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SEC EXTENDS BANK EXEMPTION FROM "BROKER" REGULATION UNTIL SEPTEMBER 28, 2007

The SEC today further extended the bank exemption from the definition of "broker" until September 28, 2007. Banks engaged in securities activity that might otherwise require them to register as a broker with the SEC, may continue to engage in those activities without registering until at least that date. The exemption also applies to savings banks and savings associations.

Until GLBA became law in November 1999, banks had a blanket exemption from having to register with the SEC as a broker. Under the functional regulation scheme put in place by GLBA, banks engaged in securities brokerage activity will in the future be required to register with the SEC as a broker, unless the activity falls within one of a series of exceptions enumerated in the Exchange Act.

The SEC first provided guidance on when a bank would have to register under this new statutory scheme in a May 2001 release adopting rules on this topic. Because of a strongly negative reaction to its proposal, both by the banking industry and banking regulators, the SEC has continued to grant temporary exemptions to banks from broker registration until a more acceptable regulatory scheme can be developed.

On Oct. 13, 2006, President Bush signed into law the Financial Services Regulatory Relief Act of 2006 ("Regulatory Relief Act"). Among other things, the Regulatory Relief Act requires the SEC and the Federal Reserve Board ("Board") to jointly adopt final rules implementing the bank broker exceptions in Section 3(a)(4) of the Exchange Act. The Regulatory Relief Act also requires the SEC and the Board to consult with and seek the concurrence of the federal banking agencies on the content of the rulemaking. The final set of rules jointly adopted by the SEC and the Board will supersede any other proposed or final rule issued by the SEC on or after the date of enactment of the Gramm-Leach-Bliley Act with regard to the bank exceptions to the definition of "broker" in Exchange Act Section 3(a)(4)(B).

Consistent with the Regulatory Relief Act, on Dec. 18, 2006, the SEC and the Board jointly proposed implementing rules, designated as proposed Regulation R. At that time, the SEC also granted banks an exemption from compliance with the definition of broker until July 2, 2007 in order to permit the Commission and the Board time to receive and evaluate comments and to take final action on proposed Regulation R. The SEC today extended that exemption until September 28, 2007, to permit the SEC and the Board more time to consider and evaluate comments on proposed Regulation R.

The SEC's order extending the bank exemption from the definition of broker may be found at www.sec.gov/rules/other/2007/34-55991.pdf

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For more information on the application of GLBA to banks and broker-dealers, please contact, in Los Angeles, John F. Hartigan, 213.612.2630, jhartigan@morganlewis.com; and in Washington, D.C., Kathleen W. Collins, 202.739.5642, kcollins@morganlewis.com; or Jack P. Drogin, 202.739.5380, jdrogin@morganlewis.com.