Sec. 218.760 Exemption from definition of
‘‘broker’’ for banks accepting orders to
effect transactions in securities from or on
behalf of custody accounts.
(a) Employee benefit plan accounts
and individual retirement accounts or
similar accounts. A bank is exempt from
the definition of the term ‘‘broker’’
under section 3(a)(4) of the Act (15
U.S.C. 78c(a)(4)) to the extent that, as
part of its customary banking activities,
the bank accepts orders to effect
transactions in securities for an
employee benefit plan account or an
individual retirement account or similar
account for which the bank acts as a
custodian if:
(1) Employee compensation
restriction and additional conditions.
The bank complies with the employee
compensation restrictions in paragraph
(c) of this section and the other
conditions in paragraph (d) of this
section;
(2) Advertisements. Advertisements
by or on behalf of the bank do not:
(i) Advertise that the bank accepts
orders for securities transactions for
employee benefit plan accounts or
individual retirement accounts or
similar accounts, except as part of
advertising the other custodial or
safekeeping services the bank provides
to these accounts; or
(ii) Advertise that such accounts are
securities brokerage accounts or that the
bank’s safekeeping and custody services
substitute for a securities brokerage
account; and
(3) Advertisements and sales
literature for individual retirement or
similar accounts. Advertisements and
sales literature issued by or on behalf of
the bank do not describe the securities
order-taking services provided by the
bank to individual retirement accounts
or similar accounts more prominently
than the other aspects of the custody or
safekeeping services provided by the
bank to these accounts.
(b) Accommodation trades for other
custodial accounts. A bank is exempt
from the definition of the term ‘‘broker’’
under section 3(a)(4) of the Act (15
U.S.C. 78c(a)(4)) to the extent that, as
part of its customary banking activities,
the bank accepts orders to effect
transactions in securities for an account
for which the bank acts as custodian
other than an employee benefit plan
account or an individual retirement
account or similar account if:
(1) Accommodation. The bank accepts
orders to effect transactions in securities
for the account only as an
accommodation to the customer;
(2) Employee compensation
restriction and additional conditions.
The bank complies with the employee
compensation restrictions in paragraph
(c) of this section and the other
conditions in paragraph (d) of this
section;
(3) Bank fees. Any fee charged or
received by the bank for effecting a
securities transaction for the account
does not vary based on:
(i) Whether the bank accepted the
order for the transaction; or
(ii) The quantity or price of the
securities to be bought or sold;
(4) Advertisements. Advertisements
by or on behalf of the bank do not state
that the bank accepts orders for
securities transactions for the account;
(5) Sales literature. Sales literature
issued by or on behalf of the bank:
(i) Does not state that the bank accepts
orders for securities transactions for the
account except as part of describing the
other custodial or safekeeping services
the bank provides to the account; and
(ii) Does not describe the securities
order-taking services provided to the
account more prominently than the
other aspects of the custody or
safekeeping services provided by the
bank to the account; and
(6) Investment advice and
recommendations. The bank does not
provide investment advice or research
concerning securities to the account,
make recommendations to the account
concerning securities or otherwise
solicit securities transactions from the
account; provided, however, that
nothing in this paragraph (b)(6) shall
prevent a bank from:
(i) Publishing, using or disseminating
advertisements and sales literature in
accordance with paragraphs (b)(4) and
(b)(5) of this section; and
(ii) Responding to customer inquiries
regarding the bank’s safekeeping and
custody services by providing:
(A) Advertisements or sales literature
consistent with the provisions of
paragraphs (b)(4) and (b)(5) of this
section describing the safekeeping,
custody and related services that the
bank offers;
(B) A prospectus prepared by a
registered investment company, or sales
literature prepared by a registered
investment company or by the broker or
dealer that is the principal underwriter
of the registered investment company
pertaining to the registered investment
company’s products;
(C) Information based on the materials
described in paragraphs (b)(6)(ii)(A) and
(B) of this section; or
(iii) Responding to inquiries regarding
the bank’s safekeeping, custody or other
services, such as inquiries concerning
the customer’s account or the
availability of sweep or other services,
so long as the bank does not provide
investment advice or research
concerning securities to the account or
make a recommendation to the account
concerning securities.
(c) Employee compensation
restriction. A bank may accept orders
pursuant to this section for a securities
transaction for an account described in
paragraph (a) or (b) of this section only
if no bank employee receives
compensation, including a fee paid
pursuant to a plan under 17 CFR
270.12b–1, from the bank, the executing
broker or dealer, or any other person
that is based on whether a securities
transaction is executed for the account
or that is based on the quantity, price,
or identity of securities purchased or
sold by such account, provided that
nothing in this paragraph shall prohibit
a bank employee from receiving
compensation that would not be
considered incentive compensation
under §___.700(b)(1) as if a referral had
been made by the bank employee, or
any compensation described in
§___.700(b)(2).
(d) Other conditions. A bank may
accept orders for a securities transaction
for an account for which the bank acts
as a custodian under this section only
if the bank:
(1) Does not act in a trustee or
fiduciary capacity (as defined in section
3(a)(4)(D) of the Act (15 U.S.C.
78c(a)(4)(D)) with respect to the
account, other than as a directed trustee;
(2) Complies with section 3(a)(4)(C) of
the Act (15 U.S.C. 78c(a)(4)(C)) in
handling any order for a securities
transaction for the account; and
(3) Complies with section
3(a)(4)(B)(viii)(II) of the Act (15 U.S.C.
78c(a)(4)(B)(viii)(II)) regarding carrying
broker activities.
(e) Non-fiduciary administrators and
recordkeepers. A bank that acts as a
non-fiduciary and non-custodial
administrator or recordkeeper for an
employee benefit plan account for
which another bank acts as custodian
may rely on the exemption provided in
this section if:
(1) Both the custodian bank and the
administrator or recordkeeper bank
comply with paragraphs (a), (c) and (d)
of this section; and
(2) The administrator or recordkeeper
bank does not execute a cross-trade with
or for the employee benefit plan account
or net orders for securities for the
employee benefit plan account, other
than:
(i) Crossing or netting orders for
shares of open-end investment
companies not traded on an exchange,
or
(ii) Crossing orders between or netting
orders for accounts of the custodian
bank that contracted with the
administrator or recordkeeper bank for
services.
(f) Subcustodians. A bank that acts as
a subcustodian for an account for which
another bank acts as custodian may rely
on the exemptions provided in this
section if:
(1) For employee benefit plan
accounts and individual retirement
accounts or similar accounts, both the
custodian bank and the subcustodian
bank meet the requirements of
paragraphs (a), (c) and (d) of this
section;
(2) For other custodial accounts, both
the custodian bank and the
subcustodian bank meet the
requirements of paragraphs (b), (c) and
(d) of this section; and
(3) The subcustodian bank does not
execute a cross-trade with or for the
account or net orders for securities for
the account, other than:
(i) Crossing or netting orders for
shares of open-end investment
companies not traded on an exchange,
or
(ii) Crossing orders between or netting
orders for accounts of the custodian
bank.
(g) Evasions. In considering whether a
bank meets the terms of this section,
both the form and substance of the
relevant account(s), transaction(s) and
activities (including advertising
activities) of the bank will be considered
in order to prevent evasions of the
requirements of this section.
(h) Definitions. When used in this
section:
(1) Account for which the bank acts
as a custodian means an account that is:
(i) An employee benefit plan account
for which the bank acts as a custodian;
(ii) An individual retirement account
or similar account for which the bank
acts as a custodian;
(iii) An account established by a
written agreement between the bank and
the customer that sets forth the terms
that will govern the fees payable to, and
rights and obligations of, the bank
regarding the safekeeping or custody of
securities; or
(iv) An account for which the bank
acts as a directed trustee.
(2) Advertisement means any material
that is published or used in any
electronic or other public media,
including any Web site, newspaper,
magazine or other periodical, radio,
television, telephone or tape recording,
videotape display, signs or billboards,
motion pictures, or telephone
directories (other than routine listings).
(3) Directed trustee means a trustee
that does not exercise investment
discretion with respect to the account.
(4) Employee benefit plan account
means a pension plan, retirement plan,
profit sharing plan, bonus plan, thrift
savings plan, incentive plan, or other
similar plan, including, without
limitation, an employer-sponsored plan
qualified under section 401(a) of the
Internal Revenue Code (26 U.S.C.
401(a)), a governmental or other plan
described in section 457 of the Internal
Revenue Code (26 U.S.C. 457), a taxdeferred
plan described in section
403(b) of the Internal Revenue Code (26
U.S.C. 403(b)), a church plan,
governmental, multiemployer or other
plan described in section 414(d), (e) or
(f) of the Internal Revenue Code (26
U.S.C. 414(d), (e) or (f)), an incentive
stock option plan described in section
422 of the Internal Revenue Code (26
U.S.C. 422); a Voluntary Employee
Beneficiary Association Plan described
in section 501(c)(9) of the Internal
Revenue Code (26 U.S.C. 501(c)(9)), a
non-qualified deferred compensation
plan (including a rabbi or secular trust),
a supplemental or mirror plan, and a
supplemental unemployment benefit
plan.
(5) Individual retirement account or
similar account means an individual
retirement account as defined in section
408 of the Internal Revenue Code (26
U.S.C. 408), Roth IRA as defined in
section 408A of the Internal Revenue
Code (26 U.S.C. 408A), health savings
account as defined in section 223(d) of
the Internal Revenue Code (26 U.S.C.
223(d)), Archer medical savings account
as defined in section 220(d) of the
Internal Revenue Code (26 U.S.C.
220(d)), Coverdell education savings
account as defined in section 530 of the
Internal Revenue Code (26 U.S.C. 530),
or other similar account.
(6) Sales literature means any written
or electronic communication, other than
an advertisement, that is generally
distributed or made generally available
to customers of the bank or the public,
including circulars, form letters,
brochures, telemarketing scripts,
seminar texts, published articles, and
press releases concerning the bank’s
products or services.
(7) Principal underwriter has the same
meaning as in section 2(a)(29) of the
Investment Company Act of 1940 (15
U.S.C. 80a–2(a)(29)).
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