June 21, 1994
TO: BANK INVESTMENT MANAGEMENT MEMBERS NO. 24-94
BOARD OF GOVERNORS NO. 54-94
RE: NASD NOTICE TO MEMBERS CONCERNING BANK BROKER-DEALER
ACTIVITIES
__________________________________________________________
The National Association of Securities Dealers, Inc., recently
published a Notice to Members concerning a no-action letter that
the Securities and Exchange Commission staff issued to the Chubb
Securities Corporation. The Chubb letter involves broker-dealer
sales activities on bank premises. A copy of the Notice (with the
enclosed Chubb letter) is attached.
The staff gave no-action assurances to Chubb under Section
15(a)(1) of the Securities Exchange Act with respect to a broker-
dealer networking arrangement operated on the premises of a
financial institution. The broker-dealer must enter into a written
agreement with the financial institution, stipulating that the
broker-dealer will be responsible for all securities business
conducted at the financial institution, that all securities
transactions will be effected only by persons registered with the
broker-dealer, and that the broker-dealer will take certain steps
with regard to its physical location, customer disclosure
procedures, and promotional literature to distinguish the brokerage
services from the banking functions of the financial institution.
The financial institution must agree to allow supervisory
personnel of the broker-dealer and representatives of the SEC, the
NASD, and any other applicable federal and state government
authorities, to inspect the financial institution's premises and
books and records maintained with respect to brokerage activities.
The financial institution also must monitor its unregistered
employees to ensure that they perform only clerical and ministerial
functions related to securities transactions.
The Notice points out that "bank regulators have taken the
position that they have responsibility and authority to oversee and
monitor the conduct of broker-dealers" and that "the NASD and the
SEC continue to work closely with the bank regulators in an effort
to develop an effective means to eliminate unnecessary duplication
and regulatory overlap."
Paul Schott Stevens
General Counsel
Attachment