all investments in and capital contributions made to the covered fund
by the banking entity, divided by the value of all investments in and
capital contributions made to that covered fund by all entities, as of
the last day of each calendar quarter (all measured without regard to
committed funds not yet called for investment). If fair market value
cannot be determined, then the value shall be the historical cost basis
of all investments in and contributions made by the banking entity to
the covered fund;
    (iii) For purposes of the calculation under paragraph (b)(2)(ii) of
this section, once a valuation methodology is chosen, the banking
entity must calculate the value of its investment and the investments
of all others in the covered fund in the same manner and according to
the same standards.
    (3) Issuing entities of asset-backed securities. In the case of an
ownership interest in an issuing entity of asset-backed securities, for
purposes of determining whether an investment in a single covered fund
complies with the restrictions on ownership interests under paragraphs
(a)(2)(i)(B) and (a)(2)(ii)(B) of this section:
    (i) For securitizations subject to the requirements of section 15G
of the Exchange Act (15 U.S.C. 78o-11), the calculations shall be made
as of the date and according to the valuation methodology applicable
pursuant to the requirements of section 15G of the Exchange Act (15
U.S.C. 78o-11) and

the implementing regulations issued thereunder; or
    (ii) For securitization transactions completed prior to the
compliance date of such implementing regulations (or as to which such
implementing regulations do not apply), the calculations shall be made
as of the date of establishment as defined in paragraph (a)(2)(iv)(B)
of this section or such earlier date on which the transferred assets
have been valued for purposes of transfer to the covered fund, and
thereafter only upon the date on which additional securities of the
issuing entity of asset-backed securities are priced for purposes of
the sales of ownership interests to unaffiliated investors.
    (iii) For securitization transactions completed prior to the
compliance date of such implementing regulations (or as to which such
implementing regulations do not apply), the aggregate value of the
outstanding ownership interests in the covered fund shall be the fair
market value of the assets transferred to the issuing entity of the
securitization and any other assets otherwise held by the issuing
entity at such time, determined in a manner that is consistent with its
determination of the fair market value of those assets for financial
statement purposes.
    (iv) For purposes of the calculation under paragraph (b)(3)(iii) of
this section, the valuation methodology used to calculate the fair
market value of the ownership interests must be the same for both the
ownership interests held by a banking entity and the ownership
interests held by all others in the covered fund in the same manner and
according to the same standards.
    (4) Multi-tier fund investments--(i) Master-feeder fund
investments. If the principal investment strategy of a covered fund
(the ``feeder fund'') is to invest substantially all of its assets in
another single covered fund (the ``master fund''), then for purposes of
the investment limitations in paragraphs (a)(2)(i)(B) and (a)(2)(ii) of
this section, the banking entity's permitted investment in such funds
shall be measured only by reference to the value of the master fund.
The banking entity's permitted investment in the master fund shall
include any investment by the banking entity in the master fund, as
well as the banking entity's pro-rata share of any ownership interest
of the master fund that is held through the feeder fund; and
    (ii) Fund-of-funds investments. If a banking entity organizes and
offers a covered fund pursuant to Sec.  ----.11 of this subpart for the
purpose of investing in other covered funds (a ``fund of funds'') and
that fund of funds itself invests in another covered fund that the
banking entity is permitted to own, then the banking entity's permitted
investment in that other fund shall include any investment by the
banking entity in that other fund, as well as the banking entity's pro-
rata share of any ownership interest of the fund that is held through
the fund of funds. The investment of the banking entity may not
represent more than 3 percent of the amount or value of any single
covered fund.
    (c) Aggregate permitted investments in all covered funds. (1) For
purposes of paragraph (a)(2)(iii) of this section, the aggregate value
of all ownership interests held by a banking entity shall be the sum of
all amounts paid or contributed by the banking entity in connection
with acquiring or retaining an ownership interest in covered funds
(together with any amounts paid by the entity (or employee thereof) in
connection with obtaining a restricted profit interest under Sec.  ----
--.10(d)(6)(ii) of this subpart), on a historical cost basis.
    (2) Calculation of tier 1 capital. For purposes of paragraph
(a)(2)(iii) of this section:
    (i) Entities that are required to hold and report tier 1 capital.
If a banking entity is required to calculate and report tier 1 capital,
the banking entity's tier 1 capital shall be equal to the amount of
tier 1 capital of the banking entity as of the last day of the most
recent calendar quarter, as reported to its primary financial
regulatory agency; and
    (ii) If a banking entity is not required to calculate and report
tier 1 capital, the banking entity's tier 1 capital shall be determined
to be equal to:
    (A) In the case of a banking entity that is controlled, directly or
indirectly, by a depository institution that calculates and reports
tier 1 capital, be equal to the amount of tier 1 capital reported by
such controlling depository institution in the manner described in
paragraph (c)(2)(i) of this section;
    (B) In the case of a banking entity that is not controlled,
directly or indirectly, by a depository institution that calculates and
reports tier 1 capital:
    (1) Bank holding company subsidiaries. If the banking entity is a
subsidiary of a bank holding company or company that is treated as a
bank holding company, be equal to the amount of tier 1 capital reported
by the top-tier affiliate of such covered banking entity that
calculates and reports tier 1 capital in the manner described in
paragraph (c)(2)(i) of this section; and
    (2) Other holding companies and any subsidiary or affiliate
thereof. If the banking entity is not a subsidiary of a bank holding
company or a company that is treated as a bank holding company, be
equal to the total amount of shareholders' equity of the top-tier
affiliate within such organization as of the last day of the most
recent calendar quarter that has ended, as determined under applicable
accounting standards.
    (iii) Treatment of foreign banking entities--(A) Foreign banking
entities. Except as provided in paragraph (c)(2)(iii)(B) of this
section, with respect to a banking entity that is not itself, and is
not controlled directly or indirectly by, a banking entity that is
located or organized under the laws of the United States or of any
State, the tier 1 capital of the banking entity shall be the
consolidated tier 1 capital of the entity as calculated under
applicable home country standards.
    (B) U.S. affiliates of foreign banking entities. With respect to a
banking entity that is located or organized under the laws of the
United States or of any State and is controlled by a foreign banking
entity identified under paragraph (c)(2)(iii)(A) of this section, the
banking entity's tier 1 capital shall be as calculated under paragraphs
(c)(2)(i) or (ii) of this section.
    (d) Capital treatment for a permitted investment in a covered fund.
For purposes of calculating compliance with the applicable regulatory
capital requirements, a banking entity shall deduct from the banking
entity's tier 1 capital (as determined under paragraph (c)(2) of this
section) the greater of:
    (1) The sum of all amounts paid or contributed by the banking
entity in connection with acquiring or retaining an ownership interest
(together with any amounts paid by the entity (or employee thereof) in
connection with obtaining a restricted profit interest under Sec.  ----
--.10(d)(6)(ii) of subpart C), on a historical cost basis, plus any
earnings received; and
    (2) The fair market value of the banking entity's ownership
interests in the covered fund as determined under paragraph (b)(2)(ii)
or (b)(3) of this section (together with any amounts paid by the entity
(or employee thereof) in connection with obtaining a restricted profit
interest under Sec.  ------.10(d)(6)(ii) of subpart C), if the banking
entity accounts for the profits (or losses) of the fund investment in
its financial statements.
    (e) Extension of time to divest an ownership interest. (1) Upon
application by a banking entity, the Board may extend the period under
paragraph (a)(2)(i) of this section for up to 2 additional years if the
Board finds that an extension would be consistent with safety and
soundness and not detrimental to the public interest. An application
for extension must:

    (i) Be submitted to the Board at least 90 days prior to the
expiration of the applicable time period;
    (ii) Provide the reasons for application, including information
that addresses the factors in paragraph (e)(2) of this section; and
    (iii) Explain the banking entity's plan for reducing the permitted
investment in a covered fund through redemption, sale, dilution or
other methods as required in paragraph (a)(2) of this section.
    (2) Factors governing Board determinations. In reviewing any
application under paragraph (e)(1) of this section, the Board may
consider all the facts and circumstances related to the permitted
investment in a covered fund, including:
    (i) Whether the investment would result, directly or indirectly, in
a material exposure by the banking entity to high-risk assets or high-
risk trading strategies;
    (ii) The contractual terms governing the banking entity's interest
in the covered fund;
    (iii) The date on which the covered fund is expected to have
attracted sufficient investments from investors unaffiliated with the
banking entity to enable the banking entity to comply with the
limitations in paragraph (a)(2)(i) of this section;
    (iv) The total exposure of the covered banking entity to the
investment and the risks that disposing of, or maintaining, the
investment in the covered fund may pose to the banking entity and the
financial stability of the United States;
    (v) The cost to the banking entity of divesting or disposing of the
investment within the applicable period;
    (vi) Whether the investment or the divestiture or conformance of
the investment would involve or result in a material conflict of
interest between the banking entity and unaffiliated parties, including
clients, customers or counterparties to which it owes a duty;
    (vi) The banking entity's prior efforts to reduce through
redemption, sale, dilution, or other methods its ownership interests in
the covered fund, including activities related to the marketing of
interests in such covered fund;
    (viii) Market conditions; and
    (ix) Any other factor that the Board believes appropriate.
    (3) Authority to impose restrictions on activities or investment
during any extension period. The Board may impose such conditions on
any extension approved under paragraph (e)(1) of this section as the
Board determines are necessary or appropriate to protect the safety and
soundness of the banking entity or the financial stability of the
United States, address material conflicts of interest or other unsound
banking practices, or otherwise further the purposes of section 13 of
the BHC Act and this part.
    (4) Consultation. In the case of a banking entity that is primarily
regulated by another Federal banking agency, the SEC, or the CFTC, the
Board will consult with such agency prior to acting on an application
by the banking entity for an extension under paragraph (e)(1) of this
section.

Sec.  ----.13  Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec.  ------.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 demonstrably reduce
or otherwise significantly mitigate the specific, identifiable risks to
the banking entity in connection with 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.
    (2) Requirements. 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 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; 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 and demonstrably reduces or otherwise
significantly mitigates one or more specific, identifiable risks
arising 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) The compensation arrangement relates solely to the covered
fund in which the banking entity or any affiliate has acquired an
ownership interest pursuant to this paragraph 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) Certain permitted covered fund activities and investments
outside of the United States. (1) The prohibition contained in Sec.  --
--.10(a) of this subpart does not apply to the acquisition or retention
of any ownership interest in, or the sponsorship of, a covered fund by
a banking entity only if:
    (i) The banking entity is not organized or directly or indirectly
controlled by a banking entity that is organized under the laws of the
United States or of one or more States;
    (ii) The activity or investment by the banking entity is pursuant
to paragraph (9) or (13) of section 4(c) of the BHC Act;
    (iii) No ownership interest in the covered fund is offered for sale
or sold to a resident of the United States; and
    (iv) The activity or investment occurs solely outside of the United
States.
    (2) An activity or investment by the banking entity is pursuant to
paragraph (9) or (13) of section 4(c) of the BHC Act for purposes of
paragraph (b)(1)(ii) of this section only if:
    (i) The activity or investment is conducted in accordance with the
requirements of this section; and
    (ii)(A) With respect to a banking entity that is a foreign banking
organization, the banking entity meets the qualifying foreign banking
organization requirements of section 211.23(a), (c) or (e) of the
Board's Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
    (B) With respect to a banking entity that is not a foreign banking
organization, the banking entity is not organized under the laws of the
United States or of one or more States and the banking entity, on a
fully-consolidated basis, meets at least two of the following
requirements:
    (1) Total assets of the banking entity held outside of the United
States exceed total assets of the banking entity held in the United
States;
    (2) Total revenues derived from the business of the banking entity
outside of the United States exceed total revenues

derived from the business of the banking entity in the United States;
or
    (3) Total net income derived from the business of the banking
entity outside of the United States exceeds total net income derived
from the business of the banking entity in the United States.
    (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 sold or has been sold
pursuant to an offering that does not target residents of the United
States.
    (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;
    (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
United States or organized under the laws of the United States or of
any State; and
    (iv) No financing for the banking entity's ownership or sponsorship
is provided, directly or indirectly, 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.
    (5) For purposes of this section, a U.S. branch, agency, or
subsidiary of a foreign bank, or any subsidiary thereof, is located in
the United States; however, a foreign bank of which that branch,
agency, or subsidiary is a part is not considered to be located in the
United States solely by virtue of operation of the U.S. branch, agency,
or subsidiary.
    (c) Permitted covered fund interests and activities by a regulated
insurance company. The prohibition contained in Sec.  ----.10(a) of
this subpart does not apply to the acquisition or retention by an
insurance company, or an affiliate thereof, of any ownership interest
in, or the sponsorship of, a covered fund only if:
    (1) The insurance company or its affiliate acquires and retains the
ownership interest solely for the general account of the insurance
company or for one or more separate accounts established by the
insurance company;
    (2) The acquisition and retention of the ownership interest is
conducted in compliance with, and subject to, the insurance company
investment laws, regulations, and written guidance of the State or
jurisdiction in which such insurance company is domiciled; and
    (3) The appropriate Federal banking agencies, after consultation
with the Financial Stability Oversight Council and the relevant
insurance commissioners of the States and foreign jurisdictions, as
appropriate, have not jointly determined, after notice and comment,
that a particular law, regulation, or written guidance described in
paragraph (c)(2) of this section is insufficient to protect the safety
and soundness of the banking entity, or the financial stability of the
United States.

Sec.  ----.14  Limitations on relationships with a covered fund.

    (a) Relationships with a covered fund. (1) Except as provided for
in paragraph (a)(2) of this section, no banking entity that serves,
directly or indirectly, as the investment manager, investment adviser,
commodity trading advisor, or sponsor to a covered fund, that organizes
and offers a covered fund pursuant to Sec.  ----.11 of this subpart, or
that continues to hold an ownership interest in accordance with Sec.
----.11(b) of this subpart, and no affiliate of such entity, may enter
into a transaction with the covered fund, or with any other covered
fund that is controlled by such covered fund, that would be a covered
transaction as defined in section 23A of the Federal Reserve Act (12
U.S.C. 371c(b)(7)), as if such banking entity and the affiliate thereof
were a member bank and the covered fund were an affiliate thereof.
    (2) Notwithstanding paragraph (a)(1) of this section, a banking
entity may:
    (i) Acquire and retain any ownership interest in a covered fund in
accordance with the requirements of Sec.  ----.11, Sec.  ----.12, or
Sec.  ----.13 of this subpart; and
    (ii) Enter into any prime brokerage transaction with any covered
fund in which a covered fund managed, sponsored, or advised by such
banking entity (or an affiliate thereof) has taken an ownership
interest, if:
    (A) The banking entity is in compliance with each of the
limitations set forth in Sec.  ----.11 of this subpart with respect to
a covered fund organized and offered by such banking entity (or an
affiliate thereof);
    (B) The chief executive officer (or equivalent officer) of the
banking entity certifies in writing annually to [Agency] (with a duty
to update the certification if the information in the certification
materially changes) that the banking entity does not, directly or
indirectly, guarantee, assume, or otherwise insure the obligations or
performance of the covered fund or of any covered fund in which such
covered fund invests; and
    (C) The Board has not determined that such transaction is
inconsistent with the safe and sound operation and condition of the
banking entity.
    (b) Restrictions on transactions with covered funds. A banking
entity that serves, directly or indirectly, as the investment manager,
investment adviser, commodity trading advisor, or sponsor to a covered
fund, or that organizes and offers a covered fund pursuant to Sec.  --
--.11 of this subpart, or that continues to hold an ownership interest
in accordance with Sec.  ----.11(b) of this subpart, shall be subject
to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1), as if
such banking entity were a member bank and such covered fund were an
affiliate thereof.
    (c) Restrictions on prime brokerage transactions. A prime brokerage
transaction permitted under paragraph (a)(2)(ii) of this section shall
be subject to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1)
as if the counterparty were an affiliate of the banking entity.

Sec.  ----.15  Other limitations on permitted covered fund activities.

    (a) No transaction, class of transactions, or activity may be
deemed permissible under Sec. Sec.  ----.11 through ----.13 of this
subpart if the transaction, class of transactions, or activity would:
    (1) Involve or result in a material conflict of interest between
the banking entity and its clients, customers, or counterparties;
    (2) Result, directly or indirectly, in a material exposure by the
banking entity to a high-risk asset or a high-risk trading strategy; or
    (3) Pose a threat to the safety and soundness of the banking entity
or to the financial stability of the United States.
    (b) Definition of material conflict of interest. (1) For purposes
of this section, a material conflict of interest between a banking
entity and its clients, customers, or counterparties exists if the
banking entity engages in any transaction, class of transactions, or
activity that would involve or result in the banking entity's interests
being materially adverse to the interests of its client, customer, or
counterparty with

respect to such transaction, class of transactions, or activity, and
the banking entity has not taken at least one of the actions in
paragraph (b)(2) of this section.
    (2) Prior to effecting the specific transaction or class or type of
transactions, or engaging in the specific activity, the banking entity:
    (i) Timely and effective disclosure. (A) Has made clear, timely,
and effective disclosure of the conflict of interest, together with
other necessary information, in reasonable detail and in a manner
sufficient to permit a reasonable client, customer, or counterparty to
meaningfully understand the conflict of interest; and
    (B) Such disclosure is made in a manner that provides the client,
customer, or counterparty the opportunity to negate, or substantially
mitigate, any materially adverse effect on the client, customer, or
counterparty created by the conflict of interest; or
    (ii) Information barriers. Has established, maintained, and
enforced information barriers that are memorialized in written policies
and procedures, such as physical separation of personnel, or functions,
or limitations on types of activity, that are reasonably designed,
taking into consideration the nature of the banking entity's business,
to prevent the conflict of interest from involving or resulting in a
materially adverse effect on a client, customer, or counterparty. A
banking entity may not rely on such information barriers if, in the
case of any specific transaction, class or type of transactions or
activity, the banking entity knows or should reasonably know that,
notwithstanding the banking entity's establishment of information
barriers, the conflict of interest may involve or result in a
materially adverse effect on a client, customer, or counterparty.
    (c) Definition of high-risk asset and high-risk trading strategy.
For purposes of this section:
    (1) High-risk asset means an asset or group of related assets that
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.  ----.16  [Reserved]

Sec.  ----.17  [Reserved]

Sec.  ----.18  [Reserved]

Sec.  ----.19  [Reserved]

Subpart D--Compliance Program Requirement; Violations

Sec.  ----.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.  ----.3 to ----.6
of subpart B), including setting, monitoring and managing required
limits set out in Sec.  ----4 and Sec.  ----5, and activities and
investments with respect to a covered fund subject to subpart C
(including those permitted under Sec. Sec.  ----.11 through ----.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 [Agency] upon request and retain for a period of no less than 5
years or such longer period as required by [Agency].
    (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) [Agency] 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) [Agency] 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 [Agency] 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 [Agency] 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.  ----.10(c)(1),----.10(c)(5), ----.10(c)(8), --
--.10(c)(9), or ----.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.  ----.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.  ----.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.  ----.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.  --
--.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.  ----.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.  ----.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.  ----.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 [Agency] 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, [Agency] 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 ------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.
----.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 [Agency] 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.  ----.20 and Appendix B.
    b. The purpose of this appendix is to assist banking entities
and [Agency] 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.  ----.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.  ----.4, ----.5, or ----.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 [Agency] 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.  ----.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.  ----.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.  ----.4 through ----.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 [Agency], 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.  ----.2 and ----.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.  ----.4, ----.5, ----.6(a), or ----.6(b). A
banking entity may include trading under Sec. Sec.  ----.3(d), --
--.6(c), ----.6(d) or ----.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.  ----.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 [Agency] on the reporting
schedule established in Sec.  ----.20 unless otherwise requested by
[Agency]. All quantitative measurements for any calendar month must
be reported within the time period required by Sec.  ----.20.

c. Recordkeeping

    A banking entity must, for any quantitative measurement
furnished to [Agency] pursuant to this appendix and Sec.  --
--.20(d), create and maintain records documenting the preparation
and content of these reports, as well as such information as is
necessary to permit [Agency] 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.  ----.4 and Sec.  ----.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.  ----.4(b) and hedging activity under Sec.  ----.5.
Accordingly, the limits required under Sec.  ----.4(b)(2)(iii) and
Sec.  ----.5(b)(1)(i) must meet the applicable requirements under
Sec.  ----.4(b)(2)(iii) and Sec.  ----.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 [Agency], 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.  ----.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 ------Enhanced Minimum Standards for Compliance
Programs

I. Overview

    Section ----.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.  ----.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.  ----.4(b) and for hedging activity
conducted in reliance on Sec.  ----.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.  ----.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 [Agency], 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.  ----.4 through ----.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.  ----.3(d)(3), and ----.4
through ----.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.  ----.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.  ----.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.  ----.12 or registered in
compliance with the securities laws and thereby exempt from those
limits within the time periods allotted inSec.  ----.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.  ----.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.  --
--.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.  ----.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.  ----.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.  ----.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.  ----.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.  ----.4 or risk-mitigating hedging activities under Sec.
----.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 [Agency] 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.  ----.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 [Agency] in a form that allows it to promptly
produce such records to [Agency] on request.
End of Common Rule

List of Subjects

12 CFR Part 44

    Banks, Banking, Capital Compensation, Credit, Derivatives,
Government securities, Insurance, Investments, National banks, Federal
savings associations, Federal branches and agencies, Penalties,
Reporting and recordkeeping requirements, Risk, Risk retention,
Securities, Trusts and trustees

12 CFR Part 248

    Administrative practice and procedure, Banks and banking, Capital,
Compensation, Conflict of interests, Credit, Derivatives, Foreign
banking, Government securities, Holding companies, Insurance, Insurance
companies, Investments, Penalties, Reporting and recordkeeping
requirements, Risk, Risk retention, Securities, Trusts and trustees.

12 CFR Part 351

    Banks, Banking, Capital, Compensation, Conflicts of interest,
Credit, Derivatives, Government securities, Insurance, Insurance
companies, Investments, Penalties, Reporting and recordkeeping
requirements, Risk, Risk retention, Securities, State nonmember banks,
State savings associations, Trusts and trustees.

17 CFR Part 255

    Banks, Brokers, Dealers, Investment advisers, Recordkeeping,
Reporting, Securities.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

Authority and Issuance

    For the reasons stated in the Common Preamble, the Office of the
Comptroller of the Currency hereby amends chapter I of Title 12, Code
of Federal Regulations as follows:

PART 44--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
1. The authority for part 44 is added to read as follows:

    Authority:  7 U.S.C. 27 et seq., 12 U.S.C. 1, 24, 92a, 93a, 161,
1461, 1462a, 1463, 1464, 1467a, 1813(q), 1818, 1851, 3101 3102,
3108, 5412.

0
2. Part 44 is added as set forth at the end of the Common Preamble.

0
3. Part 44 is amended by:
0
a. Removing ``[Agency]'' wherever it appears and adding in its place
``the OCC''; and
0
b. Removing ``the [Agency]'' wherever it appears and adding in its
place ``the OCC''.
0
4. Section 44.1 is revised to read as follows:

Sec.  44.1  Authority, purpose, scope, and relationship to other
authorities.

    (a) Authority. This part is issued by the OCC under section 13 of
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes
prohibitions and restrictions on proprietary trading and on investments
in or relationships with covered funds by certain banking entities,
including national banks, Federal branches and agencies of foreign
banks, Federal savings associations, and certain subsidiaries thereof.
This part implements section 13 of the Bank Holding Company Act by
defining terms used in the statute and related terms, establishing
prohibitions and restrictions on proprietary trading and on investments
in or relationships with covered funds, and explaining the statute's
requirements.
    (c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the OCC is
authorized to issue regulations under section 13(b)(2) of the Bank
Holding Company Act (12 U.S.C. 1851(b)(2)) and take actions under
section 13(e) of that Act (12 U.S.C. 1851(e)). These include national
banks, Federal branches and Federal agencies of foreign banks, Federal
savings associations, Federal savings banks, and any of their
respective subsidiaries (except a subsidiary for which there is a
different primary financial regulatory agency, as that term is defined
in this part).
    (d) Relationship to other authorities. Except as otherwise provided
under section 13 of the Bank Holding Company Act or this part, and
notwithstanding any other provision of law, the prohibitions and
restrictions under section 13 of the Bank Holding Company Act and this
part shall apply to the activities and investments of a banking entity
identified in paragraph (c) of this section, even if such activities
and investments are authorized for the banking entity under other
applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any
way the authority of the OCC to impose on a banking entity identified
in paragraph (c) of this section additional requirements or
restrictions with respect to any activity, investment, or relationship
covered under section 13 of the Bank Holding Company Act or this part,
or additional penalties for violation of this part provided under any
other applicable provision of law.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE

Authority and Issuance

    For the reasons set forth in the Supplementary Information, the
Board of Governors of the Federal Reserve System is adding the text of
the common rule as set forth at the end of the SUPPLEMENTARY
INFORMATION as Part 248 to 12 CFR Chapter II as follows:

PART 248--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS (Regulation VV)

0
5. The authority for part 248 is added to read as follows:

    Authority: 12 U.S.C. 1851, 12 U.S.C. 221 et seq., 12 U.S.C.
1818, 12 U.S.C. 1841 et seq., and 12 U.S.C. 3103 et seq.

0
6. Part 248 is added as set forth at the end of the Common Preamble.

0
7. Part 248 is amended by removing ``[Agency]'' wherever it appears and
adding in its place ``the Board.''

0
8. Part 248 is amended by removing ``the [Agency]'' wherever it appears
and adding in its place ``the Board.''

0
9. Section 248.1 is revised to read as follows:

Sec.  248.1  Authority, purpose, scope, and relationship to other
authorities.

    (a) Authority. This part (Regulation VV) is issued by the Board
under section 13 of the Bank Holding Company Act of 1956, as amended
(12 U.S.C. 1851), as well as under the Federal Reserve Act, as amended
(12 U.S.C. 221 et seq.); section 8 of the Federal Deposit Insurance
Act, as amended (12 U.S.C. 1818); the Bank Holding Company Act of 1956,
as amended (12 U.S.C. 1841 et seq.); and

the International Banking Act of 1978, as amended (12 U.S.C. 3101 et
seq.).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes
prohibitions and restrictions on proprietary trading and on investments
in or relationships with covered funds by certain banking entities,
including state member banks, bank holding companies, savings and loan
holding companies, other companies that control an insured depository
institution, foreign banking organizations, and certain subsidiaries
thereof. This part implements section 13 of the Bank Holding Company
Act by defining terms used in the statute and related terms,
establishing prohibitions and restrictions on proprietary trading and
on investments in or relationships with covered funds, and explaining
the statute's requirements.
    (c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the Board is
authorized to issue regulations under section 13(b)(2) of the Bank
Holding Company Act (12 U.S.C. 1851(b)(2)) and take actions under
section 13(e) of that Act (12 U.S.C. 1851(e)). These include any state
bank that is a member of the Federal Reserve System, any company that
controls an insured depository institution (including a bank holding
company and savings and loan holding company), any company that is
treated as a bank holding company for purposes of section 8 of the
International Banking Act (12 U.S.C. 3106), and any subsidiary of the
foregoing other than a subsidiary for which the OCC, FDIC, CFTC, or SEC
is the primary financial regulatory agency (as defined in section 2(12)
of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (12 U.S.C. 5301(12)).
    (d) Relationship to other authorities. Except as otherwise provided
under section 13 of the BHC Act or this part, and notwithstanding any
other provision of law, the prohibitions and restrictions under section
13 of BHC Act and this part shall apply to the activities of a banking
entity, even if such activities are authorized for the banking entity
under other applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any
way the authority of the Board to impose on a banking entity identified
in paragraph (c) of this section additional requirements or
restrictions with respect to any activity, investment, or relationship
covered under section 13 of the Bank Holding Company Act or this part,
or additional penalties for violation of this part provided under any
other applicable provision of law.

FEDERAL DEPOSIT INSURANCE CORPORATION

Authority and Issuance

    For the reasons set forth in the Supplementary Information, the
Federal Deposit Insurance Corporation is adding the text of the common
rule as set forth at the end of the Supplementary Information as Part
351 to chapter III of Title 12, Code of Federal Regulations, modified
as follows:

PART 351--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
10. The authority for part 351 is added to read as follows:

    Authority: 12 U.S.C. 1851; 1811 et seq.; 3101 et seq.; and 5412.

0
11. Part 351 is added as set forth at the end of the Common Preamble.

0
12. Part 351 is amended by:
0
a. Removing ``[Agency]'' wherever it appears and adding in its place
``the FDIC;'' and
0
b. Removing ``the [Agency]'' wherever it appears and adding in its
place ``the FDIC.''

0
13. Section 351.1 is revised to read as follows:

Sec.  351.1  Authority, purpose, scope, and relationship to other
authorities.

    (a) Authority. This part is issued by the FDIC under section 13 of
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes
prohibitions and restrictions on proprietary trading and investments in
or relationships with covered funds by certain banking entities,
including any insured depository institution as defined in section
3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)) and
certain subsidiaries thereof for which the FDIC is the appropriate
Federal banking agency as defined in section 3(q) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q)). This part implements section
13 of the Bank Holding Company Act by defining terms used in the
statute and related terms, establishing prohibitions and restrictions
on proprietary trading and investments in or relationships with covered
funds, and explaining the statute's requirements.
    (c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to insured depository institutions for which
the FDIC is the appropriate Federal banking agency, as defined in
section 3(q) of the Federal Deposit Insurance Act, and certain
subsidiaries of the foregoing.
    (d) Relationship to other authorities. Except as otherwise provided
in under section 13 of the Bank Holding Company Act, and
notwithstanding any other provision of law, the prohibitions and
restrictions under section 13 of Bank Holding Company Act shall apply
to the activities and investments of a banking entity, even if such
activities and investments are authorized for a banking entity under
other applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any
way the authority of the FDIC to impose on a banking entity identified
in paragraph (c) of this section additional requirements or
restrictions with respect to any activity, investment, or relationship
covered under section 13 of the Bank Holding Company Act or this part,
or additional penalties for violation of this part provided under any
other applicable provision of law.

SECURITIES AND EXCHANGE COMMISSION

Authority and Issuance

    For the reasons stated in the Common Preamble, the Securities and
Exchange Commission is adding the text of the common rule as set forth
at the end of the Supplementary Information as Part 255 to chapter II
of Title 17, Code of Federal Regulations, modified as follows:

PART 255--PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND
RELATIONSHIPS WITH COVERED FUNDS

0
14. The authority for part 255 is added to read as follows:

    Authority: 12 U.S.C. 1851.

0
15. Part 255 is added as set forth at the end of the Common Preamble.

0
16. Part 255 is amended by:
0
a. Removing ``[Agency]'' wherever it appears and adding in its place
``the SEC;'' and
0
b. Removing ``the [Agency]'' wherever it appears and adding in its
place ``the SEC.''

0
17. Section 255.1 is revised to read as follows:

Sec.  255.1  Authority, purpose, scope, and relationship to other
authorities.

    (a) Authority. This part is issued by the SEC under section 13 of
the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
    (b) Purpose. Section 13 of the Bank Holding Company Act establishes

prohibitions and restrictions on proprietary trading and investments in
or relationships with covered funds by certain banking entities,
including registered broker-dealers, registered investment advisers,
and registered security-based swap dealers, among others identified in
section 2(12)(B) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (12 U.S.C. 5301(12)(B)). This part implements
section 13 of the Bank Holding Company Act by defining terms used in
the statute and related terms, establishing prohibitions and
restrictions on proprietary trading and investments in or relationships
with covered funds, and explaining the statute's requirements.
    (c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities for which the SEC is the
primary financial regulatory agency, as that term is defined in this
part.
    (d) Relationship to other authorities. Except as otherwise provided
under section 13 of the Bank Holding Company Act, and notwithstanding
any other provision of law, the prohibitions and restrictions under
section 13 of Bank Holding Company Act shall apply to the activities
and investments of a banking entity identified in paragraph (c) of this
section, even if such activities and investments are authorized for the
banking entity under other applicable provisions of law.
    (e) Preservation of authority. Nothing in this part limits in any
way the authority of the SEC to impose on a banking entity identified
in paragraph (c) of this section additional requirements or
restrictions with respect to any activity, investment, or relationship
covered under section 13 of the Bank Holding Company Act or this part,
or additional penalties for violation of this part provided under any
other applicable provision of law.

    Dated: December 10, 2013.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve
System, December 23, 2013.
Robert deV. Frierson,
Secretary of the Board.
    By order of the Board of Directors.

    Dated at Washington, DC this 10th day of December, 2013.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary
    By the Securities and Exchange Commission.

    Dated: December 10, 2013.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-31511 Filed 1-30-14; 8:45 am]
BILLING CODE 4810-33-P