as an investment by the director or employee in the covered fund.
Accordingly, such a direct investment would not be attributed to the
banking entity as an investment in the covered fund, regardless of
whether the banking entity arranged the transaction on behalf of the
director or employee or provided financing for the investment.\245\
Similarly, the requirements under Sec.  _.11(a)(7) limiting the
directors and employees that are eligible to invest in a covered fund
organized and offered by the banking entity to those that are directly
engaged in providing specified services to the covered fund would not
apply to any such direct investment.
---------------------------------------------------------------------------

    \245\ See proposed rule Sec.  _.12(b)(1)(iv) (requiring
attribution of an investment by a director or employee in a covered
fund where the banking entity, directly or indirectly, extends
financing for the purpose of enabling the director or employee to
acquire the ownership interest in the covered fund and the financing
is used to acquire such ownership interest in the covered fund).
---------------------------------------------------------------------------

    The proposed rule of construction would not prohibit a banking
entity from having investment policies, arrangements or agreements to
invest alongside a covered fund in all or substantially all of the
investments made by the covered fund or to fund all or any portion of
the investment opportunities made available by the covered fund to
other investors. Accordingly, a banking entity could market a covered
fund it organizes and offers pursuant to Sec.  _.11 on the basis of the
banking entity's expectation that it would invest in parallel with the
covered fund in some or all of the same investments, or the expectation
that the banking entity would fund one or more co-investment
opportunities made available by the covered fund. The agencies would
expect that any such investment policies, arrangements or agreements
would ensure that the banking entity has the ability to evaluate each
investment on a case-by-case basis to confirm that the banking entity
does not make any investment unless the investment complies with
applicable laws and regulations, including any applicable safety and
soundness standards. The agencies believe that this would further
ensure that the banking entity is not exposed to the types of risks
that section 13 of the BHC Act was intended to address.
    The agencies recognize that the 2011 proposed rule would have
required a banking entity to apply the per fund limit and aggregate
fund limit to a direct investment alongside a covered fund when, among
other things, a banking entity is contractually obligated to make such
investment alongside a covered fund. The agencies do not believe such a
prohibition is necessary given the agencies' expectation that a banking
entity would retain the ability to evaluate each investment on a case-
by-case basis to confirm that the banking entity does not make any
investment unless the investment complies with applicable laws and
regulations, including any applicable safety and soundness standards.
    Question 83. Should the agencies adopt the proposed rule of
construction in Sec.  _.12(b)(5) that would address direct investments
made by banking entities alongside covered funds by clarifying in the
rule text that banking entities are not required to treat such direct
investments alongside a covered fund as an investment in the covered
fund as long as the investment is made in compliance with applicable
laws and regulations? Why or why not? What, if any, modifications to
the scope of the proposed rule of construction should be made? Is the
proposed condition on the proposed rule of construction appropriate? If
not, how should the agencies modify the condition, and why? Should the
agencies provide any additional guidance or requirements regarding the
condition?
    Question 84. Do commenters believe that the proposed rule of
construction will provide banking entities with clarity about how a
banking entity should treat its otherwise permissible investments
alongside a covered fund under the implementing regulations? Why or why
not? If not, what additional modifications should be made?
    Question 85. Would the proposed rule of construction create any
opportunities for evasion, for example, by allowing a banking entity to
structure parallel investments and co-investments to evade the
restrictions of section 13? Why or why not? If so, how could such
concerns be addressed? Please explain.
    Question 86. Do commenters agree that investments made by a
director or employee alongside a covered fund should not be treated as
an investment in the covered fund? Why or why not? Do commenters agree
that the requirements under Sec.  _.11(a)(7) that limit the directors
and employees that are eligible to invest in a covered fund organized
and offered by the banking entity to those who are directly engaged in
providing investment advisory, commodity trading advisory, or other
services to the covered fund should not apply to any such investment?
Why or why not? Should the agencies provide additional rule text
addressing director and employee investments alongside covered funds?
Are there any additional conditions that the agencies should consider
placing on director and employee investments made alongside a covered
fund? Are there any modifications to the agencies' proposed treatment
of director and employee investments or proposed rule of construction
that commenters believe is necessary in order to accommodate director
and employee investments alongside a covered fund that are made through
employee securities companies or other types of employee compensation
arrangements? If so, please explain what modifications would be
necessary or appropriate and the rationale for such modifications.
    Question 87. The proposed rule of construction would not prohibit a
banking entity from having investment policies, arrangements or
agreements to invest alongside a covered fund in all or substantially
all of the investments made by the covered fund or to fund all or any
portion of the investment opportunities made available by the covered
fund to other investors. Should the agencies impose any additional
limitations on a banking entity's investment policies, arrangements or
agreements to invest alongside a covered fund? Why or why not? If the
agencies were to impose such limitations, should the agencies adopt the
approach used to define

``contractual obligation'' in the Conformance Rule? \246\ Why or why
not?
---------------------------------------------------------------------------

    \246\ See A Conformance Period for Entities Engaged in
Prohibited Proprietary Trading or Private Equity Fund or Hedge Fund
Activities, 76 FR 8265 (Feb. 14, 2011) (the Conformance Rule).
---------------------------------------------------------------------------

G. Technical Amendments

    The agencies are proposing five sets of clarifying technical edits
to the implementing regulations. Specifically, the agencies are
proposing to (1) amend Sec.  _.12(b)(1)(ii) to add a comma after the
words ``SEC-regulated business development companies'' in both places
where that phrase is used; (2) amend Sec.  _.12(b)(4)(i) to replace the
phrase ``ownership interest of the master fund'' with the phrase
``ownership interest in the master fund''; (3) amend Sec.
_.12(b)(4)(ii) to replace the phrase ``ownership interest of the fund''
with the phrase ``ownership interest in the fund;'' (4) amend
Sec. Sec.  _.10(c)(3)(i) and _.10(c)(10)(i) to replace the word
``comprised'' with the word ``composed;'' and (5) amend Sec.
_.10(c)(8)(iv)(A) to replace the word ``of'' in the phrase
``contractual rights of other assets'' with the word ``or.''

IV. Administrative Law Matters

A. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000.\247\ The Federal banking agencies have
sought to present the proposal in a simple and straightforward manner,
and invite your comments on how to make this proposal easier to
understand.
---------------------------------------------------------------------------

    \247\ Public Law 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809.
---------------------------------------------------------------------------

    For example:
     Have the agencies organized the material to suit your
needs? If not, how could this material be better organized?
     Are the requirements in the proposal clearly stated? If
not, how could the proposal be more clearly stated?
     Does the proposal contain language or jargon that is not
clear? If so, which language requires clarification?
     Would a different format (e.g., grouping and order of
sections, use of headings, paragraphing) make the proposal easier to
understand? If so, what changes to the format would make the proposal
easier to understand?
     Would more, but shorter, sections be better? If so, which
sections should be changed?
     What else could the agencies do to make the regulation
easier to understand?

B. Paperwork Reduction Act Analysis Request for Comment on Proposed
Information Collection

    Certain provisions of the proposed rule contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
the requirements of the PRA, the agencies may not conduct or sponsor,
and a 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 agencies reviewed the proposed
rule and determined that the proposed rule creates new recordkeeping
requirements and revises certain disclosure requirements that have been
previously cleared under various OMB control numbers. The agencies are
proposing to extend for three years, with revision, these information
collections. The information collection requirements contained in this
joint notice of proposed rulemaking have been submitted by the OCC and
FDIC to OMB for review and approval under section 3507(d) of the PRA
(44 U.S.C. 3507(d)) and section 1320.11 of the OMB's implementing
regulations (5 CFR 1320). The Board reviewed the proposed rule under
the authority delegated to the Board by OMB. The Board will submit
information collection burden estimates to OMB and the submission will
include burden for Federal Reserve-supervised institutions, as well as
burden or OCC-, FDIC-, SEC-, and CFTC-supervised institutions under a
holding company. The OCC and the FDIC will take burden for banking
entities that are not under a holding company.
    Comments are invited on:
    a. Whether the collections of information are necessary for the
proper performance of the agencies' functions, including whether the
information has practical utility;
    b. The accuracy of the estimates of the burden of the information
collections, including the validity of the methodology and assumptions
used;
    c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
    d. Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on
aspects of this notice that may affect reporting, recordkeeping, or
disclosure requirements and burden estimates should be sent to the
addresses listed in the ADDRESSES section. A copy of the comments may
also be submitted to the OMB desk officer for the agencies by mail to
U.S. Office of Management and Budget, 725 17th Street NW, #10235,
Washington, DC 20503, by facsimile to<PHONE_NUMBER>, or by email to
<EMAIL_ADDRESS>Attention, Federal Banking Agency and
Commission Desk Officer.
Abstract
    Section 13 of the BHC Act, which 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 covered fund, subject to certain exemptions. The
exemptions allow certain types of permissible trading activities such
as underwriting, market making, and risk-mitigating hedging, among
others. The 2013 rule implementing section 13 became effective on April
1, 2014. Section _.20(d) and Appendix A of the 2013 final rule require
certain of the largest banking entities to report to the appropriate
agency certain quantitative measurements.
Current Actions
    The proposed rule contains requirements subject to the PRA and the
proposed changes relative to the current final rule are discussed
herein. The new recordkeeping requirements are found in section
_.10(c)(18)(ii)(B)(1) and the modified disclosure requirements are
found in section _.11(a)(8)(i). The modified information collection
requirements would implement section 13 of the BHC Act. The respondents
are for-profit financial institutions, including small businesses. A
covered entity must retain these records for a period that is no less
than 5 years in a form that allows it to promptly produce such records
to the relevant Agency on request.
Recordkeeping Requirements
    Section _.10(c)(18)(ii)(B)(1) would require a banking entity
relying on the proposed exclusion from the covered fund definition for
customer facilitation vehicles to maintain documentation outlining how
the banking entity intends to facilitate the customer's exposure to a
transaction, investment strategy, or service. The agencies estimate
that the new recordkeeping requirement would be incurred once a

year with an average hour per response of 10 hours.
Disclosure Requirements
    Section _.11(a)(8)(i), which requires banking entities that
organize and offer covered funds to make certain disclosures to
investors in such funds, would be expanded to also apply to banking
entities sponsoring credit funds, venture capital funds, family wealth
management vehicles, or customer facilitation vehicles, in reliance on
the proposed exclusions for such funds. The agencies estimate that the
current average hours per response of 0.1 would increase to 0.5.
Proposed Revision, With Extension, of the Following Information
Collections
    Estimated average hours per response:
Reporting
    Section _.4(c)(3)(i)--0.25 hours for an average of 20 times per
year.
    Section _.12(e)--20 hours (Initial set-up 50 hours) for an average
of 10 times per year.
    Section _.20(d)--41 hours (Initial set-up 125 hours) quarterly.
    Section _.20(i)--20 hours.
Recordkeeping
    Section _.3(d)(3)--1 hour (Initial set-up 3 hours).
    Section _.4(b)(3)(i)(A)--2 hours quarterly.
    Section _.4(c)(3)(i)--0.25 hours for an average of 40 times per
year.
    Section _.5(c)--40 hours (Initial setup 80 hours).
    Section _.10(c)(18)(ii)(B)(1)--10 hours.
    Section _.11(a)(2)--10 hours.
    Section _.20(b)--265 hours (Initial set-up 795 hours).
    Section _.20(c)--100 hours (Initial set-up 300 hours).
    Section _.20(d)- 10 hours.
    Section _.20(e)--200 hours.
    Section _.20(f)(1)--8 hours.
    Section _.20(f)(2)--40 hours (Initial set-up 100 hours).
Disclosure
    Section _.11(a)(8)(i)--0.5 hours for an average of 26 times per
year.
OCC
    Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with Restrictions on Proprietary
Trading and Certain Relationships with Hedge Funds and Private Equity
Funds.
    Frequency: Annual, quarterly, and event driven.
    Affected Public: Businesses or other for-profit.
    Respondents: National banks, state member banks, state nonmember
banks, and state and federal savings associations.
    OMB control number: 1557-0309.
    Estimated number of respondents: 39.
    Proposed revisions estimated annual burden: 302 hours.
    Estimated annual burden hours: 20,410 hours (3,681 hour for initial
set-up and 16,729 hours for ongoing).
Board
    Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with Regulation VV.
    Frequency: Annual, quarterly, and event driven.
    Affected Public: Businesses or other for-profit.
    Respondents: State member banks, bank holding companies, savings
and loan holding companies, foreign banking organizations, U.S. State
branches or agencies of foreign banks, and other holding companies that
control an insured depository institution and any subsidiary of the
foregoing other than a subsidiary for which the OCC, FDIC, CFTC, or SEC
is the primary financial regulatory agency. The Board will take burden
for all institutions under a holding company including:
     OCC-supervised institutions,
     FDIC-supervised institutions,
     Banking entities for which the CFTC is the primary
financial regulatory agency, as defined in section 2(12)(C) of the
Dodd-Frank Act, and
     Banking entities for which the SEC is the primary
financial regulatory agency, as defined in section 2(12)(B) of the
Dodd-Frank Act.
    Legal authorization and confidentiality: This information
collection is authorized by section 13 of the BHC Act (12 U.S.C.
1851(b)(2) and 12 U.S.C. 1851(e)(1)). The information collection is
required in order for covered entities to obtain the benefit of
engaging in certain types of proprietary trading or investing in,
sponsoring, or having certain relationships with a hedge fund or
private equity fund, under the restrictions set forth in section 13 and
the final rule. If a respondent considers the information to be trade
secrets and/or privileged such information could be withheld from the
public under the authority of the Freedom of Information Act (5 U.S.C.
552(b)(4)). Additionally, to the extent that such information may be
contained in an examination report such information could also be
withheld from the public (5 U.S.C. 552 (b)(8)).
    Agency form number: FR VV.
    OMB control number: 7100-0360.
    Estimated number of respondents: 255.
    Proposed revisions estimated annual burden: 7,880 hours.
    Estimated annual burden hours: 36,112 hours (4,381 hour for initial
set-up and 31,731 hours for ongoing).
FDIC
    Title of Information Collection: Volcker Rule Restrictions on
Proprietary Trading and Relationships with Hedge Funds and Private
Equity Funds.
    Frequency: Annual, quarterly, and event driven.
    Affected Public: Businesses or other for-profit.
    Respondents: State nonmember banks, state savings associations, and
certain subsidiaries of those entities.
    OMB control number: 3064-0184.
    Estimated number of respondents: 10.
    Proposed revisions estimated annual burden: 175 hours.
    Estimated annual burden hours: 3,288 hours (1,759 hours for initial
set-up and 1,529 hours for ongoing).

C. Initial Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA'') \248\ requires an agency
to either provide an initial regulatory flexibility analysis with a
proposed rule or certify that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
The U.S. Small Business Administration (``SBA'') establishes size
standards that define which entities are small businesses for purposes
of the RFA.\249\ Except as otherwise specified below, the size standard
to be considered a small business for banking entities subject to the
proposal is $600 million or less in consolidated assets.\250\
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    \248\ 5 U.S.C. 601 et seq.
    \249\ U.S. SBA, Table of Small Business Size Standards Matched
to North American Industry Classification System Codes, available at
https://www.sba.gov/document/support-table-size-standards.
    \250\ See id. Pursuant to SBA regulations, the asset size of a
concern includes the assets of the concern whose size is at issue
and all of its domestic and foreign affiliates. 13 CFR 121.103(6).
---------------------------------------------------------------------------

Board
    The Board has considered the potential impact of the proposed rule
on small entities in accordance with section 603 of the RFA. Based on
the Board's analysis, and for the reasons stated below, the Board
believes that this proposed rule will not have a significant economic
impact on a substantial of number of small entities.
    The Board welcomes comment on all aspects of its analysis. In
particular, the

Board requests that commenters describe the nature of any impact on
small entities and provide empirical data to illustrate and support the
extent of the impact.
    As discussed in the Supplementary Information, the agencies are
proposing revisions to the regulations implementing section 13 of the
BHC Act in order to improve and streamline the regulations by modifying
and clarifying requirements related to the covered fund
provisions.\251\ Certain of the proposed exclusions from the covered
fund definition may contain recordkeeping and disclosure requirements
that would apply to banking entities relying on the exclusion. For
example, the proposed exclusion for customer facilitation vehicles
would require a banking entity relying on the exclusion to maintain
documentation outlining how the banking entity intends to facilitate
the customer's exposure to a transaction, investment strategy, or
service. The proposed changes are expected to reduce regulatory burden
on banking entities, and the Board does not expect these proposed
recordkeeping requirements to result in a significant economic impact.
---------------------------------------------------------------------------

    \251\ The agencies are explicitly authorized under section
13(b)(2) of the BHC Act to adopt rules implementing section 13. 12
U.S.C. 1851(b)(2).
---------------------------------------------------------------------------

    The Board's rule generally applies to state-chartered banks that
are members of the Federal Reserve System, bank holding companies, and
foreign banking organizations and nonbank financial companies
supervised by the Board (collectively, ``Board-regulated entities'').
However, section 203 of the Economic Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA),\252\ which was enacted on May 24,
2018, amended section 13 of the BHC Act by narrowing the definition of
banking entity to exclude certain community banks.\253\ The Board is
not aware of any Board-regulated entities that meet the SBA's
definition of ``small entity'' that are subject to section 13 of the
BHC Act and its implementing regulations following the enactment of
EGRRCPA. Furthermore, to the extent that any Board-regulated entities
that meet the definition of ``small entity'' are or become subject to
section 13 of the BHC Act and its implementing regulations, the Board
does not expect the total number of such entities to be substantial.
Accordingly, the Board's proposed rule is not expected to have a
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \252\ Public Law 115-174 (May 24, 2018).
    \253\ Under EGRRCPA, a community bank and its affiliates are
generally excluded from the definition of banking entity, and thus
section 13 of the BHC Act, if the bank and all companies that
control the bank have total consolidated assets equal to $10 billion
or less and trading assets and liabilities equal to 5 percent or
less of total consolidated assets.
---------------------------------------------------------------------------

    The Board has not identified any federal statutes or regulations
that would duplicate, overlap, or conflict with the proposed revisions,
and the Board is not aware of any significant alternatives to the final
rule that would reduce the economic impact on Board-regulated small
entities.
OCC
    The OCC certifies that this regulation, if adopted, will not have a
significant economic impact on a substantial number of small entities.
Accordingly, a Regulatory Flexibility Analysis is not required.
    The Regulatory Flexibility Act requires an agency, in connection
with a proposed rule, to prepare an Initial Regulatory Flexibility
Analysis describing the impact of the proposed rule on small entities,
or to certify that the proposed rule would not have a significant
economic impact on a substantial number of small entities. For purposes
of the Regulatory Flexibility Act, the SBA includes as small entities
those with $600 million or less in assets for commercial banks and
savings institutions, and $41.5 million or less in assets for trust
companies.
    The OCC currently supervises approximately 782 small entities.\254\
---------------------------------------------------------------------------

    \254\ The number of small entities supervised by the OCC is
determined using the SBA's size thresholds for commercial banks and
savings institutions, and trust companies, which are $600 million
and $41.5 million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), we count the assets of
affiliated financial institutions when determining if we should
classify an OCC-supervised institution as a small entity. We use
December 31, 2018, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
---------------------------------------------------------------------------

    Under the Economic Growth, Regulatory Relief, and Consumer
Protection Act, banking entities with total consolidated assets of $10
billion or less generally are not ``banking entities'' within the scope
of section 13 of the BHC Act if their trading assets and trading
liabilities do not exceed 5 percent of their total consolidated assets.
In addition, certain trust-only banks are generally not banking
entities within the scope of section 13 of the BHC Act. Because there
are no OCC-supervised small entities that are banking entities within
the scope of section 13 of the BHC Act, the proposal would not impact
any OCC-supervised small entities. Therefore, the OCC certifies that
the proposal, if implemented, would not have a significant economic
impact on a substantial number of small entities.
FDIC
    The RFA generally requires that, in connection with a proposed
rulemaking, an agency prepare and make available for public comment an
initial regulatory flexibility analysis describing the impact of the
proposed rule on small entities.\255\ However, a regulatory flexibility
analysis is not required if the agency certifies that the proposed rule
will not have a significant economic impact on a substantial number of
small entities. The SBA--has defined ``small entities'' to include
banking organizations with total assets of less than or equal to $600
million that are independently owned and operated or owned by a holding
company with less than or equal to $600 million in total assets.\256\
Generally, the FDIC considers a significant effect to be a quantified
effect in excess of 5 percent of total annual salaries and benefits per
institution, or 2.5 percent of total non-interest expenses. The FDIC
believes that effects in excess of these thresholds typically represent
significant effects for FDIC-supervised institutions. For the reasons
described below and under section 605(b) of the RFA, the FDIC certifies
that this rule will not have a significant economic impact on a
substantial number of small entities.
---------------------------------------------------------------------------

    \255\ 5 U.S.C. 601 et seq.
    \256\ The SBA defines a small banking organization as having
$600 million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 84 FR 34261, effective August 19, 2019). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' See 13 CFR 121.103. Following
these regulations, the FDIC uses a covered entity's affiliated and
acquired assets, averaged over the preceding four quarters, to
determine whether the covered entity is ``small'' for the purposes
of RFA.
---------------------------------------------------------------------------

    As of June 30, 2019, the FDIC supervised 3,424 depository
institutions,\257\ of which 2,665 were considered small entities for
the purposes of RFA. The Economic Growth, Regulatory Relief, and
Consumer Protection Act exempted banking entities from the requirements
of section 13 of the BHC Act if they have total assets below $10
billion and trading assets and liabilities comprising less than five
percent of total

consolidated assets.\258\ Only one small, FDIC-supervised institution
is subject to Section 13, because its trading assets and liabilities
exceed five percent of total consolidated assets.\259\
---------------------------------------------------------------------------

    \257\ FDIC-supervised institutions are set forth in 12 U.S.C.
1813(q)(2).
    \258\ Public Law 115-174, May 24, 2018. https://www.congress.gov/bill/115th-congress/senate-bill/2155.
    \259\ Call Report data, June 2019.
---------------------------------------------------------------------------

    Section 13 of the BHC Act 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 covered fund. As previously discussed, the proposed rule would modify
existing definitions and exclusions, as well as would introduce new
exclusions to the implementing regulations. If adopted, the proposed
rule would permit covered entities to engage in additional activities
with respect to covered funds, including acquiring or retaining an
ownership interest in, sponsoring, or having certain relationships with
covered funds, subject to certain restrictions.
    This proposed rule would exclude certain types of institutions from
the definition of a ``covered fund'' for the purposes of section 13 of
the BHC Act. Investments in funds that are affected by this proposed
rule could be reported as deductions from capital on Call Report
schedule RCR Part 1 Lines 11 or 13 if the investments qualify as
``investments in the capital of an unconsolidated financial
institution'' or as additional deductions on Lines 17 or 24 of schedule
RC-R otherwise.\260\ The one affected small, FDIC-supervised
institution did not report any such deductions over the past five
years.\261\
---------------------------------------------------------------------------

    \260\ See ``Supervisory Guidance on the Capital Treatment of
Certain Investments in Covered Funds.'' FDIC FIL-50-2015: November
6, 2015. https://www.fdic.gov/news/news/financial/2015/fil15050a.pdf.
    \261\ Call Report data, March 2014-June 2019.
---------------------------------------------------------------------------

    Based on this supporting information, the FDIC certifies that this
rule will not have a significant economic impact on a substantial
number of small entities.
SEC
    Pursuant to 5 U.S.C. 605(b), the SEC hereby certifies that the
proposed rule would not, if adopted, have a significant economic impact
on a substantial number of small entities.
    As discussed in the Supplementary Information, the proposed rule is
intended to continue the agencies' efforts to improve and streamline
the regulations implementing section 13 of the BHC Act by modifying and
clarifying requirements related to the covered fund provisions. To
minimize the costs associated with the 2013 rule in a manner consistent
with section 13 of the BHC Act, the agencies are proposing to simplify
and tailor the rule in a manner that would reduce compliance costs for
banking entities subject to section 13 of the BHC Act and the
implementing regulations.
    The proposed revisions would generally apply to banking entities,
including certain SEC-registered entities. These entities include bank-
affiliated SEC-registered investment advisers, broker-dealers, and
security-based swap dealers. Based on information in filings submitted
by these entities, the SEC preliminarily believes that there are no
banking entity registered investment advisers or broker-dealers that
are small entities for purposes of the RFA. For this reason, the SEC
believes that the proposed rule would not, if adopted, have a
significant economic impact on a substantial number of small entities.
    The SEC encourages written comments regarding this certification.
Specifically, the SEC solicits comment as to whether the proposed rule
could have an impact on small entities that has not been considered.
Commenters should describe the nature of any impact on small entities
and provide empirical data to support the extent of such impact.
CFTC
    Pursuant to 5 U.S.C. 605(b), the CFTC hereby certifies that the
proposed amendments to the 2013 final rule would not, if adopted, have
a significant economic impact on a substantial number of small entities
for which the CFTC is the primary financial regulatory agency.
    As discussed in this SUPPLEMENTARY INFORMATION, the agencies are
proposing specific changes to the restrictions on covered fund
investments and activities and other issues related to the treatment of
investment funds in the implementing regulations. The proposed rule is
intended to improve and streamline the covered fund provisions and
facilitate banking entities' permissible activities and offering of
financial services in a manner that is consistent with the requirements
of section 13 of the BHC Act. The proposal would exempt the activities
of certain qualifying foreign excluded funds from the restrictions of
the implementing regulations, make modifications to several existing
exclusions from the covered funds provisions and adopt several new
exclusions, permit a banking entity to engage in a limited set of
covered transactions with a related covered fund, and clarify certain
aspects of the definition of ownership interest.
    The proposed revisions would generally apply to banking entities,
including certain CFTC-registered entities. These entities include
bank-affiliated CFTC-registered swap dealers, futures commission
merchants, commodity trading advisors and commodity pool
operators.\262\ The CFTC has previously determined that swap dealers,
futures commission merchants and commodity pool operators are not small
entities for purposes of the RFA and, therefore, the requirements of
the RFA do not apply to those entities.\263\ As for commodity trading
advisors, the CFTC has found it appropriate to consider whether such
registrants should be deemed small entities for purposes of the RFA on
a case-by-case basis, in the context of the particular regulation at
issue.\264\
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    \262\ The proposed revisions may also apply to other types of
CFTC registrants that are banking entities, such as introducing
brokers, but the CFTC believes it is unlikely that such other
registrants will have significant activities that would implicate
the proposed revisions. See 79 FR 5808, 5813 (Jan. 31, 2014) (CFTC
version of 2013 final rule).
    \263\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618 (Apr. 30, 1982) (futures commission merchants and
commodity pool operators); Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap dealers
and major swap participants).
    \264\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618, 18620 (Apr. 30, 1982).
---------------------------------------------------------------------------

    In the context of the proposed revisions to the implementing
regulations, the CFTC believes it is unlikely that a substantial number
of the commodity trading advisors that are potentially affected are
small entities for purposes of the RFA. In this regard, the CFTC notes
that only commodity trading advisors that are registered with the CFTC
are covered by the implementing regulations, and generally those that
are registered have larger businesses. Similarly, the implementing
regulations apply to only those commodity trading advisors that are
affiliated with banks, which the CFTC expects are larger businesses.
The CFTC requests that commenters address in particular whether any of
these commodity trading advisors, or other CFTC registrants covered by
the proposed revisions to the implementing regulations, are small
entities for purposes of the RFA.
    Because the CFTC believes that there are not a substantial number
of registered, banking entity-affiliated commodity trading advisors
that are small entities for purposes of the RFA,

and the other CFTC registrants that may be affected by the proposed
revisions have been determined not to be small entities, the CFTC
believes that the proposed revisions to the implementing regulations
would not, if adopted, have a significant economic impact on a
substantial number of small entities for which the CFTC is the primary
financial regulatory agency.
    The CFTC encourages written comments regarding this certification.
Specifically, the CFTC solicits comment as to whether the proposed
amendments could have a direct impact on small entities that were not
considered. Commenters should describe the nature of any impact on
small entities and provide empirical data to support the extent of such
impact.

D. Riegle Community Development and Regulatory Improvement Act

    Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4802(a), in
determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
each Federal banking agency must consider, consistent with the
principles of safety and soundness and the public interest: (1) Any
administrative burdens that the proposed rule would place on depository
institutions, including small depository institutions and customers of
depository institutions, and (2) the benefits of the proposed rule. In
addition, section 302(b) of RCDRIA, 12 U.S.C. 4802(b), requires new
regulations and amendments to regulations that impose additional
reporting, disclosures, or other new requirements on insured depository
institutions generally to take effect on the first day of a calendar
quarter that begins on or after the date on which the regulations are
published in final form. The Federal banking agencies invite any
comment that would inform consideration under RCDRIA.

E. OCC Unfunded Mandates Reform Act

    The OCC has analyzed the proposed rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA).\265\ Under this analysis,
the OCC considered whether the proposed rule includes a Federal mandate
that may result in the expenditure by state, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted annually for inflation). The
UMRA does not apply to regulations that incorporate requirements
specifically set forth in law.
---------------------------------------------------------------------------

    \265\ 2 U.S.C. 1531 et seq.
---------------------------------------------------------------------------

    The proposed rule does not impose new mandates. Therefore, the OCC
finds that the proposed rule does not trigger the UMRA cost threshold.
Accordingly, the OCC has not prepared the written statement described
in section 202 of the UMRA.

F. SEC Economic Analysis

1. Broad Economic Considerations
a. Background
    Section 13 of the Bank Holding Company (BHC) Act generally
prohibits banking entities from acquiring or retaining an ownership
interest in, sponsoring, or having certain relationships with, a hedge
fund or private equity fund (covered funds), subject to certain
exemptions. Section 13(h)(1) of the BHC Act defines the term ``banking
entity'' to include (i) any insured depository institution (as defined
by statute), (ii) any company that controls an insured depository
institution, (iii) any company that is treated as a bank holding
company for purposes of section 8 of the International Banking Act of
1978, and (iv) any affiliate or subsidiary of such an entity.\266\ In
addition, the Economic Growth, Regulatory Relief, and Consumer
Protection Act (EGRRCPA), enacted on May 24, 2018, amended section 13
of the BHC Act to exclude from the definition of ``insured depository
institution'' any institution that does not have and is not controlled
by a company that has (1) more than $10 billion in total consolidated
assets; and (2) total trading assets and trading liabilities, as
reported on the most recent applicable regulatory filing filed by the
institution, that are more than 5% of total consolidated assets.\267\
---------------------------------------------------------------------------

    \266\ See 12 U.S.C. 1851(h)(1).
    \267\ These and other aspects of the regulatory baseline against
which the SEC is assessing the economic effects of the proposed
amendments on SEC-regulated entities are discussed in the economic
baseline. On July 22, 2019, the agencies adopted a final rule
amending the definition of ``insured depository institution'' in a
manner consistent with EGRRCPA. See Revisions to Prohibitions and
Restrictions on Proprietary Trading and Certain Interests in, and
Relationships with, Hedge Funds and Private Equity Funds, 84 FR
35008 (July 22, 2019) (``EGRRCPA Conforming Amendments Adopting
Release''). In November 2019, the agencies adopted final rules
tailoring certain proprietary trading and covered fund restrictions
of the 2013 rule. See Prohibitions and Restrictions on Proprietary
Trading and Certain Interests in, and Relationships with, Hedge
Funds and Private Equity Funds, 84 FR 61974 (Nov. 14, 2019) (``2019
amendments'').
---------------------------------------------------------------------------

    Certain SEC-regulated entities, such as broker-dealers, security-
based swap dealers (SBSDs), and registered investment advisers (RIAs)
affiliated with an insured depository institution, fall under the
definition of ``banking entity'' and are subject to the prohibitions of
section 13 of the BHC Act.\268\ This economic analysis is limited to
areas within the scope of the SEC's function as the primary securities
markets regulator in the United States. In particular, the SEC's
economic analysis focuses primarily on the potential effects of the
proposed rule on (1) SEC registrants, in their capacity as such, (2)
the functioning and efficiency of the securities markets, (3) investor
protection, and (4) capital formation. SEC registrants that may be
affected by the proposed rule include SEC-registered broker-dealers,
SBSDs, and RIAs. Thus, the below analysis does not consider the direct
effects on broker-dealers, SBSDs, and investment advisers that are not
banking entities, or banking entities that are not SEC registrants, in
either case for purposes of section 13 of the BHC Act. Potential
spillover effects on these and other entities are, on a general basis,
reflected in the analysis of effects on efficiency, competition,
investor protection, and capital formation in securities markets. This
economic analysis also discusses the impacts of the proposal on private
funds,\269\ to the degree that such

impacts may flow through to SEC registrants, such as RIAs, SEC-
registered broker-dealers and SBSDs, and securities markets and
investors.
---------------------------------------------------------------------------

    \268\ Throughout this economic analysis, the terms ``banking
entity'' and ``entity'' generally refer only to banking entities for
which the SEC is the primary financial regulatory agency. While
section 13 of the BHC Act and its associated rules apply to a
broader set of banking entities, this economic analysis is limited
to those banking entities for which the SEC is the primary financial
regulatory agency as defined in section 2(12)(B) of the Dodd-Frank
Act. See 12 U.S.C. 1851(b)(2), and 5301(12)(B).
    Compliance with SBSD registration requirements is not yet
required and there are currently no registered SBSDs. However, the
SEC has previously estimated that as many as 50 entities may
potentially register as SBSDs and that as many as 16 of these
entities may already be SEC-registered broker-dealers. See Capital,
Margin, and Segregation Requirements for Security-Based Swap Dealers
and Major Security-Based Swap Participants and Capital and
Segregation Requirements for Broker-Dealers, 84 FR 43872 (Aug. 22,
2019) (``Capital, Margin, and Segregation Adopting Release'').
    For the purposes of this economic analysis, the term ``dealer''
generally refers to SEC-registered broker-dealers and SBSDs.
    \269\ There is significant overlap between the definitions of
``private fund'' and ``covered fund.'' For purposes of this economic
analysis, ``private fund'' means an issuer that would be an
investment company, as defined in section 3 of the Investment
Company Act of 1940 (15 U.S.C. 80a-3(a)), but for section 3(c)(1) or
section 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7)). 15
U.S.C. 80b-2(a)(29). Section 13(h)(2) of the BHC Act defines ``hedge
fund'' and ``private equity fund'' to mean an issuer that would be
an investment company, but for section 3(c)(1) or 3(c)(7) of the
Investment Company Act, or ``such similar funds'' as the agencies
determine by rule (see 12 U.S.C. 1851(h)(2)). In the 2013 rule, the
agencies combined the definitions of ``hedge fund'' and ``private
equity fund'' into a single definition ``covered fund'' (as in the
statute) and defined this term to include any issuer that would be
an investment company as defined in the Investment Company Act but
for section 3(c)(1) or 3(c)(7) of that Act with a number of express
exclusions and additions as determined by the agencies (See 2013
rule Sec.  _.10(c)).
---------------------------------------------------------------------------

    In this proposal, the SEC is soliciting comment on all aspects of
the costs and benefits associated with the proposed amendments for SEC
registrants, including spillover effects the proposed amendments may
have on efficiency, competition, and capital formation in securities
markets.
    In implementing section 13 of the BHC Act, the agencies sought to
increase the safety and soundness of banking entities, promote
financial stability, and reduce conflicts of interest between banking
entities and their customers.\270\ The regulatory regime created by the
2013 rule may have enhanced regulatory oversight and compliance with
the substantive prohibitions of section 13 of the BHC Act, but could
also have impacted capital formation and liquidity, as well as the
provision by banking entities of a variety of financial services for
customers.
---------------------------------------------------------------------------

    \270\ See, e.g., Prohibitions and Restrictions on Proprietary
Trading and Certain Interests in, and Relationships With, Hedge
Funds and Private Equity Funds, 79 FR 5536, 5541, 5574, 5659, 5666
(Jan. 31, 2014) (``2013 rule adopting release''). An extensive body
of research has examined moral hazard arising out of federal deposit
insurance, implicit bailout guarantees, and systemic risk issues.
See, e.g., Andrew G. Atkeson et al., Government Guarantees and the
Valuation of American Banks, 33 NBER Macroeconomics Ann. 81 (2018).
See also Javier Bianchi, Efficient Bailouts?, 106 Amer. Econ. Rev.
3607 (2016); Bryan Kelly, Hanno Lustig, & Stijn Van Nieuwerburgh,
Too-Systematic-to-Fail: What Option Markets Imply about Sector-Wide
Government Guarantees, 106 Amer. Econ. Rev. 1278 (2016); Deniz
Anginer, Asli Demirguc-Kunt, & Min Zhu, How Does Deposit Insurance
Affect Bank Risk? Evidence from the Recent Crisis, 48 J. Banking &
Fin. 312 (2014); Andrea Beltratti & Rene M. Stulz, The Credit Crisis
Around the Globe: Why Did Some Banks Perform Better?, 105 J. Fin.
Econ. 1 (2012); Pietro Veronesi & Luigi Zingales, Paulson's Gift, 97
J. Fin. Econ. 339 (2010). For a literature review, see, e.g.,
Sylvain Benoit et al., Where the Risks Lie: A Survey on Systemic
Risk, 21 Rev. Fin. 109 (2017).
---------------------------------------------------------------------------

    Section 13 of the BHC Act also provides a number of statutory
exemptions to the general prohibitions on proprietary trading and
covered funds activities. For example, the statute exempts certain
covered funds activities, such as organizing and offering covered
funds.\271\ The 2013 rule implemented these exemptions.\272\ Banking
entities engaged in activities and investments covered by section 13 of
the BHC Act and the 2013 rule are required to establish a compliance
program reasonably designed to ensure and monitor compliance with the
2013 rule.\273\
---------------------------------------------------------------------------

    \271\ See section 13(d)(1)(G) of the BHC Act.
    \272\ See 2013 rule Sec. Sec.  _.4, _.5, _.6, _.11, _.13.
    \273\ See 2013 rule Sec.  _.20. See also 2019 amendments at
62021-25 which, among other things, modified these requirements for
banking entities with limited trading assets and liabilities.
Banking entities with limited trading assets and liabilities are
presumed to be in compliance with the proposal and would have had no
obligation to demonstrate compliance with subpart B and subpart C of
the implementing regulations on an ongoing basis.
---------------------------------------------------------------------------

b. Broad Economic Effects
    Certain aspects of the implementing regulations may have resulted
in a complex and costly compliance regime that is unduly restrictive
and burdensome on some affected banking entities.\274\ Distinguishing
between permissible and prohibited activities may be complex and
costly, resulting in uncertain determinations for some entities.
Moreover, the 2013 rule may have included in its scope some groups of
market participants that do not necessarily engage in the activities or
pose the risks that section 13 of the BHC Act intended to address. For
example, the 2013 rule's definition of the term ``covered fund'' may
include entities that do not engage in the activities contemplated by
section 13 of the BHC Act or may include entities that do not pose the
risks that section 13 is intended to mitigate.
---------------------------------------------------------------------------

    \274\ This SEC Economic Analysis follows earlier sections by
referring to the regulations implementing section 13 of the BHC Act
that are effective as of February 28, 2020 as the ``implementing
regulations''. See supra note 8.
---------------------------------------------------------------------------

    The proposed amendments include amendments that reduce the scope of
entities that may be treated as covered funds (e.g., credit funds,
venture capital funds, family wealth management vehicles, and customer
facilitation vehicles), those that modify existing covered fund
exclusions under the 2013 rule (e.g., foreign public funds and small
business investment companies),\275\ and those that affect the types of
permitted activities between certain banking entities and certain
covered funds (e.g., restrictions on relationships between banking
entities and covered funds, definition of ``ownership interest,'' and
treatment of loan securitizations). The proposed amendments would also
reduce the burden on affected banking entities by addressing certain
interpretations (e.g., the treatment as ``banking entities'' of certain
foreign excluded funds and the attribution to a banking entity, in
certain circumstances, of investments made by the banking entity
alongside a covered fund).
---------------------------------------------------------------------------

    \275\ Although no amendment is currently proposed, the agencies
are soliciting comment on modifying the covered fund exclusion for
certain other types of entities (e.g., public welfare funds). See
infra section IV.F.3.a.
---------------------------------------------------------------------------

    Broadly, to the extent that the proposed amendments directly change
the scope of permissible covered fund activities, and indirectly reduce
costs to banking entities and covered funds by reducing uncertainty
regarding the scope of permissible activities, the proposed amendments
may impact the economic effects of the 2013 rule as amended in
2019.\276\ The SEC's economic analysis continues to recognize that the
overall risk exposure of banking entities may generally arise out of a
combination of activities, including proprietary trading, market
making, traditional banking, asset management and investment
activities, as well as the volume and structure in which banking
entities engage in such activities, including the extent to which
banking entities engage in hedging and other risk-mitigating
activities. As discussed elsewhere,\277\ the SEC recognizes the complex
baseline effects of section 13 of the BHC Act, as amended by sections
203 and 204 of EGRRCPA, and the implementing regulations, on overall
levels and structure of banking entity risk exposures.
---------------------------------------------------------------------------

    \276\ See, e.g., 2019 amendments at 62037-92.
    \277\ See id.
---------------------------------------------------------------------------

    The proposed amendments may benefit the functioning of the broader
capital markets through, for example, increased ability and willingness
of banking entities to facilitate capital formation through sponsorship
and participation in certain types of funds and to transact with
certain groups of counterparties.\278\ For example, exclusions from the
``covered fund'' definition of specific types of entities may benefit
banking entities by providing clarity and removing certain constraints
around potentially profitable business opportunities and by reducing
compliance costs, and may benefit excluded funds and their banking
entity sponsors and advisers by increasing the spectrum of available
counterparties and improving the quality or cost of financial services
available to customers.
---------------------------------------------------------------------------

    \278\ See, e.g., U.S. Department of the Treasury, A Financial
System That Creates Economic Opportunities: Banks and Credit Unions
(June 2017) at 77.
---------------------------------------------------------------------------

    The proposed changes, however, may also facilitate risk-taking
activities of banking entities. They also may change aspects of the
relationships among banking entities and certain other

groups of market participants, including potentially introducing new
conflicts of interest and increasing or reducing the potential effects
of existing conflicts of interest. To the degree that some banking
entities may react to the proposed amendments by restructuring
activities involving covered funds to take advantage of the proposed
exclusions, there may be shifts in the structure and levels of
activities of banking entities involving risk. However, each of the
proposed exclusions includes a number of conditions that are aimed at
facilitating banking entity compliance while also allowing for customer
oriented financial services provided on arms-length, market terms, and
preventing evasion of the requirements of section 13.
    Moreover, many of the proposed exclusions, such as for credit funds
and venture capital funds, would allow banking entities to engage
indirectly through fund structures in the same activities in which they
are currently permitted to engage directly (e.g., extensions of credit
or direct ownership stakes). Other exclusions would permit banking
entities to provide traditional banking and asset management services
to customers through a legal entity structure, with conditions (e.g.,
limitation on ownership by the banking entity and prohibition on ``bail
outs'') intended to ensure that the risks that section 13 of the BHC
Act was intended to address are mitigated. Finally, nothing in the
proposal removes or modifies prudential capital, margin, and liquidity
requirements that are applicable to banking entities and that
facilitate the safety and soundness of banking entities and the
financial stability of the United States.
    The proposed amendments may also impact competition, allocative
efficiency, and capital formation. To the extent that the implementing
regulations are currently constraining banking entities in their
covered fund activities, including providing traditional banking and
asset management services to customers through a legal entity
structure, the proposed exclusions from the definition of ``covered
fund'' may increase competition between banking entities and other
entities providing services to and otherwise transacting with those
types of funds and other entities. Such competition may reduce costs or
increase the quality of certain financial services provided to such
funds and their counterparties.
    Finally, the magnitude of the proposal's costs, benefits, and
effects on efficiency, competition, and capital formation is influenced
by a variety of factors, including the prevailing macroeconomic
conditions, the financial condition of firms seeking to raise capital
and of funds seeking to transact with banking entities, competition
between bank and non-bank providers of capital, and many others.
Moreover, the relative efficiency between fund structures and the
direct provision of capital is likely to vary widely among banking
entities and funds. The SEC recognizes that the economic effects of the
proposed amendments may be dampened or magnified in different phases of
the macroeconomic cycle, depend on monetary and fiscal policy
developments and other government actions, and vary across different
types of banking entities.
    The SEC also considered the implications for investors of the
proposed amendments. Broadly, the proposed amendments should increase
the number of funds and other entities that will be excluded from the
covered fund definition. This is likely to result in an increase in
offerings of such funds or an increase in banking entities providing
services to customers through entities such as client facilitation
vehicles and family wealth management vehicles. The ability of
investors to access public and private markets through funds and other
entities may relax constraints on their portfolio optimization and,
thus, enhance the efficiency of their portfolio allocations. The
ability of additional investors to access these markets through funds
and other entities may also benefit the issuers of the securities held
by those funds and other entities by potentially increasing demand for
those securities. Increased demand typically results in increased
liquidity which can be important to investors as it may enable
investors to exit (in a timely manner and at an acceptable price) from
their positions in fund instruments, products, and portfolios.
    Moreover, investors that seek access to public markets or other
markets through foreign public funds may benefit to the extent the
proposed amendments would result in banking entities offering more
foreign public funds or offering these funds at a lower cost. Further,
investors that prefer to implement a trading or investing strategy
through a legal entity structure may benefit from the proposed
amendments, which would allow banking entities to implement or
facilitate such trading or investing strategy while providing other
banking and asset management services to the investor. At the same
time, higher risk exposures of banking entities sponsoring or investing
in more funds that would be excluded from the covered fund provisions
by the proposed amendments could adversely affect markets through the
impact on financial stability and, therefore, investors. Any such
potential effects are expected to be mitigated by the various
conditions of the proposed exclusions from the definition of covered
fund. For example, the proposed amendments would permit the banking
entity to sponsor or invest in certain excluded funds (e.g., credit
funds or qualifying venture capital funds) only to the extent the
banking entity ensures that the activities of the fund are consistent
with safety and soundness standards that are substantially similar to
those that would apply if the banking entity engaged in the activities
directly. These and other conditions of the proposed exclusions are
discussed in greater detail below.
c. Analytical Approach
    The SEC's economic analysis is informed by research \279\ on the
effects of section 13 of the BHC Act and the 2013 rule, comments
received by the agencies from a variety of interested parties, and
experience administering the 2013 rule since its adoption. Throughout
this economic analysis, the SEC discusses how different market
participants \280\ may respond to various aspects of the proposed
amendments. This analysis also considers the potential effects of the
proposed amendments on activities by banking entities that involve
risk, their willingness and ability to engage in client-facilitation
activities, and competition, market quality, and capital formation.
---------------------------------------------------------------------------

    \279\ See 2019 amendments at 62044-54.
    \280\ The SEC's economic analysis is focused on the potential
effects of the proposed rule on SEC registrants, the functioning and
efficiency of the securities markets, investor protection, and
capital formation. Thus, the below analysis does not consider
broker-dealers or investment advisers that are not banking entities,
or banking entities that are not SEC registrants, in either case for
purposes of section 13 of the BHC Act, beyond the potential
spillover effects on these entities and effects on efficiency,
competition, investor protection, and capital formation in
securities markets. See infra section IV.F.2.b.
---------------------------------------------------------------------------

    The proposed amendments would tailor, remove, or alter the scope of
various covered fund requirements in the 2013 rule. Since section 13 of
the BHC Act and the 2013 rule impose a number of different
requirements, and, as discussed above, the type and level of risk
exposure of a banking entity is the result of a combination of
activities,\281\ it is difficult to attribute the observed effects to a
specific

provision or subset of requirements. In addition, analysis of the
effects of the implementation of the 2013 rule is confounded by
macroeconomic factors, other policy interventions, and post-crisis
changes to market participants' risk aversion and return expectations.
Because of the extended timeline of implementation of section 13 of the
BHC Act and the overlap of the period during which the 2013 rule was in
effect with other post-crisis changes affecting the same group or
certain sub-groups of SEC registrants, the SEC cannot rely on
frequently utilized quantitative methods that might otherwise enable
causal attribution and quantification of the effects of section 13 of
the BHC Act and the 2013 rule on measures of capital formation,
liquidity, competition, and informational or allocative efficiency.
Moreover, empirical measures of capital formation or liquidity are
substantially limited by the fact that they do not provide insight into
security issuance and transaction activity that does not occur as a
result of the 2013 rule. Accordingly, it is difficult to quantify the
primary security issuance and secondary market liquidity that would
have been observed following the financial crisis absent various
provisions of section 13 of the BHC Act and the 2013 rule.
---------------------------------------------------------------------------

    \281\ See, e.g., 2013 rule adopting release at 5541.
---------------------------------------------------------------------------

    Importantly, the existing securities markets--including market
participants, their business models, market structure, etc.--differ in
significant ways from the securities markets that existed prior to
enactment of section 13 of the BHC Act and the implementation of the
2013 rule. For example, the role of dealers in intermediating trading
activity has changed in important ways, including the following: (1) In
recent years, on both an absolute and relative basis, bank dealers
generally committed less capital to intermediation activities while
non-bank dealers generally committed more, although not always in the
same manner or on the same terms as bank dealers; (2) the volume and
profitability of certain trading activities after the financial crisis
may have decreased for bank dealers while it may have increased for
other intermediaries, including non-bank entities that provide intraday
liquidity, but generally not overnight liquidity, using sophisticated
electronic trading algorithms and high speed access to data and trading
venues; and (3) the introduction of alternative credit markets,
including non-bank direct lending markets, may have contributed to
liquidity fragmentation across markets while potentially increasing
access to capital.\282\
---------------------------------------------------------------------------

    \282\ See U.S Sec. & Exch. Comm'n, Access to Capital and Market
Liquidity (Aug. 2017) (``SEC Report 2017'').
---------------------------------------------------------------------------

    Where possible, the SEC has attempted to quantify the costs and
benefits expected to result from the proposed amendments. In many
cases, however, the SEC is unable to quantify these potential economic
effects. Some of the primary economic effects, such as the effect on
incentives that may give rise to conflicts of interest in various
regulated entities and the degree to which the 2013 rule may be
impeding activity of banking entities with respect to certain
investment vehicles, are inherently difficult to quantify. Moreover,
some of the benefits of the 2013 rule's definitions and prohibitions
that the agencies propose to amend, such as the potential benefits for
resilience during a crisis or periods of market stress, are less
readily observable under strong economic conditions, particularly when
markets are less volatile and are functioning well. Further, it is
difficult to quantify the net economic effects of any individual
proposed amendment because of overlapping implementation periods of
various post-crisis regulations affecting the same group of SEC
registrants, the long implementation timeline of the 2013 rule and the
implementing regulations, and the fact that many market participants
changed their behavior in anticipation of future changes in regulation.
    In some instances, the SEC lacks the information or data necessary
to provide reasonable estimates for the economic effects of the
proposed amendments. For example, the SEC lacks information and data on
how market participants may choose to restructure their relationships
with various types of entities in response to the proposed amendments;
the amount of capital formation in covered funds that does not occur
because of current covered fund provisions, including those concerning
the definition of covered fund, restrictions on relationships with
covered funds, the definition of ownership interest, and the exclusion
for loan securitizations; the volume of loans, guarantees, securities
lending, and derivatives activity dealers may wish to engage in with
related covered funds; as well as the extent of risk reduction
associated with the covered fund provision of the 2013 rule. Where the
SEC cannot quantify the relevant economic effects, they are discussed
in qualitative terms.
2. Economic Baseline
    In the context of this economic analysis, the economic costs and
benefits, and the impact of the proposed amendments on efficiency,
competition, and capital formation, are considered relative to a
baseline that includes the 2013 rule; the 2019 amendments; legislative
amendments in EGRRCPA \283\ and conforming amendments to the
implementing regulations, as applicable; and current practices aimed at
compliance with these regulations.
---------------------------------------------------------------------------

    \283\ See supra note 267.
---------------------------------------------------------------------------

a. Regulation
    The economic baseline against which the SEC is assessing the
economic impact of the proposed amendments includes the legal and
regulatory framework as it exists at the time of this release. Thus,
the regulatory baseline for the SEC's economic analysis includes
section 13 of the BHC Act as amended by EGRRCPA, and the 2013 rule.
Further, the baseline accounts for the fact that since the adoption of
the 2013 rule, the agencies have adopted the 2019 amendments, which,
among other things, related to the ability of banking entities to
engage in certain activities, including underwriting, market-making,
and risk-mitigating hedging, with respect to ownership interests in
covered funds, as well as amendments conforming the 2013 rule to
Sections 203 and 204 of EGRRCPA. In addition, the staffs of the
agencies have provided FAQ responses related to the regulatory
obligations of banking entities, including SEC-regulated entities that
are also banking entities under the 2013 rule, which likely influenced
these entities' decisions about how to comply with the 2013 rule.\284\
The Federal banking agencies also issued policy statements in 2017 and
2019 with respect to foreign excluded funds.\285\
---------------------------------------------------------------------------

    \284\ See id.
    \285\ See, e.g., Board of Governors of the Federal Reserve
System, Statement regarding Treatment of Certain Foreign Funds under
the Rules Implementing Section 13 of the Bank Holding Company Act
(July 17, 2019), available at https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20190717a1.pdf (``2019 Policy
Statement'').
---------------------------------------------------------------------------

    Although the 2013 rule also included restrictions on proprietary
trading and compliance requirements (as modified by the 2019
amendments), the most relevant portion of the 2013 rule for
establishing an economic baseline is that involving covered fund
restrictions.\286\ The features of the regulatory framework under the
2013 rule most relevant to the baseline include the definition of the
term

``covered fund''; restrictions on a banking entity's relationships with
covered funds; and restrictions on parallel investment, co-investment,
and investments in the fund by banking entity employees.
---------------------------------------------------------------------------

    \286\ See 2019 amendments at 61974.
---------------------------------------------------------------------------

Scope of the Covered Fund Definition
    The definition of ``covered fund'' impacts the scope of the
substantive prohibitions on banking entities acquiring or retaining an
ownership interest in, sponsoring, and having certain relationships
with, covered funds. The covered fund provisions of the 2013 rule may
reduce the ability and incentives of banking entities to bail out
affiliated funds to mitigate reputational risk, limit conflicts of
interest with clients, customers, and counterparties, and reduce the
ability of banking entities to engage in proprietary trading indirectly
through funds. The 2013 rule defines covered funds, in part, as issuers
that would be investment companies but for section 3(c)(1) or 3(c)(7)
of the Investment Company Act and then excludes specific types of
entities from the definition. The definition also includes certain
commodity pools as well as certain foreign funds. Funds that rely on
the exclusions in sections 3(c)(1) or 3(c)(7) of the Investment Company
Act are covered funds unless an exclusion from the covered fund
definition is available. Funds that rely on any exclusion or exemption
from the definition of ``investment company'' under the Investment
Company Act, other than the exclusion contained in section 3(c)(1) or
3(c)(7), such as real estate and mortgage funds that rely on the
exclusion in section 3(c)(5)(C), are not covered funds under the 2013
rule.\287\
---------------------------------------------------------------------------

    \287\ See 2013 rule Sec.  _.10(c)(12)(ii).
---------------------------------------------------------------------------

    The broad definition of covered funds encompasses many different
types of vehicles, and the 2013 rule excludes some of them from the
definition of a covered fund.\288\ The excluded fund types relevant to
the baseline are funds that are regulated by the SEC under the
Investment Company Act: RICs and BDCs. Seeding vehicles for these funds
are also excluded from the covered fund definition during their seeding
period.\289\
---------------------------------------------------------------------------

    \288\ The exclusions from the covered fund definition are set
forth in Sec.  _.10(c) of the 2013 rule.
    \289\ See 2013 rule Sec.  _.10(c)(12) (i) and Sec.
_.10(c)(12)(iii).
---------------------------------------------------------------------------

Restrictions on Relationships Between Banking Entities and Covered
Funds
    Under the baseline, banking entities are limited in the types of
transactions in which they are able to engage with covered funds with
which they have certain relationships. Banking entities that serve,
directly or indirectly, as the investment manager, adviser, or sponsor
to a covered fund are prohibited from engaging in a ``covered
transaction,'' as defined in section 23A of the Federal Reserve Act,
with the covered fund or with any other covered fund that is controlled
by such covered fund.\290\ Similarly, a banking entity that organizes
and offers a covered fund pursuant to Sec.  _.11 or that continues to
hold an ownership interest in a covered fund in accordance with Sec.
_.11(b) is prohibited from engaging in such a ``covered transaction.''
This prohibits all ``covered transactions'' that cause the banking
entity to have credit exposure to the affiliated covered fund,
including short-term extensions of credit, and various other
transactions required for a banking entity to provide an affiliated
covered fund payment, clearing, and settlement services.
---------------------------------------------------------------------------

    \290\ See 2013 rule Sec.  _.14(a).
---------------------------------------------------------------------------

Definition of ``Banking Entity''
    For foreign banking entities,\291\ certain funds organized under
foreign law and offered to foreign investors (``foreign excluded
funds'') are not ``covered funds'' under the 2013 rule, but may be
subject to the 2013 rule as ``banking entities'' under certain
circumstances. The banking agencies (in consultation with the staffs of
the SEC and the CFTC) have provided temporary relief for qualifying
foreign excluded funds that will expire in July 2021.\292\
---------------------------------------------------------------------------

    \291\ For purposes of this analysis, ``foreign banking entity''
has the same meaning as used in the 2019 Policy Statement, i.e., a
banking entity that is not--and is not controlled directly or
indirectly by a banking entity that is--located in or organized
under the laws of the United States or any state.
    \292\ See 2019 Policy Statement. For purposes of the 2019 Policy
Statement, a ``qualifying foreign excluded fund'' means, with
respect to a foreign banking entity, a banking entity that (1) is
organized or established outside the United States and the ownership
interests of which are offered and sold solely outside the United
States; (2) would be a covered fund were the entity organized or
established in the United States, or is, or holds itself out as
being, an entity or arrangement that raises money from investors
primarily for the purpose of investing in financial instruments for
resale or other disposition or otherwise trading in financial
instruments; (3) would not otherwise be a banking entity except by
virtue of the foreign banking entity's acquisition or retention of
an ownership interest in, or sponsorship of, the entity; (4) is
established and operated as part of a bona fide asset management
business; and (5) is not operated in a manner that enables the
foreign banking entity to evade the requirements of section 13 or
implementing regulations.
---------------------------------------------------------------------------

Definition of ``Ownership Interest''
    The 2013 rule prohibits a banking entity, as principal, from
directly or indirectly acquiring or retaining an ``ownership interest''
in a covered fund.\293\ The 2013 rule defines an ``ownership interest''
in a covered fund to mean any equity, partnership, or other similar
interest. Under the 2013 rule, ``other similar interest'' is defined as
an interest that:
---------------------------------------------------------------------------

    \293\ 2013 rule Sec.  _.10(a).
---------------------------------------------------------------------------

    (A) Has the right to participate in the selection or removal of a
general partner, managing member, member of the board of directors or
trustees, investment manager, investment adviser, or commodity trading
advisor of the covered fund (excluding the rights of a creditor to
exercise remedies upon the occurrence of an event of default or an
acceleration event);
    (B) Has the right under the terms of the interest to receive a
share of the income, gains or profits of the covered fund;
    (C) Has the right to receive the underlying assets of the covered
fund after all other interests have been redeemed and/or paid in full
(excluding the rights of a creditor to exercise remedies upon the
occurrence of an event of default or an acceleration event);
    (D) Has the right to receive all or a portion of excess spread (the
positive difference, if any, between the aggregate interest payments
received from the underlying assets of the covered fund and the
aggregate interest paid to the holders of other outstanding interests);
    (E) Provides under the terms of the interest that the amounts
payable by the covered fund with respect to the interest could be
reduced based on losses arising from the underlying assets of the
covered fund, such as allocation of losses, write-downs or charge-offs
of the outstanding principal balance, or reductions in the amount of
interest due and payable on the interest;
    (F) Receives income on a pass-through basis from the covered fund,
or has a rate of return that is determined by reference to the
performance of the underlying assets of the covered fund; or
    (G) Any synthetic right to have, receive, or be allocated any of
the rights above.\294\
---------------------------------------------------------------------------

    \294\ 2013 rule Sec.  _.10(d)(6)(i).
---------------------------------------------------------------------------

    The 2013 rule permits a banking entity to acquire and retain an
ownership interest in a covered fund that the banking entity organizes
and offers pursuant to section _.11, but limits such ownership
interests to three percent of the total number or value of the
outstanding ownership interests of such fund (the per-fund limit).\295\
---------------------------------------------------------------------------

    \295\ 2013 rule Sec.  _.12(a) (1)(ii) and Sec.
_.12(a)(2)(ii)(A). The 2013 rule also requires that the aggregate
value of all ownership interests of a banking entity and its
affiliates in all covered funds acquired or retained under Sec.
_.12 may not exceed three percent of the tier 1 capital of the
banking entity. 2013 rule Sec.  _.12(a)(2)(iii) (the aggregate funds
limit).

---------------------------------------------------------------------------

Loan Securitizations
    As discussed above, section 13 of the BHC Act provides a rule of
construction that explicitly allows the sale and securitization of
loans as otherwise permitted by law.\296\ Accordingly, the 2013 rule
excludes from the covered fund definition entities that issue asset-
backed securities and meet specified conditions, including that they
hold only loans, certain rights and assets, and a small set of other
financial instruments (permissible assets).\297\ In addition, the
baseline includes the FAQs issued by agencies' staff in June 2014
regarding the servicing asset provision of the loan securitization
exclusion, as discussed in section III.B.2 above.
---------------------------------------------------------------------------

    \296\ 13 U.S.C. 1851(g)(2). See supra section III.B.2.
    \297\ See 2013 rule Sec.  _.10(c)(8). Loan is further defined as
any loan, lease, extension of credit, or secured or unsecured
receivable that is not a security or derivative. Sec.  _.2(t).
---------------------------------------------------------------------------

Public Welfare and SBIC Exclusions
    Under the 2013 rule, issuers in the business of making investments
that are designed primarily to promote the public welfare, of the type
permitted under paragraph (11) of section 5136 of the Revised Statutes
of the United States (12 U.S.C. 24),\298\ are excluded from the covered
fund definition. Similarly, the 2013 rule excludes from the covered
fund definition small business investment companies (SBICs) and issuers
that have received notice from the Small Business Administration to
proceed to qualify for a license as a SBIC and for which the notice or
license has not been revoked.\299\
---------------------------------------------------------------------------

    \298\ See 2013 rule Sec.  _.10(c)(11)(ii).
    \299\ See 2013 rule Sec.  _.10(c)(11)(i).
---------------------------------------------------------------------------

Attribution of Certain Investments to a Banking Entity
    As discussed above, the 2013 rule includes a per fund limit and
aggregate fund limit on a banking entity's ownership of covered funds
that the banking entity organizes and offers.\300\ The preamble to the
2013 rule stated, ``[I]f a banking entity makes investments side by
side in substantially the same positions as a covered fund, then the
value of such investments shall be included for purposes of determining
the value of the banking entity's investment in the covered fund.''
\301\ The agencies also stated that a banking entity that sponsors a
covered fund should not make any additional side-by-side co-investment
with the covered fund in a privately negotiated investment unless the
value of such co-investment is less than 3% of the value of the total
amount co-invested by other investors in such investment.\302\ The 2019
amendments eliminated the aggregate fund limit and capital deduction
requirement under Sec.  _.12(d) for the value of ownership interests in
third-party covered funds (e.g., covered funds that banking entities do
not organize or offer), acquired or retained as a result of certain
underwriting or market-making activities. However, the 2019 amendments
did not change or amend the application of the per-fund limit or
aggregate funds limit to co-investments alongside a covered fund.
---------------------------------------------------------------------------

    \300\ 2013 rule Sec.  _.12(a).
    \301\ 2013 rule adopting release at 5734.
    \302\ Id.
---------------------------------------------------------------------------

    For purposes of calculating the aggregate fund limit and capital
deduction requirement, the 2013 rule requires attribution to a banking
entity with respect to restricted profit interests in a covered fund
for which the banking entity serves as investment manager, investment
adviser, commodity trading advisor, or other service provider.\303\
Under the 2013 rule, for purposes of calculating a banking entity's
compliance with the aggregate fund limit and the capital deduction
requirement, a banking entity must include any amounts paid by the
banking entity or an employee in connection with obtaining a restricted
profit interest in the covered fund.\304\
---------------------------------------------------------------------------

    \303\ 2013 rule Sec.  _.10(d)(6)(ii); Sec.  _.12(c)(1), (d); See
also 12 U.S.C. 1851(d)(1)(G).
    \304\ 2013 rule Sec.  _.12(c)(1), (d).
---------------------------------------------------------------------------

    The sections that follow discuss rule provisions currently in
effect, how each proposed amendment would change those provisions, and
the anticipated costs and benefits of the proposed amendments, subject
to the caveat that not all anticipated costs and benefits can be
meaningfully quantified.
b. Affected Participants
    The SEC-regulated entities directly affected by the proposed
amendments include broker-dealers, security-based swap dealers, and
investment advisers. The 2013 rule, as amended in 2019, imposed a range
of restrictions and compliance obligations on banking entities with
respect to their covered fund activities and investments. To the degree
that the proposed amendments reduce or otherwise alter the scope of
private funds subject to covered fund restrictions, SEC-registered
banking entities, including broker-dealers, security-based swap
dealers, and investment advisers may be affected by the proposal.
Broker-Dealers \305\
---------------------------------------------------------------------------

    \305\ These estimates differ from those in the EGRRCPA
Conforming Amendments Adopting Release, as these estimates rely on
more recent data and information about both U.S. and global trading
assets and liabilities of bank holding companies. This analysis is
based on data from Reporting Form FR Y-9C for domestic holding
companies on a consolidated basis and Report of Condition and Income
for banks regulated by the Board, FDIC, and OCC for the most recent
available four-quarter average, as well as data from S&P Market
Intelligence LLC on the estimated amount of global trading activity
of U.S. and non-U.S. bank holding companies. Broker-dealer bank
affiliations were obtained from the Federal Financial Institutions
Examination Council's (FFIEC) National Information Center (NIC).
Broker-dealer assets and holdings were obtained from FOCUS Report
data for Q3 2019.
---------------------------------------------------------------------------

    Under the 2013 rule, some of the largest SEC-regulated broker-
dealers are banking entities. Table 1 reports the number, total assets,
and holdings of broker-dealers affiliated with banks and broker-dealers
that are not.
    While the 3,504 domestic broker-dealers that are not affiliated
with banks greatly outnumber the 198 banking entity broker-dealers
subject to the 2013 rule, banking entity broker-dealers dominate non-
banking entity broker-dealers in terms of total assets (73% of total
broker-dealer assets) and aggregate holdings (68% of total broker-
dealer holdings).

                        Table 1--Broker-Dealer Count, Assets, and Holdings by Affiliation
----------------------------------------------------------------------------------------------------------------
                                                                                Holdings
      Broker-dealer affiliation             Number         Total assets,      Holdings, $mln     (alternative),
                                                             $mln \306\           \307\            $mln \308\
----------------------------------------------------------------------------------------------------------------
Affected bank broker-dealers \309\..                198          3,340,366            804,354            640,779
Non-bank broker-dealers \310\.......              3,504          1,242,246            385,137            218,777
                                     ---------------------------------------------------------------------------

    Total...........................              3,702          4,582,612          1,189,491            859,556
----------------------------------------------------------------------------------------------------------------

Security-Based Swap Dealers
    The proposed amendments may also affect bank-affiliated SBSDs. As
compliance with SBSD registration requirements is not yet required,
there are currently no registered SBSDs. However, the SEC has
previously estimated that as many as 50 entities may potentially
register with the SEC as security-based swap dealers and that as many
as 16 may already be SEC-registered broker-dealers.\311\ Given the
analysis of DTCC Derivatives Repository Limited Trade Information
Warehouse (``TIW'') transaction and positions data on single-name
credit-default swaps and consistent with other recent SEC rulemakings,
the SEC preliminarily believes that 41 entities that may register with
the SEC as SBSDs are bank-affiliated firms, including those that are
SEC-registered broker-dealers. Therefore, the SEC preliminarily
estimates that, in addition to the bank-affiliated SBSDs that are
already registered as broker-dealers and included in the discussion
above, as many as 25 other bank-affiliated SBSDs may be affected by the
proposed amendments.\312\ Similarly, on the basis of the analysis of
TIW data, the SEC estimates that none of the entities that may register
with the SEC as Major Security-Based Swap Participants are affected by
the final rule.
---------------------------------------------------------------------------

    \306\ Broker-dealer total assets are based on FOCUS report data
for ``Total Assets.''
    \307\ Broker-dealer holdings are based on FOCUS report data for
securities and spot commodities owned at market value, including
bankers' acceptances, certificates of deposit and commercial paper,
state and municipal government obligations, corporate obligations,
stocks and warrants, options, arbitrage, other securities, U.S. and
Canadian government obligations, and spot commodities.
    \308\ This alternative measure excludes U.S. and Canadian
government obligations and spot commodities.
    \309\ This category includes all bank-affiliated broker-dealers
except those exempted by section 203 of EGRRCPA.
    \310\ This category includes both bank affiliated broker-dealers
subject to section 203 of EGRRCPA and broker-dealers that are not
affiliated with banks or holding companies.
    \311\ See Recordkeeping and Reporting Requirements for Security-
Based Swap Dealers, Major Security-Based Swap Participants, and
Broker-Dealers, 84 FR 68550, 68607 (Dec. 16, 2019) (``Recordkeeping
and Reporting Adopting Release'').
    \312\ See id.
---------------------------------------------------------------------------

    Importantly, because registration is not yet required, compliance
with capital and other substantive requirements for SBSDs under Title
VII of the Dodd-Frank Act is also not yet required.\313\ The SEC
recognizes that firms may choose to move security-based swap trading
activity into (or out of) an affiliated bank or an affiliated broker-
dealer instead of registering as a standalone SBSD if bank or broker-
dealer capital and other regulatory requirements are less (or more)
costly than those that may be imposed on SBSDs under Title VII. As a
result, the above figures may overestimate or underestimate the number
of SBSDs that are not broker-dealers and that may become SEC-registered
entities affected by the proposed amendments.
---------------------------------------------------------------------------

    \313\ See Capital, Margin, Segregation Adopting Release at
43954. See also Rule Amendments and Guidance Addressing Cross-Border
Application of Certain Security-Based Swap Requirements, Exchange
Act Release No. 34-87780 (Dec. 18, 2019) (``Cross Border Amendments
Adopting Release'').
---------------------------------------------------------------------------

Private Funds and Private Fund Advisers \314\
---------------------------------------------------------------------------

    \314\ These estimates are calculated from Form ADV data as of
September 30, 2019. An investment adviser is defined as a ``private
fund adviser'' for the purposes of this economic analysis if it
indicates that it is an adviser to any private fund on Form ADV Item
7.B. An investment adviser is defined as a ``banking entity RIA'' if
it indicates on Form ADV Item 6.A.(7) that it is actively engaged in
business as a bank, or it indicates on Form ADV Item 7.A.(8) that it
has a ``related person'' that is a banking or thrift institution.
For purposes of Form ADV, a ``related person'' is any advisory
affiliate and any person that is under common control with the
adviser. The definition of ``control'' for purposes of Form ADV,
which is used in identifying related persons on the form, differs
from the definition of ``control'' under the BHC Act. In addition,
this analysis does not exclude SEC-registered investment advisers
affiliated with banks that have consolidated total assets less than
or equal to $10 billion and trading assets and liabilities less than
or equal to 5% of total assets. Those banks are no longer subject to
the requirements of the 2013 rule following enactment of the
EGRRCPA. Thus, these figures may overestimate or underestimate the
number of banking entity RIAs.
---------------------------------------------------------------------------

    This section describes RIAs advising private funds that may be
affected by the proposed amendments. Using Form ADV data, Table 2
reports the number of RIAs advising private funds by fund type, as
those types are defined in Form ADV.\315\ Private funds rely on either
section 3(c)(1) or 3(c)(7) of the Investment Company Act and so meet
the 2013 rule's definition of ``covered fund.'' Table 3 reports the
number and gross assets of private funds advised by RIAs and separately
reports these statistics for banking entity RIAs. As can be seen from
Table 2, the two largest categories of private funds advised by RIAs
are hedge funds and private equity funds.\316\
---------------------------------------------------------------------------

    \315\ RIAs may also advise foreign public funds that are
excluded from the covered fund definition in the 2013 rule, are the
subject of proposed amendments discussed below, and are not reported
on Form ADV.
    \316\ For purposes of Form ADV, ``private equity fund'' is
defined as ``any private fund that is not a hedge fund, liquidity
fund, real estate fund, securitized asset fund, or venture capital
fund and does not provide investors with redemption rights in the
ordinary course.'' See Form ADV: Instructions for Part 1A,
Instruction 6. For purposes of Form ADV, ``hedge fund'' is defined
as ``any private fund (other than a securitized asset fund): (a)
with respect to which one or more investment advisers (or related
persons of investment advisers) may be paid a performance fee or
allocation calculated by taking into account unrealized gains (other
than a fee or allocation the calculation of which may take into
account unrealized gains solely for the purpose of reducing such fee
or allocation to reflect net unrealized losses); (b) that may borrow
an amount in excess of one-half of its net asset value (including
any committed capital) or may have gross notional exposure in excess
of twice its net asset value (including any committed capital); or
(c) that may sell securities or other assets short or enter into
similar transactions (other than for the purpose of hedging currency
exposure or managing duration).
---------------------------------------------------------------------------

    Banking entity RIAs advise a total of 4,274 private funds with
approximately $1.97 trillion in gross assets. From Form ADV data,
banking entity RIAs' gross private fund assets under management are
concentrated in hedge funds and private equity funds. The SEC estimates
on the basis of this data that banking entity RIAs advise 879 hedge
funds with approximately $668 billion in gross assets and 1,430 private
equity funds with approximately $397 billion in assets.
---------------------------------------------------------------------------

    \317\ This table includes only the advisers that list private
funds on Section 7.B.(1) of Form ADV. The number of advisers in the
``Any Private Fund'' row is not the sum of the rows that follow
since an adviser may advise multiple types of private funds. Each
listed private fund type (e.g., real estate funds and liquidity
funds) is defined in Form ADV, and those definitions are the same
for purposes of the SEC's Form PF.

  Table 2--SEC-Registered Investment Advisers Advising Private Funds by
                             Fund Type \317\
------------------------------------------------------------------------
                                                          Banking entity
                Fund type                     All RIA           RIA
------------------------------------------------------------------------
Hedge Funds.............................           2,695             149
Private Equity Funds....................           1,707              96
Real Estate Funds.......................             540              52
Securitized Asset Funds.................             226              44
Venture Capital Funds...................             207               8
Liquidity Funds.........................              47              15
Other Private Funds.....................           1,071             143
                                         -------------------------------
    Total Private Fund Advisers.........           4,854             285
------------------------------------------------------------------------

    Table 3--The Number and Gross Assets of Private Funds Advised by SEC-Registered Investment Advisers \318\
----------------------------------------------------------------------------------------------------------------
                                                      Number of private funds           Gross assets, $bln
                                                 ---------------------------------------------------------------
                    Fund type                                         Banking                         Banking
                                                      All RIA       entity RIA        All RIA       entity RIA
----------------------------------------------------------------------------------------------------------------
Hedge Funds.....................................          10,602             879           7,478             668
Private Equity Funds............................          15,144           1,430           3,541             397
Real Estate Funds...............................           3,546             321             656             100
Securitized Asset Funds.........................           1,836             355             674             131
Venture Capital Funds...........................           1,286              43             158               3
Liquidity Funds.................................              89              29           1,339             195
Other Private Funds.............................           4,505           1,218           1,386             478
                                                 ---------------------------------------------------------------
    Total Private Funds.........................          37,002           4,274          15,231           1,971
----------------------------------------------------------------------------------------------------------------

    In addition, the SEC's economic analysis is informed by private
fund statistics submitted by certain RIAs of private funds through Form
PF as summarized in quarterly ``Private Fund Statistics.'' \319\
---------------------------------------------------------------------------

    \318\ Gross assets include uncalled capital commitments on Form
ADV.
    \319\ See U.S. Securities and Exchange Commission, Division of
Investment Management Analytics Office, Private Fund Statistics,
First Calendar Quarter 2019, (Oct. 25, 2019), available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q1.pdf. Statistics for preceding quarters are
available at https://www.sec.gov/divisions/investment/private-funds-statistics.shtml.
---------------------------------------------------------------------------

Registered Investment Companies and Business Development Companies
    The baseline also reflects the potential that a registered
investment company (RIC) or a business development company (BDC) would
be treated as a banking entity where the RIC or BDC's sponsor is a
banking entity that holds 25% or more of the RIC or BDC's voting
securities after a seeding period.\320\ On the basis of SEC filings and
public data, the SEC estimates that, as of September 2019, there were
approximately 15,500 RICs \321\ and 106 BDCs. Although RICs and BDCs
are generally not themselves banking entities subject to the 2013 rule,
they may be indirectly affected by the 2013 rule and the proposed
amendments, for example, if their sponsors or advisers are banking
entities. For instance, bank-affiliated RIAs or their affiliates may
reduce their level of investment in the RICs or BDCs they advise, or
potentially close those funds, to eliminate the risk of those funds
becoming banking entities themselves.
---------------------------------------------------------------------------

    \320\ See, e.g., 2019 amendments at 61979.
    \321\ This estimate includes open-end companies, exchange-traded
funds, closed-end funds, and non-insurance unit investment trusts
and does not include fund of funds. The inclusion of fund of funds
increases this estimate to approximately 17,000.
---------------------------------------------------------------------------

Small Business Investment Companies
    Small business investment companies (SBICs) are generally
``privately owned and managed investment funds, licensed and regulated
by the Small Business Administration (SBA), that use their own capital
plus funds borrowed with an SBA guarantee to make equity and debt
investments in qualifying small businesses.'' \322\ The proposed
amendments would provide relief with respect to banking entity
investments in SBICs during the wind-down process by excluding from the
definition of ``covered fund'' those SBICs.\323\ While the SEC does not
have data to quantify the number of SBICs undergoing wind-down, trends
in the number of SBIC licenses can be indicative of the turnover in the
total number of SBIC licensees. For example, according to SBA data,
there were 302 SBIC licensees as of June 30, 2019 \324\ and 300 SBIC
licensees as of September 30, 2019.\325\ By contrast, as of June 30,
2017, there were 315 SBICs licensed by the SBA.\326\
---------------------------------------------------------------------------

    \322\ See U.S. Small Business Administration, SBIC Program
Overview, available at https://www.sba.gov/content/sbic-program-overview.
    Pursuant to Advisers Act section 203(b)(7), an SBIC is (other
than an entity that has elected to be regulated or is regulated as a
business development company pursuant to section 54 of the
Investment Company Act of 1940): (A) A small business investment
company that is licensed under the Small Business Investment Act of
1958 (``SBIA''), (B) an entity that has received from the Small
Business Administration notice to proceed to qualify for a license
as a small business investment company under the SBIA, which notice
or license has not been revoked, or (C) an applicant that is
affiliated with 1 or more licensed small business investment
companies described in subparagraph (A) and that has applied for
another license under the SBIA, which application remains pending.
    \323\ Specifically, the proposed amendments would exclude from
the definition of ``covered fund'' any SBIC that has voluntarily
surrendered its license to operate as an SBIC in accordance with 13
CFR 107.1900 and does not make any new investments (with some
exceptions) after such voluntary surrender. Proposed rule Sec.
__.10(c)(11)(i).
    \324\ See U.S. Small Business Administration, SBIC Program
Overview as of June 30, 2019, available at https://www.sba.gov/sites/default/files/2019-09/SBIC%20Quarterly%20Report%20as%20of%20June_30_2019.pdf.
    \325\ See U.S. Small Business Administration, SBIC Program
Overview as of September 30, 2019, available at https://www.sba.gov/sites/default/files/2019-11/SBIC%20Quarterly%20Report%20as%20of%20September_30_2019.pdf.
    \326\ See U.S. Small Business Administration, SBIC Quarterly
Report as of March, 31 2017, available at https://www.sba.gov/sites/default/files/files/Quarterly_Data_as_of_March_31_2017_0.pdf.

---------------------------------------------------------------------------

    The agencies are requesting comment on whether they should provide
relief to rural business investment companies (``RBICs'') from the 2013
rule that is similar to the relief provided to SBICs.\327\ As the SEC
has discussed elsewhere,\328\ an RBIC is defined in Section 384A of the
Consolidated Farm and Rural Development Act as a company that is
approved by the Secretary of Agriculture and that has entered into a
participation agreement with the Secretary.\329\ Because SBICs and
RBICs share the common purpose of promoting capital formation in their
respective sectors, advisers to SBICs and RBICs are treated similarly
under the Advisers Act in that they have the opportunity to take
advantage of expanded exemptions from investment adviser
registration.\330\ As of August 2019, there were 5 RBICs who were
licensed by the USDA managing approximately $352 million in
assets.\331\
---------------------------------------------------------------------------

    \327\ Under the implementing regulations, an SBIC is excluded
from the ``covered fund'' definition. See 2013 rule Sec.
_.10(c)(11)(i).
    \328\ See Amending the ``Accredited Investor'' Definition, 85 FR
2574 (Jan. 15, 2020) (``Accredited Investor Definition Proposing
Release'').
    \329\ See the RBIC Advisers Relief Act of 2018, Public Law 115-
417 (2019) (the ``RBIC Advisers Relief Act''). To be eligible to
participate as an RBIC, the company must be a newly formed for-
profit entity or a newly formed for-profit subsidiary of such an
entity, have a management team with experience in community
development financing or relevant venture capital financing, and
invest in enterprises that will create wealth and job opportunities
in rural areas, with an emphasis on smaller enterprises. See 7
U.S.C. 2009cc-3(a).
    \330\ Following enactment of the RBIC Advisers Relief Act,
advisers to solely RBICs and advisers to solely SBICs are exempt
from investment adviser registration pursuant to Advisers Act
Sections 203(b)(8) and 203(b)(7), respectively. The venture capital
fund adviser exemption deems RBICs and SBICs to be venture capital
funds for purposes of the registration exemption 15 U.S.C. 80b-3(l).
Accordingly, the proposed exclusion for certain venture capital
funds discussed below (see infra text accompanying notes 380 and
381) which would require that a fund be a venture capital fund as
defined in the SEC regulations implementing the registration
exemption, could include RBICs and SBICs to the extent that they
satisfy the other elements of the proposed exclusion.
    \331\ Rural Business Investment Company Applications filed with
the USDA. To contact the USDA for data about Rural Business
Investment Company Applications filed with the USDA see https://www.rd.usda.gov/programs-services/rural-business-investment-program.
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    The Tax Cuts and Jobs Act established the ``opportunity zone''
program to provide tax incentives for long-term investing in designated
economically distressed communities.\332\ The program allows taxpayers
to defer and reduce taxes on capital gains by reinvesting gains in
``qualified opportunity funds'' (QOFs) that are required to have at
least 90 percent of their assets in designated low-income zones.\333\
In this regard, QOFs are similar to SBICs and public welfare companies.
The agencies are requesting comment on whether they should provide
relief to QOFs from the 2013 rule that is similar to the relief
provided to SBICs.\334\ SEC staff are not aware of an official source
for data regarding QOFs that are available for investment, but some
private firms collect and report such data. One such firm reports that,
as of January 2020, there were 292 QOFs that report raising $6.72
billion in equity, and have a fundraising goal of $27.9 billion.\335\
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    \332\ Tax Cuts and Jobs Act of 2017, Public Law 115-97, 131
Stat. 2054 (2017).
    \333\ See U.S. Securities and Exchange Commission and NASAA,
Staff Statement on Opportunity Zones: Federal and State Securities
Laws Considerations, available at https://www.sec.gov/2019_Opportunity-Zones_FINAL_508v2.pdf (``Opportunity Zone
Statement'').
    \334\ See supra note 328.
    \335\ As reported by Novogradac, a national professional
services organization that collects and reports information on QOFs.
See https://www.novoco.com/resource-centers/opportunity-zone-resource-center/opportunity-funds-listing.
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3. Costs and Benefits
    Section 13 of the BHC Act generally prohibits banking entities from
acquiring or retaining an ownership interest in, sponsoring, or having
certain relationships with covered funds, subject to certain
exemptions.\336\ The SEC's economic analysis concerns the potential
costs, benefits, and effects on efficiency, competition, and capital
formation of the proposed amendments for five groups of market
participants. First, the proposed amendments may impact SEC-registered
investment advisers that are banking entities, including those that
sponsor or advise covered funds and those that do not, as well as SEC-
registered investment advisers that are not banking entities that
sponsor or advise covered funds and compete with banking entity RIAs.
Second, the proposed amendments would permit dealers greater
flexibility in providing services to more types of funds since dealers
could provide a broader array of services to funds that would be
excluded from the covered fund definition. Third, banking entities that
are broker-dealers or RIAs may enjoy reduced uncertainty and greater
flexibility with respect to direct investments they make alongside
covered funds. Fourth, the proposed amendments may impact private funds
and other vehicles, including those entities scoped in or out of the
covered fund provisions of the 2013 rule, as well as private funds
competing with such funds. One such impact may be seen to the extent
that the proposed amendments permit banking entities to provide a full
range of traditional customer-facing banking and asset management
services to certain entities, such as customer facilitation vehicles
and family wealth management vehicles. Fifth, to the extent that the
proposed amendments impact efficiency, competition, and capital
formation in covered funds or underlying securities, investors in, and
sponsors of, covered funds and underlying securities and issuers may be
affected as well.
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    \336\ See 12 U.S.C. 1851.
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    As discussed below, careful consideration was given to the
competing effects that could potentially result from the proposed
amendments and alternatives. For example, the proposed amendments could
result in enhanced competition among, and capital formation driven by,
entities that would be treated as covered funds under the 2013 rule.
The proposed amendments could also potentially increase (or decrease)
moral hazard and other financial risks posed by investments in covered
funds; however, the agencies have sought to mitigate the potential for
increased risk and other concerns by imposing various conditions on the
proposed exclusions designed to address such risks. To the extent that
the current covered fund provisions limit fund formation, the proposed
amendments and other amendments on which the agencies seek comment
could provide greater ability for banking entities to organize funds
and attract capital from third party investors, which could increase
revenues for banking entities while reducing long-term compliance
costs; increase the availability of venture, credit, and other
financing, including for small businesses and start-ups; and, as a
result, increase capital formation. The SEC is not currently aware of
any information or data that would allow a quantification of the extent
to which the covered fund provisions of the 2013 rule are inhibiting
capital formation via funds. Therefore, the bulk of the analysis below
is necessarily qualitative. To the extent that the current covered fund
provisions limit alignment of interests between banking entities and
their clients, customers, or counterparties, and to the extent the
proposed amendments would alter the alignment of interests, the
proposed amendments could have a positive or negative effect on
conflict of interest concerns.
    The proposed amendments create new recordkeeping requirements and
revise certain disclosure requirements. Specifically, a banking entity
may only rely on the exclusion for customer

facilitation vehicles if the banking entity and its affiliates maintain
documentation outlining how the banking entity intends to facilitate
the customer's exposure to a transaction, investment strategy or
service offered by the banking entity. As discussed in section IV.B
\337\and below, these new recordkeeping burdens may impose an initial
burden of $1,078,650 \338\ and an ongoing annual burden of
$1,078,650.\339\ In addition, under certain circumstances, a banking
entity must make certain disclosures with respect to an excluded credit
fund, venture capital fund, family wealth vehicle, or customer
facilitation vehicle, as if the entity were a covered fund. As
discussed in section IV.B, these disclosure requirements may impose an
initial burden of $53,933 \340\ and an ongoing burden of
$1,402,245.\341\
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    \337\ For the purposes of the burden estimates in this release,
we are assuming the cost of $423 per hour for an attorney, from
SIFMA's ``Management & Professional Earnings in the Securities
Industry 2013,'' modified to account for an 1,800-hour work year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead, and adjusted for inflation.
    \338\ In the 2019 amendments, amendments that sought, among
other things, to provide greater clarity and certainty about what
activities are prohibited by the 2013 rule--in particular, under the
prohibition on proprietary trading--and to better tailor the
compliance requirements based off of the risk of a banking entity's
activities, banking entity PRA-related burdens were apportioned to
SEC-regulated entities on the basis of the average weight of broker-
dealer assets in holding company assets. See 2019 amendments at
62074. SEC staff preliminarily believe that such an approach would
be inappropriate for the PRA-related burdens associated with the
proposed amendments because we do not have a comparable proxy for an
investment adviser's significance within the holding company. Since
we do not have sufficient information to determine the extent to
which the costs associated with any of the new recordkeeping and
disclosure requirements would be borne by SEC registrants
specifically, we report the entire burden estimated based on
information in section IV.B.
    Initial recordkeeping burdens: (10 hours) x (255 entities) x
(Attorney at $423 per hour) = $1,078,650.
    \339\ Annual recordkeeping burdens: (10 hours) x (255 entities)
x (Attorney at $423 per hour) = $1,078,650.
    \340\ Initial recordkeeping burdens: (0.5 hours) x (255
entities) x (Attorney at $423 per hour) = $53,933.
    \341\ Annual recordkeeping burdens: (0.5 hours) x (255 entities)
x (26 disclosures per year) x (Attorney at $423 per hour) =
$1,402,245.
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a. Amendments Related to Specific Types of Funds
    As discussed elsewhere in this SUPPLEMENTARY INFORMATION, the
proposed amendments modify a number of the provisions of the 2013 rule
related to the treatment of certain types of funds (e.g., credit funds,
family wealth management vehicles, small business investment companies,
venture capital funds, customer facilitation vehicles, foreign excluded
funds, foreign public funds, and loan securitizations).
    Broadly, such modifications reduce the number and types of funds
that are within the scope of the 2013 rule, impacting the economic
effects of section 13 of the BHC Act and the 2013 rule.\342\
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    \342\ See, e.g., 2019 amendments at 62037-92.
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    Form ADV data is not sufficiently granular to allow the SEC to
estimate the number of funds and fund advisers affected by the
different proposed exclusions from the covered fund definition and
other relief on which the agencies are seeking comment. However, Table
2 and Table 3 in the economic baseline quantify the number and asset
size of private funds advised by banking entity RIAs by the type of
private fund they advise, as those fund types are defined in Form
ADV.\343\
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    \343\ These fund types include hedge funds, private equity
funds, real estate funds, securitized asset funds, venture capital
funds, liquidity, and other private funds. See supra note 317.
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    Using Form ADV data, the SEC preliminarily estimates that
approximately 149 banking entity RIAs advise hedge funds and 96 banking
entity RIAs advise private equity funds (as those terms are defined in
Form ADV).\344\ As can be seen from Table 2 in the economic baseline,
44 banking entity RIAs advise securitized asset funds. Table 3 shows
that banking entity RIAs advise 355 securitized asset funds with $131
billion in gross assets. Another 52 banking entity RIAs advise real
estate funds, and banking entity RIAs advise 321 real estate funds with
$100 billion in gross assets. Venture capital funds are advised by only
8 banking entity RIAs, and all 43 venture capital funds advised by
banking entity RIAs have in aggregate approximately $3 billion in gross
assets.
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    \344\ As noted in the economic baseline, a single RIA may advise
multiple types of funds. See supra note 318.
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    As noted elsewhere in this SUPPLEMENTARY INFORMATION, the covered
fund provisions of the 2013 rule may limit the ability of banking
entities to use covered funds to circumvent the proprietary trading
prohibition, reduce bank incentives to bail out their covered funds,
and mitigate conflicts of interest between banking entities and their
clients, customers, or counterparties. However, the covered fund
definition is broad,\345\ and some commenters have stated that the 2013
rule may limit the ability of banking entities to conduct traditional
asset management activities and reduce the availability of capital to
entrepreneurs and the market as a whole.\346\ The covered fund
provisions of the 2013 rule, as currently in effect, may impose
significant costs on some banking entities.\347\ The breadth of the
covered fund definition requires market participants to review a large
number of issuers to determine if they are covered funds as defined in
the 2013 rule. For example, the SEC understands that this has included
a review of hundreds of thousands of CUSIPs issued by common types of
securitizations for covered fund status.\348\ The need to perform an
in-depth analysis and make covered funds determinations across a large
number of entities involves costs and may adversely affect the
willingness of banking entities to acquire or retain ownership
interests in, sponsor, and have relationships with entities that may be
treated as covered funds under the 2013 rule. Moreover, the 2013 rule's
limitations on banking entities' investment in covered funds may be
more significant for covered funds that are typically small in size,
with potentially more negative spillover effects on capital formation
in underlying securities.\349\
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    \345\ See, e.g., ABA; AAF; FSF; SIFMA; JBA.
    \346\ See, e.g., AAF; Credit Suisse; JBA; NVCA; Chamber.
    \347\ See, e.g., SIFMA; JBA; ACG; 10 Regional Banks; BPI; ICI;
IIB; ABA; LTSA; SBIA; SFIG 2017.
    \348\ See comment letters responding to OCC Notice Seeking
Public Input on the Volcker Rule (Aug. 2017), available at https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=OCC-2017-0014. A summary of the comment letters is available at https://occ.gov/topics/capital-markets/financial-markets/trading-volcker-rule/volcker-notice-comment-summary.pdf.
    \349\ The median venture capital fund size in some locations is
approximately $15 million. One fund may have lost as much as $50
million dollars in investment because of the prohibitions of section
13 of the BHC Act and implementing regulations. See NVCA.
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    The proposed amendments could reduce the scope of funds that need
to be analyzed for covered fund status or could simplify this analysis
and enable banking entities to own, sponsor, and have relationships
with the types of entities that the proposed amendments would exclude
from the covered fund definition. Accordingly, the proposed amendments
may reduce costs of banking entity ownership in, sponsorship of, and
transactions with certain funds; may promote greater capital formation
in, and competition among such funds; and may improve access to capital
for issuers of underlying debt or equity that possibly will be
purchased by those funds.
    The proposed amendments may also benefit banking entity dealers
through higher profits or greater demand for derivatives, margin,
payment, clearing, and settlement services. Reducing

restrictions on banking entities by further tailoring the covered fund
definition may encourage more launches of funds that are excluded from
the definition, capital formation and, possibly, competition in those
types of funds. If competition increases the quality of funds available
to investors or reduces the fees they are charged, investors in funds
may benefit. Moreover, to the degree that the proposed amendments may
increase the spectrum of funds available to investors, the proposal may
relax constraints around investor portfolio optimization and increase
the efficiency of capital allocation.
    The sections that follow further discuss these possible overarching
economic costs, benefits, and effects of competition, efficiency, and
capital formation with respect to specific types of funds and proposed
amendments.
Foreign Excluded Funds
    Under the baseline, foreign excluded funds are excluded from the
covered fund definition, but could be considered banking entities if a
foreign banking entity controls the foreign fund in certain
circumstances. As discussed above, the federal banking agencies
released a policy statement on July 17, 2019, which provides that the
federal banking agencies would not propose to take action during the
two-year period ending on July 21, 2021 (i) against a foreign banking
entity based on attribution of the activities and investments of a
qualifying foreign excluded fund to the foreign banking entity \350\ or
(ii) against a qualifying foreign excluded fund as a banking entity, in
each case where the foreign banking entity's acquisition or retention
of any ownership interest in, or sponsorship of, the qualifying foreign
excluded fund would meet the requirements for permitted covered fund
activities and investments solely outside the United States, as
provided in section 13(d)(1)(I) of the BHC Act and Sec.  _.13(b) of the
2013 rule, as if the qualifying foreign excluded fund were a covered
fund.\351\ The proposed amendment would provide a permanent exemption
from the proprietary trading and covered fund prohibitions for certain
foreign excluded funds that is substantively similar to the temporary
no-action relief currently provided to qualifying foreign excluded
funds.\352\