(a) Scope. This subpart is applicable to state member banks that
have filed notice as, or are required to file notice as, government
securities brokers or dealers pursuant to section 15C of the Securities
Exchange Act (15 U.S.C. 78o-5) and Department of the Treasury rules
under section 15C (17 CFR 400.1(d) and 401).
(b) Definitions. For purposes of this section:
(1) Bank that is a government
securities broker or dealer means a state member bank that has
filed notice, or is required to file notice, as a government securities
broker or dealer pursuant to section 15C of the Securities Exchange
Act (15 U.S.C. 78o-5) and Department of the Treasury rules under section
15C (17 CFR 400.1(d) and 401).
(2) Customer does not include a
broker or dealer or a government securities broker or dealer.
(3) Government security has the same meaning as this term has in section 3(a)(42) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(42)).
(4) Non-institutional customer means any customer other than—
(i) a bank, savings association,
insurance company, or registered investment company;
(ii) an investment adviser registered
under section 203 of the Investment Advisers Act of 1940 (15 U.S.C.
80b-3); or
(iii)
any entity (whether a natural person, corporation, partnership, trust,
or otherwise) with total assets of at least $50 million.
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(c) Business conduct. A bank that is a government securities broker or dealer shall observe
high standards of commercial honor and just and equitable principles
of trade in the conduct of its business as a government securities
broker or dealer.
(d) Recommendations to customers. In recommending to a customer
the purchase, sale, or exchange of a government security, a bank that
is a government securities broker or dealer shall have reasonable
grounds for believing that the recommendation is suitable for the
customer upon the basis of the facts, if any, disclosed by the customer
as to the customer’s other security holdings and as to the customer’s
financial situation and needs.
(e) Customer information. Prior to the execution
of a transaction recommended to a non-institutional customer, a bank
that is a government securities broker or dealer shall make reasonable
efforts to obtain information concerning—
(1) the customer’s financial status;
(2) the customer’s tax
status;
(3) the customer’s
investment objectives; and
(4) such other information used or considered
to be reasonable by the bank in making recommendations to the customer.
