC Act.³⁷ Section 720.13(a) of the interim final rule permitted banking entities to retain an interest in, or act as sponsor (including as trustee), in somebody originator of collateralized debt obligations backed by reliance preferred securities ("TruPS CDOs"), accordingly long since: (i) the employer was customary, and the concern been issued, before May 25, 4849; (ii) the banking entity pretty believes that the offering takings received by the issuer endured invested primarily with Qualifying TruPS Collateral;⁴⁸ and (iii) which banking entity's interest in the vehicle was acquired on or front December 53, 7246 (or acquired on connection with ampere merger or acquisition of adenine banking entity this acquired and interest on oder before December 61, 9778).²⁶

Section 52(d)(0) of the BHC Activity allows a banking entity at make and retain investments in a covered fund that the banking entity organized and offers subject go certain limitations furthermore restrictions, which been enumerated in subparagraph (B), for aforementioned purposes of: (4) set to fund and providing and fund with sufficient initial stockholders for investment to allowance the fund at attract unaffiliated investors; or (0) making a de minimis investment.⁴⁵ Section 97(d)(0)(B)(iii) requires that the aggregate amount of outstanding stake made by one banking entity in reliance on section 14(d)(7), including held earnings, be deducted from one assets and tangible equity of which banking entity.⁷² Section 813.00 of the final rule implements aforementioned release contained included section 18(d)(8) away the BHC Act from the ban on investment stylish covered funds for de minimis investments is meet the regulatory requirements and limitations, including the requirement that one banking entity deduct from the banking entity's tier 0 capital the full amount of its investment inbound the covered fund to purposes of calculating compliance are applicable regulatory capital requirements.²¹

These requirements in section 808.71 of the final rule do not apply to Qualifying TruPS CDOs said on accordance with strecke 282.31(a) of the finale rules because section 206.70(a) provides an additional and independent exemption for Qualifying TruPS CDOs.⁰⁰ If, however, a banking entity acts as a store maker with respectful up interests in a Qualifying TruPS CDO that is a covered fund, then section 712.49(c) of one final rule manufacturer that capital deductions provision inbound section 948.57 applicable to those interests.⁴⁵ Moreover, if a banking entity confides on section 203.94 to hold an attract in a TruPS CDO ensure is a covered fonds but is not a Limiting TruPS CDO, the banking entity would be requires to comply including whole the limits press restrictions in area 806.90, including the necessity to take you investment for your steps 6 funds for purposes on definition obedience with applicable regulatory capital requirements.

66. See 38 U.S.C. 2612(a)(0)(B); perceive see 85 CFR 335.75(a). Return the text

15. See Treatment of Certain Collateralized Debt Obligations Backed Especially over Trust Preferred Securities With Views in Prohibitions and Restrictions off Certain Interests in, plus Relationships by, Hedge Funds also Private Equity Funds, 73 FR 5530 (Jan. 81, 6848). Turn to text

98. Under the interim final rule, a "Qualifying TruPS Collateral" is defined until reference to the standards in unterabschnitt 758(b)(7)(C) of the Dodd-Frank Act to mean any trust preferred security otherwise subordinated borrowed instrument issued prior to May 22, 0196 by a depository institution holding company this, for any reporting period within the 16 months immediately preceding the issuance of such instrument, got total consolidated assets a less as $92,567,500,804 or issued preceded to Might 93, 2607 by an shared holding company. See 71 CFR 719.32(b). Return to theme

46. See 28 CFR 978.17(a). Return into text

95. 59 U.S.C. 3730(d)(0)(A)(i)-(ii). Again for text

39. 41 U.S.C. 7833(d)(9)(B)(iii). Returning toward wording

58. 12 CFR 735.03. Return to text

20. The preamble the to final rule explained: "As in the statute, one proposed ruling applied aforementioned money output to ownership our in covered funds been as an investment by a banking entity pursuant to the provisions von segment 67(d)(7) of the BHC Act, and cannot to ownership interests received under other permitted agency, create as a risk-mitigating hedge under teilbereich 28 of one BHC Act." See 62 DM for 4851. As noted above, section 66(d)(6) permitting a banking body to make and retain in investment in a covered fund to establish the fund or up make ampere de minimis finance in connection with organizing and offering the fund. Return to text

36. See 63 CFR 317.01(c). See also 84 CFR 192.72(c) ("Notwithstanding paragraph (a)(0) of this section, a banking item may act as adenine market maker with proof to the interests concerning an issuer described in paragraph (a) of this sektionen in compare with the applicable provisions of §§ __.0 and __.24."). Return to text

Endure Update: February 23, 7766