(a) Permitted
trading in domestic government obligations. The prohibition contained
in section 248.3(a) does not apply to the purchase or sale by a banking
entity of a financial instrument that is:
(1) An obligation of, or issued or guaranteed
by, the United States;
(2) An obligation,
participation, or other instrument of, or issued or guaranteed by,
an agency of the United States, the Government National Mortgage Association,
the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation, a Federal Home Loan Bank, the Federal Agricultural Mortgage
Corporation or a Farm Credit System institution chartered under and
subject to the provisions of the Farm Credit Act of 1971 (12 U.S.C.
2001 et seq.);
(3) An obligation
of any State or any political subdivision thereof, including any municipal
security; or
(4) An obligation of
the FDIC, or any entity formed by or on behalf of the FDIC for purpose
of facilitating the disposal of assets acquired or held by the FDIC
in its corporate capacity or as conservator or receiver under the
Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
(b) Permitted trading in foreign government obligations.
(1) Affiliates of foreign banking entities in the
United States. The prohibition contained in section 248.3(a)
does not apply to the purchase or sale of a financial instrument that
is an obligation of, or issued or guaranteed by, a foreign sovereign
(including any multinational central bank of which the foreign sovereign
is a member), or any agency or political subdivision of such foreign
sovereign, by a banking entity, so long as:
(i) The banking entity is organized
under or is directly or indirectly controlled by a banking entity
that is organized under the laws of a foreign sovereign and is not
directly or indirectly controlled by a top-tier banking entity that
is organized under the laws of the United States;
(ii) The financial instrument is an
obligation of, or issued or guaranteed by, the foreign sovereign under
the laws of which the foreign banking entity referred to in paragraph
(b)(1)(i) of this section is organized (including any multinational
central bank of which the foreign sovereign is a member), or any agency
or political subdivision of that foreign sovereign; and
(iii) The purchase or sale as principal
is not made by an insured depository institution.
(2) Foreign
affiliates of a U.S. banking entity. The prohibition contained
in section 248.3(a) does not apply to the purchase or sale of a financial
instrument that is an obligation of, or issued or guaranteed by, a
foreign sovereign (including any multinational central bank of which
the foreign sovereign is a member), or any agency or political subdivision
of that foreign sovereign, by a foreign entity that is owned or controlled
by a banking entity organized or established under the laws of
the United States or any State, so long as:
(i) The foreign entity is a foreign
bank, as defined in section 211.2(j) of the Board’s Regulation K (12
CFR 211.2(j)), or is regulated by the foreign sovereign as a securities
dealer;
(ii) The financial instrument
is an obligation of, or issued or guaranteed by, the foreign sovereign
under the laws of which the foreign entity is organized (including
any multinational central bank of which the foreign sovereign is a
member), or any agency or political subdivision of that foreign sovereign;
and
(iii) The financial instrument
is owned by the foreign entity and is not financed by an affiliate
that is located in the United States or organized under the laws of
the United States or of any State.
(c) Permitted trading on behalf of customers.
(1) Fiduciary transactions. The prohibition
contained in section 248.3(a) does not apply to the purchase or sale
of financial instruments by a banking entity acting as trustee or
in a similar fiduciary capacity, so long as:
(i) The transaction is conducted for
the account of, or on behalf of, a customer; and
(ii) The banking entity does not have
or retain beneficial ownership of the financial instruments.
(2) Riskless
principal transactions. The prohibition contained in section
248.3(a) does not apply to the purchase or sale of financial instruments
by a banking entity acting as riskless principal in a transaction
in which the banking entity, after receiving an order to purchase
(or sell) a financial instrument from a customer, purchases (or sells)
the financial instrument for its own account to offset a contemporaneous
sale to (or purchase from) the customer.
(d) Permitted trading by a regulated insurance company. The prohibition contained in section 248.3(a) does not apply to
the purchase or sale of financial instruments by a banking entity
that is an insurance company or an affiliate of an insurance company
if:
(1) The insurance company
or its affiliate purchases or sells the financial instruments solely
for:
(i) The general
account of the insurance company; or
(ii) A separate account established
by the insurance company;
(2) The purchase or sale is conducted in compliance with, and subject
to, the insurance company investment laws, regulations, and written
guidance of the State or jurisdiction in which such insurance company
is domiciled; and
(3) The appropriate
Federal banking agencies, after consultation with the Financial Stability
Oversight Council and the relevant insurance commissioners of the
States and foreign jurisdictions, as appropriate, have not jointly
determined, after notice and comment, that a particular law, regulation,
or written guidance described in paragraph (d)(2) of this section
is insufficient to protect the safety and soundness of the covered
banking entity, or the financial stability of the United States.
(e) Permitted trading activities
of foreign banking entities.
(1) The prohibition contained in section
248.3(a) does not apply to the purchase or sale of financial instruments
by a banking entity if:
(i) The banking entity is not organized or directly or indirectly
controlled by a banking entity that is organized under the laws of
the United States or of any State;
(ii) The purchase or sale by the banking entity is made pursuant
to paragraph (9) or (13) of section 4(c) of the BHC Act; and
(iii) The purchase or sale meets the
requirements of paragraph (e)(3) of this section.
(2) A purchase or sale of financial
instruments by a banking entity is made pursuant to paragraph (9)
or (13) of section 4(c) of the BHC Act for purposes of paragraph (e)(1)(ii)
of this section only if:
(i) The purchase or sale is conducted
in accordance with the requirements of paragraph (e) of this section;
and
(ii) (A) With
respect to a banking entity that is a foreign banking organization,
the banking entity meets the qualifying foreign banking organization
requirements of section 211.23(a), (c) or (e) of the Board’s Regulation
K (12 CFR 211.23(a), (c) or (e)), as applicable; or
(B) With respect to a banking entity that
is not a foreign banking organization, the banking entity is not organized
under the laws of the United States or of any State and the banking
entity, on a fully-consolidated basis, meets at least two of the following
requirements:
(1) Total assets of the banking entity
held outside of the United States exceed total assets of the banking
entity held in the United States;
(2) Total revenues derived from the business of the banking
entity outside of the United States exceed total revenues derived
from the business of the banking entity in the United States; or
(3) Total net income derived
from the business of the banking entity outside of the United States
exceeds total net income derived from the business of the banking
entity in the United States.
(3) A purchase or sale by a banking
entity is permitted for purposes of this paragraph (e) if:
(i) The banking entity engaging
as principal in the purchase or sale (including relevant personnel)
is not located in the United States or organized under the laws of
the United States or of any state;
(ii) The banking entity (including relevant personnel) that makes
the decision to purchase or sell as principal is not located in the
United States or organized under the laws of the United States or
of any state; and
(iii) The purchase
or sale, including any transaction arising from risk-mitigating hedging
related to the instruments purchased or sold, is not accounted for
as principal directly or on a consolidated basis by any branch or
affiliate that is located in the United States or organized under
the laws of the United States or of any state.
(4) For purposes of this paragraph (e),
a U.S. branch, agency, or subsidiary of a foreign banking entity is
considered to be located in the United States; however, the foreign
bank that operates or controls that branch, agency, or subsidiary
is not considered to be located in the United States solely by virtue
of operating or controlling the U.S. branch, agency, or subsidiary.
(f) Permitted trading activities
of qualifying foreign excluded funds. The prohibition contained
in section 248.3(a) does not apply to the purchase or sale of a financial
instrument by a qualifying foreign excluded fund. For purposes of
this paragraph (f), a qualifying foreign excluded fund means a banking
entity that:
(1) Is organized
or established outside the United States, and the ownership interests
of which are offered and sold solely outside the United States;
(2) (i) Would
be a covered fund if the entity were organized or established in the
United States, or
(ii) Is, or
holds itself out as being, an entity or arrangement that raises money
from investors primarily for the purpose of investing in financial
instruments for resale or other disposition or otherwise trading in
financial instruments;
(3) Would not otherwise be a banking entity except by virtue of the
acquisition or retention of an ownership interest in, sponsorship
of, or relationship with the entity, by another banking entity that
meets the following:
(i) The banking entity is not organized, or directly or indirectly
controlled by a banking entity that is organized, under the laws of
the United States or of any State; and
(ii) The banking entity’s acquisition
or retention of an ownership interest in or sponsorship of the fund
meets the requirements for permitted covered fund activities
and investments solely outside the United States, as provided in section
248.13(b);
(4) Is established
and operated as part of a bona fide asset management business;
and
(5) Is not operated in a manner
that enables the banking entity that sponsors or controls the qualifying
foreign excluded fund, or any of its affiliates, to evade the requirements
of section 13 of the BHC Act or this part.
