Sec. 218.700 Defined terms relating to the
networking exception from the definition
of "broker."
When used with respect to the Third
Party Brokerage Arrangements
("Networking") Exception from the
definition of the term ‘‘broker’’ in
section 3(a)(4)(B)(i) of the Act (15 U.S.C.
78c(a)(4)(B)(i)) in the context of
transactions with a customer, the
following terms shall have the meaning
provided:
(a) Contingent on whether the referral
results in a transaction means
dependent on whether the referral
results in a purchase or sale of a
security; whether an account is opened
with a broker or dealer; whether the
referral results in a transaction
involving a particular type of security;
or whether it results in multiple
securities transactions; provided,
however, that a referral fee may be
contingent on whether a customer:
(1) Contacts or keeps an appointment
with a broker or dealer as a result of the
referral; or
(2) Meets any objective, base-line
qualification criteria established by the
bank or broker or dealer for customer
referrals, including such criteria as
minimum assets, net worth, income, or
marginal federal or state income tax
rate, or any requirement for citizenship
or residency that the broker or dealer, or
the bank, may have established
generally for referrals for securities
brokerage accounts.
(b)(1) Incentive compensation means
compensation that is intended to
encourage a bank employee to refer
customers to a broker or dealer or give
a bank employee an interest in the
success of a securities transaction at a
broker or dealer. The term does not
include compensation paid by a bank
under a bonus or similar plan that is:
(i) Paid on a discretionary basis; and
(ii) Based on multiple factors or
variables and:
(A) Those factors or variables include
multiple significant factors or variables
that are not related to securities
transactions at the broker or dealer;
(B) A referral made by the employee
is not a factor or variable in determining
the employee’s compensation under the
plan; and
(C) The employee’s compensation
under the plan is not determined by
reference to referrals made by any other
person.
(2) Nothing in this paragraph (b) shall
be construed to prevent a bank from
compensating an officer, director or
employee under a bonus or similar plan
on the basis of any measure of the
overall profitability or revenue of:
(i) The bank, either on a stand-alone
or consolidated basis;
(ii) Any affiliate of the bank (other
than a broker or dealer), or any
operating unit of the bank or an affiliate
(other than a broker or dealer), if the
affiliate or operating unit does not over
time predominately engage in the
business of making referrals to a broker
or dealer; or
(iii) A broker or dealer if:
(A) Such measure of overall
profitability or revenue is only one of
multiple factors or variables used to
determine the compensation of the
officer, director or employee;
(B) The factors or variables used to
determine the compensation of the
officer, director or employee include
multiple significant factors or variables
that are not related to the profitability or
revenue of the broker or dealer;
(C) A referral made by the employee
is not a factor or variable in determining
the employee’s compensation under the
plan; and
(D) The employee’s compensation
under the plan is not determined by
reference to referrals made by any other
person.
(c) Nominal one-time cash fee of a
fixed dollar amount means a cash
payment for a referral, to a bank
employee who was personally involved
in referring the customer to the broker
or dealer, in an amount that meets any
of the following standards:
(1) The payment does not exceed:
(i) Twice the average of the minimum
and maximum hourly wage established
by the bank for the current or prior year
for the job family that includes the
employee; or
(ii) 1/1000th of the average of the
minimum and maximum annual base
salary established by the bank for the
current or prior year for the job family
that includes the employee; or
(2) The payment does not exceed
twice the employee’s actual base hourly
wage or 1/1000th of the employee’s
actual annual base salary; or
(3) The payment does not exceed
twenty-five dollars ($25), as adjusted in
accordance with paragraph (f) of this
section.
(d) Job family means a group of jobs
or positions involving similar
responsibilities, or requiring similar
skills, education or training, that a bank,
or a separate unit, branch or department
of a bank, has established and uses in
the ordinary course of its business to
distinguish among its employees for
purposes of hiring, promotion, and
compensation.
(e) Referral means the action taken by
one or more bank employees to direct a
customer of the bank to a broker or
dealer for the purchase or sale of
securities for the customer’s account.
(f) Inflation adjustment--(1) In
general. On April 1, 2012, and on the 1st
day of each subsequent 5-year period,
the dollar amount referred to in
paragraph (c)(3) of this section shall be
adjusted by:
(i) Dividing the annual value of the
Employment Cost Index For Wages and
Salaries, Private Industry Workers (or
any successor index thereto), as
published by the Bureau of Labor
Statistics, for the calendar year
preceding the calendar year in which
the adjustment is being made by the
annual value of such index (or
successor) for the calendar year ending
December 31, 2006; and
(ii) Multiplying the dollar amount by
the quotient obtained in paragraph
(f)(1)(i) of this section.
(2) Rounding. If the adjusted dollar
amount determined under paragraph
(f)(1) of this section for any period is not
a multiple of $1, the amount so
determined shall be rounded to the
nearest multiple of $1.
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