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

§ 1A:7.4 BROKER-DEALER REGULATION
net worth customers.” 415 Regulation R also provides that if a bank acts
in good faith and has reasonable policies and procedures, the bank will
not be subject to registration as a broker-dealer for failing to comply
with the provisions of the exemption so long as the bank takes prompt
corrective action and attempts to reclaim any non-compliant referral
fee. 416
[B][4] Trust and Fiduciary Activities
The “push-out” provisions allow a bank to effect securities transactions
as a trustee or fiduciary from a trust department (or other
department of the bank regularly examined for compliance with
fiduciary principles and standards). 417 To qualify for the statutory
exception, however, the bank must be “chiefly compensated” in one
of three enumerated ways (or a combination thereof), generally referred
to as “relationship compensation,” and abide by certain advertising
restrictions. 418 Regulation R provides criteria for determining
“relationship compensation” and a bank’s compliance with the trust
and fiduciary activities exception. 419
Section 3(a)(4)(C) conditions the exception (and certain of the other
GLB exceptions) to being considered a broker for a bank on transactions
for publicly traded securities in the United States being executed
by a registered broker-dealer, among other requirements, or the trade,
subject to certain conditions, being a cross-trade.
[B][5] Sweep Accounts and Money Market Funds
Under section 3(a)(4)(B)(v) of the Exchange Act, a bank may effect
transactions as part of a program for the investment or reinvestment of
deposit funds into any no-load, open-end management investment
company that holds itself out as a money market fund. 420 Regulation R
provides definitions for “money market fund,” “no-load” and other
terms, 421 and a conditional exemption for banks effecting transactions
in money market funds. 422
415. Regulation R, at 59, provides a conditional exemption that allows a bank
employee to receive otherwise prohibited contingent and greater-thannominal
referral fees if the customer referred to the broker-dealer is either
an “institutional customer” or a “high net worth customer.” See Rule 701.
416. Rule 701(iv).
417. See Exchange Act § 3(a)(4)(B)(ii). There is a separate exception in Exchange
Act § 3(a)(4)(B)(iv) for bank transfer agent activities.
418. See Exchange Act § 3(a)(4)(B)(ii).
419. See Rules 721 and 722.
420. Exchange Act § 3(a)(4)(B)(v).
421. Rule 740.
422. Rule 741.
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