(a) Employee benefit plan accounts and individual retirement accounts
or similar accounts. A bank is exempt from the definition of
the term broker under section 3(a)(4) of the act (15 USC 78c(a)(4))
to the extent that, as part of its customary banking activities, the
bank accepts orders to effect transactions in securities for an employee
benefit plan account or an individual retirement account or similar
account for which the bank acts as a custodian if:
(1) Employee
compensation restriction and additional conditions. The bank
complies with the employee compensation restrictions in paragraph
(c) of this section and the other conditions in paragraph (d) of this
section;
(2) Advertisements. Advertisements by or on
behalf of the bank do not—
(i) advertise that the bank accepts
orders for securities transactions for employee benefit plan accounts
or individual retirement accounts or similar accounts, except as part
of advertising the other custodial or safekeeping services the bank
provides to these accounts; or
(ii) advertise that such accounts are
securities brokerage accounts or that the bank’s safekeeping and custody
services substitute for a securities brokerage account; and
(3) Advertisements and sales literature for individual
retirement or similar accounts. Advertisements and sales literature
issued by or on behalf of the bank do not describe the securities
order-taking services provided by the bank to individual retirement
accounts or similar accounts more prominently than the other aspects
of the custody or safekeeping services provided by the bank to these
accounts.
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(b) Accommodation
trades for other custodial accounts. A bank is exempt from the
definition of the term broker under section 3(a)(4) of the
act (15 USC 78c(a)(4)) to the extent that, as part of its customary
banking activities, the bank accepts orders to effect transactions
in securities for an account for which the bank acts as custodian
other than an employee benefit plan account or an individual retirement
account or similar account if:
(1) Accommodation. The bank accepts orders to effect transactions in securities for
the account only as an accommodation to the customer;
(2) Employee compensation restriction and additional conditions. The bank complies with the employee compensation restrictions in
paragraph (c) of this section and the other conditions in paragraph
(d) of this section;
(3) Bank fees. Any fee charged or
received by the bank for effecting a securities transaction for the account
does not vary based on—
(i) whether the bank accepted the order
for the transaction; or
(ii) the quantity or price of the securities to be bought or sold;
(4) Advertisements. Advertisements by or on
behalf of the bank do not state that the bank accepts orders for securities
transactions for the account;
(5) Sales literature. Sales literature issued by or on behalf of the bank—
(i) does
not state that the bank accepts orders for securities transactions
for the account except as part of describing the other custodial or
safekeeping services the bank provides to the account; and
(ii) does not describe the
securities order-taking services provided to the account more prominently
than the other aspects of the custody or safekeeping services provided
by the bank to the account; and
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(6) Investment
advice and recommendations. The bank does not provide investment
advice or research concerning securities to the account, make recommendations
to the account concerning securities or otherwise solicit securities
transactions from the account; provided, however, that nothing in
this paragraph (b)(6) shall prevent a bank from—
(i) publishing,
using, or disseminating advertisements and sales literature in accordance
with paragraphs (b)(4) and (b)(5) of this section; and
(ii) responding to customer
inquiries regarding the bank’s safekeeping and custody services by
providing—
(A) advertisements or sales literature consistent
with the provisions of paragraphs (b)(4) and (b)(5) of this section
describing the safekeeping, custody, and related services that the
bank offers;
(B) a prospectus
prepared by a registered investment company, or sales literature prepared
by a registered investment company or by the broker or dealer that
is the principal underwriter of the registered investment company
pertaining to the registered investment company’s products;
(C) information based on the materials
described in paragraphs (b)(6)(ii)(A) and (B) of this section; or
(iii)
responding to inquiries regarding the bank’s safekeeping, custody,
or other services, such as inquiries concerning the customer’s account
or the availability of sweep or other services, so long as the bank
does not provide investment advice or research concerning securities
to the account or make a recommendation to the account concerning
securities.
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(c) Employee compensation restriction. A bank
may accept orders pursuant to this section for a securities transaction
for an account described in paragraph (a) or (b) of this section only
if no bank employee receives compensation, including a fee paid pursuant
to a plan under 17 CFR 270.12b-1, from the bank, the executing broker
or dealer, or any other person that is based on whether a securities
transaction is executed for the account or that is based on the quantity,
price, or identity of securities purchased or sold by such account,
provided that nothing in this paragraph shall prohibit a bank employee
from receiving compensation that would not be considered incentive
compensation under section 218.700(b)(1) as if a referral had been
made by the bank employee, or any compensation described in section
218.700(b)(2).
(d) Other
conditions. A bank may accept orders for a securities transaction
for an account for which the bank acts as a custodian under this section
only if the bank—
(1) does not act in a trustee or fiduciary
capacity (as defined in section 3(a)(4)(D) of the act (15 USC 78c(a)(4)(D))
with respect to the account, other than as a directed trustee;
(2) complies with section
3(a)(4)(C) of the act (15 USC 78c(a)(4)(C)) in handling any order
for a securities transaction for the account; and
(3) complies with section 3(a)(4)(B)(viii)(II)
of the act (15 USC 78c(a)(4)(B)(viii)(II)) regarding carrying broker
activities.
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(e) Nonfiduciary
administrators and recordkeepers. A bank that acts as a nonfiduciary
and noncustodial administrator or recordkeeper for an employee benefit
plan account for which another bank acts as custodian may rely on
the exemption provided in this section if—
(1) both the custodian bank and the administrator
or recordkeeper bank comply with paragraphs (a), (c), and (d) of this
section; and
(2) the
administrator or recordkeeper bank does not execute a cross-trade
with or for the employee benefit plan account or net orders for securities
for the employee benefit plan account, other than—
(i) crossing
or netting orders for shares of open-end investment companies not
traded on an exchange, or
(ii) crossing orders between or netting
orders for accounts of the custodian bank that contracted with the
administrator or recordkeeper bank for services.
(f) Subcustodians. A bank that acts as a subcustodian for an account for which another
bank acts as custodian may rely on the exemptions provided in this
section if—
(1) for employee benefit
plan accounts and individual retirement accounts or similar accounts,
both the custodian bank and the subcustodian bank meet the requirements
of paragraphs (a), (c) and (d) of this section;
(2) for other custodial accounts, both
the custodian bank and the subcustodian bank meet the requirements
of paragraphs (b), (c) and (d) of this section; and
(3) the subcustodian bank does not execute
a cross-trade with or for the account or net orders for securities
for the account, other than—
(i) crossing or netting orders for shares
of open-end investment companies not traded on an exchange, or
(ii) crossing orders
between or netting orders for accounts of the custodian bank.
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(g) Evasions. In considering
whether a bank meets the terms of this section, both the form and
substance of the relevant account(s), transaction(s), and activities
(including advertising activities) of the bank will be considered
in order to prevent evasions of the requirements of this section.
(h) Definitions. When
used in this section:
(1) Account for which the bank acts
as a custodian means an account that is—
(i) an employee benefit
plan account for which the bank acts as a custodian;
(ii) an individual retirement account
or similar account for which the bank acts as a custodian;
(iii) an account established
by a written agreement between the bank and the customer that sets
forth the terms that will govern the fees payable to, and rights and
obligations of, the bank regarding the safekeeping or custody of securities;
or
(iv) an account
for which the bank acts as a directed trustee.
(2) Advertisement means
any material that is published or used in any electronic or other
public media, including any web site, newspaper, magazine or other
periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or telephone directories
(other than routine listings).
(3) Directed trustee means a trustee
that does not exercise investment discretion with respect to the account.
(4) Employee benefit
plan account means a pension plan, retirement plan, profit sharing
plan, bonus plan, thrift savings plan, incentive plan, or other similar
plan, including, without limitation, an employer-sponsored plan qualified
under section 401(a) of the Internal Revenue Code (26 USC 401(a)),
a governmental or other plan described in section 457 of the Internal
Revenue Code (26 USC 457), a tax-deferred plan described in section
403(b) of the Internal Revenue Code (26 USC 403(b)), a church plan, governmental,
multiemployer or other plan described in section 414(d), (e), or (f)
of the Internal Revenue Code (26 USC 414(d), (e), or (f)), an incentive
stock option plan described in section 422 of the Internal Revenue
Code (26 USC 422); a Voluntary Employee Beneficiary Association Plan
described in section 501(c)(9) of the Internal Revenue Code (26 USC
501(c)(9)), a nonqualified deferred compensation plan (including a
rabbi or secular trust), a supplemental or mirror plan, and a supplemental
unemployment benefit plan.
(5) Individual retirement account or
similar account means an individual retirement account as defined
in section 408 of the Internal Revenue Code (26 USC 408), Roth IRA
as defined in section 408A of the Internal Revenue Code (26 USC 408A),
health savings account as defined in section 223(d) of the Internal
Revenue Code (26 USC 223(d)), Archer medical savings account as defined
in section 220(d) of the Internal Revenue Code (26 USC 220(d)), Coverdell
education savings account as defined in section 530 of the Internal
Revenue Code (26 USC 530), or other similar account.
(6) Sales literature means any written
or electronic communication, other than an advertisement, that is
generally distributed or made generally available to customers of
the bank or the public, including circulars, form letters, brochures,
telemarketing scripts, seminar texts, published articles, and press
releases concerning the bank’s products or services.
(7) Principal underwriter has the
same meaning as in section 2(a)(29) of the Investment Company Act
of 1940 (15 USC 80a-2(a)(29)).
