What is a Broker-Dealer? - Davis Polk & Wardwell

What Is a Broker-Dealer? § 1A:4.5
Also, section 716 of Dodd-Frank, the so-called “Swaps Pushout
Rule,” prohibits “Federal assistance,” including FDIC insurance and
access to the Federal Reserve’s discount window other than as part of
broad-based programs, to “swaps entities,” which include SBS dealers
and SBS MSPs. Insured depository institution MSPs are not subject to
the Swaps Pushout Rule. In addition, insured depository institutions
are not subject to the Swaps Pushout Rule if they limit their swaps
activities to hedging or mitigating the risk of their activities or to
swaps on reference assets permissible for investment by a national
bank under 12 U.S.C. § 24 (Seventh).
The Swaps Pushout Rule explicitly allows an insured depository
institution to have or establish a swaps entity affiliate. Thus, certain
activities previously permitted to be conducted in a bank may now
need to be conducted in a separate affiliate. This affiliate will likely be
required to be separately capitalized.
For those activities that are not required to be ceased or pushed out
of the bank by virtue of the Volcker Rule and the Swaps Pushout Rule,
however, the bank exceptions for identified banking products, as
defined in Section 206(b) of the Gramm-Leach-Bliley Act, from the
definitions of “broker” and “dealer” (and, therefore, the exemption
from broker-dealer registration) remain. 316
§ 1A:4.5 Security Futures
The CFMA amended the Exchange Act to permit futures on single
stocks and expand the definition of “security” to include certain
security futures. 317 Both the Commodity Exchange Act and the
Exchange Act define a “security future” as “a contract of sale for
future delivery of a single security or of a narrow-based security
index . . . except an exempted security under section 3(a)(12) of the
[Exchange Act]. . . .” 318 The term “security future” includes only
futures contracts on a single security (often called single stock
futures) or those on a narrow-based security index, and does not
include futures contracts on broad-based security indices and
exempted securities. 319 A “security futures product” refers to a
316. For certain exceptions from the definitions of “broker” and “dealer” for
banks, see infra section 1A:7.4.
317. See Exchange Act §§ 3(a)(10) and 3(a)(11) as amended by section 201 of the
CFMA.
318. Exchange Act § 3(a)(55); 7 U.S.C. § 1a(31). Section 1a(31) expressly
excludes from the definition of “security future” any agreement, contract,
or transaction excluded from this chapter under sections 2(c), 2(d), 2(f), or
2(g) of the CEA (as in effect on December 21, 2000) or sections 27 to 27f of
the CEA.
319. CEA § 1a(31).
(Broker-Dealer Reg., Rel. #9, 9/10)
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