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]
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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
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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:
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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:
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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
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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.
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• 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.
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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
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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
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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).
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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
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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’’).
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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.
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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.
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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.
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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
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12 CFR Part 44
PO 00000
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Fmt 4700
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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
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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:
■
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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.
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\2\ See Final Rule Sec. ----.10(b)(1)(i).
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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\
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\3\ See 12 U.S.C. 5371.
\4\ See 12 U.S.C. 5371(b)(4)(C).
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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.
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\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'').
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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\
---------------------------------------------------------------------------
\7\ See 5 U.S.C. 553(b).
\8\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\12\ See Statement, supra note 5, stating that the Agencies'
intend to address this matter no later than January 15, 2014.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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