would, if held by a banking entity, significantly increase the
likelihood that the banking entity would incur a substantial financial
loss or would pose a threat to the financial stability of the United
States.
    (2) High-risk trading strategy means a trading strategy that would,
if engaged in by a banking entity, significantly increase the
likelihood that the banking entity would incur a substantial financial
loss or would pose a threat to the financial stability of the United
States.

Sec.  351.16   Ownership of Interests in and Sponsorship of Issuers of
Certain Collateralized Debt Obligations Backed by Trust-Preferred
Securities.

    (a) The prohibition contained in Sec.  351.10(a)(1) does not apply
to the ownership by a banking entity of an interest in, or sponsorship
of, any issuer if:
    (1) The issuer was established, and the interest was issued, before
May 19, 2010;
    (2) The banking entity reasonably believes that the offering
proceeds received by the issuer were invested primarily in Qualifying
TruPS Collateral; and
    (3) The banking entity acquired such interest on or before December
10, 2013 (or acquired such interest in connection with a merger with or
acquisition of a banking entity that acquired the interest on or before
December 10, 2013).
    (b) For purposes of this Sec.  351.16, Qualifying TruPS Collateral
shall mean any trust preferred security or subordinated debt instrument
issued prior to May 19, 2010 by a depository institution holding
company that, as of the end of any reporting period within 12 months
immediately preceding the issuance of such trust preferred security or
subordinated debt instrument, had total consolidated assets of less
than $15,000,000,000 or issued prior to May 19, 2010 by a mutual
holding company.
    (c) Notwithstanding paragraph (a)(3) of this section, a banking
entity may act as a market maker with respect to the interests of an
issuer described in paragraph (a) of this section in accordance with
the applicable provisions of Sec. Sec.  351.4 and 351.11.
    (d) Without limiting the applicability of paragraph (a) of this
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a).
A banking entity may rely on the list published by the Board, the FDIC
and the OCC.

Sec. Sec.  351.17-351.19   [Reserved]

Subpart D--Compliance Program Requirement; Violations

Sec.  351.20   Program for compliance; reporting.

    (a) Program requirement. Each banking entity shall develop and
provide for the continued administration of a compliance program
reasonably designed to ensure and monitor compliance with the
prohibitions and restrictions on proprietary trading and covered fund
activities and investments set forth in section 13 of the BHC Act and
this part. The terms, scope and detail of the

compliance program shall be appropriate for the types, size, scope and
complexity of activities and business structure of the banking entity.
    (b) Contents of compliance program. Except as provided in paragraph
(f) of this section, the compliance program required by paragraph (a)
of this section, at a minimum, shall include:
    (1) Written policies and procedures reasonably designed to
document, describe, monitor and limit trading activities subject to
subpart B (including those permitted under Sec. Sec.  351.3 to 351.6 of
subpart B), including setting, monitoring and managing required limits
set out in Sec.  351.4 and Sec.  351.5, and activities and investments
with respect to a covered fund subject to subpart C (including those
permitted under Sec. Sec.  351.11 through 351.14 of subpart C)
conducted by the banking entity to ensure that all activities and
investments conducted by the banking entity that are subject to section
13 of the BHC Act and this part comply with section 13 of the BHC Act
and this part;
    (2) A system of internal controls reasonably designed to monitor
compliance with section 13 of the BHC Act and this part and to prevent
the occurrence of activities or investments that are prohibited by
section 13 of the BHC Act and this part;
    (3) A management framework that clearly delineates responsibility
and accountability for compliance with section 13 of the BHC Act and
this part and includes appropriate management review of trading limits,
strategies, hedging activities, investments, incentive compensation and
other matters identified in this part or by management as requiring
attention;
    (4) Independent testing and audit of the effectiveness of the
compliance program conducted periodically by qualified personnel of the
banking entity or by a qualified outside party;
    (5) Training for trading personnel and managers, as well as other
appropriate personnel, to effectively implement and enforce the
compliance program; and
    (6) Records sufficient to demonstrate compliance with section 13 of
the BHC Act and this part, which a banking entity must promptly provide
to the FDIC upon request and retain for a period of no less than 5
years or such longer period as required by the FDIC.
    (c) Additional standards. In addition to the requirements in
paragraph (b) of this section, the compliance program of a banking
entity must satisfy the requirements and other standards contained in
Appendix B, if:
    (1) The banking entity engages in proprietary trading permitted
under subpart B and is required to comply with the reporting
requirements of paragraph (d) of this section;
    (2) The banking entity has reported total consolidated assets as of
the previous calendar year end of $50 billion or more or, in the case
of a foreign banking entity, has total U.S. assets as of the previous
calendar year end of $50 billion or more (including all subsidiaries,
affiliates, branches and agencies of the foreign banking entity
operating, located or organized in the United States); or
    (3) The FDIC notifies the banking entity in writing that it must
satisfy the requirements and other standards contained in Appendix B to
this part.
    (d) Reporting requirements under Appendix A to this part. (1) A
banking entity engaged in proprietary trading activity permitted under
subpart B shall comply with the reporting requirements described in
Appendix A, if:
    (i) The banking entity (other than a foreign banking entity as
provided in paragraph (d)(1)(ii) of this section) has, together with
its affiliates and subsidiaries, trading assets and liabilities
(excluding trading assets and liabilities involving obligations of or
guaranteed by the United States or any agency of the United States) the
average gross sum of which (on a worldwide consolidated basis) over the
previous consecutive four quarters, as measured as of the last day of
each of the four prior calendar quarters, equals or exceeds the
threshold established in paragraph (d)(2) of this section;
    (ii) In the case of a foreign banking entity, the average gross sum
of the trading assets and liabilities of the combined U.S. operations
of the foreign banking entity (including all subsidiaries, affiliates,
branches and agencies of the foreign banking entity operating, located
or organized in the United States and excluding trading assets and
liabilities involving obligations of or guaranteed by the United States
or any agency of the United States) over the previous consecutive four
quarters, as measured as of the last day of each of the four prior
calendar quarters, equals or exceeds the threshold established in
paragraph (d)(2) of this section; or
    (iii) The FDIC notifies the banking entity in writing that it must
satisfy the reporting requirements contained in Appendix A.
    (2) The threshold for reporting under paragraph (d)(1) of this
section shall be $50 billion beginning on June 30, 2014; $25 billion
beginning on April 30, 2016; and $10 billion beginning on December 31,
2016.
    (3) Frequency of reporting: Unless the FDIC notifies the banking
entity in writing that it must report on a different basis, a banking
entity with $50 billion or more in trading assets and liabilities (as
calculated in accordance with paragraph (d)(1) of this section) shall
report the information required by Appendix A for each calendar month
within 30 days of the end of the relevant calendar month; beginning
with information for the month of January 2015, such information shall
be reported within 10 days of the end of each calendar month. Any other
banking entity subject to Appendix A shall report the information
required by Appendix A for each calendar quarter within 30 days of the
end of that calendar quarter unless the FDIC notifies the banking
entity in writing that it must report on a different basis.
    (e) Additional documentation for covered funds. Any banking entity
that has more than $10 billion in total consolidated assets as reported
on December 31 of the previous two calendar years shall maintain
records that include:
    (1) Documentation of the exclusions or exemptions other than
sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940
relied on by each fund sponsored by the banking entity (including all
subsidiaries and affiliates) in determining that such fund is not a
covered fund;
    (2) For each fund sponsored by the banking entity (including all
subsidiaries and affiliates) for which the banking entity relies on one
or more of the exclusions from the definition of covered fund provided
by Sec. Sec.  351.10(c)(1), 351.10(c)(5), 351.10(c)(8), 351.10(c)(9),
or 351.10(c)(10) of subpart C, documentation supporting the banking
entity's determination that the fund is not a covered fund pursuant to
one or more of those exclusions;
    (3) For each seeding vehicle described in Sec.  351.10(c)(12)(i) or
(iii) of subpart C that will become a registered investment company or
SEC-regulated business development company, a written plan documenting
the banking entity's determination that the seeding vehicle will become
a registered investment company or SEC-regulated business development
company; the period of time during which the vehicle will operate as a
seeding vehicle; and the banking entity's plan to market the vehicle to
third-party investors and convert it into a registered investment
company or SEC-regulated business development company within the time
period specified in Sec.  351.12(a)(2)(i)(B) of subpart C;
    (4) For any banking entity that is, or is controlled directly or
indirectly by a

banking entity that is, located in or organized under the laws of the
United States or of any State, if the aggregate amount of ownership
interests in foreign public funds that are described in Sec.
351.10(c)(1) of subpart C owned by such banking entity (including
ownership interests owned by any affiliate that is controlled directly
or indirectly by a banking entity that is located in or organized under
the laws of the United States or of any State) exceeds $50 million at
the end of two or more consecutive calendar quarters, beginning with
the next succeeding calendar quarter, documentation of the value of the
ownership interests owned by the banking entity (and such affiliates)
in each foreign public fund and each jurisdiction in which any such
foreign public fund is organized, calculated as of the end of each
calendar quarter, which documentation must continue until the banking
entity's aggregate amount of ownership interests in foreign public
funds is below $50 million for two consecutive calendar quarters; and
    (5) For purposes of paragraph (e)(4) of this section, a U.S.
branch, agency, or subsidiary of a foreign banking entity is located in
the United States; however, the foreign bank that operates or controls
that branch, agency, or subsidiary is not considered to be located in
the United States solely by virtue of operating or controlling the U.S.
branch, agency, or subsidiary.
    (f) Simplified programs for less active banking entities--(1)
Banking entities with no covered activities. A banking entity that does
not engage in activities or investments pursuant to subpart B or
subpart C (other than trading activities permitted pursuant to Sec.
351.6(a) of subpart B) may satisfy the requirements of this section by
establishing the required compliance program prior to becoming engaged
in such activities or making such investments (other than trading
activities permitted pursuant to Sec.  351.6(a) of subpart B).
    (2) Banking entities with modest activities. A banking entity with
total consolidated assets of $10 billion or less as reported on
December 31 of the previous two calendar years that engages in
activities or investments pursuant to subpart B or subpart C (other
than trading activities permitted under Sec.  351.6(a) of subpart B)
may satisfy the requirements of this section by including in its
existing compliance policies and procedures appropriate references to
the requirements of section 13 of the BHC Act and this part and
adjustments as appropriate given the activities, size, scope and
complexity of the banking entity.

Sec.  351.21  Termination of activities or investments; penalties for
violations.

    (a) Any banking entity that engages in an activity or makes an
investment in violation of section 13 of the BHC Act or this part, or
acts in a manner that functions as an evasion of the requirements of
section 13 of the BHC Act or this part, including through an abuse of
any activity or investment permitted under subparts B or C, or
otherwise violates the restrictions and requirements of section 13 of
the BHC Act or this part, shall, upon discovery, promptly terminate the
activity and, as relevant, dispose of the investment.
    (b) Whenever the FDIC finds reasonable cause to believe any banking
entity has engaged in an activity or made an investment in violation of
section 13 of the BHC Act or this part, or engaged in any activity or
made any investment that functions as an evasion of the requirements of
section 13 of the BHC Act or this part, the FDIC may take any action
permitted by law to enforce compliance with section 13 of the BHC Act
and this part, including directing the banking entity to restrict,
limit, or terminate any or all activities under this part and dispose
of any investment.

Appendix A to Part 351--Reporting and Recordkeeping Requirements for
Covered Trading Activities

I. Purpose

    a. This appendix sets forth reporting and recordkeeping
requirements that certain banking entities must satisfy in
connection with the restrictions on proprietary trading set forth in
subpart B (``proprietary trading restrictions''). Pursuant to Sec.
351.20(d), this appendix generally applies to a banking entity that,
together with its affiliates and subsidiaries, has significant
trading assets and liabilities. These entities are required to (i)
furnish periodic reports to the FDIC regarding a variety of
quantitative measurements of their covered trading activities, which
vary depending on the scope and size of covered trading activities,
and (ii) create and maintain records documenting the preparation and
content of these reports. The requirements of this appendix must be
incorporated into the banking entity's internal compliance program
under Sec.  351.20 and Appendix B.
    b. The purpose of this appendix is to assist banking entities
and the FDIC in:
    (i) Better understanding and evaluating the scope, type, and
profile of the banking entity's covered trading activities;
    (ii) Monitoring the banking entity's covered trading activities;
    (iii) Identifying covered trading activities that warrant
further review or examination by the banking entity to verify
compliance with the proprietary trading restrictions;
    (iv) Evaluating whether the covered trading activities of
trading desks engaged in market making-related activities subject to
Sec.  351.4(b) are consistent with the requirements governing
permitted market making-related activities;
    (v) Evaluating whether the covered trading activities of trading
desks that are engaged in permitted trading activity subject to
Sec. Sec.  351.4, 351.5, or 351.6(a)-(b) (i.e., underwriting and
market making-related related activity, risk-mitigating hedging, or
trading in certain government obligations) are consistent with the
requirement that such activity not result, directly or indirectly,
in a material exposure to high-risk assets or high-risk trading
strategies;
    (vi) Identifying the profile of particular covered trading
activities of the banking entity, and the individual trading desks
of the banking entity, to help establish the appropriate frequency
and scope of examination by the FDIC of such activities; and
    (vii) Assessing and addressing the risks associated with the
banking entity's covered trading activities.
    c. The quantitative measurements that must be furnished pursuant
to this appendix are not intended to serve as a dispositive tool for
the identification of permissible or impermissible activities.
    d. In order to allow banking entities and the Agencies to
evaluate the effectiveness of these metrics, banking entities must
collect and report these metrics for all trading desks beginning on
the dates established in Sec.  351.20 of the final rule. The
Agencies will review the data collected and revise this collection
requirement as appropriate based on a review of the data collected
prior to September 30, 2015.
    e. In addition to the quantitative measurements required in this
appendix, a banking entity may need to develop and implement other
quantitative measurements in order to effectively monitor its
covered trading activities for compliance with section 13 of the BHC
Act and this part and to have an effective compliance program, as
required by Sec.  351.20 and Appendix B to this part. The
effectiveness of particular quantitative measurements may differ
based on the profile of the banking entity's businesses in general
and, more specifically, of the particular trading desk, including
types of instruments traded, trading activities and strategies, and
history and experience (e.g., whether the trading desk is an
established, successful market maker or a new entrant to a
competitive market). In all cases, banking entities must ensure that
they have robust measures in place to identify and monitor the risks
taken in their trading activities, to ensure that the activities are
within risk tolerances established by the banking entity, and to
monitor and examine for compliance with the proprietary trading
restrictions in this part.
    f. On an ongoing basis, banking entities must carefully monitor,
review, and evaluate all furnished quantitative measurements, as
well as any others that they choose to utilize in order to maintain
compliance with section 13 of the BHC Act and this part. All
measurement results that indicate a heightened risk of impermissible
proprietary trading, including with respect to otherwise-permitted
activities under Sec. Sec.  351.4 through 351.6(a) and (b), or that
result in a material

exposure to high-risk assets or high-risk trading strategies, must
be escalated within the banking entity for review, further analysis,
explanation to the FDIC, and remediation, where appropriate. The
quantitative measurements discussed in this appendix should be
helpful to banking entities in identifying and managing the risks
related to their covered trading activities.

II. Definitions

    The terms used in this appendix have the same meanings as set
forth in Sec. Sec.  351.2 and 351.3. In addition, for purposes of
this appendix, the following definitions apply:
    Calculation period means the period of time for which a
particular quantitative measurement must be calculated.
    Comprehensive profit and loss means the net profit or loss of a
trading desk's material sources of trading revenue over a specific
period of time, including, for example, any increase or decrease in
the market value of a trading desk's holdings, dividend income, and
interest income and expense.
    Covered trading activity means trading conducted by a trading
desk under Sec. Sec.  351.4, 351.5, 351.6(a), or 351.6(b). A banking
entity may include trading under Sec. Sec.  351.3(d), 351.6(c),
351.6(d) or 351.6(e).
    Measurement frequency means the frequency with which a
particular quantitative metric must be calculated and recorded.
    Trading desk means the smallest discrete unit of organization of
a banking entity that purchases or sells financial instruments for
the trading account of the banking entity or an affiliate thereof.

III. Reporting and Recordkeeping of Quantitative Measurements

a. Scope of Required Reporting

    General scope. Each banking entity made subject to this part by
Sec.  351.20 must furnish the following quantitative measurements
for each trading desk of the banking entity, calculated in
accordance with this appendix:
     Risk and Position Limits and Usage;
     Risk Factor Sensitivities;
     Value-at-Risk and Stress VaR;
     Comprehensive Profit and Loss Attribution;
     Inventory Turnover;
     Inventory Aging; and
     Customer-Facing Trade Ratio

b. Frequency of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative
measurement for each trading day. A banking entity must report each
applicable quantitative measurement to the FDIC on the reporting
schedule established in Sec.  351.20 unless otherwise requested by
the FDIC. All quantitative measurements for any calendar month must
be reported within the time period required by Sec.  351.20.

c. Recordkeeping

    A banking entity must, for any quantitative measurement
furnished to the FDIC pursuant to this appendix and Sec.  351.20(d),
create and maintain records documenting the preparation and content
of these reports, as well as such information as is necessary to
permit the FDIC to verify the accuracy of such reports, for a period
of 5 years from the end of the calendar year for which the
measurement was taken.

IV. Quantitative Measurements

a. Risk-Management Measurements

1. Risk and Position Limits and Usage

    i. Description: For purposes of this appendix, Risk and Position
Limits are the constraints that define the amount of risk that a
trading desk is permitted to take at a point in time, as defined by
the banking entity for a specific trading desk. Usage represents the
portion of the trading desk's limits that are accounted for by the
current activity of the desk. Risk and position limits and their
usage are key risk management tools used to control and monitor risk
taking and include, but are not limited, to the limits set out in
Sec.  351.4 and Sec.  351.5. A number of the metrics that are
described below, including ``Risk Factor Sensitivities'' and
``Value-at-Risk and Stress Value-at-Risk,'' relate to a trading
desk's risk and position limits and are useful in evaluating and
setting these limits in the broader context of the trading desk's
overall activities, particularly for the market making activities
under Sec.  351.4(b) and hedging activity under Sec.  351.5.
Accordingly, the limits required under Sec.  351.4(b)(2)(iii) and
Sec.  351.5(b)(1)(i) must meet the applicable requirements under
Sec.  351.4(b)(2)(iii) and Sec.  351.5(b)(1)(i) and also must
include appropriate metrics for the trading desk limits including,
at a minimum, the ``Risk Factor Sensitivities'' and ``Value-at-Risk
and Stress Value-at-Risk'' metrics except to the extent any of the
``Risk Factor Sensitivities'' or ``Value-at-Risk and Stress Value-
at-Risk'' metrics are demonstrably ineffective for measuring and
monitoring the risks of a trading desk based on the types of
positions traded by, and risk exposures of, that desk.
    ii. General Calculation Guidance: Risk and Position Limits must
be reported in the format used by the banking entity for the
purposes of risk management of each trading desk. Risk and Position
Limits are often expressed in terms of risk measures, such as VaR
and Risk Factor Sensitivities, but may also be expressed in terms of
other observable criteria, such as net open positions. When criteria
other than VaR or Risk Factor Sensitivities are used to define the
Risk and Position Limits, both the value of the Risk and Position
Limits and the value of the variables used to assess whether these
limits have been reached must be reported.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

2. Risk Factor Sensitivities

    i. Description: For purposes of this appendix, Risk Factor
Sensitivities are changes in a trading desk's Comprehensive Profit
and Loss that are expected to occur in the event of a change in one
or more underlying variables that are significant sources of the
trading desk's profitability and risk.
    ii. General Calculation Guidance: A banking entity must report
the Risk Factor Sensitivities that are monitored and managed as part
of the trading desk's overall risk management policy. The underlying
data and methods used to compute a trading desk's Risk Factor
Sensitivities will depend on the specific function of the trading
desk and the internal risk management models employed. The number
and type of Risk Factor Sensitivities that are monitored and managed
by a trading desk, and furnished to the FDIC, will depend on the
explicit risks assumed by the trading desk. In general, however,
reported Risk Factor Sensitivities must be sufficiently granular to
account for a preponderance of the expected price variation in the
trading desk's holdings.
    A. Trading desks must take into account any relevant factors in
calculating Risk Factor Sensitivities, including, for example, the
following with respect to particular asset classes:
     Commodity derivative positions: Risk factors with
respect to the related commodities set out in 17 CFR 20.2, the
maturity of the positions, volatility and/or correlation
sensitivities (expressed in a manner that demonstrates any
significant non-linearities), and the maturity profile of the
positions;
     Credit positions: Risk factors with respect to credit
spreads that are sufficiently granular to account for specific
credit sectors and market segments, the maturity profile of the
positions, and risk factors with respect to interest rates of all
relevant maturities;
     Credit-related derivative positions: Risk factor
sensitivities, for example credit spreads, shifts (parallel and non-
parallel) in credit spreads--volatility, and/or correlation
sensitivities (expressed in a manner that demonstrates any
significant non-linearities), and the maturity profile of the
positions;
     Equity derivative positions: Risk factor sensitivities
such as equity positions, volatility, and/or correlation
sensitivities (expressed in a manner that demonstrates any
significant non-linearities), and the maturity profile of the
positions;
     Equity positions: Risk factors for equity prices and
risk factors that differentiate between important equity market
sectors and segments, such as a small capitalization equities and
international equities;
     Foreign exchange derivative positions: Risk factors
with respect to major currency pairs and maturities, exposure to
interest rates at relevant maturities, volatility, and/or
correlation sensitivities (expressed in a manner that demonstrates
any significant non-linearities), as well as the maturity profile of
the positions; and
     Interest rate positions, including interest rate
derivative positions: Risk factors with respect to major interest
rate categories and maturities and volatility and/or correlation
sensitivities (expressed in a manner that demonstrates any
significant non-linearities), and shifts (parallel and non-parallel)
in the interest rate curve, as well as the maturity profile of the
positions.
    B. The methods used by a banking entity to calculate
sensitivities to a common factor shared by multiple trading desks,
such as an equity price factor, must be applied consistently across
its trading desks so that the sensitivities can be compared from one
trading desk to another.
    iii. Calculation Period: One trading day.

    iv. Measurement Frequency: Daily.

3. Value-at-Risk and Stress Value-at-Risk

    i. Description: For purposes of this appendix, Value-at-Risk
(``VaR'') is the commonly used percentile measurement of the risk of
future financial loss in the value of a given set of aggregated
positions over a specified period of time, based on current market
conditions. For purposes of this appendix, Stress Value-at-Risk
(``Stress VaR'') is the percentile measurement of the risk of future
financial loss in the value of a given set of aggregated positions
over a specified period of time, based on market conditions during a
period of significant financial stress.
    ii. General Calculation Guidance: Banking entities must compute
and report VaR and Stress VaR by employing generally accepted
standards and methods of calculation. VaR should reflect a loss in a
trading desk that is expected to be exceeded less than one percent
of the time over a one-day period. For those banking entities that
are subject to regulatory capital requirements imposed by a Federal
banking agency, VaR and Stress VaR must be computed and reported in
a manner that is consistent with such regulatory capital
requirements. In cases where a trading desk does not have a
standalone VaR or Stress VaR calculation but is part of a larger
aggregation of positions for which a VaR or Stress VaR calculation
is performed, a VaR or Stress VaR calculation that includes only the
trading desk's holdings must be performed consistent with the VaR or
Stress VaR model and methodology used for the larger aggregation of
positions.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

b. Source-of-Revenue Measurements

1. Comprehensive Profit and Loss Attribution

    i. Description: For purposes of this appendix, Comprehensive
Profit and Loss Attribution is an analysis that attributes the daily
fluctuation in the value of a trading desk's positions to various
sources. First, the daily profit and loss of the aggregated
positions is divided into three categories: (i) Profit and loss
attributable to a trading desk's existing positions that were also
positions held by the trading desk as of the end of the prior day
(``existing positions''); (ii) profit and loss attributable to new
positions resulting from the current day's trading activity (``new
positions''); and (iii) residual profit and loss that cannot be
specifically attributed to existing positions or new positions. The
sum of (i), (ii), and (iii) must equal the trading desk's
comprehensive profit and loss at each point in time. In addition,
profit and loss measurements must calculate volatility of
comprehensive profit and loss (i.e., the standard deviation of the
trading desk's one-day profit and loss, in dollar terms) for the
reporting period for at least a 30-, 60- and 90-day lag period, from
the end of the reporting period, and any other period that the
banking entity deems necessary to meet the requirements of the rule.
    A. The comprehensive profit and loss associated with existing
positions must reflect changes in the value of these positions on
the applicable day. The comprehensive profit and loss from existing
positions must be further attributed, as applicable, to changes in
(i) the specific Risk Factors and other factors that are monitored
and managed as part of the trading desk's overall risk management
policies and procedures; and (ii) any other applicable elements,
such as cash flows, carry, changes in reserves, and the correction,
cancellation, or exercise of a trade.
    B. The comprehensive profit and loss attributed to new positions
must reflect commissions and fee income or expense and market gains
or losses associated with transactions executed on the applicable
day. New positions include purchases and sales of financial
instruments and other assets/liabilities and negotiated amendments
to existing positions. The comprehensive profit and loss from new
positions may be reported in the aggregate and does not need to be
further attributed to specific sources.
    C. The portion of comprehensive profit and loss that cannot be
specifically attributed to known sources must be allocated to a
residual category identified as an unexplained portion of the
comprehensive profit and loss. Significant unexplained profit and
loss must be escalated for further investigation and analysis.
    ii. General Calculation Guidance: The specific categories used
by a trading desk in the attribution analysis and amount of detail
for the analysis should be tailored to the type and amount of
trading activities undertaken by the trading desk. The new position
attribution must be computed by calculating the difference between
the prices at which instruments were bought and/or sold and the
prices at which those instruments are marked to market at the close
of business on that day multiplied by the notional or principal
amount of each purchase or sale. Any fees, commissions, or other
payments received (paid) that are associated with transactions
executed on that day must be added (subtracted) from such
difference. These factors must be measured consistently over time to
facilitate historical comparisons.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

c. Customer-Facing Activity Measurements

1. Inventory Turnover

    i. Description: For purposes of this appendix, Inventory
Turnover is a ratio that measures the turnover of a trading desk's
inventory. The numerator of the ratio is the absolute value of all
transactions over the reporting period. The denominator of the ratio
is the value of the trading desk's inventory at the beginning of the
reporting period.
    ii. General Calculation Guidance: For purposes of this appendix,
for derivatives, other than options and interest rate derivatives,
value means gross notional value, for options, value means delta
adjusted notional value, and for interest rate derivatives, value
means 10-year bond equivalent value.
    iii. Calculation Period: 30 days, 60 days, and 90 days.
    iv. Measurement Frequency: Daily.

2. Inventory Aging

    i. Description: For purposes of this appendix, Inventory Aging
generally describes a schedule of the trading desk's aggregate
assets and liabilities and the amount of time that those assets and
liabilities have been held. Inventory Aging should measure the age
profile of the trading desk's assets and liabilities.
    ii. General Calculation Guidance: In general, Inventory Aging
must be computed using a trading desk's trading activity data and
must identify the value of a trading desk's aggregate assets and
liabilities. Inventory Aging must include two schedules, an asset-
aging schedule and a liability-aging schedule. Each schedule must
record the value of assets or liabilities held over all holding
periods. For derivatives, other than options, and interest rate
derivatives, value means gross notional value, for options, value
means delta adjusted notional value and, for interest rate
derivatives, value means 10-year bond equivalent value.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

3. Customer-Facing Trade Ratio--Trade Count Based and Value Based

    i. Description: For purposes of this appendix, the Customer-
Facing Trade Ratio is a ratio comparing (i) the transactions
involving a counterparty that is a customer of the trading desk to
(ii) the transactions involving a counterparty that is not a
customer of the trading desk. A trade count based ratio must be
computed that records the number of transactions involving a
counterparty that is a customer of the trading desk and the number
of transactions involving a counterparty that is not a customer of
the trading desk. A value based ratio must be computed that records
the value of transactions involving a counterparty that is a
customer of the trading desk and the value of transactions involving
a counterparty that is not a customer of the trading desk.
    ii. General Calculation Guidance: For purposes of calculating
the Customer-Facing Trade Ratio, a counterparty is considered to be
a customer of the trading desk if the counterparty is a market
participant that makes use of the banking entity's market making-
related services by obtaining such services, responding to
quotations, or entering into a continuing relationship with respect
to such services. However, a trading desk or other organizational
unit of another banking entity would not be a client, customer, or
counterparty of the trading desk if the other entity has trading
assets and liabilities of $50 billion or more as measured in
accordance with Sec.  351.20(d)(1) unless the trading desk documents
how and why a particular trading desk or other organizational unit
of the entity should be treated as a client, customer, or
counterparty of the trading desk. Transactions conducted anonymously
on an exchange or similar trading facility that permits trading on
behalf of a broad range of market participants would be considered
transactions with customers of the trading desk. For derivatives,
other than options, and interest rate derivatives, value means gross
notional value, for options, value means delta adjusted notional
value, and for interest rate derivatives, value means 10-year bond
equivalent value.

    iii. Calculation Period: 30 days, 60 days, and 90 days.
    iv. Measurement Frequency: Daily.

Appendix B to Part 351--Enhanced Minimum Standards for Compliance
Programs

I. Overview

    Section 351.20(c) requires certain banking entities to
establish, maintain, and enforce an enhanced compliance program that
includes the requirements and standards in this Appendix as well as
the minimum written policies and procedures, internal controls,
management framework, independent testing, training, and
recordkeeping provisions outlined in Sec.  351.20. This Appendix
sets forth additional minimum standards with respect to the
establishment, oversight, maintenance, and enforcement by these
banking entities of an enhanced internal compliance program for
ensuring and monitoring compliance with the prohibitions and
restrictions on proprietary trading and covered fund activities and
investments set forth in section 13 of the BHC Act and this part.
    a. This compliance program must:
    1. Be reasonably designed to identify, document, monitor, and
report the permitted trading and covered fund activities and
investments of the banking entity; identify, monitor and promptly
address the risks of these covered activities and investments and
potential areas of noncompliance; and prevent activities or
investments prohibited by, or that do not comply with, section 13 of
the BHC Act and this part;
    2. Establish and enforce appropriate limits on the covered
activities and investments of the banking entity, including limits
on the size, scope, complexity, and risks of the individual
activities or investments consistent with the requirements of
section 13 of the BHC Act and this part;
    3. Subject the effectiveness of the compliance program to
periodic independent review and testing, and ensure that the
entity's internal audit, corporate compliance and internal control
functions involved in review and testing are effective and
independent;
    4. Make senior management, and others as appropriate,
accountable for the effective implementation of the compliance
program, and ensure that the board of directors and chief executive
officer (or equivalent) of the banking entity review the
effectiveness of the compliance program; and
    5. Facilitate supervision and examination by the Agencies of the
banking entity's permitted trading and covered fund activities and
investments.

II. Enhanced Compliance Program

    a. Proprietary Trading Activities. A banking entity must
establish, maintain and enforce a compliance program that includes
written policies and procedures that are appropriate for the types,
size, and complexity of, and risks associated with, its permitted
trading activities. The compliance program may be tailored to the
types of trading activities conducted by the banking entity, and
must include a detailed description of controls established by the
banking entity to reasonably ensure that its trading activities are
conducted in accordance with the requirements and limitations
applicable to those trading activities under section 13 of the BHC
Act and this part, and provide for appropriate revision of the
compliance program before expansion of the trading activities of the
banking entity. A banking entity must devote adequate resources and
use knowledgeable personnel in conducting, supervising and managing
its trading activities, and promote consistency, independence and
rigor in implementing its risk controls and compliance efforts. The
compliance program must be updated with a frequency sufficient to
account for changes in the activities of the banking entity, results
of independent testing of the program, identification of weaknesses
in the program, and changes in legal, regulatory or other
requirements.
    1. Trading Desks: The banking entity must have written policies
and procedures governing each trading desk that include a
description of:
    i. The process for identifying, authorizing and documenting
financial instruments each trading desk may purchase or sell, with
separate documentation for market making-related activities
conducted in reliance on Sec.  351.4(b) and for hedging activity
conducted in reliance on Sec.  351.5;
    ii. A mapping for each trading desk to the division, business
line, or other organizational structure that is responsible for
managing and overseeing the trading desk's activities;
    iii. The mission (i.e., the type of trading activity, such as
market-making, trading in sovereign debt, etc.) and strategy (i.e.,
methods for conducting authorized trading activities) of each
trading desk;
    iv. The activities that the trading desk is authorized to
conduct, including (i) authorized instruments and products, and (ii)
authorized hedging strategies, techniques and instruments;
    v. The types and amount of risks allocated by the banking entity
to each trading desk to implement the mission and strategy of the
trading desk, including an enumeration of material risks resulting
from the activities in which the trading desk is authorized to
engage (including but not limited to price risks, such as basis,
volatility and correlation risks, as well as counterparty credit
risk). Risk assessments must take into account both the risks
inherent in the trading activity and the strength and effectiveness
of controls designed to mitigate those risks;
    vi. How the risks allocated to each trading desk will be
measured;
    vii. Why the allocated risks levels are appropriate to the
activities authorized for the trading desk;
    viii. The limits on the holding period of, and the risk
associated with, financial instruments under the responsibility of
the trading desk;
    ix. The process for setting new or revised limits, as well as
escalation procedures for granting exceptions to any limits or to
any policies or procedures governing the desk, the analysis that
will be required to support revising limits or granting exceptions,
and the process for independently reviewing and documenting those
exceptions and the underlying analysis;
    x. The process for identifying, documenting and approving new
products, trading strategies, and hedging strategies;
    xi. The types of clients, customers, and counterparties with
whom the trading desk may trade; and
    xii. The compensation arrangements, including incentive
arrangements, for employees associated with the trading desk, which
may not be designed to reward or incentivize prohibited proprietary
trading or excessive or imprudent risk-taking.
    2. Description of risks and risk management processes: The
compliance program for the banking entity must include a
comprehensive description of the risk management program for the
trading activity of the banking entity. The compliance program must
also include a description of the governance, approval, reporting,
escalation, review and other processes the banking entity will use
to reasonably ensure that trading activity is conducted in
compliance with section 13 of the BHC Act and this part. Trading
activity in similar financial instruments should be subject to
similar governance, limits, testing, controls, and review, unless
the banking entity specifically determines to establish different
limits or processes and documents those differences. Descriptions
must include, at a minimum, the following elements:
    i. A description of the supervisory and risk management
structure governing all trading activity, including a description of
processes for initial and senior-level review of new products and
new strategies;
    ii. A description of the process for developing, documenting,
testing, approving and reviewing all models used for valuing,
identifying and monitoring the risks of trading activity and related
positions, including the process for periodic independent testing of
the reliability and accuracy of those models;
    iii. A description of the process for developing, documenting,
testing, approving and reviewing the limits established for each
trading desk;
    iv. A description of the process by which a security may be
purchased or sold pursuant to the liquidity management plan,
including the process for authorizing and monitoring such activity
to ensure compliance with the banking entity's liquidity management
plan and the restrictions on liquidity management activities in this
part;
    v. A description of the management review process, including
escalation procedures, for approving any temporary exceptions or
permanent adjustments to limits on the activities, positions,
strategies, or risks associated with each trading desk; and
    vi. The role of the audit, compliance, risk management and other
relevant units for conducting independent testing of trading and
hedging activities, techniques and strategies.
    3. Authorized risks, instruments, and products. The banking
entity must implement and enforce limits and internal controls for
each trading desk that are reasonably designed to ensure that
trading activity is conducted in conformance with

section 13 of the BHC Act and this part and with the banking
entity's written policies and procedures. The banking entity must
establish and enforce risk limits appropriate for the activity of
each trading desk. These limits should be based on probabilistic and
non-probabilistic measures of potential loss (e.g., Value-at-Risk
and notional exposure, respectively), and measured under normal and
stress market conditions. At a minimum, these internal controls must
monitor, establish and enforce limits on:
    i. The financial instruments (including, at a minimum, by type
and exposure) that the trading desk may trade;
    ii. The types and levels of risks that may be taken by each
trading desk; and
    iii. The types of hedging instruments used, hedging strategies
employed, and the amount of risk effectively hedged.
    4. Hedging policies and procedures. The banking entity must
establish, maintain, and enforce written policies and procedures
regarding the use of risk-mitigating hedging instruments and
strategies that, at a minimum, describe:
    i. The positions, techniques and strategies that each trading
desk may use to hedge the risk of its positions;
    ii. The manner in which the banking entity will identify the
risks arising in connection with and related to the individual or
aggregated positions, contracts or other holdings of the banking
entity that are to be hedged and determine that those risks have
been properly and effectively hedged;
    iii. The level of the organization at which hedging activity and
management will occur;
    iv. The manner in which hedging strategies will be monitored and
the personnel responsible for such monitoring;
    v. The risk management processes used to control unhedged or
residual risks; and
    vi. The process for developing, documenting, testing, approving
and reviewing all hedging positions, techniques and strategies
permitted for each trading desk and for the banking entity in
reliance on Sec.  351.5.
    5. Analysis and quantitative measurements. The banking entity
must perform robust analysis and quantitative measurement of its
trading activities that is reasonably designed to ensure that the
trading activity of each trading desk is consistent with the banking
entity's compliance program; monitor and assist in the
identification of potential and actual prohibited proprietary
trading activity; and prevent the occurrence of prohibited
proprietary trading. Analysis and models used to determine, measure
and limit risk must be rigorously tested and be reviewed by
management responsible for trading activity to ensure that trading
activities, limits, strategies, and hedging activities do not
understate the risk and exposure to the banking entity or allow
prohibited proprietary trading. This review should include periodic
and independent back-testing and revision of activities, limits,
strategies and hedging as appropriate to contain risk and ensure
compliance. In addition to the quantitative measurements reported by
any banking entity subject to Appendix A to this part, each banking
entity must develop and implement, to the extent appropriate to
facilitate compliance with this part, additional quantitative
measurements specifically tailored to the particular risks,
practices, and strategies of its trading desks. The banking entity's
analysis and quantitative measurements must incorporate the
quantitative measurements reported by the banking entity pursuant to
Appendix A (if applicable) and include, at a minimum, the following:
    i. Internal controls and written policies and procedures
reasonably designed to ensure the accuracy and integrity of
quantitative measurements;
    ii. Ongoing, timely monitoring and review of calculated
quantitative measurements;
    iii. The establishment of numerical thresholds and appropriate
trading measures for each trading desk and heightened review of
trading activity not consistent with those thresholds to ensure
compliance with section 13 of the BHC Act and this part, including
analysis of the measurement results or other information,
appropriate escalation procedures, and documentation related to the
review; and
    iv. Immediate review and compliance investigation of the trading
desk's activities, escalation to senior management with oversight
responsibilities for the applicable trading desk, timely
notification to the FDIC, appropriate remedial action (e.g.,
divesting of impermissible positions, cessation of impermissible
activity, disciplinary actions), and documentation of the
investigation findings and remedial action taken when quantitative
measurements or other information, considered together with the
facts and circumstances, or findings of internal audit, independent
testing or other review suggest a reasonable likelihood that the
trading desk has violated any part of section 13 of the BHC Act or
this part.
    6. Other Compliance Matters. In addition to the requirements
specified above, the banking entity's compliance program must:
    i. Identify activities of each trading desk that will be
conducted in reliance on exemptions contained in Sec. Sec.  351.4
through 351.6, including an explanation of:
    A. How and where in the organization the activity occurs; and
    B. Which exemption is being relied on and how the activity meets
the specific requirements for reliance on the applicable exemption;
    ii. Include an explanation of the process for documenting,
approving and reviewing actions taken pursuant to the liquidity
management plan, where in the organization this activity occurs, the
securities permissible for liquidity management, the process for
ensuring that liquidity management activities are not conducted for
the purpose of prohibited proprietary trading, and the process for
ensuring that securities purchased as part of the liquidity
management plan are highly liquid and conform to the requirements of
this part;
    iii. Describe how the banking entity monitors for and prohibits
potential or actual material exposure to high-risk assets or high-
risk trading strategies presented by each trading desk that relies
on the exemptions contained in Sec. Sec.  351.3(d)(3), and 351.4
through 351.6, which must take into account potential or actual
exposure to:
    A. Assets whose values cannot be externally priced or, where
valuation is reliant on pricing models, whose model inputs cannot be
externally validated;
    B. Assets whose changes in value cannot be adequately mitigated
by effective hedging;
    C. New products with rapid growth, including those that do not
have a market history;
    D. Assets or strategies that include significant embedded
leverage;
    E. Assets or strategies that have demonstrated significant
historical volatility;
    F. Assets or strategies for which the application of capital and
liquidity standards would not adequately account for the risk; and
    G. Assets or strategies that result in large and significant
concentrations to sectors, risk factors, or counterparties;
    iv. Establish responsibility for compliance with the reporting
and recordkeeping requirements of subpart B and Sec.  351.20; and
    v. Establish policies for monitoring and prohibiting potential
or actual material conflicts of interest between the banking entity
and its clients, customers, or counterparties.
    7. Remediation of violations. The banking entity's compliance
program must be reasonably designed and established to effectively
monitor and identify for further analysis any trading activity that
may indicate potential violations of section 13 of the BHC Act and
this part and to prevent actual violations of section 13 of the BHC
Act and this part. The compliance program must describe procedures
for identifying and remedying violations of section 13 of the BHC
Act and this part, and must include, at a minimum, a requirement to
promptly document, address and remedy any violation of section 13 of
the BHC Act or this part, and document all proposed and actual
remediation efforts. The compliance program must include specific
written policies and procedures that are reasonably designed to
assess the extent to which any activity indicates that modification
to the banking entity's compliance program is warranted and to
ensure that appropriate modifications are implemented. The written
policies and procedures must provide for prompt notification to
appropriate management, including senior management and the board of
directors, of any material weakness or significant deficiencies in
the design or implementation of the compliance program of the
banking entity.
    b. Covered Fund Activities or Investments. A banking entity must
establish, maintain and enforce a compliance program that includes
written policies and procedures that are appropriate for the types,
size, complexity and risks of the covered fund and related
activities conducted and investments made, by the banking entity.
    1. Identification of covered funds. The banking entity's
compliance program must provide a process, which must include
appropriate management review and independent testing, for
identifying and documenting covered funds that each unit within the
banking entity's organization

sponsors or organizes and offers, and covered funds in which each
such unit invests. In addition to the documentation requirements for
covered funds, as specified under Sec.  351.20(e), the documentation
must include information that identifies all pools that the banking
entity sponsors or has an interest in and the type of exemption from
the Commodity Exchange Act (whether or not the pool relies on
section 4.7 of the regulations under the Commodity Exchange Act),
and the amount of ownership interest the banking entity has in those
pools.
    2. Identification of covered fund activities and investments.
The banking entity's compliance program must identify, document and
map each unit within the organization that is permitted to acquire
or hold an interest in any covered fund or sponsor any covered fund
and map each unit to the division, business line, or other
organizational structure that will be responsible for managing and
overseeing that unit's activities and investments.
    3. Explanation of compliance. The banking entity's compliance
program must explain how:
    i. The banking entity monitors for and prohibits potential or
actual material conflicts of interest between the banking entity and
its clients, customers, or counterparties related to its covered
fund activities and investments;
    ii. The banking entity monitors for and prohibits potential or
actual transactions or activities that may threaten the safety and
soundness of the banking entity related to its covered fund
activities and investments; and
    iii. The banking entity monitors for and prohibits potential or
actual material exposure to high-risk assets or high-risk trading
strategies presented by its covered fund activities and investments,
taking into account potential or actual exposure to:
    A. Assets whose values cannot be externally priced or, where
valuation is reliant on pricing models, whose model inputs cannot be
externally validated;
    B. Assets whose changes in values cannot be adequately mitigated
by effective hedging;
    C. New products with rapid growth, including those that do not
have a market history;
    D. Assets or strategies that include significant embedded
leverage;
    E. Assets or strategies that have demonstrated significant
historical volatility;
    F. Assets or strategies for which the application of capital and
liquidity standards would not adequately account for the risk; and
    G. Assets or strategies that expose the banking entity to large
and significant concentrations with respect to sectors, risk
factors, or counterparties;
    4. Description and documentation of covered fund activities and
investments. For each organizational unit engaged in covered fund
activities and investments, the banking entity's compliance program
must document:
    i. The covered fund activities and investments that the unit is
authorized to conduct;
    ii. The banking entity's plan for actively seeking unaffiliated
investors to ensure that any investment by the banking entity
conforms to the limits contained in Sec.  351.12 or registered in
compliance with the securities laws and thereby exempt from those
limits within the time periods allotted in Sec.  351.12; and
    iii. How it complies with the requirements of subpart C.
    5. Internal Controls. A banking entity must establish, maintain,
and enforce internal controls that are reasonably designed to ensure
that its covered fund activities or investments comply with the
requirements of section 13 of the BHC Act and this part and are
appropriate given the limits on risk established by the banking
entity. These written internal controls must be reasonably designed
and established to effectively monitor and identify for further
analysis any covered fund activity or investment that may indicate
potential violations of section 13 of the BHC Act or this part. The
internal controls must, at a minimum require:
    i. Monitoring and limiting the banking entity's individual and
aggregate investments in covered funds;
    ii. Monitoring the amount and timing of seed capital investments
for compliance with the limitations under subpart C (including but
not limited to the redemption, sale or disposition requirements) of
Sec.  351.12, and the effectiveness of efforts to seek unaffiliated
investors to ensure compliance with those limits;
    iii. Calculating the individual and aggregate levels of
ownership interests in one or more covered fund required by Sec.
351.12;
    iv. Attributing the appropriate instruments to the individual
and aggregate ownership interest calculations above;
    v. Making disclosures to prospective and actual investors in any
covered fund organized and offered or sponsored by the banking
entity, as provided under Sec.  351.11(a)(8);
    vi. Monitoring for and preventing any relationship or
transaction between the banking entity and a covered fund that is
prohibited under Sec.  351.14, including where the banking entity
has been designated as the sponsor, investment manager, investment
adviser, or commodity trading advisor to a covered fund by another
banking entity; and
    vii. Appropriate management review and supervision across legal
entities of the banking entity to ensure that services and products
provided by all affiliated entities comply with the limitation on
services and products contained in Sec.  351.14.
    6. Remediation of violations. The banking entity's compliance
program must be reasonably designed and established to effectively
monitor and identify for further analysis any covered fund activity
or investment that may indicate potential violations of section 13
of the BHC Act or this part and to prevent actual violations of
section 13 of the BHC Act and this part. The banking entity's
compliance program must describe procedures for identifying and
remedying violations of section 13 of the BHC Act and this part, and
must include, at a minimum, a requirement to promptly document,
address and remedy any violation of section 13 of the BHC Act or
this part, including Sec.  351.21, and document all proposed and
actual remediation efforts. The compliance program must include
specific written policies and procedures that are reasonably
designed to assess the extent to which any activity or investment
indicates that modification to the banking entity's compliance
program is warranted and to ensure that appropriate modifications
are implemented. The written policies and procedures must provide
for prompt notification to appropriate management, including senior
management and the board of directors, of any material weakness or
significant deficiencies in the design or implementation of the
compliance program of the banking entity.

III. Responsibility and Accountability for the Compliance Program

    a. A banking entity must establish, maintain, and enforce a
governance and management framework to manage its business and
employees with a view to preventing violations of section 13 of the
BHC Act and this part. A banking entity must have an appropriate
management framework reasonably designed to ensure that: Appropriate
personnel are responsible and accountable for the effective
implementation and enforcement of the compliance program; a clear
reporting line with a chain of responsibility is delineated; and the
compliance program is reviewed periodically by senior management.
The board of directors (or equivalent governance body) and senior
management should have the appropriate authority and access to
personnel and information within the organizations as well as
appropriate resources to conduct their oversight activities
effectively.
    1. Corporate governance. The banking entity must adopt a written
compliance program approved by the board of directors, an
appropriate committee of the board, or equivalent governance body,
and senior management.
    2. Management procedures. The banking entity must establish,
maintain, and enforce a governance framework that is reasonably
designed to achieve compliance with section 13 of the BHC Act and
this part, which, at a minimum, provides for:
    i. The designation of appropriate senior management or committee
of senior management with authority to carry out the management
responsibilities of the banking entity for each trading desk and for
each organizational unit engaged in covered fund activities;
    ii. Written procedures addressing the management of the
activities of the banking entity that are reasonably designed to
achieve compliance with section 13 of the BHC Act and this part,
including:
    A. A description of the management system, including the titles,
qualifications, and locations of managers and the specific
responsibilities of each person with respect to the banking entity's
activities governed by section 13 of the BHC Act and this part; and
    B. Procedures for determining compensation arrangements for
traders engaged in underwriting or market making-related activities
under Sec.  351.4 or risk-mitigating hedging activities under Sec.
351.5 so that such compensation arrangements are designed not to
reward or incentivize

prohibited proprietary trading and appropriately balance risk and
financial results in a manner that does not encourage employees to
expose the banking entity to excessive or imprudent risk.
    3. Business line managers. Managers with responsibility for one
or more trading desks of the banking entity are accountable for the
effective implementation and enforcement of the compliance program
with respect to the applicable trading desk(s).
    4. Board of directors, or similar corporate body, and senior
management. The board of directors, or similar corporate body, and
senior management are responsible for setting and communicating an
appropriate culture of compliance with section 13 of the BHC Act and
this part and ensuring that appropriate policies regarding the
management of trading activities and covered fund activities or
investments are adopted to comply with section 13 of the BHC Act and
this part. The board of directors or similar corporate body (such as
a designated committee of the board or an equivalent governance
body) must ensure that senior management is fully capable,
qualified, and properly motivated to manage compliance with this
part in light of the organization's business activities and the
expectations of the board of directors. The board of directors or
similar corporate body must also ensure that senior management has
established appropriate incentives and adequate resources to support
compliance with this part, including the implementation of a
compliance program meeting the requirements of this appendix into
management goals and compensation structures across the banking
entity.
    5. Senior management. Senior management is responsible for
implementing and enforcing the approved compliance program. Senior
management must also ensure that effective corrective action is
taken when failures in compliance with section 13 of the BHC Act and
this part are identified. Senior management and control personnel
charged with overseeing compliance with section 13 of the BHC Act
and this part should review the compliance program for the banking
entity periodically and report to the board, or an appropriate
committee thereof, on the effectiveness of the compliance program
and compliance matters with a frequency appropriate to the size,
scope, and risk profile of the banking entity's trading activities
and covered fund activities or investments, which shall be at least
annually.
    6. CEO attestation. Based on a review by the CEO of the banking
entity, the CEO of the banking entity must, annually, attest in
writing to the FDIC that the banking entity has in place processes
to establish, maintain, enforce, review, test and modify the
compliance program established under this Appendix and Sec.  351.20
of this part in a manner reasonably designed to achieve compliance
with section 13 of the BHC Act and this part. In the case of a U.S.
branch or agency of a foreign banking entity, the attestation may be
provided for the entire U.S. operations of the foreign banking
entity by the senior management officer of the United States
operations of the foreign banking entity who is located in the
United States.

IV. Independent Testing

    a. Independent testing must occur with a frequency appropriate
to the size, scope, and risk profile of the banking entity's trading
and covered fund activities or investments, which shall be at least
annually. This independent testing must include an evaluation of:
    1. The overall adequacy and effectiveness of the banking
entity's compliance program, including an analysis of the extent to
which the program contains all the required elements of this
appendix;
    2. The effectiveness of the banking entity's internal controls,
including an analysis and documentation of instances in which such
internal controls have been breached, and how such breaches were
addressed and resolved; and
    3. The effectiveness of the banking entity's management
procedures.
    b. A banking entity must ensure that independent testing
regarding the effectiveness of the banking entity's compliance
program is conducted by a qualified independent party, such as the
banking entity's internal audit department, compliance personnel or
risk managers independent of the organizational unit being tested,
outside auditors, consultants, or other qualified independent
parties. A banking entity must promptly take appropriate action to
remedy any significant deficiencies or material weaknesses in its
compliance program and to terminate any violations of section 13 of
the BHC Act or this part.

V. Training

    Banking entities must provide adequate training to personnel and
managers of the banking entity engaged in activities or investments
governed by section 13 of the BHC Act or this part, as well as other
appropriate supervisory, risk, independent testing, and audit
personnel, in order to effectively implement and enforce the
compliance program. This training should occur with a frequency
appropriate to the size and the risk profile of the banking entity's
trading activities and covered fund activities or investments.

VI. Recordkeeping

    Banking entities must create and retain records sufficient to
demonstrate compliance and support the operations and effectiveness
of the compliance program. A banking entity must retain these
records for a period that is no less than 5 years or such longer
period as required by the FDIC in a form that allows it to promptly
produce such records to the FDIC on request.

COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

Authority and Issuance

    For the reasons stated in the Common Preamble, the Commodity
Futures Trading Commission amends part 75 to chapter I of Title 17 Code
of Federal Regulations as follows:

PART 75--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
46. The authority citation for part 75 continues to read as follows:

    Authority:  12 U.S.C. 1851.

Subpart A--Authority and Definitions

0
47. Section 75.2 is revised to read as follows:

Sec.  75.2   Definitions.

    Unless otherwise specified, for purposes of this part:
    (a) Affiliate has the same meaning as in section 2(k) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
    (b) Bank holding company has the same meaning as in section 2 of
the Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    (c) Banking entity. (1) Except as provided in paragraph (c)(2) of
this section, banking entity means:
    (i) Any insured depository institution;
    (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 (12
U.S.C. 3106); and
    (iv) Any affiliate or subsidiary of any entity described in
paragraph (c)(1)(i), (ii), or (iii) of this section.
    (2) Banking entity does not include:
    (i) A covered fund that is not itself a banking entity under
paragraph (c)(1)(i), (ii), or (iii) of this section;
    (ii) A portfolio company held under the authority contained in
section 4(k)(4)(H) or (I) of the BHC Act (12 U.S.C. 1843(k)(4)(H),
(I)), or any portfolio concern, as defined under 13 CFR 107.50, that is
controlled by a small business investment company, as defined in
section 103(3) of the Small Business Investment Act of 1958 (15 U.S.C.
662), so long as the portfolio company or portfolio concern is not
itself a banking entity under paragraph (c)(1)(i), (ii), or (iii) of
this section; or
    (iii) The FDIC acting in its corporate capacity or as conservator
or receiver under the Federal Deposit Insurance Act or Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (d) Board means the Board of Governors of the Federal Reserve
System.
    (e) CFTC means the Commodity Futures Trading Commission.
    (f) Dealer has the same meaning as in section 3(a)(5) of the
Exchange Act (15 U.S.C. 78c(a)(5)).
    (g) Depository institution has the same meaning as in section 3(c)
of the Federal

Deposit Insurance Act (12 U.S.C. 1813(c)).
    (h) Derivative. (1) Except as provided in paragraph (h)(2) of this
section, derivative means:
    (i) Any swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C.
78c(a)(68));
    (ii) Any purchase or sale of a commodity, that is not an excluded
commodity, for deferred shipment or delivery that is intended to be
physically settled;
    (iii) Any foreign exchange forward (as that term is defined in
section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)) or
foreign exchange swap (as that term is defined in section 1a(25) of the
Commodity Exchange Act (7 U.S.C. 1a(25));
    (iv) Any agreement, contract, or transaction in foreign currency
described in section 2(c)(2)(C)(i) of the Commodity Exchange Act (7
U.S.C. 2(c)(2)(C)(i));
    (v) Any agreement, contract, or transaction in a commodity other
than foreign currency described in section 2(c)(2)(D)(i) of the
Commodity Exchange Act (7 U.S.C. 2(c)(2)(D)(i)); and
    (vi) Any transaction authorized under section 19 of the Commodity
Exchange Act (7 U.S.C. 23(a) or (b));
    (2) A derivative does not include:
    (i) Any consumer, commercial, or other agreement, contract, or
transaction that the CFTC and SEC have further defined by joint
regulation, interpretation, or other action as not within the
definition of swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C.
78c(a)(68)); or
    (ii) Any identified banking product, as defined in section 402(b)
of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)),
that is subject to section 403(a) of that Act (7 U.S.C. 27a(a)).
    (i) Employee includes a member of the immediate family of the
employee.
    (j) Exchange Act means the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.).
    (k) Excluded commodity has the same meaning as in section 1a(19) of
the Commodity Exchange Act (7 U.S.C. 1a(19)).
    (l) FDIC means the Federal Deposit Insurance Corporation.
    (m) Federal banking agencies means the Board, the Office of the
Comptroller of the Currency, and the FDIC.
    (n) Foreign banking organization has the same meaning as in Sec.
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), but does not
include a foreign bank, as defined in section 1(b)(7) of the
International Banking Act of 1978 (12 U.S.C. 3101(7)), that is
organized under the laws of the Commonwealth of Puerto Rico, Guam,
American Samoa, the United States Virgin Islands, or the Commonwealth
of the Northern Mariana Islands.
    (o) Foreign insurance regulator means the insurance commissioner,
or a similar official or agency, of any country other than the United
States that is engaged in the supervision of insurance companies under
foreign insurance law.
    (p) General account means all of the assets of an insurance company
except those allocated to one or more separate accounts.
    (q) Insurance company means a company that is organized as an
insurance company, primarily and predominantly engaged in writing
insurance or reinsuring risks underwritten by insurance companies,
subject to supervision as such by a state insurance regulator or a
foreign insurance regulator, and not operated for the purpose of
evading the provisions of section 13 of the BHC Act (12 U.S.C. 1851).
    (r) Insured depository institution has the same meaning as in
section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)),
but does not include: (1) An insured depository institution that is
described in section 2(c)(2)(D) of the BHC Act (12 U.S.C.
1841(c)(2)(D)); or (2) An insured depository institution if it has, and
if every company that controls it has, total consolidated assets of $10
billion or less and total trading assets and trading liabilities, on a
consolidated basis, that are 5 percent or less of total consolidated
assets.
    (s) Limited trading assets and liabilities means with respect to a
banking entity that:
    (1)(i) The banking entity has, together with its affiliates and
subsidiaries, trading assets and liabilities (excluding trading assets
and liabilities attributable to trading activities permitted pursuant
to Sec.  75.6(a)(1) and (2) of subpart B) the average gross sum of
which over the previous consecutive four quarters, as measured as of
the last day of each of the four previous calendar quarters, is less
than $1 billion; and
    (ii) The CFTC has not determined pursuant to Sec.  75.20(g) or (h)
of this part that the banking entity should not be treated as having
limited trading assets and liabilities.
    (2) With respect to a banking entity other than a banking entity
described in paragraph (s)(3) of this section, trading assets and
liabilities for purposes of this paragraph (s) means trading assets and
liabilities (excluding trading assets and liabilities attributable to
trading activities permitted pursuant to Sec.  75.6(a)(1) and (2) of
subpart B) on a worldwide consolidated basis.
    (3)(i) With respect to a banking entity that is a foreign banking
organization or a subsidiary of a foreign banking organization, trading
assets and liabilities for purposes of this paragraph (s) means the
trading assets and liabilities (excluding trading assets and
liabilities attributable to trading activities permitted pursuant to
Sec.  75.6(a)(1) and (2) of subpart B) of the combined U.S. operations
of the top-tier foreign banking organization (including all
subsidiaries, affiliates, branches, and agencies of the foreign banking
organization operating, located, or organized in the United States).
    (ii) For purposes of paragraph (s)(3)(i) of this section, a U.S.
branch, agency, or subsidiary of a banking entity is located in the
United States; however, the foreign bank that operates or controls that
branch, agency, or subsidiary is not considered to be located in the
United States solely by virtue of operating or controlling the U.S.
branch, agency, or subsidiary. For purposes of paragraph (s)(3)(i) of
this section, all foreign operations of a U.S. agency, branch, or
subsidiary of a foreign banking organization are considered to be
located in the United States, including branches outside the United
States that are managed or controlled by a U.S. branch or agency of the
foreign banking organization, for purposes of calculating the banking
entity's U.S. trading assets and liabilities.
    (t) Loan means any loan, lease, extension of credit, or secured or
unsecured receivable that is not a security or derivative.
    (u) Moderate trading assets and liabilities means, with respect to
a banking entity, that the banking entity does not have significant
trading assets and liabilities or limited trading assets and
liabilities.
    (v) Primary financial regulatory agency has the same meaning as in
section 2(12) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 5301(12)).
    (w) Purchase includes any contract to buy, purchase, or otherwise
acquire. For security futures products, purchase includes any contract,
agreement, or transaction for future delivery. With respect to a
commodity future, purchase includes any contract, agreement, or
transaction for future delivery. With respect to a derivative, purchase
includes the execution, termination (prior to its scheduled maturity
date),

assignment, exchange, or similar transfer or conveyance of, or
extinguishing of rights or obligations under, a derivative, as the
context may require.
    (x) Qualifying foreign banking organization means a foreign banking
organization that qualifies as such under Sec.  211.23(a), (c) or (e)
of the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
    (y) SEC means the Securities and Exchange Commission.
    (z) Sale and sell each include any contract to sell or otherwise
dispose of. For security futures products, such terms include any
contract, agreement, or transaction for future delivery. With respect
to a commodity future, such terms include any contract, agreement, or
transaction for future delivery. With respect to a derivative, such
terms include the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar transfer or conveyance
of, or extinguishing of rights or obligations under, a derivative, as
the context may require.
    (aa) Security has the meaning specified in section 3(a)(10) of the
Exchange Act (15 U.S.C. 78c(a)(10)).
    (bb) Security-based swap dealer has the same meaning as in section
3(a)(71) of the Exchange Act (15 U.S.C. 78c(a)(71)).
    (cc) Security future has the meaning specified in section 3(a)(55)
of the Exchange Act (15 U.S.C. 78c(a)(55)).
    (dd) Separate account means an account established and maintained
by an insurance company in connection with one or more insurance
contracts to hold assets that are legally segregated from the insurance
company's other assets, under which income, gains, and losses, whether
or not realized, from assets allocated to such account, are, in
accordance with the applicable contract, credited to or charged against
such account without regard to other income, gains, or losses of the
insurance company.
    (ee) Significant trading assets and liabilities means with respect
to a banking entity that:
    (1)(i) The banking entity has, together with its affiliates and
subsidiaries, trading assets and liabilities the average gross sum of
which over the previous consecutive four quarters, as measured as of
the last day of each of the four previous calendar quarters, equals or
exceeds $20 billion; or
    (ii) The CFTC has determined pursuant to Sec.  75.20(h) of this
part that the banking entity should be treated as having significant
trading assets and liabilities.
    (2) With respect to a banking entity, other than a banking entity
described in paragraph (ee)(3) of this section, trading assets and
liabilities for purposes of this paragraph (ee) means trading assets
and liabilities (excluding trading assets and liabilities attributable
to trading activities permitted pursuant to Sec.  75.6(a)(1) and (2) of
subpart B) on a worldwide consolidated basis.
    (3)(i) With respect to a banking entity that is a foreign banking
organization or a subsidiary of a foreign banking organization, trading
assets and liabilities for purposes of this paragraph (ee) means the
trading assets and liabilities (excluding trading assets and
liabilities attributable to trading activities permitted pursuant to
Sec.  75.6(a)(1) and (2) of subpart B) of the combined U.S. operations
of the top-tier foreign banking organization (including all
subsidiaries, affiliates, branches, and agencies of the foreign banking
organization operating, located, or organized in the United States as
well as branches outside the United States that are managed or
controlled by a branch or agency of the foreign banking entity
operating, located or organized in the United States).
    (ii) For purposes of paragraph (ee)(3)(i) of this section, a U.S.
branch, agency, or subsidiary of a banking entity is located in the
United States; however, the foreign bank that operates or controls that
branch, agency, or subsidiary is not considered to be located in the
United States solely by virtue of operating or controlling the U.S.
branch, agency, or subsidiary. For purposes of paragraph (ee)(3)(i) of
this section, all foreign operations of a U.S. agency, branch, or
subsidiary of a foreign banking organization are considered to be
located in the United States for purposes of calculating the banking
entity's U.S. trading assets and liabilities.
    (ff) State means any State, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, American Samoa, the United States
Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
    (gg) Subsidiary has the same meaning as in section 2(d) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
    (hh) State insurance regulator means the insurance commissioner, or
a similar official or agency, of a State that is engaged in the
supervision of insurance companies under State insurance law.
    (ii) Swap dealer has the same meaning as in section 1(a)(49) of the
Commodity Exchange Act (7 U.S.C. 1a(49)).

Subpart B--Proprietary Trading

0
48. Section 75.3 is amended by:
0
a. Revising paragraphs (b), and (d)(3), (8), and (9);
0
b. Adding paragraphs (d)(10) through (13);
0
c. Redesignating paragraphs (e)(5) through (13) as paragraphs (e)(6)
through (14);
0
d. Adding new paragraph (e)(5); and
0
e. Revising paragraph (e)(11), (12), and (14).
    The revisions and additions read as follows:

Sec.  75.3   Prohibition on proprietary trading.

* * * * *
    (b) Definition of trading account. (1) Trading account. Trading
account means:
    (i) Any account that is used by a banking entity to purchase or
sell one or more financial instruments principally for the purpose of
short-term resale, benefitting from actual or expected short-term price
movements, realizing short-term arbitrage profits, or hedging one or
more of the positions resulting from the purchases or sales of
financial instruments described in this paragraph;
    (ii) Any account that is used by a banking entity to purchase or
sell one or more financial instruments that are both market risk
capital rule covered positions and trading positions (or hedges of
other market risk capital rule covered positions), if the banking
entity, or any affiliate with which the banking entity is consolidated
for regulatory reporting purposes, calculates risk-based capital ratios
under the market risk capital rule; or
    (iii) Any account that is used by a banking entity to purchase or
sell one or more financial instruments, if the banking entity:
    (A) Is licensed or registered, or is required to be licensed or
registered, to engage in the business of a dealer, swap dealer, or
security-based swap dealer, to the extent the instrument is purchased
or sold in connection with the activities that require the banking
entity to be licensed or registered as such; or
    (B) Is engaged in the business of a dealer, swap dealer, or
security-based swap dealer outside of the United States, to the extent
the instrument is purchased or sold in connection with the activities
of such business.
    (2) Trading account application for certain banking entities. (i) A
banking entity that is subject to paragraph (b)(1)(ii) of this section
in determining the scope of its trading account is not subject to
paragraph (b)(1)(i) of this section.
    (ii) A banking entity that does not calculate risk-based capital
ratios under

the market risk capital rule and is not a consolidated affiliate for
regulatory reporting purposes of a banking entity that calculates risk
based capital ratios under the market risk capital rule may elect to
apply paragraph (b)(1)(ii) of this section in determining the scope of
its trading account as if it were subject to that paragraph. A banking
entity that elects under this subsection to apply paragraph (b)(1)(ii)
of this section in determining the scope of its trading account as if
it were subject to that paragraph is not required to apply paragraph
(b)(1)(i) of this section.
    (3) Consistency of account election for certain banking entities.
(i) Any election or change to an election under paragraph (b)(2)(ii) of
this section must apply to the electing banking entity and all of its
wholly owned subsidiaries. The primary financial regulatory agency of a
banking entity that is affiliated with but is not a wholly owned
subsidiary of such electing banking entity may require that the banking
entity be subject to this uniform application requirement if the
primary financial regulatory agency determines that it is necessary to
prevent evasion of the requirements of this part after notice and
opportunity for response as provided in subpart D of this part.
    (ii) A banking entity that does not elect under paragraph
(b)(2)(ii) of this section to be subject to the trading account
definition in (b)(1)(ii) may continue to apply the trading account
definition in paragraph (b)(1)(i) of this section for one year from the
date on which it becomes, or becomes a consolidated affiliate for
regulatory reporting purposes with, a banking entity that calculates
risk-based capital ratios under the market risk capital rule.
    (4) Rebuttable presumption for certain purchases and sales. The
purchase (or sale) of a financial instrument by a banking entity shall
be presumed not to be for the trading account of the banking entity
under paragraph (b)(1)(i) of this section if the banking entity holds
the financial instrument for sixty days or longer and does not transfer
substantially all of the risk of the financial instrument within sixty
days of the purchase (or sale).
* * * * *
    (d) * * *
    (3) Any purchase or sale of a security, foreign exchange forward
(as that term is defined in section 1a(24) of the Commodity Exchange
Act (7 U.S.C. 1a(24)), foreign exchange swap (as that term is defined
in section 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(25)), or
cross-currency swap by a banking entity for the purpose of liquidity
management in accordance with a documented liquidity management plan of
the banking entity that:
    (i) Specifically contemplates and authorizes the particular
financial instruments to be used for liquidity management purposes, the
amount, types, and risks of these financial instruments that are
consistent with liquidity management, and the liquidity circumstances
in which the particular financial instruments may or must be used;
    (ii) Requires that any purchase or sale of financial instruments
contemplated and authorized by the plan be principally for the purpose
of managing the liquidity of the banking entity, and not for the
purpose of short-term resale, benefitting from actual or expected
short-term price movements, realizing short-term arbitrage profits, or
hedging a position taken for such short-term purposes;
    (iii) Requires that any financial instruments purchased or sold for
liquidity management purposes be highly liquid and limited to financial
instruments the market, credit, and other risks of which the banking
entity does not reasonably expect to give rise to appreciable profits
or losses as a result of short-term price movements;
    (iv) Limits any financial instruments purchased or sold for
liquidity management purposes, together with any other financial
instruments purchased or sold for such purposes, to an amount that is
consistent with the banking entity's near-term funding needs, including
deviations from normal operations of the banking entity or any
affiliate thereof, as estimated and documented pursuant to methods
specified in the plan;
    (v) Includes written policies and procedures, internal controls,
analysis, and independent testing to ensure that the purchase and sale
of financial instruments that are not permitted under Sec.  75.6(a) or
(b) of this subpart are for the purpose of liquidity management and in
accordance with the liquidity management plan described in this
paragraph (d)(3); and
    (vi) Is consistent with the CFTC's regulatory requirements
regarding liquidity management;
* * * * *
    (8) Any purchase or sale of one or more financial instruments by a
banking entity through a deferred compensation, stock-bonus, profit-
sharing, or pension plan of the banking entity that is established and
administered in accordance with the law of the United States or a
foreign sovereign, if the purchase or sale is made directly or
indirectly by the banking entity as trustee for the benefit of persons
who are or were employees of the banking entity;
    (9) Any purchase or sale of one or more financial instruments by a
banking entity in the ordinary course of collecting a debt previously
contracted in good faith, provided that the banking entity divests the
financial instrument as soon as practicable, and in no event may the
banking entity retain such instrument for longer than such period
permitted by the OCC;
    (10) Any purchase or sale of one or more financial instruments that
was made in error by a banking entity in the course of conducting a
permitted or excluded activity or is a subsequent transaction to
correct such an error;
    (11) Contemporaneously entering into a customer-driven swap or
customer-driven security-based swap and a matched swap or security-
based swap if:
    (i) The banking entity retains no more than minimal price risk; and
    (ii) The banking entity is not a registered dealer, swap dealer, or
security-based swap dealer;
    (12) Any purchase or sale of one or more financial instruments that
the banking entity uses to hedge mortgage servicing rights or mortgage
servicing assets in accordance with a documented hedging strategy; or
    (13) Any purchase or sale of a financial instrument that does not
meet the definition of trading asset or trading liability under the
applicable reporting form for a banking entity as of January 1, 2020.
    (e) * * *
    (5) Cross-currency swap means a swap in which one party exchanges
with another party principal and interest rate payments in one currency
for principal and interest rate payments in another currency, and the
exchange of principal occurs on the date the swap is entered into, with
a reversal of the exchange of principal at a later date that is agreed
upon when the swap is entered into.
* * * * *
    (11) Market risk capital rule covered position and trading position
means a financial instrument that meets the criteria to be a covered
position and a trading position, as those terms are respectively
defined, without regard to whether the financial instrument is reported
as a covered position or trading position on any applicable regulatory
reporting forms:
    (i) In the case of a banking entity that is a bank holding company,
savings and loan holding company, or insured depository institution,
under the market

risk capital rule that is applicable to the banking entity; and
    (ii) In the case of a banking entity that is affiliated with a bank
holding company or savings and loan holding company, other than a
banking entity to which a market risk capital rule is applicable, under
the market risk capital rule that is applicable to the affiliated bank
holding company or savings and loan holding company.
    (12) Market risk capital rule means the market risk capital rule
that is contained in 12 CFR part 3, subpart F, with respect to a
banking entity for which the OCC is the primary financial regulatory
agency, 12 CFR part 217 with respect to a banking entity for which the
Board is the primary financial regulatory agency, or 12 CFR part 324
with respect to a banking entity for which the FDIC is the primary
financial regulatory agency.
* * * * *
    (14) Trading desk means a unit of organization of a banking entity
that purchases or sells financial instruments for the trading account
of the banking entity or an affiliate thereof that is:
    (i)(A) Structured by the banking entity to implement a well-defined
business strategy;
    (B) Organized to ensure appropriate setting, monitoring, and
management review of the desk's trading and hedging limits, current and
potential future loss exposures, and strategies; and
    (C) Characterized by a clearly defined unit that:
    (1) Engages in coordinated trading activity with a unified approach
to its key elements;
    (2) Operates subject to a common and calibrated set of risk
metrics, risk levels, and joint trading limits;
    (3) Submits compliance reports and other information as a unit for
monitoring by management; and
    (4) Books its trades together; or
    (ii) For a banking entity that calculates risk-based capital ratios
under the market risk capital rule, or a consolidated affiliate for
regulatory reporting purposes of a banking entity that calculates risk-
based capital ratios under the market risk capital rule, established by
the banking entity or its affiliate for purposes of market risk capital
calculations under the market risk capital rule.

0
49. Section 75.4 is revised to read as follows:

Sec.  75.4   Permitted underwriting and market making-related
activities.

    (a) Underwriting activities--(1) Permitted underwriting activities.
The prohibition contained in Sec.  75.3(a) does not apply to a banking
entity's underwriting activities conducted in accordance with this
paragraph (a).
    (2) Requirements. The underwriting activities of a banking entity
are permitted under paragraph (a)(1) of this section only if:
    (i) The banking entity is acting as an underwriter for a
distribution of securities and the trading desk's underwriting position
is related to such distribution;
    (ii)(A) The amount and type of the securities in the trading desk's
underwriting position are designed not to exceed the reasonably
expected near term demands of clients, customers, or counterparties,
taking into account the liquidity, maturity, and depth of the market
for the relevant types of securities; and
    (B) Reasonable efforts are made to sell or otherwise reduce the
underwriting position within a reasonable period, taking into account
the liquidity, maturity, and depth of the market for the relevant types
of securities;
    (iii) In the case of a banking entity with significant trading
assets and liabilities, the banking entity has established and
implements, maintains, and enforces an internal compliance program
required by subpart D of this part that is reasonably designed to
ensure the banking entity's compliance with the requirements of
paragraph (a) of this section, including reasonably designed written
policies and procedures, internal controls, analysis and independent
testing identifying and addressing:
    (A) The products, instruments or exposures each trading desk may
purchase, sell, or manage as part of its underwriting activities;
    (B) Limits for each trading desk, in accordance with paragraph
(a)(2)(ii)(A) of this section;
    (C) Written authorization procedures, including escalation
procedures that require review and approval of any trade that would
exceed a trading desk's limit(s), demonstrable analysis of the basis
for any temporary or permanent increase to a trading desk's limit(s),
and independent review of such demonstrable analysis and approval; and
    (D) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits.
    (iv) A banking entity with significant trading assets and
liabilities may satisfy the requirements in paragraphs (a)(2))iii)(B)
and (C) of this section by complying with the requirements set forth
below in paragraph (c) of this section;
    (v) The compensation arrangements of persons performing the
activities described in this paragraph (a) are designed not to reward
or incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in the
activity described in this paragraph (a) in accordance with applicable
law.
    (3) Definition of distribution. For purposes of this paragraph (a),
a distribution of securities means:
    (i) An offering of securities, whether or not subject to
registration under the Securities Act of 1933, that is distinguished
from ordinary trading transactions by the presence of special selling
efforts and selling methods; or
    (ii) An offering of securities made pursuant to an effective
registration statement under the Securities Act of 1933.
    (4) Definition of underwriter. For purposes of this paragraph (a),
underwriter means:
    (i) A person who has agreed with an issuer or selling security
holder to:
    (A) Purchase securities from the issuer or selling security holder
for distribution;
    (B) Engage in a distribution of securities for or on behalf of the
issuer or selling security holder; or
    (C) Manage a distribution of securities for or on behalf of the
issuer or selling security holder; or
    (ii) A person who has agreed to participate or is participating in
a distribution of such securities for or on behalf of the issuer or
selling security holder.
    (5) Definition of selling security holder. For purposes of this
paragraph (a), selling security holder means any person, other than an
issuer, on whose behalf a distribution is made.
    (6) Definition of underwriting position. For purposes of this
section, underwriting position means the long or short positions in one
or more securities held by a banking entity or its affiliate, and
managed by a particular trading desk, in connection with a particular
distribution of securities for which such banking entity or affiliate
is acting as an underwriter.
    (7) Definition of client, customer, and counterparty. For purposes
of this paragraph (a), the terms client, customer, and counterparty, on
a collective or individual basis, refer to market participants that may
transact with the banking entity in connection with a particular
distribution for which the banking entity is acting as underwriter.
    (b) Market making-related activities--(1) Permitted market making-
related activities. The prohibition contained in Sec.  75.3(a) does not
apply to a banking entity's market making-related activities

conducted in accordance with this paragraph (b).
    (2) Requirements. The market making-related activities of a banking
entity are permitted under paragraph (b)(1) of this section only if:
    (i) The trading desk that establishes and manages the financial
exposure, routinely stands ready to purchase and sell one or more types
of financial instruments related to its financial exposure, and is
willing and available to quote, purchase and sell, or otherwise enter
into long and short positions in those types of financial instruments
for its own account, in commercially reasonable amounts and throughout
market cycles on a basis appropriate for the liquidity, maturity, and
depth of the market for the relevant types of financial instruments;
    (ii) The trading desk's market-making related activities are
designed not to exceed, on an ongoing basis, the reasonably expected
near term demands of clients, customers, or counterparties, taking into
account the liquidity, maturity, and depth of the market for the
relevant types of financial instruments;
    (iii) In the case of a banking entity with significant trading
assets and liabilities, the banking entity has established and
implements, maintains, and enforces an internal compliance program
required by subpart D of this part that is reasonably designed to
ensure the banking entity's compliance with the requirements of
paragraph (b) of this section, including reasonably designed written
policies and procedures, internal controls, analysis and independent
testing identifying and addressing:
    (A) The financial instruments each trading desk stands ready to
purchase and sell in accordance with paragraph (b)(2)(i) of this
section;
    (B) The actions the trading desk will take to demonstrably reduce
or otherwise significantly mitigate promptly the risks of its financial
exposure consistent with the limits required under paragraph
(b)(2)(iii)(C) of this section; the products, instruments, and
exposures each trading desk may use for risk management purposes; the
techniques and strategies each trading desk may use to manage the risks
of its market making-related activities and positions; and the process,
strategies, and personnel responsible for ensuring that the actions
taken by the trading desk to mitigate these risks are and continue to
be effective;
    (C) Limits for each trading desk, in accordance with paragraph
(b)(2)(ii) of this section;
    (D) Written authorization procedures, including escalation
procedures that require review and approval of any trade that would
exceed a trading desk's limit(s), demonstrable analysis of the basis
for any temporary or permanent increase to a trading desk's limit(s),
and independent review of such demonstrable analysis and approval; and
    (E) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits.
    (iv) A banking entity with significant trading assets and
liabilities may satisfy the requirements in paragraphs (b)(2)(iii)(C)
and (D) of this section by complying with the requirements set forth
below in paragraph (c) of this section;
    (v) The compensation arrangements of persons performing the
activities described in this paragraph (b) are designed not to reward
or incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in
activity described in this paragraph (b) in accordance with applicable
law.
    (3) Definition of client, customer, and counterparty. For purposes
of paragraph (b) of this section, the terms client, customer, and
counterparty, on a collective or individual basis refer to market
participants that make use of the banking entity's market making-
related services by obtaining such services, responding to quotations,
or entering into a continuing relationship with respect to such
services, provided that:
    (i) A trading desk or other organizational unit of another banking
entity is not a client, customer, or counterparty of the trading desk
if that other entity has trading assets and liabilities of $50 billion
or more as measured in accordance with the methodology described in
Sec.  75.2(ee) of this part, unless:
    (A) The trading desk documents how and why a particular trading
desk or other organizational unit of the entity should be treated as a
client, customer, or counterparty of the trading desk for purposes of
paragraph (b)(2) of this section; or
    (B) The purchase or sale by the trading desk is conducted
anonymously on an exchange or similar trading facility that permits
trading on behalf of a broad range of market participants.
    (ii) [Reserved]
    (4) Definition of financial exposure. For purposes of this section,
financial exposure means the aggregate risks of one or more financial
instruments and any associated loans, commodities, or foreign exchange
or currency, held by a banking entity or its affiliate and managed by a
particular trading desk as part of the trading desk's market making-
related activities.
    (5) Definition of market-maker positions. For the purposes of this
section, market-maker positions means all of the positions in the
financial instruments for which the trading desk stands ready to make a
market in accordance with paragraph (b)(2)(i) of this section, that are
managed by the trading desk, including the trading desk's open
positions or exposures arising from open transactions.
    (c) Rebuttable presumption of compliance--(1) Internal limits. (i)
A banking entity shall be presumed to meet the requirement in paragraph
(a)(2)(ii)(A) or (b)(2)(ii) of this section with respect to the
purchase or sale of a financial instrument if the banking entity has
established and implements, maintains, and enforces the internal limits
for the relevant trading desk as described in paragraph (c)(1)(ii) of
this section.
    (ii)(A) With respect to underwriting activities conducted pursuant
to paragraph (a) of this section, the presumption described in
paragraph (c)(1)(i) of this section shall be available to each trading
desk that establishes, implements, maintains, and enforces internal
limits that should take into account the liquidity, maturity, and depth
of the market for the relevant types of securities and are designed not
to exceed the reasonably expected near term demands of clients,
customers, or counterparties, based on the nature and amount of the
trading desk's underwriting activities, on the:
    (1) Amount, types, and risk of its underwriting position;
    (2) Level of exposures to relevant risk factors arising from its
underwriting position; and
    (3) Period of time a security may be held.
    (B) With respect to market making-related activities conducted
pursuant to paragraph (b) of this section, the presumption described in
paragraph (c)(1)(i) of this section shall be available to each trading
desk that establishes, implements, maintains, and enforces internal
limits that should take into account the liquidity, maturity, and depth
of the market for the relevant types of financial instruments and are
designed not to exceed the reasonably expected near term demands of
clients, customers, or counterparties, based on the nature and amount
of the trading desk's market-making related activities, that address
the:
    (1) Amount, types, and risks of its market-maker positions;

    (2) Amount, types, and risks of the products, instruments, and
exposures the trading desk may use for risk management purposes;
    (3) Level of exposures to relevant risk factors arising from its
financial exposure; and
    (4) Period of time a financial instrument may be held.
    (2) Supervisory review and oversight. The limits described in
paragraph (c)(1) of this section shall be subject to supervisory review
and oversight by the CFTC on an ongoing basis.
    (3) Limit Breaches and Increases. (i) With respect to any limit set
pursuant to paragraph (c)(1)(ii)(A) or (B) of this section, a banking
entity shall maintain and make available to the CFTC upon request
records regarding:
    (A) Any limit that is exceeded; and
    (B) Any temporary or permanent increase to any limit(s), in each
case in the form and manner as directed by the CFTC.
    (ii) In the event of a breach or increase of any limit set pursuant
to paragraph (c)(1)(ii)(A) or (B) of this section, the presumption
described in paragraph (c)(1)(i) of this section shall continue to be
available only if the banking entity:
    (A) Takes action as promptly as possible after a breach to bring
the trading desk into compliance; and
    (B) Follows established written authorization procedures, including
escalation procedures that require review and approval of any trade
that exceeds a trading desk's limit(s), demonstrable analysis of the
basis for any temporary or permanent increase to a trading desk's
limit(s), and independent review of such demonstrable analysis and
approval.
    (4) Rebutting the presumption. The presumption in paragraph
(c)(1)(i) of this section may be rebutted by the CFTC if the CFTC
determines, taking into account the liquidity, maturity, and depth of
the market for the relevant types of financial instruments and based on
all relevant facts and circumstances, that a trading desk is engaging
in activity that is not based on the reasonably expected near term
demands of clients, customers, or counterparties. The CFTC's rebuttal
of the presumption in paragraph (c)(1)(i) of this section must be made
in accordance with the notice and response procedures in subpart D of
this part.

0
50. Section 75.5 is amended by revising paragraphs (b) and (c)(1)
introductory text and adding paragraph (c)(4) to read as follows:

Sec.  75.5   Permitted risk-mitigating hedging activities.

* * * * *
    (b) Requirements. (1) The risk-mitigating hedging activities of a
banking entity that has significant trading assets and liabilities are
permitted under paragraph (a) of this section only if:
    (i) The banking entity has established and implements, maintains
and enforces an internal compliance program required by subpart D of
this part that is reasonably designed to ensure the banking entity's
compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures regarding
the positions, techniques and strategies that may be used for hedging,
including documentation indicating what positions, contracts or other
holdings a particular trading desk may use in its risk-mitigating
hedging activities, as well as position and aging limits with respect
to such positions, contracts or other holdings;
    (B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
    (C) The conduct of analysis and independent testing designed to
ensure that the positions, techniques and strategies that may be used
for hedging may reasonably be expected to reduce or otherwise
significantly mitigate the specific, identifiable risk(s) being hedged;
    (ii) The risk-mitigating hedging activity:
    (A) Is conducted in accordance with the written policies,
procedures, and internal controls required under this section;
    (B) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate one or more specific,
identifiable risks, including market risk, counterparty or other credit
risk, currency or foreign exchange risk, interest rate risk, commodity
price risk, basis risk, or similar risks, arising in connection with
and related to identified positions, contracts, or other holdings of
the banking entity, based upon the facts and circumstances of the
identified underlying and hedging positions, contracts or other
holdings and the risks and liquidity thereof;
    (C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section;
    (D) Is subject to continuing review, monitoring and management by
the banking entity that:
    (1) Is consistent with the written hedging policies and procedures
required under paragraph (b)(1)(i) of this section;
    (2) Is designed to reduce or otherwise significantly mitigate the
specific, identifiable risks that develop over time from the risk-
mitigating hedging activities undertaken under this section and the
underlying positions, contracts, and other holdings of the banking
entity, based upon the facts and circumstances of the underlying and
hedging positions, contracts and other holdings of the banking entity
and the risks and liquidity thereof; and
    (3) Requires ongoing recalibration of the hedging activity by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(1)(ii) of this section and is not
prohibited proprietary trading; and
    (iii) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize
prohibited proprietary trading.
    (2) The risk-mitigating hedging activities of a banking entity that
does not have significant trading assets and liabilities are permitted
under paragraph (a) of this section only if the risk-mitigating hedging
activity:
    (i) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate one or more specific,
identifiable risks, including market risk, counterparty or other credit
risk, currency or foreign exchange risk, interest rate risk, commodity
price risk, basis risk, or similar risks, arising in connection with
and related to identified positions, contracts, or other holdings of
the banking entity, based upon the facts and circumstances of the
identified underlying and hedging positions, contracts or other
holdings and the risks and liquidity thereof; and
    (ii) Is subject, as appropriate, to ongoing recalibration by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(2) of this section and is not
prohibited proprietary trading.
    (c) * * *
    (1) A banking entity that has significant trading assets and
liabilities must comply with the requirements of paragraphs (c)(2) and
(3) of this section, unless the requirements of paragraph (c)(4) of
this section are met, with respect to any purchase or sale of financial
instruments made in reliance on this section for risk-mitigating
hedging purposes that is:
* * * * *
    (4) The requirements of paragraphs (c)(2) and (3) of this section
do not

apply to the purchase or sale of a financial instrument described in
paragraph (c)(1) of this section if:
    (i) The financial instrument purchased or sold is identified on a
written list of pre-approved financial instruments that are commonly
used by the trading desk for the specific type of hedging activity for
which the financial instrument is being purchased or sold; and
    (ii) At the time the financial instrument is purchased or sold, the
hedging activity (including the purchase or sale of the financial
instrument) complies with written, pre-approved limits for the trading
desk purchasing or selling the financial instrument for hedging
activities undertaken for one or more other trading desks. The limits
shall be appropriate for the:
    (A) Size, types, and risks of the hedging activities commonly
undertaken by the trading desk;
    (B) Financial instruments purchased and sold for hedging activities
by the trading desk; and
    (C) Levels and duration of the risk exposures being hedged.

0
51. Section 75.6 is amended by revising paragraph (e)(3); removing
paragraphs (e)(4) and (6); and redesignating paragraph (e)(5) as
paragraph (e)(4).
    The revision reads as follows:

Sec.  75.6   Other permitted proprietary trading activities.

* * * * *
    (e) * * *
    (3) A purchase or sale by a banking entity is permitted for
purposes of this paragraph (e) if:
    (i) The banking entity engaging as principal in the purchase or
sale (including relevant personnel) is not located in the United States
or organized under the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes
the decision to purchase or sell as principal is not located in the
United States or organized under the laws of the United States or of
any State; and
    (iii) The purchase or sale, including any transaction arising from
risk-mitigating hedging related to the instruments purchased or sold,
is not accounted for as principal directly or on a consolidated basis
by any branch or affiliate that is located in the United States or
organized under the laws of the United States or of any State.
* * * * *

Subpart C--Covered Funds Activities and Investments

0
52. Section 75.10 is amended by revising paragraphs (c)(7)(ii) and
(c)(8)(i)(A) to read as follows:

Sec.  75.10   Prohibition on Acquiring or Retaining an Ownership
Interest in and Having Certain Relationships with a Covered Fund

* * * * *
    (c) * * *
    (7) * * *
    (ii) Participates in the profits and losses of the separate account
other than in compliance with applicable requirements regarding bank
owned life insurance.
    (8) * * *
    (i) * * *
    (A) Loans as defined in Sec.  75.2(t) of subpart A;
* * * * *

0
53. Section 75.11 is amended by revising paragraph (c) to read as
follows:

Sec.  75.11   Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.

* * * * *
    (c) Underwriting and market making in ownership interests of a
covered fund. The prohibition contained in Sec.  75.10(a) of this
subpart does not apply to a banking entity's underwriting activities or
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the
requirements of Sec.  75.4(a) or (b) of subpart B, respectively; and
    (2) With respect to any banking entity (or any affiliate thereof)
that: Acts as a sponsor, investment adviser or commodity trading
advisor to a particular covered fund or otherwise acquires and retains
an ownership interest in such covered fund in reliance on paragraph (a)
of this section; or acquires and retains an ownership interest in such
covered fund and is either a securitizer, as that term is used in
section 15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is
acquiring and retaining an ownership interest in such covered fund in
compliance with section 15G of that Act (15 U.S.C. 78o-11) and the
implementing regulations issued thereunder each as permitted by
paragraph (b) of this section, then in each such case any ownership
interests acquired or retained by the banking entity and its affiliates
in connection with underwriting and market making related activities
for that particular covered fund are included in the calculation of
ownership interests permitted to be held by the banking entity and its
affiliates under the limitations of Sec.  75.12(a)(2)(ii); Sec.
75.12(a)(2)(iii), and Sec.  75.12(d) of this subpart.

0
54. Section 75.13 is amended by revising paragraphs (a), (b)(3) and
(4), and (c) to read as follows:

Sec.  75.13   Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec.  75.10(a) of this subpart does not apply
with respect to an ownership interest in a covered fund acquired or
retained by a banking entity that is designed to reduce or otherwise
significantly mitigate the specific, identifiable risks to the banking
entity in connection with:
    (i) A compensation arrangement with an employee of the banking
entity or an affiliate thereof that directly provides investment
advisory, commodity trading advisory or other services to the covered
fund; or
    (ii) A position taken by the banking entity when acting as
intermediary on behalf of a customer that is not itself a banking
entity to facilitate the exposure by the customer to the profits and
losses of the covered fund.
    (2) The risk-mitigating hedging activities of a banking entity are
permitted under this paragraph (a) only if:
    (i) The banking entity has established and implements, maintains
and enforces an internal compliance program in accordance with subpart
D of this part that is reasonably designed to ensure the banking
entity's compliance with the requirements of this section, including:
    (A) Reasonably designed written policies and procedures; and
    (B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
    (ii) The acquisition or retention of the ownership interest:
    (A) Is made in accordance with the written policies, procedures,
and internal controls required under this section;
    (B) At the inception of the hedge, is designed to reduce or
otherwise significantly mitigate one or more specific, identifiable
risks arising:
    (1) Out of a transaction conducted solely to accommodate a specific
customer request with respect to the covered fund; or
    (2) In connection with the compensation arrangement with the
employee that directly provides investment advisory, commodity trading

advisory, or other services to the covered fund;
    (C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section; and
    (D) Is subject to continuing review, monitoring and management by
the banking entity.
    (iii) With respect to risk-mitigating hedging activity conducted
pursuant to paragraph (a)(1)(i) of this section, the compensation
arrangement relates solely to the covered fund in which the banking
entity or any affiliate has acquired an ownership interest pursuant to
paragraph (a)(1)(i) and such compensation arrangement provides that any
losses incurred by the banking entity on such ownership interest will
be offset by corresponding decreases in amounts payable under such
compensation arrangement.
    (b) * * *
    (3) An ownership interest in a covered fund is not offered for sale
or sold to a resident of the United States for purposes of paragraph
(b)(1)(iii) of this section only if it is not sold and has not been
sold pursuant to an offering that targets residents of the United
States in which the banking entity or any affiliate of the banking
entity participates. If the banking entity or an affiliate sponsors or
serves, directly or indirectly, as the investment manager, investment
adviser, commodity pool operator or commodity trading advisor to a
covered fund, then the banking entity or affiliate will be deemed for
purposes of this paragraph (b)(3) to participate in any offer or sale
by the covered fund of ownership interests in the covered fund.
    (4) An activity or investment occurs solely outside of the United
States for purposes of paragraph (b)(1)(iv) of this section only if:
    (i) The banking entity acting as sponsor, or engaging as principal
in the acquisition or retention of an ownership interest in the covered
fund, is not itself, and is not controlled directly or indirectly by, a
banking entity that is located in the United States or organized under
the laws of the United States or of any State;
    (ii) The banking entity (including relevant personnel) that makes
the decision to acquire or retain the ownership interest or act as
sponsor to the covered fund is not located in the United States or
organized under the laws of the United States or of any State; and
    (iii) The investment or sponsorship, including any transaction
arising from risk-mitigating hedging related to an ownership interest,
is not accounted for as principal directly or indirectly on a
consolidated basis by any branch or affiliate that is located in the