Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 5223-5228 [2014-02019]

Download as PDF 5223 Rules and Regulations Federal Register Vol. 79, No. 21 Friday, January 31, 2014 This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. Prices of new books are listed in the first FEDERAL REGISTER issue of each week. DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 44 [Docket No. OCC–2014–0003] RIN 1557–AD79 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 12 CFR Part 248 [Docket No. R–1480] RIN 7100 AE–11 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 351 RIN 3064–AE11 SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 255 [Release No. BHCA–2] RIN 3235–AL52 COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 75 emcdonald on DSK67QTVN1PROD with RULES RIN 3038–AE13 Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds Office of the Comptroller of the Currency, Treasury (‘‘OCC’’); Board of Governors of the Federal Reserve System (‘‘Board’’); Federal Deposit AGENCY: VerDate Mar<15>2010 17:58 Jan 30, 2014 Jkt 232001 Insurance Corporation (‘‘FDIC’’); Commodity Futures Trading Commission (‘‘CFTC’’) and Securities and Exchange Commission (‘‘SEC’’). ACTION: Interim final rule. The OCC, Board, FDIC, CFTC and SEC (individually, an ‘‘Agency,’’ and collectively, ‘‘the Agencies’’) are each adopting a common interim final rule that would permit banking entities to retain investments in certain pooled investment vehicles that invested their offering proceeds primarily in certain securities issued by community banking organizations of the type grandfathered under section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’). The interim final rule is a companion rule to the final rules adopted by the Agencies to implement section 13 of the Bank Holding Company Act of 1956 (‘‘BHC Act’’), which was added by section 619 of the Dodd-Frank Act. DATES: Effective date: The interim final rule is effective on April 1, 2014. Comment date: Comments on the interim final rule should be received on or before March 3, 2014. ADDRESSES: Interested parties are encouraged to submit written comments jointly to all of the Agencies. Commenters are encouraged to use the title ‘‘Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities with Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds’’ to facilitate the organization and distribution of comments among the Agencies. Office of the Comptroller of the Currency: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments by the Federal eRulemaking Portal or email, if possible. Please use the title ‘‘Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities with Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘Regulations.gov’’: Go to http:// SUMMARY: PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 www.regulations.gov. Enter ‘‘Docket ID OCC–2014–0003’’ in the Search Box and click ‘‘Search.’’ Results can be filtered using the filtering tools on the left side of the screen. Click on ‘‘Comment Now’’ to submit public comments. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting or viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. • Email: regs.comments@ occ.treas.gov. • Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Fax: (571) 465–4326. • Hand Delivery/Courier: 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID ‘‘OCC–2014–0003’’ in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this proposed rulemaking by any of the following methods: • Viewing Comments Electronically: Go to http://www.regulations.gov. Select ‘‘Document Type’’ of ‘‘Public Submissions,’’ and in the ‘‘Enter Keyword or ID Box,’’ enter Docket ID ‘‘OCC–2014–0003,’’ and click ‘‘Search.’’ Comments can be filtered by Agency using the filtering tools on the left side of the screen. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for viewing public comments, viewing other supporting and related materials, and E:\FR\FM\31JAR1.SGM 31JAR1 emcdonald on DSK67QTVN1PROD with RULES 5224 Federal Register / Vol. 79, No. 21 / Friday, January 31, 2014 / Rules and Regulations viewing the docket after the close of the comment period. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649–6700. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments. Docket: You may also view or request available background documents and project summaries using the methods described above. Board of Governors of the Federal Reserve System: You may submit comments, identified by Docket No. R–1480 and RIN 7100 AE–11, by any of the following methods: • Agency Web site: http:// www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Email: regs.comments@ federalreserve.gov. Include the docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Address to Robert deV. Frierson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551. All public comments will be made available on the Board’s Web site at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP– 500 of the Board’s Martin Building (20th and C Streets NW.) between 9:00 a.m. and 5:00 p.m. on weekdays. Federal Deposit Insurance Corporation: You may submit comments, identified by RIN number, by any of the following methods: • Agency Web site: http:// www.fdic.gov/regulations/laws/federal/ propose.html. Follow instructions for submitting comments on the Agency Web site. • Email: Comments@fdic.gov. Include the RIN number 3064–AE11 on the subject line of the message. VerDate Mar<15>2010 17:58 Jan 30, 2014 Jkt 232001 • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. • Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7:00 a.m. and 5:00 p.m. Public Inspection: All comments received must include the agency name and RIN 3064–AE11 for this rulemaking. All comments received will be posted without change to http://www.fdic.gov/ regulations/laws/federal/propose.html, including any personal information provided. Paper copies of public comments may be ordered from the FDIC Public Information Center, 3501 North Fairfax Drive, Room E–I002, Arlington, VA 22226 by telephone at 1 (877) 275–3342 or 1 (703) 562–2200. Commodity Futures Trading Commission: You may submit comments, identified by RIN number 3038–AE13 by any of the following methods: • Agency Web site: http:// comments.cftc.gov. • Mail: Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. • Hand Delivery: Same as mail above. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow instructions for submitting comments. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to www.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the CFTC to consider information that is exempt from disclosure under the Freedom of Information Act, a petition for confidential treatment of the exempt information may be submitted according to the procedure established in § 145.9 of the CFTC’s regulations (17 CFR 145.9). The CFTC reserves the right, but shall have no obligation, to review, prescreen, filter, redact, refuse, or remove any or all of your submission from http://www.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the Freedom of Information Act. PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 Securities and Exchange Commission: You may submit comments by the following method: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/interim-final-temp.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number S7– 01–14 on the subject line; or • Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–01–14. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The SEC will post all comments on the SEC’s Internet Web site (http://www.sec.gov/ rules/interim-final-temp.shtml). Comments are also available for Web site viewing and printing in the SEC’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: OCC: Tiffany Eng, Legislative and Regulatory Activities Division, (202) 649–5490, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219. Board: Christopher M. Paridon, Counsel, (202) 452–3274, or Anna M. Harrington, Senior Attorney, (202) 452– 6406, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW., Washington, DC 20551. FDIC: Bobby R. Bean, Associate Director, bbean@fdic.gov. or Karl R. Reitz, Chief, Capital Markets Strategies Section, kreitz@fdic.gov, Capital Markets Branch, Division of Risk Management Supervision, (202) 898– 6888; Michael B. Phillips, Counsel, mphillips@fdic.gov, or Gregory S. Feder, Counsel, gfeder@fdic.gov, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. CFTC: Erik Remmler, Deputy Director, Division of Swap Dealer and E:\FR\FM\31JAR1.SGM 31JAR1 Federal Register / Vol. 79, No. 21 / Friday, January 31, 2014 / Rules and Regulations Intermediary Oversight (‘‘DSIO’’), (202) 418–7630, eremmler@cftc.gov; Paul Schlichting, Assistant General Counsel, Office of the General Counsel (‘‘OGC’’), (202) 418–5884, pschlichting@cftc.gov; Mark Fajfar, Assistant General Counsel, OGC, (202) 418–6636, mfajfar@cftc.gov; Michael Barrett, Attorney-Advisor, DSIO, (202) 418–5598, mbarrett@ cftc.gov, Commodity Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581. SEC: W. Danforth Townley, Attorney Fellow, Jane H. Kim or Brian McLaughlin Johnson, Senior Counsels, Division of Investment Management, (202) 551–6787, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: I. Background Section 619 of the Dodd-Frank Act added a new section 13 to the BHC Act (codified at 12 U.S.C. 1851) that generally prohibits banking entities from engaging in proprietary trading and from investing in, sponsoring, or having certain relationships with a hedge fund or private equity fund. These prohibitions are subject to a number of statutory exemptions, restrictions and definitions. Section 13 of the BHC Act expressly authorizes the Board, OCC, FDIC, CFTC, and SEC to issue implementing regulations. Each Agency issued a common final rule implementing section 619 that becomes effective on April 1, 2014 (‘‘Final Rule’’).1 A separate provision of the DoddFrank Act, section 171, generally provides that trust preferred and certain other securities issued by depository institution holding companies must be phased-out of such companies’ calculation of regulatory capital for purposes of determining Tier 1 capital. However, section 171 further provides for the permanent grandfathering of debt and equity securities issued before May 19, 2010, by any depository institution holding company that had total consolidated assets of less than $15 billion as of December 31, 2009, or was a mutual holding company on May 19, 2010 (‘‘community banking organizations’’). These grandfathered emcdonald on DSK67QTVN1PROD with RULES 1 The Final Rule will be codified at 12 CFR part 44 (OCC), 12 CFR part 248 (FRB), 12 CFR part 351 (FDIC), 17 CFR part 75 (CFTC), and 17 CFR part 255 (SEC). The Final Rule defines a covered fund as an issuer that would be an investment company as defined in the Investment Company Act of 1940 (the ‘‘Investment Company Act’’) but for section 3(c)(1) or 3(c)(7) of that Act, and also includes and excludes certain entities. This definition implements the definition of ‘‘hedge fund’’ and ‘‘private equity fund’’ in section 13(h)(2) of the BHC Act. See 12 U.S.C. 1851(h)(2). VerDate Mar<15>2010 17:58 Jan 30, 2014 Jkt 232001 capital-raising instruments in the form of trust preferred securities or subordinated debt securities (collectively referred to herein as ‘‘TruPS’’) were issued by community banks frequently through securitization pools (‘‘TruPS CDOs’’) that were formed for the purpose of acquiring these TruPS. II. Discussion Section 619 generally prohibits a banking entity from acquiring or retaining any ownership in, or acting as sponsor to, a hedge fund or private equity fund, which are defined under the statute to mean an issuer that would be an investment company, as defined in the Investment Company Act, but for section 3(c)(1) or 3(c)(7) of that Act, or ‘‘such similar funds’’ as the Agencies determine by rule. The Agencies have by separate rule implementing section 619, in relevant part, defined a hedge fund or private equity fund through the term ‘‘covered fund’’ to be any issuer that would be an investment company under the Investment Company Act but for section 3(c)(1) or 3(c)(7) of that Act, with certain exceptions and additions.2 This definition generally includes pooled investment vehicles, such as many TruPS CDOs, that use 3(c)(1) or 3(c)(7) but do not qualify for another exclusion under the Investment Company Act or the Final Rule. Section 171 of the Dodd-Frank Act requires, among other things, that the appropriate Federal banking agencies establish minimum leverage and riskbased capital requirements for insured depository institutions and depository institution holding companies that are not less than the generally applicable capital requirements that were in effect for insured depository institutions as of the date of enactment of the Dodd-Frank Act.3 The focus of this section on ensuring that depository institutions and their holding companies maintain strong minimum capital levels is one of the key prudential provisions included in the Dodd-Frank Act. Importantly in the current context and as noted above, section 171 specifically permits any community banking organization to continue to rely for regulatory capital purposes on any debt or equity instruments issued before May 19, 2010.4 A number of community banking organizations have recently expressed concern that the Final Rule conflicts with the Congressional determination under section 171(b)(4)(C) of the DoddFinal Rule § __.10(b)(1)(i). 12 U.S.C. 5371. 4 See 12 U.S.C. 5371(b)(4)(C). 2 See 3 See PO 00000 Frm 00003 Fmt 4700 Sfmt 4700 5225 Frank Act to grandfather TruPS issued as of May 19, 2010, by community banking organizations.5 Many community banks and other market participants maintain that the issuance of TruPS using a pooled investment structure was the only practical way for community banking organizations to avail themselves of TruPS for regulatory capital purposes. Accordingly, the TruPS CDO structure was the tool that gave effect to the use of TruPS as a regulatory capital instrument prior to May 19, 2010 and was part of the status quo Congress preserved with the grandfathering provision of section 171. In order to avoid imposing restrictions that could adversely affect the TruPS CDO market in a manner that could undercut the grandfathering provisions that Congress provided in section 171, the Agencies believe that certain TruPS CDOs should be a permitted investment for all banking entities under section 619 of the Dodd-Frank Act. The Agencies have determined to act together to adopt an interim final rule. This new interim final rule permits a banking entity to retain an interest in, or to act as sponsor (including as trustee) of, an issuer that is backed by TruPS so long as (i) the issuer was established before May 19, 2010; (ii) the banking entity reasonably believes that the offering proceeds received by the issuer were invested primarily in Qualifying TruPS Collateral (as defined below); and (iii) the banking entity’s interest in the vehicle was acquired on or before December 10, 2013 (unless acquired pursuant to a merger or acquisition). Under the interim final rule, a ‘‘Qualifying TruPS Collateral’’ is defined by reference to the standards in section 171(b)(4)(C) to mean any trust preferred security or subordinated debt instrument issued prior to May 19, 2010 by a depository institution holding company that, for any reporting period during the 12 months immediately preceding the issuance of such instrument, had total consolidated assets of less than $15,000,000,000 or issued prior to May 19, 2010 by a mutual holding company. The Agencies have required that an issuer must have invested primarily in Qualifying TruPS 5 The banking agencies recently provided guidance on the application of the Final Rule to TruPS CDOs. See FAQ Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under the Final Volcker Rule, available at http://www.fdic.gov/news/news/press/2013/ pr13123a.pdf. See also Statement regarding Treatment of Certain Collateralized Debt Obligations Backed by Trust Preferred Securities under the Rules implementing Section 619 of the Dodd-Frank Act, available at http://www.fdic.gov/ news/news/financial/2013/fil13062.html (the ‘‘Statement’’). E:\FR\FM\31JAR1.SGM 31JAR1 5226 Federal Register / Vol. 79, No. 21 / Friday, January 31, 2014 / Rules and Regulations emcdonald on DSK67QTVN1PROD with RULES Collateral to meet the requirements of the interim final rule; this is intended to cover those securitization vehicles that have invested a majority of their offering proceeds in Qualifying TruPS Collateral. The interim final rule also provides clarification that the relief relating to these TruPS CDOs also extends to activities of a banking entity acting as a sponsor for these securitization vehicles since acting as a sponsor might otherwise be subject to the prohibitions or requirements of section 619. For the avoidance of doubt, notwithstanding clause (iii) above, a banking entity may act as a market maker with respect to the interests of an issuer that qualifies for the exemption, in accordance with the applicable provisions of §§ l.4 and l.11 of the Final Rule. The Agencies note that nothing in the interim final rule limits or restricts the ability of the appropriate agency to place limits on any activity conducted or investment held pursuant to the exemption in a manner consistent with their safety and soundness or other authority to the extent the agency has such authority. The Agencies believe that the approach adopted in the interim final rule appropriately reconciles the policies of section 619 of the DoddFrank Act with its companion provision in section 171 of the Dodd-Frank Act and have attempted to encompass the class of instruments Congress intended to grandfather while limiting the scope of the interim final rule in keeping with the objectives of section 619. The Agencies have included a ‘‘reasonable belief’’ standard since the relevant CDOs were structured and made their investments many years ago and all of the relevant documentation may not be readily available to banking entities.6 Based on discussions with major market participants involved in structuring and offering TruPS CDOs, the Agencies expect that the interim final rule will cover all of the issuers that were formed primarily for the purpose of investing in Qualifying TruPS Collateral. The Agencies request comment regarding whether a different approach is necessary to accomplish this objective. III. Request for Comment The Agencies invite comment from all members of the public regarding all aspects of the interim final rule. The request for comment is limited to this interim final rule. The Agencies request comment on whether the interim final 6 To minimize the burden of applying the interim final rule, the Board, the FDIC and the OCC will make public a non-exclusive list of issuers that meet the requirements of the interim final rule. A banking entity may rely on the list published by the Board, the FDIC and the OCC. VerDate Mar<15>2010 17:58 Jan 30, 2014 Jkt 232001 rule is consistent with the purposes of sections 619 and 171 of the Dodd-Frank Act. The Agencies will carefully consider all comments that relate to this interim final rule. IV. Administrative Law Matters A. Interim Final Rule The Administrative Procedure Act generally requires an agency to publish notice of a proposed rulemaking in the Federal Register.7 This requirement does not apply, however, when the agency ‘‘for good cause finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ 8 After the Agencies’ adoption of the Final Rule implementing section 619, a number of community banking organizations reached out to the Agencies to express concerns about the Final Rule and, in particular, the implications for financial statement purposes relating to the banking organizations’ holdings resulting from their previous capital-raising efforts involving TruPS issued by banking organizations for regulatory capital purposes. The Agencies requested comment in the Notices of Proposed Rulemaking issued by the Agencies 9 regarding the effects of the definition of covered fund and ownership interests on issuers of asset-backed securities, including the distinctions between debt and equity interests.10 The Agencies also included a request for comment on trust preferred securities specifically in the context of the proposed rule’s permitted activity for underwriting activities.11 Notwithstanding such requests, the Agencies believe that the recently expressed concerns regarding the impact of including TruPS CDOs in the definition of covered fund or on investments by community banks in TruPS CDOs were not included in comments to the Agencies during the comment process. The Agencies have considered carefully these recently identified concerns, particularly in light of the provisions in section 171 of the DoddFrank Act and the concerns raised by community banking organizations regarding the consistency of treatment regarding TruPS issued by community banking organizations, and 7 See 5 U.S.C. 553(b). 8 Id. 9 See 76 FR 68,846 (Nov. 7, 2011) (‘‘joint Notice of Proposed Rulemaking’’); 77 FR 8332 (Feb. 14, 2012) (‘‘CFTC Notice of Proposed Rulemaking’’). 10 See Questions 227–240 of the joint Notice of Proposed Rulemaking. 11 See Question 78 of the joint Notice of Proposed Rulemaking. PO 00000 Frm 00004 Fmt 4700 Sfmt 4700 grandfathered under section 171, and the TruPS CDOs that were used as capital access vehicles for the TruPS issuances. In light of the significant concerns expressed, the Agencies believe there is an urgent need to act in light of the uncertainty expressed by some community banking organizations about whether the Final Rule will require them to dispose of their holdings of TruPS CDOs, which they contend could have an immediate effect on their financial statements and their bank regulatory capital. The OCC, Board, FDIC and SEC noted in the Statement that their accounting staffs believe that, ‘‘consistent with generally accepted accounting principles, any actions in January 2014 that occur before the issuance of December 31, 2013 financial reports, including the FR Y–9C and the Call Report, should be considered when preparing those financial reports.’’ The Agencies’ decision in this interim final rule to permit a banking entity to retain certain TruPS CDOs should be factored into the accounting analysis. Accordingly, the Agencies believe it necessary to take action at this time before banking entities are required to file their next financial reports.12 Accordingly, for the reasons discussed throughout, the Agencies find good cause to act immediately to adopt this rule on an interim final basis without prior solicitation of comment. With this interim final rule and request for comment, the Agencies are not reopening the final rules that have previously been adopted under section 619. B. Use of Plain Language Section 722 of the Gramm-Leach Bliley Act (Pub. L. 106–102, 113 Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Federal banking agencies believe that the interim final rule is written plainly and clearly, and request comment on whether there are ways the Federal banking agencies can make any final rule easier to understand. C. Paperwork Reduction Act The Agencies note that the new interim final rule does not create new regulatory obligations for banking entities, and therefore does not impose any new ‘‘collections of information’’ within the meaning of the Paperwork 12 See Statement, supra note 5, stating that the Agencies’ intend to address this matter no later than January 15, 2014. E:\FR\FM\31JAR1.SGM 31JAR1 Federal Register / Vol. 79, No. 21 / Friday, January 31, 2014 / Rules and Regulations Reduction Act of 1995 (‘‘PRA’’),13 nor does it create any new filing, reporting, recordkeeping, or disclosure reporting requirements. Accordingly, the Agencies did not submit the interim final rule to the Office of Management and Budget for review in accordance with the PRA. The Agencies request comment on their conclusion that there are no collections of information. D. Regulatory Flexibility Act The interim final rule applies to banking entities that may have ownership interests in TruPS CDOs. The requirements of the Regulatory Flexibility Act are not applicable to this interim final rule.14 Nonetheless, the Agencies observe that in light of the way the interim final rule operates, they believe that, with respect to the entities subject to the interim final rule and within each Agency’s respective jurisdiction, the interim final rule would not have a significant economic impact on a substantial number of small entities. The Agencies request comment on their conclusion that the new interim final rule should not have a significant economic impact on a substantial number of small entities. E. OCC Unfunded Mandates Reform Act of 1995 Determination Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1532, requires a Federal agency to prepare a budgetary impact statement before promulgating any rule likely to result in a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. The UMRA only applies when the Federal agency issues a general notice of proposed rulemaking. Since this rule is published as an interim final rule, it is not subject to section 202 of the UMRA. V. Authority: 12 U.S.C. 1851 Sec ll.16 Ownership of Interests in and Sponsorship of Issuers of Certain Collateralized Debt Obligations Backed by Trust-Preferred Securities. (a) The prohibition contained in § ll.10(a)(1) does not apply to the ownership by a banking entity of an interest in, or sponsorship of, any issuer if: (1) The issuer was established, and the interest was issued, before May 19, 2010; (2) The banking entity reasonably believes that the offering proceeds received by the issuer were invested primarily in Qualifying TruPS Collateral; and (3) The banking entity acquired such interest on or before December 10, 2013 (or acquired such interest in connection with a merger with or acquisition of a banking entity that acquired the interest on or before December 10, 2013). (b) For purposes of this § ll.16, Qualifying TruPS Collateral shall mean any trust preferred security or subordinated debt instrument issued prior to May 19, 2010 by a depository institution holding company that, as of the end of any reporting period within 12 months immediately preceding the issuance of such trust preferred security or subordinated debt instrument, had total consolidated assets of less than $15,000,000,000 or issued prior to May 19, 2010 by a mutual holding company. (c) Notwithstanding paragraph (a)(3) of this section, a banking entity may act as a market maker with respect to the interests of an issuer described in paragraph (a) of this section in accordance with the applicable provisions of §§ ll.4 and ll.11. (d) Without limiting the applicability of paragraph (a) of this section, the Board, the FDIC and the OCC will make public a non-exclusive list of issuers that meet the requirements of paragraph (a). A banking entity may rely on the list published by the Board, the FDIC and the OCC. Common Text of the Interim Final Rule emcdonald on DSK67QTVN1PROD with RULES End of Common Rule Administrative Practice and procedure, Banks, Banking, Compensation, Credit, Derivatives, Government securities, Insurance, Investments, National banks, Federal savings associations, Federal branches and agencies, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees. 13 44 U.S.C. 3501 et seq. requirements of the Regulatory Flexibility Act are not applicable to rules adopted under the Administrative Procedure Act’s ‘‘good cause’’ exception, see 5 U.S.C. 601(2) (defining ‘‘rule’’ and notice requirements under the Administrative Procedure Act). 14 The VerDate Mar<15>2010 17:58 Jan 30, 2014 Jkt 232001 List of Subjects 12 CFR Part 44 PO 00000 Frm 00005 Fmt 4700 Sfmt 4700 12 CFR Part 248 Administrative practice and procedure, Banks and banking, Capital, Compensation, Conflict of interests, Credit, Derivatives, Foreign banking, Government securities, Holding companies, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees. 12 CFR Part 351 Banks, Banking, Capital, Compensation, Conflicts of interest, Credit, Derivatives, Government securities, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, State nonmember banks, State savings associations, Trusts and trustees. 17 CFR Part 75 Banks, Banking, Compensation, Credit, Derivatives, Federal branches and agencies, Federal savings associations, Government securities, Hedge funds, Insurance, Investments, National banks, Penalties, Proprietary trading, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Swap dealers, Trusts and trustees, Volcker rule. 17 CFR Part 255 Banks, Brokers, Dealers, Investment advisers, Recordkeeping, Reporting, Securities. Department of the Treasury Office of the Comptroller of the Currency Authority and Issuance For the reasons stated in the Common Preamble, the Office of the Comptroller of the Currency hereby amends chapter I of Title 12, Code of Federal Regulations as follows: PART 44—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS This interim final rule is issued under section 13 of the Bank Holding Company Act of 1956, as amended (12 U.S. 1851). Add new § ll.16 to read as follows: 5227 1. The authority for part 44 continues to read as follows: ■ Authority: 7 U.S.C. 27 et seq., 12 U.S.C. 1, 24, 92a, 93a, 161, 1461, 1462a, 1463, 1464, 1467a, 1813(q), 1818, 1851, 3101, 3102, 3108, 5412. § 44.16 [Amended] 2. Section 44.16 is added as set forth at the end of the Common Preamble. ■ E:\FR\FM\31JAR1.SGM 31JAR1 5228 Federal Register / Vol. 79, No. 21 / Friday, January 31, 2014 / Rules and Regulations Authority: 12 U.S.C. 1851. Board of Governors of the Federal Reserve § 75.16 Authority and Issuance For the reasons set forth in the Common Preamble, the Board of Governors of the Federal Reserve System is adding the text of the common rule as set forth at the end of the Common Preamble as § 248.16 to part 248, 12 CFR chapter II. [Amended] 8. Section 75.16 is added as set forth at the end of the Common Preamble. ■ Securities and Exchange Commission Authority and Issuance PART 248—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS (Regulation VV) 3. The authority for part 248 continues to read as follows: For the reasons set forth in the Common Preamble, the Securities and Exchange Commission is adding the text of the common rule as set forth at the end of the Common Preamble as § 255.16 to part 255, chapter II of Title 17, Code of Federal Regulations. ■ Authority: 12 U.S.C. 1851, 12 U.S.C. 221 et seq., 12 U.S.C. 1818, 12 U.S.C. 1841 et seq., and 12 U.S.C. 3103 et seq. PART 255—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS § 248.16 ■ [Amended] 4. Section 248.16 is added as set forth at the end of the Common Preamble. ■ Federal Deposit Insurance Corporation Authority and Issuance For the reasons set forth in the Common Preamble, the Federal Deposit Insurance Corporation is adding the text of the common rule as set forth at the end of the Common Preamble as § 351.16 to part 351, chapter III of Title 12, Code of Federal Regulations. PART 351—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS 5. The authority for part 351 continues to read as follows: ■ Authority: 12 U.S.C. 1851; 1811 et seq.; 3101 et seq.; and 5412. § 351.16 [Amended] 6. Section 351.16 is added as set forth at the end of the Common Preamble. ■ emcdonald on DSK67QTVN1PROD with RULES Commodity Futures Trading Commission Authority and Issuance For the reasons set forth in the Common Preamble, the Commodity Futures Trading Commission is adding the text of the common rule as set forth at the end of the Common Preamble as § 75.16 to part 75, chapter I of Title 17, Code of Federal Regulations. 9. The authority for part 255 continues to read as follows: Authority: 12 U.S.C. 1851. § 255.16 [Amended] 10. Section 255.16 is added as set forth at the end of the Common Preamble. ■ Dated: January 14, 2014. Thomas J. Curry, Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, January 14, 2014. Robert deV. Frierson, Secretary of the Board. Dated at Washington, DC this 13th day of January 2014. By delegated authority from the Board of Directors of the Federal Deposit Insurance Corporation. Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. Dated: January 17, 2014. By the Securities and Exchange Commission. Elizabeth M. Murphy, Secretary. Issued in Washington, DC, on January 15, 2014, by the Commodity Futures Trading Commission. Melissa D. Jurgens, Secretary of the Commodity Futures Trading Commission. Note: The following appendices will not appear in the Code of Federal Regulations. PART 75—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS 7. The authority for part 75 continues to read as follows: ■ VerDate Mar<15>2010 17:58 Jan 30, 2014 Jkt 232001 PO 00000 Frm 00006 Fmt 4700 Sfmt 4700 Commodity Futures Trading Commission (CFTC) Appendices to Treatment of Certain Collateralized Debt Obligations Backed Primarily by Trust Preferred Securities With Regard to Prohibitions and Restrictions on Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds—Commission Voting Summary and Statements of Commissioners Appendix 1—Commodity Futures Trading Commission Voting Summary On this matter, Acting Chairman Wetjen and Commissioner Chilton voted in the affirmative, and Commissioner O’Malia concurred. Appendix 2—Statement of CFTC Acting Chairman Mark P. Wetjen I support the interim final rule adopted by the CFTC and the other Volcker Rule agencies. The Commission believed it was important to join the other agencies in ensuring community banks are protected, as Congress directed, from restrictions in the Volcker Rule intended to lower the risk of large financial institutions. Appendix 3—Statement of Concurrence by CFTC Commissioner Scott D. O’Malia I support the interim final rule adopted by the Commission and the OCC, Federal Reserve Board, FDIC, and SEC (‘‘Agencies’’). When an unintended consequence of a regulation is discovered, it is imperative that it be expeditiously corrected to avoid unintentional harm to affected parties. Broken rules must be fixed, and I applaud the work of the Agencies to quickly respond to the public’s concerns and comments regarding the holding of TruPS CDOs by community banks affected by the Volcker Rule. [FR Doc. 2014–02019 Filed 1–30–14; 8:45 am] BILLING CODE 6210–01–P; 6741–01–P; 6351–01–P; 8011–01–P; 4810–33–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Parts 703, 715, and 741 RIN 3133–AD90 Derivatives National Credit Union Administration (NCUA). ACTION: Final rule. AGENCY: This final rule permits credit unions to engage in limited derivatives activities for the purpose of mitigating interest rate risk. This rule applies only to Federal credit unions. The final rule addresses permissible derivatives and SUMMARY: E:\FR\FM\31JAR1.SGM 31JAR1

Agencies

[Federal Register Volume 79, Number 21 (Friday, January 31, 2014)]
[Rules and Regulations]
[Pages 5223-5228]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02019]

========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.

========================================================================

Federal Register / Vol. 79, No. 21 / Friday, January 31, 2014 / Rules
and Regulations

[[Page 5223]]

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 44

[Docket No. OCC-2014-0003]
RIN 1557-AD79

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Part 248

[Docket No. R-1480]
RIN 7100 AE-11

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 351

RIN 3064-AE11

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 255

[Release No. BHCA-2]
RIN 3235-AL52

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 75

RIN 3038-AE13

Treatment of Certain Collateralized Debt Obligations Backed
Primarily by Trust Preferred Securities With Regard to Prohibitions and
Restrictions on Certain Interests in, and Relationships With, Hedge
Funds and Private Equity Funds

AGENCY: Office of the Comptroller of the Currency, Treasury (``OCC'');
Board of Governors of the Federal Reserve System (``Board''); Federal
Deposit Insurance Corporation (``FDIC''); Commodity Futures Trading
Commission (``CFTC'') and Securities and Exchange Commission (``SEC'').

ACTION: Interim final rule.

-----------------------------------------------------------------------

SUMMARY: The OCC, Board, FDIC, CFTC and SEC (individually, an
``Agency,'' and collectively, ``the Agencies'') are each adopting a
common interim final rule that would permit banking entities to retain
investments in certain pooled investment vehicles that invested their
offering proceeds primarily in certain securities issued by community
banking organizations of the type grandfathered under section 171 of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-
Frank Act''). The interim final rule is a companion rule to the final
rules adopted by the Agencies to implement section 13 of the Bank
Holding Company Act of 1956 (``BHC Act''), which was added by section
619 of the Dodd-Frank Act.

DATES: Effective date: The interim final rule is effective on April 1,
2014. Comment date: Comments on the interim final rule should be
received on or before March 3, 2014.

ADDRESSES: Interested parties are encouraged to submit written comments
jointly to all of the Agencies. Commenters are encouraged to use the
title ``Treatment of Certain Collateralized Debt Obligations Backed
Primarily by Trust Preferred Securities with Regard to Prohibitions and
Restrictions on Certain Interests in, and Relationships with, Hedge
Funds and Private Equity Funds'' to facilitate the organization and
distribution of comments among the Agencies.
Office of the Comptroller of the Currency: Because paper mail in
the Washington, DC area and at the OCC is subject to delay, commenters
are encouraged to submit comments by the Federal eRulemaking Portal or
email, if possible. Please use the title ``Treatment of Certain
Collateralized Debt Obligations Backed Primarily by Trust Preferred
Securities with Regard to Prohibitions and Restrictions on Certain
Interests in, and Relationships with, Hedge Funds and Private Equity
Funds'' to facilitate the organization and distribution of the
comments. You may submit comments by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
http://www.regulations.gov. Enter ``Docket ID OCC-2014-0003'' in the
Search Box and click ``Search.'' Results can be filtered using the
filtering tools on the left side of the screen. Click on ``Comment
Now'' to submit public comments.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting or viewing public comments, viewing other supporting and
related materials, and viewing the docket after the close of the
comment period.
Email: regs.comments@occ.treas.gov.
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW., Suite
3E-218, Mail Stop 9W-11, Washington, DC 20219.
Fax: (571) 465-4326.
Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218,
Mail Stop 9W-11, Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID ``OCC-2014-0003'' in your comment. In general, OCC will
enter all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this proposed rulemaking by any of the following methods:
Viewing Comments Electronically: Go to http://www.regulations.gov. Select ``Document Type'' of ``Public
Submissions,'' and in the ``Enter Keyword or ID Box,'' enter Docket ID
``OCC-2014-0003,'' and click ``Search.'' Comments can be filtered by
Agency using the filtering tools on the left side of the screen.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
viewing public comments, viewing other supporting and related
materials, and

[[Page 5224]]

viewing the docket after the close of the comment period.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC
20219. For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 649-
6700. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect and photocopy comments.
Docket: You may also view or request available background documents
and project summaries using the methods described above.
Board of Governors of the Federal Reserve System:
You may submit comments, identified by Docket No. R-1480 and RIN
7100 AE-11, by any of the following methods:
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Robert deV. Frierson, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW., Washington, DC 20551.
All public comments will be made available on the Board's Web site
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, comments
will not be edited to remove any identifying or contact information.
Public comments may also be viewed electronically or in paper in Room
MP-500 of the Board's Martin Building (20th and C Streets NW.) between
9:00 a.m. and 5:00 p.m. on weekdays.
Federal Deposit Insurance Corporation: You may submit comments,
identified by RIN number, by any of the following methods:
Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on
the Agency Web site.
Email: Comments@fdic.gov. Include the RIN number 3064-AE11
on the subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.
Hand Delivery: Comments may be hand delivered to the guard
station at the rear of the 550 17th Street Building (located on F
Street) on business days between 7:00 a.m. and 5:00 p.m.
Public Inspection: All comments received must include the agency
name and RIN 3064-AE11 for this rulemaking. All comments received will
be posted without change to http://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided.
Paper copies of public comments may be ordered from the FDIC Public
Information Center, 3501 North Fairfax Drive, Room E-I002, Arlington,
VA 22226 by telephone at 1 (877) 275-3342 or 1 (703) 562-2200.
Commodity Futures Trading Commission: You may submit comments,
identified by RIN number 3038-AE13 by any of the following methods:
Agency Web site: http://comments.cftc.gov.
Mail: Secretary of the Commission, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,
Washington, DC 20581.
Hand Delivery: Same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow instructions for submitting comments.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
www.cftc.gov. You should submit only information that you wish to make
available publicly. If you wish the CFTC to consider information that
is exempt from disclosure under the Freedom of Information Act, a
petition for confidential treatment of the exempt information may be
submitted according to the procedure established in Sec. 145.9 of the
CFTC's regulations (17 CFR 145.9).
The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse, or remove any or all of
your submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
Securities and Exchange Commission: You may submit comments by the
following method:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/interim-final-temp.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number S7-01-14 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number S7-01-14. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The SEC will post all comments on the SEC's Internet Web site
(http://www.sec.gov/rules/interim-final-temp.shtml). Comments are also
available for Web site viewing and printing in the SEC's Public
Reference Room, 100 F Street NE., Washington, DC 20549, on official
business days between the hours of 10:00 a.m. and 3:00 p.m. All
comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT:
OCC: Tiffany Eng, Legislative and Regulatory Activities Division,
(202) 649-5490, Office of the Comptroller of the Currency, 400 7th
Street SW., Washington, DC 20219.
Board: Christopher M. Paridon, Counsel, (202) 452-3274, or Anna M.
Harrington, Senior Attorney, (202) 452-6406, Legal Division, Board of
Governors of the Federal Reserve System, 20th and C Streets NW.,
Washington, DC 20551.
FDIC: Bobby R. Bean, Associate Director, bbean@fdic.gov. or Karl R.
Reitz, Chief, Capital Markets Strategies Section, kreitz@fdic.gov,
Capital Markets Branch, Division of Risk Management Supervision, (202)
898-6888; Michael B. Phillips, Counsel, mphillips@fdic.gov, or Gregory
S. Feder, Counsel, gfeder@fdic.gov, Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street NW., Washington, DC 20429.
CFTC: Erik Remmler, Deputy Director, Division of Swap Dealer and

[[Page 5225]]

Intermediary Oversight (``DSIO''), (202) 418-7630, eremmler@cftc.gov;
Paul Schlichting, Assistant General Counsel, Office of the General
Counsel (``OGC''), (202) 418-5884, pschlichting@cftc.gov; Mark Fajfar,
Assistant General Counsel, OGC, (202) 418-6636, mfajfar@cftc.gov;
Michael Barrett, Attorney-Advisor, DSIO, (202) 418-5598,
mbarrett@cftc.gov, Commodity Futures Trading Commission, 1155 21st
Street NW., Washington, DC 20581.
SEC: W. Danforth Townley, Attorney Fellow, Jane H. Kim or Brian
McLaughlin Johnson, Senior Counsels, Division of Investment Management,
(202) 551-6787, U.S. Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background

Section 619 of the Dodd-Frank Act added a new section 13 to the BHC
Act (codified at 12 U.S.C. 1851) that generally prohibits banking
entities from engaging in proprietary trading and from investing in,
sponsoring, or having certain relationships with a hedge fund or
private equity fund. These prohibitions are subject to a number of
statutory exemptions, restrictions and definitions.
Section 13 of the BHC Act expressly authorizes the Board, OCC,
FDIC, CFTC, and SEC to issue implementing regulations. Each Agency
issued a common final rule implementing section 619 that becomes
effective on April 1, 2014 (``Final Rule'').\1\
---------------------------------------------------------------------------

\1\ The Final Rule will be codified at 12 CFR part 44 (OCC), 12
CFR part 248 (FRB), 12 CFR part 351 (FDIC), 17 CFR part 75 (CFTC),
and 17 CFR part 255 (SEC). The Final Rule defines a covered fund as
an issuer that would be an investment company as defined in the
Investment Company Act of 1940 (the ``Investment Company Act'') but
for section 3(c)(1) or 3(c)(7) of that Act, and also includes and
excludes certain entities. This definition implements the definition
of ``hedge fund'' and ``private equity fund'' in section 13(h)(2) of
the BHC Act. See 12 U.S.C. 1851(h)(2).
---------------------------------------------------------------------------

A separate provision of the Dodd-Frank Act, section 171, generally
provides that trust preferred and certain other securities issued by
depository institution holding companies must be phased-out of such
companies' calculation of regulatory capital for purposes of
determining Tier 1 capital. However, section 171 further provides for
the permanent grandfathering of debt and equity securities issued
before May 19, 2010, by any depository institution holding company that
had total consolidated assets of less than $15 billion as of December
31, 2009, or was a mutual holding company on May 19, 2010 (``community
banking organizations''). These grandfathered capital-raising
instruments in the form of trust preferred securities or subordinated
debt securities (collectively referred to herein as ``TruPS'') were
issued by community banks frequently through securitization pools
(``TruPS CDOs'') that were formed for the purpose of acquiring these
TruPS.

II. Discussion

Section 619 generally prohibits a banking entity from acquiring or
retaining any ownership in, or acting as sponsor to, a hedge fund or
private equity fund, which are defined under the statute to mean an
issuer that would be an investment company, as defined in the
Investment Company Act, but for section 3(c)(1) or 3(c)(7) of that Act,
or ``such similar funds'' as the Agencies determine by rule. The
Agencies have by separate rule implementing section 619, in relevant
part, defined a hedge fund or private equity fund through the term
``covered fund'' to be any issuer that would be an investment company
under the Investment Company Act but for section 3(c)(1) or 3(c)(7) of
that Act, with certain exceptions and additions.\2\ This definition
generally includes pooled investment vehicles, such as many TruPS CDOs,
that use 3(c)(1) or 3(c)(7) but do not qualify for another exclusion
under the Investment Company Act or the Final Rule.
---------------------------------------------------------------------------

\2\ See Final Rule Sec. ----.10(b)(1)(i).
---------------------------------------------------------------------------

Section 171 of the Dodd-Frank Act requires, among other things,
that the appropriate Federal banking agencies establish minimum
leverage and risk-based capital requirements for insured depository
institutions and depository institution holding companies that are not
less than the generally applicable capital requirements that were in
effect for insured depository institutions as of the date of enactment
of the Dodd-Frank Act.\3\ The focus of this section on ensuring that
depository institutions and their holding companies maintain strong
minimum capital levels is one of the key prudential provisions included
in the Dodd-Frank Act. Importantly in the current context and as noted
above, section 171 specifically permits any community banking
organization to continue to rely for regulatory capital purposes on any
debt or equity instruments issued before May 19, 2010.\4\
---------------------------------------------------------------------------

\3\ See 12 U.S.C. 5371.
\4\ See 12 U.S.C. 5371(b)(4)(C).
---------------------------------------------------------------------------

A number of community banking organizations have recently expressed
concern that the Final Rule conflicts with the Congressional
determination under section 171(b)(4)(C) of the Dodd-Frank Act to
grandfather TruPS issued as of May 19, 2010, by community banking
organizations.\5\ Many community banks and other market participants
maintain that the issuance of TruPS using a pooled investment structure
was the only practical way for community banking organizations to avail
themselves of TruPS for regulatory capital purposes. Accordingly, the
TruPS CDO structure was the tool that gave effect to the use of TruPS
as a regulatory capital instrument prior to May 19, 2010 and was part
of the status quo Congress preserved with the grandfathering provision
of section 171. In order to avoid imposing restrictions that could
adversely affect the TruPS CDO market in a manner that could undercut
the grandfathering provisions that Congress provided in section 171,
the Agencies believe that certain TruPS CDOs should be a permitted
investment for all banking entities under section 619 of the Dodd-Frank
Act.
---------------------------------------------------------------------------

\5\ The banking agencies recently provided guidance on the
application of the Final Rule to TruPS CDOs. See FAQ Regarding
Collateralized Debt Obligations Backed by Trust Preferred Securities
under the Final Volcker Rule, available at http://www.fdic.gov/news/news/press/2013/pr13123a.pdf. See also Statement regarding Treatment
of Certain Collateralized Debt Obligations Backed by Trust Preferred
Securities under the Rules implementing Section 619 of the Dodd-
Frank Act, available at http://www.fdic.gov/news/news/financial/2013/fil13062.html (the ``Statement'').
---------------------------------------------------------------------------

The Agencies have determined to act together to adopt an interim
final rule. This new interim final rule permits a banking entity to
retain an interest in, or to act as sponsor (including as trustee) of,
an issuer that is backed by TruPS so long as (i) the issuer was
established before May 19, 2010; (ii) the banking entity reasonably
believes that the offering proceeds received by the issuer were
invested primarily in Qualifying TruPS Collateral (as defined below);
and (iii) the banking entity's interest in the vehicle was acquired on
or before December 10, 2013 (unless acquired pursuant to a merger or
acquisition). Under the interim final rule, a ``Qualifying TruPS
Collateral'' is defined by reference to the standards in section
171(b)(4)(C) to mean any trust preferred security or subordinated debt
instrument issued prior to May 19, 2010 by a depository institution
holding company that, for any reporting period during the 12 months
immediately preceding the issuance of such instrument, had total
consolidated assets of less than $15,000,000,000 or issued prior to May
19, 2010 by a mutual holding company. The Agencies have required that
an issuer must have invested primarily in Qualifying TruPS

[[Page 5226]]

Collateral to meet the requirements of the interim final rule; this is
intended to cover those securitization vehicles that have invested a
majority of their offering proceeds in Qualifying TruPS Collateral. The
interim final rule also provides clarification that the relief relating
to these TruPS CDOs also extends to activities of a banking entity
acting as a sponsor for these securitization vehicles since acting as a
sponsor might otherwise be subject to the prohibitions or requirements
of section 619. For the avoidance of doubt, notwithstanding clause
(iii) above, a banking entity may act as a market maker with respect to
the interests of an issuer that qualifies for the exemption, in
accordance with the applicable provisions of Sec. Sec. --.4 and --.11
of the Final Rule. The Agencies note that nothing in the interim final
rule limits or restricts the ability of the appropriate agency to place
limits on any activity conducted or investment held pursuant to the
exemption in a manner consistent with their safety and soundness or
other authority to the extent the agency has such authority.
The Agencies believe that the approach adopted in the interim final
rule appropriately reconciles the policies of section 619 of the Dodd-
Frank Act with its companion provision in section 171 of the Dodd-Frank
Act and have attempted to encompass the class of instruments Congress
intended to grandfather while limiting the scope of the interim final
rule in keeping with the objectives of section 619. The Agencies have
included a ``reasonable belief'' standard since the relevant CDOs were
structured and made their investments many years ago and all of the
relevant documentation may not be readily available to banking
entities.\6\ Based on discussions with major market participants
involved in structuring and offering TruPS CDOs, the Agencies expect
that the interim final rule will cover all of the issuers that were
formed primarily for the purpose of investing in Qualifying TruPS
Collateral. The Agencies request comment regarding whether a different
approach is necessary to accomplish this objective.
---------------------------------------------------------------------------

\6\ To minimize the burden of applying the interim final rule,
the Board, the FDIC and the OCC will make public a non-exclusive
list of issuers that meet the requirements of the interim final
rule. A banking entity may rely on the list published by the Board,
the FDIC and the OCC.
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III. Request for Comment

The Agencies invite comment from all members of the public
regarding all aspects of the interim final rule. The request for
comment is limited to this interim final rule. The Agencies request
comment on whether the interim final rule is consistent with the
purposes of sections 619 and 171 of the Dodd-Frank Act.
The Agencies will carefully consider all comments that relate to
this interim final rule.

IV. Administrative Law Matters

A. Interim Final Rule

The Administrative Procedure Act generally requires an agency to
publish notice of a proposed rulemaking in the Federal Register.\7\
This requirement does not apply, however, when the agency ``for good
cause finds . . . that notice and public procedure thereon are
impracticable, unnecessary, or contrary to the public interest.'' \8\
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\7\ See 5 U.S.C. 553(b).
\8\ Id.
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After the Agencies' adoption of the Final Rule implementing section
619, a number of community banking organizations reached out to the
Agencies to express concerns about the Final Rule and, in particular,
the implications for financial statement purposes relating to the
banking organizations' holdings resulting from their previous capital-
raising efforts involving TruPS issued by banking organizations for
regulatory capital purposes. The Agencies requested comment in the
Notices of Proposed Rulemaking issued by the Agencies \9\ regarding the
effects of the definition of covered fund and ownership interests on
issuers of asset-backed securities, including the distinctions between
debt and equity interests.\10\ The Agencies also included a request for
comment on trust preferred securities specifically in the context of
the proposed rule's permitted activity for underwriting activities.\11\
Notwithstanding such requests, the Agencies believe that the recently
expressed concerns regarding the impact of including TruPS CDOs in the
definition of covered fund or on investments by community banks in
TruPS CDOs were not included in comments to the Agencies during the
comment process.
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\9\ See 76 FR 68,846 (Nov. 7, 2011) (``joint Notice of Proposed
Rulemaking''); 77 FR 8332 (Feb. 14, 2012) (``CFTC Notice of Proposed
Rulemaking'').
\10\ See Questions 227-240 of the joint Notice of Proposed
Rulemaking.
\11\ See Question 78 of the joint Notice of Proposed Rulemaking.
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The Agencies have considered carefully these recently identified
concerns, particularly in light of the provisions in section 171 of the
Dodd-Frank Act and the concerns raised by community banking
organizations regarding the consistency of treatment regarding TruPS
issued by community banking organizations, and grandfathered under
section 171, and the TruPS CDOs that were used as capital access
vehicles for the TruPS issuances. In light of the significant concerns
expressed, the Agencies believe there is an urgent need to act in light
of the uncertainty expressed by some community banking organizations
about whether the Final Rule will require them to dispose of their
holdings of TruPS CDOs, which they contend could have an immediate
effect on their financial statements and their bank regulatory capital.
The OCC, Board, FDIC and SEC noted in the Statement that their
accounting staffs believe that, ``consistent with generally accepted
accounting principles, any actions in January 2014 that occur before
the issuance of December 31, 2013 financial reports, including the FR
Y-9C and the Call Report, should be considered when preparing those
financial reports.'' The Agencies' decision in this interim final rule
to permit a banking entity to retain certain TruPS CDOs should be
factored into the accounting analysis. Accordingly, the Agencies
believe it necessary to take action at this time before banking
entities are required to file their next financial reports.\12\
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\12\ See Statement, supra note 5, stating that the Agencies'
intend to address this matter no later than January 15, 2014.
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Accordingly, for the reasons discussed throughout, the Agencies
find good cause to act immediately to adopt this rule on an interim
final basis without prior solicitation of comment. With this interim
final rule and request for comment, the Agencies are not reopening the
final rules that have previously been adopted under section 619.

B. Use of Plain Language

Section 722 of the Gramm-Leach Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Federal banking agencies believe that the interim
final rule is written plainly and clearly, and request comment on
whether there are ways the Federal banking agencies can make any final
rule easier to understand.

C. Paperwork Reduction Act

The Agencies note that the new interim final rule does not create
new regulatory obligations for banking entities, and therefore does not
impose any new ``collections of information'' within the meaning of the
Paperwork

[[Page 5227]]

Reduction Act of 1995 (``PRA''),\13\ nor does it create any new filing,
reporting, recordkeeping, or disclosure reporting requirements.
Accordingly, the Agencies did not submit the interim final rule to the
Office of Management and Budget for review in accordance with the PRA.
The Agencies request comment on their conclusion that there are no
collections of information.
---------------------------------------------------------------------------

\13\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

D. Regulatory Flexibility Act

The interim final rule applies to banking entities that may have
ownership interests in TruPS CDOs. The requirements of the Regulatory
Flexibility Act are not applicable to this interim final rule.\14\
Nonetheless, the Agencies observe that in light of the way the interim
final rule operates, they believe that, with respect to the entities
subject to the interim final rule and within each Agency's respective
jurisdiction, the interim final rule would not have a significant
economic impact on a substantial number of small entities. The Agencies
request comment on their conclusion that the new interim final rule
should not have a significant economic impact on a substantial number
of small entities.
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\14\ The requirements of the Regulatory Flexibility Act are not
applicable to rules adopted under the Administrative Procedure Act's
``good cause'' exception, see 5 U.S.C. 601(2) (defining ``rule'' and
notice requirements under the Administrative Procedure Act).
---------------------------------------------------------------------------

E. OCC Unfunded Mandates Reform Act of 1995 Determination

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA), 2
U.S.C. 1532, requires a Federal agency to prepare a budgetary impact
statement before promulgating any rule likely to result in a Federal
mandate that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more (adjusted annually for inflation) in any one year. The
UMRA only applies when the Federal agency issues a general notice of
proposed rulemaking. Since this rule is published as an interim final
rule, it is not subject to section 202 of the UMRA.

V. Authority: 12 U.S.C. 1851

This interim final rule is issued under section 13 of the Bank
Holding Company Act of 1956, as amended (12 U.S. 1851).

Common Text of the Interim Final Rule

Add new Sec. ----.16 to read as follows:

Sec ----.16 Ownership of Interests in and Sponsorship of Issuers of
Certain Collateralized Debt Obligations Backed by Trust-Preferred
Securities.

(a) The prohibition contained in Sec. ----.10(a)(1) does not apply
to the ownership by a banking entity of an interest in, or sponsorship
of, any issuer if:
(1) The issuer was established, and the interest was issued, before
May 19, 2010;
(2) The banking entity reasonably believes that the offering
proceeds received by the issuer were invested primarily in Qualifying
TruPS Collateral; and
(3) The banking entity acquired such interest on or before December
10, 2013 (or acquired such interest in connection with a merger with or
acquisition of a banking entity that acquired the interest on or before
December 10, 2013).
(b) For purposes of this Sec. ----.16, Qualifying TruPS Collateral
shall mean any trust preferred security or subordinated debt instrument
issued prior to May 19, 2010 by a depository institution holding
company that, as of the end of any reporting period within 12 months
immediately preceding the issuance of such trust preferred security or
subordinated debt instrument, had total consolidated assets of less
than $15,000,000,000 or issued prior to May 19, 2010 by a mutual
holding company.
(c) Notwithstanding paragraph (a)(3) of this section, a banking
entity may act as a market maker with respect to the interests of an
issuer described in paragraph (a) of this section in accordance with
the applicable provisions of Sec. Sec. ----.4 and ----.11.
(d) Without limiting the applicability of paragraph (a) of this
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a).
A banking entity may rely on the list published by the Board, the FDIC
and the OCC.

End of Common Rule

List of Subjects

12 CFR Part 44

Administrative Practice and procedure, Banks, Banking,
Compensation, Credit, Derivatives, Government securities, Insurance,
Investments, National banks, Federal savings associations, Federal
branches and agencies, Penalties, Reporting and recordkeeping
requirements, Risk, Risk retention, Securities, Trusts and trustees.

12 CFR Part 248

Administrative practice and procedure, Banks and banking, Capital,
Compensation, Conflict of interests, Credit, Derivatives, Foreign
banking, Government securities, Holding companies, Insurance, Insurance
companies, Investments, Penalties, Reporting and recordkeeping
requirements, Risk, Risk retention, Securities, Trusts and trustees.

12 CFR Part 351

Banks, Banking, Capital, Compensation, Conflicts of interest,
Credit, Derivatives, Government securities, Insurance, Insurance
companies, Investments, Penalties, Reporting and recordkeeping
requirements, Risk, Risk retention, Securities, State nonmember banks,
State savings associations, Trusts and trustees.

17 CFR Part 75

Banks, Banking, Compensation, Credit, Derivatives, Federal branches
and agencies, Federal savings associations, Government securities,
Hedge funds, Insurance, Investments, National banks, Penalties,
Proprietary trading, Reporting and recordkeeping requirements, Risk,
Risk retention, Securities, Swap dealers, Trusts and trustees, Volcker
rule.

17 CFR Part 255

Banks, Brokers, Dealers, Investment advisers, Recordkeeping,
Reporting, Securities.

Department of the Treasury

Office of the Comptroller of the Currency

Authority and Issuance
For the reasons stated in the Common Preamble, the Office of the
Comptroller of the Currency hereby amends chapter I of Title 12, Code
of Federal Regulations as follows:

PART 44--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
1. The authority for part 44 continues to read as follows:

Authority: 7 U.S.C. 27 et seq., 12 U.S.C. 1, 24, 92a, 93a, 161,
1461, 1462a, 1463, 1464, 1467a, 1813(q), 1818, 1851, 3101, 3102,
3108, 5412.

Sec. 44.16 [Amended]

0
2. Section 44.16 is added as set forth at the end of the Common
Preamble.

[[Page 5228]]

Board of Governors of the Federal Reserve

Authority and Issuance

For the reasons set forth in the Common Preamble, the Board of
Governors of the Federal Reserve System is adding the text of the
common rule as set forth at the end of the Common Preamble as Sec.
248.16 to part 248, 12 CFR chapter II.

PART 248--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS (Regulation VV)

0
3. The authority for part 248 continues to read as follows:

Authority: 12 U.S.C. 1851, 12 U.S.C. 221 et seq., 12 U.S.C.
1818, 12 U.S.C. 1841 et seq., and 12 U.S.C. 3103 et seq.

Sec. 248.16 [Amended]

0
4. Section 248.16 is added as set forth at the end of the Common
Preamble.

Federal Deposit Insurance Corporation

Authority and Issuance

For the reasons set forth in the Common Preamble, the Federal
Deposit Insurance Corporation is adding the text of the common rule as
set forth at the end of the Common Preamble as Sec. 351.16 to part
351, chapter III of Title 12, Code of Federal Regulations.

PART 351--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
5. The authority for part 351 continues to read as follows:

Authority: 12 U.S.C. 1851; 1811 et seq.; 3101 et seq.; and
5412.

Sec. 351.16 [Amended]

0
6. Section 351.16 is added as set forth at the end of the Common
Preamble.

Commodity Futures Trading Commission

Authority and Issuance

For the reasons set forth in the Common Preamble, the Commodity
Futures Trading Commission is adding the text of the common rule as set
forth at the end of the Common Preamble as Sec. 75.16 to part 75,
chapter I of Title 17, Code of Federal Regulations.

PART 75--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
7. The authority for part 75 continues to read as follows:

Authority: 12 U.S.C. 1851.

Sec. 75.16 [Amended]

0
8. Section 75.16 is added as set forth at the end of the Common
Preamble.

Securities and Exchange Commission

Authority and Issuance

For the reasons set forth in the Common Preamble, the Securities
and Exchange Commission is adding the text of the common rule as set
forth at the end of the Common Preamble as Sec. 255.16 to part 255,
chapter II of Title 17, Code of Federal Regulations.

PART 255--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
9. The authority for part 255 continues to read as follows:

Authority: 12 U.S.C. 1851.

Sec. 255.16 [Amended]

0
10. Section 255.16 is added as set forth at the end of the Common
Preamble.

Dated: January 14, 2014.
Thomas J. Curry,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, January 14, 2014.
Robert deV. Frierson,
Secretary of the Board.
Dated at Washington, DC this 13th day of January 2014.

By delegated authority from the Board of Directors of the
Federal Deposit Insurance Corporation.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: January 17, 2014.

By the Securities and Exchange Commission.
Elizabeth M. Murphy,
Secretary.
Issued in Washington, DC, on January 15, 2014, by the Commodity
Futures Trading Commission.
Melissa D. Jurgens,
Secretary of the Commodity Futures Trading Commission.

Note: The following appendices will not appear in the Code of
Federal Regulations.

Commodity Futures Trading Commission (CFTC) Appendices to Treatment of
Certain Collateralized Debt Obligations Backed Primarily by Trust
Preferred Securities With Regard to Prohibitions and Restrictions on
Certain Interests in, and Relationships With, Hedge Funds and Private
Equity Funds--Commission Voting Summary and Statements of Commissioners

Appendix 1--Commodity Futures Trading Commission Voting Summary

On this matter, Acting Chairman Wetjen and Commissioner Chilton
voted in the affirmative, and Commissioner O'Malia concurred.

Appendix 2--Statement of CFTC Acting Chairman Mark P. Wetjen

I support the interim final rule adopted by the CFTC and the other
Volcker Rule agencies. The Commission believed it was important to join
the other agencies in ensuring community banks are protected, as
Congress directed, from restrictions in the Volcker Rule intended to
lower the risk of large financial institutions.

Appendix 3--Statement of Concurrence by CFTC Commissioner Scott D.
O'Malia

I support the interim final rule adopted by the Commission and the
OCC, Federal Reserve Board, FDIC, and SEC (``Agencies''). When an
unintended consequence of a regulation is discovered, it is imperative
that it be expeditiously corrected to avoid unintentional harm to
affected parties. Broken rules must be fixed, and I applaud the work of
the Agencies to quickly respond to the public's concerns and comments
regarding the holding of TruPS CDOs by community banks affected by the
Volcker Rule.

[FR Doc. 2014-02019 Filed 1-30-14; 8:45 am]
BILLING CODE 6210-01-P; 6741-01-P; 6351-01-P; 8011-01-P; 4810-33-P