[Federal Register Volume 82, Number 34 (Wednesday, February 22, 2017)]
[Notices]
[Pages 11395-11398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03381]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
Agency Information Collection Activities: Information Collection
Renewal; Submission for OMB Review; Reporting, Recordkeeping, and
Disclosure Requirements Associated With Proprietary Trading and Certain
Interests in and Relationships With Covered Funds
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice and request for comment.
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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork
and respondent burden, invites the general public and other Federal
agencies to take this opportunity to comment on a continuing
information collection as required by the Paperwork Reduction Act of
1995 (PRA).
In accordance with the requirements of the PRA, the OCC may not
conduct or sponsor, and the respondent is not required to respond to,
an information collection unless it displays a currently valid Office
of Management and Budget (OMB) control number.
The OCC is soliciting comment concerning renewal of its information
collection titled, ``Reporting, Recordkeeping, and Disclosure
Requirements Associated with Proprietary Trading and Certain Interests
in and Relationships with Covered Funds.'' The OCC also is giving
notice that it has sent the collection to OMB for review.
DATES: Comments must be submitted on or before March 24, 2017.
ADDRESSES: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
email, if possible. Comments may be sent to: Legislative and Regulatory
Activities Division, Office of the Comptroller of the Currency,
Attention: 1557-00309, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to
(571) 465-4326 or by electronic mail to [email protected]. You may
personally inspect and photocopy comments at the OCC, 400 7th Street
SW., Washington, DC 20219. For security reasons, the OCC requires that
visitors make an appointment to inspect comments. You may do so by
calling (202) 649-6700 or, for persons who are deaf or hard of hearing,
TTY, (202) 649-5597. Upon arrival, visitors will be required to present
valid government-issued photo identification
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and submit to security screening in order to inspect and photocopy
comments.
All comments received, including attachments and other supporting
materials, are part of the public record and subject to public
disclosure. Do not include any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, OCC Clearance
Officer, (202) 649-5490 or, for persons who are deaf or hard of
hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities
Division, Office of the Comptroller of the Currency, 400 7th Street
SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal
agencies must obtain approval from the OMB for each collection of
information that they conduct or sponsor. ``Collection of information''
is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency
requests or requirements that members of the public submit reports,
keep records, or provide information to a third party. The OCC is
requesting that OMB extend its approval of this collection.
Title: Reporting, Recordkeeping, and Disclosure Requirements
Associated with Proprietary Trading and Certain Interests in and
Relationships with Covered Funds.
OMB Control No.: 1557-0309.
Type of Review: Regular.
Description: This collection of information was established
pursuant to a 2014 final rule \1\ required by the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act), which was
enacted on July 21, 2010.\2\ Section 619 of the Dodd-Frank Act contains
certain prohibitions and restrictions on the ability of a banking
entity and nonbank financial company supervised by the Board of
Governors of the Federal Reserve System (Board) to engage in
proprietary trading and have certain interests in, or relationships
with, a hedge fund or private equity fund.
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\1\ 79 FR 5536 (January 31, 2014).
\2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
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Section 619 of the Dodd-Frank Act added a new section 13 to the
Bank Holding Company Act (BHC Act) (codified at 12 U.S.C. 1851) that
generally prohibits any banking entity from engaging in proprietary
trading or from acquiring or retaining an ownership interest in,
sponsoring, or having certain relationships with a hedge fund or
private equity fund, subject to certain exemptions.
Section 44.12(e) states that, upon application by a banking entity,
the Board may extend the period of time to meet the requirements on
ownership limitations under Sec. 44.12(a)(2)(i) for up to 2 additional
years, if the Board finds that an extension would be consistent with
safety and soundness and not detrimental to the public interest. An
application for extension must: (1) Be submitted to the Board at least
90 days prior to the expiration of the applicable time period; (2)
provide the reasons for application including information that
addresses the factors in Sec. 44.12(e)(2); and (3) explain the banking
entity's plan for reducing the permitted investment in a covered fund
through redemption, sale, dilution, or other methods as required in
Sec. 44.12(a)(2).
Section 44.20(d) provides that a banking entity engaged in
proprietary trading activity permitted under subpart B of part 44 must
comply with the reporting requirements described in Appendix A if: (1)
The banking entity (other than a foreign banking entity as provided in
Sec. 44.20(d)(1)(ii)) has, together with its affiliates and
subsidiaries, trading assets and liabilities (excluding trading assets
and liabilities involving obligations of or guaranteed by the United
States or any agency of the United States) the average gross sum of
which (on a worldwide consolidated basis) over the previous consecutive
four quarters, as measured as of the last day of each of the four prior
calendar quarters, equals or exceeds the threshold established in Sec.
44.20(d)(2); (2) in the case of a foreign banking entity, the average
gross sum of the trading assets and liabilities of the combined U.S.
operations of the foreign banking entity (including all subsidiaries,
affiliates, branches, and agencies of the foreign banking entity
operating, located, or organized in the United States and excluding
trading assets and liabilities involving obligations of or guaranteed
by the United States or any agency of the United States) over the
previous consecutive four quarters, as measured as of the last day of
each of the four prior calendar quarters, equals or exceeds the
threshold established in Sec. 44.20(d)(2); or (3) the OCC notifies the
banking entity in writing that it must satisfy the reporting
requirements contained in Appendix A of part 44. The threshold for
reporting is: (1) $50 billion beginning on June 30, 2014; (2) $25
billion beginning on April 30, 2016; and (3) $10 billion beginning on
December 31, 2016. Under the 2014 final rule, a banking entity with $50
billion or more in trading assets and liabilities must report the
information required by Appendix A for each calendar month within 30
days of the end of the relevant calendar month. Beginning with
information for the month of January 2015, such information must be
reported within 10 days of the end of that calendar month. The OCC may
notify a banking entity in writing that it must report on a different
basis. Any other banking entity subject to Appendix A shall report the
information required by Appendix A for each calendar quarter within 30
days of the end of that calendar quarter unless the OCC notifies the
banking entity in writing that it must report on a different basis.
Appendix A requires banking entities to furnish the following
quantitative measurements for each trading desk of the banking entity:
(1) Risk and Position Limits and Usage; (2) Risk Factor Sensitivities;
(3) Value-at-Risk (VaR) and stress VaR; (4) Comprehensive Profit and
loss Attribution; (5) Inventory Turnover; (6) Inventory Aging; and (7)
Customer-Facing Trade Ratio.
Section 44.3(d)(3) specifies that proprietary trading does not
include any purchase or sale of a security by a banking entity for the
purpose of liquidity management in accordance with a documented
liquidity management plan of the banking entity that: (1) Specifically
contemplates and authorizes the particular securities to be used for
liquidity management purposes, the amount, types, and risks of these
securities that are consistent with liquidity management, and the
liquidity circumstances in which the particular securities may or must
be used; (2) requires that any purchase or sale of securities
contemplated and authorized by the plan be principally for the purpose
of managing the liquidity of the banking entity, and not for the
purpose of short-term resale, benefitting from actual or expected
short-term price movements, realizing short-term arbitrage profits, or
hedging a position taken for such short-term purposes; (3) requires
that any securities purchased or sold for liquidity management purposes
be highly liquid and limited to securities the market, credit, and
other risks of which the banking entity does not reasonably expect to
give rise to appreciable profits or losses as a result of short-term
price movements; (4) limits any securities purchased or sold for
liquidity management purposes, together with any other instruments
purchased or sold for such purposes, to an amount that is consistent
with the banking entity's near-term funding
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needs, including deviations from normal operations of the banking
entity or any affiliate thereof, as estimated and documented pursuant
to methods specified in the plan; (5) includes written policies and
procedures, internal controls, analysis, and independent testing to
ensure that the purchase and sale of securities that are not permitted
under Sec. 44.6(a) or Sec. 44.6(b) are for the purpose of liquidity
management and in accordance with the liquidity management plan
described in this paragraph; and (6) is consistent with the OCC's
supervisory requirements, guidance, and expectations regarding
liquidity management.
Section 44.4(b)(3)(i)(A) provides that a trading desk or other
organizational unit of another entity with $50 billion or more in
trading assets and liabilities is not a client, customer, or
counterparty unless the trading desk documents how and why a particular
trading desk or other organizational unit of the entity should be
treated as a client, customer, or counterparty of the trading desk for
purposes of Sec. 44.4(b)(2).
Section 44.5(c) requires documentation for any purchase or sale of
financial instruments for risk-mitigating hedging purposes that is: (1)
Not established by the specific trading desk establishing or
responsible for the underlying positions, contracts, or other holdings
the risks of which the hedging activity is designed to reduce; (2)
established by the specific trading desk establishing or responsible
for the underlying positions, contracts, or other holdings the risks of
which the purchases or sales are designed to reduce, but that is
effected through a financial instrument, exposure, technique, or
strategy that is not specifically identified in the trading desk's
written policies and procedures established under Sec. Sec. 44.5(b)(1)
or 44.4(b)(2)(iii)(B) as a product, instrument, exposure, technique, or
strategy such desk may use for hedging; or (3) established to hedge
aggregated positions across two or more trading desks. In connection
with any purchase or sale that meets these specified circumstances, a
banking entity must, at a minimum and contemporaneously with the
purchase or sale, document: (1) The specific, identifiable risk(s) of
the identified positions, contracts, or other holdings of the banking
entity that the purchase or sale is designed to reduce; (2) the
specific risk-mitigating strategy that the purchase or sale is designed
to fulfill; and (3) the trading desk or other business unit that is
establishing and responsible for the hedge. The banking entity must
also create and retain records sufficient to demonstrate compliance
with Sec. 44.5(c) for at least 5 years in a form that allows the
banking entity to promptly produce such records to the OCC on request
or such longer period as required under other law or part 44.
Section 44.11(a)(2) requires that covered funds generally must be
organized and offered only in connection with the provision of bona
fide trust, fiduciary, investment advisory, or commodity trading
advisory services and only to persons that are customers of such
services of the banking entity (or an affiliate thereof), pursuant to a
written plan or similar documentation outlining how the banking entity
or such affiliate intends to provide advisory or similar services to
its customers through organizing and offering the covered fund.
Section 44.20(b) specifies the contents of the compliance program
for a banking entity with total consolidated assets of $10 billion or
more. It includes: (1) Written policies and procedures reasonably
designed to document, describe, monitor, and limit trading activities
(including those permitted under Sec. Sec. 44.3 to 44.6), including
setting, monitoring, and managing required limits set out in Sec. Sec.
44.4 and 44.5 and activities and investments with respect to a covered
fund (including those permitted under Sec. Sec. 44.11 through 44.14)
conducted by the banking entity to ensure that all activities and
investments conducted by the banking entity that are subject to section
13 of the BHC Act and part 44 comply with section 13 of the BHC Act and
part 44; (2) a system of internal controls reasonably designed to
monitor compliance with section 13 of the BHC Act and part 44 and to
prevent the occurrence of activities or investments that are prohibited
by section 13 of the BHC Act and part 44; (3) a management framework
that clearly delineates responsibility and accountability for
compliance with section 13 of the BHC Act and part 44 and includes
appropriate management review of trading limits, strategies, hedging
activities, investments, incentive compensation, and other matters
identified in part 44 or by management as requiring attention; (4)
independent testing and audit of the effectiveness of the compliance
program conducted periodically by qualified personnel of the banking
entity or by a qualified outside party; (5) training for trading
personnel and managers, as well as other appropriate personnel, to
effectively implement and enforce the compliance program; and (6)
records sufficient to demonstrate compliance with section 13 of the BHC
Act and part 44, which a banking entity must promptly provide to the
OCC upon request and retain for a period of no less than 5 years or
such longer period as required by the OCC.
Section 44.20(c) specifies that the compliance program of a banking
entity must satisfy the requirements and other standards contained in
Appendix B, if: (1) The banking entity engages in proprietary trading
permitted under subpart B of part 44 and is required to comply with the
reporting requirements of Sec. 44.20(d); (2) the banking entity has
reported total consolidated assets as of the previous calendar year end
of $50 billion or more or, in the case of a foreign banking entity, has
total U.S. assets as of the previous calendar year end of $50 billion
or more (including all subsidiaries, affiliates, branches and agencies
of the foreign banking entity operating, located or organized in the
United States); or (3) the OCC notifies the banking entity in writing
that it must satisfy the requirements and other standards contained in
Appendix B. Appendix B provides enhanced minimum standards for
compliance programs for banking entities that meet any of the
thresholds in Sec. 44.20(c) as described above. Appendix B sets forth
standards with respect to the establishment, oversight, maintenance,
and enforcement by banking entities of the enhanced compliance program
for ensuring and monitoring compliance with the prohibitions and
restrictions on proprietary trading and covered fund activities and
investments set forth in section 13 of the BHC Act and part 44. The
program must: (1) Be reasonably designed to identify, document,
monitor, and report the permitted trading and covered fund activities
and investments; identify, monitor, and promptly address the risk of
these covered activities and investments and potential areas of
noncompliance; and prevent activities or investments prohibited by, or
that do not comply with, section 13 of the BHC Act and part 44; (2)
establish and enforce appropriate limits on covered activities and
investments, including limits on size, scope, complexity, and risks of
individual activities or investments consistent with the requirements
of section 13 of the BHC Act and part 44; (3) subject the effectiveness
of the compliance program to periodic independent review and testing,
and ensure that the entity's internal audit, corporate compliance, and
internal control functions involved in review and testing are effective
and
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independent; (4) make senior management and others accountable for
effective implementation of compliance program and ensure that the
board of directors and chief executive officer (or equivalent) of the
banking entity review effectiveness of the compliance program; and (5)
facilitate supervision and examination by the OCC of permitted trading
and covered fund activities and investments.
Section 44.20(d) provides that a banking entity engaged in certain
proprietary trading activity must comply with the reporting
requirements described in Appendix A if the banking entity's trading
activity meets or exceeds the thresholds set forth in Sec. 44.20(d). A
banking entity must also, for any quantitative measurement furnished to
the OCC pursuant to Sec. 44.20(d) and Appendix A, create and maintain
records documenting the preparation and content of these reports, as
well as such information as is necessary to permit the OCC to verify
the accuracy of such reports, for a period of 5 years from the end of
the calendar year for which the measurement was taken.
Section 44.20(e) specifies additional documentation required for
covered funds. Any banking entity that has more than $10 billion in
total consolidated assets as reported on December 31 of the previous
two calendar years shall maintain records that include: (1)
Documentation of the exclusions or exemptions other than sections
3(c)(1) and 3(c)(7) of the Investment Company Act of 1940 relied on by
each fund sponsored by the banking entity (including all subsidiaries
and affiliates) in determining that such fund is not a covered fund;
(2) for each fund sponsored by the banking entity (including all
subsidiaries and affiliates) for which the banking entity relies on one
or more of the exclusions from the definition of covered fund provided
by Sec. Sec. 44.10(c)(1), 44.10(c)(5), 44.10(c)(8), 44.10(c)(9), or
44.10(c)(10), documentation supporting the banking entity's
determination that the fund is not a covered fund pursuant to one or
more of those exclusions; (3) for each seeding vehicle described in
Sec. Sec. 44.10(c)(12)(i) or 44.10(c)(12)(iii) that will become a
registered investment company or SEC-regulated business development
company, a written plan documenting the banking entity's determination
that the seeding vehicle will become a registered investment company or
SEC-regulated business development company; the period of time during
which the vehicle will operate as a seeding vehicle; and the banking
entity's plan to market the vehicle to third-party investors and
convert it into a registered investment company or SEC-regulated
business development company within the time period specified in Sec.
44.12(a)(2)(i)(B); and (4) for any banking entity that is, or is
controlled directly or indirectly by a banking entity that is, located
in or organized under the laws of the United States or of any State, if
the aggregate amount of ownership interests in foreign public funds
that are described in Sec. 44.10(c)(1) owned by such banking entity
(including ownership interests owned by any affiliate that is
controlled directly or indirectly by a banking entity that is located
in or organized under the laws of the United States or of any State)
exceeds $50 million at the end of two or more consecutive calendar
quarters, beginning with the next succeeding calendar quarter,
documentation of the value of the ownership interests owned by the
banking entity (and such affiliates) in each foreign public fund and
each jurisdiction in which any such foreign public fund is organized,
calculated as of the end of each calendar quarter, which documentation
must continue until the banking entity's aggregate amount of ownership
interests in foreign public funds is below $50 million for two
consecutive calendar quarters.
Section 44.20(f)(1) applies to banking entities with no covered
activities. A banking entity that does not engage in activities or
investments pursuant to subpart B or subpart C of part 44 (other than
trading activities permitted pursuant to Sec. 44.6(a)) may satisfy the
requirements of Sec. 44.20 by establishing the required compliance
program prior to becoming engaged in such activities or making such
investments (other than trading activities permitted pursuant to Sec.
44.6(a)).
Section 44.20(f)(2) applies to banking entities with modest
activities. A banking entity with total consolidated assets of $10
billion or less as reported on December 31 of the previous two calendar
years that engages in activities or investments pursuant to subpart B
or subpart C of part 44 (other than trading activities permitted under
Sec. 44.6(a)) may satisfy the requirements of Sec. 44.20 by including
in its existing compliance policies and procedures appropriate
references to the requirements of section 13 of the BHC Act and part 44
and adjustments as appropriate given the activities, size, scope, and
complexity of the banking entity.
Section 44.11(a)(8)(i) requires that a banking entity clearly and
conspicuously disclose, in writing, to any prospective and actual
investor in the covered fund (such as through disclosure in the covered
fund's offering documents): (1) That any losses in such covered fund
will be borne solely by investors in the covered fund and not by the
banking entity or its affiliates; therefore, the banking entity's
losses in such covered fund will be limited to losses attributable to
the ownership interests in the covered fund held by the banking entity
and any affiliate in its capacity as investor in the covered fund or as
beneficiary of a restricted profit interest held by the banking entity
or any affiliate; (2) that such investor should read the fund offering
documents before investing in the covered fund; (3) that the ownership
interests in the covered fund are not insured by the FDIC, and are not
deposits, obligations of, or endorsed or guaranteed in any way, by any
banking entity (unless that happens to be the case); and (4) the role
of the banking entity and its affiliates and employees in sponsoring or
providing any services to the covered fund.
Affected Public: Businesses or other for-profit.
Burden Estimates:
Number of Respondents: 381.
Total Estimated Annual Burden: 28,016 hours (14,386 hours for
initial setup and 13,630 hours for ongoing compliance).
Frequency of Response: On occasion.
Comments: The OCC issued a notice for 60 days of comment concerning
the collection on November 18, 2016, 81 FR 81863. No comments were
received. Comments continue to be invited on:
(a) Whether the collection of information is necessary for the
proper performance of the functions of the OCC, including whether the
information has practical utility;
(b) The accuracy of the OCC's estimate of the information
collection burden;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the collection on respondents,
including through the use of automated collection techniques or other
forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
Dated: February 15, 2017.
Karen Solomon,
Deputy Chief Counsel, Office of the Comptroller of the Currency.
[FR Doc. 2017-03381 Filed 2-21-17; 8:45 am]
BILLING CODE 4810-33-P