(2) Level of exposures to relevant risk factors arising from its
underwriting position; and
    (3) Period of time a security may be held;
    (C) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
    (D) Authorization procedures, including escalation procedures that
require review and approval of any trade that would exceed a trading
desk's limit(s), demonstrable analysis of the basis for any temporary
or permanent increase to a trading desk's limit(s), and independent
review of such demonstrable analysis and approval;
    (iv) The compensation arrangements of persons performing the
activities described in this paragraph (a) are designed not to reward
or incentivize prohibited proprietary trading; and
    (v) The banking entity is licensed or registered to engage in the
activity described in this paragraph (a) in accordance with applicable
law.
    (3) Definition of distribution. For purposes of this paragraph (a),
a distribution of securities means:
    (i) An offering of securities, whether or not subject to
registration under the Securities Act of 1933, that is distinguished
from ordinary trading transactions by the presence of special selling
efforts and selling methods; or
    (ii) An offering of securities made pursuant to an effective
registration statement under the Securities Act of 1933.
    (4) Definition of underwriter. For purposes of this paragraph (a),
underwriter means:
    (i) A person who has agreed with an issuer or selling security
holder to:
    (A) Purchase securities from the issuer or selling security holder
for distribution;
    (B) Engage in a distribution of securities for or on behalf of the
issuer or selling security holder; or
    (C) Manage a distribution of securities for or on behalf of the
issuer or selling security holder; or
    (ii) A person who has agreed to participate or is participating in
a distribution of such securities for or on behalf of the issuer or
selling security holder.
    (5) Definition of selling security holder. For purposes of this
paragraph (a), selling security holder means any person, other than an
issuer, on whose behalf a distribution is made.
    (6) Definition of underwriting position. For purposes of this
paragraph (a), underwriting position means the long or short positions
in one or more securities held by a banking entity or its affiliate,
and managed by a particular trading desk, in connection with a
particular distribution of securities for which such banking entity or
affiliate is acting as an underwriter.
    (7) Definition of client, customer, and counterparty. For purposes
of this paragraph (a), the terms client, customer, and counterparty, on
a collective or individual basis, refer to market participants that may
transact with the banking entity in connection with a particular
distribution for which the banking entity is acting as underwriter.
    (b) Market making-related activities--(1) Permitted market making-
related activities. The prohibition contained in Sec.  248.3(a) does
not apply to a banking entity's market making-related activities
conducted in accordance with this paragraph (b).
    (2) Requirements. The market making-related activities of a banking
entity are permitted under paragraph (b)(1) of this section only if:
    (i) The trading desk that establishes and manages the financial
exposure routinely stands ready to purchase and sell one or more types
of financial instruments related to its financial exposure and is
willing and available to quote, purchase and sell, or otherwise enter
into long and short positions in those types of financial instruments
for its own account, in commercially reasonable amounts and throughout
market cycles on a basis appropriate for the liquidity, maturity, and
depth of the market for the relevant types of financial instruments;
    (ii) The amount, types, and risks of the financial instruments in
the trading desk's market-maker inventory are designed not to exceed,
on an ongoing basis, the reasonably expected near term demands of
clients, customers, or counterparties, based on:
    (A) The liquidity, maturity, and depth of the market for the
relevant types of financial instrument(s); and
    (B) Demonstrable analysis of historical customer demand, current
inventory of financial instruments, and market and other factors
regarding the amount, types, and risks, of or associated with financial
instruments in which the trading desk makes a market, including through
block trades;
    (iii) The banking entity has established and implements, maintains,
and enforces an internal compliance

program required by subpart D of this part that is reasonably designed
to ensure the banking entity's compliance with the requirements of
paragraph (b) of this section, including reasonably designed written
policies and procedures, internal controls, analysis and independent
testing identifying and addressing:
    (A) The financial instruments each trading desk stands ready to
purchase and sell in accordance with paragraph (b)(2)(i) of this
section;
    (B) The actions the trading desk will take to demonstrably reduce
or otherwise significantly mitigate promptly the risks of its financial
exposure consistent with the limits required under paragraph
(b)(2)(iii)(C) of this section; the products, instruments, and
exposures each trading desk may use for risk management purposes; the
techniques and strategies each trading desk may use to manage the risks
of its market making-related activities and inventory; and the process,
strategies, and personnel responsible for ensuring that the actions
taken by the trading desk to mitigate these risks are and continue to
be effective;
    (C) Limits for each trading desk, based on the nature and amount of
the trading desk's market making-related activities, that address the
factors prescribed by paragraph (b)(2)(ii) of this section, on:
    (1) The amount, types, and risks of its market-maker inventory;
    (2) The amount, types, and risks of the products, instruments, and
exposures the trading desk may use for risk management purposes;
    (3) The level of exposures to relevant risk factors arising from
its financial exposure; and
    (4) The period of time a financial instrument may be held;
    (D) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
    (E) Authorization procedures, including escalation procedures that
require review and approval of any trade that would exceed a trading
desk's limit(s), demonstrable analysis that the basis for any temporary
or permanent increase to a trading desk's limit(s) is consistent with
the requirements of this paragraph (b), and independent review of such
demonstrable analysis and approval;
    (iv) To the extent that any limit identified pursuant to paragraph
(b)(2)(iii)(C) of this section is exceeded, the trading desk takes
action to bring the trading desk into compliance with the limits as
promptly as possible after the limit is exceeded;
    (v) The compensation arrangements of persons performing the
activities described in this paragraph (b) are designed not to reward
or incentivize prohibited proprietary trading; and
    (vi) The banking entity is licensed or registered to engage in
activity described in this paragraph (b) in accordance with applicable
law.
    (3) Definition of client, customer, and counterparty. For purposes
of paragraph (b) of this section, the terms client, customer, and
counterparty, on a collective or individual basis refer to market
participants that make use of the banking entity's market making-
related services by obtaining such services, responding to quotations,
or entering into a continuing relationship with respect to such
services, provided that:
    (i) A trading desk or other organizational unit of another banking
entity is not a client, customer, or counterparty of the trading desk
if that other entity has trading assets and liabilities of $50 billion
or more as measured in accordance with Sec.  248.20(d)(1) of subpart D,
unless:
    (A) The trading desk documents how and why a particular trading
desk or other organizational unit of the entity should be treated as a
client, customer, or counterparty of the trading desk for purposes of
paragraph (b)(2) of this section; or
    (B) The purchase or sale by the trading desk is conducted
anonymously on an exchange or similar trading facility that permits
trading on behalf of a broad range of market participants.
    (4) Definition of financial exposure. For purposes of this
paragraph (b), financial exposure means the aggregate risks of one or
more financial instruments and any associated loans, commodities, or
foreign exchange or currency, held by a banking entity or its affiliate
and managed by a particular trading desk as part of the trading desk's
market making-related activities.
    (5) Definition of market-maker inventory. For the purposes of this
paragraph (b), market-maker inventory means all of the positions in the
financial instruments for which the trading desk stands ready to make a
market in accordance with paragraph (b)(2)(i) of this section, that are
managed by the trading desk, including the trading desk's open
positions or exposures arising from open transactions.

Sec.  248.5   Permitted risk-mitigating hedging activities.

    (a) Permitted risk-mitigating hedging activities. The prohibition
contained in Sec.  248.3(a) does not apply to the risk-mitigating
hedging activities of a banking entity in connection with and related
to individual or aggregated positions, contracts, or other holdings of
the banking entity and designed to reduce the specific risks to the
banking entity in connection with and related to such positions,
contracts, or other holdings.
    (b) Requirements. The risk-mitigating hedging activities of a
banking entity are permitted under paragraph (a) of this section only
if:
    (1) 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:
    (i) Reasonably designed written policies and procedures regarding
the positions, techniques and strategies that may be used for hedging,
including documentation indicating what positions, contracts or other
holdings a particular trading desk may use in its risk-mitigating
hedging activities, as well as position and aging limits with respect
to such positions, contracts or other holdings;
    (ii) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
    (iii) The conduct of analysis, including correlation analysis, and
independent testing designed to ensure that the positions, techniques
and strategies that may be used for hedging may reasonably be expected
to demonstrably reduce or otherwise significantly mitigate the
specific, identifiable risk(s) being hedged, and such correlation
analysis demonstrates that the hedging activity demonstrably reduces or
otherwise significantly mitigates the specific, identifiable risk(s)
being hedged;
    (2) The risk-mitigating hedging activity:
    (i) Is conducted in accordance with the written policies,
procedures, and internal controls required under this section;
    (ii) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise significantly mitigate and demonstrably reduces or
otherwise significantly mitigates one or more specific, identifiable
risks, including market risk, counterparty or other credit risk,
currency or foreign exchange risk, interest rate risk, commodity price
risk, basis risk, or similar risks, arising in connection with and
related to identified positions, contracts, or other holdings of the
banking entity, based upon the facts and circumstances of the
identified underlying and hedging

positions, contracts or other holdings and the risks and liquidity
thereof;
    (iii) 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;
    (iv) Is subject to continuing review, monitoring and management by
the banking entity that:
    (A) Is consistent with the written hedging policies and procedures
required under paragraph (b)(1) of this section;
    (B) Is designed to reduce or otherwise significantly mitigate and
demonstrably reduces or otherwise significantly mitigates the specific,
identifiable risks that develop over time from the risk-mitigating
hedging activities undertaken under this section and the underlying
positions, contracts, and other holdings of the banking entity, based
upon the facts and circumstances of the underlying and hedging
positions, contracts and other holdings of the banking entity and the
risks and liquidity thereof; and
    (C) Requires ongoing recalibration of the hedging activity by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(2) of this section and is not
prohibited proprietary trading; and
    (3) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize
prohibited proprietary trading.
    (c) Documentation requirement. (1) A banking entity must comply
with the requirements of paragraphs (c)(2) and (3) of this section with
respect to any purchase or sale of financial instruments made in
reliance on this section for risk-mitigating hedging purposes that is:
    (i) Not established by the specific trading desk establishing or
responsible for the underlying positions, contracts, or other holdings
the risks of which the hedging activity is designed to reduce;
    (ii) Established by the specific trading desk establishing or
responsible for the underlying positions, contracts, or other holdings
the risks of which the purchases or sales are designed to reduce, but
that is effected through a financial instrument, exposure, technique,
or strategy that is not specifically identified in the trading desk's
written policies and procedures established under paragraph (b)(1) of
this section or under Sec.  248.4(b)(2)(iii)(B) of this subpart as a
product, instrument, exposure, technique, or strategy such trading desk
may use for hedging; or
    (iii) Established to hedge aggregated positions across two or more
trading desks.
    (2) In connection with any purchase or sale identified in paragraph
(c)(1) of this section, a banking entity must, at a minimum, and
contemporaneously with the purchase or sale, document:
    (i) The specific, identifiable risk(s) of the identified positions,
contracts, or other holdings of the banking entity that the purchase or
sale is designed to reduce;
    (ii) The specific risk-mitigating strategy that the purchase or
sale is designed to fulfill; and
    (iii) The trading desk or other business unit that is establishing
and responsible for the hedge.
    (3) A banking entity must create and retain records sufficient to
demonstrate compliance with the requirements of this paragraph (c) for
a period that is no less than five years in a form that allows the
banking entity to promptly produce such records to the Board on
request, or such longer period as required under other law or this
part.

Sec.  248.6   Other permitted proprietary trading activities.

    (a) Permitted trading in domestic government obligations. The
prohibition contained in Sec.  248.3(a) does not apply to the purchase
or sale by a banking entity of a financial instrument that is:
    (1) An obligation of, or issued or guaranteed by, the United
States;
    (2) An obligation, participation, or other instrument of, or issued
or guaranteed by, an agency of the United States, the Government
National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, a Federal Home
Loan Bank, the Federal Agricultural Mortgage Corporation or a Farm
Credit System institution chartered under and subject to the provisions
of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
    (3) An obligation of any State or any political subdivision
thereof, including any municipal security; or
    (4) An obligation of the FDIC, or any entity formed by or on behalf
of the FDIC for purpose of facilitating the disposal of assets acquired
or held by the FDIC in its corporate capacity or as conservator or
receiver under the Federal Deposit Insurance Act or Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
    (b) Permitted trading in foreign government obligations--(1)
Affiliates of foreign banking entities in the United States. The
prohibition contained in Sec.  248.3(a) does not apply to the purchase
or sale of a financial instrument that is an obligation of, or issued
or guaranteed by, a foreign sovereign (including any multinational
central bank of which the foreign sovereign is a member), or any agency
or political subdivision of such foreign sovereign, by a banking
entity, so long as:
    (i) The banking entity is organized under or is directly or
indirectly controlled by a banking entity that is organized under the
laws of a foreign sovereign and is not directly or indirectly
controlled by a top-tier banking entity that is organized under the
laws of the United States;
    (ii) The financial instrument is an obligation of, or issued or
guaranteed by, the foreign sovereign under the laws of which the
foreign banking entity referred to in paragraph (b)(1)(i) of this
section is organized (including any multinational central bank of which
the foreign sovereign is a member), or any agency or political
subdivision of that foreign sovereign; and
    (iii) The purchase or sale as principal is not made by an insured
depository institution.
    (2) Foreign affiliates of a U.S. banking entity. The prohibition
contained in Sec.  248.3(a) does not apply to the purchase or sale of a
financial instrument that is an obligation of, or issued or guaranteed
by, a foreign sovereign (including any multinational central bank of
which the foreign sovereign is a member), or any agency or political
subdivision of that foreign sovereign, by a foreign entity that is
owned or controlled by a banking entity organized or established under
the laws of the United States or any State, so long as:
    (i) The foreign entity is a foreign bank, as defined in section
211.2(j) of the Board's Regulation K (12 CFR 211.2(j)), or is regulated
by the foreign sovereign as a securities dealer;
    (ii) The financial instrument is an obligation of, or issued or
guaranteed by, the foreign sovereign under the laws of which the
foreign entity is organized (including any multinational central bank
of which the foreign sovereign is a member), or any agency or political
subdivision of that foreign sovereign; and
    (iii) The financial instrument is owned by the foreign entity and
is not financed by an affiliate that is located in the United States or
organized under the laws of the United States or of any State.
    (c) Permitted trading on behalf of customers--(1) Fiduciary
transactions. The prohibition contained in Sec.  248.3(a) does not
apply to the purchase or sale of financial instruments by a banking

entity acting as trustee or in a similar fiduciary capacity, so long
as:
    (i) The transaction is conducted for the account of, or on behalf
of, a customer; and
    (ii) The banking entity does not have or retain beneficial
ownership of the financial instruments.
    (2) Riskless principal transactions. The prohibition contained in
Sec.  248.3(a) does not apply to the purchase or sale of financial
instruments by a banking entity acting as riskless principal in a
transaction in which the banking entity, after receiving an order to
purchase (or sell) a financial instrument from a customer, purchases
(or sells) the financial instrument for its own account to offset a
contemporaneous sale to (or purchase from) the customer.
    (d) Permitted trading by a regulated insurance company. The
prohibition contained in Sec.  248.3(a) does not apply to the purchase
or sale of financial instruments by a banking entity that is an
insurance company or an affiliate of an insurance company if:
    (1) The insurance company or its affiliate purchases or sells the
financial instruments solely for:
    (i) The general account of the insurance company; or
    (ii) A separate account established by the insurance company;
    (2) The purchase or sale 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 (d)(2) of this section is insufficient to protect the safety
and soundness of the covered banking entity, or the financial stability
of the United States.
    (e) Permitted trading activities of foreign banking entities. (1)
The prohibition contained in Sec.  248.3(a) does not apply to the
purchase or sale of financial instruments by a banking entity 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 any State;
    (ii) The purchase or sale by the banking entity is made pursuant to
paragraph (9) or (13) of section 4(c) of the BHC Act; and
    (iii) The purchase or sale meets the requirements of paragraph
(e)(3) of this section.
    (2) A purchase or sale of financial instruments by a banking entity
is made pursuant to paragraph (9) or (13) of section 4(c) of the BHC
Act for purposes of paragraph (e)(1)(ii) of this section only if:
    (i) The purchase or sale is conducted in accordance with the
requirements of paragraph (e) 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 any State 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) A purchase or sale by a banking entity is permitted for
purposes of this paragraph (e) if:
    (i) The banking entity engaging as principal in the purchase or
sale (including any personnel of the banking entity or its affiliate
that arrange, negotiate or execute such purchase or sale) is not
located in the United States or organized under the laws of the United
States or of any State;
    (ii) The banking entity (including relevant personnel) that makes
the decision to purchase or sell as principal is not located in the
United States or organized under the laws of the United States or of
any State;
    (iii) The purchase or sale, including any transaction arising from
risk-mitigating hedging related to the instruments purchased or sold,
is not accounted for as principal directly or on a consolidated basis
by any branch or affiliate that is located in the United States or
organized under the laws of the United States or of any State;
    (iv) No financing for the banking entity's purchases or sales 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; and
    (v) The purchase or sale is not conducted with or through any U.S.
entity, other than:
    (A) A purchase or sale with the foreign operations of a U.S. entity
if no personnel of such U.S. entity that are located in the United
States are involved in the arrangement, negotiation, or execution of
such purchase or sale;
    (B) A purchase or sale with an unaffiliated market intermediary
acting as principal, provided the purchase or sale is promptly cleared
and settled through a clearing agency or derivatives clearing
organization acting as a central counterparty; or
    (C) A purchase or sale through an unaffiliated market intermediary
acting as agent, provided the purchase or sale is conducted anonymously
on an exchange or similar trading facility and is promptly cleared and
settled through a clearing agency or derivatives clearing organization
acting as a central counterparty.
    (4) For purposes of this paragraph (e), a U.S. entity is any entity
that is, or is controlled by, or is acting on behalf of, or at the
direction of, any other entity 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 paragraph (e), a U.S. branch, agency, or
subsidiary of a foreign banking entity is considered to be 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.
    (6) For purposes of this paragraph (e), unaffiliated market
intermediary means an unaffiliated entity, acting as an intermediary,
that is:
    (i) A broker or dealer registered with the SEC under section 15 of
the Exchange Act or exempt from registration or excluded from
regulation as such;
    (ii) A swap dealer registered with the CFTC under section 4s of the
Commodity Exchange Act or exempt from registration or excluded from
regulation as such;
    (iii) A security-based swap dealer registered with the SEC under
section 15F of the Exchange Act or exempt from registration or excluded
from regulation as such; or

    (iv) A futures commission merchant registered with the CFTC under
section 4f of the Commodity Exchange Act or exempt from registration or
excluded from regulation as such.

Sec.  248.7   Limitations on permitted proprietary trading activities.

    (a) No transaction, class of transactions, or activity may be
deemed permissible under Sec. Sec.  248.4 through 248.6 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. Sec.  248.8-248.9   [Reserved]

Subpart C--Covered Funds Activities and Investments

Sec.  248.10   Prohibition on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund.

    (a) Prohibition. (1) Except as otherwise provided in this subpart,
a banking entity may not, as principal, directly or indirectly, acquire
or retain any ownership interest in or sponsor a covered fund.
    (2) Paragraph (a)(1) of this section does not include acquiring or
retaining an ownership interest in a covered fund by a banking entity:
    (i) Acting solely as agent, broker, or custodian, so long as;
    (A) The activity is conducted for the account of, or on behalf of,
a customer; and
    (B) The banking entity and its affiliates do not have or retain
beneficial ownership of such ownership interest;
    (ii) Through a deferred compensation, stock-bonus, profit-sharing,
or pension plan of the banking entity (or an affiliate thereof) that is
established and administered in accordance with the law of the United
States or a foreign sovereign, if the ownership interest is held or
controlled directly or indirectly by the banking entity as trustee for
the benefit of persons who are or were employees of the banking entity
(or an affiliate thereof);
    (iii) In the ordinary course of collecting a debt previously
contracted in good faith, provided that the banking entity divests the
ownership interest as soon as practicable, and in no event may the
banking entity retain such ownership interest for longer than such
period permitted by the Board; or
    (iv) On behalf of customers as trustee or in a similar fiduciary
capacity for a customer that is not a covered fund, so long as:
    (A) The activity is conducted for the account of, or on behalf of,
the customer; and
    (B) The banking entity and its affiliates do not have or retain
beneficial ownership of such ownership interest.
    (b) Definition of covered fund. (1) Except as provided in paragraph
(c) of this section, covered fund means:
    (i) An issuer that would be an investment company, as defined in
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), but for
section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7));
    (ii) Any commodity pool under section 1a(10) of the Commodity
Exchange Act (7 U.S.C. 1a(10)) for which:
    (A) The commodity pool operator has claimed an exemption under 17
CFR 4.7; or
    (B)(1) A commodity pool operator is registered with the CFTC as a
commodity pool operator in connection with the operation of the
commodity pool;
    (2) Substantially all participation units of the commodity pool are
owned by qualified eligible persons under 17 CFR 4.7(a)(2) and (3); and
    (3) Participation units of the commodity pool have not been
publicly offered to persons who are not qualified eligible persons
under 17 CFR 4.7(a)(2) and (3); or
    (iii) 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, an entity that:
    (A) Is organized or established outside the United States and the
ownership interests of which are offered and sold solely outside the
United States;
    (B) Is, or holds itself out as being, an entity or arrangement that
raises money from investors primarily for the purpose of investing in
securities for resale or other disposition or otherwise trading in
securities; and
    (C)(1) Has as its sponsor that banking entity (or an affiliate
thereof); or

    (2) Has issued an ownership interest that is owned directly or
indirectly by that banking entity (or an affiliate thereof).
    (2) An issuer shall not be deemed to be a covered fund under
paragraph (b)(1)(iii) of this section if, were the issuer subject to
U.S. securities laws, the issuer could rely on an exclusion or
exemption from the definition of ``investment company'' under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) other than the
exclusions contained in section 3(c)(1) and 3(c)(7) of that Act.
    (3) For purposes of paragraph (b)(1)(iii) 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.
    (c) Notwithstanding paragraph (b) of this section, unless the
appropriate Federal banking agencies, the SEC, and the CFTC jointly
determine otherwise, a covered fund does not include:
    (1) Foreign public funds. (i) Subject to paragraphs (ii) and (iii)
below, an issuer that:
    (A) Is organized or established outside of the United States;
    (B) Is authorized to offer and sell ownership interests to retail
investors in the issuer's home jurisdiction; and
    (C) Sells ownership interests predominantly through one or more
public offerings outside of the United States.
    (ii) With respect to a 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 and any
issuer for which such banking entity acts as sponsor, the sponsoring
banking entity may not rely on the exemption in paragraph (c)(1)(i) of
this section for such issuer unless ownership interests in the issuer
are sold predominantly to persons other than:
    (A) Such sponsoring banking entity;
    (B) Such issuer;
    (C) Affiliates of such sponsoring banking entity or such issuer;
and
    (D) Directors and employees of such entities.
    (iii) For purposes of paragraph (c)(1)(i)(C) of this section, the
term ``public offering'' means a distribution (as defined in Sec.
248.4(a)(3) of subpart B) of securities in any jurisdiction outside the
United States to investors, including retail investors, provided that:
    (A) The distribution complies with all applicable requirements in
the jurisdiction in which such distribution is being made;
    (B) The distribution does not restrict availability to investors
having a minimum level of net worth or net investment assets; and
    (C) The issuer has filed or submitted, with the appropriate
regulatory authority in such jurisdiction, offering disclosure
documents that are publicly available.
    (2) Wholly-owned subsidiaries. An entity, all of the outstanding
ownership interests of which are owned directly or indirectly by the
banking entity (or an affiliate thereof), except that:
    (i) Up to five percent of the entity's outstanding ownership
interests, less any amounts outstanding under paragraph (c)(2)(ii) of
this section, may be held by employees or directors of the banking
entity or such affiliate (including former employees or directors if
their ownership interest was acquired while employed by or in the
service of the banking entity); and
    (ii) Up to 0.5 percent of the entity's outstanding ownership
interests may be held by a third party if the ownership interest is
acquired or retained by the third party for the purpose of establishing
corporate separateness or addressing bankruptcy, insolvency, or similar
concerns.
    (3) Joint ventures. A joint venture between a banking entity or any
of its affiliates and one or more unaffiliated persons, provided that
the joint venture:
    (i) Is comprised of no more than 10 unaffiliated co-venturers;
    (ii) Is in the business of engaging in activities that are
permissible for the banking entity or affiliate, other than investing
in securities for resale or other disposition; and
    (iii) Is not, and does not hold itself out as being, an entity or
arrangement that raises money from investors primarily for the purpose
of investing in securities for resale or other disposition or otherwise
trading in securities.
    (4) Acquisition vehicles. An issuer:
    (i) Formed solely for the purpose of engaging in a bona fide merger
or acquisition transaction; and
    (ii) That exists only for such period as necessary to effectuate
the transaction.
    (5) Foreign pension or retirement funds. A plan, fund, or program
providing pension, retirement, or similar benefits that is:
    (i) Organized and administered outside the United States;
    (ii) A broad-based plan for employees or citizens that is subject
to regulation as a pension, retirement, or similar plan under the laws
of the jurisdiction in which the plan, fund, or program is organized
and administered; and
    (iii) Established for the benefit of citizens or residents of one
or more foreign sovereigns or any political subdivision thereof.
    (6) Insurance company separate accounts. A separate account,
provided that no banking entity other than the insurance company
participates in the account's profits and losses.
    (7) Bank owned life insurance. A separate account that is used
solely for the purpose of allowing one or more banking entities to
purchase a life insurance policy for which the banking entity or
entities is beneficiary, provided that no banking entity that purchases
the policy:
    (i) Controls the investment decisions regarding the underlying
assets or holdings of the separate account; or
    (ii) Participates in the profits and losses of the separate account
other than in compliance with applicable supervisory guidance regarding
bank owned life insurance.
    (8) Loan securitizations--(i) Scope. An issuing entity for asset-
backed securities that satisfies all the conditions of this paragraph
(c)(8) and the assets or holdings of which are comprised solely of:
    (A) Loans as defined in Sec.  248.2(s) of subpart A;
    (B) Rights or other assets designed to assure the servicing or
timely distribution of proceeds to holders of such securities and
rights or other assets that are related or incidental to purchasing or
otherwise acquiring and holding the loans, provided that each asset
meets the requirements of paragraph (c)(8)(iii) of this section;
    (C) Interest rate or foreign exchange derivatives that meet the
requirements of paragraph (c)(8)(iv) of this section; and
    (D) Special units of beneficial interest and collateral
certificates that meet the requirements of paragraph (c)(8)(v) of this
section.
    (ii) Impermissible assets. For purposes of this paragraph (c)(8),
the assets or holdings of the issuing entity shall not include any of
the following:
    (A) A security, including an asset-backed security, or an interest
in an equity or debt security other than as permitted in paragraph
(c)(8)(iii) of this section;
    (B) A derivative, other than a derivative that meets the
requirements of paragraph (c)(8)(iv) of this section; or
    (C) A commodity forward contract.
    (iii) Permitted securities. Notwithstanding paragraph (c)(8)(ii)(A)
of this section, the issuing entity may hold securities if those
securities are:

    (A) Cash equivalents for purposes of the rights and assets in
paragraph (c)(8)(i)(B) of this section; or
    (B) Securities received in lieu of debts previously contracted with
respect to the loans supporting the asset-backed securities.
    (iv) Derivatives. The holdings of derivatives by the issuing entity
shall be limited to interest rate or foreign exchange derivatives that
satisfy all of the following conditions:
    (A) The written terms of the derivative directly relate to the
loans, the asset-backed securities, or the contractual rights of other
assets described in paragraph (c)(8)(i)(B) of this section; and
    (B) The derivatives reduce the interest rate and/or foreign
exchange risks related to the loans, the asset-backed securities, or
the contractual rights or other assets described in paragraph
(c)(8)(i)(B) of this section.
    (v) Special units of beneficial interest and collateral
certificates. The assets or holdings of the issuing entity may include
collateral certificates and special units of beneficial interest issued
by a special purpose vehicle, provided that:
    (A) The special purpose vehicle that issues the special unit of
beneficial interest or collateral certificate meets the requirements in
this paragraph (c)(8);
    (B) The special unit of beneficial interest or collateral
certificate is used for the sole purpose of transferring to the issuing
entity for the loan securitization the economic risks and benefits of
the assets that are permissible for loan securitizations under this
paragraph (c)(8) and does not directly or indirectly transfer any
interest in any other economic or financial exposure;
    (C) The special unit of beneficial interest or collateral
certificate is created solely to satisfy legal requirements or
otherwise facilitate the structuring of the loan securitization; and
    (D) The special purpose vehicle that issues the special unit of
beneficial interest or collateral certificate and the issuing entity
are established under the direction of the same entity that initiated
the loan securitization.
    (9) Qualifying asset-backed commercial paper conduits. (i) An
issuing entity for asset-backed commercial paper that satisfies all of
the following requirements:
    (A) The asset-backed commercial paper conduit holds only:
    (1) Loans and other assets permissible for a loan securitization
under paragraph (c)(8)(i) of this section; and
    (2) Asset-backed securities supported solely by assets that are
permissible for loan securitizations under paragraph (c)(8)(i) of this
section and acquired by the asset-backed commercial paper conduit as
part of an initial issuance either directly from the issuing entity of
the asset-backed securities or directly from an underwriter in the
distribution of the asset-backed securities;
    (B) The asset-backed commercial paper conduit issues only asset-
backed securities, comprised of a residual interest and securities with
a legal maturity of 397 days or less; and
    (C) A regulated liquidity provider has entered into a legally
binding commitment to provide full and unconditional liquidity coverage
with respect to all of the outstanding asset-backed securities issued
by the asset-backed commercial paper conduit (other than any residual
interest) in the event that funds are required to redeem maturing
asset-backed securities.
    (ii) For purposes of this paragraph (c)(9), a regulated liquidity
provider means:
    (A) A depository institution, as defined in section 3(c) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(c));
    (B) A bank holding company, as defined in section 2(a) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(a)), or a subsidiary
thereof;
    (C) A savings and loan holding company, as defined in section 10a
of the Home Owners' Loan Act (12 U.S.C. 1467a), provided all or
substantially all of the holding company's activities are permissible
for a financial holding company under section 4(k) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(k)), or a subsidiary thereof;
    (D) A foreign bank whose home country supervisor, as defined in
Sec.  211.21(q) of the Board's Regulation K (12 CFR 211.21(q)), has
adopted capital standards consistent with the Capital Accord for the
Basel Committee on banking Supervision, as amended, and that is subject
to such standards, or a subsidiary thereof; or
    (E) The United States or a foreign sovereign.
    (10) Qualifying covered bonds--(i) Scope. An entity owning or
holding a dynamic or fixed pool of loans or other assets as provided in
paragraph (c)(8) of this section for the benefit of the holders of
covered bonds, provided that the assets in the pool are comprised
solely of assets that meet the conditions in paragraph (c)(8)(i) of
this section.
    (ii) Covered bond. For purposes of this paragraph (c)(10), a
covered bond means:
    (A) A debt obligation issued by an entity that meets the definition
of foreign banking organization, the payment obligations of which are
fully and unconditionally guaranteed by an entity that meets the
conditions set forth in paragraph (c)(10)(i) of this section; or
    (B) A debt obligation of an entity that meets the conditions set
forth in paragraph (c)(10)(i) of this section, provided that the
payment obligations are fully and unconditionally guaranteed by an
entity that meets the definition of foreign banking organization and
the entity is a wholly-owned subsidiary, as defined in paragraph (c)(2)
of this section, of such foreign banking organization.
    (11) SBICs and public welfare investment funds. An issuer:
    (i) That is a small business investment company, as defined in
section 103(3) of the Small Business Investment Act of 1958 (15 U.S.C.
662), or that has received from the Small Business Administration
notice to proceed to qualify for a license as a small business
investment company, which notice or license has not been revoked; or
    (ii) The business of which is to make investments that are:
    (A) Designed primarily to promote the public welfare, of the type
permitted under paragraph (11) of section 5136 of the Revised Statutes
of the United States (12 U.S.C. 24), including the welfare of low- and
moderate-income communities or families (such as providing housing,
services, or jobs); or
    (B) Qualified rehabilitation expenditures with respect to a
qualified rehabilitated building or certified historic structure, as
such terms are defined in section 47 of the Internal Revenue Code of
1986 or a similar State historic tax credit program.
    (12) Registered investment companies and excluded entities. An
issuer:
    (i) That is registered as an investment company under section 8 of
the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed
and operated pursuant to a written plan to become a registered
investment company as described in Sec.  248.20(e)(3) of subpart D and
that complies with the requirements of section 18 of the Investment
Company Act of 1940 (15 U.S.C. 80a-18);
    (ii) That may rely on an exclusion or exemption from the definition
of ``investment company'' under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.) other than the exclusions contained in section
3(c)(1) and 3(c)(7) of that Act; or
    (iii) That has elected to be regulated as a business development
company pursuant to section 54(a) of that Act (15

U.S.C. 80a-53) and has not withdrawn its election, or that is formed
and operated pursuant to a written plan to become a business
development company as described in Sec.  248.20(e)(3) of subpart D and
that complies with the requirements of section 61 of the Investment
Company Act of 1940 (15 U.S.C. 80a-60).
    (13) Issuers in conjunction with the FDIC's receivership or
conservatorship operations. An issuer that is an entity formed by or on
behalf of the FDIC for the purpose of facilitating the disposal of
assets acquired in the FDIC's capacity as conservator or receiver under
the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
    (14) Other excluded issuers. (i) Any issuer that the appropriate
Federal banking agencies, the SEC, and the CFTC jointly determine the
exclusion of which is consistent with the purposes of section 13 of the
BHC Act.
    (ii) A determination made under paragraph (c)(14)(i) of this
section will be promptly made public.
    (d) Definition of other terms related to covered funds. For
purposes of this subpart:
    (1) Applicable accounting standards means U.S. generally accepted
accounting principles, or such other accounting standards applicable to
a banking entity that the Board determines are appropriate and that the
banking entity uses in the ordinary course of its business in preparing
its consolidated financial statements.
    (2) Asset-backed security has the meaning specified in Section
3(a)(79) of the Exchange Act (15 U.S.C. 78c(a)(79)).
    (3) Director has the same meaning as provided in section
215.2(d)(1) of the Board's Regulation O (12 CFR 215.2(d)(1)).
    (4) Issuer has the same meaning as in section 2(a)(22) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(22)).
    (5) Issuing entity means with respect to asset-backed securities
the special purpose vehicle that owns or holds the pool assets
underlying asset-backed securities and in whose name the asset-backed
securities supported or serviced by the pool assets are issued.
    (6) Ownership interest--(i) Ownership interest means any equity,
partnership, or other similar interest. An ``other similar interest''
means an interest that:
    (A) Has the right to participate in the selection or removal of a
general partner, managing member, member of the board of directors or
trustees, investment manager, investment adviser, or commodity trading
advisor of the covered fund (excluding the rights of a creditor to
exercise remedies upon the occurrence of an event of default or an
acceleration event);
    (B) Has the right under the terms of the interest to receive a
share of the income, gains or profits of the covered fund;
    (C) Has the right to receive the underlying assets of the covered
fund after all other interests have been redeemed and/or paid in full
(excluding the rights of a creditor to exercise remedies upon the
occurrence of an event of default or an acceleration event);
    (D) Has the right to receive all or a portion of excess spread (the
positive difference, if any, between the aggregate interest payments
received from the underlying assets of the covered fund and the
aggregate interest paid to the holders of other outstanding interests);
    (E) Provides under the terms of the interest that the amounts
payable by the covered fund with respect to the interest could be
reduced based on losses arising from the underlying assets of the
covered fund, such as allocation of losses, write-downs or charge-offs
of the outstanding principal balance, or reductions in the amount of
interest due and payable on the interest;
    (F) Receives income on a pass-through basis from the covered fund,
or has a rate of return that is determined by reference to the
performance of the underlying assets of the covered fund; or
    (G) Any synthetic right to have, receive, or be allocated any of
the rights in paragraphs (d)(6)(i)(A) through (F) of this section.
    (ii) Ownership interest does not include: Restricted profit
interest. An interest held by an entity (or an employee or former
employee thereof) in a covered fund for which the entity (or employee
thereof) serves as investment manager, investment adviser, commodity
trading advisor, or other service provider so long as:
    (A) The sole purpose and effect of the interest is to allow the
entity (or employee or former employee thereof) to share in the profits
of the covered fund as performance compensation for the investment
management, investment advisory, commodity trading advisory, or other
services provided to the covered fund by the entity (or employee or
former employee thereof), provided that the entity (or employee or
former employee thereof) may be obligated under the terms of such
interest to return profits previously received;
    (B) All such profit, once allocated, is distributed to the entity
(or employee or former employee thereof) promptly after being earned
or, if not so distributed, is retained by the covered fund for the sole
purpose of establishing a reserve amount to satisfy contractual
obligations with respect to subsequent losses of the covered fund and
such undistributed profit of the entity (or employee or former employee
thereof) does not share in the subsequent investment gains of the
covered fund;
    (C) Any amounts invested in the covered fund, including any amounts
paid by the entity (or employee or former employee thereof) in
connection with obtaining the restricted profit interest, are within
the limits of Sec.  248.12 of this subpart; and
    (D) The interest is not transferable by the entity (or employee or
former employee thereof) except to an affiliate thereof (or an employee
of the banking entity or affiliate), to immediate family members, or
through the intestacy, of the employee or former employee, or in
connection with a sale of the business that gave rise to the restricted
profit interest by the entity (or employee or former employee thereof)
to an unaffiliated party that provides investment management,
investment advisory, commodity trading advisory, or other services to
the fund.
    (7) Prime brokerage transaction means any transaction that would be
a covered transaction, as defined in section 23A(b)(7) of the Federal
Reserve Act (12 U.S.C. 371c(b)(7)), that is provided in connection with
custody, clearance and settlement, securities borrowing or lending
services, trade execution, financing, or data, operational, and
administrative support.
    (8) Resident of the United States means a person that is a ``U.S.
person'' as defined in rule 902(k) of the SEC's Regulation S (17 CFR
230.902(k)).
    (9) Sponsor means, with respect to a covered fund:
    (i) To serve as a general partner, managing member, or trustee of a
covered fund, or to serve as a commodity pool operator with respect to
a covered fund as defined in (b)(1)(ii) of this section;
    (ii) In any manner to select or to control (or to have employees,
officers, or directors, or agents who constitute) a majority of the
directors, trustees, or management of a covered fund; or
    (iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the
same name, except as permitted under Sec.  248.11(a)(6).
    (10) Trustee. (i) For purposes of paragraph (d)(9) of this section
and Sec.  248.11 of subpart C, a trustee does not include:
    (A) A trustee that does not exercise investment discretion with
respect to a

covered fund, including a trustee that is subject to the direction of
an unaffiliated named fiduciary who is not a trustee pursuant to
section 403(a)(1) of the Employee's Retirement Income Security Act (29
U.S.C. 1103(a)(1)); or
    (B) A trustee that is subject to fiduciary standards imposed under
foreign law that are substantially equivalent to those described in
paragraph (d)(10)(i)(A) of this section;
    (ii) Any entity that directs a person described in paragraph
(d)(10)(i) of this section, or that possesses authority and discretion
to manage and control the investment decisions of a covered fund for
which such person serves as trustee, shall be considered to be a
trustee of such covered fund.

Sec.  248.11   Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.

    (a) Organizing and offering a covered fund in general.
Notwithstanding Sec.  248.10(a) of this subpart, a banking entity is
not prohibited from acquiring or retaining an ownership interest in, or
acting as sponsor to, a covered fund in connection with, directly or
indirectly, organizing and offering a covered fund, including serving
as a general partner, managing member, trustee, or commodity pool
operator of the covered fund and in any manner selecting or controlling
(or having employees, officers, directors, or agents who constitute) a
majority of the directors, trustees, or management of the covered fund,
including any necessary expenses for the foregoing, only if:
    (1) The banking entity (or an affiliate thereof) provides bona fide
trust, fiduciary, investment advisory, or commodity trading advisory
services;
    (2) The covered fund is organized and offered only in connection
with the provision of bona fide trust, fiduciary, investment advisory,
or commodity trading advisory services and only to persons that are
customers of such services of the banking entity (or an affiliate
thereof), pursuant to a written plan or similar documentation outlining
how the banking entity or such affiliate intends to provide advisory or
similar services to its customers through organizing and offering such
fund;
    (3) The banking entity and its affiliates do not acquire or retain
an ownership interest in the covered fund except as permitted under
Sec.  248.12 of this subpart;
    (4) The banking entity and its affiliates comply with the
requirements of Sec.  248.14 of this subpart;
    (5) The banking entity and its affiliates do 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;
    (6) The covered fund, for corporate, marketing, promotional, or
other purposes:
    (i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof) except that a covered
fund may share the same name or a variation of the same name with a
banking entity that is an investment adviser to the covered fund if:
    (A) The investment adviser is not an insured depository
institution, a company that controls an insured depository institution,
or a company that is treated as a bank holding company for purposes of
section 8 of the International Banking Act of 1978 (12 U.S.C. 3106);
and
    (B) The investment adviser does not share the same name or a
variation of the same name as an insured depository institution, a
company that controls an insured depository institution, or a company
that is treated as a bank holding company for purposes of section 8 of
the International Banking Act of 1978 (12 U.S.C. 3106); and
    (ii) Does not use the word ``bank'' in its name;
    (7) No director or employee of the banking entity (or an affiliate
thereof) takes or retains an ownership interest in the covered fund,
except for any director or employee of the banking entity or such
affiliate who is directly engaged in providing investment advisory,
commodity trading advisory, or other services to the covered fund at
the time the director or employee takes the ownership interest; and
    (8) The banking entity:
    (i) Clearly and conspicuously discloses, in writing, to any
prospective and actual investor in the covered fund (such as through
disclosure in the covered fund's offering documents):
    (A) That ``any losses in [such covered fund] will be borne solely
by investors in [the covered fund] and not by [the banking entity] or
its affiliates; therefore, [the banking entity's] losses in [such
covered fund] will be limited to losses attributable to the ownership
interests in the covered fund held by [the banking entity] and any
affiliate in its capacity as investor in the [covered fund] or as
beneficiary of a restricted profit interest held by [the banking
entity] or any affiliate'';
    (B) That such investor should read the fund offering documents
before investing in the covered fund;
    (C) That the ``ownership interests in the covered fund are not
insured by the FDIC, and are not deposits, obligations of, or endorsed
or guaranteed in any way, by any banking entity'' (unless that happens
to be the case); and
    (D) The role of the banking entity and its affiliates and employees
in sponsoring or providing any services to the covered fund; and
    (ii) Complies with any additional rules of the appropriate Federal
banking agencies, the SEC, or the CFTC, as provided in section 13(b)(2)
of the BHC Act, designed to ensure that losses in such covered fund are
borne solely by investors in the covered fund and not by the covered
banking entity and its affiliates.
    (b) Organizing and offering an issuing entity of asset-backed
securities. (1) Notwithstanding Sec.  248.10(a) of this subpart, a
banking entity is not prohibited from acquiring or retaining an
ownership interest in, or acting as sponsor to, a covered fund that is
an issuing entity of asset-backed securities in connection with,
directly or indirectly, organizing and offering that issuing entity, so
long as the banking entity and its affiliates comply with all of the
requirements of paragraph (a)(3) through (8) of this section.
    (2) For purposes of this paragraph (b), organizing and offering a
covered fund that is an issuing entity of asset-backed securities means
acting as the securitizer, as that term is used in section 15G(a)(3) of
the Exchange Act (15 U.S.C. 78o-11(a)(3)) of the issuing entity, or
acquiring or retaining an ownership interest in the issuing entity as
required by section 15G of that Act (15 U.S.C. 78o-11) and the
implementing regulations issued thereunder.
    (c) Underwriting and market making in ownership interests of a
covered fund. The prohibition contained in Sec.  248.10(a) of this
subpart does not apply to a banking entity's underwriting activities or
market making-related activities involving a covered fund so long as:
    (1) Those activities are conducted in accordance with the
requirements of Sec.  248.4(a) or Sec.  248.4(b) of subpart B,
respectively;
    (2) With respect to any banking entity (or any affiliate thereof)
that: Acts as a sponsor, investment adviser or commodity trading
advisor to a particular covered fund or otherwise acquires and retains
an ownership interest in such covered fund in reliance on paragraph (a)
of this section; acquires and retains an ownership interest in such
covered fund and is either a securitizer, as that term is used in
section 15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is
acquiring and retaining an ownership interest in

such covered fund in compliance with section 15G of that Act (15 U.S.C.
78o-11) and the implementing regulations issued thereunder each as
permitted by paragraph (b) of this section; or, directly or indirectly,
guarantees, assumes, or otherwise insures the obligations or
performance of the covered fund or of any covered fund in which such
fund invests, then in each such case any ownership interests acquired
or retained by the banking entity and its affiliates in connection with
underwriting and market making related activities for that particular
covered fund are included in the calculation of ownership interests
permitted to be held by the banking entity and its affiliates under the
limitations of Sec.  248.12(a)(2)(ii) and Sec.  248.12(d) of this
subpart; and
    (3) With respect to any banking entity, the aggregate value of all
ownership interests of the banking entity and its affiliates in all
covered funds acquired and retained under Sec.  248.11 of this subpart,
including all covered funds in which the banking entity holds an
ownership interest in connection with underwriting and market making
related activities permitted under this paragraph (c), are included in
the calculation of all ownership interests under Sec.
248.12(a)(2)(iii) and Sec.  248.12(d) of this subpart.

Sec.  248.12   Permitted investment in a covered fund.

    (a) Authority and limitations on permitted investments in covered
funds. (1) Notwithstanding the prohibition contained in Sec.  248.10(a)
of this subpart, a banking entity may acquire and retain an ownership
interest in a covered fund that the banking entity or an affiliate
thereof organizes and offers pursuant to Sec.  248.11, for the purposes
of:
    (i) Establishment. Establishing the fund and providing the fund
with sufficient initial equity for investment to permit the fund to
attract unaffiliated investors, subject to the limits contained in
paragraphs (a)(2)(i) and (iii) of this section; or
    (ii) De minimis investment. Making and retaining an investment in
the covered fund subject to the limits contained in paragraphs
(a)(2)(ii) and (iii) of this section.
    (2) Investment limits--(i) Seeding period. With respect to an
investment in any covered fund made or held pursuant to paragraph
(a)(1)(i) of this section, the banking entity and its affiliates:
    (A) Must actively seek unaffiliated investors to reduce, through
redemption, sale, dilution, or other methods, the aggregate amount of
all ownership interests of the banking entity in the covered fund to
the amount permitted in paragraph (a)(2)(i)(B) of this section; and
    (B) Must, no later than 1 year after the date of establishment of
the fund (or such longer period as may be provided by the Board
pursuant to paragraph (e) of this section), conform its ownership
interest in the covered fund to the limits in paragraph (a)(2)(ii) of
this section;
    (ii) Per-fund limits. (A) Except as provided in paragraph
(a)(2)(ii)(B) of this section, an investment by a banking entity and
its affiliates in any covered fund made or held pursuant to paragraph
(a)(1)(ii) of this section may not exceed 3 percent of the total number
or value of the outstanding ownership interests of the fund.
    (B) An investment by a banking entity and its affiliates in a
covered fund that is an issuing entity of asset-backed securities may
not exceed 3 percent of the total fair market value of the ownership
interests of the fund measured in accordance with paragraph (b)(3) of
this section, unless a greater percentage is retained by the banking
entity and its affiliates in compliance with the requirements of
section 15G of the Exchange Act (15 U.S.C. 78o-11) and the implementing
regulations issued thereunder, in which case the investment by the
banking entity and its affiliates in the covered fund may not exceed
the amount, number, or value of ownership interests of the fund
required under section 15G of the Exchange Act and the implementing
regulations issued thereunder.
    (iii) Aggregate limit. The aggregate value of all ownership
interests of the banking entity and its affiliates in all covered funds
acquired or retained under this section may not exceed 3 percent of the
tier 1 capital of the banking entity, as provided under paragraph (c)
of this section, and shall be calculated as of the last day of each
calendar quarter.
    (iv) Date of establishment. For purposes of this section, the date
of establishment of a covered fund shall be:
    (A) In general. The date on which the investment adviser or similar
entity to the covered fund begins making investments pursuant to the
written investment strategy for the fund;
    (B) Issuing entities of asset-backed securities. In the case of an
issuing entity of asset-backed securities, the date on which the assets
are initially transferred into the issuing entity of asset-backed
securities.
    (b) Rules of construction--(1) Attribution of ownership interests
to a covered banking entity. (i) For purposes of paragraph (a)(2) of
this section, the amount and value of a banking entity's permitted
investment in any single covered fund shall include any ownership
interest held under Sec.  248.12 directly by the banking entity,
including any affiliate of the banking entity.
    (ii) Treatment of registered investment companies, SEC-regulated
business development companies and foreign public funds. For purposes
of paragraph (b)(1)(i) of this section, a registered investment
company, SEC-regulated business development companies or foreign public
fund as described in Sec.  248.10(c)(1) of this subpart will not be
considered to be an affiliate of the banking entity so long as the
banking entity:
    (A) Does not own, control, or hold with the power to vote 25
percent or more of the voting shares of the company or fund; and
    (B) Provides investment advisory, commodity trading advisory,
administrative, and other services to the company or fund in compliance
with the limitations under applicable regulation, order, or other
authority.
    (iii) Covered funds. For purposes of paragraph (b)(1)(i) of this
section, a covered fund will not be considered to be an affiliate of a
banking entity so long as the covered fund is held in compliance with
the requirements of this subpart.
    (iv) Treatment of employee and director investments financed by the
banking entity. For purposes of paragraph (b)(1)(i) of this section, an
investment by a director or employee of a banking entity who acquires
an ownership interest in his or her personal capacity in a covered fund
sponsored by the banking entity will be attributed to the banking
entity if the banking entity, directly or indirectly, extends financing
for the purpose of enabling the director or employee to acquire the
ownership interest in the fund and the financing is used to acquire
such ownership interest in the covered fund.
    (2) Calculation of permitted ownership interests in a single
covered fund. Except as provided in paragraph (b)(3) or (4), 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)(A) of this section:
    (i) The aggregate number of the outstanding ownership interests
held by the banking entity shall be the total number of ownership
interests held under this section by the banking entity in a covered
fund divided by the total number of ownership interests held by all
entities in that covered fund, as of

the last day of each calendar quarter (both measured without regard to
committed funds not yet called for investment);
    (ii) The aggregate value of the outstanding ownership interests
held by the banking entity shall be the aggregate fair market value of
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.  248.11 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.
248.10(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.
248.10(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.  248.10(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 the 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;
    (vii) [Reserved]
    (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.  248.13   Other permitted covered fund activities and investments.

    (a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec.  248.10(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.
248.10(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.  248.10(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.  248.14   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.  248.11 of this subpart, or
that continues to hold an ownership interest in accordance with Sec.
248.11(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.  248.11, Sec.  248.12, or
Sec.  248.13 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.  248.11 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 the Board (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.  248.11 of this subpart, or that continues to hold an
ownership interest in accordance with Sec.  248.11(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.  248.15   Other limitations on permitted covered fund activities.

    (a) No transaction, class of transactions, or activity may be
deemed permissible under Sec. Sec.  248.11 through 248.13 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.  248.16   Ownership of interests in and sponsorship of issuers of
certain collateralized debt obligations backed by trust-preferred
securities.

    (a) The prohibition contained in Sec.  248.10(a)(1) does not apply
to the ownership by a banking entity of an interest in, or sponsorship
of, any issuer if:
    (1) The issuer was established, and the interest was issued, before
May 19, 2010;
    (2) The banking entity reasonably believes that the offering
proceeds received by the issuer were invested primarily in Qualifying
TruPS Collateral; and
    (3) The banking entity acquired such interest on or before December
10, 2013 (or acquired such interest in connection with a merger with or
acquisition of a banking entity that acquired the interest on or before
December 10, 2013).
    (b) For purposes of this Sec.  248.16, Qualifying TruPS Collateral
shall mean any trust preferred security or subordinated debt instrument
issued prior to May 19, 2010 by a depository institution holding
company that, as of the end of any reporting period within 12 months
immediately preceding the issuance of such trust preferred security or
subordinated debt instrument, had total consolidated assets of less
than $15,000,000,000 or issued prior to May 19, 2010 by a mutual
holding company.
    (c) Notwithstanding paragraph (a)(3) of this section, a banking
entity may act as a market maker with respect to the interests of an
issuer described in paragraph (a) of this section in accordance with
the applicable provisions of Sec. Sec.  248.4 and 248.11.
    (d) Without limiting the applicability of paragraph (a) of this
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a).
A banking entity may rely on the list published by the Board, the FDIC
and the OCC.

Sec. Sec.  248.17-248.19   [Reserved]

Subpart D--Compliance Program Requirement; Violations

Sec.  248.20   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.  248.3 to 248.6 of
subpart B), including setting, monitoring and managing required limits
set out in Sec. Sec.  248.4 and 248.5, and activities and investments
with respect to a covered fund subject to subpart C (including those
permitted under Sec. Sec.  248.11 through 248.14 of subpart C)
conducted by the banking entity to ensure that all activities and

investments conducted by the banking entity that are subject to section
13 of the BHC Act and this part comply with section 13 of the BHC Act
and this part;
    (2) A system of internal controls reasonably designed to monitor
compliance with section 13 of the BHC Act and this part and to prevent
the occurrence of activities or investments that are prohibited by
section 13 of the BHC Act and this part;
    (3) A management framework that clearly delineates responsibility
and accountability for compliance with section 13 of the BHC Act and
this part and includes appropriate management review of trading limits,
strategies, hedging activities, investments, incentive compensation and
other matters identified in this part or by management as requiring
attention;
    (4) Independent testing and audit of the effectiveness of the
compliance program conducted periodically by qualified personnel of the
banking entity or by a qualified outside party;
    (5) Training for trading personnel and managers, as well as other
appropriate personnel, to effectively implement and enforce the
compliance program; and
    (6) Records sufficient to demonstrate compliance with section 13 of
the BHC Act and this part, which a banking entity must promptly provide
to the Board upon request and retain for a period of no less than 5
years or such longer period as required by the Board.
    (c) Additional standards. In addition to the requirements in
paragraph (b) of this section, the compliance program of a banking
entity must satisfy the requirements and other standards contained in
appendix B, if:
    (1) The banking entity engages in proprietary trading permitted
under subpart B and is required to comply with the reporting
requirements of paragraph (d) of this section;
    (2) The banking entity has reported total consolidated assets as of
the previous calendar year end of $50 billion or more or, in the case
of a foreign banking entity, has total U.S. assets as of the previous
calendar year end of $50 billion or more (including all subsidiaries,
affiliates, branches and agencies of the foreign banking entity
operating, located or organized in the United States); or
    (3) The Board notifies the banking entity in writing that it must
satisfy the requirements and other standards contained in appendix B to
this part.
    (d) Reporting requirements under appendix A to this part. (1) A
banking entity engaged in proprietary trading activity permitted under
subpart B shall comply with the reporting requirements described in
appendix A, if:
    (i) The banking entity (other than a foreign banking entity as
provided in paragraph (d)(1)(ii) of this section) has, together with
its affiliates and subsidiaries, trading assets and liabilities
(excluding trading assets and liabilities involving obligations of or
guaranteed by the United States or any agency of the United States) the
average gross sum of which (on a worldwide consolidated basis) over the
previous consecutive four quarters, as measured as of the last day of
each of the four prior calendar quarters, equals or exceeds the
threshold established in paragraph (d)(2) of this section;
    (ii) In the case of a foreign banking entity, the average gross sum
of the trading assets and liabilities of the combined U.S. operations
of the foreign banking entity (including all subsidiaries, affiliates,
branches and agencies of the foreign banking entity operating, located
or organized in the United States and excluding trading assets and
liabilities involving obligations of or guaranteed by the United States
or any agency of the United States) over the previous consecutive four
quarters, as measured as of the last day of each of the four prior
calendar quarters, equals or exceeds the threshold established in
paragraph (d)(2) of this section; or
    (iii) The Board notifies the banking entity in writing that it must
satisfy the reporting requirements contained in appendix A.
    (2) The threshold for reporting under paragraph (d)(1) of this
section shall be $50 billion beginning on June 30, 2014; $25 billion
beginning on April 30, 2016; and $10 billion beginning on December 31,
2016.
    (3) Frequency of reporting: Unless the Board notifies the banking
entity in writing that it must report on a different basis, a banking
entity with $50 billion or more in trading assets and liabilities (as
calculated in accordance with paragraph (d)(1) of this section) shall
report the information required by appendix A for each calendar month
within 30 days of the end of the relevant calendar month; beginning
with information for the month of January 2015, such information shall
be reported within 10 days of the end of each calendar month. Any other
banking entity subject to appendix A shall report the information
required by appendix A for each calendar quarter within 30 days of the
end of that calendar quarter unless the Board 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.  248.10(c)(1), 248.10(c)(5), 248.10(c)(8), 248.10(c)(9),
or 248.10(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.  248.10(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.  248.12(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.  248.10(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.
248.6(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.  248.6(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.  248.6(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.  248.21   Termination of activities or investments; penalties for
violations.

    (a) Any banking entity that engages in an activity or makes an
investment in violation of section 13 of the BHC Act or this part, or
acts in a manner that functions as an evasion of the requirements of
section 13 of the BHC Act or this part, including through an abuse of
any activity or investment permitted under subparts B or C, or
otherwise violates the restrictions and requirements of section 13 of
the BHC Act or this part, shall, upon discovery, promptly terminate the
activity and, as relevant, dispose of the investment.
    (b) Whenever the Board finds reasonable cause to believe any
banking entity has engaged in an activity or made an investment in
violation of section 13 of the BHC Act or this part, or engaged in any
activity or made any investment that functions as an evasion of the
requirements of section 13 of the BHC Act or this part, the Board 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 248--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.
248.20(d), this appendix generally applies to a banking entity that,
together with its affiliates and subsidiaries, has significant
trading assets and liabilities. These entities are required to (i)
furnish periodic reports to the Board 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.  248.20 and Appendix B.
    b. The purpose of this appendix is to assist banking entities
and the Board 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.  248.4(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.  248.4, 248.5, or 248.6(a)-(b) (i.e., underwriting and
market making-related related activity, risk-mitigating hedging, or
trading in certain government obligations) are consistent with the
requirement that such activity not result, directly or indirectly,
in a material exposure to high-risk assets or high-risk trading
strategies;
    (vi) Identifying the profile of particular covered trading
activities of the banking entity, and the individual trading desks
of the banking entity, to help establish the appropriate frequency
and scope of examination by the Board 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.  248.20 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.  248.20 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.  248.4 through 248.6(a) and (b), or that
result in a material exposure to high-risk assets or high-risk
trading strategies, must be escalated within the banking entity for
review, further analysis, explanation to the Board, 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.  248.2 and 248.3. 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.  248.4, 248.5, 248.6(a), or 248.6(b). A banking
entity may include trading under Sec. Sec.  248.3(d), 248.6(c),
248.6(d) or 248.6(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.  248.20 must furnish the following quantitative measurements
for each trading desk of the banking entity, calculated in
accordance with this appendix:
     Risk and Position Limits and Usage;
     Risk Factor Sensitivities;
     Value-at-Risk and Stress VaR;
     Comprehensive Profit and Loss Attribution;
     Inventory Turnover;
     Inventory Aging; and
     Customer-Facing Trade Ratio

b. Frequency of Required Calculation and Reporting

    A banking entity must calculate any applicable quantitative
measurement for each trading day. A banking entity must report each
applicable quantitative measurement to the Board on the reporting
schedule established in Sec.  248.20 unless otherwise requested by
the Board. All quantitative measurements for any calendar month must
be reported within the time period required by Sec.  248.20.

c. Recordkeeping

    A banking entity must, for any quantitative measurement
furnished to the Board pursuant to this appendix and Sec.
248.20(d), create and maintain records documenting the preparation
and content of these reports, as well as such information as is
necessary to permit the Board 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.  248.4 and Sec.  248.5. 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.  248.4(b) and hedging activity under Sec.  248.5.
Accordingly, the limits required under Sec.  248.4(b)(2)(iii) and
Sec.  248.5(b)(1)(i) must meet the applicable requirements under
Sec.  248.4(b)(2)(iii) and Sec.  248.5(b)(1)(i) and also must
include appropriate metrics for the trading desk limits including,
at a minimum, the ``Risk Factor Sensitivities'' and ``Value-at-Risk
and Stress Value-at-Risk'' metrics except to the extent any of the
``Risk Factor Sensitivities'' or ``Value-at-Risk and Stress Value-
at-Risk'' metrics are demonstrably ineffective for measuring and
monitoring the risks of a trading desk based on the types of
positions traded by, and risk exposures of, that desk.
    ii. General Calculation Guidance: Risk and Position Limits must
be reported in the format used by the banking entity for the
purposes of risk management of each trading desk. Risk and Position
Limits are often expressed in terms of risk measures, such as VaR
and Risk Factor Sensitivities, but may also be expressed in terms of
other observable criteria, such as net open positions. When criteria
other than VaR or Risk Factor Sensitivities are used to define the
Risk and Position Limits, both the value of the Risk and Position
Limits and the value of the variables used to assess whether these
limits have been reached must be reported.
    iii. Calculation Period: One trading day.
    iv. Measurement Frequency: Daily.

2. Risk Factor Sensitivities

    i. Description: For purposes of this appendix, Risk Factor
Sensitivities are changes in a trading desk's Comprehensive Profit
and Loss that are expected to occur in the event of a change in one
or more underlying variables that are significant sources of the
trading desk's profitability and risk.
    ii. General Calculation Guidance: A banking entity must report
the Risk Factor Sensitivities that are monitored and managed as part
of the trading desk's overall risk management policy. The underlying
data and methods used to compute a trading desk's Risk Factor
Sensitivities will depend on the specific function of the trading
desk and the internal risk management models employed. The number
and type of Risk Factor Sensitivities that are monitored and managed
by a trading desk, and furnished to the Board, 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