May 2, 1990
TO: BOARD OF GOVERNORS NO. 34-90
SEC RULES COMMITTEE NO. 25-90
RE: FED ORDER PERMITTING BROKERAGE OF AFFILIATED FUNDS
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In an order issued April 23, 1990, the Federal Reserve
Board approved the application of a bank holding company
(Fleet/Norstar) to acquire assets of a securities broker and
thereby engage in retail securities brokerage activities. The
Institute had filed a comment letter on the application in which
we stated that, to the extent the holding company was requesting
authority to broker securities issued by affiliated investment
companies, such activities were contrary to law.
In its order, the Federal Reserve Board stated that the
holding company, through its brokerage subsidiary, could broker
shares issued by investment companies advised by the holding
company's subsidiary bank (or a subsidiary of the bank). The
Board stated that its interpretive rule that prevents a bank
holding company from engaging in the sale or distribution of
securities for any investment company for which it acts as
investment adviser does not apply where the bank serves as
adviser, since Section 4(c)(8) of the Bank Holding Company Act
"does not empower the Board to authorize activities for banks".
(The Board had reached a similar conclusion in an earlier order,
Norwest Corporation. See Memorandum to Board of Governors No.
79-89 and SEC Rules Committee No. 82-89, dated December 29,
1989.)
As in Norwest, the Board noted that the broker would be
acting only as agent and would not underwrite or deal in
securities. The Board also noted that the broker committed that
it would make certain disclosures to customers regarding
securities of affiliated investment companies, including that the
securities are not obligations of the bank or an affiliate of the
bank and are not insured by the FDIC.
The Board also repeated its statement in Norwest that it
was "considering seeking public comment" on revising its
interpretive rule governing the sale of affiliated investment
company securities.
A copy of the Board's order is attached. We will keep you
informed of developments.
Craig S. Tyle
Associate General Counsel
Attachment