Yes, we believe that your bank could be considered a “broker” for purposes of the Securities Exchange Act of 1934, although it is very likely that your securities activities qualify for one or more of the many bank exceptions provided in the Act and Regulation R.

The Act defines a broker as a “person engaged in the business of effecting transactions in securities for the account of others.” The Act and its rules do not define “effecting transactions,” so we must rely on interpretations of the term from the Securities and Exchange Commission (SEC) and the courts. For example, the SEC has stated that “effecting transactions” includes “such activities as advertising and providing investment advice or recommendations . . . .” and “having custody or control over the funds and securities of others . . . .”

In our view, the fact that your bank uses an outside broker-dealer as an agent to execute trades for your trust customers does not exempt the bank from the definition of “broker.” Your bank’s trust department is “effecting” the trades, even though a third party broker is executing trades, and your bank is engaged in providing investment advice and custodial services for your trust customers.

To comply with the Act, you must ensure that your securities activities comply with one of the specific bank exceptions provided in the Act and Regulation R. For example, the “trust activities” exception applies to trust departments that effect securities transactions in a trustee or fiduciary capacity. This exception is subject to a number of requirements; there are limitations on the types of compensation your trust department can receive, advertising restrictions, and a requirement to direct trades to a registered broker or dealer for execution,” rather than executing the trades in-house.

It appears that your trust department is complying with this last requirement by executing trades through an outside broker-dealer. But the additional compensation and advertising restrictions also apply to your trust department — using an outside broker-dealer, alone, will not provide you with a full exemption from the Act’s broker registration requirements.

Of course, your institution also may choose to operate under a different exception, such as the networking exception dealing with third party broker-dealers, in which case different compliance and recordkeeping requirements will apply.

For resources related to our guidance, please see:

• Securities Exchange Act of 1934, 15 USC 78c(a)(4)(A) (“The term ‘broker’ means any person engaged in the business of effecting transactions in securities for the account of others.”)

• SEC Rule, Definition of Terms in and Specific Exemptions for Banks, 66 Fed. Reg. 27759, 27772–27773 (May 18, 2001) (“Generally, effecting securities transactions can include participating in the transactions through the following activities: (1) Identifying potential purchasers of securities; (2) screening potential participants in a transaction for creditworthiness; (3) soliciting securities transactions; (4) routing or matching orders, or facilitating the execution of a securities transaction; (5) handling customer funds and securities; and (6) preparing and sending transaction confirmations (other than on behalf of a broker-dealer that executes the trades).”)

• SEC Rule, Definition of Terms in and Specific Exemptions for Banks, 66 Fed. Reg. at note 124 (“Solicitation is one of the most relevant factors in determining whether a person is effecting transactions. . . . Solicitation includes any affirmative effort intended to induce transactional business for a broker-dealer and encompasses such activities as advertising and providing investment advice or recommendations intended to induce transactions that benefit or involve the solicitor. . . .”)

• SEC Rule, Definition of Terms in and Specific Exemptions for Banks, 66 Fed. Reg. at note 125 (“See, e.g., 15 David A. Lipton, Id. at 1.04[3] (having custody or control over the funds and securities of others is a badge of being a broker-dealer); . . .”)

• Securities Exchange Act of 1934, 15 USC 78c(a)(4)(B)(ii) (“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: . . . . (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.”)

• Securities Exchange Act of 1934, 15 USC 78c(a)(4)(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 . . . unless (i) the bank directs such trade to a registered broker or dealer for execution

• Regulation R, 12 CFR 218.721 (Defined terms relating to the trust and fiduciary activities exception from the definition of “broker.”)

• FDIC Trust Examination Manual, Appendix D — Securities Law (“”)

• FDIC Trust Examination Manual, Section 10, Trust & Fiduciary Exception (“The Trust & Fiduciary exception allows a bank, in its capacity as trustee or fiduciary, to effect securities transactions for the accounts it administers if the following conditions are satisfied: . . .”)