SEC. 142. REPRESENTATIVE OFFICES. (a) DEFINITION.-Section 1(b)(15) of the International Banking Act of 1978 (12 U.S.C. 3101(15)) is amended by striking "State agency, or subsidiary of a foreign bank" and inserting "or State agency". (b) EXAMINATIONS.-Section 10(c) of the International Banking Act of 1978 (12 U.S.C. 3107(c)) is amended by adding at the end the following new sentence: "The Board may also make examinations of any affiliate of a foreign bank conducting business in any State if the Board deems it necessary to determine and enforce compliance with this Act, the Bank Holding Company Act of 1956, or other applicable Federal banking law.". Subtitle F-Direct Activities of Banks SEC. 151. AUTHORITY OF NATIONAL BANKS TO UNDERWRITE CERTAIN MUNICIPAL BONDS. The paragraph designated the Seventh of section 5136 of the Revised Statutes of the United States (12 U.S.C. 24(7)) is amended by adding at the end the following new sentence: "In addition to the provisions in this paragraph for dealing in, underwriting, or purchasing securities, the limitations and restrictions contained in this paragraph as to dealing in, underwriting, and purchasing investment securities for the national bank's own account shall not apply to obligations (including limited obligation bonds, revenue bonds, and obligations that satisfy the requirements of section 142(b)(1) of the Internal Revenue Code of 1986) issued by or on behalf of any State or political subdivision of a State, including any municipal corporate instrumentality of 1 or more States, or any public agency or authority of any State or political subdivision of a State, if the national bank is well capitalized (as defined in section 38 of the Federal Deposit Insurance Act).”. Subtitle G-Effective Date SEC. 161. EFFECTIVE DATE. This title (other than section 104) and the amendments made by this title shall take effect 120 days after the date of the enactment of this Act. TITLE II-FUNCTIONAL REGULATION SEC. 201. DEFINITION OF BROKER. Section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)) is amended to read as follows: "(4) BROKER. "(A) IN GENERAL.-The term 'broker' means any person engaged in the business of effecting transactions in securities for the account of oth ers. "(B) EXCEPTION FOR CERTAIN BANK ACTIVITIES. A bank shall not be considered to be a broker because the bank engages in any one or more of the following activities under the conditions described: "(i) THIRD PARTY BROKERAGE ARRANGEMENTS.-The bank enters into a contractual or other written arrangement with a broker or dealer registered under this title under which the broker or dealer offers brokerage services on or off the premises of the bank if— "(I) such broker or dealer is clearly identified as the person performing the brokerage services; "(II) the broker or dealer performs brokerage services in an area that is clearly marked and, to the extent practicable, physically separate from the routine deposit-taking activities of the bank; "(III) any materials used by the bank to advertise or promote generally the availability of brokerage services under the arrangement clearly indicate that the brokerage services are being provided by the broker or dealer and not by the bank; "(IV) any materials used by the bank to advertise or promote generally the availability of brokerage services under the arrangement are in compliance with the Federal securities laws before distribution; "(V) bank employees (other than associated persons of a broker or dealer who are qualified pursuant to the rules of a self-regulatory organization) perform only clerical or ministerial functions in connection with brokerage transactions including scheduling appointments with the associated persons of a broker or dealer, except that bank employees may forward customer funds or securities and may describe in general terms the types of investment vehicles available from the bank and the broker or dealer under the arrangement; "(VI) bank employees do not receive incentive compensation for any brokerage transaction unless such employees are associated persons of a broker or dealer and are qualified pursuant to the rules of a self-regulatory organization, except that the bank employees may receive compensation for the referral of any customer if the compensation is a nominal one-time cash fee of a fixed dollar amount and the payment of the fee is not contingent on whether the referral results in a transaction; "(VII) such services are provided by the broker or dealer on a basis in which all customers that receive any services are fully disclosed to the broker or dealer; "(VIII) the bank does not carry a securities account of the customer except as permitted under clause (ii) or (viii) of this subparagraph; and "(IX) the bank, broker, or dealer informs each customer that the brokerage services are provided by the broker or dealer and not by the bank and that the securities are not deposits or other obligations of the bank, are not guaranteed by the bank, and are not insured by the Federal Deposit Insurance Corporation. "(ii) TRUST ACTIVITIES.-The bank effects transactions in a trustee capacity, or effects transactions in a fiduciary capacity in its trust department or other department that is regularly examined by bank examiners for compliance with fiduciary principles and standards, and "(I) is chiefly compensated for such transactions, consistent with fiduciary principles and standards, on the basis of an administration or annual fee (payable on a monthly, quarterly, or other basis), a percentage of assets under management, or a flat or capped per order processing fee equal to not more than the cost incurred by the bank in connection with executing securities transactions for trustee and fiduciary customers, or any combination of such fees; and "(II) does not publicly solicit brokerage business, other than by advertising that it effects transactions in securities in conjunction with advertising its other trust activities. TRANS "(iii) PERMISSIBLE SECURITIES ACTIONS.—The bank effects transactions in— "(I) commercial paper, bankers acceptances, or commercial bills; "(II) exempted securities; “(III) qualified Canadian government obligations as defined in section 5136 of the Revised Statutes, in conformity with section 15C of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or "(IV) any standardized, credit enhanced debt security issued by a foreign government pursuant to the March 1989 plan of then Secretary of the Treasury Brady, used by such foreign government to retire outstanding commercial bank loans. “(iv) CERTAIN STOCK PURCHASE PLANS.— “(I) EMPLOYEE BENEFIT PLANS.-The bank effects transactions, as part of its transfer agency activities, in the securities of an issuer as part of any pension, retirement, profit-sharing, bonus, thrift, savings, incentive, or other similar benefit plan for the employees of that issuer or its affiliates (as defined in section 2 of the Bank Holding Company Act of 1956), if the bank does not solicit transactions or provide investment advice with respect to the purchase or sale of securities in connection with the plan. “(II) DIVIDEND REINVESTMENT PLANS.-The bank effects transactions, as part of its transfer agency activities, in the securities of an issuer as part of that issuer's dividend reinvestment plan, if “(aa) the bank does not solicit transactions or provide investment advice with respect to the purchase or sale of securities in connection with the plan; and “(bb) the bank does not net shareholders' buy and sell orders, other than for programs for oddlot holders or plans registered with the Commission. “(III) ISSUER PLANS.-The bank effects transactions, as part of its transfer agency activities, in the securities of an issuer as part of a plan or program for the purchase or sale of that issuer's shares, if “(aa) the bank does not solicit transactions or provide investment advice with respect to the purchase or sale of securities in connection with the plan or program; and “(bb) the bank does not net shareholders' buy and sell orders, other than for programs for oddlot holders or plans registered with the Commission. "(IV) PERMISSIBLE DELIVERY OF MATERIALS.— The exception to being considered a broker for a bank engaged in activities described in subclauses (I), (II), and (III) will not be affected by delivery of written or electronic plan materials by a bank to employees of the issuer, shareholders of the issuer, or members of affinity groups of the issuer, so long as such materials are "(aa) comparable in scope or nature to that permitted by the Commission as of the date of the enactment of the Gramm-Leach-Bliley Act; or "(bb) otherwise permitted by the Commission. “(v) SWEEP ACCOUNTS.-The bank effects transactions as part of a program for the investment or reinvestment of deposit funds into any no-load, open-end management investment company registered under the Investment Company Act of 1940 that holds itself out as a money market fund. “(vi) AFFILIATE TRANSACTIONS.-The bank effects transactions for the account of any affiliate of the bank (as defined in section 2 of the Bank Holding Company Act of 1956) other than "(I) a registered broker or dealer; or "(II) an affiliate that is engaged in merchant banking, as described in section 4(k)(4)(H) of the Bank Holding Company Act of 1956. "(vii) PRIVATE SECURITIES OFFERINGS.-The bank "(I) effects sales as part of a primary offering of securities not involving a public offering, pursuant to section 3(b), 4(2), or 4(6) of the Securities Act of 1933 or the rules and regulations issued thereunder; “(II) at any time after the date that is 1 year after the date of the enactment of the GrammLeach-Bliley Act, is not affiliated with a broker or dealer that has been registered for more than 1 year in accordance with this Act, and engages in dealing, market making, or underwriting activities, other than with respect to exempted securities; and "(III) if the bank is not affiliated with a broker or dealer, does not effect any primary offering described in subclause (I) the aggregate amount of which exceeds 25 percent of the capital of the bank, except that the limitation of this subclause shall not apply with respect to any sale of government securities or municipal securities. “(viii) SAFEKEEPING AND CUSTODY ACTIVITIES. "(I) IN GENERAL.-The bank, as part of customary banking activities “(aa) provides safekeeping or custody services with respect to securities, including the exercise of warrants and other rights on behalf of customers; “(bb) facilitates the transfer of funds or securities, as a custodian or a clearing agency, in connection with the clearance and settlement of its customers' transactions in securities; "(cc) effects securities lending or borrowing transactions with or on behalf of customers as part of services provided to customers pursuant to division (aa) or (bb) or invests cash collateral pledged in connection with such transactions; "(dd) holds securities pledged by a customer to another person or securities subject to purchase or resale agreements involving a customer, or facilitates the pledging or transfer of such securities by book entry or as otherwise provided under applicable law, if the bank maintains records separately identifying the securities and the customer; or "(ee) serves as a custodian or provider of other related administrative services to any individual retirement account, pension, retirement, profit sharing, bonus, thrift savings, incentive, or other similar benefit plan. "(II) EXCEPTION FOR CARRYING BROKER ACTIVITIES.-The exception to being considered a broker for a bank engaged in activities described in subclause (I) shall not apply if the bank, in connection with such activities, acts in the United States as a carrying broker (as such term, and different formulations thereof, are used in section 15(c)(3) of this title and the rules and regulations thereunder) for any broker or dealer, unless such carrying broker activities are engaged in with respect to government securities (as defined in paragraph (42) of this subsection). "(ix) IDENTIFIED BANKING PRODUCTS.-The bank effects transactions in identified banking products as defined in section 206 of the GrammLeach-Bliley Act. "(x) MUNICIPAL SECURITIES.-The bank effects transactions in municipal securities. "(xi) DE MINIMIS EXCEPTION.-The bank effects, other than in transactions referred to in clauses (i) through (x), not more than 500 transactions in securities in any calendar year, and such transactions are not effected by an employee of the bank who is also an employee of a broker or dealer. “(C) EXECUTION BY BROKER OR DEALER.—The exception to being considered a broker for a bank engaged in activities described in clauses (ii), (iv), and (viii) of subparagraph (B) shall not apply if the activities described in such provisions result in the trade in the United States of any security that is a publicly traded security in the United States, unless "(i) the bank directs such trade to a registered broker or dealer for execution; "(ii) the trade is a cross trade or other substantially similar trade of a security that— "(I) is made by the bank or between the bank and an affiliated fiduciary; and "(II) is not in contravention of fiduciary principles established under applicable Federal or State law; or "(iii) the trade is conducted in some other manner permitted under rules, regulations, or orders as the Commission may prescribe or issue. "(D) FIDUCIARY CAPACITY.-For purposes of subparagraph (B)(ii), the term 'fiduciary capacity' means "(i) in the capacity as trustee, executor, administrator, registrar of stocks and bonds, transfer agent, guardian, assignee, receiver, or custodian under a uniform gift to minor act, or as an investment adviser if the bank receives a fee for its investment advice; "(ii) in any capacity in which the bank possesses investment discretion on behalf of another; or "(iii) in any other similar capacity. "(E) EXCEPTION FOR ENTITIES SUBJECT TO SECTION 15(e).—The term ‘broker' does not include a bank that "(i) was, on the day before the date of enactment of the Gramm-Leach-Bliley Act, subject to section 15(e); and "(ii) is subject to such restrictions and requirements as the Commission considers appropriate.". SEC. 202. DEFINITION OF DEALER. Section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)) is amended to read as follows: “(5) DEALER.— "(A) IN GENERAL.-The term 'dealer' means any person engaged in the business of buying and selling securities for such person's own account through a broker or otherwise. "(B) EXCEPTION FOR PERSON NOT ENGAGED IN THE BUSINESS OF DEALING.-The term 'dealer' does not include a person that buys or sells securities for such person's own account, either individually or in a fiduciary capacity, but not as a part of a regular business. "(C) EXCEPTION FOR CERTAIN BANK ACTIVITIES.-A bank shall not be considered to be a dealer because the bank engages in any of the following activities under the conditions described: "(i) PERMISSIBLE SECURITIES TRANSACTIONS.— The bank buys or sells "(I) commercial paper, bankers acceptances, or commercial bills; "(II) exempted securities; "(III) qualified Canadian government obligations as defined in section 5136 of the Revised Statutes of the United States, in conformity with section 15C of this title and the rules and regulations thereunder, or obligations of the North American Development Bank; or "(IV) any standardized, credit enhanced debt security issued by a foreign government pursuant to the March 1989 plan of then Secretary of the Treasury Brady, used by such foreign government to retire outstanding commercial bank loans. "(ii) INVESTMENT, TRUSTEE, AND FIDUCIARY TRANSACTIONS.—The bank buys or sells securities for investment purposes— "(I) for the bank; or "(II) for accounts for which the bank acts as a trustee or fiduciary. "(iii) ASSET-BACKED TRANSACTIONS.-The bank engages in the issuance or sale to qualified investors, through a grantor trust or other separate entity, of securities backed by or representing an interest in notes, drafts, acceptances, loans, leases, receivables, other obligations (other than securities of which the bank is not the issuer), or pools of any such obligations predominantly originated by "(I) the bank; "(II) an affiliate of any such bank other than a broker or dealer; or “(III) a syndicate of banks of which the bank is a member, if the obligations or pool of obligations consists of mortgage obligations or consumer-related receivables. "(iv) IDENTIFIED BANKING PRODUCTS.-The bank buys or sells identified banking products, as defined in section 206 of the Gramm-LeachBliley Act.". SEC. 203. REGISTRATION FOR SALES OF PRIVATE SECURITIES OFFERINGS. Section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 780-3) is amended by inserting after subsection (i) the following new subsection: “(j) REGISTRATION FOR SALES OF PRIVATE SECURITIES OFFERINGS.-A registered securities association shall create a limited qualification category for any associated person of a member who effects sales as part of a primary offering of securities not involving a public offering, pursuant to section 3(b), 4(2), or 4(6) of the Securities Act of 1933 and the rules and regulations thereunder, and shall deem qualified in such limited qualification category, without testing, any bank employee who, in the six month period preceding the date of the enactment of the GrammLeach-Bliley Act, engaged in effecting such sales.". SEC. 204. INFORMATION SHARING. Section 18 of the Federal Deposit Insurance Act is amended by adding at the end the following new subsection: "(t) RECORDKEEPING REQUIREMENTS.— “(1) REQUIREMENTS.-Each appropriate Federal banking agency, after consultation with and consideration of the views of the Commission, shall establish recordkeeping requirements for banks relying on exceptions contained in paragraphs (4) and (5) of section 3(a) of the Securities Exchange Act of 1934. Such recordkeeping requirements shall be sufficient to demonstrate compliance with the terms of such exceptions and be designed to facilitate compliance with such exceptions. "(2) AVAILABILITY TO COMMISSION; CONFIDENTIALITY. Each appropriate Federal banking agency shall make any information required under paragraph (1) available to the Commission upon request. Notwithstanding any other provision of law, the Commission shall not be compelled to disclose any such information. Nothing in this paragraph shall authorize the Commission to withhold information from Congress, or prevent the Commission from complying with a request for information from any other Federal department or agency or any self-regulatory organization requesting the information for purposes within the scope of its jurisdiction, or complying with an order of a court of the United States in an action brought by the United States or the Commission. For purposes of section 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section 552. "(3) DEFINITIONS.-As used in this subsection the term 'Commission' means the Securities and Exchange Commission.". SEC. 205. TREATMENT OF NEW HYBRID PRODUCTS. Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 780) is amended by adding at the end the following new subsection: "(i) RULEMAKING TO EXTEND REQUIREMENTS TO NEW HYBRID PRODUCTS.— “(1) CONSULTATION.-Prior to commencing a rulemaking under this subsection, the Commission shall consult with and seek the concurrence of the Board concerning the imposition of broker or dealer registration requirements with respect any new hybrid product. In developing and promulgating rules under this subsection, the Commission shall consider the views of the Board, including views with respect to the nature of the new hybrid product; the history, purpose, extent, and appropriateness of the regulation of the new product under the Federal banking laws; and the impact of the proposed rule on the banking industry. “(2) LIMITATION.—The Commission shall not— “(A) require a bank to register as a broker or dealer under this section because the bank engages in any transaction in, or buys or sells, a new hybrid product; or "(B) bring an action against a bank for a failure to comply with a requirement described in subparagraph (A), unless the Commission has imposed such requirement by rule or regulation issued in accordance with this section. "(3) CRITERIA FOR RULEMAKING.-The Commission shall not impose a requirement under paragraph (2) of this subsection with respect to any new hybrid product unless the Commission determines that— "(A) the new hybrid product is a security; and "(B) imposing such requirement is necessary and appropriate in the public interest and for the protection of investors. "(4) CONSIDERATIONS.-In making a determination under paragraph (3), the Commission shall consider— "(A) the nature of the new hybrid product; and "(B) the history, purpose, extent, and appropriateness of the regulation of the new hybrid product under the Federal securities laws and under the Federal banking laws. “(5) OBJECTION TO COMMISSION REGULATION.— "(A) FILING OF PETITION FOR REVIEW.-The Board may obtain review of any final regulation described in paragraph (2) in the United States Court of Appeals for the District of Columbia Circuit by filing in such court, not later than 60 days after the date of publication of the final regulation, a written petition requesting that the regulation be set aside. Any proceeding to challenge any such rule shall be expedited by the Court of Appeals. "(B) TRANSMITTAL OF PETITION AND RECORD.-A copy of a petition described in subparagraph (A) shall be transmitted as soon as possible by the Clerk of the Court to an officer or employee of the Commission designated for that purpose. Upon receipt of the petition, the Commission shall file with the court the regulation under review and any documents referred to therein, and any other relevant materials prescribed by the court. "(C) EXCLUSIVE JURISDICTION.-On the date of the filing of the petition under subparagraph (A), the court has jurisdiction, which becomes exclusive on the filing of the materials set forth in subparagraph (B), to affirm and enforce or to set aside the regulation at issue. "(D) STANDARD OF REVIEW.-The court shall determine to affirm and enforce or set aside a regulation of the Commission under this subsection, based on the determination of the court as to whether "(i) the subject product is a new hybrid product, as defined in this subsection; "(ii) the subject product is a security; and "(iii) imposing a requirement to register as a broker or dealer for banks engaging in transactions in such product is appropriate in light of the history, purpose, and extent of regulation under the Federal securities laws and under the Federal banking laws, giving deference neither to the views of the Commission nor the Board. "(E) JUDICIAL STAY.-The filing of a petition by the Board pursuant to subparagraph (A) shall operate as a judicial stay, until the date on which the determination of the court is final (including any appeal of such determination). “(F) OTHER AUTHORITY TO CHALLENGE.—Any aggrieved party may seek judicial review of the Commission's rulemaking under this subsection pursuant to section 25 of this title. "(6) DEFINITIONS.-For purposes of this subsection: "(A) NEW HYBRID PRODUCT.-The term 'new hybrid product' means a product that "(i) was not subjected to regulation by the Commission as a security prior to the date of the enactment of the Gramm-Leach-Bliley Act; "(ii) is not an identified banking product as such term is defined in section 206 of such Act; and "(iii) is not an equity swap within the meaning of section 206(a)(6) of such Act. “(B) BOARD.-The term 'Board' means the Board of Governors of the Federal Reserve System.". SEC. 206. DEFINITION OF IDENTIFIED BANKING PRODUCT. (a) DEFINITION OF IDENTIFIED BANKING PRODUCT.-For purposes of paragraphs (4) and (5) of section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a) (4), (5)), the term "identified banking product" means— (1) a deposit account, savings account, certificate of deposit, or other deposit instrument issued by a bank; (2) a banker's acceptance; (3) a letter of credit issued or loan made by a bank; (4) a debit account at a bank arising from a credit card or similar arrangement; (5) a participation in a loan which the bank or an affiliate of the bank (other than a broker or dealer) funds, participates in, or owns that is sold (A) to qualified investors; or (i) have the opportunity to review and assess any material information, including information regarding the borrower's creditworthiness; and (ii) based on such factors as financial sophistication, net worth, and knowledge and experience in financial matters, have the capability to evaluate the information available, as determined under generally applicable banking standards or guidelines; or (6) any swap agreement, including credit and equity swaps, except that an equity swap that is sold directly to any person other than a qualified investor (as defined in section 3(a)(54) of the Securities Act of 1934) shall not be treated as an identified banking product. (b) DEFINITION OF SWAP AGREEMENT.—For purposes of subsection (a)(6), the term "swap agreement" means any individually negotiated contract, agreement, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets, but does not include any other identified banking product, as defined in paragraphs (1) through (5) of subsection (a). (c) CLASSIFICATION LIMITED.—Classification of a particular product as an identified banking product pursuant to this section shall not be construed as finding or implying that such product is or is not a security for any purpose under the securities laws, or is or is not an account, agreement, contract, or transaction for any purpose under the Commodity Exchange Act. (d) INCORPORATED DEFINITIONS.-For purposes of this section, the terms "bank" and "qualified investor" have the same meanings as given in section 3(a) of the Securities Exchange Act of 1934, as amended by this Act. SEC. 207. ADDITIONAL DEFINITIONS. Section 3(a) of the Securities Exchange Act of 1934 is amended by adding at the end the following new paragraph: "(54) QUALIFIED INVESTOR.— "(A) DEFINITION.-Except as provided in subparagraph (B), for purposes of this title, the term 'qualified investor' means— "(i) any investment company registered with the Commission under section 8 of the Investment Company Act of 1940; "(ii) any issuer eligible for an exclusion from the definition of investment company pursuant to section 3(c)(7) of the Investment Company Act of 1940; "(iii) any bank (as defined in paragraph (6) of this subsection), savings association (as defined in section 3(b) of the Federal Deposit Insurance Act), broker, dealer, insurance company (as defined in section 2(a)(13) of the Securities Act of 1933), or business development company (as defined in section 2(a)(48) of the Investment Company Act of 1940); "(iv) any small business investment company licensed by the United States Small Business Administration under section 301 (c) or (d) of the Small Business Investment Act of 1958; "(v) any State sponsored employee benefit plan, or any other employee benefit plan, within the meaning of the Employee Retirement Income Security Act of 1974, other than an individual retirement account, if the investment decisions are made by a plan fiduciary, as defined in section 3(21) of that Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser; "(vi) any trust whose purchases of securities are directed by a person described in clauses (i) through (v) of this subparagraph; "(vii) any market intermediary exempt under section 3(c)(2) of the Investment Company Act of 1940; “(viii) any associated person of a broker or dealer other than a natural person; "(ix) any foreign bank (as defined in section 1(b)(7) of the International Banking Act of 1978); "(x) the government of any foreign country; "(xi) any corporation, company, or partnership that owns and invests on a discretionary basis, not less than $25,000,000 in investments; "(xii) any natural person who owns and invests on a discretionary basis, not less than $25,000,000 in investments; "(xiii) any government or political subdivision, agency, or instrumentality of a govern ment who owns and invests on a discretionary basis not less than $50,000,000 in investments; or "(xiv) any multinational or supranational entity or any agency or instrumentality thereof. "(B) ALTERED THRESHOLDS FOR ASSET-BACK SECURITIES AND LOAN PARTICIPATIONS.-For purposes sections 3(a)(5)(C)(iii) of this title and section 206(a)(5) of the Gramm-Leach-Bliley Act, the term 'qualified investor' has the meaning given such term by subparagraph (A) of this paragraph except that clauses (xi) and (xii) shall be applied by substituting $10,000,000' for '$25,000,000'. "(C) ADDITIONAL AUTHORITY.-The Commission may, by rule or order, define a 'qualified investor' as any other person, taking into consideration such factors as the financial sophistication of the person, net worth, and knowledge and experience in financial matters.". SEC. 208. GOVERNMENT SECURITIES DEFINED. Section 3(a)(42) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(42)) is amended— (1) by striking "or" at the end of subparagraph (C); (2) by striking the period at the end of subparagraph (D) and inserting "; or"; and (3) by adding at the end the following new subparagraph: "(E) for purposes of sections 15, 15C, and 17A as applied to a bank, a qualified Canadian government obligation as defined in section 5136 of the Revised Statutes of the United States.". SEC. 209. EFFECTIVE DATE. This subtitle shall take effect at the end of the 18-month period beginning on the date of the enactment of this Act. SEC. 210. RULE OF CONSTRUCTION. Nothing in this Act shall supersede, affect, or otherwise limit the scope and applicability of the Commodity Exchange Act (7 U.S.C. 1 et seq.). Subtitle B-Bank Investment Company SEC. 211. CUSTODY OF INVESTMENT COMPANY (a) MANAGEMENT COMPANIES.-Section 17(f) of the Investment Company Act of 1940 (15 U.S.C. 80a-17(f)) is amended (1) by redesignating paragraphs (1), (2), and (3) as subparagraphs (A), (B), and (C), respectively; (2) by striking "(f) Every registered" and inserting the following: “(f) CUSTODY OF SECURITIES.— (3) by redesignating the second, third, fourth, and fifth sentences of such subsection as paragraphs (2) through (5), respectively, and indenting the left margin of such paragraphs appropriately; and (4) by adding at the end the following new paragraph: "(6) The Commission may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act), adopt rules and regulations, and issue orders, consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated person of a bank, either of which is an affiliated person, promoter, organizer, or sponsor of, or principal underwriter for, a registered management company may serve as custodian of that registered management company.". (b) UNIT INVESTMENT TRUSTS.-Section 26 of the Investment Company Act of 1940 (15 U.S.C. 80a-26) is amended (1) by redesignating subsections (b) through (e) as subsections (c) through (f), respectively; and (2) by inserting after subsection (a) the following new subsection: "(b) The Commission may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act), adopt rules and regulations, and issue orders, consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated person of a bank, either of which is an affiliated person of a principal underwriter for, or depositor of, a registered unit investment trust, may serve as trustee or custodian under subsection (a)(1).”. SEC. 212. LENDING TO AN AFFILIATED INVESTMENT COMPANY. Section 17(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-17(a)) is amended(1) by striking "or" at the end of paragraph (2); (2) by striking the period at the end of paragraph (3) and inserting “; or"; and (3) by adding at the end the following new paragraph: "(4) to loan money or other property to such registered company, or to any company controlled by such registered company, in contravention of such rules, regulations, or orders as the Commission may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act), prescribe or issue consistent with the protection of investors.". SEC. 213. INDEPENDENT DIRECTORS. (a) IN GENERAL.-Section 2(a)(19)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a2(a)(19)(A)) is amended— (1) by striking clause (v) and inserting the following new clause: "(v) any person or any affiliated person of a person (other than a registered investment company) that, at any time during the 6-month period preceding the date of the determination of whether that person or affiliated person is an interested person, has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for"(I) the investment company; "(II) any other investment company having the same investment adviser as such investment company or holding itself out to investors as a related company for purposes of investment or investor services; or “(III) any account over which the investment company's investment adviser has brokerage placement discretion,"; (2) by redesignating clause (vi) as clause (vii); and (3) by inserting after clause (v) the following new clause: "(vi) any person or any affiliated person of a person (other than a registered investment company) that, at any time during the 6-month period preceding the date of the determination of whether that person or affiliated person is an interested person, has loaned money or other property to "(I) the investment company; "(II) any other investment company having the same investment adviser as such investment company or holding itself out to investors as a related company for purposes of investment or investor services; or "(III) any account for which the investment company's investment adviser has borrowing authority," (b) CONFORMING AMENDMENT.-Section 2(a)(19)(B) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)(B)) is amended (1) by striking clause (v) and inserting the following new clause: "(v) any person or any affiliated person of a person (other than a registered investment company) that, at any time during the 6-month period preceding the date of the determination of whether that person or affiliated person is an interested person, has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for “(I) any investment company for which the investment adviser or principal underwriter serves as such; "(II) any investment company holding itself out to investors, for purposes of investment or investor services, as a company related to any investment company for which the investment adviser or principal underwriter serves as such; or "(III) any account over which the investment adviser has brokerage placement discretion,"; (2) by redesignating clause (vi) as clause (vii); and (3) by inserting after clause (v) the following new clause: "(vi) any person or any affiliated person of a person (other than a registered investment company) that, at any time during the 6-month period preceding the date of the determination of whether that person or affiliated person is an interested person, has loaned money or other property to "(I) any investment company for which the investment adviser or principal underwriter serves as such; "(II) any investment company holding itself out to investors, for purposes of investment or investor services, as a company related to any investment company for which the investment adviser or principal underwriter serves as such; or "(III) any account for which the investment adviser has borrowing authority,". (c) AFFILIATION OF DIRECTORS.-Section 10(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-10(c)) is amended by striking “bank, except" and inserting "bank (together with its affiliates and subsidiaries) or any one bank holding company (together with its affiliates and subsidiaries) (as such terms are defined in section 2 of the Bank Holding Company Act of 1956), except". SEC. 214. ADDITIONAL SEC DISCLOSURE AUTHORITY. Section 35(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-34(a)) is amended to read as follows: “(a) MISREPRESENTATION OF GUARANTEES.— "(1) IN GENERAL.-It shall be unlawful for any person, issuing or selling any security of which a registered investment company is the issuer, to represent or imply in any manner whatsoever that such security or company— "(A) has been guaranteed, sponsored, recommended, or approved by the United States, or any agency, instrumentality or officer of the United States; "(B) has been insured by the Federal Deposit Insurance Corporation; or "(C) is guaranteed by or is otherwise an obligation of any bank or insured depository institution. "(2) DISCLOSURES.-Any person issuing or selling the securities of a registered investment company that is advised by, or sold through, a bank shall prominently disclose that an investment in the company is not insured by the Federal Deposit Insurance Corporation or any other government agency. The Commission may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in section 3 of the Federal Deposit Insurance Act), adopt rules and regulations, and issue orders, consistent with the protection of investors, prescribing the manner in which the disclosure under this paragraph shall be provided. "(3) DEFINITIONS.-The terms 'insured depository institution' and 'appropriate Federal banking agency' have the same meanings as given in section 3 of the Federal Deposit Insurance Act.". SEC. 215. DEFINITION OF BROKER UNDER THE INVESTMENT COMPANY ACT OF 1940. Section 2(a)(6) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(6)) is amended to read as follows: "(6) The term 'broker' has the same meaning as given in section 3 of the Securities Exchange Act of 1934, except that such term does not include any person solely by reason of the fact that such person is an underwriter for one or more investment companies.". SEC. 216. DEFINITION OF DEALER UNDER THE INVESTMENT COMPANY ACT OF 1940. Section 2(a)(11) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(11)) is amended to read as follows: "(11) The term 'dealer' has the same meaning as given in the Securities Exchange Act of 1934, but does not include an insurance company or investment company.”. SEC. 217. REMOVAL OF THE EXCLUSION FROM THE DEFINITION OF INVESTMENT ADVISER FOR BANKS THAT ADVISE INVESTMENT COMPANIES. INVESTMENT ADVISER.-Section (a) 202(a)(11)(A) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11)(A)) is amended by striking "investment company" and inserting "investment company, except that the term ‘investment adviser' includes any bank or bank holding company to the extent that such bank or bank holding company serves or acts as an investment adviser to a registered investment company, but if, in the case of a bank, such services or actions are performed through a separately identifiable department or division, the department or division, and not the bank itself, shall be deemed to be the investment adviser”. (b) SEPARATELY IDENTIFIABLE DEPARTMENT OR DIVISION.-Section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)) is amended by adding at the end the following: "(26) The term 'separately identifiable department or division' of a bank means a unit "(A) that is under the direct supervision of an officer or officers designated by the board of directors of the bank as responsible for the day-today conduct of the bank's investment adviser activities for one or more investment companies, including the supervision of all bank employees engaged in the performance of such activities; and "(B) for which all of the records relating to its investment adviser activities are separately maintained in or extractable from such unit's own facilities or the facilities of the bank, and such records are so maintained or otherwise accessible as to permit independent examination and enforcement by the Commission of this Act or the Investment Company Act of 1940 and rules and regulations promulgated under this Act or the Investment Company Act of 1940.". SEC. 218. DEFINITION OF BROKER UNDER THE INVESTMENT ADVISERS ACT OF 1940. Section 202(a)(3) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(3)) is amended to read as follows: "(3) The term 'broker' has the same meaning as given in section 3 of the Securities Exchange Act of 1934.". SEC. 219. DEFINITION OF DEALER UNDER THE INVESTMENT ADVISERS ACT OF 1940. Section 202(a)(7) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(7)) is amended to read as follows: "(7) The term 'dealer' has the same meaning as given in section 3 of the Securities Exchange Act of 1934, but does not include an insurance company or investment company.". SEC. 220. INTERAGENCY CONSULTATION. The Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) is amended by inserting after section 210 the following new section: "SEC. 210A. CONSULTATION. "(a) EXAMINATION RESULTS AND OTHER INFORMATION. "(1) The appropriate Federal banking agency shall provide the Commission upon request the results of any examination, reports, records, or other information to which such agency may have access— "(A) with respect to the investment advisory activities of any "(i) bank holding company; "(ii) bank; or "(iii) separately identifiable department or division of a bank, that is registered under section 203 of this title; and "(B) in the case of a bank holding company or bank that has a subsidiary or a separately identifiable department or division registered under that section, with respect to the investment advisory activities of such bank or bank holding company. "(2) The Commission shall provide to the appropriate Federal banking agency upon request the results of any examination, reports, records, or other information with respect to the investment advisory activities of any bank holding company, bank, or separately identifiable department or division of a bank, which is registered under section 203 of this title. "(3) Notwithstanding any other provision of law, the Commission and the appropriate Federal banking agencies shall not be compelled to disclose any information provided under paragraph (1) or (2). Nothing in this paragraph shall authorize the Commission or such agencies to withhold information from Congress, or prevent the Commission or such agencies from complying with a request for information from any other Federal department or agency or any self-regulatory organization requesting the information for purposes within the scope of its jurisdiction, or complying with an order of a court of the United States in an action brought by the United States, the Commission, or such agencies. For purposes of section 552 of title 5, United States Code, this paragraph shall be considered α statute described in subsection (b)(3)(B) of such section 552. "(b) EFFECT ON OTHER AUTHORITY.-Nothing in this section shall limit in any respect the authority of the appropriate Federal banking agency with respect to such bank holding company (or affiliates or subsidiaries thereof), bank, or subsidiary, department, or division or a bank under any other provision of law. "(c) DEFINITION.-For purposes of this section, the term 'appropriate Federal banking agency' shall have the same meaning as given in section 3 of the Federal Deposit Insurance Act.". SEC. 221. TREATMENT OF BANK COMMON TRUST FUNDS. (a) SECURITIES ACT OF 1933.-Section 3(a)(2) of the Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended by striking "or any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, or guardian" and inserting "or any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term 'investment company' under section 3(c)(3) of the Investment Company Act of 1940". (b) SECURITIES EXCHANGE ACT OF 1934.-Section 3(a)(12)(A)(iii) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)(iii)) is amended to read as follows: "(iii) any interest or participation in any common trust fund or similar fund that is excluded from the definition of the term investment company' under section 3(c)(3) of the Investment Company Act of 1940;". (c) INVESTMENT COMPANY ACT OF 1940.-Section 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(3)) is amended by inserting before the period the following: ", if— "(A) such fund is employed by the bank solely as an aid to the administration of trusts, estates, or other accounts created and maintained for a fiduciary purpose; "(B) except in connection with the ordinary advertising of the bank's fiduciary services, interests in such fund are not "(i) advertised; or "(ii) offered for sale to the general public; and "(C) fees and expenses charged by such fund are not in contravention of fiduciary principles established under applicable Federal or State law". SEC. 222. STATUTORY DISQUALIFICATION FOR BANK WRONGDOING. Section 9(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-9(a)) is amended in para graphs (1) and (2) by striking "securities dealer, transfer agent," and inserting "securities dealer, bank, transfer agent,”. SEC. 223. CONFORMING CHANGE IN DEFINITION. Section 2(a)(5) of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(5)) is amended by striking "(A) a banking institution organized under the laws of the United States" and inserting "(A) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or a branch or agency of a foreign bank (as such terms are defined in section 1(b) of the International Banking Act of 1978)". SEC. 224. CONFORMING AMENDMENT. Section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2) is amended by adding at the end the following new subsection: "(c) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION. Whenever pursuant to this title the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.". SEC. 225. EFFECTIVE DATE. This subtitle shall take effect 18 months after the date of the enactment of this Act. Subtitle C-Securities and Exchange Commission Supervision of Investment Bank Holding Companies SEC. 231. SUPERVISION OF INVESTMENT BANK HOLDING COMPANIES BY THE SECURITIES AND EXCHANGE COMMISSION. (a) AMENDMENT.-Section 17 of the Securities Exchange Act of 1934 (15 U.S.C. 78q) is amended (1) by redesignating subsection (i) as subsection (k); and (2) by inserting after subsection (h) the following new subsections: "(i) INVESTMENT BANK HOLDING COMPANIES.“(1) ELECTIVE SUPERVISION OF AN INVESTMENT BANK HOLDING COMPANY NOT HAVING A BANK OR SAVINGS ASSOCIATION AFFILIATE. "(A) IN GENERAL.-An investment bank holding company that is not "(i) an affiliate of an insured bank (other than an institution described in subparagraph (D), (F), or (G) of section 2(c)(2), or held under section 4(f), of the Bank Holding Company Act of 1956), or a savings association; "(ii) a foreign bank, foreign company, or company that is described in section 8(a) of the International Banking Act of 1978; or "(iii) a foreign bank that controls, directly or indirectly, a corporation chartered under section 25A of the Federal Reserve Act, may elect to become supervised by filing with the Commission a notice of intention to become supervised, pursuant to subparagraph (B) of this paragraph. Any investment bank holding company filing such a notice shall be supervised in accordance with this section and comply with the rules promulgated by the Commission applicable to supervised investment bank holding companies. "(B) NOTIFICATION OF STATUS AS A SUPERVISED INVESTMENT BANK HOLDING COMPANY.-An investment bank holding company that elects under subparagraph (A) to become supervised by the Commission shall file with the Commission a written notice of intention to become supervised by the Commission in such form and containing such information and documents concerning such investment bank holding company as the Commission, by rule, may prescribe as necessary or appropriate in furtherance of the purposes of this section. Unless the Commission finds that such supervision is not necessary or appropriate in furtherance of the purposes of this section, such supervision shall become effective 45 days after the date of receipt of such written notice by the Commission or within such shorter time period as the Commission, by rule or order, may determine. “(2) ELECTION NOT TO BE SUPERVISED BY THE COMMISSION AS AN INVESTMENT BANK HOLDING COMPANY. “(A) VOLUNTARY WITHDRAWAL.-A supervised investment bank holding company that is supervised pursuant to paragraph (1) may, upon such terms and conditions as the Commission deems necessary or appropriate, elect not to be supervised by the Commission by filing a written notice of withdrawal from Commission supervision. Such notice shall not become effective until 1 year after receipt by the Commission, or such shorter or longer period as the Commission deems necessary or appropriate to ensure effective supervision of the material risks to the supervised investment bank holding company and to the affiliated broker or dealer, or to prevent evasion of the purposes of this section. “(B) DISCONTINUATION OF COMMISSION SUPERVISION.-If the Commission finds that any supervised investment bank holding company that is supervised pursuant to paragraph (1) is no longer in existence or has ceased to be an investment bank holding company, or if the Commission finds that continued supervision of such a supervised investment bank holding company is not consistent with the purposes of this section, the Commission may discontinue the supervision pursuant to a rule or order, if any, promulgated by the Commission under this section. "(3) SUPERVISION OF INVESTMENT BANK HOLDING COMPANIES. "(A) RECORDKEEPING AND REPORTING.“(i) IN GENERAL.-Every supervised investment bank holding company and each affiliate thereof shall make and keep for prescribed periods such records, furnish copies thereof, and make such reports, as the Commission may require by rule, in order to keep the Commission informed as to "(I) the company's or affiliate's activities, financial condition, policies, systems for monitoring and controlling financial and operational risks, and transactions and relationships between any broker or dealer affiliate of the supervised investment bank holding company; and "(II) the extent to which the company or affiliate has complied with the provisions of this Act and regulations prescribed and orders issued under this Act. "(ii) FORM AND CONTENTS.-Such records and reports shall be prepared in such form and according to such specifications (including certification by an independent public accountant), as the Commission may require and shall be provided promptly at any time upon request by the Commission. Such records and reports may include “(I) a balance sheet and income statement; “(II) an assessment of the consolidated capital of the supervised investment bank holding company; "(III) an independent auditor's report attesting to the supervised investment bank holding company's compliance with its internal risk management and internal control objectives; and "(IV) reports concerning the extent to which the company or affiliate has complied with the provisions of this title and any regulations prescribed and orders issued under this title. "(B) USE OF EXISTING REPORTS.— "(i) IN GENERAL.-The Commission shall, to the fullest extent possible, accept reports in fulfillment of the requirements under this paragraph that the supervised investment bank holding company or its affiliates have been required to provide to another appropriate regulatory agency or self-regulatory organization. "(ii) AVAILABILITY.-A supervised investment bank holding company or an affiliate of such company shall provide to the Commission, at the request of the Commission, any report referred to in clause (i). "(C) EXAMINATION AUTHORITY.— "(i) FOCUS OF EXAMINATION AUTHORITY.-The Commission may make examinations of any supervised investment bank holding company and any affiliate of such company in order to— |