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15 U.S. Code § 78c. Definitions and application
(a) DefinitionsWhen used in this chapter, unless the context otherwise requires—
(1)
The term “exchange” means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.
(2)
The term “facility” when used with respect to an exchange includes its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.
(3)
(A)
The term “member” when used with respect to a national securities exchange means (i) any natural person permitted to effect transactions on the floor of the exchange without the services of another person acting as broker, (ii) any registered broker or dealer with which such a natural person is associated, (iii) any registered broker or dealer permitted to designate as a representative such a natural person, and (iv) any other registered broker or dealer which agrees to be regulated by such exchange and with respect to which the exchange undertakes to enforce compliance with the provisions of this chapter, the rules and regulations thereunder, and its own rules. For purposes of sections 78f(b)(1), 78f(b)(4), 78f(b)(6), 78f(b)(7), 78f(d), 78q(d), 78s(d), 78s(e), 78s(g), 78s(h), and 78u of this title, the term “member” when used with respect to a national securities exchange also means, to the extent of the rules of the exchange specified by the Commission, any person required by the Commission to comply with such rules pursuant to section 78f(f) of this title.
(B)
The term “member” when used with respect to a registered securities association means any broker or dealer who agrees to be regulated by such association and with respect to whom the association undertakes to enforce compliance with the provisions of this chapter, the rules and regulations thereunder, and its own rules.
(4)Broker.—
(A)In general.—
The term “broker” means any person engaged in the business of effecting transactions in securities for the account of others.
(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 chapter 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.
(iii)Permissible securities transactions.—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 24 of title 12, in conformity with section 78o–5 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 1841 of title 12), 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 odd-lot 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 odd-lot 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 November 12, 1999; 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 [15 U.S.C. 80a–1 et seq.] 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 1841 of title 12) other than—
(I)
a registered broker or dealer; or
(II)
an affiliate that is engaged in merchant banking, as described in section 1843(k)(4)(H) of title 12.
(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),[1] or 4(5) of the Securities Act of 1933 [15 U.S.C. 77c(b), 77d(a)(2), 77d(a)(5)] or the rules and regulations issued thereunder;
(II)
at any time after the date that is 1 year after November 12, 1999, is not affiliated with a broker or dealer that has been registered for more than 1 year in accordance with this chapter, 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 78o(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 Gramm-Leach-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 78o(e).1 —The term “broker” does not include a bank that—
(i)
was, on the day before November 12, 1999, subject to section 78o(e) 1 of this title; and
(ii)
is subject to such restrictions and requirements as the Commission considers appropriate.
(F)Joint rulemaking required.—
The Commission and the Board of Governors of the Federal Reserve System shall jointly adopt a single set of rules or regulations to implement the exceptions in subparagraph (B).
(5)Dealer.—
(A)In general.—
The term “dealer” means any person engaged in the business of buying and selling securities (not including security-based swaps, other than security-based swaps with or for persons that are not eligible contract participants) 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 (not including security-based swaps, other than security-based swaps with or for persons that are not eligible contract participants) 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 24 of title 12, in conformity with section 78o–5 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-Leach-Bliley Act.
(6)
The term “bank” means (A) a banking institution organized under the laws of the United States or a Federal savings association, as defined in section 1462(5) 1 of title 12, (B) a member bank of the Federal Reserve System, (C) any other banking institution or savings association, as defined in section 1462(4) 1 of title 12, whether incorporated or not, doing business under the laws of any State or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency pursuant to section 92a of title 12, and which is supervised and examined by State or Federal authority having supervision over banks or savings associations, and which is not operated for the purpose of evading the provisions of this chapter, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B), or (C) of this paragraph.
(7)
The term “director” means any director of a corporation or any person performing similar functions with respect to any organization, whether incorporated or unincorporated.
(8)
The term “issuer” means any person who issues or proposes to issue any security; except that with respect to certificates of deposit for securities, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in an unincorporated investment trust not having a board of directors or of the fixed, restricted management, or unit type, the term “issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the provisions of the trust or other agreement or instrument under which such securities are issued; and except that with respect to equipment-trust certificates or like securities, the term “issuer” means the person by whom the equipment or property is, or is to be, used.
(9)
The term “person” means a natural person, company, government, or political subdivision, agency, or instrumentality of a government.
(10)
The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.