The Volcker Rule
# links to proposed and final rules
pr <- "https://www.federalregister.gov/documents/full_text/xml/2011/11/07/2011-27184.xml"
fr <- "https://www.federalregister.gov/documents/full_text/xml/2014/01/31/2013-31511.xml"
# text marking the end of the preamble
rule_text_starts <- . %>% {which(str_detect(., "The text of the proposed common rules|^Text of Common Rule"))}
# a function to extract text
xml_rule_text <- . %>%
read_xml() %>%
xml_children() %>%
xml_children() %>%
xml_text() %>%
str_squish() %>%
tibble::enframe(value = "text", name = "id")
clean <- . %>%
filter(nchar(text) > 60) %>%
mutate(id = str_pad(id, 4, pad = "0") %>%
paste(text) %>%
str_sub(1,80) %>%
str_c("...")) %>%
# remove numbering
mutate(text = text %>% str_replace_all("\\(.\\)|[0-9]|_", " "))Proposed Rule
# extract proposed rule text
pr %<>% xml_rule_text()
pr %<>%
mutate(preamble = id < rule_text_starts(pr$text)) %>%
clean()
# preamble
# pr %>% kablebox()
# rule text
pr %>% filter(preamble == F) %>% kablebox()| id | text | preamble |
|---|---|---|
| 1632 PART [ ]—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | PART [ ]—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDSSubpart A—Authority and DefinitionsSec. . Authority, purpose, scope, and relationship to other authorities. [Reserved] . Definitions.Subpart B—Proprietary Trading . Prohibition on proprietary trading. . Permitted underwriting and market making-related activities. . Permitted risk-mitigating hedging activities. . Other permitted proprietary trading activities. . Reporting and recordkeeping requirements applicable to trading activities. . Limitations on permitted proprietary trading activities. . [Reserved]Subpart C—Covered Fund Activities and Investments . Prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund. . Permitted organizing and offering of a covered fund. . Permitted investment in a covered fund. . Other permitted covered fund activities and investments. . Covered fund activities and investments determined to be permissible. . Internal controls, reporting and recordkeeping requirements applicable to covered fund activities and investments. . Limitations on relationships with a covered fund. . Other limitations on permitted covered fund activities and investments. . [Reserved] . [Reserved]Subpart D—Compliance Program Requirement; Violations . Program for monitoring compliance; enforcement. . Termination of activities or investments; penalties for violations.Appendix A to Part [ ]—Reporting and Recordkeeping Requirements for Covered Trading ActivitiesAppendix B to Part [ ]—Commentary Regarding Identification of Permitted Market Making-Related ActivitiesAppendix C to Part [ ]—Minimum Standards for Programmatic ComplianceSubpart A—Authority and Definitions§ . Authority, purpose, scope, and relationship to other authorities. [Reserved]§ . Definitions.Unless otherwise specified, for purposes of this part: Affiliate has the same meaning as in section of the BHC Act ( U.S.C. ). Applicable accounting standards means U.S. generally accepted accounting principles or such other accounting standards applicable to a covered banking entity that [Agency] determines are appropriate, that the covered banking entity uses in the ordinary course of its business in preparing its consolidated financial statements. BHC Act means the Bank Holding Company Act of ( U.S.C. et seq.). Bank holding company has the same meaning as in section of the BHC Act ( U.S.C. ). Banking entity means: Any insured depository institution; Any company that controls an insured depository institution; Any company that is treated as a bank holding company for purposes of section of the International Banking Act of ( U.S.C. ); and Any affiliate or subsidiary of any entity described in paragraphs , , or of this section, other than an affiliate or subsidiary that is: A covered fund that is organized, offered and held by a banking entity pursuant to § . and in accordance with the provisions of subpart C of this part, including the provisions governing relationships between a covered fund and a banking entity; or(ii) An entity that is controlled by a covered fund described in paragraph of this section. Board means the Board of Governors of the Federal Reserve System. Buy and purchase each include any contract to buy, purchase, or otherwise acquire. For security futures products, such terms include any contract, agreement, or transaction for future delivery. With respect to a commodity future, such terms include any contract, agreement, or transaction for future delivery. With respect to a derivative, such terms include the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a derivative, as the context may require. CFTC means the Commodity Futures Trading Commission. Commodity Exchange Act means the Commodity Exchange Act ( U.S.C. et seq.). [Reserved] Depository institution has the same meaning as in section of the Federal Deposit Insurance Act ( U.S.C. ). Derivative means: Any swap, as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )), or security-based swap, as that term is defined in section ( ) of the Exchange Act ( U.S.C. c ( )), and as those terms are further jointly defined by the CFTC and SEC by joint regulation, interpretation, guidance, or other action, in consultation with the Board pursuant to section of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( U.S.C. ); Any purchase or sale of a nonfinancial commodity for deferred shipment or delivery that is intended to be physically settled; Any foreign exchange forward (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )) or foreign exchange swap (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )); Any agreement, contract, or transaction in foreign currency described in section of the Commodity Exchange Act ( U.S.C. ); Any agreement, contract, or transactions in a commodity other than foreign currency described in section of the Commodity Exchange Act ( U.S.C. ); and Any transaction authorized under section of the Commodity Exchange Act ( U.S.C. or );(ii) A derivative does not include: Any consumer, commercial, or other agreement, contract, or transaction that the CFTC and SEC have further defined by joint regulation, interpretation, guidance, or other action as not within the definition of swap, as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )), or security-based swap, as that term is defined in section ( ) of the Exchange Act ( U.S.C. c ( )); Any identified banking product, as defined in section of the Legal Certainty for Bank Products Act of ( U.S.C. ), that is subject to section of that Act ( U.S.C. a ). Exchange Act means the Securities Exchange Act of ( U.S.C. a et seq.). Federal banking agencies means the Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Foreign banking organization has the same meaning as in § . of the Board’s Regulation K ( CFR . ). Insured depository institution has the same meaning as in section of the Federal Deposit Insurance Act ( U.S.C. ), but does not include any insured depository institution that is described in section of the BHC Act ( U.S.C. ). Loan means any loan, lease, extension of credit, or secured or unsecured receivable. Nonbank financial company supervised by the Board has the meaning specified in section of the Financial Stability Act of ( U.S.C. ). Qualifying foreign banking organization means a foreign banking organization that qualifies as such under § . of the Board’s Regulation K ( CFR . ). Resident of the United States means: Any natural person resident in the United States; Any partnership, corporation or other business entity organized or incorporated under the laws of the United States or any State; Any estate of which any executor or administrator is a resident of the United States; Any trust of which any trustee, beneficiary or, if the trust is revocable, any settlor is a resident of the United States; Any agency or branch of a foreign entity located in the United States; Any discretionary or non-discretionary account or similar account (other than an estate or trust) held by a dealer or fiduciary for the benefit or account of a resident of the United States; Any discretionary account or similar account (other than an estate or trust) held by a dealer or fiduciary organized or incorporated in the United States, or (if an individual) a resident of the United States; or Any person organized or incorporated under the laws of any foreign jurisdiction formed by or for a resident of the United States principally for the purpose of engaging in one or more transactions described in § . or § . . SEC means the Securities and Exchange Commission. Sale and sell each include any contract to sell or otherwise dispose of. For security futures products, such terms include any contract, agreement, or transaction for future delivery. With respect to a commodity future, such terms include any contract, agreement, or transaction for future delivery. With respect to a derivative, such terms include the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a derivative, as the context may require. Security has the meaning specified in section ( ) of the Exchange Act ( U.S.C. c ( )). Security future has the meaning specified in section ( ) of the Exchange Act ( U.S.C. c ( )). Securities Act means the Securities Act of ( U.S.C. a et seq.). Separate account means an account established and maintained by an insurance company subject to regulation by a State insurance regulator or a foreign insurance regulator under which income, gains, and losses, whether or not realized, from assets allocated to such account, are, in accordance with the applicable contract, credited to or charged against such account without regard to other income, gains, or losses of the insurance company.(aa) State means any State, territory or possession of the United States, and the District of Columbia.(bb) Subsidiary has the same meaning as in section of the BHC Act ( U.S.C. ).Subpart B—Proprietary Trading§ . Prohibition on proprietary trading. Prohibition. Except as otherwise provided in this subpart, a covered banking entity may not engage in proprietary trading. Definition of “proprietary trading” and related terms. For purposes of this subpart: Proprietary trading means engaging as principal for the trading account of the covered banking entity in any purchase or sale of one or more covered financial positions. Proprietary trading does not include acting solely as agent, broker, or custodian for an unaffiliated third party. Trading account. Trading account means any account that is used by a covered banking entity to: Acquire or take one or more covered financial positions principally for the purpose of: Short-term resale; Benefitting from actual or expected short-term price movements; Realizing short-term arbitrage profits; or Hedging one or more positions described in paragraphs , , or of this section; Acquire or take one or more covered financial positions, other than positions that are foreign exchange derivatives, commodity derivatives, or contracts of sale of a commodity for future delivery, that are market risk capital rule covered positions, if the covered banking entity, or any affiliate of the covered banking entity that is a bank holding company, calculates risk-based capital ratios under the market risk capital rule as defined in paragraph of this section; or Acquire or take one or more covered financial position for any purpose, if the covered banking entity is: A dealer or municipal securities dealer that is registered with the SEC under the Exchange Act, to the extent the position is acquired or taken in connection with the activities of the dealer or municipal securities dealer that require it to be registered under that Act; A government securities dealer that is registered, or that has filed notice, with an appropriate regulatory agency (as that term is defined in section ( ) of the Exchange Act ( U.S.C. c ( )), to the extent the position is acquired or taken in connection with the activities of the government securities dealer that require it to be registered, or to file notice, under that Act; A swap dealer that is registered with the CFTC under the Commodity Exchange Act, to the extent the position is acquired or taken in connection with the activities of the swap dealer that require it to be registered under that Act; A security-based swap dealer that is registered with the SEC under the Exchange Act, to the extent the position is acquired or taken in connection with the activities of the security-based swap dealer that require it to be registered under that Act; or Engaged in the business of a dealer, swap dealer, or security-based swap dealer outside of the United States to the extent the position is acquired or taken in connection with the activities of such business.(ii) Rebuttable presumption for certain positions. An account shall be presumed to be a trading account if it is used to acquire or take a covered financial position, other than a covered financial position described in paragraph or of this section, that the covered banking entity holds for a period of sixty days or less, unless the covered banking entity can demonstrate, based on all the facts and circumstances, that the covered financial position, either individually or as a category, was not acquired or taken principally for any of the purposes described in paragraph of this section.(iii) An account shall not be deemed a trading account for purposes of paragraph of this section to the extent that such account is used to acquire or take a position in one or more covered financial positions: That arise under a repurchase or reverse repurchase agreement pursuant to which the covered banking entity has simultaneously agreed, in writing, to both purchase and sell a stated asset, at stated prices, and on stated dates or on demand with the same counterparty; That arise under a transaction in which the covered banking entity lends or borrows a security temporarily to or from another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such security, and has the right to terminate the transaction and to recall the loaned security on terms agreed by the parties; For the bona fide purpose of liquidity management and in accordance with a documented liquidity management plan of the covered banking entity that: Specifically contemplates and authorizes the particular instrument to be used for liquidity management purposes, its profile with respect to market, credit and other risks, and the liquidity circumstances in which the particular instrument may or must be used; Requires that any transaction contemplated and authorized by the plan be principally for the purpose of managing the liquidity of the covered banking entity, and not for the purpose of short-term resale, benefitting from actual or expected short-term price movements, realizing short-term arbitrage profits, or hedging a position taken for such short-term purposes; Requires that any position taken for liquidity management purposes be highly liquid and limited to financial instruments the market, credit and other risks of which the covered banking entity does not expect to give rise to appreciable profits or losses as a result of short-term price movements; Limits any position taken for liquidity management purposes, together with any other positions taken for such purposes, to an amount that is consistent with the banking entity’s near-term funding needs, including deviations from normal operations, as estimated and documented pursuant to methods specified in the plan; and Is consistent with [Agency]‘s supervisory requirements, guidance and expectations regarding liquidity management; or That are acquired or taken by a covered banking entity that is a derivatives clearing organization registered under section b of the Commodity Exchange Act ( U.S.C. a- ) or a clearing agency registered with the SEC under section A of the Exchange Act ( U.S.C. q- ) in connection with clearing derivatives or securities transactions. Covered financial position. Covered financial position means any position, including any long, short, synthetic or other position, in: A security, including an option on a security; A derivative, including an option on a derivative; or A contract of sale of a commodity for future delivery, or option on a contract of sale of a commodity for future delivery.(ii) A covered financial position does not include any position that is: A loan; A commodity; or Foreign exchange or currency. Definition of other terms related to proprietary trading. For purposes of this subpart: Commodity has the same meaning as in section a of the Commodity Exchange Act ( U.S.C. a ), except that a commodity does not include any security; Contract of sale of a commodity for future delivery means a contract of sale (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )) for future delivery (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )). Exempted security has the same meaning as in section ( ) of the Exchange Act ( U.S.C. c ( ) ). Foreign insurance regulator means the insurance commission, or a similar official or agency, of one or more countries other than the United States that is engaged in the supervision of insurance companies under foreign insurance law. General account means, with respect to an insurance company, all of the assets of the insurance company that are not legally segregated and allocated to separate accounts under applicable State or foreign law. Government securities has the same meaning as in section ( ) of the Exchange Act ( U.S.C. c ( )). Market risk capital rule covered position means a covered position as that term is defined for purposes of: In the case of a covered banking entity that is a bank holding company or insured depository institution, the market risk capital rule that is applicable to the covered banking entity; and(ii) In the case of a covered banking entity that is affiliated with a bank holding company, other than a covered banking entity to which a market risk capital rule is applicable, the market risk capital rule that is applicable to the affiliated bank holding company. Market risk capital rule means CFR , Appendix B, CFR , Appendix E, CFR , Appendix E, and CFR , Appendix C, as applicable. Municipal securities has the same meaning as in section ( ) of the Exchange Act ( U.S.C. c ( )).( ) Security-based swap has the meaning specified in section ( ) of the Exchange Act ( U.S.C. c ( )).( ) Swap has the meaning specified in section a( ) of the Commodity Exchange Act ( U.S.C. a( )).( ) State insurance regulator means the insurance commission, or a similar official or agency, of a State that is engaged in the supervision of insurance companies under State insurance law.§ . Permitted underwriting and market making-related activities. Underwriting activities. Permitted underwriting activities. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale of a covered financial position by a covered banking entity that is made in connection with the covered banking entity’s underwriting activities. Requirements. For purposes of paragraph of this section, a purchase or sale of a covered financial position shall be deemed to be made in connection with a covered banking entity’s underwriting activities only if: The covered banking entity has established the internal compliance program required by subpart D of this part that is designed to ensure the covered banking entity’s compliance with the requirements of paragraph of this section, including reasonably designed written policies and procedures, internal controls, and independent testing;(ii) The covered financial position is a security;(iii) The purchase or sale is effected solely in connection with a distribution of securities for which the covered banking entity is acting as underwriter; (iv) The covered banking entity is: With respect to a purchase or sale effected in connection with a distribution of one or more covered financial positions that are securities, other than exempted securities, security-based swaps, commercial paper, bankers’ acceptances, or commercial bills: A dealer that is registered with the SEC under section of the Exchange Act ( U.S.C. o), or a person that is exempt from registration or excluded from regulation as a dealer thereunder; or Engaged in the business of a dealer outside of the United States and subject to substantive regulation of such business in the jurisdiction where the business is located; With respect to a purchase or sale effected as part of a distribution of one or more covered financial positions that are municipal securities, a municipal securities dealer that is registered under section B of the Exchange Act ( U.S.C. o- ) or exempt from registration thereunder; or With respect to a purchase or sale effected as part of a distribution of one or more covered financial positions that are government securities, a government securities dealer that is registered, or that has filed notice, under section C of the Exchange Act ( U.S.C. o- ) or exempt from registration thereunder; The underwriting activities of the covered banking entity with respect to the covered financial position are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties;(vi) The underwriting activities of the covered banking entity are designed to generate revenues primarily from fees, commissions, underwriting spreads or other income not attributable to: Appreciation in the value of covered financial positions related to such activities; or The hedging of covered financial positions related to such activities; and(vii) The compensation arrangements of persons performing underwriting activities are designed not to reward proprietary risk-taking. Definition of distribution. For purposes of paragraph of this section, a distribution of securities means an offering of securities, whether or not subject to registration under the Securities Act, that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods. Definition of underwriter. For purposes of paragraph of this section, underwriter means: A person who has agreed with an issuer of securities or selling security holder: To purchase securities for distribution; To engage in a distribution of securities for or on behalf of such issuer or selling security holder; or To manage a distribution of securities for or on behalf of such issuer or selling security holder; and(ii) A person who has an agreement with another person described in paragraph of this section to engage in a distribution of such securities for or on behalf of the issuer or selling security holder. Market making-related activities. Permitted market making-related activities. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale of a covered financial position by a covered banking entity that is made in connection with the covered banking entity’s market making-related activities. Requirements. For purposes of paragraph of this section, a purchase or sale of a covered financial position shall be deemed to be made in connection with a covered banking entity’s market making-related activities only if: The covered banking entity has established the internal compliance program required by subpart D that is designed to ensure the covered banking entity’s compliance with the requirements of paragraph of this section, including reasonably designed written policies and procedures, internal controls, and independent testing;(ii) The trading desk or other organizational unit that conducts the purchase or sale holds itself out as being willing to buy and sell, including through entering into long and short positions in, the covered financial position for its own account on a regular or continuous basis;(iii) The market making-related activities of the trading desk or other organizational unit that conducts the purchase or sale are, with respect to the covered financial position, designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties;(iv) The covered banking entity is: With respect to a purchase or sale of one or more covered financial positions that are securities, other than exempted securities, security-based swaps, commercial paper, bankers’ acceptances, or commercial bills: A dealer that is registered with the SEC under section of the Exchange Act ( U.S.C. o), or a person that is exempt from registration or excluded from regulation as a dealer thereunder; or Engaged in the business of a dealer outside of the United States and subject to substantive regulation of such business in the jurisdiction where the business is located; With respect to a purchase or sale of one or more covered financial positions that are swaps: A swap dealer that is registered with the CFTC under the Commodity Exchange Act ( U.S.C. a) or a person that is exempt from registration thereunder; or Engaged in the business of a swap dealer outside the United States and subject to substantive regulation of such business in the jurisdiction where the business is located; With respect to a purchase or sale of one or more covered financial positions that are security-based swaps: A security-based swap dealer that is registered with the SEC under section F of the Exchange Act ( U.S.C. o- ) or a person that is exempt from registration thereunder; or Engaged in the business of a security-based swap dealer outside of the United States and subject to substantive regulation of such business in the jurisdiction where the business is located; With respect to a purchase or sale of one or more covered financial positions that are municipal securities, a municipal securities dealer that is registered under section B of the Exchange Act ( U.S.C. o- ) or a person that is exempt from registration thereunder; or With respect to a purchase or sale of one or more covered financial positions that are government securities, a government securities dealer that is registered, or that has filed notice, under section C of the Exchange Act ( U.S.C. o- ) or a person that is exempt from registration thereunder; The market making-related activities of the trading desk or other organizational unit that conducts the purchase or sale are designed to generate revenues primarily from fees, commissions, bid/ask spreads or other income not attributable to: Appreciation in the value of covered financial positions it holds in trading accounts; or The hedging of covered financial positions it holds in trading accounts;(vi) The market making-related activities of the trading desk or other organizational unit that conducts the purchase or sale are consistent with the commentary provided in Appendix B; and(vii) The compensation arrangements of persons performing the market making-related activities are designed not to reward proprietary risk-taking. Market making-related hedging. For purposes of paragraph of this section, a purchase or sale of a covered financial position shall also be deemed to be made in connection with a covered banking entity’s market making-related activities if: The covered financial position is purchased or sold to reduce the specific risks to the covered banking entity in connection with and related to individual or aggregated positions, contracts, or other holdings acquired pursuant to paragraph of this section; and(ii) The purchase or sale meets all of the requirements described in § . and, if applicable, § . .§ . Permitted risk-mitigating hedging activities. Permitted risk-mitigating hedging activities. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale of a covered financial position by a covered banking entity that is made in connection with and related to individual or aggregated positions, contracts, or other holdings of a covered banking entity and is designed to reduce the specific risks to the covered banking entity in connection with and related to such positions, contracts, or other holdings. Requirements. For purposes of paragraph of this section, a purchase or sale of a covered financial position shall be deemed to be in connection with and related to individual or aggregated positions, contracts, or other holdings of a covered banking entity and designed to reduce the specific risks to the covered banking entity in connection with and related to such positions, contracts, or other holdings only if: The covered banking entity has established the internal compliance program required by subpart D designed to ensure the covered banking entity’s compliance with the requirements of paragraph of this section, including reasonably designed written policies and procedures regarding the instruments, techniques and strategies that may be used for hedging, internal controls and monitoring procedures, and independent testing; The purchase or sale: Is made in accordance with the written policies, procedures and internal controls established by the covered banking entity pursuant to subpart D of this part;(ii) Hedges or otherwise mitigates one or more specific risks, including market risk, counterparty or other credit risk, currency or foreign exchange risk, interest rate risk, basis risk, or similar risks, arising in connection with and related to individual or aggregated positions, contracts, or other holdings of a covered banking entity;(iii) Is reasonably correlated, based upon the facts and circumstances of the underlying and hedging positions and the risks and liquidity of those positions, to the risk or risks the purchase or sale is intended to hedge or otherwise mitigate;(iv) Does not give rise, at the inception of the hedge, to significant exposures that were not already present in the individual or aggregated positions, contracts, or other holdings of a covered banking entity and that are not hedged contemporaneously; Is subject to continuing review, monitoring and management by the covered banking entity that: Is consistent with the written hedging policies and procedures required under paragraph of this section; and Maintains a reasonable level of correlation, based upon the facts and circumstances of the underlying and hedging positions and the risks and liquidity of those positions, to the risk or risks the purchase or sale is intended to hedge or otherwise mitigate; and Mitigates any significant exposure arising out of the hedge after inception; and(vi) The compensation arrangements of persons performing the risk-mitigating hedging activities are designed not to reward proprietary risk-taking. Documentation. With respect to any purchase, sale, or series of purchases or sales conducted by a covered banking entity pursuant to this § . for risk-mitigating hedging purposes that is established at a level of organization that is different than the level of organization establishing or responsible for the positions, contracts, or other holdings the risks of which the purchase, sale, or series of purchases or sales are designed to reduce, the covered banking entity must, at a minimum, document, at the time the purchase, sale, or series of purchases or sales are conducted: The risk-mitigating purpose of the purchase, sale, or series of purchases or sales; The risks of the individual or aggregated positions, contracts, or other holdings of a covered banking entity that the purchase, sale, or series of purchases or sales are designed to reduce; and The level of organization that is establishing the hedge.§ . Other permitted proprietary trading activities. Permitted trading in government obligations. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale by a covered banking entity of a covered financial position that is: An obligation of the United States or any agency thereof;(ii) An obligation, participation, or other instrument of or issued by 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 ( U.S.C. et seq.); or(iii) An obligation of any State or any political subdivision thereof. An obligation or other instrument described in paragraphs , (ii) or (iii) of this section shall include both general obligations and limited obligations, such as revenue bonds. Permitted trading on behalf of customers. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale of a covered financial position by a covered banking entity on behalf of customers. For purposes of paragraph of this section, a purchase or sale of a covered financial position by a covered banking entity shall be considered to be on behalf of customers if: The purchase or sale: Is conducted by a covered banking entity acting as investment adviser, commodity trading advisor, trustee, or in a similar fiduciary capacity for a customer; Is conducted for the account of the customer; and Involves solely covered financial positions of which the customer, and not the covered banking entity or any subsidiary or affiliate of the covered banking entity, is beneficial owner (including as a result of having long or short exposure under the relevant covered financial position);(ii) The covered banking entity is acting as riskless principal in a transaction in which the covered banking entity, after receiving an order to purchase (or sell) a covered financial position from a customer, purchases (or sells) the covered financial position for its own account to offset a contemporaneous sale to (or purchase from) the customer; or(iii) The covered banking entity is an insurance company that purchases or sells a covered financial position for a separate account, if: The insurance company is directly engaged in the business of insurance and subject to regulation by a State insurance regulator or foreign insurance regulator; The insurance company purchases or sells the covered financial position solely for a separate account established by the insurance company in connection with one or more insurance policies issued by that insurance company; All profits and losses arising from the purchase or sale of a covered financial position are allocated to the separate account and inure to the benefit or detriment of the owners of the insurance policies supported by the separate account, and not the insurance company; and The purchase or sale is conducted in compliance with, and subject to, the insurance company investment and other laws, regulations, and written guidance of the State or jurisdiction in which such insurance company is domiciled. Permitted trading by a regulated insurance company. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale of a covered financial position by an insurance company or any affiliate of an insurance company if: The insurance company is directly engaged in the business of insurance and subject to regulation by a State insurance regulator or foreign insurance regulator; The insurance company or its affiliate purchases or sells the covered financial position solely for the general account of the insurance company; 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 The appropriate Federal banking agencies, after consultation with the Financial Stability Oversight Council and the relevant insurance commissioners of the States, have not jointly determined, after notice and comment, that a particular law, regulation, or written guidance described in paragraph of this section is insufficient to protect the safety and soundness of the covered banking entity, or of the financial stability of the United States. Permitted trading outside of the United States. The prohibition on proprietary trading contained in § . does not apply to the purchase or sale of a covered financial position by a covered banking entity if: The covered banking entity is not 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 purchase or sale is conducted pursuant to paragraph or ( ) of section of the BHC Act; and(iii) The purchase or sale occurs solely outside of the United States. A purchase or sale shall be deemed to be conducted pursuant to paragraph or ( ) of section of the BHC Act only if: With respect to a covered banking entity that is a foreign banking organization, the banking entity is a qualifying foreign banking organization and is conducting the purchase or sale in compliance with subpart B of the Board’s Regulation K ( CFR . through . ); or(ii) With respect to a covered banking entity that is not a foreign banking organization, the covered banking entity meets at least two of the following requirements: Total assets of the covered banking entity held outside of the United States exceed total assets of the covered banking entity held in the United States; Total revenues derived from the business of the covered banking entity outside of the United States exceed total revenues derived from the business of the covered banking entity in the United States; or Total net income derived from the business of the covered banking entity outside of the United States exceeds total net income derived from the business of the covered banking entity in the United States. A purchase or sale shall be deemed to have occurred solely outside of the United States only if: The covered banking entity conducting the purchase or sale is not organized under the laws of the United States or of one or more States;(ii) No party to the purchase or sale is a resident of the United States;(iii) No personnel of the covered banking entity who is directly involved in the purchase or sale is physically located in the United States; and(iv) The purchase or sale is executed wholly outside of the United States.§ . Reporting and recordkeeping requirements applicable to trading activities.A covered banking entity engaged in any proprietary trading activity permitted under §§ . through . shall comply with: The reporting and recordkeeping requirements described in Appendix A to this part, if the covered banking entity has, together with its affiliates and subsidiaries, trading assets and liabilities the average gross sum of which (on a worldwide consolidated basis) is, as measured as of the last day of each of the four prior calendar quarters, equal to or greater than $ billion; The recordkeeping requirements required under § . and appendix C to this part, as applicable; and Such other reporting and recordkeeping requirements as [Agency] may impose to evaluate the covered banking entity’s compliance with this subpart.§ . Limitations on permitted proprietary trading activities. No transaction, class of transactions, or activity may be deemed permissible under §§ . through . if the transaction, class of transactions, or activity would: Involve or result in a material conflict of interest between the covered banking entity and its clients, customers, or counterparties; Result, directly or indirectly, in a material exposure by the covered banking entity to a high-risk asset or a high-risk trading strategy; or Pose a threat to the safety and soundness of the covered banking entity or to the financial stability of the United States. Definition of material conflict of interest. For purposes of this section, a material conflict of interest between a covered banking entity and its clients, customers, or counterparties exists if the covered banking entity engages in any transaction, class of transactions, or activity that would involve or result in the covered 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, unless: Timely and effective disclosure and opportunity to negate or substantially mitigate. Prior to effecting the specific transaction or class or type of transactions, or engaging in the specific activity, for which a conflict of interest may arise, the covered banking entity: Makes 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(ii) Makes such disclosure explicitly and effectively, and 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 Information barriers. The covered banking entity 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 covered 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 covered 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 covered 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. Definition of high-risk asset and high-risk trading strategy. For purposes of this section: High-risk asset means an asset or group of related assets that would, if held by a covered banking entity, significantly increase the likelihood that the covered banking entity would incur a substantial financial loss or would fail. High-risk trading strategy means a trading strategy that would, if engaged in by a covered banking entity, significantly increase the likelihood that the covered banking entity would incur a substantial financial loss or would fail.§ . [Reserved]Subpart C—Covered Funds Activities and Investments§ . Prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund. Prohibition. Except as otherwise provided in this subpart, a covered banking entity may not, as principal, directly or indirectly, acquire or retain any ownership interest in or sponsor a covered fund. Definitions. For purposes of this part: Covered fund means: An issuer that would be an investment company, as defined in the Investment Company Act of ( U.S.C. a- et seq.), but for section or of that Act ( U.S.C. a- or );(ii) A commodity pool, as defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( ));(iii) Any issuer, as defined in section ( ) of the Investment Company Act of ( U.S.C. a- ( )), that is organized or offered outside of the United States that would be a covered fund as defined in paragraphs , (ii), or (iv) of this section, were it organized or offered under the laws, or offered to one or more residents, of the United States or of one or more States; and(iv) Any such similar fund as the appropriate Federal banking agencies, the SEC, and the CFTC may determine, by rule, as provided in section of the BHC Act. Director has the same meaning as provided in § . of the Board’s Regulation O ( CFR . ). Ownership interest. Ownership interest means any equity, partnership, or other similar interest (including, without limitation, a share, equity security, warrant, option, general partnership interest, limited partnership interest, membership interest, trust certificate, or other similar instrument) in a covered fund, whether voting or nonvoting, or any derivative of such interest.(ii) Ownership interest does not include, with respect to a covered fund: Carried interest. An interest held by a covered banking entity (or an affiliate, subsidiary or employee thereof) in a covered fund for which the covered banking entity (or an affiliate, subsidiary or employee thereof) serves as investment manager, investment adviser or commodity trading adviser, so long as: The sole purpose and effect of the interest is to allow the covered banking entity (or the affiliate, subsidiary or employee thereof) to share in the profits of the covered fund as performance compensation for services provided to the covered fund by the covered banking entity (or the affiliate, subsidiary or employee thereof), provided that the covered banking entity (or the affiliate, subsidiary or employee thereof) may be obligated under the terms of such interest to return profits previously received; All such profit, once allocated, is distributed to the covered banking entity (or the affiliate, subsidiary or employee thereof) promptly after being earned or, if not so distributed, the reinvested profit of the covered banking entity (or the affiliate, subsidiary or employee thereof) does not share in the subsequent profits and losses of the covered fund; The covered banking entity (or the affiliate, subsidiary or employee thereof) does not provide funds to the covered fund in connection with acquiring or retaining this interest; and The interest is not transferable by the covered banking entity (or the affiliate, subsidiary or employee thereof) except to another affiliate or subsidiary thereof. Prime brokerage transaction means one or more products or services provided by a covered banking entity to a covered fund, such as custody, clearance, securities borrowing or lending services, trade execution, or financing, data, operational, and portfolio management support. Sponsor, with respect to a covered fund, means: To serve as a general partner, managing member, trustee, or commodity pool operator of a covered fund;(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. Trustee. For purposes of this subpart, a trustee does not include a trustee that does not exercise investment discretion with respect to a covered fund, including a directed trustee, as that term is used in section of the Employee’s Retirement Income Security Act ( U.S.C. ).(ii) Any covered banking entity that directs a person identified in paragraph of this section, or that possesses authority and discretion to manage and control the assets of a covered fund for which such person identified in paragraph of this section serves as trustee, shall be considered a trustee of such covered fund.§ . Permitted organizing and offering of a covered fund.Section . does not prohibit a covered banking entity from, 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: The covered banking entity provides bona fide trust, fiduciary, investment advisory, or commodity trading advisory services; 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 covered banking entity, pursuant to a credible plan or similar documentation outlining how the covered banking entity intends to provide advisory or similar services to its customers through organizing and offering such fund; The covered banking entity does not acquire or retain an ownership interest in the covered fund except as permitted under this subpart; The covered banking entity complies with the restrictions under § . of this subpart; The covered 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; The covered fund, for corporate, marketing, promotional, or other purposes: Does not share the same name or a variation of the same name with the covered banking entity (or an affiliate or subsidiary thereof); and Does not use the word “bank” in its name; No director or employee of the covered banking entity takes or retains an ownership interest in the covered fund, except for any director or employee of the covered banking entity who is directly engaged in providing investment advisory or other services to the covered fund; and The covered banking entity: 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): That “any losses in [such covered fund] will be borne solely by investors in [the covered fund] and not by [the covered banking entity and its affiliates or subsidiaries]; therefore, [the covered banking entity’s and its affiliates’ or subsidiaries’] losses in [such covered fund] will be limited to losses attributable to the ownership interests in the covered fund held by the [covered banking entity and its affiliates or subsidiaries] in their capacity as investors in the [covered fund]”;(ii) That such investor should read the fund offering documents before investing in the covered fund;(iii) 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);(iv) The role of the covered banking entity and its affiliates, subsidiaries and employees in sponsoring or providing any services to the covered fund; and Complies with any additional rules of the appropriate Federal banking agencies, the SEC, or the CFTC, as provided in section 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 or subsidiaries.§ . Permitted investment in a covered fund. Authority and limitations on permitted investments in covered funds. The prohibition contained in § . does not apply with respect to a covered banking entity acquiring and retaining any ownership interest in a covered fund that the covered banking entity or an affiliate or subsidiary thereof organizes and offers, for the purposes of: Establishment. Establishing the covered fund and providing the fund with sufficient initial equity for investment to permit the fund to attract unaffiliated investors as required by paragraph of this section; or(ii) De minimis investment. Making and retaining an investment in the covered fund that does not exceed percent of the total outstanding ownership interests in the fund. Ownership limits. With respect to an investment in any covered fund pursuant to paragraph of this section, the covered banking entity: Must actively seek unaffiliated investors to reduce through redemption, sale, dilution, or other methods the aggregate amount of all ownership interests of the covered banking entity in any covered fund under § . to the amount permitted in paragraph of this section; and May not exceed percent of the total amount or value of outstanding ownership interests of the fund not later than year after the date of establishment of the fund (or such longer period as may be provided by the Board pursuant to paragraph of this section); and(ii) The aggregate value of all ownership interests of the covered banking entity in all covered funds under § . may not exceed percent of the tier capital of the covered banking entity, as provided under paragraph of this section. Limitations on investments in a single covered fund. For purposes of determining whether a covered banking entity is in compliance with the limitations and restrictions on permitted investments in covered funds contained in paragraph of this section, a covered banking entity shall calculate its amount and value of a permitted investment in a single covered fund as follows: Attribution of ownership interests to a covered banking entity. The amount and value of a banking entity’s permitted investment in any single covered fund shall include: Controlled investments. Any ownership interest held under § . by any entity that is controlled, directly or indirectly, by the covered banking entity for purposes of this part; and(ii) Noncontrolled investments. The pro rata share of any ownership interest held under § . by any covered fund that is not controlled by the covered banking entity but in which the covered banking entity owns, controls, or holds with the power to vote more than percent of the voting shares. Calculation of amount of ownership interests in a single covered fund. For purposes of determining whether an investment in a single covered fund does not exceed percent of the total outstanding ownership interests of the fund under paragraph of this section: The aggregate amount of all ownership interests of the covered banking entity shall be the greater of (without regard to committed funds not yet called for investment): The value of any investment or capital contribution made with respect to all ownership interests held under § . by the covered banking entity in the covered fund, divided by the value of all investments or capital contributions, respectively, made by all persons in that covered fund; or The total number of ownership interests held under § . by the covered banking entity in a covered fund divided by the total number of ownership interests held by all persons in that covered fund.(ii) Inclusion of certain parallel investments. To the extent that a covered banking entity is contractually obligated to directly invest in, or is found to be acting in concert through knowing participation in a joint activity or parallel action toward a common goal of investing in, one or more investments with a covered fund that is organized and offered by the covered banking entity, whether or not pursuant to an express agreement, such investments shall be included in any calculation required under paragraph of this section. Timing of single covered fund investment calculation. The aggregate amount of all ownership interests of a covered banking entity in a single covered fund may at no time exceed the limits in this paragraph after the conclusion of the period provided in paragraph of this section. Methodology and standards for calculation. For purposes of determining the amount or value of its investment in a covered fund under this paragraph , a covered banking entity must calculate its investment in the same manner and according to the same standards utilized by the covered fund for determining the aggregate value of the fund’s assets and ownership interests. Aggregate permitted investments in all covered funds. For purposes of determining the aggregate value of all permitted investments in all covered funds by a covered banking entity under paragraph (ii) of this section, the aggregate value of all ownership interests held by that covered banking entity shall be the sum of the value of each investment in a covered fund held under § . , as determined in accordance with applicable accounting standards. Calculation of tier capital. For purposes of determining compliance with paragraph (ii) of this section: Entities that are required to hold and report tier capital. If a covered banking entity is required to calculate and report tier capital, the covered banking entity’s tier capital shall be equal to the amount of tier capital calculated by that covered banking entity as of the last day of the most recent calendar quarter that has ended, as reported to its primary financial regulatory agency, as defined in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act; and(ii) If a covered banking entity is not required to calculate and report tier capital, the covered banking entity’s tier capital shall be determined to be equal to: In the case of a covered banking entity that is controlled, directly or indirectly, by a depository institution that calculates and reports tier capital, the amount of tier capital reported by such controlling depository institution pursuant to paragraph of this section; In the case of a covered banking entity that is not controlled, directly or indirectly, by a depository institution that calculates and reports tier capital: Bank holding company subsidiaries. If the covered banking entity is a subsidiary of a bank holding company or company that is treated as a bank holding company, the amount of tier capital reported by the top-tier affiliate of such covered banking entity that calculates and reports tier capital, pursuant to paragraph of this section; and Other holding companies and any subsidiary or affiliate thereof. If the covered banking entity is not a subsidiary of a bank holding company or a company that is treated as a bank holding company, 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. A covered banking entity’s aggregate permitted investment in all covered funds shall be calculated as of the last day of each calendar quarter. Capital treatment for a permitted investment in a covered fund. For purposes of calculating capital pursuant to the applicable capital rules, a covered banking entity shall deduct the aggregate value of all permitted investments in all covered funds made or retained by a covered banking entity pursuant to this section (as determined under paragraph of this section) from the banking entity’s tier capital (as determined under paragraph of this section). Extension of time to divest an ownership interest. Upon application by a covered banking entity, the Board may extend the period of time to meet the requirements under paragraphs and of this section for up to 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: Be submitted to the Board at least days prior to the expiration of the applicable time period;(ii) Provide the reasons for application, including information that addresses the factors in paragraph of this section; and(iii) Explain the covered banking entity’s plan for reducing the permitted investment in a covered fund through redemption, sale, dilution or other methods as required in paragraph of this section. Factors governing Board determinations. In reviewing any application under paragraph of this section, the Board may consider all the facts and circumstances related to the permitted investment in a covered fund, including: Whether the investment would: Involve or result in material conflicts of interest between the covered banking entity and its clients, customers or counterparties; Result, directly or indirectly, in a material exposure by the covered banking entity to high-risk assets or high-risk trading strategies; Pose a threat to the safety and soundness of the covered banking entity; or Pose a threat to the financial stability of the United States;(ii) Market conditions;(iii) The contractual terms governing the covered banking entity’s interest in the covered fund;(iv) The date on which the covered fund is expected to have attracted sufficient investments from investors unaffiliated with the covered banking entity to enable the covered banking entity to comply with the limitations in paragraph of this section; 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 covered banking entity and the financial stability of the United States;(vi) The cost to the covered banking entity of divesting or disposing of the investment within the applicable period;(vii) Whether the divestiture or conformance of the investment would involve or result in a material conflict of interest between the covered banking entity and unaffiliated clients, customers or counterparties to which it owes a duty;(viii) The covered 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; and(ix) Any other factor that the Board believes appropriate. Consultation. In the case of a covered 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 approval of an application by the covered banking entity for an extension under paragraph of this section. Authority to impose restrictions on activities or investment during any extension period. The Board may impose such conditions on any extension approved under paragraph of this section as the Board determines are necessary or appropriate to protect the safety and soundness of the covered 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 of the BHC Act ( U.S.C. ) and this part.(ii) Consultation. In the case of a covered 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 imposing conditions on the approval of a request by the covered banking entity for an extension under paragraph of this section.§ . Other permitted covered fund activities and investments. Permitted investments in SBICs and related investments. The prohibition contained in § . does not apply with respect to acquiring or retaining an ownership interest in, or acting as sponsor to, a covered fund by a covered banking entity or an affiliate or subsidiary thereof: In one or more small business investment companies, as defined in section of the Small Business Investment Act of ( U.S.C. ); That is designed primarily to promote the public welfare, of the type permitted under paragraph ( ) of section of the Revised Statutes of the United States ( U.S.C. ), including the welfare of low- and moderate-income communities or families (such as providing housing, services, or jobs); or That is a qualified rehabilitation expenditure with respect to a qualified rehabilitation building or certified historic structure, as such terms are defined in section of the Internal Revenue Code of or a similar State historic tax credit program. Permitted risk-mitigating hedging activities. The prohibition contained in § . does not apply with respect to an ownership interest in a covered fund by a covered banking entity, provided that the acquisition or retention of the ownership interest is: Made in connection with and related to individual or aggregated obligations or liabilities of the covered banking entity that are: Taken by the covered banking entity when acting as intermediary on behalf of a customer that is not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the covered fund, or Directly connected to a compensation arrangement with an employee that directly provides investment advisory or other services to the covered fund; and(ii) Designed to reduce the specific risks to the covered banking entity in connection with and related to such obligations or liabilities. Requirements. For purposes of paragraph of this section, acquiring or retaining an ownership interest in a covered fund by a covered banking entity shall be a permissible risk-mitigating hedging activity under this section only if: The covered banking entity has established the internal compliance program required by subpart D designed to ensure the covered banking entity’s compliance with the requirements of this paragraph of this section including reasonably designed written policies and procedures regarding the instruments, techniques and strategies that may be used for hedging, internal controls and monitoring procedures, and independent testing;(ii) The acquisition or retention of an ownership interest in a covered fund: Is made in accordance with the written policies, procedures and internal controls established by the covered banking entity pursuant to subpart D; Hedges or otherwise mitigates an exposure to a covered fund through an offsetting exposure to the same covered fund and in the same amount of ownership interest in that covered fund that: Arises out of a transaction conducted solely to accommodate a specific customer request with respect to, or Is directly connected to its compensation arrangement with an employee that directly provides investment advisory or other services to, that covered fund; Does not give rise, at the inception of the hedge, to significant exposures that were not already present in individual or aggregated positions, contracts, or other holdings of a covered banking entity and that are not hedged contemporaneously; and Is subject to continuing review, monitoring and management by the covered banking entity that: Is consistent with its written hedging policies and procedures; Maintains a substantially similar offsetting exposure to the same amount and type of ownership interest, based upon the facts and circumstances of the underlying and hedging positions and the risks and liquidity of those positions, to the risk or risks the purchase or sale is intended to hedge or otherwise mitigate; and Mitigates any significant exposure arising out of the hedge after inception; and(iii) The compensation arrangements of persons performing the risk-mitigating hedging activities are designed not to reward proprietary risk-taking. Documentation. With respect to any acquisition or retention of an ownership interest in a covered fund by a covered banking entity pursuant to this paragraph , the covered banking entity must document, at the time the transaction is conducted: The risk-mitigating purpose of the acquisition or retention of an ownership interest in a covered fund;(ii) The risks of the individual or aggregated obligation or liability of a covered banking entity that the acquisition or retention of an ownership interest in a covered fund is designed to reduce; and(iii) The level of organization that is establishing the hedge. Certain permitted covered fund activities and investments outside of the United States. The prohibition contained in § . does not apply to the acquisition or retention of any ownership interest in, or the sponsorship of, a covered fund by a covered banking entity if: The covered banking entity is not 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 is conducted pursuant to paragraph or ( ) of section of the BHC Act;(iii) No ownership interest in such covered fund is offered for sale or sold to a resident of the United States; and(iv) The activity occurs solely outside of the United States. An activity shall be considered to be conducted pursuant to paragraph or ( ) of section of the BHC Act only if: With respect to a covered banking entity that is a foreign banking organization, the covered banking entity is a qualifying foreign banking organization and is conducting the activity in compliance with subpart B of the Board’s Regulation K ( CFR . et seq.); or(ii) With respect to a covered banking entity that is not a foreign banking organization, the covered banking entity meets at least two of the following requirements: Total assets of the covered banking entity held outside of the United States exceed total assets of the covered banking entity held in the United States; Total revenues derived from the business of the covered banking entity outside of the United States exceed total revenues derived from the business of the covered banking entity in the United States; or Total net income derived from the business of the covered banking entity outside of the United States exceeds total net income derived from the business of the covered banking entity in the United States. An activity shall be considered to have occurred solely outside of the United States only if: The covered banking entity engaging in the activity is not organized under the laws of the United States or of one or more States;(ii) No subsidiary, affiliate, or employee of the covered banking entity that is involved in the offer or sale of an ownership interest in the covered fund is incorporated or physically located in the United States or in one or more States; and(iii) No ownership interest in such covered fund is offered for sale or sold to a resident of the United States. Loan securitizations. The prohibition contained in § . does not apply with respect to the acquisition or retention by a covered banking entity of any ownership interest in, or acting as sponsor to, a covered fund that is an issuer of asset-backed securities, the assets or holdings of which are solely comprised of: Loans; Contractual rights or assets directly arising from those loans supporting the asset-backed securities; and Interest rate or foreign exchange derivatives that: Materially relate to the terms of such loans or contractual rights or assets; and(ii) Are used for hedging purposes with respect to the securitization structure.§ . Covered fund activities determined to be permissible. The prohibition contained in § . does not apply to the acquisition or retention by a covered banking entity of any ownership interest in or acting as sponsor to: Bank owned life insurance. A separate account which is used solely for the purpose of allowing a covered banking entity to purchase an insurance policy for which the covered banking entity is the beneficiary, provided that the covered banking entity that purchases the insurance policy: Does not control the investment decisions regarding the underlying assets or holdings of the separate account; and(ii) Holds its ownership interest in the separate account in compliance with applicable supervisory guidance regarding bank owned life insurance. Certain other covered funds. Any of the following entities that would otherwise qualify as a covered fund: A joint venture between the covered banking entity or one of its affiliates and any other person, provided that the joint venture: Is an operating company; and Does not engage in any activity or make any investment that is prohibited under this part;(ii) An acquisition vehicle, provided that the sole purpose and effect of such entity is to effectuate a transaction involving the acquisition or merger of one entity with or into the covered banking entity or one of its affiliates;(iii) An issuer of an asset-backed security, but only with respect to that amount or value of economic interest in a portion of the credit risk for an asset-backed security that is retained by a covered banking entity that is a “securitizer” or “originator” in compliance with the minimum requirements of section G of the Exchange Act ( U.S.C. o- ) and any implementing regulations issued thereunder;(iv) A wholly-owned subsidiary of the covered banking entity that is: Engaged principally in performing bona fide liquidity management activities described in § . (iii) ; and Carried on the balance sheet of the covered banking entity; and A covered fund that is an issuer of asset-backed securities described in § . , the assets or holdings of which are solely comprised of: Loans; Contractual rights or assets directly arising from those loans supporting the asset-backed securities; and Interest rate or foreign exchange derivatives that: Materially relate to the terms of such loans or contractual rights or assets, and Are used for hedging purposes with respect to the securitization structure. The prohibition contained in § . does not apply to the acquisition or retention by a covered banking entity of any ownership interest in, or acting as sponsor to, a covered fund, but only if such ownership interest is acquired or retained by a covered banking entity (or an affiliate or subsidiary thereof): In the ordinary course of collecting a debt previously contracted in good faith, if the covered banking entity divests the ownership interest within applicable time periods provided for by [Agency]; or Pursuant to and in compliance with the conformance or extended transition period authorities provided for in subpart E of the Board’s rules implementing section of the BHC Act ( CFR . through . ).§ . Internal controls, reporting and recordkeeping requirements applicable to covered fund activities and investments.A covered banking entity engaged in any covered fund activity or making or holding any investment permitted under this subpart shall comply with: The internal controls, reporting, and recordkeeping requirements required under § . and appendix C to this part, as applicable; and Such other reporting and recordkeeping requirements as [Agency] may deem necessary to appropriately evaluate the covered banking entity’s compliance with this subpart.§ . Limitations on relationships with a covered fund. Relationships with a covered fund. Except as provided for in paragraph of this section, no covered 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 § . , 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 A of the Federal Reserve Act ( U.S.C. c), as if such covered banking entity and the affiliate thereof were a member bank and the covered fund were an affiliate thereof. Notwithstanding paragraph of this section, a covered banking entity may: Acquire and retain any ownership interest in a covered fund in accordance with the requirements 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 covered banking entity (or an affiliate or subsidiary thereof) has taken an ownership interest, if: The covered banking entity is in compliance with each of the limitations set forth in § . with respect to a covered fund organized and offered by such covered banking entity (or an affiliate or subsidiary thereof); The chief executive officer (or equivalent officer) of the top-tier affiliate of the covered banking entity certifies in writing annually (with a duty to update the certification if the information in the certification materially changes) that the covered 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 The Board has not determined that such transaction is inconsistent with the safe and sound operation and condition of the covered banking entity. Restrictions on transactions with covered funds. A covered 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 § . , shall be subject to section B of the Federal Reserve Act ( U.S.C. c- ), as if such covered banking entity were a member bank and such covered fund were an affiliate thereof. Restrictions on prime brokerage transactions. A prime brokerage transaction permitted under paragraph (ii) of this section shall be subject to section B of the Federal Reserve Act ( U.S.C. c- ) as if the counterparty were an affiliate of the covered banking entity.§ . Other limitations on permitted covered fund activities. No transaction, class of transactions, or activity may be deemed permissible under §§ . through . and § . if the transaction, class of transactions, or activity would: Involve or result in a material conflict of interest between the covered banking entity and its clients, customers, or counterparties; Result, directly or indirectly, in a material exposure by the covered banking entity to a high-risk asset or a high-risk trading strategy; or Pose a threat to the safety and soundness of the covered banking entity or the financial stability of the United States. Definition of material conflict of interest. For purposes of this section, a material conflict of interest between a covered banking entity and its clients, customers, or counterparties exists if the covered banking entity engages in any transaction, class of transactions, or activity that would involve or result in the covered 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, unless: Timely and effective disclosure and opportunity to negate or substantially mitigate. Prior to effecting the specific transaction or class or type of transactions, or engaging in the specific activity, for which a conflict of interest may arise, the covered banking entity: Makes 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(ii) Makes such disclosure explicitly and effectively, and 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 Information barriers. The covered banking entity 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 covered 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 covered 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 covered 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. Definition of high-risk asset and high-risk trading strategy. For purposes of this section: High-risk asset means an asset or group of related assets that would, if held by a covered banking entity, significantly increase the likelihood that the covered banking entity would incur a substantial financial loss or would fail. High-risk trading strategy means a trading strategy that would, if engaged in by a covered banking entity, significantly increase the likelihood that the covered banking entity would incur a substantial financial loss or would fail.§ . [Reserved]§ . [Reserved]Subpart D—Compliance Program Requirement; Violations§ . Program for monitoring compliance; enforcement. Program requirement. Except as provided in paragraph of this section, each covered banking entity shall develop and provide for the continued administration of a 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 of the BHC Act and this part, and such program shall be appropriate for the size, scope and complexity of activities and business structure of the covered banking entity. Contents of compliance program. The compliance program required by paragraph of this section, at a minimum, shall include: Internal written policies and procedures reasonably designed to document, describe, and monitor trading activities subject to subpart B of this part and activities and investments with respect to a covered fund subject to subpart C of this part (including those permitted under §§ . through . or §§ . through . ) to ensure that such activities and investments comply with section of the BHC Act and this part; A system of internal controls reasonably designed to monitor and identify potential areas of noncompliance with section of the BHC Act and this part in the covered banking entity’s trading activities subject to subpart B of this part and activities and investments with respect to a covered fund subject to subpart C of this part (including those permitted under §§ . through . or §§ . through . ) and to prevent the occurrence of activities or investments that are prohibited by section of the BHC Act and this part; A management framework that clearly delineates responsibility and accountability for compliance with section of the BHC Act and this part; Independent testing for the effectiveness of the compliance program conducted by qualified personnel of the covered banking entity or by a qualified outside party; Training for trading personnel and managers, as well as other appropriate personnel, to effectively implement and enforce the compliance program; and Making and keeping records sufficient to demonstrate compliance with section of the BHC Act and this part, which a covered banking entity must promptly provide to [Agency] upon request and retain for a period of no less than years. Additional standards. In the case of any covered banking entity described in paragraph of this section, the compliance program required by paragraph of this section shall also satisfy the requirements and other standards contained in Appendix C to this part. A covered banking entity is subject to paragraph of this section if: The covered banking entity engages in proprietary trading and has, together with its affiliates and subsidiaries, trading assets and liabilities the average gross sum of which (on a worldwide consolidated basis), as measured as of the last day of each of the four prior calendar quarters: Is equal to or greater than $ billion; or Equals percent or more of its total assets;(ii) The covered banking entity invests in, or has relationships with, a covered fund and: The covered banking entity has, together with its affiliates and subsidiaries, aggregate investments in one or more covered funds, the average value of which is, as measured as of the last day of each of the four prior calendar quarters, equal to or greater than $ billion; or Sponsors or advises, together with its affiliates and subsidiaries, one or more covered funds, the average total assets of which are, as measured as of the last day of each of the four prior calendar quarters, equal to or greater than $ billion; or(iii) [The Agency] deems it appropriate. No program required for certain banking entities. To the extent that a covered banking entity does not engage in activities or investments prohibited or restricted by subpart B or subpart C of this part, a covered banking entity will have satisfied the requirements of this section if its existing compliance policies and procedures include measures that are designed to prevent the covered banking entity from becoming engaged in such activities or making such investments and which require the covered banking entity to develop and provide for the compliance program required under paragraph of this section prior to engaging in such activities or making such investments.§ . Termination of activities or investments; penalties for violations. Any covered banking entity that engages in an activity or makes an investment in violation of section of the BHC Act or this part or in a manner that functions as an evasion of the requirements of section 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 of the BHC Act or this part, shall terminate the activity and, as relevant, dispose of the investment. After due notice and an opportunity for hearing, if [Agency] finds reasonable cause to believe any covered banking entity has engaged in an activity or made an investment described in paragraph , the [Agency] may, by order, direct the banking entity to restrict, limit, or terminate the activity and, as relevant, dispose of the investment. [Reserved]Appendix A to Part [ ]—Reporting and Recordkeeping Requirements for Covered Trading ActivitiesI. PurposeThis appendix sets forth reporting and recordkeeping requirements that certain covered banking entities must satisfy in connection with the restrictions on proprietary trading set forth in subpart B of this part (“proprietary trading restrictions”). Pursuant to § . , this appendix generally applies to a covered banking entity that has, together with its affiliates and subsidiaries, trading assets and liabilities the average gross sum of which (on a worldwide consolidated basis) is, as measured as of the last day of each of the four prior calendar quarters, equal to or greater than $ billion. These entities are required to furnish periodic reports to [Agency] regarding a variety of quantitative measurements of their covered trading activities, which vary depending on the scope and size of covered trading activities, and create and maintain records documenting the preparation and content of these reports. The requirements of this appendix should be incorporated into the covered banking entity’s internal compliance program under § . and appendix C to this part.The purpose of this appendix is to assist covered banking entities and [Agency] in: Better understanding and evaluating the scope, type, and profile of the covered banking entity’s trading activities;(ii) Monitoring the covered banking entity’s trading activities;(iii) Identifying trading activities that warrant further review or examination by the covered banking entity to verify compliance with the proprietary trading restrictions;(iv) Evaluating whether the trading activities of trading units engaged in market making-related activities subject to § . are consistent with the requirements governing permitted market making-related activities; Evaluating whether the covered trading activities of trading units that are engaged in permitted trading activity subject to §§ . , . , or . (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 trading activities of the covered banking entity, and the individual trading units of the banking entity, to help establish the appropriate frequency and scope of examination by [Agency] of such activities; and(vii) Assessing and addressing the risks associated with the covered banking entity’s covered trading activities.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.In addition to the quantitative measurements required in this appendix, a covered banking entity may need to develop and implement other quantitative measurements in order to effectively monitor its covered trading activities for compliance with section of the BHC Act and this part and to have an effective compliance program, as required by § . and appendix C 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 unit, 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, covered 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 covered banking entity, and to monitor and examine for compliance with the proprietary trading restrictions in this part.On an ongoing basis, covered banking entities should 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 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 §§ . through . that result in a material exposure to high-risk assets or high-risk trading strategies, should be escalated within the banking entity for review, further analysis, explanation to [Agency], and remediation, where appropriate. Many of the quantitative measurements discussed in this appendix will also be helpful to covered banking entities in identifying and managing the risks related to their covered trading activities.II. DefinitionsThe terms used in this appendix have the same meanings as set forth in §§ . and . . In addition, for purposes of this appendix, the following definitions apply:Covered trading activity means proprietary trading, as defined in paragraph of § . .Trading unit means each of the following units of organization of a covered banking entity: Each discrete unit that is engaged in the coordinated implementation of a revenue-generation strategy and that participates in the execution of any covered trading activity; [The Agency] expects that this will generally be the smallest unit of organization used by the covered banking entity to structure and control its risk-taking activities and employees, and will include each unit generally understood to be a single “trading desk.”(ii) Each organizational unit that is used to structure and control the aggregate risk-taking activities and employees of one or more trading units described in paragraph ; [The Agency] expects that this will generally include management or reporting divisions, groups, sub-groups, or other intermediate units of organization used by the covered banking entity to manage one or more discrete trading units (e.g., “North American Credit Trading,” “Global Credit Trading,” etc.).(iii) All trading operations, collectively; and(iv) Any other unit of organization specified by [Agency] with respect to a particular banking entity.Calculation period means the period of time for which a particular quantitative measurement must be calculated.III. Reporting and Recordkeeping of Quantitative MeasurementsA. Scope of Required ReportingGeneral scope. The quantitative measurements that must be furnished by a covered banking entity depend on the aggregate size of the covered banking entity’s trading activities and the activities in which its trading units engage, as follows: With respect to any covered banking entity that is engaged in any covered trading activity, and has trading assets and liabilities the average gross sum of which (on a worldwide consolidated basis) is, as measured as of the last day of each of the four prior calendar quarters, equal to or greater than $ billion: Each trading unit of the covered banking entity that is engaged in market making-related activities subject to § . must furnish the following quantitative measurements, calculated in accordance with this appendix:• Value-at-Risk and Stress VaR;• VaR Exceedance;• Risk Factor Sensitivities;• Risk and Position Limits;• Comprehensive Profit and Loss;• Portfolio Profit and Loss;• Fee Income and Expense;• Spread Profit and Loss;• Comprehensive Profit and Loss Attribution;• Pay-to-Receive Spread Ratio;• Unprofitable Trading Days Based on Comprehensive Profit and Loss and Unprofitable Trading Days Based on Portfolio Profit and Loss;• Skewness of Portfolio Profit and Loss and Kurtosis of Portfolio Profit and Loss;• Volatility of Comprehensive Profit and Loss and Volatility of Portfolio Profit and Loss;• Comprehensive Profit and Loss to Volatility Ratio and Portfolio Profit and Loss to Volatility Ratio;• Inventory Risk Turnover;• Inventory Aging; and• Customer-facing Trade Ratio; and Each trading unit of the covered banking entity that is engaged in permitted trading activity subject to §§ . , . , or . must furnish the following quantitative measurements, calculated in accordance with this appendix:• Value-at-Risk and Stress VaR;• Risk Factor Sensitivities;• Risk and Position Limits;• Comprehensive Profit and Loss; and• Comprehensive Profit and Loss Attribution; and(ii) With respect to any covered banking entity that is engaged in any covered trading activity, and has trading assets and liabilities the average gross sum of which (on a worldwide consolidated basis) is, as measured as of the last day of each of the four prior calendar quarters, equal to or greater than $ billion and less than $ billion, each trading unit of the covered banking entity that is engaged in market making-related activities under § . must furnish the following quantitative measurement, calculated in accordance with this appendix:• Comprehensive Profit and Loss;• Portfolio Profit and Loss;• Fee Income and Expense;• Spread Profit and Loss;• Value-at-Risk;• Comprehensive Profit and Loss Attribution;• Volatility of Comprehensive Profit and Loss and Volatility of Portfolio Profit and Loss; and• Comprehensive Profit and Loss to Volatility Ratio and Portfolio Profit and Loss to Volatility Ratio.B. Frequency of Required Calculation and ReportingA covered banking entity must calculate any applicable quantitative measurement for each trading day. A covered banking entity must report each applicable quantitative measurement to [Agency] on a monthly basis, or on any other reporting schedule requested by [Agency]. All quantitative measurements for any calendar month must be reported to [Agency] no later than days after the end of that calendar month or on any other time basis requested by [Agency]. For example, under section IV.B. of this appendix, a banking entity is required to report to [Agency] the Comprehensive Profit and Loss quantitative measurement, as calculated for all trading days in June of any year, no later than July of that year.C. RecordkeepingA covered banking entity must, for any quantitative measurement furnished to [Agency] pursuant to this appendix and § . , create and maintain records documenting the preparation and content of these reports, as well as such information as is necessary to permit [Agency] to verify the accuracy of such reports, for a period of years.IV. Quantitative MeasurementsA. Risk-Management Measurements . Value-at-Risk and Stress Value-at-RiskDescription: For purposes of this appendix, Value-at-Risk (“VaR”) is the commonly used percentile measurement of the risk of future financial loss in the value of a given portfolio over a specified period of time, based on current market conditions. For purposes of this appendix, Stress Value-at-Risk (“Stress VaR”) is the percentile measurement of the risk of future financial loss in the value of a given portfolio over a specified period of time, based on market conditions during a period of significant financial stress.General Calculation Guidance: Banking entities should compute and report VaR and Stress VaR by employing generally accepted standards and methods of calculation. VaR should reflect a loss in a trading unit that is expected to be exceeded less than one percent of the time over a one-day period. For those banking entities that are subject to regulatory capital requirements imposed by a Federal banking agency, VaR and Stress VaR should be computed and reported in a manner that is consistent with such regulatory capital requirements. In cases where a trading unit does not have a standalone VaR or Stress VaR calculation but is part of a larger portfolio for which a VaR or Stress VaR calculation is performed, a VaR or Stress VaR calculation that includes only the trading unit’s holdings should be performed consistent with the VaR or Stress VaR model and methodology used by the larger portfolio.Calculation Period: One trading day. . VaR ExceedanceDescription: For purposes of this appendix, VaR Exceedance is the difference between VaR and Portfolio Profit and Loss, exclusive of Spread Profit and Loss, for a trading unit for any given calculation period.Calculation Period: One trading day. . Risk Factor SensitivitiesDescription: For purposes of this appendix, Risk Factor Sensitivities are changes in a trading unit’s Portfolio Profit and Loss, exclusive of Spread Profit and Loss, that are expected to occur in the event of a change in a trading unit’s “risk factors” (i.e., one or more underlying market variables that are significant sources of the trading unit’s profitability and risk).General Calculation Guidance: A covered banking entity should report the Risk Factor Sensitivities that are monitored and managed as part of the trading unit’s overall risk management policy. The underlying data and methods used to compute a trading unit’s Risk Factor Sensitivities should depend on the specific function of the trading unit and the internal risk management models employed. The number and type of Risk Factor Sensitivities that are monitored and managed by a trading unit, and furnished to [Agency], should depend on the explicit risks assumed by the trading unit. In general, however, reported Risk Factor Sensitivities should be sufficient to account for a preponderance of the price variation in the trading unit’s holdings.Trading units should 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: sensitivities with respect to the related commodity type (e.g., precious metals, oil and petroleum or agricultural products), 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: sensitivities with respect to credit spread factors that are sufficiently granular to account for specific credit sectors and market segments, the maturity profile of the positions, and sensitivities to interest rates at all relevant maturities;• Credit-related derivative positions: credit positions sensitivities and volatility and/or correlation sensitivities (expressed in a manner that demonstrates any significant non-linearities), and the maturity profile of the positions;• Equity positions: sensitivity to equity prices and sensitivities that differentiate between important equity market sectors and segments, such as a small capitalization equities and international equities;• Equity derivative positions: equity position sensitivities and volatility and/or correlation sensitivities (expressed in a manner that demonstrates any significant non-linearities), and the maturity profile of the positions;• Foreign exchange derivative positions: sensitivities with respect to major currency pairs and maturities, sensitivity to interest rates at relevant maturities, and 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: sensitivities 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), as well as the maturity profile of the positions.The methods used by a covered banking entity to calculate sensitivities to a common factor shared by multiple trading units, such as an equity price factor, should be applied consistently across its trading units so that the sensitivities can be compared from one trading unit to another.Calculation Period: One trading day. . Risk and Position LimitsDescription: For purposes of this appendix, Risk and Position Limits are the constraints that define the amount of risk that a trading unit is permitted to take at a point in time, as defined by the covered banking entity for a specific trading unit.General Calculation Guidance: Risk and Position Limits should be reported in the format used by the covered banking entity for the purposes of risk management of each trading unit. 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 should be reported.Calculation Period: One trading day.B. Source-of-Revenue Measurements . Comprehensive Profit and LossDescription: For purposes of this appendix, Comprehensive Profit and Loss is the net profit or loss of a trading unit’s material sources of trading revenue, including, for example, dividend and interest income and expense, over a specific period of time. A trading unit’s Comprehensive Profit and Loss for any given calculation period should generally equal the sum of the trading unit’s Portfolio Profit and Loss and (ii) Fee Income.General Calculation Guidance: Comprehensive Profit and Loss generally should be computed using data on the value of a trading unit’s underlying holdings, the prices at which those holdings were bought and sold, and the value of any fees, commissions, sales credits, spreads, dividends, interest income and expense, or other sources of income from trading activities, whether realized or unrealized. Comprehensive Profit and Loss should not include: compensation costs or other costs required to operate the unit, such as information technology costs; or (ii) charges and adjustments made for internal reporting and management purposes, such as accounting reserves.Calculation Period: One trading day. . Portfolio Profit and LossDescription: For purposes of this appendix, Portfolio Profit and Loss is a trading unit’s net profit or loss on its underlying holdings over a specific period of time, whether realized or unrealized. Portfolio Profit and Loss should generally include any increase or decrease in the market value of a trading unit’s holdings, including, for example, any dividend, interest income, or expense of a trading unit’s holdings. Portfolio Profit and Loss should not include direct fees, commissions, sales credits, or other sources of trading revenue that are not directly related to the market value of the trading unit’s holdings.General Calculation Guidance: In general, Portfolio Profit and Loss should be computed using data on a trading unit’s underlying holdings and the prices at which those holdings are marked for valuation purposes. Portfolio Profit and Loss should not include: compensation costs or other costs required to operate the trading unit, such as information technology costs; or charges and adjustments made for internal reporting and management purposes, such as accounting reserves.Calculation Period: One trading day. . Fee Income and ExpenseDescription: For purposes of this appendix, Fee Income and Expense generally includes direct fees, commissions and other distinct income for services provided by or to a trading unit over a specific period of time.General Calculation Guidance: Fee Income and Expense should be computed using data on direct fees that are earned by the trading unit for services it provides to clients, customers, or counterparties, such as fees earned for structured transactions or sales commissions and credits earned for fulfilling a customer request, whether realized or unrealized, and similar fees paid by the trading unit to other service providers.Calculation Period: One trading day. . Spread Profit and LossDescription: For purposes of this appendix, Spread Profit and Loss is the portion of Portfolio Profit and Loss that generally includes revenue generated by a trading unit from charging higher prices to buyers than the trading unit pays to sellers of comparable instruments over the same period of time (i.e., charging a “spread,” such as the bid-ask spread).General Calculation Guidance: Spread Profit and Loss generally should be computed using data on the prices at which comparable instruments are either bought or sold by the trading unit, as well as the turnover of these instruments. Spread Profit and Loss should be measured with respect to both the purchase and the sale of any position, and should include both the spreads that are earned by the trading unit to execute transactions (expressed as positive amounts), and (ii) the spreads that are paid by the trading unit to initiate transactions (expressed as negative amounts). Spread Profit and Loss should be computed by calculating the difference between the bid price or the ask price (whichever is paid or received) and the mid-market price. The mid-market price is the average of bid and ask.For some asset classes in which a trading unit is engaged in market making-related activities, bid-ask or similar spreads are widely disseminated, constantly updated, and readily available, or otherwise reasonably ascertainable. For purposes of calculating the Spread Profit and Loss attributable to a transaction in such asset classes, the trading unit should utilize the prevailing bid-ask or similar spread on the relevant position at the time the purchase or sale is completed.For other asset classes in which a trading unit is engaged in market making-related activities, bid-ask or similar spreads may not be widely disseminated on a consistent basis or otherwise reasonably ascertainable. A covered banking entity must identify any trading unit engaged in market making-related activities in an asset class for which the covered banking entity believes bid-ask or similar spreads are not widely disseminated on a consistent basis or are not otherwise reasonably ascertainable and must be able to demonstrate that bid-ask or similar spreads for the asset class are not reasonably ascertainable. In such cases, the trading unit should calculate the Spread Profit and Loss for the relevant purchase or sale of a position in a particular asset class by using whichever of the following three alternatives the banking entity believes more accurately reflects prevailing bid-ask or similar spreads for transactions in that asset class: End of Day Spread Proxy: A proxy based on the bid-ask or similar spread that is used to estimate, or is otherwise implied by, the market price at which the trading entity marks (or in the case of a sale, would have marked) the position for accounting purposes at the close of business on the day it executes the purchase or sale (“End of Day Spread Proxy”);(ii) Historical Data Spread Proxy: A proxy based on historical bid-ask or similar spread data in similar market conditions (“Historical Data Spread Proxy”); or(iii) Any other proxy that the banking entity can demonstrate accurately reflects prevailing bid-ask or similar spreads for transactions in the specific asset class.A covered banking entity selecting any of these alternatives should be able to demonstrate that the alternative it has chosen most accurately reflects prevailing bid-ask or similar spreads for the relevant asset class. If a covered banking entity chooses to calculate Spread Profit and Loss for a particular trading unit using the End of Day Spread Proxy, then the banking entity should separately identify the portion of Spread Profit and Loss that is attributable to positions acquired and disposed of on the same trading day. If a banking entity chooses to calculate Spread Profit and Loss for a particular trading unit using the Historical Data Spread Proxy, the covered banking entity should be able to demonstrate that the Historical Data Proxy is appropriate and continually monitor market conditions and adjust, as necessary, the Historical Data Proxy to reflect any changes.Calculation Period: One trading day. . Comprehensive Profit and Loss AttributionDescription: For purposes of this appendix, Comprehensive Profit and Loss Attribution is an attribution analysis that divides the trading unit’s Comprehensive Profit and Loss into the separate sources of risk and revenue that have caused any observed variation in Comprehensive Profit and Loss. This attribution analysis should attribute Comprehensive Profit and Loss to specific market and risk factors that can be accurately and consistently measured over time. Any component of Comprehensive Profit and Loss that cannot be specifically identified in the attribution analysis should be identified as an unexplained portion of the Comprehensive Profit and Loss.General Calculation Guidance: The specific market and risk factors used by a trading unit in the attribution analysis should be tailored to the trading activities undertaken by the unit. These factors should be measured consistently over time to facilitate historical comparisons. The attribution analysis should also identify any significant factors that have a consistent and regular influence on Comprehensive Profit and Loss, such as Risk Factor Sensitivities that have a significant influence on portfolio income, customer spreads, bid-ask spreads, or commissions that are earned. Factors that influence Comprehensive Profit and Loss across different trading units should be measured and included in the attribution analysis in a comparable fashion.Calculation Period: One trading day.C. Revenue-Relative-to-Risk Measurements . Volatility of Comprehensive Profit and Loss and Volatility of Portfolio Profit and LossDescription: For purposes of this appendix, Volatility of Comprehensive Profit and Loss generally is the standard deviation of the trading unit’s Comprehensive Profit and Loss estimated over a given calculation period. For purposes of this appendix, Volatility of Portfolio Profit and Loss generally is the standard deviation of the trading unit’s Portfolio Profit and Loss, exclusive of Spread Profit and Loss, estimated over a given calculation period.Calculation Period: days, days, and days. . Comprehensive Profit and Loss to Volatility Ratio and Portfolio Profit and Loss to Volatility RatioDescription: For purposes of this appendix, Comprehensive Profit and Loss to Volatility Ratio is a ratio of Comprehensive Profit and Loss to the Volatility of Comprehensive Profit and Loss for a trading unit over a given calculation period. For purposes of this appendix, Portfolio Profit and Loss to Volatility Ratio is a ratio of Portfolio Profit and Loss, exclusive of Spread Profit and Loss, to the Volatility of Portfolio Profit and Loss, exclusive of Spread Profit and Loss, for a trading unit over a given calculation period.Calculation Period: days, days, and days. . Unprofitable Trading Days Based on Comprehensive Profit and Loss and Unprofitable Trading Days Based on Portfolio Profit and LossDescription: For purposes of this appendix, Unprofitable Trading Days Based on Comprehensive Profit and Loss is the number or proportion of trading days on which a trading unit’s Comprehensive Profit and Loss is less than zero over a given calculation period. For purposes of this appendix, Unprofitable Trading Days Based on Portfolio Profit and Loss, exclusive of Spread Profit and Loss, is the number or proportion of trading days on which a trading unit’s Portfolio Profit and Loss, exclusive of Spread Profit and Loss, is less than zero over a given calculation period.Calculation Period: days, days, and days. . Skewness of Portfolio Profit and Loss and Kurtosis of Portfolio Profit and LossDescription: Skewness of Portfolio Profit and Loss and Kurtosis of Portfolio Profit and Loss should be calculated using standard statistical methods with respect to Portfolio Profit and Loss, exclusive of Spread Profit and Loss.Calculation Period: days, days, and days.D. Customer-Facing Activity Measurements . Inventory Risk TurnoverDescription: For purposes of this appendix, Inventory Risk Turnover is a ratio that measures the amount of risk associated with a trading unit’s inventory, as measured by Risk Factor Sensitivities, that is turned over by the trading unit over a specific period of time. For each Risk Factor Sensitivity, the numerator of the Inventory Risk Turnover ratio generally should be the absolute value of the Risk Factor Sensitivity associated with each transaction over the calculation period. The denominator of the Inventory Risk Turnover ratio generally should be the value of each Risk Factor Sensitivity for all of the trading unit’s holdings at the beginning of the calculation period.General Calculation Guidance: As a general matter, a trading unit should measure and report the Inventory Risk Turnover ratio for each of the Risk Factor Sensitivities calculated and furnished for that trading unit.Calculation Period: days, days, and days. . Inventory AgingDescription: For purposes of this appendix, Inventory Aging generally describes the trading unit’s aggregate assets and liabilities and the amount of time that those assets and liabilities have been held for the following periods: - days; - days; - days; - days; - days; and greater than days. Inventory Aging should measure the age profile of the trading unit’s assets and liabilities.General Calculation Guidance: In general, Inventory Aging should be computed using a trading unit’s trading activity data and should identify the trading unit’s aggregate assets and liabilities. In addition, Inventory Aging should include two schedules, an asset-aging schedule and a liability-aging schedule. The asset-aging schedule should record the value of the trading unit’s assets that have been held for: - days; - days; - days; - days; - days; and greater than days. The liability-aging schedule should record the value of the trading unit’s liabilities that have been held for: - days; - days; - days; - days; - days; and more than days.Calculation Period: days, days, and days. . Customer-Facing Trade RatioDescription: For purposes of this appendix, the Customer-Facing Trade Ratio is a ratio comparing the number of transactions involving a counterparty that is a customer of the trading unit to the number of transactions involving a counterparty that is not a customer of the trading unit. For purposes of calculating the Customer-Facing Trade Ratio, a counterparty is considered to be a customer of the trading unit if the counterparty is neither a counterparty to a transaction executed on a designated contract market registered under the Commodity Exchange Act or national securities exchange registered under the Exchange Act, nor a broker-dealer, swap dealer, security-based swap dealer, any other entity engaged in market making-related activities, or any affiliate thereof. A broker-dealer, swap dealer, or security-based swap dealer, any other entity engaged in market making-related activities, or any affiliate thereof may be considered a customer of the trading unit for these purposes if the covered banking entity treats that entity as a customer and has documented how and why the entity is treated as such.Calculation Period: days, days, and days.E. Payment of Fees, Commissions, and Spreads Measurement . Pay-to-Receive Spread RatioDescription: For purposes of this appendix, the Pay-to-Receive Spread Ratio is a ratio comparing the amount of Spread Profit and Loss and Fee Income that is earned by a trading unit to the amount of Spread Profit and Loss and Fee Income that is paid by the trading unit.General Calculation Guidance: The Pay-to-Receive Spread Ratio will depend on the amount of Spread Profit and Loss and Fee Income that is earned by the trading unit for facilitating buy and sell orders and the amount of Spread Profit and Loss that is paid by a trading unit as it initiates buy and sell orders. The Pay-to-Receive Spread Ratio generally should be computed using the calculation of Spread Profit and Loss described in this appendix, except that spread paid should include the aggregate Spread Profit and Loss of all transactions producing a negative Spread Profit and Loss, and spread received should include the aggregate Spread Profit and Loss of all transactions producing a positive Spread Profit and Loss.Calculation Period: One trading day.Appendix B: Commentary Regarding Identification of Permitted Market Making-Related ActivitiesI. PurposeThis appendix provides commentary describing the features of permitted market making-related activities and distinctions between permitted market making-related activities and prohibited proprietary trading. The appendix applies to all covered banking entities that are engaged in market making-related activities in reliance on § . . The following commentary must be incorporated into the covered banking entity’s internal compliance program under § . , as applicable.II. DefinitionsThe terms used in this appendix have the same meanings as those set forth in §§ . and . and Appendix A.III. CommentarySection of the BHC Act and § . prohibit any covered banking entity from engaging in proprietary trading, which is generally defined as engaging as principal for the trading account of the covered banking entity in any transaction to purchase or sell a covered financial position. However, section of the BHC Act and § . permit a covered banking entity to engage in proprietary trading that would otherwise be prohibited if the activity is conducted in connection with the covered banking entity’s market making-related activities, to the extent that such activities are designed not to exceed the reasonably expected near term demands of clients, customers, and counterparties. This commentary is intended to assist covered banking entities in identifying permitted market making-related activities and distinguishing such activities from trading activities that, even if conducted in the context of the covered banking entity’s market making operations, would constitute prohibited proprietary trading.A. Overview of Market Making-Related ActivitiesIn the context of trading activities in which a covered banking entity acts as principal, market making-related activities generally involve the covered banking entity either in the case of market making in a security that is executed on an organized trading facility or exchange, passively providing liquidity by submitting resting orders that interact with the orders of others on an organized trading facility or exchange and acting as a registered market maker, where such exchange or organized trading facility provides the ability to register as a market maker, or (ii) in other cases, providing an intermediation service to its customers by assuming the role of a counterparty that stands ready to buy or sell a position that the customer wishes to sell or buy. A market maker’s “customers” generally vary depending on the asset class and market in which the market maker is providing intermediation services. In the context of market making in a security that is executed on an organized trading facility or an exchange, a “customer” is any person on behalf of whom a buy or sell order has been submitted by a broker-dealer or any other market participant. In the context of market making in a covered financial position in an over-the-counter market, a “customer” generally would be a market participant that makes use of the market maker’s intermediation services, either by requesting such services or entering into a continuing relationship with the market maker with respect to such services. The status of being a registered market maker is not, on its own, a sufficient basis for relying on the exemption for market making-related activity contained in § . . Registration as a market maker generally involves filing a prescribed form with an exchange or organized trading facility, in accordance with its rules and procedures, and complying with the applicable requirements for market makers set forth in the rules of that exchange or organized trading facility. See, e.g., Nasdaq Rule , New York Stock Exchange Rule , CBOE Futures Exchange Rule , BATS Exchange Rule . . In certain cases, depending on the conventions of the relevant market (e.g., the over-the-counter derivatives market), such a “customer” may consider itself or refer to itself more generally as a “counterparty.”The primary purpose of market making-related activities is to intermediate between buyers and sellers of similar positions, for which service market makers are compensated, resulting in more liquid markets and less volatile prices. The purpose of such activities is not to earn profits as a result of movements in the price of positions and risks acquired or retained; rather, a market maker generally manages and limits the extent to which it is exposed to movements in the price of principal positions and risks that it acquires or retains, or in the price of one or more material elements of those positions. To the extent that it can, a market maker will eliminate some or all of the price risks to which it is exposed. However, in some cases, the risks posed by one or more positions may be sufficiently complex or specific that the risk cannot be fully hedged. In other cases, although it may be possible to hedge the risks posed by one or more positions, the cost of doing so may be so high as to effectively make market making in those positions uneconomic if complete hedges were acquired. In such cases, in order to provide effective intermediation services, market makers are required to retain at least some risk for at least some period of time with respect to price movements of retained principal positions and risks. The size and type of risk that must be retained in such cases may vary widely depending on the type and size of the positions, the liquidity of the specific market, and the market’s structure. As the liquidity of positions increases, the frequency with which a market maker must take or retain risk in order to make a market in those positions generally decreases.The profitability of market making-related activities relies on forms of revenue that reflect the value of the intermediation services that are provided to the market maker’s customers. These revenues typically take the form of explicit fees and commissions or, in markets where no such fees or commission are charged, a bid-ask or similar spread that is generated by charging higher prices to buyers than is paid to sellers of comparable instruments. In the case of a derivative contract, these revenues reflect the difference between the cost of entering into the derivative contract and the cost of hedging incremental, residual risks arising from the contract. These types of “customer revenues” provide the primary source of a market maker’s profitability. Typically, a market maker holds at least some risk with respect to price movements of retained principal positions and risks. As a result, the market maker also incurs losses or generates profits as price movements actually occur, but such losses or profits are incidental to customer revenues and significantly limited by the banking entity’s hedging activities. Customer revenues, not revenues from price movements, predominate. The appropriate proportion of “customer revenues” to profits and losses resulting from price movements of retained principal positions and risks varies depending on the type of positions involved, the typical fees, commissions, and spreads payable for transactions in those positions, and the risks of those positions. As a general matter, the proportion of “customer revenues” generated when making a market in certain positions increases as the fees, commissions, or spreads payable for those positions increase, the volatility of those positions’ prices decrease, and the prices for those positions are less transparent.Because a market maker’s business model entails managing and limiting the extent to which it is exposed to movements in the prices of retained principal positions and risks while generating customer revenues that are earned, regardless of movements in the price of retained principal positions and risks, a market maker typically generates significant revenue relative to the risks that it retains. Accordingly, a market maker will typically demonstrate consistent profitability and low earnings volatility under normal market conditions. The appropriate extent to which a market maker will demonstrate consistent profitability and low earnings volatility varies depending on the type of positions involved, the liquidity of the positions, the price transparency of the positions, and the volatility of the positions’ prices. As a general matter, consistent profitability will decrease and earnings volatility will increase as the liquidity of the positions decrease, the volatility of the positions’ prices increase, and the prices for the positions are less transparent.As the primary purpose of market making-related activities is to provide intermediation services to its customers, market makers focus their activities on servicing customer demands and typically only engage in transactions with non-customers to the extent that these transactions directly facilitate or support customer transactions. In particular, a market maker generally only transacts with non-customers to the extent necessary to hedge or otherwise manage the risks of its market making-related activities, including managing its risk with respect to movements of the price of retained principal positions and risks, to acquire positions in amounts consistent with reasonably expected near term demand of its customers, or to sell positions acquired from its customers. The appropriate proportion of a market maker’s transactions that are with customers versus non-customers varies depending on the type of positions involved and the extent to which the positions are typically hedged in non-customer transactions. In the case of a derivatives market maker that engages in dynamic hedging, the number of non-customer transactions significantly outweighs the number of customer transactions, as the derivatives market maker must constantly enter into transactions to appropriately manage its retained principal positions and risks as market prices for the positions and risks move and additional transactions with customers change the risk profile of the market maker’s retained principal positions.Because a market maker generates revenues primarily by transacting with, and providing intermediation services to, customers, a market maker typically engages in transactions that earn fees, commissions, or spreads as payment for its services. Transactions in which the market maker pays fees, commissions, or spreads—i.e., where it pays another market maker for providing it with liquidity services—are much less frequent, although in some cases obtaining liquidity services from another market maker and paying fees, commissions, or spreads may be necessary to prudently manage its risk with respect to price movements of retained principal positions and risks. The appropriate proportion of a market maker’s transactions that earn, rather than pay, fees, commissions or spreads varies depending on the type of positions involved, the liquidity of the positions, and the extent to which market trends increase the volatility of its risk with respect to price movements of retained principal positions and risks. As a general matter, the proportion of a market maker’s transactions that earn rather than pay fees, commissions or spreads decreases as the liquidity of the positions decreases, and the extent to which the price volatility of retained principal positions and risks increases.Finally, because the primary purpose of market making-related activities is to provide intermediation services to its customers, a market maker does not provide compensation incentives to its personnel that primarily reward proprietary risk-taking. Although a market maker may take into account revenues resulting from movements in the price of retained principal positions and risks to the extent that such revenues reflect the effectiveness with which personnel have effectively managed the risk of movements in the price of retained principal positions and risks, a market maker that provides compensation incentives relating to revenues generally does so through incentives that primarily reward customer revenues and effective customer service.B. Overview of Prohibited Proprietary Trading ActivitiesLike permitted market making-related activities, prohibited proprietary trading involves the taking of principal positions by a covered banking entity. Unlike permitted market making-related activities, the purpose of prohibited proprietary trading is to generate profits as a result of, or otherwise benefit from, changes in the price of positions and risks taken. Whereas a market maker attempts to eliminate some or all of the price risks inherent in its retained principal positions and risks by hedging or otherwise managing those risks in a reasonable period of time after positions are acquired or risks arise, a proprietary trader seeks to capitalize on those risks, and generally only hedges or manages a portion of those risks when doing so would improve the potential profitability of the risk it retains. A proprietary trader does not have “customers” because a proprietary trader simply seeks to obtain the best price and execution in purchasing or selling its proprietary positions. A proprietary trader generates few if any fees, commissions, or spreads from its trading activities because it is not providing an intermediation service to any customer or other third party. Instead, a proprietary trader is likely to pay fees, commissions, or spreads to other market makers when obtaining their liquidity services is beneficial to execution of its trading strategy. Because a proprietary trader seeks to generate profits from changes in the price of positions taken, a proprietary trader typically provides compensation incentives to its personnel that primarily reward successful proprietary risk taking.C. Distinguishing Permitted Market Making-Related Activities From Prohibited Proprietary TradingBecause both permitted market making-related activities and prohibited proprietary trading involve the taking of principal positions, certain challenges arise in distinguishing permitted market making-related activities and prohibited proprietary trading, particularly in cases where both of these activities occur in the context of a market making operation. Particularly during periods of significant market disruption, it may be difficult to distinguish between retained principal positions and risks that appropriately support market making-related activities and positions taken, or positions or risks not hedged, for proprietary purposes.In connection with these challenges, [Agency] will apply the following factors in distinguishing permitted market making-related activities from trading activities that, even if conducted in the context of the covered banking entity’s market making operations, would constitute prohibited proprietary trading. The particular types of trading activity described in this appendix may involve the aggregate trading activities of a single trading unit, a significant number or series of transactions occurring at one or more trading units, or a single significant transaction, among other potential scenarios. In addition to meeting the terms of this appendix, any transaction or activity for which a covered banking entity intends to rely on the market making exemption in § . must also satisfy all the requirements specified in § . , as well as the other applicable requirements and conditions of this part. . Risk ManagementAbsent explanatory facts and circumstances, particular trading activity in which a trading unit retains risk in excess of the size and type required to provide intermediation services to customers will be considered to be prohibited proprietary trading, and not permitted market making-related activity.[The Agency] will base a determination of whether a trading unit retains risk in excess of the size and type required for these purposes on all available facts and circumstances, including a comparison of retained principal risk to: The amount of risk that is generally required to execute a particular market making function; hedging options that are available in the market and permissible under the covered banking entity’s hedging policy at the time the particular trading activity occurred; the trading unit’s prior levels of retained risk and its hedging practices with respect to similar positions; and the levels of retained risk and the hedging practices of other trading units with respect to similar positions. To help assess the extent to which a trading unit’s risks are potentially being retained in excess of amounts required to provide intermediation services to customers, [Agency] will utilize the VaR and Stress VaR, VaR Exceedance, and Risk Factor Sensitivities quantitative measurements, as applicable, among other risk measurements described in appendix A to this part and any other relevant factor. This assessment will focus primarily on the risk measurements relative to: The risk required for conducting market making-related activities, and any significant changes in the risk over time and across similarly situated trading units and banking entities.Explanatory facts and circumstances might include, among other things, market-wide changes in risk, changes in the specific composition of market making-related activities, temporary market disruptions, or other market changes that result in previously used hedging or other risk management techniques no longer being possible or cost-effective. . Source of RevenuesAbsent explanatory facts and circumstances, particular trading activity in which a trading unit primarily generates revenues from price movements of retained principal positions and risks, rather than customer revenues, will be considered to be prohibited proprietary trading, and not permitted market making-related activity.[The Agency] will base a determination of whether a trading activity primarily generates revenues from price movements of retained principal positions and risks, rather than customer revenues, on all available facts and circumstances, including: an evaluation of the revenues derived from price movements of retained principal positions and risks relative to its customer revenues; and a comparison of these revenue figures to the trading unit’s prior revenues with respect to similar positions, and the revenues of other covered banking entities’ trading units with respect to similar positions.To help assess the extent to which a trading unit’s revenues are potentially derived from movements in the price of retained principal positions and risks, [Agency] will utilize the Comprehensive Profit and Loss, Portfolio Profit and Loss, Fee Income and Expense, and Spread Profit and Loss quantitative measurements, as applicable, both individually and in combination with one another (e.g., by comparing the ratio of Spread Profit and Loss to Portfolio Profit and Loss), and any other relevant factor.Explanatory facts and circumstances might include, among other things: general upward or downward price trends in the broader markets in which the trading unit is making a market, provided revenues from price movements in retained principal positions and risks are consistent; sudden market disruptions or other changes causing significant, unanticipated alterations in the price of retained principal positions and risks; sudden and/or temporary changes in the market (e.g., narrowing of bid/ask spreads) that cause significant, unanticipated reductions in customer revenues; or efforts to expand or contract a trading unit’s market share. . Revenues Relative to RiskAbsent explanatory facts and circumstances, particular trading activity will be considered to be prohibited proprietary trading, and not permitted market making-related activity, if the trading unit: generates only very small or very large amounts of revenue per unit of risk taken; does not demonstrate consistent profitability; or demonstrates high earnings volatility.[The Agency] will base such a determination on all available facts and circumstances, including: an evaluation of the amount of revenue per unit of risk taken, earnings volatility, profitability, exposure to risks, and overall level of risk taking for the particular trading activities; and a comparison of these figures to the trading unit’s prior results with respect to similar positions, and the results of other covered banking entities’ trading units with respect to similar positions.To help assess the riskiness of revenues and the amount of revenue per unit of risk taken, [Agency] will utilize the Volatility of Comprehensive Profit and Loss and Volatility of Portfolio Profit and Loss, Comprehensive Profit and Loss to Volatility Ratio and Portfolio Profit and Loss to Volatility Ratio, and Comprehensive Profit and Loss Attribution quantitative measurements, as applicable, and any other relevant factor.To help assess the extent to which a trading unit demonstrates consistent profitability, [Agency] will utilize the Unprofitable Trading Days Based on Comprehensive Profit and Loss and Unprofitable Trading Days Based on Portfolio Profit and Loss quantitative measurements, as applicable, and any other relevant factor.To help assess the extent to which a trading unit is exposed to outsized risk, [Agency] will utilize the Skewness of Portfolio Profit and Loss and Kurtosis of Profit and Loss quantitative measurements, as applicable, and any other relevant factor.Explanatory facts and circumstances might include, among other things: market disruptions or other changes causing significant, unanticipated increases in a trading unit’s risk with respect to movements in the price of retained principal positions and risks; market disruptions or other changes causing significant, unanticipated increases in the volatility of positions in which the trading unit makes a market; sudden and/or temporary changes in the market (e.g., narrowing of bid-ask spreads) that cause significant, unanticipated reductions in customer revenues and decrease overall profitability; or efforts to expand or contract a trading unit’s market share. . Customer-Facing ActivityAbsent explanatory facts and circumstances, particular trading activity will be considered to be prohibited proprietary trading, and not permitted market making-related activity, if the trading unit: does not transact through a trading system that interacts with orders of others or primarily with customers of the banking entity’s market making desk to provide liquidity services; or retains principal positions and risks in excess of reasonably expected near term customer demands.[The Agency] will base such a determination on all available facts and circumstances, including, among other things: An evaluation of the extent to which a trading unit’s transactions are with customers versus non-customers and the frequency with which the trading unit’s retained principal positions and risks turn over; and a comparison of these figures to the trading unit’s prior results with respect to similar positions and market situations, and the results of other covered banking entities’ trading units with respect to similar positions.To help assess the extent to which a trading unit’s transactions are with customers versus non-customers, [Agency] will utilize the Customer-Facing Trade Ratio quantitative measurement, as applicable, and any other relevant factor. To help assess the frequency with which the trading unit’s retained principal positions and risks turn over, [Agency] will utilize the Inventory Risk Turnover and Inventory Aging quantitative measurements, as applicable, and any other relevant factor.With respect to a particular trading activity in which a trading unit either does not transact through a trading system that interacts with orders of others or primarily with customers of the banking entity’s market making desk to provide liquidity services, explanatory facts and circumstances might include, among other things: sudden market disruptions or other changes causing significant increases in a trading unit’s hedging transactions with non-customers; or substantial intermediary trading required to satisfy customer demands and hedging management. With respect to particular trading activity in which a trading unit retains principal positions and risks in excess of reasonably expected near term customer demands, explanatory facts and circumstances might include, among other things: sudden market disruptions or other changes causing a significant reduction in actual customer demand relative to expected customer demand; documented and reasonable expectations for temporary increases in customer demand in the near term; and sudden market disruptions or other changes causing a significant reduction in the value of retained principal positions and risks, such that it would be imprudent for the trading unit to dispose of the positions in the near term. . Payment of Fees, Commissions, and SpreadsAbsent explanatory facts and circumstances, particular trading activity in which a trading unit routinely pays rather than earns fees, commissions, or spreads will be considered to be prohibited proprietary trading, and not permitted market making-related activity.[The Agency] will base such a determination on all available facts and circumstances, including, among other things: An evaluation of the frequency with which the trading unit pay fees, commissions, or spreads and the relative amount of fees, commissions, or spreads that is paid versus earned; and a comparison of these figures to the trading unit’s prior results with respect to similar positions, and the results of other covered banking entities’ trading units with respect to similar positions.To help assess the extent to which a trading unit is paying versus earning fees, commissions, and spreads, [Agency] will utilize the Pay-to-Receive Spread Ratio quantitative measurement, as applicable, and any other relevant factor.Explanatory facts and circumstances might include, among other things, sudden market disruptions or other changes causing significant, increases in a trading unit’s hedging transactions with non-customers for which it must pay fees, commissions, or spreads, sudden, unanticipated customer demand for liquidity that requires the trading unit itself to pay fees, commissions, or spreads to other market makers for liquidity services to obtain the inventory needed to meet that customer demand, or significant, unanticipated reductions in fees, commissions, or spreads earned by the trading unit. Explanatory facts and circumstances might also include a trading unit’s efforts to expand or contract its market share. . Compensation IncentivesAbsent explanatory facts and circumstances, the trading activity of a trading unit that provides compensation incentives to employees that primarily reward proprietary risk taking will be considered to be prohibited proprietary trading, and not permitted market making-related activity.[The Agency] will base such a determination on all available facts and circumstances, including, among other things, an evaluation of: the extent to which compensation incentives are provided to trading unit personnel that reward revenues from movements in the price of retained principal positions and risks; the extent to which compensation incentives are provided to trading unit personnel that reward customer revenues; and the compensation incentives provided by other covered banking entities to similarly-situated personnel.Appendix C: Minimum Standards for Programmatic ComplianceI. OverviewA. PurposeThis appendix sets forth the minimum standards with respect to the establishment, maintenance, and enforcement by banking entities of internal compliance programs for ensuring and monitoring compliance with the prohibitions and restrictions on proprietary trading and covered fund activities or investments set forth in section of the BHC Act and this part.This appendix requires that banking entities establish, maintain, and enforce an effective compliance program, consisting of written policies and procedures, internal controls, a management framework, independent testing, training, and recordkeeping, that:• Is reasonably designed to clearly document, describe, and monitor the covered trading and covered fund activities or investments and the risks of the covered banking entity related to such activities or investments, identify potential areas of noncompliance, and prevent activities or investments prohibited by, or that do not comply with, section of the BHC Act and this part;• Specifically addresses the varying nature of activities or investments conducted by different units of the covered banking entity’s organization, including the size, scope, complexity, and risks of the individual activities or investments;• Subjects the effectiveness of the compliance program to independent review and testing;• Makes senior management and intermediate managers accountable for the effective implementation of the compliance program, and ensures that the board of directors and CEO review the effectiveness of the compliance program; and• Facilitates supervision and examination of the covered banking entity’s covered trading and covered fund activities or investments by the Agencies.B. DefinitionsThe terms used in this Appendix have the same meanings as set forth in §§ . , . , and . . In addition, for purposes of this appendix, the following definitions apply:Asset management unit means any unit of organization of a covered banking entity that makes investments in, or acts as sponsor to, covered funds, or has relationships with covered funds, that the covered banking entity (or an affiliate of subsidiary thereof) has sponsored, organized and offered, or in which a covered fund sponsored or advised by the covered banking entity invests.Compliance program means the internal compliance program established by a covered banking entity in accordance with § . and this appendix.Covered fund activity or investment means sponsoring any covered fund or making investments in, or otherwise having relationships with, any covered fund for which the covered banking entity (or an affiliate or subsidiary thereof) acts as sponsor or organizes and offers.Covered fund restrictions means the restrictions on covered fund activities or investments set forth in subpart C.Covered trading activity means proprietary trading, as defined in § . .Trading unit means each of the following units of organization of a covered banking entity: Each discrete unit that is engaged in the coordinated implementation of a revenue-generation strategy and that participates in the execution of any covered trading activity; [The Agency] expects that this will generally be the smallest unit of organization used by the covered banking entity to structure and control its risk-taking activities and employees, and will include each unit generally understood to be a single “trading desk.”(ii) Each organizational unit that is used to structure and control the aggregate risk-taking activities and employees of one or more trading units described in paragraph ; [The Agency] expects that this will generally include management or reporting divisions, groups, sub-groups, or other intermediate units of organization used by the covered banking entity to manage one or more discrete trading units (e.g., “North American Credit Trading,” “Global Credit Trading,” etc.).(iii) All trading operations, collectively; and(iv) Any other unit of organization specified by [Agency] with respect to a particular banking entity.C. Required ElementsSection . requires that covered banking entities establish, maintain, and enforce a compliance program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on proprietary trading and covered fund activities or investments that effectively implements, at a minimum, the six elements required under paragraph of § . .D. Compliance Program StructureEach covered banking entity subject to § . must be governed by a compliance program meeting the requirements of this appendix. A covered banking entity may establish a compliance program on an enterprise-wide basis to satisfy the requirements of § . and this appendix with respect to the covered banking entity and all of its affiliates and subsidiaries collectively, provided that: the program is clearly applicable, both by its terms and in operation, to all such affiliates and subsidiaries; the program specifically addresses the requirements set forth in this appendix; the program takes into account and addresses the consolidated organization’s business structure, size, and complexity, as well as the particular activities, risks, and applicable legal requirements of each subsidiary and affiliate; and the program is determined through periodic independent testing to be effective for the covered banking entity and all of its subsidiaries and affiliates. An enterprise-wide program established pursuant to this Appendix will be subject to supervisory review and examination by any Agency vested with rulewriting authority under section of the BHC Act with respect to the compliance program and the activities or investments of any banking entity for which the Agency has such authority. Further, such Agency will have access to all records related to the enterprise-wide compliance program pertaining to any banking entity that is supervised by the Agency vested with such rulewriting authority.E. ApplicabilityThis appendix applies only to covered banking entities described in § . . In addition, [Agency] may require any covered banking entity to comply with all or portions of this appendix if [Agency] deems it appropriate for purposes the covered banking entity’s compliance with this part. Nothing in this appendix limits the authority of [Agency] under any other provision of law or regulation to take supervisory, examination, or enforcement action, including action to address unsafe or unsound practices or conditions, deficient capital levels, or violations of law.II. Internal Policies and ProceduresA. Covered Trading ActivitiesA covered banking entity must establish, maintain, and enforce written policies and procedures reasonably designed to document, describe, and monitor the covered banking entity’s covered trading activities and the risks taken in these activities, as follows: These policies and procedures must be updated with a frequency sufficient for the covered banking entity to adequately control the applicable trading unit for purposes of this part.Identification of trading account: The covered banking entity’s policies and procedures must specify how the banking entity evaluates the covered financial positions it acquires or takes and determines which of its accounts are trading accounts for purposes of subpart B of this part.Identification of trading units and organization structure: The covered banking entity’s written policies and procedures must identify and document each trading unit within the organization and map each trading unit to the division, business line, or other organizational structure that the covered banking entity uses to manage or oversee the trading unit’s activities.Description of missions and strategies: The covered banking entity’s written policies and procedures for each trading unit must clearly articulate and document a comprehensive description of the mission (i.e., the nature of the business conducted) and strategy (i.e., business model for the generation of revenues) of the trading unit, and include a description of:• How revenues are intended to be generated by the trading unit;• The activities that the trading unit is authorized to conduct, including authorized instruments and products and (ii) authorized hedging strategies and instruments;• The expected holding period of, and the market risk associated with, covered financial positions in its trading account;• The types of clients, customers, and counterparties with whom trading is conducted by the trading unit;• How the trading unit, if engaged in market making-related activity under § . of this part, identifies its customers for purposes of computing the Customer-Facing Trade Ratio, if applicable, including documentation explaining when, how, and why a broker-dealer, swap dealer, security-based swap dealer, any other entity engaged in market making-related activities, or any affiliate thereof is considered to be a customer of the trading unit for those purposes; and• The compensation structure of the employees associated with the trading unit.Trader mandates: The covered banking entity must establish, maintain, document, and enforce trader mandates for each trading unit. At a minimum, trader mandates must:• Clearly inform each trader of the prohibitions and requirements set forth in section of the BHC Act and this part and his or her responsibilities for compliance with such requirements;• Set forth appropriate parameters for each trader engaged in covered trading activities, including:○ The conditions for relying on the applicable exemptions in §§ . through . ;○ The financial contracts, products, and underlying assets that the trader is permitted to trade pursuant to the covered banking entity’s internal controls;○ The risk limits of the trader’s trading unit, and the types and levels of risk that may be taken; and○ The applicable trading unit’s hedging policy.Description of risks and risk management processes: The written policies and procedures for each trading unit must clearly articulate and document a comprehensive description of the risks associated with the trading unit. Such descriptions must include, at a minimum, the following elements:• A description of the supervisory and risk management structure governing the trading units, including a description of processes for initial and senior-level review of new products and new strategies;• A description of the types of risks that may be taken to implement the mission and strategy of the trading unit, including an enumeration of material risks resulting from the activities in which the trading unit is engaged (including but not limited to all significant price risks, such as basis, volatility and correlation risks, as well as any significant counterparty credit risk associated with the trading activity);• An articulation of the amount of risk allocated by the covered banking entity to such trading unit to implement the documented mission and strategy of the trading unit;• An explanation of how the risks allocated to such trading unit will be measured; and• An explanation of why the allocated risk levels are appropriate to the mission and strategy of the trading unit.Hedging policies and procedures. The covered banking entity must establish, maintain, and enforce policies and procedures for all of its trading units regarding the use of risk-mitigating hedging instruments and strategies. At a minimum, these hedging policies and procedures must articulate the following:• The manner in which the covered banking entity will determine that the risks generated by each trading unit have been properly and effectively hedged;• The instruments, techniques and strategies the covered entity will use to hedge the risk of the positions or portfolios;• The level of the organization at which hedging activity and management will occur;• The manner in which hedging strategies will be monitored;• The risk management processes used to control unhedged or residual risks; and• The independent testing of hedging techniques and strategies.Explanation of compliance. The covered banking entity’s written policies and procedures must clearly articulate and document a comprehensive explanation of how the mission and strategy of each trading unit, and its related risk levels, comply with this part. Such explanation must:• Identify which portions of the risk-taking activity of the trading unit would or would not constitute covered trading activity;• Identify activities of the trading unit that will be conducted in reliance on exemptions contained in §§ . through . , including an explanation of:o How and where the activity occurs; ando Which exemption is being relied on and how the activity meets the specific requirements for reliance on the applicable exemption.• Describe how the covered banking entity monitors for and prohibits potential or actual material exposure to high-risk assets or high-risk trading strategies presented by each trading unit, which must take into account potential or actual exposure to:○ Assets whose values cannot be externally priced or, where valuation is reliant on pricing models, whose model inputs cannot be externally validated;○ Assets whose changes in values cannot be adequately mitigated by effective hedging;○ New products with rapid growth, including those that do not have a market history;○ Assets or strategies that include significant embedded leverage;○ Assets or strategies that have demonstrated significant historical volatility;○ Assets or strategies for which the application of capital and liquidity standards would not adequately account for the risk; and○ Assets or strategies that result in large and significant concentrations to sectors, risk factors, or counterparties;• Explain how each trading unit will comply with the reporting and recordkeeping requirements of § . and Appendix A ;• Describe how the covered banking entity monitors for and prohibits potential or actual material conflicts of interest between the covered banking entity and its clients, customers, or counterparties present in each trading unit; and• Describe how the covered banking entity monitors for and prohibits potential or actual transactions or activities that may threaten the safety and soundness of the covered banking entity.Remediation of violations. The covered banking entity’s written policies and procedures must require the covered banking entity to promptly document, address and remedy any violation of section of the BHC Act or this part, and document all proposed and actual remediation efforts. Further, such policies and procedures must include specific procedures that are reasonably designed to implement and monitor any required remediation and that assess the extent to which any violation indicates that modification to the covered banking entity’s compliance program is warranted. With respect to any trading unit that is either used by the covered banking entity to structure and control the aggregate risk-taking activities and employees of one or more other trading units, or comprised of the entire trading operation of the covered banking entity, the description of missions and strategies, description of risks and risk management processes, and explanation of compliance for such trading units may incorporate by reference the policies and procedures of the underlying trading units that the trading unit oversees and manages in the aggregate.B. Covered Fund Activities or InvestmentsA covered banking entity must establish, maintain, and enforce written policies and procedures that are reasonably designed to document, describe, and monitor the covered banking entity’s covered fund activities or investments and the risks taken in these activities or investments, as follows.Identification of covered funds: The covered banking entity’s policies and procedures must specify how the covered banking entity identifies covered funds that the covered banking entity sponsors, organizes and offers, or in which covered banking entity invests.Identification of asset management units and organization structure: The covered banking entity’s written policies and procedures must identify and document each asset management unit within the organization and map each asset management unit to the division, business line, or other organizational structure that the covered banking entity uses to manage or oversee the asset management unit’s activities or investments.Description of sponsorship activities related to covered funds: The covered banking entity’s written policies and procedures for each asset management unit must clearly articulate and document a comprehensive description of the mission (i.e., the nature of the business conducted) and strategy (i.e., business model for the generation of revenues) of the asset management unit related to its sponsorship or organizing and offering of covered funds, including a description of how such activities comply with this part and, in particular:• The activities that the asset management unit is authorized to conduct, including the nature of any trust, fiduciary, investment advisory, or commodity trading advisory services offered to customers of the covered banking entity;• The types of customers to whom the asset management unit provides such services and to whom ownership interests in covered funds are sold;• The extent of any co-investment activities of the covered banking entity (including its directors or employees) in covered funds offered to such customers; and• How the asset management unit complies with the requirements of subpart C of this part.Description of investment activities of covered funds: The covered banking entity’s written policies and procedures for each asset management unit must clearly articulate and document a comprehensive description of the mission (i.e., the nature of the business conducted) and strategy (i.e., business model for the generation of revenues) of the asset management unit related to its investments in covered funds, including a description of how such activities comply with this part and, in particular:• The asset management unit’s practices with respect to seed capital investments in covered funds, including how the asset management unit reduces its investments in covered funds to amounts that are permitted de minimis investments within the required period of time;• The asset management unit’s practices with respect to co-investments in covered funds, including certain parallel investments as identified in § . ;• How the asset management unit complies with the requirements of § . with respect to individual and aggregate investments in covered funds;• With respect to other permitted covered fund activities or investment, how the asset management unit complies with the requirements of §§ . and . ;• How the asset management unit complies with the limitations on relationships with a covered fund under § . ;• How the covered banking entity monitors for and prohibits potential or actual material conflicts of interest between the covered banking entity and its clients, customers, or counterparties related to the asset management unit;• How the covered banking entity monitors for and prohibits potential or actual transactions or activities that may threaten the safety and soundness of the covered banking entity related to the asset management unit; and• How the covered banking entity monitors for and prohibits potential or actual material exposure to high-risk assets or high-risk trading strategies presented by each asset management unit.Remediation of violations. The covered banking entity’s written policies and procedures must require the covered banking entity to promptly document, address and remedy any violation of section of the BHC Act or this part, and document all proposed and actual remediation efforts. Further, such policies and procedures must include specific procedures that are designed to implement, monitor, and enforce any required remediation and that assess the extent to which any violation indicates that modification to the covered banking entity’s compliance program is warranted.III. Internal ControlsA. Covered Trading ActivitiesA covered banking entity must establish, maintain, and enforce written internal controls that are reasonably designed to ensure that the trading activity of each trading unit is appropriate and consistent with the description of mission, strategy, and risk mitigation for each trading unit contained in its written policies and procedures. These written internal controls must also be reasonably designed and established to effectively monitor and identify for further analysis any covered trading activity that may indicate potential violations of section of the BHC Act and this part and to prevent actual violations of section of the BHC Act and this part. Further, the internal controls must describe procedures for remedying violations of section of the BHC Act and this part. The written internal controls must include, at a minimum, the following.Authorized risks, instruments, and products. The covered banking entity must implement and enforce internal controls for each trading unit that are reasonably designed to ensure that trading activity is conducted in conformance with the trading unit’s authorized risks, instruments, and products, as documented in the covered banking entity’s written policies and procedures and trader mandates. At a minimum, these internal controls must monitor and govern:• The types and levels of risks that may be taken by each trading unit, consistent with the covered banking entity’s written policies and procedures;• The type of hedging instruments used, hedging strategies employed, and the amount of risk effectively hedged, consistent with the covered banking entity’s written policies and procedures; and• The financial contracts, products and underlying assets that the trading unit may trade, consistent with covered banking entity’s written policies and procedures.Risk limits. The covered banking entity must establish and enforce risk limits appropriate for each trading unit, which shall include limits based on probabilistic and non-probabilistic measures of potential loss (e.g., Value-at-Risk and notional exposure, respectively), measured under normal and stress market conditions.Analysis and quantitative measurements. The covered banking entity must perform robust analysis and quantitative measurement of its covered trading activities that is reasonably designed to ensure that the trading activity of each trading unit is consistent with its mission, strategy and risk management process, as documented in the covered banking entity’s written policies and procedures; monitor and assist in the identification of potential and actual prohibited proprietary trading activity; and prevent the occurrence of prohibited proprietary trading. In addition to the quantitative measurements reported by the covered banking entity to [Agency] pursuant to appendix A to this part, each covered banking must develop and implement, to the extent necessary to facilitate compliance with this part, additional quantitative measurements specifically tailored to the particular risks, practices, and strategies of its trading units. The covered banking entity’s analysis and quantitative measurement must incorporate the quantitative measurements reported by the covered banking entity to [Agency] pursuant to Appendix A and include, at minimum, the following:• Internal controls and written policies and procedures reasonably designed to ensure the accuracy and integrity of quantitative measurements; • Ongoing, timely monitoring and review of calculated quantitative measurements;• Heightened review of a quantitative measurement when such quantitative measurement raises any question regarding compliance with section of the BHC Act and this part, which shall include in-depth analysis, appropriate escalation procedures, and documentation related to the review, including the establishment of numerical thresholds for each trading unit for purposes of triggering such heightened review; and• Immediate review and compliance investigation of the trading unit’s activities, escalation to senior management with oversight responsibilities for the applicable trading unit, timely notification to [Agency], appropriate remedial action (e.g., divesting of impermissible positions, cessation of impermissible activity, disciplinary actions), and documentation of the investigation findings and remedial action taken when the quantitative measurement, considered together with the facts and circumstances, suggests a reasonable likelihood that the trading unit has violated any part of section of the BHC Act and this part.Surveillance of compliance program effectiveness. The covered banking entity must regularly monitor the effectiveness of its compliance program and take prompt action to address and remedy any deficiencies identified. Any actions taken to remedy deficiencies and violations shall be documented and maintained as a record of the banking entity.B. Covered Fund ActivitiesA covered banking entity must establish, maintain, and enforce internal controls that are reasonably designed to ensure that the covered fund activities or investments of its asset management units are appropriate and consistent with the description of the asset management unit’s mission, strategy, and risk management process contained in the covered banking entity’s written policies and procedures. The internal controls must, at a minimum, be designed to ensure that the covered banking entity complies with the requirements of § . for any covered fund in which it invests, acts as sponsor, or organizes and offers, as well as the following:Monitoring investments in a covered fund. The covered banking entity must implement and enforce internal controls in a way that monitors and limits the covered banking entity’s individual and aggregate investments in covered funds. At a minimum, the covered banking entity shall establish, maintain, and enforce internal controls reasonably designed to ensure that such investments are in compliance with section of the BHC Act and this part at all times, including:• Monitoring the amount and timing of seed capital investments for compliance with the limitations (including but not limited to the redemption, sale or disposition requirements of § . );• Calculating the individual and aggregate levels of ownership interests in covered funds required by § . ;• Describing procedures for remedying violations of section of the BHC Act and this part;• Attributing the appropriate instruments to the individual and aggregate ownership interest calculations above; and• Making the appropriate required disclosures, in writing, to prospective and actual investors in any covered fund organized and offered or sponsored by the covered banking entity, as provided under § . .Monitoring relationships with a covered fund. The covered banking entity must implement and enforce internal controls in a way that monitors and limits the covered banking entity’s sponsorship of, and relationships with, covered funds. At a minimum, the covered banking entity shall establish, maintain, and enforce internal controls reasonably designed to ensure that such activities and relationships are in compliance with section of the BHC Act and this part at all times, including monitoring for and preventing any relationship or transaction between the covered banking entity and a covered fund that is prohibited under § . .Surveillance of compliance program effectiveness. The covered banking entity must regularly monitor the effectiveness of its compliance program and take prompt action to address and remedy any deficiencies identified. Any actions taken to remedy deficiencies and violations shall be documented and maintained as a record of the covered banking entity.IV. Responsibility and Accountability for the Compliance ProgramA covered banking entity must establish, maintain, and enforce a management framework to manage its business and employees with a view to preventing violations of section of the BHC Act and this part. A covered banking entity must have an appropriate management framework reasonably designed to ensure that: appropriate personnel are made responsible and accountable for the effective implementation and enforcement of the compliance program; a clear reporting line with a chain of responsibility is delineated; and the board of directors, or similar corporate body, and CEO reviews and approves the compliance program. This management framework must include, at a minimum:Corporate governance. The covered banking entity must ensure that its compliance program is reduced to writing, approved by the board of directors or similar corporate body, and noted in the minutes.Trader mandates. The covered banking entity must establish, maintain, and enforce the trader mandates required by this appendix to clearly inform each trader within a trading unit of his or her responsibilities for compliance with section of the BHC Act and this part.Management procedures. The covered banking entity must establish, maintain, and enforce management procedures that are reasonably designed to achieve compliance with section of the BHC Act and this part, which, at a minimum, provide for:• The designation of at least one person with authority to carry out the management responsibilities of the covered banking entity for each trading unit;• Written procedures addressing the management of the activities of the covered banking entity that are reasonably designed to achieve compliance with section of the BHC Act and this part, including:○ Procedures for the review by a manager of activities of the trading unit and the quantitative measurements pursuant to appendix A and any other quantitative measurements developed and tailored to the particular risks, practices, and strategies of the covered banking entity’s trading units;○ A description of the management system, including the titles, qualifications, and locations of managers and the specific responsibilities of each person with respect to the covered banking entity’s trading units; and○ Procedures for determining compensation arrangements for traders engaged in underwriting or market making-related activities under § . or risk-mitigating hedging activities under § . so that such compensation arrangements are designed not to reward proprietary risk taking.Business line managers. Managers with responsibility for one or more trading units or asset management units of the covered banking entity engaged in covered trading activities or covered fund activities or investments are accountable for the effective implementation and enforcement of the compliance program with respect to the applicable trading unit or asset management unit.Senior management. Senior management is responsible for communicating and reinforcing the culture of compliance with section of the BHC Act and this part, as established by the board of directors or similar corporate body, and implementing and enforcing the approved compliance program. Senior management must also ensure that effective corrective action is taken when failures in compliance with section of the BHC Act and this part are identified. Senior management and control personnel charged with overseeing compliance with section of the BHC Act and this part should report to the board, or an appropriate committee thereof, on the effectiveness of the compliance program and compliance matters with a frequency appropriate to the size, scope, and risk profile of the covered banking entity’s covered trading activities and covered fund activities or investments, which shall be at least once every twelve months. Such corrective action may include, among other things divesture of the position, cessation of the activity, or disciplinary measures.Board of directors, or similar corporate body, and CEO. The board of directors, or similar corporate body, and CEO are responsible for setting an appropriate culture of compliance with this part and establishing clear policies regarding the management of covered trading activities and covered fund activities or investments in compliance with section of the BHC Act and this part. The board of directors or similar corporate body must ensure that senior management is fully capable, qualified, and properly motivated to manage compliance with this part in light of the organization’s business activities. The board of directors or similar corporate body must also ensure that senior management has established appropriate incentives to support compliance with this part, including the implementation of a compliance program meeting the requirements of this appendix into management goals and compensation structures across the covered banking entity.V. Independent TestingA covered banking entity must ensure that independent testing is conducted by a qualified independent party, such as the covered banking entity’s internal audit department, outside auditors, consultants, or other qualified independent parties, regarding the effectiveness of the covered banking entity’s compliance program established pursuant to this appendix and § . and the covered banking entity’s compliance with this part. A banking entity must take appropriate action to remedy any concerns identified by the independent testing (e.g., remedying deficiencies in its written policies and procedures and internal controls, etc.).The required independent testing must occur with a frequency appropriate to the size, scope, and risk profile of the covered banking entity’s covered trading and covered fund activities or investments, which shall be no less than once every twelve months. This independent testing must include an evaluation of:• The overall adequacy and effectiveness of the covered banking entity’s compliance program, including an analysis of the extent to which the program contains all the required elements of this appendix;• The effectiveness of the covered banking entity’s written policies and procedures;• The effectiveness of the covered banking entity’s internal controls, including an analysis and documentation of instances in which such internal controls have been breached, and how such breaches were addressed and resolved; and• The effectiveness of the covered banking entity’s management procedures.VI. TrainingCovered banking entities must provide adequate training to trading personnel and managers of the covered banking entity, as well as other appropriate personnel, as determined by the covered banking entity, in order to effectively implement and enforce the compliance program. This training should occur with a frequency appropriate to the size and the risk profile of the covered banking entity’s covered trading activities and covered fund activities or investments. The training may be conducted by internal personnel or independent parties deemed appropriate by the covered banking entity based on its size and risk profile.VII. RecordkeepingCovered banking entities must create and retain records sufficient to demonstrate compliance and support the operations and effectiveness of the compliance program. A covered banking entity must retain these records for a period that is no less than years in a form that allows it to promptly produce such records to [Agency] on request.END OF COMMON RULE[END OF COMMON TEXT]Adoption of the Common Rule TextThe proposed adoption of the common rules by the agencies, as modified by agency-specific text, is set forth below:DEPARTMENT OF THE TREASURYOffice of the Comptroller of the Currency CFR Chapter I | FALSE |
| 1633 List of Subjects in 12 CFR Part 44Banks, Banking, Compensation, Credit, Der… | List of Subjects in CFR Part Banks, Banking, Compensation, Credit, Derivatives, Government securities, Insurance, Investments, National banks, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees. | FALSE |
| 1635 For the reasons stated in the Common Preamble, the Office of the Comptrolle… | For the reasons stated in the Common Preamble, the Office of the Comptroller of the Currency proposes to amend chapter I of Title , Code of Federal Regulations as follows: | FALSE |
| 1636 PART 44—PROPRIETARY TRADING AND CERTAIN INTEREST IN AND RELATIONSHIPS WITH … | PART —PROPRIETARY TRADING AND CERTAIN INTEREST IN AND RELATIONSHIPS WITH COVERED FUNDS . The authority citation for part is added to read as follows:Authority: U.S.C. et seq., U.S.C. , , a, a, , , a, , , , , , , , . . Part is added as set forth at the end of the Common Preamble. . Part is amended bya. Removing “[Agency]” wherever it appears and adding in its place “the OCC”; andb. Removing “[The Agency]” wherever it appears and adding in its place “The OCC”. . Section . is added to read as follows:§ . Authority, purpose, and scope. Authority. This part is issued by [Agency] under section of the Bank Holding Company Act of , as amended ( U.S.C. ). Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities, including national banks, Federal branches and agencies of foreign banks, Federal savings associations, and certain subsidiaries thereof. This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to covered banking entities described in § . . This part takes effect on July , . Relationship to other authorities. Except as otherwise provided under section of the Bank Holding Company Act, and notwithstanding any other provision of law, the prohibitions and restrictions under section of Bank Holding Company Act shall apply to the activities of a covered banking entity, even if such activities are authorized for a covered banking entity under other applicable provisions of law. Preservation of authority. Nothing in this part limits in any way the authority of the OCC to impose penalties for violation of this part by any covered banking entity provided under any other applicable statute. . Paragraph of § . is added to read as follows:§ . Definitions. Covered banking entity means any banking entity that is: A national bank; A Federal branch or agency of a foreign bank; A Federal savings association or a Federal savings bank; and Any subsidiary of a company described in paragraph through of this section, other than a subsidiary for which the CFTC or SEC is the primary financial regulatory agency as defined in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( U.S.C. ( )).BOARD OF GOVERNORS OF THE FEDERAL RESERVE CFR Chapter II | FALSE |
| 1637 List of Subjects in 12 CFR Part 248Administrative practice and procedure, B… | List of Subjects in CFR Part Administrative practice and procedure, Banks and banking, Capital, Compensation, Conflict of interests, Credit, Derivatives, Foreign banking, Government securities, Holding companies, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees. | FALSE |
| 1640 For the reasons set forth in the Supplementary Information, the Board of Go… | For the reasons set forth in the Supplementary Information, the Board of Governors of the Federal Reserve System proposes to add the text of the common rule as set forth at the end of the Supplementary Information as Part to CFR Chapter II as follows: | FALSE |
| 1641 PART 248—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS (REGULATI… | PART —PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS (REGULATION VV) . The authority citation for part is added to read as follows:Authority: U.S.C. , U.S.C. et seq., U.S.C. , U.S.C. et seq., and U.S.C. et seq. . Part is added as set forth at the end of the Common Preamble. . Part is amended by:A. Removing “[Agency]” wherever it appears and adding in its place “the Board”; andB. Removing “[The Agency]” wherever it appears and adding in its place “The Board”. . Section . is added to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part (Regulation VV) is issued by the Board under section of the Bank Holding Company Act of , as amended ( U.S.C. ), as well as under the Federal Reserve Act, as amended ( U.S.C. et seq.); section of the Federal Deposit Insurance Act, as amended ( U.S.C. ); the Bank Holding Company Act of , as amended ( U.S.C. et seq.); and the International Banking Act of , as amended ( U.S.C. et seq.). Code of Federal Regulations, title , chapter II, part . Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities, including state members banks, bank holding companies, savings and loan holding companies, other companies that control an insured depository, foreign banking organizations, and certain subsidiaries thereof. This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to covered banking entities described in § . . This part takes effect on July , . Relationship to other authorities. Except as otherwise provided in under section of the Bank Holding Company Act, and notwithstanding any other provision of law, the prohibitions and restrictions under section of Bank Holding Company Act shall apply to the activities of a covered banking entity, even if such activities are authorized for a covered banking entity under other applicable provisions of law. . In § . , paragraph is revised, and paragraph is added to read as follows:§ . Definitions. Nothing in this part limits in any way the authority of the Board, under the BHC Act (including section of such Act) and other provisions of law, to impose penalties for violation by any company or individual. Covered banking entity means any banking entity that is: A state member bank (as defined in CFR . ); A bank holding company; A savings and loan holding company (as defined in U.S.C. a); A foreign banking organization (as defined in CFR . ); Any company that controls an insured depository institution; and Any subsidiary of a company described in paragraph through of this section, other than a subsidiary for which the OCC, FDIC, CFTC, or SEC is the primary financial regulatory agency (as defined in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( U.S.C. ( )). - . Add subpart E to read as follows:Subpart E—Conformance Period and Extended Transition Period AuthoritiesSec. . Definitions. . Conformance periods for banking entities engaged in prohibited proprietary trading or covered fund activities or investments. . Conformance period for nonbank financial companies supervised by the Board engaged in prohibited proprietary trading or covered fund activities and investments.Subpart E—Conformance Period and Extended Transition Period Authorities§ . Definitions.For purposes of this subpart: Illiquid fund means a covered fund that: As of May , : Was principally invested in illiquid assets; or(ii) Was invested in, and contractually committed to principally invest in, illiquid assets; and Makes all investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets. Illiquid assets means any real property, security, obligation, or other asset that: Is not a liquid asset; Because of statutory or regulatory restrictions applicable to the covered fund or asset, cannot be offered, sold, or otherwise transferred by covered fund to a person that is unaffiliated with the relevant banking entity; or Because of contractual restrictions applicable to the covered fund or asset, cannot be offered, sold, or otherwise transferred by the covered fund for a period of years or more to a person that is unaffiliated with the relevant banking entity. Liquid asset means: Cash or cash equivalents; An asset that is traded on a recognized, established exchange, trading facility or other market on which there exist independent, bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined for the particular asset almost instantaneously; An asset for which there are bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system or similar system or for which multiple dealers furnish bona fide, competitive bid and offer quotations to other brokers and dealers on request; An asset the price of which is quoted routinely in a widely disseminated publication that is readily available to the general public or through an electronic service that provides indicative data from real-time financial networks; An asset with an initial term of one year or less and the payments on which at maturity may be settled, closed-out, or paid in cash or one or more other liquid assets described in paragraphs , , , or of this section; and Any other asset that the Board determines, based on all the facts and circumstances, is a liquid asset. Principally invested and related definitions.—A covered fund: Is principally invested in illiquid assets if at least percent of the fund’s consolidated total assets are— Illiquid assets; or(ii) Risk-mitigating hedges entered into in connection with and related to individual or aggregated positions in, or holdings of, illiquid assets; Is contractually committed to principally invest in illiquid assets if the fund’s organizational documents, other documents that constitute a contractual obligation of the fund, or written representations contained in the fund’s offering materials distributed to potential investors provide for the fund to be principally invested in assets described in paragraph of this section at all times other than during temporary periods, such as the period prior to the initial receipt of capital contributions from investors or the period during which the fund’s investments are being liquidated and capital and profits are being returned to investors; and Has an investment strategy to principally invest in illiquid assets if the fund: Markets or holds itself out to investors as intending to principally invest in assets described in paragraph of this section; or(ii) Has a documented investment policy of principally investing in assets described in paragraph of this section.§ . Conformance periods for banking entities engaged in prohibited proprietary trading or covered fund activities or investments. Conformance Period. In general.—Except as provided in paragraph or of this section, a banking entity shall bring its activities and investments into compliance with the requirements of section of the BHC Act ( U.S.C. ) and this part no later than years after July , . New banking entities.—A company that was not a banking entity, or a subsidiary or affiliate of a banking entity, as of July , , and becomes a banking entity, or a subsidiary or affiliate of a banking entity, after that date shall bring its activities and investments into compliance with the requirements of section of the BHC Act ( U.S.C. ) and this part before the later of: The conformance date determined in accordance with paragraph of this section; or(ii) years after the date on which the company becomes a banking entity or a subsidiary or affiliate of a banking entity. Extended conformance period. The Board may extend the two-year period under paragraph or of this section by not more than three separate one-year periods, if, in the judgment of the Board, each such one-year extension is consistent with the purposes of section of the BHC Act ( U.S.C. ) and this part and would not be detrimental to the public interest. Illiquid funds. Extended transition period. The Board may further extend the period provided by paragraph of this section during which a banking entity may acquire or retain an ownership interest in, or otherwise provide additional capital to, a covered fund if: The fund is an illiquid fund; and(ii) The acquisition or retention of such interest, or provision of additional capital, is necessary to fulfill a contractual obligation of the banking entity that was in effect on May , . Duration limited. The Board may grant a banking entity only one extension under paragraph of this section and such extension: May not exceed years beyond any conformance period granted under paragraph of this section; and(ii) Shall terminate automatically on the date during any such extension on which the banking entity is no longer under a contractual obligation described in paragraph (ii) of this section. Contractual obligation. For purposes of this paragraph : A banking entity has a contractual obligation to take or retain an ownership interest in an illiquid fund if the banking entity is prohibited from redeeming all of its ownership interests in the fund, and from selling or otherwise transferring all such ownership interests to a person that is not an affiliate of the banking entity— Under the terms of the banking entity’s ownership interest in the fund or the banking entity’s other contractual arrangements with the fund or unaffiliated investors in the fund; or If the banking entity is the sponsor of the fund, under the terms of a written representation made by the banking entity in the fund’s offering materials distributed to potential investors;(ii) A banking entity has a contractual obligation to provide additional capital to an illiquid fund if the banking entity is required to provide additional capital to such fund— Under the terms of its ownership interest in the fund or the banking entity’s other contractual arrangements with the fund or unaffiliated investors in the fund; or If the banking entity is the sponsor of the fund, under the terms of a written representation made by the banking entity in the fund’s offering materials distributed to potential investors; and(iii) A banking entity shall be considered to have a contractual obligation for purposes of paragraph or (ii) of this section only if: The obligation may not be terminated by the banking entity or any of its subsidiaries or affiliates under the terms of its agreement with the fund; and In the case of an obligation that may be terminated with the consent of other persons, the banking entity and its subsidiaries and affiliates have used their reasonable best efforts to obtain such consent and such consent has been denied. Approval Required to Hold Interests in Excess of Time Limit. The conformance period in paragraph of this section may be extended in accordance with paragraph or only with the approval of the Board. A banking entity that seeks the Board’s approval for an extension of the conformance period under paragraph or for an extended transition period under paragraph must: Submit a request in writing to the Board at least days prior to the expiration of the applicable time period; Provide the reasons why the banking entity believes the extension should be granted, including information that addresses the factors in paragraph of this section; and Provide a detailed explanation of the banking entity’s plan for divesting or conforming the activity or investment . Factors governing Board determinations. Extension requests generally.—In reviewing any application by a specific company for an extension under paragraph or of this section, the Board may consider all the facts and circumstances related to the activity, investment, or fund, including, to the extent relevant: Whether the activity or investment: Involves or results in material conflicts of interest between the banking entity and its clients, customers or counterparties; Would result, directly or indirectly, in a material exposure by the banking entity to high-risk assets or high-risk trading strategies; Would pose a threat to the safety and soundness of the banking entity; or Would pose a threat to the financial stability of the United States;(ii) Market conditions;(iii) The nature of the activity or investment;(iv) The date that the banking entity’s contractual obligation to make or retain an investment in the fund was incurred and when it expires; The contractual terms governing the banking entity’s interest in the fund;(vi) The degree of control held by the banking entity over investment decisions of the fund;(vii) The types of assets held by the fund, including whether any assets that were illiquid when first acquired by the fund have become liquid assets, such as, for example, because any statutory, regulatory, or contractual restrictions on the offer, sale, or transfer of such assets have expired;(viii) The date on which the fund is expected to wind up its activities and liquidate, or its investments may be redeemed or sold;(ix) The total exposure of the banking entity to the activity or investment and the risks that disposing of, or maintaining, the investment or activity may pose to the banking entity or the financial stability of the United States; The cost to the banking entity of divesting or disposing of the activity or investment within the applicable period;(xi) Whether the divestiture or conformance of the activity or investment would involve or result in a material conflict of interest between the banking entity and unaffiliated clients, customers or counterparties to which it owes a duty;(xii) The banking entity’s prior efforts to divest or conform the activity or investment , including, with respect to an illiquid fund, the extent to which the banking entity has made efforts to terminate or obtain a waiver of its contractual obligation to take or retain an equity, partnership, or other ownership interest in, or provide additional capital to, the illiquid fund; and(xiii) Any other factor that the Board believes appropriate. Timing of Board review. The Board will seek to act on any request for an extension under paragraph or of this section no later than calendar days after the receipt of a complete record with respect to such request. Consultation. In the case of a banking entity that is primarily supervised by another Federal banking agency, the SEC, or the CFTC, the Board will consult with such agency prior to the approval of a request by the banking entity for an extension under paragraph or of this section. Authority to impose restrictions on activities or investments during any extension period. In general. The Board may impose such conditions on any extension approved under paragraph or 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 of the BHC Act ( U.S.C. ) and this part. Consultation. In the case of a banking entity that is primarily supervised by another Federal banking agency, the SEC, or the CFTC, the Board will consult with such agency prior to imposing conditions on the approval of a request by the banking entity for an extension under paragraph or of this section.§ . Conformance period for nonbank financial companies supervised by the Board engaged in prohibited proprietary trading or covered fund activities and investments. Divestiture requirement. A nonbank financial company supervised by the Board shall come into compliance with all applicable requirements of section of the Bank Holding Company Act ( U.S.C. ) and this subpart, including any capital requirements or quantitative limitations adopted thereunder and applicable to the company, not later than years after the date the company becomes a nonbank financial company supervised by the Board. Extensions. The Board may, by rule or order, extend the two-year period under paragraph of this section by not more than three separate one-year periods, if, in the judgment of the Board, each such one-year extension is consistent with the purposes of section of the BHC Act ( U.S.C. ) and this part and would not be detrimental to the public interest. Approval required to hold interests in excess of time limit. A nonbank financial company supervised by the Board that seeks the Board’s approval for an extension of the conformance period under paragraph of this section must: Submit a request in writing to the Board at least days prior to the expiration of the applicable time period; Provide the reasons why the nonbank financial company supervised by the Board believes the extension should be granted; and Provide a detailed explanation of the company’s plan for conforming the activity or investment to any applicable requirements established under section or of the Bank Holding Company Act ( U.S.C. and ). Factors governing Board determinations. In general. In reviewing any application for an extension under paragraph of this section, the Board may consider all the facts and circumstances related to the nonbank financial company and the request including, to the extent determined relevant by the Board, the factors described in § . of this chapter. Timing. The Board will seek to act on any request for an extension under paragraph of this section no later than calendar days after the receipt of a complete record with respect to such request. Authority to impose restrictions on activities or investments during any extension period. The Board may impose conditions on any extension approved under paragraph of this section as the Board determines are necessary or appropriate to protect the safety and soundness of the nonbank financial company or the financial stability of the United States, address material conflicts of interest or other unsound practices, or otherwise further the purposes of section of the BHC Act ( U.S.C. ) and this part.FEDERAL DEPOSIT INSURANCE CORPORATION CFR Chapter III | FALSE |
| 1642 List of Subjects in 12 CFR Part 351Banks, banking, Capital, Compensation, C… | List of Subjects in CFR Part Banks, banking, Capital, Compensation, Conflict of interests, Credit, Derivatives, Government securities, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, State nonmember banks, State savings associations, Trusts and trustees. | FALSE |
| 1644 For the reasons set forth in the Supplementary Information, the Federal Dep… | For the reasons set forth in the Supplementary Information, the Federal Deposit Insurance Corporation proposes to add the text of the common rule as set forth at the end of the Supplementary Information as Part to chapter III of Title , Code of Federal Regulations, modified as follows: | FALSE |
| 1645 PART 351—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS13. The au… | PART —PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS . The authority citation for part is added to read as follows:Authority: U.S.C. ; U.S.C. et seq., and et seq. . Part is added as set forth at the end of the Common Preamble. . Part is amended by:a. Removing “[Agency]” wherever it appears and adding in its place “the FDIC”; andb. Removing “[The Agency]” wherever it appears and adding in its place “The FDIC”. . Section . is added to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part is issued by the FDIC under section of the Bank Holding Company Act of , as amended ( U.S.C. ). Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities, including any insured depository institution for which the FDIC is the appropriate Federal banking agency. This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to any insured depository institution for which the FDIC is the appropriate Federal banking agency. This part takes effect on July , . Relationship to other authorities. Except as otherwise provided in under section of the Bank Holding Company Act, and notwithstanding any other provision of law, the prohibitions and restrictions under section of Bank Holding Company Act shall apply to the activities of a covered banking entity, even if such activities are authorized for a covered banking entity under other applicable provisions of law. . Paragraph of § . is added to read as follows:§ . Definitions. Covered banking entity means any banking entity that is an insured depository institution for which the FDIC is the appropriate Federal banking agency, as that term is defined in section of the Federal Deposit Insurance Act ( U.S.C. ).SECURITIES AND EXCHANGE COMMISSION | FALSE |
| 1646 List of Subjects in 17 CFR Part 255Banks, Brokers, Dealers, Investment advi… | List of Subjects in CFR Part Banks, Brokers, Dealers, Investment advisers, Recordkeeping, Reporting, Securities. | FALSE |
| 1648 For the reasons set forth in the Supplementary Information, the Securities … | For the reasons set forth in the Supplementary Information, the Securities and Exchange Commission proposes to add the text of the common rule as set forth at the end of the Supplementary Information as Part to chapter II of Title , Code of Federal Regulations, modified as follows: | FALSE |
| 1649 PART 255—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS18. The au… | PART —PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS . The authority for part is added to read as follows:Authority: U.S.C. , U.S.C. o , o- , , q , w. . Part is added as set forth at the end of the Common Preamble. . Part is amended by:a. Removing “[Agency]” wherever it appears and adding in its place “SEC”; andb. Removing “[The Agency]” wherever it appears and adding in its place “The SEC.” . Section . is added to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part is issued by the SEC under section of the Bank Holding Company Act of , as amended ( U.S.C. ) and sections , F , F , , and of the Securities Exchange Act of ( U.S.C. o , o- , , q , w.). Code of Federal Regulations, title , chapter II, part . Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities, including registered broker-dealers, registered investment advisers, and registered security-based swap dealers, among others identified in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of ( U.S.C. ( ) ). This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to covered banking entities described in § . . This part takes effect on July , . Relationship to other authorities. Except as otherwise provided in under section of the BHC Act, and notwithstanding any other provision of law, the prohibitions and restrictions under section of BHC Act shall apply to the activities of a covered banking entity, even if such activities are authorized for a covered banking entity under other applicable provisions of law. . Paragraph of § . is added to read as follows:§ . Definitions. Covered banking entity means any entity described in paragraph of this section for which the SEC is the primary financial regulatory agency, as defined in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of ( U.S.C. ( ) ). . Section . is revised to read as follows:§ . Prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund. General prohibition. Except as otherwise provided in this subpart, a covered banking entity may not, as principal, directly or indirectly, acquire or retain any ownership interest in or sponsor a covered fund. Registered investment advisers. A covered banking entity that is a covered banking entity because it is an investment adviser identified in section ( ) (iii) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of shall comply with the restrictions on covered fund activities or investments set forth in subpart C and § . of subpart D issued by the agency identified in section of the Federal Deposit Insurance Act ( U.S.C. ) that regulates the banking entity described in § . , or with which the investment adviser is affiliated.Note to paragraph : Nothing set forth in paragraph of this section shall limit the SEC’s authority under any other provision of law, including pursuant to section of the Bank Holding Company Act.Dated: October , .John Walsh,Acting Comptroller of the Currency.By order of the Board of Governors of the Federal Reserve System, October , .Jennifer J. Johnson, Secretary of the Board.By order of the Board of Directors.Dated at Washington, DC, this th day of October, .Federal Deposit Insurance Corporation.Robert E. Feldman, Executive Secretary.By the Securities and Exchange Commission.Dated: October , .Elizabeth M. Murphy,Secretary. | FALSE |
Final Rule
fr %<>% xml_rule_text()
fr %<>%
mutate(preamble = id < rule_text_starts(fr$text)) %>%
clean
# fr preamble text
# fr %>% kablebox()
# rule text
fr %>% filter(preamble == F) %>% kablebox()| id | text | preamble |
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| 4696 PART [__] PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WI… | PART [ ] PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDSSubpart A Authority and DefinitionsSec. . Authority, purpose, scope, and relationship to other authorities [Reserved]. . Definitions.Subpart B Proprietary Trading . Prohibition on proprietary trading. . Permitted underwriting and market making-related activities. . Permitted risk-mitigating hedging activities. . Other permitted proprietary trading activities. . Limitations on permitted proprietary trading activities. . [Reserved] . [Reserved]Subpart C Covered Fund Activities and Investments . Prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund. . Permitted organizing and offering, underwriting, and market making with respect to a covered fund. . Permitted investment in a covered fund. . Other permitted covered fund activities and investments. . Limitations on relationships with a covered fund. . Other limitations on permitted covered fund activities and investments. . [Reserved] . [Reserved] . [Reserved] . [Reserved]Subpart D Compliance Program Requirement; Violations . Program for compliance; reporting. . Termination of activities or investments; penalties for violations.Appendix A Reporting and Recordkeeping Requirements for Covered Trading ActivitiesAppendix B Enhanced Minimum Standards for Compliance ProgramsSubpart A—Authority and Definitions§ . Authority, purpose, scope, and relationship to other authorities [Reserved]§ . Definitions.Unless otherwise specified, for purposes of this part: Affiliate has the same meaning as in section of the Bank Holding Company Act of ( U.S.C. ). Bank holding company has the same meaning as in section of the Bank Holding Company Act of ( U.S.C. ). Banking entity. Except as provided in paragraph of this section, banking entity means: Any insured depository institution;(ii) Any company that controls an insured depository institution;(iii) Any company that is treated as a bank holding company for purposes of section of the International Banking Act of ( U.S.C. ); and(iv) Any affiliate or subsidiary of any entity described in paragraphs , (ii), or (iii) of this section. Banking entity does not include: A covered fund that is not itself a banking entity under paragraphs , (ii), or (iii) of this section;(ii) A portfolio company held under the authority contained in section or of the BHC Act ( U.S.C. , ), or any portfolio concern, as defined under CFR . , that is controlled by a small business investment company, as defined in section of the Small Business Investment Act of ( U.S.C. ), so long as the portfolio company or portfolio concern is not itself a banking entity under paragraphs , (ii), or (iii) of this section; or(iii) The FDIC acting in its corporate capacity or as conservator or receiver under the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Board means the Board of Governors of the Federal Reserve System. CFTC means the Commodity Futures Trading Commission. Dealer has the same meaning as in section of the Exchange Act ( U.S.C. c ). Depository institution has the same meaning as in section of the Federal Deposit Insurance Act ( U.S.C. ). Derivative. Except as provided in paragraph of this section, derivative means: Any swap, as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )), or security-based swap, as that term is defined in section ( ) of the Exchange Act ( U.S.C. c ( ));(ii) Any purchase or sale of a commodity, that is not an excluded commodity, for deferred shipment or delivery that is intended to be physically settled;(iii) Any foreign exchange forward (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )) or foreign exchange swap (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( ));(iv) Any agreement, contract, or transaction in foreign currency described in section of the Commodity Exchange Act ( U.S.C. ); Any agreement, contract, or transaction in a commodity other than foreign currency described in section of the Commodity Exchange Act ( U.S.C. ); and(vi) Any transaction authorized under section of the Commodity Exchange Act ( U.S.C. or ); A derivative does not include: Any consumer, commercial, or other agreement, contract, or transaction that the CFTC and SEC have further defined by joint regulation, interpretation, guidance, or other action as not within the definition of swap, as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )), or security-based swap, as that term is defined in section ( ) of the Exchange Act ( U.S.C. c ( )); or(ii) Any identified banking product, as defined in section of the Legal Certainty for Bank Products Act of ( U.S.C. ), that is subject to section of that Act ( U.S.C. a ). Employee includes a member of the immediate family of the employee. Exchange Act means the Securities Exchange Act of ( U.S.C. a et seq.). Excluded commodity has the same meaning as in section a( ) of the Commodity Exchange Act ( U.S.C. a( )). FDIC means the Federal Deposit Insurance Corporation. Federal banking agencies means the Board, the Office of the Comptroller of the Currency, and the FDIC. Foreign banking organization has the same meaning as in section . of the Board’s Regulation K ( CFR . ), but does not include a foreign bank, as defined in section of the International Banking Act of ( U.S.C. ), that is organized under the laws of the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, or the Commonwealth of the Northern Mariana Islands. Foreign insurance regulator means the insurance commissioner, or a similar official or agency, of any country other than the United States that is engaged in the supervision of insurance companies under foreign insurance law. General account means all of the assets of an insurance company except those allocated to one or more separate accounts. Insurance company means a company that is organized as an insurance company, primarily and predominantly engaged in writing insurance or reinsuring risks underwritten by insurance companies, subject to supervision as such by a state insurance regulator or a foreign insurance regulator, and not operated for the purpose of evading the provisions of section of the BHC Act ( U.S.C. ). Insured depository institution has the same meaning as in section of the Federal Deposit Insurance Act ( U.S.C. ), but does not include an insured depository institution that is described in section of the BHC Act ( U.S.C. ). Loan means any loan, lease, extension of credit, or secured or unsecured receivable that is not a security or derivative. Primary financial regulatory agency has the same meaning as in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( U.S.C. ( )). Purchase includes any contract to buy, purchase, or otherwise acquire. For security futures products, purchase includes any contract, agreement, or transaction for future delivery. With respect to a commodity future, purchase includes any contract, agreement, or transaction for future delivery. With respect to a derivative, purchase includes the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a derivative, as the context may require. Qualifying foreign banking organization means a foreign banking organization that qualifies as such under section . , or of the Board’s Regulation K ( CFR . , , or ). SEC means the Securities and Exchange Commission. Sale and sell each include any contract to sell or otherwise dispose of. For security futures products, such terms include any contract, agreement, or transaction for future delivery. With respect to a commodity future, such terms include any contract, agreement, or transaction for future delivery. With respect to a derivative, such terms include the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a derivative, as the context may require. Security has the meaning specified in section ( ) of the Exchange Act ( U.S.C. c ( )). Security-based swap dealer has the same meaning as in section ( ) of the Exchange Act ( U.S.C. c ( )).(aa) Security future has the meaning specified in section ( ) of the Exchange Act ( U.S.C. c ( )).(bb) Separate account means an account established and maintained by an insurance company in connection with one or more insurance contracts to hold assets that are legally segregated from the insurance company’s other assets, under which income, gains, and losses, whether or not realized, from assets allocated to such account, are, in accordance with the applicable contract, credited to or charged against such account without regard to other income, gains, or losses of the insurance company.(cc) State means any State, the District of Columbia, the Commonwealth of Puerto Rico, Guam, American Samoa, the United States Virgin Islands, and the Commonwealth of the Northern Mariana Islands. (dd) Subsidiary has the same meaning as in section of the Bank Holding Company Act of ( U.S.C. ).(ee) State insurance regulator means the insurance commissioner, or a similar official or agency, of a State that is engaged in the supervision of insurance companies under State insurance law.(ff) Swap dealer has the same meaning as in section ( ) of the Commodity Exchange Act ( U.S.C. a( )).Subpart B—Proprietary Trading§ . Prohibition on proprietary trading. Prohibition. Except as otherwise provided in this subpart, a banking entity may not engage in proprietary trading. Proprietary trading means engaging as principal for the trading account of the banking entity in any purchase or sale of one or more financial instruments. Definition of trading account. Trading account means any account that is used by a banking entity to: Purchase or sell one or more financial instruments principally for the purpose of: Short-term resale; Benefitting from actual or expected short-term price movements; Realizing short-term arbitrage profits; or Hedging one or more positions resulting from the purchases or sales of financial instruments described in paragraphs , , or of this section;(ii) Purchase or sell one or more financial instruments that are both market risk capital rule covered positions and trading positions (or hedges of other market risk capital rule covered positions), if the banking entity, or any affiliate of the banking entity, is an insured depository institution, bank holding company, or savings and loan holding company, and calculates risk-based capital ratios under the market risk capital rule; or(iii) Purchase or sell one or more financial instruments for any purpose, if the banking entity: Is licensed or registered, or is required to be licensed or registered, to engage in the business of a dealer, swap dealer, or security-based swap dealer, to the extent the instrument is purchased or sold in connection with the activities that require the banking entity to be licensed or registered as such; or Is engaged in the business of a dealer, swap dealer, or security-based swap dealer outside of the United States, to the extent the instrument is purchased or sold in connection with the activities of such business. Rebuttable presumption for certain purchases and sales. The purchase (or sale) of a financial instrument by a banking entity shall be presumed to be for the trading account of the banking entity under paragraph of this section if the banking entity holds the financial instrument for fewer than sixty days or substantially transfers the risk of the financial instrument within sixty days of the purchase (or sale), unless the banking entity can demonstrate, based on all relevant facts and circumstances, that the banking entity did not purchase (or sell) the financial instrument principally for any of the purposes described in paragraph of this section. Financial instrument. Financial instrument means: A security, including an option on a security;(ii) A derivative, including an option on a derivative; or(iii) A contract of sale of a commodity for future delivery, or option on a contract of sale of a commodity for future delivery. A financial instrument does not include: A loan;(ii) A commodity that is not: An excluded commodity (other than foreign exchange or currency); A derivative; A contract of sale of a commodity for future delivery; or An option on a contract of sale of a commodity for future delivery; or(iii) Foreign exchange or currency. Proprietary trading. Proprietary trading does not include: Any purchase or sale of one or more financial instruments by a banking entity that arises under a repurchase or reverse repurchase agreement pursuant to which the banking entity has simultaneously agreed, in writing, to both purchase and sell a stated asset, at stated prices, and on stated dates or on demand with the same counterparty; Any purchase or sale of one or more financial instruments by a banking entity that arises under a transaction in which the banking entity lends or borrows a security temporarily to or from another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such security, and has the right to terminate the transaction and to recall the loaned security on terms agreed by the parties; Any purchase or sale of a security by a banking entity for the purpose of liquidity management in accordance with a documented liquidity management plan of the banking entity that: Specifically contemplates and authorizes the particular securities to be used for liquidity management purposes, the amount, types, and risks of these securities that are consistent with liquidity management, and the liquidity circumstances in which the particular securities may or must be used;(ii) Requires that any purchase or sale of securities contemplated and authorized by the plan be principally for the purpose of managing the liquidity of the banking entity, and not for the purpose of short-term resale, benefitting from actual or expected short-term price movements, realizing short-term arbitrage profits, or hedging a position taken for such short-term purposes;(iii) Requires that any securities purchased or sold for liquidity management purposes be highly liquid and limited to securities the market, credit, and other risks of which the banking entity does not reasonably expect to give rise to appreciable profits or losses as a result of short-term price movements;(iv) Limits any securities purchased or sold for liquidity management purposes, together with any other instruments purchased or sold for such purposes, to an amount that is consistent with the banking entity’s near-term funding needs, including deviations from normal operations of the banking entity or any affiliate thereof, as estimated and documented pursuant to methods specified in the plan; Includes written policies and procedures, internal controls, analysis, and independent testing to ensure that the purchase and sale of securities that are not permitted under §§ . or of this subpart are for the purpose of liquidity management and in accordance with the liquidity management plan described in paragraph of this section; and(vi) Is consistent with [Agency]‘s supervisory requirements, guidance, and expectations regarding liquidity management; Any purchase or sale of one or more financial instruments by a banking entity that is a derivatives clearing organization or a clearing agency in connection with clearing financial instruments; Any excluded clearing activities by a banking entity that is a member of a clearing agency, a member of a derivatives clearing organization, or a member of a designated financial market utility; Any purchase or sale of one or more financial instruments by a banking entity, so long as: The purchase (or sale) satisfies an existing delivery obligation of the banking entity or its customers, including to prevent or close out a failure to deliver, in connection with delivery, clearing, or settlement activity; or(ii) The purchase (or sale) satisfies an obligation of the banking entity in connection with a judicial, administrative, self-regulatory organization, or arbitration proceeding; Any purchase or sale of one or more financial instruments by a banking entity that is acting solely as agent, broker, or custodian; Any purchase or sale of one or more financial instruments by a banking entity through a deferred compensation, stock-bonus, profit-sharing, or pension plan of the banking entity that is established and administered in accordance with the law of the United States or a foreign sovereign, if the purchase or sale is made directly or indirectly by the banking entity as trustee for the benefit of persons who are or were employees of the banking entity; or Any purchase or sale of one or more financial instruments by a banking entity in the ordinary course of collecting a debt previously contracted in good faith, provided that the banking entity divests the financial instrument as soon as practicable, and in no event may the banking entity retain such instrument for longer than such period permitted by the [Agency]. Definition of other terms related to proprietary trading. For purposes of this subpart: Anonymous means that each party to a purchase or sale is unaware of the identity of the other party(ies) to the purchase or sale. Clearing agency has the same meaning as in section ( ) of the Exchange Act ( U.S.C. c ( )). Commodity has the same meaning as in section a of the Commodity Exchange Act ( U.S.C. a ), except that a commodity does not include any security; Contract of sale of a commodity for future delivery means a contract of sale (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( )) for future delivery (as that term is defined in section a( ) of the Commodity Exchange Act ( U.S.C. a( ))). Derivatives clearing organization means: A derivatives clearing organization registered under section b of the Commodity Exchange Act ( U.S.C. a- );(ii) A derivatives clearing organization that, pursuant to CFTC regulation, is exempt from the registration requirements under section b of the Commodity Exchange Act ( U.S.C. a- ); or(iii) A foreign derivatives clearing organization that, pursuant to CFTC regulation, is permitted to clear for a foreign board of trade that is registered with the CFTC. Exchange, unless the context otherwise requires, means any designated contract market, swap execution facility, or foreign board of trade registered with the CFTC, or, for purposes of securities or security-based swaps, an exchange, as defined under section of the Exchange Act ( U.S.C. c ), or security-based swap execution facility, as defined under section ( ) of the Exchange Act ( U.S.C. c ( )). Excluded clearing activities means: With respect to customer transactions cleared on a derivatives clearing organization, a clearing agency, or a designated financial market utility, any purchase or sale necessary to correct trading errors made by or on behalf of a customer provided that such purchase or sale is conducted in accordance with, for transactions cleared on a derivatives clearing organization, the Commodity Exchange Act, CFTC regulations, and the rules or procedures of the derivatives clearing organization, or, for transactions cleared on a clearing agency, the rules or procedures of the clearing agency, or, for transactions cleared on a designated financial market utility that is neither a derivatives clearing organization nor a clearing agency, the rules or procedures of the designated financial market utility;(ii) Any purchase or sale in connection with and related to the management of a default or threatened imminent default of a customer provided that such purchase or sale is conducted in accordance with, for transactions cleared on a derivatives clearing organization, the Commodity Exchange Act, CFTC regulations, and the rules or procedures of the derivatives clearing organization, or, for transactions cleared on a clearing agency, the rules or procedures of the clearing agency, or, for transactions cleared on a designated financial market utility that is neither a derivatives clearing organization nor a clearing agency, the rules or procedures of the designated financial market utility;(iii) Any purchase or sale in connection with and related to the management of a default or threatened imminent default of a member of a clearing agency, a member of a derivatives clearing organization, or a member of a designated financial market utility;(iv) Any purchase or sale in connection with and related to the management of the default or threatened default of a clearing agency, a derivatives clearing organization, or a designated financial market utility; and Any purchase or sale that is required by the rules or procedures of a clearing agency, a derivatives clearing organization, or a designated financial market utility to mitigate the risk to the clearing agency, derivatives clearing organization, or designated financial market utility that would result from the clearing by a member of security-based swaps that reference the member or an affiliate of the member. Designated financial market utility has the same meaning as in section of the Dodd-Frank Act ( U.S.C. ). Issuer has the same meaning as in section of the Securities Act of ( U.S.C. b ).( ) Market risk capital rule covered position and trading position means a financial instrument that is both a covered position and a trading position, as those terms are respectively defined: In the case of a banking entity that is a bank holding company, savings and loan holding company, or insured depository institution, under the market risk capital rule that is applicable to the banking entity; and(ii) In the case of a banking entity that is affiliated with a bank holding company or savings and loan holding company, other than a banking entity to which a market risk capital rule is applicable, under the market risk capital rule that is applicable to the affiliated bank holding company or savings and loan holding company.( ) Market risk capital rule means the market risk capital rule that is contained in subpart F of CFR part , CFR parts and , or CFR part , as applicable.( ) Municipal security means a security that is a direct obligation of or issued by, or an obligation guaranteed as to principal or interest by, a State or any political subdivision thereof, or any agency or instrumentality of a State or any political subdivision thereof, or any municipal corporate instrumentality of one or more States or political subdivisions thereof.( ) 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.§ . Permitted underwriting and market making-related activities. Underwriting activities— Permitted underwriting activities. The prohibition contained in § . does not apply to a banking entity’s underwriting activities conducted in accordance with this paragraph . Requirements. The underwriting activities of a banking entity are permitted under paragraph of this section only if: The banking entity is acting as an underwriter for a distribution of securities and the trading desk’s underwriting position is related to such distribution;(ii) The amount and type of the securities in the trading desk’s underwriting position are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties, and reasonable efforts are made to sell or otherwise reduce the underwriting position within a reasonable period, taking into account the liquidity, maturity, and depth of the market for the relevant type of security;(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 of this section, including reasonably designed written policies and procedures, internal controls, analysis and independent testing identifying and addressing: The products, instruments or exposures each trading desk may purchase, sell, or manage as part of its underwriting activities; Limits for each trading desk, based on the nature and amount of the trading desk’s underwriting activities, including the reasonably expected near term demands of clients, customers, or counterparties, on the: Amount, types, and risk of its underwriting position; Level of exposures to relevant risk factors arising from its underwriting position; and Period of time a security may be held; Internal controls and ongoing monitoring and analysis of each trading desk’s compliance with its limits; and Authorization procedures, including escalation procedures that require review and approval of any trade that would exceed a trading desk’s limit , demonstrable analysis of the basis for any temporary or permanent increase to a trading desk’s limit , and independent review of such demonstrable analysis and approval;(iv) The compensation arrangements of persons performing the activities described in this paragraph are designed not to reward or incentivize prohibited proprietary trading; and The banking entity is licensed or registered to engage in the activity described in this paragraph in accordance with applicable law. Definition of distribution. For purposes of this paragraph , a distribution of securities means: An offering of securities, whether or not subject to registration under the Securities Act of , 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 . Definition of underwriter. For purposes of this paragraph , underwriter means: A person who has agreed with an issuer or selling security holder to: Purchase securities from the issuer or selling security holder for distribution; Engage in a distribution of securities for or on behalf of the issuer or selling security holder; or 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. Definition of selling security holder. For purposes of this paragraph , selling security holder means any person, other than an issuer, on whose behalf a distribution is made. Definition of underwriting position. For purposes of this paragraph , 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. Definition of client, customer, and counterparty. For purposes of this paragraph , 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. Market making-related activities— Permitted market making-related activities. The prohibition contained in § . does not apply to a banking entity’s market making-related activities conducted in accordance with this paragraph . Requirements. The market making-related activities of a banking entity are permitted under paragraph of this section only if: 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: The liquidity, maturity, and depth of the market for the relevant types of financial instrument ; and 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 of this section, including reasonably designed written policies and procedures, internal controls, analysis and independent testing identifying and addressing: The financial instruments each trading desk stands ready to purchase and sell in accordance with paragraph of this section; 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 (iii) 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; 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 (ii) of this section, on: The amount, types, and risks of its market-maker inventory; The amount, types, and risks of the products, instruments, and exposures the trading desk may use for risk management purposes; The level of exposures to relevant risk factors arising from its financial exposure; and The period of time a financial instrument may be held; Internal controls and ongoing monitoring and analysis of each trading desk’s compliance with its limits; and Authorization procedures, including escalation procedures that require review and approval of any trade that would exceed a trading desk’s limit , demonstrable analysis that the basis for any temporary or permanent increase to a trading desk’s limit is consistent with the requirements of this paragraph , and independent review of such demonstrable analysis and approval;(iv) To the extent that any limit identified pursuant to paragraph (iii) 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; The compensation arrangements of persons performing the activities described in this paragraph 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 in accordance with applicable law. Definition of client, customer, and counterparty. For purposes of paragraph 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: 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 $ billion or more as measured in accordance with § . of subpart D, unless: The trading desk documents how and why a particular trading desk or other organizational unit of the entity should be treated as a client, customer, or counterparty of the trading desk for purposes of paragraph of this section; or 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. Definition of financial exposure. For purposes of this paragraph , 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. Definition of market-maker inventory. For the purposes of this paragraph , 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 of this section, that are managed by the trading desk, including the trading desk’s open positions or exposures arising from open transactions.§ . Permitted risk-mitigating hedging activities. Permitted risk-mitigating hedging activities. The prohibition contained in § . 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. Requirements. The risk-mitigating hedging activities of a banking entity are permitted under paragraph of this section only if: 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: 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 being hedged, and such correlation analysis demonstrates that the hedging activity demonstrably reduces or otherwise significantly mitigates the specific, identifiable risk being hedged; The risk-mitigating hedging activity: 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: Is consistent with the written hedging policies and procedures required under paragraph of this section; 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 Requires ongoing recalibration of the hedging activity by the banking entity to ensure that the hedging activity satisfies the requirements set out in paragraph of this section and is not prohibited proprietary trading; and The compensation arrangements of persons performing risk-mitigating hedging activities are designed not to reward or incentivize prohibited proprietary trading. Documentation requirement— A banking entity must comply with the requirements of paragraphs and 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: 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 of this section or under § . (iii) 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. In connection with any purchase or sale identified in paragraph of this section, a banking entity must, at a minimum, and contemporaneously with the purchase or sale, document: The specific, identifiable risk 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. A banking entity must create and retain records sufficient to demonstrate compliance with the requirements of this paragraph for a period that is no less than five years in a form that allows the banking entity to promptly produce such records to [Agency] on request, or such longer period as required under other law or this part.§ . Other permitted proprietary trading activities. Permitted trading in domestic government obligations. The prohibition contained in § . does not apply to the purchase or sale by a banking entity of a financial instrument that is: An obligation of, or issued or guaranteed by, the United States; 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 ( U.S.C. et seq.); An obligation of any State or any political subdivision thereof, including any municipal security; or 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. Permitted trading in foreign government obligations— Affiliates of foreign banking entities in the United States. The prohibition contained in § . 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: 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 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. Foreign affiliates of a U.S. banking entity. The prohibition contained in § . 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: The foreign entity is a foreign bank, as defined in section . of the Board’s Regulation K ( CFR . ), 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. Permitted trading on behalf of customers— Fiduciary transactions. The prohibition contained in § . 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: 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. Riskless principal transactions. The prohibition contained in § . 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. Permitted trading by a regulated insurance company. The prohibition contained in § . 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: The insurance company or its affiliate purchases or sells the financial instruments solely for: The general account of the insurance company; or(ii) A separate account established by the insurance company; 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 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 of this section is insufficient to protect the safety and soundness of the covered banking entity, or the financial stability of the United States. Permitted trading activities of foreign banking entities. The prohibition contained in § . does not apply to the purchase or sale of financial instruments by a banking entity if: 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 or ( ) of section of the BHC Act; and(iii) The purchase or sale meets the requirements of paragraph of this section. A purchase or sale of financial instruments by a banking entity is made pursuant to paragraph or ( ) of section of the BHC Act for purposes of paragraph (ii) of this section only if: The purchase or sale is conducted in accordance with the requirements of paragraph of this section; and(ii) With respect to a banking entity that is a foreign banking organization, the banking entity meets the qualifying foreign banking organization requirements of section . , or of the Board’s Regulation K ( CFR . , or ), as applicable; or 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: Total assets of the banking entity held outside of the United States exceed total assets of the banking entity held in the United States; 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 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. A purchase or sale by a banking entity is permitted for purposes of this paragraph if: 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 The purchase or sale is not conducted with or through any U.S. entity, other than: 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; 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 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. For purposes of this paragraph , 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. For purposes of this paragraph , 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. For purposes of this paragraph , unaffiliated market intermediary means an unaffiliated entity, acting as an intermediary, that is: A broker or dealer registered with the SEC under section of the Exchange Act or exempt from registration or excluded from regulation as such;(ii) A swap dealer registered with the CFTC under section s 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 F 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 f of the Commodity Exchange Act or exempt from registration or excluded from regulation as such.§ . Limitations on permitted proprietary trading activities. No transaction, class of transactions, or activity may be deemed permissible under §§ . through . if the transaction, class of transactions, or activity would: Involve or result in a material conflict of interest between the banking entity and its clients, customers, or counterparties; Result, directly or indirectly, in a material exposure by the banking entity to a high-risk asset or a high-risk trading strategy; or Pose a threat to the safety and soundness of the banking entity or to the financial stability of the United States. Definition of material conflict of interest. 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 of this section. Prior to effecting the specific transaction or class or type of transactions, or engaging in the specific activity, the banking entity: Timely and effective disclosure. 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 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. Definition of high-risk asset and high-risk trading strategy. For purposes of this section: 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. 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.§ . [Reserved]§ . [Reserved]Subpart C—Covered Funds Activities and Investments§ . Prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund. Prohibition. 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. Paragraph of this section does not include acquiring or retaining an ownership interest in a covered fund by a banking entity: Acting solely as agent, broker, or custodian, so long as; The activity is conducted for the account of, or on behalf of, a customer; and 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 [Agency]; 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: The activity is conducted for the account of, or on behalf of, the customer; and The banking entity and its affiliates do not have or retain beneficial ownership of such ownership interest. Definition of covered fund. Except as provided in paragraph of this section, covered fund means: An issuer that would be an investment company, as defined in the Investment Company Act of ( U.S.C. a- et seq.), but for section or of that Act ( U.S.C. a- or );(ii) Any commodity pool under section a( ) of the Commodity Exchange Act ( U.S.C. a( )) for which: The commodity pool operator has claimed an exemption under CFR . ; or A commodity pool operator is registered with the CFTC as a commodity pool operator in connection with the operation of the commodity pool; Substantially all participation units of the commodity pool are owned by qualified eligible persons under CFR . and ; and Participation units of the commodity pool have not been publicly offered to persons who are not qualified eligible persons under CFR . and ; 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: Is organized or established outside the United States and the ownership interests of which are offered and sold solely outside the United States; 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 Has as its sponsor that banking entity (or an affiliate thereof); or Has issued an ownership interest that is owned directly or indirectly by that banking entity (or an affiliate thereof). An issuer shall not be deemed to be a covered fund under paragraph (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 ( U.S.C. a- et seq.) other than the exclusions contained in section and of that Act. For purposes of paragraph (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. Notwithstanding paragraph of this section, unless the appropriate Federal banking agencies, the SEC, and the CFTC jointly determine otherwise, a covered fund does not include: Foreign public funds. Subject to paragraphs (ii) and (iii) below, an issuer that: Is organized or established outside of the United States; Is authorized to offer and sell ownership interests to retail investors in the issuer’s home jurisdiction; and 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 of this section for such issuer unless ownership interests in the issuer are sold predominantly to persons other than: Such sponsoring banking entity; Such issuer; Affiliates of such sponsoring banking entity or such issuer; and Directors and employees of such entities.(iii) For purposes of paragraph of this section, the term “public offering” means a distribution (as defined in § . of subpart B) of securities in any jurisdiction outside the United States to investors, including retail investors, provided that: The distribution complies with all applicable requirements in the jurisdiction in which such distribution is being made; The distribution does not restrict availability to investors having a minimum level of net worth or net investment assets; and The issuer has filed or submitted, with the appropriate regulatory authority in such jurisdiction, offering disclosure documents that are publicly available. 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: Up to five percent of the entity’s outstanding ownership interests, less any amounts outstanding under paragraph (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 . 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. 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: Is comprised of no more than 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. Acquisition vehicles. An issuer: 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. Foreign pension or retirement funds. A plan, fund, or program providing pension, retirement, or similar benefits that is: 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. 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. 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: 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. Loan securitizations. Scope. An issuing entity for asset-backed securities that satisfies all the conditions of this paragraph and the assets or holdings of which are comprised solely of: Loans as defined in § . of subpart A; 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 (iii) of this section; Interest rate or foreign exchange derivatives that meet the requirements of paragraph (iv) of this section; and Special units of beneficial interest and collateral certificates that meet the requirements of paragraph of this section.(ii) Impermissible assets. For purposes of this paragraph , the assets or holdings of the issuing entity shall not include any of the following: A security, including an asset-backed security, or an interest in an equity or debt security other than as permitted in paragraph (iii) of this section; A derivative, other than a derivative that meets the requirements of paragraph (iv) of this section; or A commodity forward contract.(iii) Permitted securities. Notwithstanding paragraph (ii) of this section, the issuing entity may hold securities if those securities are: Cash equivalents for purposes of the rights and assets in paragraph of this section; or 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: 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 of this section; and 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 of this section. 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: The special purpose vehicle that issues the special unit of beneficial interest or collateral certificate meets the requirements in this paragraph ; 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 and does not directly or indirectly transfer any interest in any other economic or financial exposure; 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 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. Qualifying asset-backed commercial paper conduits. An issuing entity for asset-backed commercial paper that satisfies all of the following requirements: The asset-backed commercial paper conduit holds only: Loans and other assets permissible for a loan securitization under paragraph of this section; and Asset-backed securities supported solely by assets that are permissible for loan securitizations under paragraph 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; The asset-backed commercial paper conduit issues only asset-backed securities, comprised of a residual interest and securities with a legal maturity of days or less; and 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 , a regulated liquidity provider means: A depository institution, as defined in section of the Federal Deposit Insurance Act ( U.S.C. ); A bank holding company, as defined in section of the Bank Holding Company Act of ( U.S.C. ), or a subsidiary thereof; A savings and loan holding company, as defined in section a of the Home Owners’ Loan Act ( U.S.C. a), provided all or substantially all of the holding company’s activities are permissible for a financial holding company under section of the Bank Holding Company Act of ( U.S.C. ), or a subsidiary thereof; A foreign bank whose home country supervisor, as defined in § . of the Board’s Regulation K ( CFR . ), 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 The United States or a foreign sovereign.( ) Qualifying covered bonds— Scope. An entity owning or holding a dynamic or fixed pool of loans or other assets as provided in paragraph 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 of this section.(ii) Covered bond. For purposes of this paragraph ( ), a covered bond means: 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 ( ) of this section; or A debt obligation of an entity that meets the conditions set forth in paragraph ( ) 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 of this section, of such foreign banking organization.( ) SBICs and public welfare investment funds. An issuer: That is a small business investment company, as defined in section of the Small Business Investment Act of ( U.S.C. ), 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: Designed primarily to promote the public welfare, of the type permitted under paragraph ( ) of section of the Revised Statutes of the United States ( U.S.C. ), including the welfare of low- and moderate-income communities or families (such as providing housing, services, or jobs); or Qualified rehabilitation expenditures with respect to a qualified rehabilitated building or certified historic structure, as such terms are defined in section of the Internal Revenue Code of or a similar State historic tax credit program.( ) Registered investment companies and excluded entities. An issuer: That is registered as an investment company under section of the Investment Company Act of ( U.S.C. a- ), or that is formed and operated pursuant to a written plan to become a registered investment company as described in § . of subpart D and that complies with the requirements of section of the Investment Company Act of ( U.S.C. a- );(ii) That may rely on an exclusion or exemption from the definition of “investment company” under the Investment Company Act of ( U.S.C. a- et seq.) other than the exclusions contained in section and of that Act; or(iii) That has elected to be regulated as a business development company pursuant to section of that Act ( U.S.C. a- ) 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 § . of subpart D and that complies with the requirements of section of the Investment Company Act of ( U.S.C. a- ).( ) 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.( ) Other excluded issuers. 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 of the BHC Act. (ii) A determination made under paragraph ( ) of this section will be promptly made public. Definition of other terms related to covered funds. For purposes of this subpart: Applicable accounting standards means U.S. generally accepted accounting principles, or such other accounting standards applicable to a banking entity that the [Agency] determines are appropriate and that the banking entity uses in the ordinary course of its business in preparing its consolidated financial statements. Asset-backed security has the meaning specified in Section ( ) of the Exchange Act ( U.S.C. c ( ). Director has the same meaning as provided in section . of the Board’s Regulation O ( CFR . ). Issuer has the same meaning as in section ( ) of the Investment Company Act of ( U.S.C. a- ( )). 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. Ownership interest— Ownership interest means any equity, partnership, or other similar interest. An “other similar interest” means an interest that: 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); Has the right under the terms of the interest to receive a share of the income, gains or profits of the covered fund; 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); 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); 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; 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 Any synthetic right to have, receive, or be allocated any of the rights in paragraphs through 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: 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; 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; 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 § . of this subpart; and 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. Prime brokerage transaction means any transaction that would be a covered transaction, as defined in section A of the Federal Reserve Act ( U.S.C. c ), that is provided in connection with custody, clearance and settlement, securities borrowing or lending services, trade execution, financing, or data, operational, and administrative support. Resident of the United States means a person that is a “U.S. person” as defined in rule of the SEC’s Regulation S ( CFR . ). Sponsor means, with respect to a covered fund: 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 (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.( ) Trustee. For purposes of paragraph of this section and § . of subpart C, a trustee does not include: 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 of the Employee’s Retirement Income Security Act ( U.S.C. ); or A trustee that is subject to fiduciary standards imposed under foreign law that are substantially equivalent to those described in paragraph ( ) of this section;(ii) Any entity that directs a person described in paragraph ( ) 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.§ . Permitted organizing and offering, underwriting, and market making with respect to a covered fund. Organizing and offering a covered fund in general. Notwithstanding § . 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: The banking entity (or an affiliate thereof) provides bona fide trust, fiduciary, investment advisory, or commodity trading advisory services; 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; The banking entity and its affiliates do not acquire or retain an ownership interest in the covered fund except as permitted under § . of this subpart; The banking entity and its affiliates comply with the requirements of § . of this subpart; 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; The covered fund, for corporate, marketing, promotional, or other purposes: Does not share the same name or a variation of the same name with the banking entity (or an affiliate thereof); and(ii) Does not use the word “bank” in its name; 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 The banking entity: 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): 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”; That such investor should read the fund offering documents before investing in the covered fund; 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 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 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. Organizing and offering an issuing entity of asset-backed securities. Notwithstanding § . 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 through of this section. For purposes of this paragraph , 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 G of the Exchange Act ( U.S.C. o- ) of the issuing entity, or acquiring or retaining an ownership interest in the issuing entity as required by section G of that Act ( U.S.C. o- ) and the implementing regulations issued thereunder. Underwriting and market making in ownership interests of a covered fund. The prohibition contained in § . 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: Those activities are conducted in accordance with the requirements of § . or § . of subpart B, respectively; 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 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 G of the Exchange Act ( U.S.C. o- ), or is acquiring and retaining an ownership interest in such covered fund in compliance with section G of that Act ( U.S.C. o- ) and the implementing regulations issued thereunder each as permitted by paragraph 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 § . (ii) and § . of this subpart; and 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 § . 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 , are included in the calculation of all ownership interests under § . (iii) and § . of this subpart.§ . Permitted investment in a covered fund. Authority and limitations on permitted investments in covered funds. Notwithstanding the prohibition contained in § . 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 § . , for the purposes of: 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 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 (ii) and (iii) of this section. Investment limits— Seeding period. With respect to an investment in any covered fund made or held pursuant to paragraph of this section, the banking entity and its affiliates: 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 of this section; and Must, no later than year after the date of establishment of the fund (or such longer period as may be provided by the Board pursuant to paragraph of this section), conform its ownership interest in the covered fund to the limits in paragraph (ii) of this section;(ii) Per-fund limits. Except as provided in paragraph (ii) of this section, an investment by a banking entity and its affiliates in any covered fund made or held pursuant to paragraph (ii) of this section may not exceed percent of the total number or value of the outstanding ownership interests of the fund. 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 percent of the total fair market value of the ownership interests of the fund measured in accordance with paragraph of this section, unless a greater percentage is retained by the banking entity and its affiliates in compliance with the requirements of section G of the Exchange Act ( U.S.C. o- ) 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 G 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 percent of the tier capital of the banking entity, as provided under paragraph 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: 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; 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. Rules of construction— Attribution of ownership interests to a covered banking entity. For purposes of paragraph 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 § . 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 of this section, a registered investment company, SEC-regulated business development companies or foreign public fund as described in § . of this subpart will not be considered to be an affiliate of the banking entity so long as the banking entity: Does not own, control, or hold with the power to vote percent or more of the voting shares of the company or fund; and 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 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 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. Calculation of permitted ownership interests in a single covered fund. Except as provided in paragraph or , for purposes of determining whether an investment in a single covered fund complies with the restrictions on ownership interests under paragraphs and (ii) of this section: 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 (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. 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 and (ii) of this section: For securitizations subject to the requirements of section G of the Exchange Act ( U.S.C. o- ), the calculations shall be made as of the date and according to the valuation methodology applicable pursuant to the requirements of section G of the Exchange Act ( U.S.C. o- ) 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 (iv) 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 (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. Multi-tier fund investments— 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 and (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 § . 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 percent of the amount or value of any single covered fund. Aggregate permitted investments in all covered funds. For purposes of paragraph (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 § . (ii) of this subpart), on a historical cost basis. Calculation of tier capital. For purposes of paragraph (iii) of this section: Entities that are required to hold and report tier capital. If a banking entity is required to calculate and report tier capital, the banking entity’s tier capital shall be equal to the amount of tier 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 capital, the banking entity’s tier capital shall be determined to be equal to: In the case of a banking entity that is controlled, directly or indirectly, by a depository institution that calculates and reports tier capital, be equal to the amount of tier capital reported by such controlling depository institution in the manner described in paragraph of this section; In the case of a banking entity that is not controlled, directly or indirectly, by a depository institution that calculates and reports tier capital: 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 capital reported by the top-tier affiliate of such covered banking entity that calculates and reports tier capital in the manner described in paragraph of this section; and 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— Foreign banking entities. Except as provided in paragraph (iii) 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 capital of the banking entity shall be the consolidated tier capital of the entity as calculated under applicable home country standards. 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 (iii) of this section, the banking entity’s tier capital shall be as calculated under paragraphs or (ii) of this section. 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 capital (as determined under paragraph of this section) the greater of: 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 § . (ii) of subpart C), on a historical cost basis, plus any earnings received; and The fair market value of the banking entity’s ownership interests in the covered fund as determined under paragraph (ii) or of this section (together with any amounts paid by the entity (or employee thereof) in connection with obtaining a restricted profit interest under § . (ii) of subpart C), if the banking entity accounts for the profits (or losses) of the fund investment in its financial statements. Extension of time to divest an ownership interest. Upon application by a banking entity, the Board may extend the period under paragraph of this section for up to 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: Be submitted to the Board at least days prior to the expiration of the applicable time period;(ii) Provide the reasons for application, including information that addresses the factors in paragraph 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 of this section. Factors governing Board determinations. In reviewing any application under paragraph of this section, the Board may consider all the facts and circumstances related to the permitted investment in a covered fund, including: 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 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; The cost to the banking entity of divesting or disposing of the investment within the applicable period;(vi) Whether the investment or the divestiture or conformance of the investment would involve or result in a material conflict of interest between the banking entity and unaffiliated parties, including clients, customers or counterparties to which it owes a duty;(vi) The banking entity’s prior efforts to reduce through redemption, sale, dilution, or other methods its ownership interests in the covered fund, including activities related to the marketing of interests in such covered fund;(viii) Market conditions; and(ix) Any other factor that the Board believes appropriate. Authority to impose restrictions on activities or investment during any extension period. The Board may impose such conditions on any extension approved under paragraph 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 of the BHC Act and this part. 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 of this section.§ . Other permitted covered fund activities and investments. Permitted risk-mitigating hedging activities. The prohibition contained in § . 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. Requirements. The risk-mitigating hedging activities of a banking entity are permitted under this paragraph only if: 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: Reasonably designed written policies and procedures; and Internal controls and ongoing monitoring, management, and authorization procedures, including relevant escalation procedures; and(ii) The acquisition or retention of the ownership interest: Is made in accordance with the written policies, procedures and internal controls required under this section; 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; 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 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. Certain permitted covered fund activities and investments outside of the United States. The prohibition contained in § . 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: 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 or ( ) of section 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. An activity or investment by the banking entity is pursuant to paragraph or ( ) of section of the BHC Act for purposes of paragraph (ii) of this section only if: The activity or investment is conducted in accordance with the requirements of this section; and(ii) With respect to a banking entity that is a foreign banking organization, the banking entity meets the qualifying foreign banking organization requirements of section . , or of the Board’s Regulation K ( CFR . , or ), as applicable; or 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: Total assets of the banking entity held outside of the United States exceed total assets of the banking entity held in the United States; 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 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. 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 (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. An activity or investment occurs solely outside of the United States for purposes of paragraph (iv) of this section only if: 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. 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. Permitted covered fund interests and activities by a regulated insurance company. The prohibition contained in § . 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: 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; 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 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 of this section is insufficient to protect the safety and soundness of the banking entity, or the financial stability of the United States.§ . Limitations on relationships with a covered fund. Relationships with a covered fund. Except as provided for in paragraph 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 § . of this subpart, or that continues to hold an ownership interest in accordance with § . 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 A of the Federal Reserve Act ( U.S.C. c ), as if such banking entity and the affiliate thereof were a member bank and the covered fund were an affiliate thereof. Notwithstanding paragraph of this section, a banking entity may: Acquire and retain any ownership interest in a covered fund in accordance with the requirements of § . , § . , or § . 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: The banking entity is in compliance with each of the limitations set forth in § . of this subpart with respect to a covered fund organized and offered by such banking entity (or an affiliate thereof); The chief executive officer (or equivalent officer) of the banking entity certifies in writing annually to [Agency] (with a duty to update the certification if the information in the certification materially changes) that the banking entity does not, directly or indirectly, guarantee, assume, or otherwise insure the obligations or performance of the covered fund or of any covered fund in which such covered fund invests; and The Board has not determined that such transaction is inconsistent with the safe and sound operation and condition of the banking entity. 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 § . of this subpart, or that continues to hold an ownership interest in accordance with § . of this subpart, shall be subject to section B of the Federal Reserve Act ( U.S.C. c- ), as if such banking entity were a member bank and such covered fund were an affiliate thereof. Restrictions on prime brokerage transactions. A prime brokerage transaction permitted under paragraph (ii) of this section shall be subject to section B of the Federal Reserve Act ( U.S.C. c- ) as if the counterparty were an affiliate of the banking entity.§ . Other limitations on permitted covered fund activities. No transaction, class of transactions, or activity may be deemed permissible under §§ . through . of this subpart if the transaction, class of transactions, or activity would: Involve or result in a material conflict of interest between the banking entity and its clients, customers, or counterparties; Result, directly or indirectly, in a material exposure by the banking entity to a high-risk asset or a high-risk trading strategy; or Pose a threat to the safety and soundness of the banking entity or to the financial stability of the United States. Definition of material conflict of interest. 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 of this section. Prior to effecting the specific transaction or class or type of transactions, or engaging in the specific activity, the banking entity: Timely and effective disclosure. 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 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. Definition of high-risk asset and high-risk trading strategy. For purposes of this section: 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. 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.§ . [Reserved]§ . [Reserved]§ . [Reserved]§ . [Reserved]Subpart D—Compliance Program Requirement; Violations§ . Program for compliance; reporting 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 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. Contents of compliance program. Except as provided in paragraph of this section, the compliance program required by paragraph of this section, at a minimum, shall include: Written policies and procedures reasonably designed to document, describe, monitor and limit trading activities subject to subpart B (including those permitted under §§ . to . of subpart B), including setting, monitoring and managing required limits set out in § and § , and activities and investments with respect to a covered fund subject to subpart C (including those permitted under §§ . through . 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 of the BHC Act and this part comply with section of the BHC Act and this part; A system of internal controls reasonably designed to monitor compliance with section of the BHC Act and this part and to prevent the occurrence of activities or investments that are prohibited by section of the BHC Act and this part; A management framework that clearly delineates responsibility and accountability for compliance with section 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; 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; Training for trading personnel and managers, as well as other appropriate personnel, to effectively implement and enforce the compliance program; and Records sufficient to demonstrate compliance with section of the BHC Act and this part, which a banking entity must promptly provide to [Agency] upon request and retain for a period of no less than years or such longer period as required by [Agency]. Additional standards. In addition to the requirements in paragraph of this section, the compliance program of a banking entity must satisfy the requirements and other standards contained in Appendix B, if: The banking entity engages in proprietary trading permitted under subpart B and is required to comply with the reporting requirements of paragraph of this section; The banking entity has reported total consolidated assets as of the previous calendar year end of $ 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 $ billion or more (including all subsidiaries, affiliates, branches and agencies of the foreign banking entity operating, located or organized in the United States); or [Agency] notifies the banking entity in writing that it must satisfy the requirements and other standards contained in Appendix B to this part. Reporting requirements under Appendix A to this part. A banking entity engaged in proprietary trading activity permitted under subpart B shall comply with the reporting requirements described in Appendix A, if: The banking entity (other than a foreign banking entity as provided in paragraph (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 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 of this section; or(iii) [Agency] notifies the banking entity in writing that it must satisfy the reporting requirements contained in Appendix A. The threshold for reporting under paragraph of this section shall be $ billion beginning on June , ; $ billion beginning on April , ; and $ billion beginning on December , . Frequency of reporting: Unless [Agency] notifies the banking entity in writing that it must report on a different basis, a banking entity with $ billion or more in trading assets and liabilities (as calculated in accordance with paragraph of this section) shall report the information required by Appendix A for each calendar month within days of the end of the relevant calendar month; beginning with information for the month of January , such information shall be reported within 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 days of the end of that calendar quarter unless [Agency] notifies the banking entity in writing that it must report on a different basis. Additional documentation for covered funds. Any banking entity that has more than $ billion in total consolidated assets as reported on December of the previous two calendar years shall maintain records that include: Documentation of the exclusions or exemptions other than sections and of the Investment Company Act of 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; 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 §§ . , . , . , . , or . ( ) 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; For each seeding vehicle described in § . ( ) 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 § . of subpart C; 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 § . 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 $ 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 $ million for two consecutive calendar quarters; and For purposes of paragraph 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. Simplified programs for less active banking entities— 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 § . 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 § . of subpart B). Banking entities with modest activities. A banking entity with total consolidated assets of $ billion or less as reported on December 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 § . 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 of the BHC Act and this part and adjustments as appropriate given the activities, size, scope and complexity of the banking entity.§ . Termination of activities or investments; penalties for violations. Any banking entity that engages in an activity or makes an investment in violation of section of the BHC Act or this part, or acts in a manner that functions as an evasion of the requirements of section 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 of the BHC Act or this part, shall, upon discovery, promptly terminate the activity and, as relevant, dispose of the investment. Whenever [Agency] finds reasonable cause to believe any banking entity has engaged in an activity or made an investment in violation of section 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 of the BHC Act or this part, [Agency] may take any action permitted by law to enforce compliance with section of the BHC Act and this part, including directing the banking entity to restrict, limit, or terminate any or all activities under this part and dispose of any investment.Appendix A to Part —Reporting and Recordkeeping Requirements for Covered Trading ActivitiesI. Purposea. 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 § . , 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 furnish periodic reports to [Agency] regarding a variety of quantitative measurements of their covered trading activities, which vary depending on the scope and size of covered trading activities, and (ii) create and maintain records documenting the preparation and content of these reports. The requirements of this appendix must be incorporated into the banking entity’s internal compliance program under § . and Appendix B.b. The purpose of this appendix is to assist banking entities and [Agency] in: 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 § . are consistent with the requirements governing permitted market making-related activities; Evaluating whether the covered trading activities of trading desks that are engaged in permitted trading activity subject to §§ . , . , or . - (i.e., underwriting and market making-related related activity, risk-mitigating hedging, or trading in certain government obligations) are consistent with the requirement that such activity not result, directly or indirectly, in a material exposure to high-risk assets or high-risk trading strategies;(vi) Identifying the profile of particular covered trading activities of the banking entity, and the individual trading desks of the banking entity, to help establish the appropriate frequency and scope of examination by [Agency] of such activities; and(vii) Assessing and addressing the risks associated with the banking entity’s covered trading activities.c. The quantitative measurements that must be furnished pursuant to this appendix are not intended to serve as a dispositive tool for the identification of permissible or impermissible activities.d. In order to allow banking entities and the Agencies to evaluate the effectiveness of these metrics, banking entities must collect and report these metrics for all trading desks beginning on the dates established in § . 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 , .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 of the BHC Act and this part and to have an effective compliance program, as required by § . 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 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 §§ . through . and , or that result in a material exposure to high-risk assets or high-risk trading strategies, must be escalated within the banking entity for review, further analysis, explanation to [Agency], and remediation, where appropriate. The quantitative measurements discussed in this appendix should be helpful to banking entities in identifying and managing the risks related to their covered trading activities.II. DefinitionsThe terms used in this appendix have the same meanings as set forth in §§ . and . . 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 §§ . , . , . , or . . A banking entity may include trading under §§ . , . , . or . .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 Measurementsa. Scope of Required ReportingGeneral scope. Each banking entity made subject to this part by § . 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 Ratiob. Frequency of Required Calculation and Reporting A banking entity must calculate any applicable quantitative measurement for each trading day. A banking entity must report each applicable quantitative measurement to [Agency] on the reporting schedule established in § . unless otherwise requested by [Agency]. All quantitative measurements for any calendar month must be reported within the time period required by § . .c. Recordkeeping A banking entity must, for any quantitative measurement furnished to [Agency] pursuant to this appendix and § . , create and maintain records documenting the preparation and content of these reports, as well as such information as is necessary to permit [Agency] to verify the accuracy of such reports, for a period of years from the end of the calendar year for which the measurement was taken.IV. Quantitative Measurementsa. Risk-Management Measurements . Risk and Position Limits and Usagei. 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 § . and § . . 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 § . and hedging activity under § . . Accordingly, the limits required under § . (iii) and § . must meet the applicable requirements under § . (iii) and § . 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. . Risk Factor Sensitivitiesi. Description: For purposes of this appendix, Risk Factor Sensitivities are changes in a trading desk’s Comprehensive Profit and Loss that are expected to occur in the event of a change in one or more underlying variables that are significant sources of the trading desk’s profitability and risk.ii. General Calculation Guidance: A banking entity must report the Risk Factor Sensitivities that are monitored and managed as part of the trading desk’s overall risk management policy. The underlying data and methods used to compute a trading desk’s Risk Factor Sensitivities will depend on the specific function of the trading desk and the internal risk management models employed. The number and type of Risk Factor Sensitivities that are monitored and managed by a trading desk, and furnished to [Agency], will depend on the explicit risks assumed by the trading desk. In general, however, reported Risk Factor Sensitivities must be sufficiently granular to account for a preponderance of the expected price variation in the trading desk’s holdings.A. Trading desks must take into account any relevant factors in calculating Risk Factor Sensitivities, including, for example, the following with respect to particular asset classes:• Commodity derivative positions: risk factors with respect to the related commodities set out in CFR . , 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. . Value-at-Risk and Stress Value-at-Risk i. Description: For purposes of this appendix, Value-at-Risk (“VaR”) is the commonly used percentile measurement of the risk of future financial loss in the value of a given set of aggregated positions over a specified period of time, based on current market conditions. For purposes of this appendix, Stress Value-at-Risk (“Stress VaR”) is the percentile measurement of the risk of future financial loss in the value of a given set of aggregated positions over a specified period of time, based on market conditions during a period of significant financial stress.ii. General Calculation Guidance: Banking entities must compute and report VaR and Stress VaR by employing generally accepted standards and methods of calculation. VaR should reflect a loss in a trading desk that is expected to be exceeded less than one percent of the time over a one-day period. For those banking entities that are subject to regulatory capital requirements imposed by a Federal banking agency, VaR and Stress VaR must be computed and reported in a manner that is consistent with such regulatory capital requirements. In cases where a trading desk does not have a standalone VaR or Stress VaR calculation but is part of a larger aggregation of positions for which a VaR or Stress VaR calculation is performed, a VaR or Stress VaR calculation that includes only the trading desk’s holdings must be performed consistent with the VaR or Stress VaR model and methodology used for the larger aggregation of positions.iii. Calculation Period: One trading day.iv. Measurement Frequency: Daily.b. Source-of-Revenue Measurements . Comprehensive Profit and Loss Attribution i. Description: For purposes of this appendix, Comprehensive Profit and Loss Attribution is an analysis that attributes the daily fluctuation in the value of a trading desk’s positions to various sources. First, the daily profit and loss of the aggregated positions is divided into three categories: profit and loss attributable to a trading desk’s existing positions that were also positions held by the trading desk as of the end of the prior day (“existing positions”); (ii) profit and loss attributable to new positions resulting from the current day’s trading activity (“new positions”); and (iii) residual profit and loss that cannot be specifically attributed to existing positions or new positions. The sum of , (ii), and (iii) must equal the trading desk’s comprehensive profit and loss at each point in time. In addition, profit and loss measurements must calculate volatility of comprehensive profit and loss (i.e., the standard deviation of the trading desk’s one-day profit and loss, in dollar terms) for the reporting period for at least a -, - and -day lag period, from the end of the reporting period, and any other period that the banking entity deems necessary to meet the requirements of the rule.A. The comprehensive profit and loss associated with existing positions must reflect changes in the value of these positions on the applicable day. The comprehensive profit and loss from existing positions must be further attributed, as applicable, to changes in the specific Risk Factors and other factors that are monitored and managed as part of the trading desk’s overall risk management policies and procedures; and (ii) any other applicable elements, such as cash flows, carry, changes in reserves, and the correction, cancellation, or exercise of a trade.B. The comprehensive profit and loss attributed to new positions must reflect commissions and fee income or expense and market gains or losses associated with transactions executed on the applicable day. New positions include purchases and sales of financial instruments and other assets/liabilities and negotiated amendments to existing positions. The comprehensive profit and loss from new positions may be reported in the aggregate and does not need to be further attributed to specific sources.C. The portion of comprehensive profit and loss that cannot be specifically attributed to known sources must be allocated to a residual category identified as an unexplained portion of the comprehensive profit and loss. Significant unexplained profit and loss must be escalated for further investigation and analysis.ii. General Calculation Guidance: The specific categories used by a trading desk in the attribution analysis and amount of detail for the analysis should be tailored to the type and amount of trading activities undertaken by the trading desk. The new position attribution must be computed by calculating the difference between the prices at which instruments were bought and/or sold and the prices at which those instruments are marked to market at the close of business on that day multiplied by the notional or principal amount of each purchase or sale. Any fees, commissions, or other payments received (paid) that are associated with transactions executed on that day must be added (subtracted) from such difference. These factors must be measured consistently over time to facilitate historical comparisons.iii. Calculation Period: One trading day. iv. Measurement Frequency: Daily.c. Customer-Facing Activity Measurements . Inventory Turnover i. Description: For purposes of this appendix, Inventory Turnover is a ratio that measures the turnover of a trading desk’s inventory. The numerator of the ratio is the absolute value of all transactions over the reporting period. The denominator of the ratio is the value of the trading desk’s inventory at the beginning of the reporting period.ii. General Calculation Guidance: For purposes of this appendix, for derivatives, other than options and interest rate derivatives, value means gross notional value, for options, value means delta adjusted notional value, and for interest rate derivatives, value means -year bond equivalent value.iii. Calculation Period: days, days, and days.iv. Measurement Frequency: Daily. . Inventory Aging i. Description: For purposes of this appendix, Inventory Aging generally describes a schedule of the trading desk’s aggregate assets and liabilities and the amount of time that those assets and liabilities have been held. Inventory Aging should measure the age profile of the trading desk’s assets and liabilities.ii. General Calculation Guidance: In general, Inventory Aging must be computed using a trading desk’s trading activity data and must identify the value of a trading desk’s aggregate assets and liabilities. Inventory Aging must include two schedules, an asset-aging schedule and a liability-aging schedule. Each schedule must record the value of assets or liabilities held over all holding periods. For derivatives, other than options, and interest rate derivatives, value means gross notional value, for options, value means delta adjusted notional value and, for interest rate derivatives, value means -year bond equivalent value.iii. Calculation Period: One trading day.iv. Measurement Frequency: Daily. . Customer-Facing Trade Ratio—Trade Count Based and Value Based i. Description: For purposes of this appendix, the Customer-Facing Trade Ratio is a ratio comparing the transactions involving a counterparty that is a customer of the trading desk to (ii) the transactions involving a counterparty that is not a customer of the trading desk. A trade count based ratio must be computed that records the number of transactions involving a counterparty that is a customer of the trading desk and the number of transactions involving a counterparty that is not a customer of the trading desk. A value based ratio must be computed that records the value of transactions involving a counterparty that is a customer of the trading desk and the value of transactions involving a counterparty that is not a customer of the trading desk.ii. General Calculation Guidance: For purposes of calculating the Customer-Facing Trade Ratio, a counterparty is considered to be a customer of the trading desk if the counterparty is a market participant that makes use of the banking entity’s market making-related services by obtaining such services, responding to quotations, or entering into a continuing relationship with respect to such services. However, a trading desk or other organizational unit of another banking entity would not be a client, customer, or counterparty of the trading desk if the other entity has trading assets and liabilities of $ billion or more as measured in accordance with § . unless the trading desk documents how and why a particular trading desk or other organizational unit of the entity should be treated as a client, customer, or counterparty of the trading desk. Transactions conducted anonymously on an exchange or similar trading facility that permits trading on behalf of a broad range of market participants would be considered transactions with customers of the trading desk. For derivatives, other than options, and interest rate derivatives, value means gross notional value, for options, value means delta adjusted notional value, and for interest rate derivatives, value means -year bond equivalent value.iii. Calculation Period: days, days, and days.iv. Measurement Frequency: Daily.Appendix B to Part —Enhanced Minimum Standards for Compliance Programs I. OverviewSection . requires certain banking entities to establish, maintain, and enforce an enhanced compliance program that includes the requirements and standards in this Appendix as well as the minimum written policies and procedures, internal controls, management framework, independent testing, training, and recordkeeping provisions outlined in § . . This Appendix sets forth additional minimum standards with respect to the establishment, oversight, maintenance, and enforcement by these banking entities of an enhanced internal compliance program for ensuring and monitoring compliance with the prohibitions and restrictions on proprietary trading and covered fund activities and investments set forth in section of the BHC Act and this part.a. This compliance program must: . Be reasonably designed to identify, document, monitor, and report the permitted trading and covered fund activities and investments of the banking entity; identify, monitor and promptly address the risks of these covered activities and investments and potential areas of noncompliance; and prevent activities or investments prohibited by, or that do not comply with, section of the BHC Act and this part; . Establish and enforce appropriate limits on the covered activities and investments of the banking entity, including limits on the size, scope, complexity, and risks of the individual activities or investments consistent with the requirements of section of the BHC Act and this part; . Subject the effectiveness of the compliance program to periodic independent review and testing, and ensure that the entity’s internal audit, corporate compliance and internal control functions involved in review and testing are effective and independent; . Make senior management, and others as appropriate, accountable for the effective implementation of the compliance program, and ensure that the board of directors and chief executive officer (or equivalent) of the banking entity review the effectiveness of the compliance program; and . Facilitate supervision and examination by the Agencies of the banking entity’s permitted trading and covered fund activities and investments.II. Enhanced Compliance Programa. Proprietary Trading Activities. A banking entity must establish, maintain and enforce a compliance program that includes written policies and procedures that are appropriate for the types, size, and complexity of, and risks associated with, its permitted trading activities. The compliance program may be tailored to the types of trading activities conducted by the banking entity, and must include a detailed description of controls established by the banking entity to reasonably ensure that its trading activities are conducted in accordance with the requirements and limitations applicable to those trading activities under section of the BHC Act and this part, and provide for appropriate revision of the compliance program before expansion of the trading activities of the banking entity. A banking entity must devote adequate resources and use knowledgeable personnel in conducting, supervising and managing its trading activities, and promote consistency, independence and rigor in implementing its risk controls and compliance efforts. The compliance program must be updated with a frequency sufficient to account for changes in the activities of the banking entity, results of independent testing of the program, identification of weaknesses in the program, and changes in legal, regulatory or other requirements. . Trading Desks: The banking entity must have written policies and procedures governing each trading desk that include a description of:i. The process for identifying, authorizing and documenting financial instruments each trading desk may purchase or sell, with separate documentation for market making-related activities conducted in reliance on § . and for hedging activity conducted in reliance on § . ;ii. A mapping for each trading desk to the division, business line, or other organizational structure that is responsible for managing and overseeing the trading desk’s activities;iii. The mission (i.e., the type of trading activity, such as market-making, trading in sovereign debt, etc.) and strategy (i.e., methods for conducting authorized trading activities) of each trading desk;iv. The activities that the trading desk is authorized to conduct, including authorized instruments and products, and (ii) authorized hedging strategies, techniques and instruments;v. The types and amount of risks allocated by the banking entity to each trading desk to implement the mission and strategy of the trading desk, including an enumeration of material risks resulting from the activities in which the trading desk is authorized to engage (including but not limited to price risks, such as basis, volatility and correlation risks, as well as counterparty credit risk). Risk assessments must take into account both the risks inherent in the trading activity and the strength and effectiveness of controls designed to mitigate those risks;vi. How the risks allocated to each trading desk will be measured;vii. Why the allocated risks levels are appropriate to the activities authorized for the trading desk;viii. The limits on the holding period of, and the risk associated with, financial instruments under the responsibility of the trading desk;ix. The process for setting new or revised limits, as well as escalation procedures for granting exceptions to any limits or to any policies or procedures governing the desk, the analysis that will be required to support revising limits or granting exceptions, and the process for independently reviewing and documenting those exceptions and the underlying analysis;x. The process for identifying, documenting and approving new products, trading strategies, and hedging strategies;xi. The types of clients, customers, and counterparties with whom the trading desk may trade; andxii. The compensation arrangements, including incentive arrangements, for employees associated with the trading desk, which may not be designed to reward or incentivize prohibited proprietary trading or excessive or imprudent risk-taking. . Description of risks and risk management processes: The compliance program for the banking entity must include a comprehensive description of the risk management program for the trading activity of the banking entity. The compliance program must also include a description of the governance, approval, reporting, escalation, review and other processes the banking entity will use to reasonably ensure that trading activity is conducted in compliance with section of the BHC Act and this part. Trading activity in similar financial instruments should be subject to similar governance, limits, testing, controls, and review, unless the banking entity specifically determines to establish different limits or processes and documents those differences. Descriptions must include, at a minimum, the following elements:i. A description of the supervisory and risk management structure governing all trading activity, including a description of processes for initial and senior-level review of new products and new strategies;ii. A description of the process for developing, documenting, testing, approving and reviewing all models used for valuing, identifying and monitoring the risks of trading activity and related positions, including the process for periodic independent testing of the reliability and accuracy of those models;iii. A description of the process for developing, documenting, testing, approving and reviewing the limits established for each trading desk;iv. A description of the process by which a security may be purchased or sold pursuant to the liquidity management plan, including the process for authorizing and monitoring such activity to ensure compliance with the banking entity’s liquidity management plan and the restrictions on liquidity management activities in this part;v. A description of the management review process, including escalation procedures, for approving any temporary exceptions or permanent adjustments to limits on the activities, positions, strategies, or risks associated with each trading desk; andvi. The role of the audit, compliance, risk management and other relevant units for conducting independent testing of trading and hedging activities, techniques and strategies. . Authorized risks, instruments, and products. The banking entity must implement and enforce limits and internal controls for each trading desk that are reasonably designed to ensure that trading activity is conducted in conformance with section of the BHC Act and this part and with the banking entity’s written policies and procedures. The banking entity must establish and enforce risk limits appropriate for the activity of each trading desk. These limits should be based on probabilistic and non-probabilistic measures of potential loss (e.g., Value-at-Risk and notional exposure, respectively), and measured under normal and stress market conditions. At a minimum, these internal controls must monitor, establish and enforce limits on:i. The financial instruments (including, at a minimum, by type and exposure) that the trading desk may trade;ii. The types and levels of risks that may be taken by each trading desk; andiii. The types of hedging instruments used, hedging strategies employed, and the amount of risk effectively hedged. . Hedging policies and procedures. The banking entity must establish, maintain, and enforce written policies and procedures regarding the use of risk-mitigating hedging instruments and strategies that, at a minimum, describe:i. The positions, techniques and strategies that each trading desk may use to hedge the risk of its positions;ii. The manner in which the banking entity will identify the risks arising in connection with and related to the individual or aggregated positions, contracts or other holdings of the banking entity that are to be hedged and determine that those risks have been properly and effectively hedged;iii. The level of the organization at which hedging activity and management will occur;iv. The manner in which hedging strategies will be monitored and the personnel responsible for such monitoring;v. The risk management processes used to control unhedged or residual risks; andvi. The process for developing, documenting, testing, approving and reviewing all hedging positions, techniques and strategies permitted for each trading desk and for the banking entity in reliance on § . . . Analysis and quantitative measurements. The banking entity must perform robust analysis and quantitative measurement of its trading activities that is reasonably designed to ensure that the trading activity of each trading desk is consistent with the banking entity’s compliance program; monitor and assist in the identification of potential and actual prohibited proprietary trading activity; and prevent the occurrence of prohibited proprietary trading. Analysis and models used to determine, measure and limit risk must be rigorously tested and be reviewed by management responsible for trading activity to ensure that trading activities, limits, strategies, and hedging activities do not understate the risk and exposure to the banking entity or allow prohibited proprietary trading. This review should include periodic and independent back-testing and revision of activities, limits, strategies and hedging as appropriate to contain risk and ensure compliance. In addition to the quantitative measurements reported by any banking entity subject to Appendix A to this part, each banking entity must develop and implement, to the extent appropriate to facilitate compliance with this part, additional quantitative measurements specifically tailored to the particular risks, practices, and strategies of its trading desks. The banking entity’s analysis and quantitative measurements must incorporate the quantitative measurements reported by the banking entity pursuant to Appendix A (if applicable) and include, at a minimum, the following:i. Internal controls and written policies and procedures reasonably designed to ensure the accuracy and integrity of quantitative measurements;ii. Ongoing, timely monitoring and review of calculated quantitative measurements;iii. The establishment of numerical thresholds and appropriate trading measures for each trading desk and heightened review of trading activity not consistent with those thresholds to ensure compliance with section of the BHC Act and this part, including analysis of the measurement results or other information, appropriate escalation procedures, and documentation related to the review; andiv. Immediate review and compliance investigation of the trading desk’s activities, escalation to senior management with oversight responsibilities for the applicable trading desk, timely notification to [Agency], appropriate remedial action (e.g., divesting of impermissible positions, cessation of impermissible activity, disciplinary actions), and documentation of the investigation findings and remedial action taken when quantitative measurements or other information, considered together with the facts and circumstances, or findings of internal audit, independent testing or other review suggest a reasonable likelihood that the trading desk has violated any part of section of the BHC Act or this part. . Other Compliance Matters. In addition to the requirements specified above, the banking entity’s compliance program must:i. Identify activities of each trading desk that will be conducted in reliance on exemptions contained in §§ . through . , including an explanation of:A. How and where in the organization the activity occurs; andB. Which exemption is being relied on and how the activity meets the specific requirements for reliance on the applicable exemption;ii. Include an explanation of the process for documenting, approving and reviewing actions taken pursuant to the liquidity management plan, where in the organization this activity occurs, the securities permissible for liquidity management, the process for ensuring that liquidity management activities are not conducted for the purpose of prohibited proprietary trading, and the process for ensuring that securities purchased as part of the liquidity management plan are highly liquid and conform to the requirements of this part;iii. Describe how the banking entity monitors for and prohibits potential or actual material exposure to high-risk assets or high-risk trading strategies presented by each trading desk that relies on the exemptions contained in §§ . , and . through . , which must take into account potential or actual exposure to:A. Assets whose values cannot be externally priced or, where valuation is reliant on pricing models, whose model inputs cannot be externally validated;B. Assets whose changes in value cannot be adequately mitigated by effective hedging;C. New products with rapid growth, including those that do not have a market history;D. Assets or strategies that include significant embedded leverage;E. Assets or strategies that have demonstrated significant historical volatility;F. Assets or strategies for which the application of capital and liquidity standards would not adequately account for the risk; andG. Assets or strategies that result in large and significant concentrations to sectors, risk factors, or counterparties;iv. Establish responsibility for compliance with the reporting and recordkeeping requirements of subpart B and § . ; andv. Establish policies for monitoring and prohibiting potential or actual material conflicts of interest between the banking entity and its clients, customers, or counterparties. . Remediation of violations. The banking entity’s compliance program must be reasonably designed and established to effectively monitor and identify for further analysis any trading activity that may indicate potential violations of section of the BHC Act and this part and to prevent actual violations of section of the BHC Act and this part. The compliance program must describe procedures for identifying and remedying violations of section of the BHC Act and this part, and must include, at a minimum, a requirement to promptly document, address and remedy any violation of section of the BHC Act or this part, and document all proposed and actual remediation efforts. The compliance program must include specific written policies and procedures that are reasonably designed to assess the extent to which any activity indicates that modification to the banking entity’s compliance program is warranted and to ensure that appropriate modifications are implemented. The written policies and procedures must provide for prompt notification to appropriate management, including senior management and the board of directors, of any material weakness or significant deficiencies in the design or implementation of the compliance program of the banking entity.b. Covered Fund Activities or Investments. A banking entity must establish, maintain and enforce a compliance program that includes written policies and procedures that are appropriate for the types, size, complexity and risks of the covered fund and related activities conducted and investments made, by the banking entity. . Identification of covered funds. The banking entity’s compliance program must provide a process, which must include appropriate management review and independent testing, for identifying and documenting covered funds that each unit within the banking entity’s organization sponsors or organizes and offers, and covered funds in which each such unit invests. In addition to the documentation requirements for covered funds, as specified under § . , the documentation must include information that identifies all pools that the banking entity sponsors or has an interest in and the type of exemption from the Commodity Exchange Act (whether or not the pool relies on section . of the regulations under the Commodity Exchange Act), and the amount of ownership interest the banking entity has in those pools. . Identification of covered fund activities and investments. The banking entity’s compliance program must identify, document and map each unit within the organization that is permitted to acquire or hold an interest in any covered fund or sponsor any covered fund and map each unit to the division, business line, or other organizational structure that will be responsible for managing and overseeing that unit’s activities and investments. . Explanation of compliance. The banking entity’s compliance program must explain how:i. The banking entity monitors for and prohibits potential or actual material conflicts of interest between the banking entity and its clients, customers, or counterparties related to its covered fund activities and investments;ii. The banking entity monitors for and prohibits potential or actual transactions or activities that may threaten the safety and soundness of the banking entity related to its covered fund activities and investments; andiii. The banking entity monitors for and prohibits potential or actual material exposure to high-risk assets or high-risk trading strategies presented by its covered fund activities and investments, taking into account potential or actual exposure to:A. Assets whose values cannot be externally priced or, where valuation is reliant on pricing models, whose model inputs cannot be externally validated;B. Assets whose changes in values cannot be adequately mitigated by effective hedging;C. New products with rapid growth, including those that do not have a market history;D. Assets or strategies that include significant embedded leverage;E. Assets or strategies that have demonstrated significant historical volatility;F. Assets or strategies for which the application of capital and liquidity standards would not adequately account for the risk; andG. Assets or strategies that expose the banking entity to large and significant concentrations with respect to sectors, risk factors, or counterparties; . Description and documentation of covered fund activities and investments. For each organizational unit engaged in covered fund activities and investments, the banking entity’s compliance program must document:i. The covered fund activities and investments that the unit is authorized to conduct;ii. The banking entity’s plan for actively seeking unaffiliated investors to ensure that any investment by the banking entity conforms to the limits contained in § . or registered in compliance with the securities laws and thereby exempt from those limits within the time periods allotted in§ . ; andiii. How it complies with the requirements of subpart C. . Internal Controls. A banking entity must establish, maintain, and enforce internal controls that are reasonably designed to ensure that its covered fund activities or investments comply with the requirements of section of the BHC Act and this part and are appropriate given the limits on risk established by the banking entity. These written internal controls must be reasonably designed and established to effectively monitor and identify for further analysis any covered fund activity or investment that may indicate potential violations of section of the BHC Act or this part. The internal controls must, at a minimum require:i. Monitoring and limiting the banking entity’s individual and aggregate investments in covered funds;ii. Monitoring the amount and timing of seed capital investments for compliance with the limitations under subpart C (including but not limited to the redemption, sale or disposition requirements) of § . , and the effectiveness of efforts to seek unaffiliated investors to ensure compliance with those limits;iii. Calculating the individual and aggregate levels of ownership interests in one or more covered fund required by § . ;iv. Attributing the appropriate instruments to the individual and aggregate ownership interest calculations above;v. Making disclosures to prospective and actual investors in any covered fund organized and offered or sponsored by the banking entity, as provided under § . ;vi Monitoring for and preventing any relationship or transaction between the banking entity and a covered fund that is prohibited under § . , including where the banking entity has been designated as the sponsor, investment manager, investment adviser, or commodity trading advisor to a covered fund by another banking entity; andvii. Appropriate management review and supervision across legal entities of the banking entity to ensure that services and products provided by all affiliated entities comply with the limitation on services and products contained in § . . . Remediation of violations. The banking entity’s compliance program must be reasonably designed and established to effectively monitor and identify for further analysis any covered fund activity or investment that may indicate potential violations of section of the BHC Act or this part and to prevent actual violations of section of the BHC Act and this part. The banking entity’s compliance program must describe procedures for identifying and remedying violations of section of the BHC Act and this part, and must include, at a minimum, a requirement to promptly document, address and remedy any violation of section of the BHC Act or this part, including § . , and document all proposed and actual remediation efforts. The compliance program must include specific written policies and procedures that are reasonably designed to assess the extent to which any activity or investment indicates that modification to the banking entity’s compliance program is warranted and to ensure that appropriate modifications are implemented. The written policies and procedures must provide for prompt notification to appropriate management, including senior management and the board of directors, of any material weakness or significant deficiencies in the design or implementation of the compliance program of the banking entity.III. Responsibility and Accountability for the Compliance Programa. A banking entity must establish, maintain, and enforce a governance and management framework to manage its business and employees with a view to preventing violations of section of the BHC Act and this part. A banking entity must have an appropriate management framework reasonably designed to ensure that: appropriate personnel are responsible and accountable for the effective implementation and enforcement of the compliance program; a clear reporting line with a chain of responsibility is delineated; and the compliance program is reviewed periodically by senior management. The board of directors (or equivalent governance body) and senior management should have the appropriate authority and access to personnel and information within the organizations as well as appropriate resources to conduct their oversight activities effectively. . Corporate governance. The banking entity must adopt a written compliance program approved by the board of directors, an appropriate committee of the board, or equivalent governance body, and senior management. . Management procedures. The banking entity must establish, maintain, and enforce a governance framework that is reasonably designed to achieve compliance with section of the BHC Act and this part, which, at a minimum, provides for:i. The designation of appropriate senior management or committee of senior management with authority to carry out the management responsibilities of the banking entity for each trading desk and for each organizational unit engaged in covered fund activities;ii. Written procedures addressing the management of the activities of the banking entity that are reasonably designed to achieve compliance with section of the BHC Act and this part, including:A. A description of the management system, including the titles, qualifications, and locations of managers and the specific responsibilities of each person with respect to the banking entity’s activities governed by section of the BHC Act and this part; andB. Procedures for determining compensation arrangements for traders engaged in underwriting or market making-related activities under § . or risk-mitigating hedging activities under § . so that such compensation arrangements are designed not to reward or incentivize prohibited proprietary trading and appropriately balance risk and financial results in a manner that does not encourage employees to expose the banking entity to excessive or imprudent risk. . Business line managers. Managers with responsibility for one or more trading desks of the banking entity are accountable for the effective implementation and enforcement of the compliance program with respect to the applicable trading desk . . Board of directors, or similar corporate body, and senior management. The board of directors, or similar corporate body, and senior management are responsible for setting and communicating an appropriate culture of compliance with section of the BHC Act and this part and ensuring that appropriate policies regarding the management of trading activities and covered fund activities or investments are adopted to comply with section of the BHC Act and this part. The board of directors or similar corporate body (such as a designated committee of the board or an equivalent governance body) must ensure that senior management is fully capable, qualified, and properly motivated to manage compliance with this part in light of the organization’s business activities and the expectations of the board of directors. The board of directors or similar corporate body must also ensure that senior management has established appropriate incentives and adequate resources to support compliance with this part, including the implementation of a compliance program meeting the requirements of this appendix into management goals and compensation structures across the banking entity. . Senior management. Senior management is responsible for implementing and enforcing the approved compliance program. Senior management must also ensure that effective corrective action is taken when failures in compliance with section of the BHC Act and this part are identified. Senior management and control personnel charged with overseeing compliance with section of the BHC Act and this part should review the compliance program for the banking entity periodically and report to the board, or an appropriate committee thereof, on the effectiveness of the compliance program and compliance matters with a frequency appropriate to the size, scope, and risk profile of the banking entity’s trading activities and covered fund activities or investments, which shall be at least annually. . CEO attestation. Based on a review by the CEO of the banking entity, the CEO of the banking entity must, annually, attest in writing to [Agency] that the banking entity has in place processes to establish, maintain, enforce, review, test and modify the compliance program established under this Appendix and § . of this part in a manner reasonably designed to achieve compliance with section of the BHC Act and this part. In the case of a U.S. branch or agency of a foreign banking entity, the attestation may be provided for the entire U.S. operations of the foreign banking entity by the senior management officer of the United States operations of the foreign banking entity who is located in the United States.IV. Independent Testinga. Independent testing must occur with a frequency appropriate to the size, scope, and risk profile of the banking entity’s trading and covered fund activities or investments, which shall be at least annually. This independent testing must include an evaluation of: . The overall adequacy and effectiveness of the banking entity’s compliance program, including an analysis of the extent to which the program contains all the required elements of this appendix; . The effectiveness of the banking entity’s internal controls, including an analysis and documentation of instances in which such internal controls have been breached, and how such breaches were addressed and resolved; and . The effectiveness of the banking entity’s management procedures.b. A banking entity must ensure that independent testing regarding the effectiveness of the banking entity’s compliance program is conducted by a qualified independent party, such as the banking entity’s internal audit department, compliance personnel or risk managers independent of the organizational unit being tested, outside auditors, consultants, or other qualified independent parties. A banking entity must promptly take appropriate action to remedy any significant deficiencies or material weaknesses in its compliance program and to terminate any violations of section of the BHC Act or this part.V. TrainingBanking entities must provide adequate training to personnel and managers of the banking entity engaged in activities or investments governed by section of the BHC Act or this part, as well as other appropriate supervisory, risk, independent testing, and audit personnel, in order to effectively implement and enforce the compliance program. This training should occur with a frequency appropriate to the size and the risk profile of the banking entity’s trading activities and covered fund activities or investments.VI. RecordkeepingBanking entities must create and retain records sufficient to demonstrate compliance and support the operations and effectiveness of the compliance program. A banking entity must retain these records for a period that is no less than years or such longer period as required by [Agency] in a form that allows it to promptly produce such records to [Agency] on request.End of Common Rule | FALSE |
| 4697 List of Subjects12 CFR Part 44Banks, Banking, Capital Compensation, Credit,… | List of Subjects CFR Part Banks, Banking, Capital Compensation, Credit, Derivatives, Government securities, Insurance, Investments, National banks, Federal savings associations, Federal branches and agencies, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees CFR Part Administrative practice and procedure, Banks and banking, Capital, Compensation, Conflict of interests, Credit, Derivatives, Foreign banking, Government securities, Holding companies, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, Trusts and trustees. CFR Part Banks, Banking, Capital, Compensation, Conflicts of interest, Credit, Derivatives, Government securities, Insurance, Insurance companies, Investments, Penalties, Reporting and recordkeeping requirements, Risk, Risk retention, Securities, State nonmember banks, State savings associations, Trusts and trustees. CFR Part Banks, Brokers, Dealers, Investment advisers, Recordkeeping, Reporting, Securities. | FALSE |
| 4701 For the reasons stated in the Common Preamble, the Office of the Comptrolle… | For the reasons stated in the Common Preamble, the Office of the Comptroller of the Currency hereby amends chapter I of Title , Code of Federal Regulations as follows: | FALSE |
| 4702 PART 44—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH… | PART —PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS . The authority for part is added to read as follows:Authority: U.S.C. et seq., U.S.C. , , a, a, , , a, , , a, , , , , , . | FALSE |
| 4703 2. Part 44 is added as set forth at the end of the Common Preamble…. | . Part is added as set forth at the end of the Common Preamble. | FALSE |
| 4704 3. Part 44 is amended by:a. Removing “[Agency]” wherever it appears and add… | . Part is amended by:a. Removing “[Agency]” wherever it appears and adding in its place “the OCC”; andb. Removing “the [Agency]” wherever it appears and adding in its place “the OCC”. . Section . is revised to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part is issued by the OCC under section of the Bank Holding Company Act of , as amended ( U.S.C. ). Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and on investments in or relationships with covered funds by certain banking entities, including national banks, Federal branches and agencies of foreign banks, Federal savings associations, and certain subsidiaries thereof. This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and on investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to banking entities for which the OCC is authorized to issue regulations under section of the Bank Holding Company Act ( U.S.C. ) and take actions under section of that Act ( U.S.C. ). These include national banks, Federal branches and Federal agencies of foreign banks, Federal savings associations, Federal savings banks, and any of their respective subsidiaries (except a subsidiary for which there is a different primary financial regulatory agency, as that term is defined in this part). Relationship to other authorities. Except as otherwise provided under section of the Bank Holding Company Act or this part, and notwithstanding any other provision of law, the prohibitions and restrictions under section of the Bank Holding Company Act and this part shall apply to the activities and investments of a banking entity identified in paragraph of this section, even if such activities and investments are authorized for the banking entity under other applicable provisions of law. Preservation of authority. Nothing in this part limits in any way the authority of the OCC to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity, investment, or relationship covered under section of the Bank Holding Company Act or this part, or additional penalties for violation of this part provided under any other applicable provision of law. | FALSE |
| 4707 For the reasons set forth in the Supplementary Information, the Board of Go… | For the reasons set forth in the Supplementary Information, the Board of Governors of the Federal Reserve System is adding the text of the common rule as set forth at the end of the SUPPLEMENTARY INFORMATION as Part to CFR Chapter II as follows: | FALSE |
| 4708 PART 248—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | PART —PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS (Regulation VV) . The authority for part is added to read as follows:Authority: U.S.C. , U.S.C. et seq., U.S.C. , U.S.C. et seq., and U.S.C. et seq. | FALSE |
| 4709 6. Part 248 is added as set forth at the end of the Common Preamble…. | . Part is added as set forth at the end of the Common Preamble. | FALSE |
| 4710 7. Part 248 is amended by removing “[Agency]” wherever it appears and addin… | . Part is amended by removing “[Agency]” wherever it appears and adding in its place “the Board.” | FALSE |
| 4711 8. Part 248 is amended by removing “the [Agency]” wherever it appears and a… | . Part is amended by removing “the [Agency]” wherever it appears and adding in its place “the Board.” | FALSE |
| 4712 9. Section 248.1 is revised to read as follows:§ 248.1 Authority, purpose, … | . Section . is revised to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part (Regulation VV) is issued by the Board under section of the Bank Holding Company Act of , as amended ( U.S.C. ), as well as under the Federal Reserve Act, as amended ( U.S.C. et seq.); section of the Federal Deposit Insurance Act, as amended ( U.S.C. ); the Bank Holding Company Act of , as amended ( U.S.C. et seq.); and the International Banking Act of , as amended ( U.S.C. et seq.). Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and on investments in or relationships with covered funds by certain banking entities, including state member banks, bank holding companies, savings and loan holding companies, other companies that control an insured depository institution, foreign banking organizations, and certain subsidiaries thereof. This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and on investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to banking entities for which the Board is authorized to issue regulations under section of the Bank Holding Company Act ( U.S.C. ) and take actions under section of that Act ( U.S.C. ). These include any state bank that is a member of the Federal Reserve System, any company that controls an insured depository institution (including a bank holding company and savings and loan holding company), any company that is treated as a bank holding company for purposes of section of the International Banking Act ( U.S.C. ), and any subsidiary of the foregoing other than a subsidiary for which the OCC, FDIC, CFTC, or SEC is the primary financial regulatory agency (as defined in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of ( U.S.C. ( )). Relationship to other authorities. Except as otherwise provided under section of the BHC Act or this part, and notwithstanding any other provision of law, the prohibitions and restrictions under section of BHC Act and this part shall apply to the activities of a banking entity, even if such activities are authorized for the banking entity under other applicable provisions of law. Preservation of authority. Nothing in this part limits in any way the authority of the Board to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity, investment, or relationship covered under section of the Bank Holding Company Act or this part, or additional penalties for violation of this part provided under any other applicable provision of law. | FALSE |
| 4715 For the reasons set forth in the Supplementary Information, the Federal Dep… | For the reasons set forth in the Supplementary Information, the Federal Deposit Insurance Corporation is adding the text of the common rule as set forth at the end of the Supplementary Information as Part to chapter III of Title , Code of Federal Regulations, modified as follows: | FALSE |
| 4716 PART 351—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | PART —PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS . The authority for part is added to read as follows:Authority: U.S.C. ; et seq.; et seq.; and . | FALSE |
| 4717 11. Part 351 is added as set forth at the end of the Common Preamble…. | . Part is added as set forth at the end of the Common Preamble. | FALSE |
| 4718 12. Part 351 is amended by:a. Removing “[Agency]” wherever it appears and a… | . Part is amended by:a. Removing “[Agency]” wherever it appears and adding in its place “the FDIC;” andb. Removing “the [Agency]” wherever it appears and adding in its place “the FDIC.” | FALSE |
| 4719 13. Section 351.1 is revised to read as follows:§ 351.1 Authority, purpose,… | . Section . is revised to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part is issued by the FDIC under section of the Bank Holding Company Act of , as amended ( U.S.C. ). Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities, including any insured depository institution as defined in section of the Federal Deposit Insurance Act ( U.S.C. ) and certain subsidiaries thereof for which the FDIC is the appropriate Federal banking agency as defined in section of the Federal Deposit Insurance Act ( U.S.C. ). This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to insured depository institutions for which the FDIC is the appropriate Federal banking agency, as defined in section of the Federal Deposit Insurance Act, and certain subsidiaries of the foregoing. Relationship to other authorities. Except as otherwise provided in under section of the Bank Holding Company Act, and notwithstanding any other provision of law, the prohibitions and restrictions under section of Bank Holding Company Act shall apply to the activities and investments of a banking entity, even if such activities and investments are authorized for a banking entity under other applicable provisions of law. Preservation of authority. Nothing in this part limits in any way the authority of the FDIC to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity, investment, or relationship covered under section of the Bank Holding Company Act or this part, or additional penalties for violation of this part provided under any other applicable provision of law. | FALSE |
| 4722 For the reasons stated in the Common Preamble, the Securities and Exchange … | For the reasons stated in the Common Preamble, the Securities and Exchange Commission is adding the text of the common rule as set forth at the end of the Supplementary Information as Part to chapter II of Title , Code of Federal Regulations, modified as follows: | FALSE |
| 4723 PART 255—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | PART —PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH COVERED FUNDS . The authority for part is added to read as follows:Authority: U.S.C. . | FALSE |
| 4724 15. Part 255 is added as set forth at the end of the Common Preamble…. | . Part is added as set forth at the end of the Common Preamble. | FALSE |
| 4725 16. Part 255 is amended by:a. Removing “[Agency]” wherever it appears and a… | . Part is amended by:a. Removing “[Agency]” wherever it appears and adding in its place “the SEC;” andb. Removing “the [Agency]” wherever it appears and adding in its place “the SEC.” | FALSE |
| 4726 17. Section 255.1 is revised to read as follows:§ 255.1 Authority, purpose,… | . Section . is revised to read as follows:§ . Authority, purpose, scope, and relationship to other authorities. Authority. This part is issued by the SEC under section of the Bank Holding Company Act of , as amended ( U.S.C. ). Purpose. Section of the Bank Holding Company Act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities, including registered broker-dealers, registered investment advisers, and registered security-based swap dealers, among others identified in section ( ) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of ( U.S.C. ( ) ). This part implements section of the Bank Holding Company Act by defining terms used in the statute and related terms, establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds, and explaining the statute’s requirements. Scope. This part implements section of the Bank Holding Company Act with respect to banking entities for which the SEC is the primary financial regulatory agency, as that term is defined in this part. Relationship to other authorities. Except as otherwise provided under section of the Bank Holding Company Act, and notwithstanding any other provision of law, the prohibitions and restrictions under section of Bank Holding Company Act shall apply to the activities and investments of a banking entity identified in paragraph of this section, even if such activities and investments are authorized for the banking entity under other applicable provisions of law. Preservation of authority. Nothing in this part limits in any way the authority of the SEC to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity, investment, or relationship covered under section of the Bank Holding Company Act or this part, or additional penalties for violation of this part provided under any other applicable provision of law. | FALSE |
| 4727 Dated: December 10, 2013.Thomas J. Curry,Comptroller of the Currency.By ord… | Dated: December , .Thomas J. Curry,Comptroller of the Currency.By order of the Board of Governors of the Federal Reserve System, December , .Robert deV. Frierson,Secretary of the Board.By order of the Board of Directors.Dated at Washington, DC this th day of December, .Federal Deposit Insurance Corporation.Robert E. Feldman,Executive SecretaryBy the Securities and Exchange Commission.Dated: December , .Elizabeth M. Murphy,Secretary. | FALSE |
# tengrams
pr10 <- pr %>% unnest_tokens(tengram, text, token = "ngrams", n = 10) %>% filter(!is.na(tengram))
fr10 <- fr %>% unnest_tokens(tengram, text, token = "ngrams", n = 10) %>% filter(!is.na(tengram))What changed?
A straightforward method is a 10-gram moving window; detecting 10-word (or longer) phrases from a Proposed Rule are left unchanged in the Final Rule. 10-word phrases from the Proposed Rule that do not appear Final Rule may have been cut or merely changed slightly. Likewise, 10-word phrases from the Final Rule that do not appear in the Proposed Rule may reflect minor edits or entirely new text.
Pros:
- straightforward and easy to explain
- can be extremely sensitive to moderately sensitive depending on how texts are cleaned
- computationally cheap
Cons:
- less precise than more computationally-intense methods like Smith-Waterman
Proposed rule text that was cut or changed in the Final Rule
# rule text without preamble
frr10 <- filter(fr10, !preamble)
prr10 <- filter(pr10, !preamble)
prr10 %<>%
mutate(new = !tengram %in% frr10$tengram,
word1 = str_extract(tengram, "\\w+") )
prr10 %<>%
group_by(id) %>%
# mark transitions from new to new or new to new text
mutate(trans = ifelse(new & !lead(new) | !new & lead(new), T, F)) %>%
# if old, the next 9 are also old
mutate(fix = reduce(map(1:9, ~ lag(trans, ., 0)), `+`)) %>%
mutate(new = ifelse(fix>0 & new == T, F, new)) %>%
# add elipses after transition words
mutate(word1 = ifelse(trans, str_c(word1, "..."), word1))
prr10 %<>%
# collapse words
group_by(new, id) %>%
summarise(word_count = n(),
text = paste(word1, collapse = " "))
# counts per section
prr10 %>%
select(-text) %>%
spread(key = new, value = word_count) %>%
rename(`Words from phrases that were also in the Final Rule` = `FALSE`,
`Words not from phrases that were also in the Final Rule` = `TRUE`) %>%
kablebox()| id | Words from phrases that were also in the Final Rule | Words not from phrases that were also in the Final Rule |
|---|---|---|
| 1632 PART [ ]—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | 9779 | 17661 |
| 1633 List of Subjects in 12 CFR Part 44Banks, Banking, Compensation, Credit, Der… | 3 | 17 |
| 1635 For the reasons stated in the Common Preamble, the Office of the Comptrolle… | 17 | 3 |
| 1636 PART 44—PROPRIETARY TRADING AND CERTAIN INTEREST IN AND RELATIONSHIPS WITH … | 256 | 137 |
| 1637 List of Subjects in 12 CFR Part 248Administrative practice and procedure, B… | 29 | 4 |
| 1640 For the reasons set forth in the Supplementary Information, the Board of Go… | 33 | 3 |
| 1641 PART 248—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS (REGULATI… | 752 | 2178 |
| 1642 List of Subjects in 12 CFR Part 351Banks, banking, Capital, Compensation, C… | 17 | 13 |
| 1644 For the reasons set forth in the Supplementary Information, the Federal Dep… | 35 | 3 |
| 1645 PART 351—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS13. The au… | 249 | 74 |
| 1646 List of Subjects in 17 CFR Part 255Banks, Brokers, Dealers, Investment advi… | 1 | 4 |
| 1648 For the reasons set forth in the Supplementary Information, the Securities … | 31 | 7 |
| 1649 PART 255—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS18. The au… | 342 | 233 |
prr10 %>%
ggplot() +
aes(x = id, y = word_count, fill = new) +
geom_col() +
coord_flip() +
labs(fill = "Cut or Changed in Final Rule",
x = "",
"Number of words") +
facet_wrap("id", scales = "free", ncol = 1) +
theme_minimal() +
theme(axis.text.y = element_blank(),
panel.grid.major.y = element_blank(),
strip.text = element_text(hjust = 0),
legend.position = "top") 
# look at a section
prr10 %>%
#slice(1) %>%
ungroup() %>%
select(-word_count) %>%
spread(key = new, value = text) %>%
rename(`Words from phrases that were also in the Final Rule` = `FALSE`,
`Words not from phrases that were also in the Final Rule` = `TRUE`) %>%
kablebox()| id | Words from phrases that were also in the Final Rule | Words not from phrases that were also in the Final Rule |
|---|---|---|
| 1632 PART [ ]—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | part proprietary trading and certain interests in and relationships with covered fundssubpart a authority and definitionssec authority purpose scope and relationship to other authorities reserved definitions b proprietary trading prohibition on proprietary trading permitted underwriting and market making related activities permitted… risk mitigating hedging activities other permitted proprietary trading activities reserved subpart c covered fund activities and investments prohibition on acquiring or retaining an ownership interest in and having certain… relationships with a covered fund permitted organizing and offering a covered fund permitted investment in a… covered fund other permitted covered fund activities and investments covered fund activities and investments limitations on relationships with a covered fund other limitations… on permitted covered fund activities and investments… reserved… reserved subpart d compliance program requirement violations program for a… to part reporting and recordkeeping requirements for covered trading a authority and definitions authority purpose scope and relationship to other authorities reserved definitions otherwise specified for purposes of this part affiliate… has the same meaning as in section of the applicable accounting standards means u generally accepted accounting… principles or such other accounting standards applicable to a banking entity uses in the ordinary course… of its business in preparing its consolidated financial statements bank holding company… has the same meaning as in section of the any company that is treated as a bank holding company for purposes of… section of the international banking act of u and… any… affiliate or subsidiary of any entity described in paragraphs board means… the board of governors of the federal reserve system any contract to… buy purchase or otherwise acquire… for security futures products such terms include any contract agreement or transaction for future delivery with respect to a commodity future such terms include any contract agreement or transaction for future delivery with respect to a derivative such terms include the execution termination prior to its scheduled maturity date assignment exchange or similar transfer or conveyance of or extinguishing of rights or… obligations under a derivative as the context may require depository institution has the same meaning as in… section of the federal deposit insurance act u… derivative means any swap as that term is defined in section a of the commodity exchange act u a or security based swap as that term is… defined in section of the exchange act u c section of the dodd… frank wall street reform and consumer protection act u commodity for deferred shipment… or delivery that is intended to be physically settled… any foreign exchange forward as that term is defined in section a of the commodity exchange act u a or foreign exchange swap as that term is defined in… section a of the commodity exchange act u a… any agreement contract or transaction in foreign currency described in section of… the commodity exchange act u any agreement contract or in a commodity other than foreign currency described… in section of the commodity exchange act u and… any transaction authorized… under section of the commodity exchange act u or a derivative does not include any consumer commercial or other agreement contract or transaction that the cftc and sec have further defined by joint regulation interpretation guidance or other action as not within the definition of swap as that term is defined in section a of the commodity exchange act u a or security based swap as that term is… defined in section of the exchange act u c… any identified banking product as defined in section of the legal certainty for bank products act of u that… is subject to section of that act u a… exchange act means… the securities exchange act of u a et seq… federal banking agencies means the board the… office of the comptroller of the currency and the insured depository institution has the same meaning as in section of the… federal deposit insurance act u but does not include insured depository institution that is described in section of the bhc act u loan means any loan… lease extension of credit or secured or unsecured receivable qualifying foreign banking organization means… a foreign banking organization that qualifies as such under under… the laws of the united states or any state or sec means the securities and exchange commission sale and sell each include any contract to sell or otherwise dispose of for security futures products such terms include any contract agreement or transaction for future delivery with respect to a commodity future such terms include any contract agreement or transaction for future delivery with respect to a derivative such terms include the execution termination prior to its scheduled maturity date assignment exchange or similar transfer or conveyance of or extinguishing of rights or obligations under a derivative as the context may require security has the meaning specified… in section of the exchange act u c… security future has the meaning… specified in section of the exchange act u c separate account means… an account established and maintained by an insurance company by… a state insurance regulator or a foreign insurance regulator… under which income gains and losses whether or not realized from assets allocated to such account are in accordance with the applicable contract credited to or charged against such account without regard to… other income gains or losses of the insurance company subsidiary… has the same meaning as in section of the subpart b proprietary trading prohibition on proprietary trading… prohibition except as otherwise provided in this subpart a proprietary trading means… engaging as principal for the trading account of the banking entity… in any purchase or sale of one or more trading account trading… account means any account that is used by a principally for the purpose of short term resale benefitting from actual or expected short term price movements realizing short… term arbitrage profits or hedging one or more positions calculates risk… based capital ratios under the market risk capital rule as that term is… defined in section of the exchange act u c engaged in the business of a dealer swap dealer or security based swap dealer… outside of the united states to the extent the principally for any… of the purposes described in paragraph of this section under a… repurchase or reverse repurchase agreement pursuant to which the banking entity has simultaneously agreed in writing to both purchase and sell a stated asset at stated prices and on… stated dates or on demand with the same counterparty banking entity lends or borrows a security temporarily to or from another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such security and has the right to terminate the transaction and to recall… the loaned security on terms agreed by the parties in… accordance with a documented liquidity management plan of the contemplated and authorized by the plan be principally… for the purpose of managing the liquidity of the banking entity and not for the purpose of short term resale benefitting from actual or expected short term price movements realizing short term arbitrage profits or… hedging a position taken for such short term purposes for… liquidity management purposes be highly liquid and limited to expect to give rise to appreciable profits or… losses as a result of short term price movements for such purposes to an amount that is consistent with the banking entity… near term funding needs including deviations from normal operations… as estimated… and documented pursuant to methods specified in the plan is consistent with agency… s supervisory requirements guidance and expectations regarding liquidity management a derivatives clearing organization registered under section… b of the commodity exchange act u a or a contract of sale of a commodity for future delivery or option on a… contract of sale of a commodity for future delivery definition of other terms… related to proprietary trading for purposes of this subpart… commodity has the same meaning as in section a of the commodity exchange act u a except that a commodity does not include any security contract of sale of a commodity for future delivery means a contract of sale as that term is defined in section a of the commodity exchange act u a for future delivery as that term is defined in… section a of the commodity exchange act u a has the same meaning… as in section of the exchange act u c other than the united states that is engaged in the supervision of… insurance companies under foreign insurance law general account means has the same meaning… as in section of the exchange act u c the… market risk capital rule that is applicable to the banking… entity that is affiliated with a bank holding company banking entity… to which a market risk capital rule is applicable… the market risk capital rule… that is applicable to the affiliated bank holding company has the same meaning… as… in section… of the exchange act u c security based swap… has the meaning… specified in section of the exchange act u c in… section a of the commodity exchange act u a or a similar official or agency of a state that is engaged in… the supervision of insurance companies under state insurance law… permitted underwriting and market making… related activities underwriting activities permitted underwriting activities the prohibition contained in does… not apply to the purchase or sale of a of… paragraph of this section a purchase or sale of internal compliance program… required by subpart d of this part that is banking entity compliance with the requirements of paragraph of this section… including reasonably designed written policies and procedures internal controls registered… with the sec under section of the exchange act position are designed not to exceed the reasonably… expected near term demands of clients customers or counterparties a distribution of securities means an offering of securities whether… or not subject to registration under the securities act underwriter… means a person who has agreed with an issuer engage in… a distribution of securities for or on behalf of manage… a distribution of securities for or on behalf of in a distribution of such securities for or… on behalf of the issuer or selling security holder… market making… related activities permitted market making related activities the prohibition contained in does… not apply to the purchase or sale of a of… paragraph of this section a purchase or sale of banking entity compliance with the requirements of paragraph of this section… including reasonably designed written policies and procedures internal controls designed not to exceed the reasonably… expected near term demands of clients customers or counterparties registered… with the sec under section of the exchange act registered with… the sec under section f of the exchange act of… paragraph of this section a purchase or sale of banking entity in connection with and related… to individual or aggregated positions contracts or other holdings permitted risk mitigating… hedging activities permitted risk mitigating hedging activities the prohibition contained in does… not apply to the purchase or sale of a in connection with and related to… individual or aggregated positions contracts or other holdings of banking entity in connection with and… related to such positions contracts or other holdings requirements of… paragraph of this section a purchase or sale of in connection with and related to… individual or aggregated positions contracts or other holdings of 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 banking entity compliance with the requirements of paragraph of this section… including reasonably designed written policies and procedures regarding the is made in… accordance with the written policies procedures and internal controls risks including market risk counterparty or other credit… risk currency or foreign exchange risk interest rate… risk basis risk or… similar risks arising… in connection with and related to… individual or aggregated positions contracts or other holdings of based upon the… facts and circumstances of the underlying and hedging positions does not… give rise at the inception of the hedge to the… individual or aggregated positions contracts or other holdings of is… subject to continuing review monitoring and management by the banking entity that is consistent with the written hedging… policies and procedures required under paragraph of this section based upon the… facts and circumstances of the underlying and hedging positions positions… contracts or other holdings the risks of which the the… individual or aggregated positions contracts or other holdings of contained in does… not apply to the purchase or sale by a 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 u et seq an… obligation of any state or any political subdivision thereof contained in does… not apply to the purchase or sale of a of… paragraph of this section a purchase or sale of trustee… or in a similar fiduciary capacity for a customer acting… as riskless principal in a transaction in which the banking entity… after receiving an order to purchase or sell a for its own account to offset… a contemporaneous sale to or purchase from the customer 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 contained in does… not apply to the purchase or sale of a the… insurance company or its affiliate purchases or sells the the insurance company 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 the appropriate federal banking agencies after consultation with the financial stability oversight… council and the relevant insurance commissioners of the states… have not jointly determined after notice and comment that a particular law regulation or written guidance described in paragraph of this section is insufficient to protect the… safety and soundness of the covered banking entity or contained in does… not apply to the purchase or sale of a 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 pursuant to paragraph or of section of… the bhc act and iii the purchase or sale pursuant… to paragraph or of section of the bhc act banking entity… that is a foreign banking organization the banking entity banking… entity that is not a foreign banking organization the meets at least… two of the following requirements total assets of the banking entity held outside… of the united states exceed total assets of the banking entity held in the united… states 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… 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 a purchase or sale is not organized under the laws of the… united states or of one or more states ii has together… with its affiliates and subsidiaries trading assets and liabilities… the average… gross sum of which on a worldwide consolidated basis as measured as of the last… day of each of the four prior calendar quarters limitations on permitted proprietary trading activities no transaction class of transactions or activity may be deemed permissible under through if the transaction class of transactions or activity would involve or… result in a material conflict of interest between the banking entity and its clients customers or counterparties result… directly or indirectly in a material exposure by the banking entity to a high risk asset or a high risk trading strategy or pose… a threat to… the… safety and soundness of the covered… banking entity or to the financial stability of the united states definition of material conflict of interest 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 interests being materially adverse to the interests of its client customer or counterparty with… respect to such transaction class of transactions or activity prior to effecting the specific transaction or class or… type of transactions or engaging in the specific activity 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 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 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 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 establishment of information barriers the conflict of interest may involve or result in a materially adverse effect on a client customer or counterparty definition of high risk asset and high risk trading strategy for purposes of this section high risk asset means an asset or group… of related assets that would if held by a banking… entity would incur a substantial financial loss or would high risk trading strategy means a… trading strategy that would if engaged in by a banking… entity would incur a substantial financial loss or would reserved subpart c covered funds activities and investments prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund… prohibition 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 covered fund means an issuer that would be an investment company as defined in the investment company act of u a et seq but for… section or of that act u a or ii defined in… section a of the commodity exchange act u a in… section of the investment company act of u a of the… united states or of one or more states and the… appropriate federal banking agencies the sec and the cftc ownership interest ownership… interest means any equity partnership or other similar interest so long as the sole purpose… and effect of the interest is to allow the employee thereof to share in the… profits of the covered fund as performance compensation for employee thereof may be obligated under the terms of such interest to return profits previously received… all such profit once allocated is distributed to the employee thereof… promptly after being earned or if not so distributed as a general… partner managing member trustee or commodity pool operator of 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 trustee for purposes of a trustee does not include a trustee that does not exercise investment… discretion with respect to a covered fund including a in paragraph of this section or that… possesses authority and discretion to manage and control the a… trustee of such covered fund permitted organizing and offering 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 the provides bona fide trust fiduciary investment advisory or commodity trading advisory services 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 intends to provide advisory or similar services to… its customers through organizing and offering such fund the not acquire or retain an ownership… interest in the covered fund except as permitted under 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 the covered fund for corporate marketing promotional or other purposes does not share the same name… or a variation of the same name with the does not use the word bank… in its name no director or employee of the takes or retains an ownership interest in the covered… fund except for any director or employee of the banking entity clearly and conspicuously discloses in writing to any prospective and actual investor in the covered fund such as through disclosure in the covered fund offering documents that any losses in such covered fund will be borne solely by investors in the covered fund and… not by the covered banking entity and its affiliates losses in such covered fund will be limited to losses attributable to the… ownership interests in the covered fund held by the that such investor should read the… fund offering documents before investing in the covered fund 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 employees in sponsoring… or providing any services to the covered fund and… complies with any additional rules of the appropriate federal banking agencies the sec or the cftc as provided in section 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 permitted investment in a covered fund… authority and limitations on permitted investments in covered funds fund and providing the fund with sufficient initial equity for… investment to permit the fund to attract unaffiliated investors of this section or ii de minimis investment… making and retaining an investment in the covered fund must actively seek unaffiliated investors to reduce through redemption sale dilution or other methods… the aggregate amount of all ownership interests of the to… the amount permitted in paragraph of this section and later than year after the date of establishment of the fund or such longer period as may be provided… by the board pursuant to paragraph of this section may… not exceed percent of the tier capital of the the amount and value of a banking entity… permitted investment in any single covered fund shall include for purposes of… determining whether an investment in a single covered fund without… regard to committed funds not yet called for investment banking entity in a covered fund divided by… the total number of ownership interests held by all in… the same manner and according to the same standards aggregate… permitted investments in all covered funds for purposes of of this section… the aggregate value of all ownership interests held by of this section entities that are… required to hold and report tier capital if a banking entity… is required to calculate and report tier capital the banking entity tier capital… shall be equal to the amount of tier capital banking entity as of the last day of… the most recent calendar quarter that has ended as primary financial regulatory agency as defined in section of the… dodd frank wall street reform and consumer protection act banking entity is… not required to calculate and report tier capital the banking entity tier capital shall be determined… to be equal to in the case of a banking entity that is controlled directly or indirectly by… a depository institution that calculates and reports tier capital… the amount… of tier capital reported by such controlling depository institution banking entity that is not controlled directly or indirectly by a depository institution that calculates and… reports tier capital 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… the amount of tier capital reported by the top tier affiliate of such… covered banking entity that calculates and reports tier capital paragraph of this section and 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… 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 shall be calculated… as of the last day of each calendar quarter… capital treatment for a permitted… investment in a covered fund for purposes of calculating from the banking entity… tier capital as determined under paragraph of this section… extension of time… to divest an ownership interest upon application by a of this section for up to 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 be submitted to the board at least days prior to the expiration of the applicable time period ii provide the reasons for application including information that addresses the factors… in paragraph of this section and iii explain the banking entity plan for reducing the permitted investment in a covered fund through redemption sale dilution or other methods as required in paragraph of this section factors governing board determinations in reviewing any application under paragraph of this section the board may consider all the facts and circumstances related to the permitted investment… in a covered fund including whether the investment would banking entity and its clients customers or counterparties result… directly or indirectly in a material exposure by the banking entity… to high risk assets or high risk trading strategies… pose… a threat to… the… safety and soundness of the covered banking entity or… pose a… threat to the financial stability of the united states the date on which the covered fund is expected to… have attracted sufficient investments from investors unaffiliated with the banking entity to… comply with the limitations in paragraph of this section… 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 banking entity of divesting… or disposing of the investment within the applicable period the divestiture or conformance of the investment would involve or… result in a material conflict of interest between the clients… customers or counterparties to which it owes a duty banking entity 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… and… ix any other factor that the board believes appropriate 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 banking… entity for an extension under paragraph of this section… authority to impose restrictions on activities or investment during any extension period the board may impose such conditions on any extension approved under paragraph of this section as the board determines are necessary or… appropriate… to protect the safety and soundness of the covered 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 of the bhc act 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 banking entity for an extension under paragraph of this… section other permitted covered fund activities and investments permitted acquiring or retaining an ownership interest… in or acting as sponsor to a covered fund as defined in… section of the small business investment act of u designed primarily to promote the public welfare of the type permitted under paragraph of section of the revised statutes of the united states u including the welfare of low and moderate income communities or… families such as providing housing services or jobs or building or certified historic structure as such terms are defined in section of the internal revenue code… of or a similar state historic tax credit program… permitted risk mitigating… hedging activities the prohibition contained in… does not apply with… respect to an ownership interest in a covered fund the acquisition… or retention of the ownership interest is made in acquiring or retaining… an ownership interest in a covered fund by a paragraph of this section… including reasonably designed written policies and procedures regarding the is made in… accordance with the written policies procedures and internal controls covered fund does not… give rise at the inception of the hedge to and is… subject to continuing review monitoring and management by the based upon the… facts and circumstances of the underlying and hedging positions certain permitted covered fund activities and investments… outside of… the united states… the prohibition contained in… does not apply to the acquisition or retention of any ownership interest in… or the sponsorship of a covered fund by a 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 pursuant to paragraph or of section… of the bhc act iii no ownership interest in covered fund is offered for sale or sold to a… resident of the united states and iv the activity pursuant… to paragraph or of section of the bhc act banking… entity that is not a foreign banking organization the meets at least… two of the following requirements total assets of the banking entity held outside… of the united states exceed total assets of the banking entity held in the united… states 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… 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 is not organized under the laws of the… united states or of one or more states ii covered fund is offered for sale… or sold to a resident of the united states ownership interest in or acting… as sponsor to a covered fund that is an the investment decisions regarding… the underlying assets or holdings of the separate account in compliance… with applicable supervisory guidance regarding bank owned life insurance requirements of… section g of the exchange act u o and ownership interest… in or acting as sponsor to a covered fund in the ordinary course… of collecting a debt previously contracted in good faith limitations on relationships with a covered fund relationships with a covered fund except… as provided for in paragraph 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 or… that organizes and offers a covered fund pursuant to… 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 a of… the federal reserve act u c as if such banking entity and the affiliate thereof were a member bank and the covered fund were… an affiliate thereof notwithstanding paragraph of this section a banking entity may acquire and retain any ownership interest in… a covered fund in accordance with the requirements… 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 is in… compliance with each of the limitations set forth in… with respect… to a covered fund organized and offered by such thereof… the chief executive officer or equivalent officer of the 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 the board has not determined that such transaction is inconsistent with… the safe and sound operation and condition of the 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… shall be subject to section b of… the federal reserve act u c as if such banking entity were a member bank and such covered fund were an affiliate thereof restrictions on prime brokerage transactions a prime brokerage transaction permitted under paragraph ii of this section shall be subject to section b of the federal reserve act u c… as if the counterparty were an affiliate of the banking entity other limitations on permitted covered fund activities no transaction class of… transactions or activity may be deemed permissible under through if the transaction class of transactions or activity would involve or… result in a material conflict of interest between the banking entity and its clients customers or counterparties result… directly or indirectly in a material exposure by the banking entity to a high risk asset or a high risk trading strategy or pose… a threat to… the safety and soundness of the covered banking… entity or… the financial stability of the united states definition of material conflict of interest 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 interests being materially adverse to the interests of its client customer or counterparty with… respect to such transaction class of transactions or activity prior to effecting the specific transaction or class or… type of transactions or engaging in the specific activity 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 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 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 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 establishment of information barriers the conflict of interest may involve or result in a materially adverse effect on a client customer or counterparty definition of high risk asset and high risk trading strategy for purposes of this section high risk asset means an asset or group… of related assets that would if held by a banking… entity would incur a substantial financial loss or would high risk trading strategy means a… trading strategy that would if engaged in by a banking… entity would incur a substantial financial loss or would reserved… reserved subpart d compliance program requirement violations program for banking entity shall… develop and provide for the continued administration of a… 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 of the bhc act and this part size scope… and complexity of activities and business structure of the the compliance program required by… paragraph of this section at a minimum shall include and activities and investments with… respect to a covered fund subject to subpart c comply with section of the bhc act and this part… a system of internal controls reasonably designed to monitor with section… of the bhc act and this part in the and activities and investments with… respect to a covered fund subject to subpart c and to prevent the occurrence of activities or investments that are prohibited by section of the bhc act and this part a management framework that clearly delineates responsibility and accountability for compliance… with section of the bhc act and this part banking entity or by a qualified outside party training for trading personnel and managers as well as other appropriate personnel… to effectively implement and enforce the compliance program and records sufficient to demonstrate compliance with section… of the bhc act and this part which a banking entity must promptly provide to agency upon request and… retain for a period of no less than years in paragraph of this section… the compliance program required by paragraph of this section has together… with its affiliates and subsidiaries trading assets and liabilities… the average… gross sum of which on a worldwide consolidated basis… as measured as of the last… day of each of the four prior calendar quarters as measured as of the last… day of each of the four prior calendar quarters as measured as of the last… day of each of the four prior calendar quarters banking entity that engages in an activity or makes an investment in violation of… section of the bhc act or this part or… in a manner that functions as an evasion of the requirements of section 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 of the bhc act or this part shall… terminate… the activity and as relevant dispose of the investment banking entity… has engaged in an activity or made an investment terminate… the activity and as relevant dispose of the investment a to… part reporting and recordkeeping requirements for covered trading activitiesi banking entities must satisfy in connection with the… restrictions on proprietary trading set forth in subpart b proprietary trading… restrictions pursuant to this appendix generally applies to a has together… with its affiliates and subsidiaries trading assets and liabilities… the average… gross sum of which on a worldwide consolidated basis as measured as of the last… day of each of the four prior calendar quarters these entities are required to furnish periodic reports to agency regarding a variety of quantitative measurements of their covered trading activities which vary depending on… the scope and size of covered trading activities… and create and maintain records documenting the preparation and… content of these reports the requirements of this appendix banking entities and agency in better understanding… and evaluating the scope type and profile of the trading… activities that warrant further review or examination by the banking entity to verify compliance… with the proprietary trading restrictions iv evaluating whether the engaged in market making related activities subject to are consistent with the requirements governing permitted market making related… activities evaluating whether the covered trading activities of trading that are engaged in permitted trading activity subject to or i 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 of the banking entity to help establish the appropriate frequency and scope of examination by agency of such activities and… vii assessing and addressing the risks associated with the 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 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 of the bhc act and this part and to have… an effective compliance program as required by and appendix to this part the effectiveness of particular quantitative measurements may differ based on the profile of the banking entity businesses… in general and more specifically of the particular trading including types of instruments traded trading activities and strategies and history and experience e 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 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 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 through… that result in a material exposure… to high risk assets or high risk trading strategies be escalated within the banking entity for review… further analysis explanation to agency and remediation where appropriate banking entities in identifying and managing the risks related to their covered trading activities definitionsthe terms used in this appendix have the same meanings as set forth in and in… addition for purposes of this appendix the following definitions period means the period of… time for which a particular quantitative measurement must be reporting and… recordkeeping of quantitative measurementsa scope of required reportinggeneral scope the average… gross sum of which on a worldwide consolidated basis as measured as of the last… day of each of the four prior calendar quarters the average… gross sum of which on a worldwide consolidated basis as measured as of the last… day of each of the four prior calendar quarters banking entity must calculate… any applicable quantitative measurement for each trading day a banking entity… must report each applicable quantitative measurement to agency on requested by agency all… quantitative measurements for any calendar month must be reported banking entity must for any quantitative measurement furnished to agency pursuant to this appendix and create and maintain records documenting the preparation and content of these reports as well as such information as is necessary to permit agency to verify… the accuracy of such reports for a period of for purposes of this appendix value at risk var is the commonly used percentile measurement of the risk of… future financial loss in the value of a given over a specified period of time based on current market conditions for purposes of this appendix stress value at risk stress var is the percentile measurement of the risk of… future financial loss in the value of a given over a specified period of time based… on market conditions during a period of significant financial compute and report var and stress var by employing generally accepted standards and methods of… calculation var should reflect a loss in a trading that is expected to be exceeded less than one percent of the time over a one day period for those banking entities that are subject to regulatory capital requirements imposed… by a federal banking agency var and stress var be computed and reported in a manner that is consistent with… such regulatory capital requirements in cases where a trading does not have a standalone var or… stress var calculation but is part of a larger for which a var or stress var calculation is performed a var… or stress var calculation that includes only the trading be performed consistent with… the var or stress var model and methodology used for purposes of this… appendix risk factor sensitivities are changes in a trading profit and loss that are expected… to occur in the event of a change in report the risk factor sensitivities that… are monitored and managed as part of the trading overall risk management policy the… underlying data and methods used to compute a trading and the internal risk management models employed the number and type of risk factor… sensitivities that are monitored and managed by a trading 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 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 that are sufficiently granular to account for specific credit sectors and… market segments the maturity profile of the positions and and volatility and or correlation sensitivities expressed in a manner that demonstrates any significant non linearities… and the maturity profile of the positions equity positions that differentiate between important equity market sectors and segments… such as a small capitalization equities and international equities and volatility and or correlation sensitivities expressed in a manner that demonstrates any significant… non linearities and the maturity profile of the positions maturities and 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 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 as well as the maturity profile of the banking entity to calculate… sensitivities to a common factor shared by multiple trading so… that the sensitivities can be compared from one trading for purposes of this appendix risk and position limits are the constraints… that define the amount of risk that a trading is permitted to take… at a point in time as defined by the banking entity… for the purposes of risk management of each trading 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 any increase… or decrease in the market value of a trading for purposes of… this appendix comprehensive profit and loss attribution is an identified… as an unexplained portion of the comprehensive profit and aggregate assets and liabilities and the amount of… time that those assets and liabilities have been held inventory… aging should measure the age profile of the trading include two schedules… an asset aging schedule and a liability aging schedule for purposes of this appendix the… customer facing trade ratio is a ratio comparing… the number of transactions involving… a counterparty that is a customer of the trading the number of transactions involving a… counterparty that is not a customer of the trading for purposes of calculating the customer facing trade ratio a counterparty… is considered to be a customer of the trading definitionsthe terms… used in this appendix have the same meanings as are designed not to exceed… the reasonably expected near term demands of clients customers for ensuring and monitoring compliance with the prohibitions… and restrictions on proprietary trading and covered fund activities investments set… forth in section of the bhc act and this potential areas of noncompliance and prevent activities or investments prohibited by or that do not comply… with section of the bhc act and this part the size scope… complexity and risks of the individual activities or investments accountable… for the effective implementation of the compliance program and definitionsthe terms used in this appendix have the same meanings as set forth in and in… addition for purposes of this appendix the following definitions a compliance program reasonably designed to ensure and monitor compliance with the prohibitions… and restrictions on proprietary trading and covered fund activities banking entity… must establish maintain and enforce written policies and procedures unit to… the division business line or other organizational structure that is authorized to conduct including… authorized instruments and products and ii authorized hedging strategies set forth… in section of the bhc act and this part a… description of the supervisory and risk management structure governing including a description of processes for initial and… senior level review of new products and new strategies including an enumeration of material… risks resulting from the activities in which the trading price risks such… as basis volatility and correlation risks as well as regarding… the use of risk mitigating hedging instruments and strategies the level of the… organization at which hedging activity and management will occur the risk… management processes used to control unhedged or residual risks that will be conducted in… reliance on exemptions contained in through including an explanation which exemption is being relied on and how the activity meets… the specific requirements for reliance on the applicable exemption banking entity monitors for and prohibits potential or actual material exposure to high risk assets… or high risk trading strategies presented by each trading assets whose values cannot be externally priced or where valuation is reliant on… pricing models whose model inputs cannot be externally validated… assets whose changes… in values cannot be adequately mitigated by effective hedging… new products with rapid growth… including those that do not have a market history assets or strategies for which the application of capital and… liquidity standards would not adequately account for the risk assets or strategies that result in large… and significant concentrations to sectors risk factors or counterparties banking entity monitors for and prohibits… potential or actual material conflicts of interest between the banking entity monitors for and prohibits potential or actual transactions or activities… that may threaten the safety and soundness of the to promptly document address and remedy any violation of section of the bhc act or this… part and document all proposed and actual remediation efforts banking entity… must establish maintain and enforce written policies and procedures unit to… the division business line or other organizational structure that banking entity monitors for and prohibits… potential or actual material conflicts of interest between the banking… entity and its clients customers or counterparties related to banking entity monitors for and prohibits potential or actual transactions or activities… that may threaten the safety and soundness of the banking entity monitors for and prohibits potential or actual material exposure to high risk… assets or high risk trading strategies presented by each to promptly document address and remedy any violation of section of the bhc act or this… part and document all proposed and actual remediation efforts reasonably designed… to ensure that the trading activity of each trading be reasonably designed and established to… effectively monitor and identify for further analysis any covered… trading activity that may indicate potential violations of section of the bhc act and this part and to prevent actual violations… of section of the bhc act and this part remedying violations of… section of the bhc act and this part the that are reasonably designed to… ensure that trading activity is conducted in conformance with the types and levels… of risks that may be taken by each trading of hedging instruments used hedging… strategies employed and the amount of risk effectively hedged banking… entity must establish and enforce risk limits appropriate for based on probabilistic and non probabilistic measures of potential… loss e value at risk and notional exposure respectively banking entity… must perform robust analysis and quantitative measurement of its trading activities that is reasonably designed… to ensure that the trading activity of each trading monitor and assist in the identification of potential and actual prohibited proprietary trading… activity and prevent the occurrence of prohibited proprietary trading to facilitate compliance with this part additional quantitative measurements specifically tailored to… the particular risks practices and strategies of its trading internal controls and written policies and procedures reasonably designed… to ensure the accuracy and integrity of quantitative measurements compliance with… section of the bhc act and this part which activities escalation to… senior management with oversight responsibilities for the applicable trading timely notification to agency appropriate remedial action e divesting of impermissible positions cessation of impermissible activity disciplinary actions and documentation… of the investigation findings and remedial action taken when has… violated any part of section of the bhc act banking entity must establish maintain and enforce… internal controls that are reasonably designed to ensure that in compliance… with section of the bhc act and this part monitoring the amount and timing… of seed capital investments for compliance with the limitations… including but not… limited to the redemption sale or disposition requirements of… calculating… the individual and aggregate levels of ownership interests in remedying violations… of section of the bhc act and this part… attributing the appropriate instruments… to the individual and aggregate ownership interest calculations above to prospective and actual investors in any… covered fund organized and offered or sponsored by the in compliance… with section of the bhc act and this part monitoring… for and preventing any relationship or transaction between the banking… entity and a covered fund that is prohibited under management framework to manage its business and employees with a view to preventing violations of… section of the bhc act and this part a banking entity must have an appropriate management… framework reasonably designed to ensure that appropriate personnel are responsible and accountable for the effective implementation and enforcement of the compliance program a clear reporting line… with a chain of responsibility is delineated and the for… compliance with section of the bhc act and this that are reasonably designed to achieve compliance with section of the… bhc act and this part which at a minimum with… authority to carry out the management responsibilities of the written… procedures addressing the management of the activities of the banking entity that are reasonably designed to achieve compliance with… section of the bhc act and this part including a description of the management system including the titles qualifications and locations of managers and the… specific responsibilities of each person with respect to the procedures for determining compensation arrangements for traders engaged in underwriting or market making related activities under or risk mitigating hedging activities under so… that such compensation arrangements are designed not to reward line… managers managers with responsibility for one or more trading are accountable for the effective implementation and enforcement of… the compliance program with respect to the applicable trading culture of compliance… with section of the bhc act and this part implementing and enforcing the approved compliance program senior management must also ensure that effective corrective action is taken when failures in compliance with section of the bhc act and this part are identified senior management and control personnel charged with overseeing compliance with… section of the bhc act and this part should… report to the board or an appropriate committee thereof on the effectiveness of the compliance program and compliance matters with a frequency appropriate… to the size scope and risk profile of the trading activities and covered… fund activities or investments which shall be at least in compliance with section of the bhc act and this… part the board of directors or similar corporate… body must ensure that senior management is fully capable qualified and properly motivated to manage compliance with… this part in light of the organization business activities… the board of directors or similar corporate body must… also ensure that senior management has established appropriate incentives… to support compliance with this part including the implementation of a compliance program meeting the requirements of this… appendix into management goals and compensation structures across the is… conducted by a qualified independent party such as the independent testing must occur with a frequency appropriate… to the size scope and risk profile of the trading… and covered fund activities or investments which shall be this independent testing must include an… evaluation of the overall adequacy and effectiveness of the banking entity compliance program including an analysis of the extent to which the program contains all the… required elements of this appendix the effectiveness of the banking entity internal controls including an analysis and documentation of instances in which such internal controls have been breached and how such breaches… were addressed and resolved and the effectiveness of the in order to effectively implement and enforce the compliance program this training should occur with a frequency appropriate… to the size and the risk profile of the entities must create and retain records sufficient to demonstrate compliance and support… the operations and effectiveness of the compliance program a banking entity must retain these records… for a period that is no less than years… in a form that allows it to promptly produce… such records to agency on request of common rule | reporting and recordkeeping requirements applicable to trading activities limitations on permitted proprietary trading activities… of… covered fund activities and investments determined to be permissible internal controls reporting and recordkeeping requirements applicable to… monitoring compliance enforcement termination of activities or investments penalties for violations… activitiesappendix b to part commentary regarding identification of permitted market making related activitiesappendix c to part minimum standards for programmatic compliancesubpart… bhc act u… covered banking entity that agency determines are appropriate that the covered… bhc act means the bank holding company act of u et seq… bhc act u banking entity means any insured depository institution any company that controls an insured depository institution… or of this section other than an affiliate or subsidiary that is a covered fund that is organized offered and held by a banking entity pursuant to and in accordance with the provisions of subpart c of this part including the provisions governing relationships between a covered fund and a banking entity or ii an entity that is controlled by a covered fund described in paragraph of this section… buy and purchase each include… cftc means the commodity futures trading commission commodity exchange act means the commodity exchange act u et seq reserved… and as those terms are further jointly defined by the cftc and sec by joint regulation interpretation guidance or other action in consultation with the board pursuant to… any purchase or sale of a nonfinancial… transactions… ii… federal deposit insurance corporation foreign banking organization has the same meaning as in of the board regulation k cfr… any… nonbank financial company supervised by the board has the meaning specified in section of the financial stability act of u… of the board regulation k cfr resident of the united states means any natural person resident in the united states any partnership corporation or other business entity organized or incorporated… any estate of which any executor or administrator is a resident of the united states any trust of which any trustee beneficiary or if the trust is revocable any settlor is a resident of the united states any agency or branch of a foreign entity located in the united states any discretionary or non discretionary account or similar account other than an estate or trust held by a dealer or fiduciary for the benefit or account of a resident of the united states any discretionary account or similar account other than an estate or trust held by a dealer or fiduciary organized or incorporated in the united states or if an individual a resident of the united states or any person organized or incorporated under the laws of any foreign jurisdiction formed by or for a resident of the united states principally for the purpose of engaging in one or more transactions described in… securities act means the securities act of u a et seq… subject to regulation… aa state means any state territory or possession of the united states and the district of columbia bb… bhc act u… covered banking entity may not engage in proprietary trading definition of proprietary trading and related terms for purposes of this subpart… covered… covered financial positions proprietary trading does not include acting solely as agent broker or custodian for an unaffiliated third party… covered banking entity to acquire or take one or more covered financial positions… described in paragraphs or of this section acquire or take one or more covered financial positions other than positions that are foreign exchange derivatives commodity derivatives or contracts of sale of a commodity for future delivery that are market risk capital rule covered positions if the covered banking entity or any affiliate of the covered banking entity that is a bank holding company… as defined in paragraph of this section or acquire or take one or more covered financial position for any purpose if the covered banking entity is a dealer or municipal securities dealer that is registered with the sec under the exchange act to the extent the position is acquired or taken in connection with the activities of the dealer or municipal securities dealer that require it to be registered under that act a government securities dealer that is registered or that has filed notice with an appropriate regulatory agency… to the extent the position is acquired or taken in connection with the activities of the government securities dealer that require it to be registered or to file notice under that act a swap dealer that is registered with the cftc under the commodity exchange act to the extent the position is acquired or taken in connection with the activities of the swap dealer that require it to be registered under that act a security based swap dealer that is registered with the sec under the exchange act to the extent the position is acquired or taken in connection with the activities of the security based swap dealer that require it to be registered under that act or… position is acquired or taken in connection with the activities of such business ii rebuttable presumption for certain positions an account shall be presumed to be a trading account if it is used to acquire or take a covered financial position other than a covered financial position described in paragraph or of this section that the covered banking entity holds for a period of sixty days or less unless the covered banking entity can demonstrate based on all the facts and circumstances that the covered financial position either individually or as a category was not acquired or taken… iii an account shall not be deemed a trading account for purposes of paragraph of this section to the extent that such account is used to acquire or take a position in one or more covered financial positions that arise… covered… that arise under a transaction in which the covered… for the bona fide purpose of liquidity management and… covered banking entity that specifically contemplates and authorizes the particular instrument to be used for liquidity management purposes its profile with respect to market credit and other risks and the liquidity circumstances in which the particular instrument may or must be used requires that any transaction… covered… requires that any position taken… financial instruments the market credit and other risks of which the covered banking entity does not… limits any position taken for liquidity management purposes together with any other positions taken… and… or that are acquired or taken by a covered banking entity that is… a clearing agency registered with the sec under section a of the exchange act u q in connection with clearing derivatives or securities transactions covered financial position covered financial position means any position including any long short synthetic or other position in a security including an option on a security a derivative including an option on a derivative or… ii a covered financial position does not include any position that is a loan a commodity or foreign exchange or currency… exempted security… foreign insurance regulator means the insurance commission or a similar official or agency of one or more countries… with respect to an insurance company all of the assets of the insurance company that are not legally segregated and allocated to separate accounts under applicable state or foreign law government securities… market risk capital rule covered position means a covered position as that term is defined for purposes of in the case of a covered banking entity that is a bank holding company or insured depository institution… covered banking entity and ii in the case of a covered… other than a covered… market risk capital rule means cfr appendix b cfr appendix e cfr appendix e and cfr appendix c as applicable municipal securities… swap has the meaning specified… state insurance regulator means the insurance commission… on proprietary trading… covered financial position by a covered banking entity that is made in connection with the covered banking entity underwriting activities requirements for purposes… a covered financial position shall be deemed to be made in connection with a covered banking entity underwriting activities only if the covered banking entity has established the… designed to ensure the covered… and independent testing ii the covered financial position is a security iii the purchase or sale is effected solely in connection with a distribution of securities for which the covered banking entity is acting as underwriter iv the covered banking entity is with respect to a purchase or sale effected in connection with a distribution of one or more covered financial positions that are securities other than exempted securities security based swaps commercial paper bankers acceptances or commercial bills a dealer that is… u o or a person that is exempt from registration or excluded from regulation as a dealer thereunder or engaged in the business of a dealer outside of the united states and subject to substantive regulation of such business in the jurisdiction where the business is located with respect to a purchase or sale effected as part of a distribution of one or more covered financial positions that are municipal securities a municipal securities dealer that is registered under section b of the exchange act u o or exempt from registration thereunder or with respect to a purchase or sale effected as part of a distribution of one or more covered financial positions that are government securities a government securities dealer that is registered or that has filed notice under section c of the exchange act u o or exempt from registration thereunder the underwriting activities of the covered banking entity with respect to the covered financial… vi the underwriting activities of the covered banking entity are designed to generate revenues primarily from fees commissions underwriting spreads or other income not attributable to appreciation in the value of covered financial positions related to such activities or the hedging of covered financial positions related to such activities and vii the compensation arrangements of persons performing underwriting activities are designed not to reward proprietary risk taking definition of distribution for purposes of paragraph of this section… that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods definition of underwriter for purposes of paragraph of this section… of securities or selling security holder to purchase securities for distribution to… such issuer or selling security holder or to… such issuer or selling security holder and ii a person who has an agreement with another person described in paragraph of this section to engage… on proprietary trading… covered financial position by a covered banking entity that is made in connection with the covered banking entity market making related activities requirements for purposes… a covered financial position shall be deemed to be made in connection with a covered banking entity market making related activities only if the covered banking entity has established the internal compliance program required by subpart d that is designed to ensure the covered… and independent testing ii the trading desk or other organizational unit that conducts the purchase or sale holds itself out as being willing to buy and sell including through entering into long and short positions in the covered financial position for its own account on a regular or continuous basis iii the market making related activities of the trading desk or other organizational unit that conducts the purchase or sale are with respect to the covered financial position… iv the covered banking entity is with respect to a purchase or sale of one or more covered financial positions that are securities other than exempted securities security based swaps commercial paper bankers acceptances or commercial bills a dealer that is… u o or a person that is exempt from registration or excluded from regulation as a dealer thereunder or engaged in the business of a dealer outside of the united states and subject to substantive regulation of such business in the jurisdiction where the business is located with respect to a purchase or sale of one or more covered financial positions that are swaps a swap dealer that is registered with the cftc under the commodity exchange act u a or a person that is exempt from registration thereunder or engaged in the business of a swap dealer outside the united states and subject to substantive regulation of such business in the jurisdiction where the business is located with respect to a purchase or sale of one or more covered financial positions that are security based swaps a security based swap dealer that is… u o or a person that is exempt from registration thereunder or engaged in the business of a security based swap dealer outside of the united states and subject to substantive regulation of such business in the jurisdiction where the business is located with respect to a purchase or sale of one or more covered financial positions that are municipal securities a municipal securities dealer that is registered under section b of the exchange act u o or a person that is exempt from registration thereunder or with respect to a purchase or sale of one or more covered financial positions that are government securities a government securities dealer that is registered or that has filed notice under section c of the exchange act u o or a person that is exempt from registration thereunder the market making related activities of the trading desk or other organizational unit that conducts the purchase or sale are designed to generate revenues primarily from fees commissions bid ask spreads or other income not attributable to appreciation in the value of covered financial positions it holds in trading accounts or the hedging of covered financial positions it holds in trading accounts vi the market making related activities of the trading desk or other organizational unit that conducts the purchase or sale are consistent with the commentary provided in appendix b and vii the compensation arrangements of persons performing the market making related activities are designed not to reward proprietary risk taking market making related hedging for purposes… a covered financial position shall also be deemed to be made in connection with a covered banking entity market making related activities if the covered financial position is purchased or sold to reduce the specific risks to the covered… acquired pursuant to paragraph of this section and ii the purchase or sale meets all of the requirements described in and if applicable… on proprietary trading… covered financial position by a covered banking entity that is made… a covered banking entity and is designed to reduce the specific risks to the covered… for purposes… a covered financial position shall be deemed to be… a covered… covered… only if the covered banking entity has established the internal compliance program required by subpart d designed to ensure the covered… instruments techniques and strategies that may be used for hedging internal controls and monitoring procedures and independent testing the purchase or sale… established by the covered banking entity pursuant to subpart d of this part ii hedges or otherwise mitigates one or more specific… a covered banking entity iii is reasonably correlated… and the risks and liquidity of those positions to the risk or risks the purchase or sale is intended to hedge or otherwise mitigate iv… significant exposures that were not already present in… a covered banking entity and that are not hedged contemporaneously… covered… and maintains a reasonable level of correlation… and the risks and liquidity of those positions to the risk or risks the purchase or sale is intended to hedge or otherwise mitigate and mitigates any significant exposure arising out of the hedge after inception and vi the compensation arrangements of persons performing the risk mitigating hedging activities are designed not to reward proprietary risk taking documentation with respect to any purchase sale or series of purchases or sales conducted by a covered banking entity pursuant to this for risk mitigating hedging purposes that is established at a level of organization that is different than the level of organization establishing or responsible for the… purchase sale or series of purchases or sales are designed to reduce the covered banking entity must at a minimum document at the time the purchase sale or series of purchases or sales are conducted the risk mitigating purpose of the purchase sale or series of purchases or sales the risks of… a covered banking entity that the purchase sale or series of purchases or sales are designed to reduce and the level of organization that is establishing the hedge other permitted proprietary trading activities permitted trading in government obligations the prohibition on proprietary trading… covered banking entity of a covered financial position that is an obligation of the united states or any agency thereof ii an obligation participation or other instrument of or issued by… or iii… an obligation or other instrument described in paragraphs ii or iii of this section shall include both general obligations and limited obligations such as revenue bonds permitted trading on behalf of customers the prohibition on proprietary trading… covered financial position by a covered banking entity on behalf of customers for purposes… a covered financial position by a covered banking entity shall be considered to be on behalf of customers if the purchase or sale is conducted by a covered banking entity acting as investment adviser commodity trading advisor… is conducted for the account of the customer and involves solely covered financial positions of which the customer and not the covered banking entity or any subsidiary or affiliate of the covered banking entity is beneficial owner including as a result of having long or short exposure under the relevant covered financial position ii the covered banking entity is… covered… covered financial position from a customer purchases or sells the covered financial position… or iii the covered banking entity is an insurance company that purchases or sells a covered financial position for a separate account if the insurance company is directly engaged in the business of insurance and subject to regulation by a state insurance regulator or foreign insurance regulator the insurance company purchases or sells the covered financial position solely for a separate account established by the insurance company in connection with one or more insurance policies issued by that insurance company all profits and losses arising from the purchase or sale of a covered financial position are allocated to the separate account and inure to the benefit or detriment of the owners of the insurance policies supported by the separate account and not the insurance company and… and other… permitted trading by a regulated insurance company the prohibition on proprietary trading… covered financial position by an insurance company or any affiliate of an insurance company if the insurance company is directly engaged in the business of insurance and subject to regulation by a state insurance regulator or foreign insurance regulator… covered financial position solely for the general account of… of the financial stability of the united states permitted trading outside of the united states the prohibition on proprietary trading… covered financial position by a covered banking entity if the covered banking entity is not… purchase or sale is conducted… occurs solely outside of the united states a purchase or sale shall be deemed to be conducted… only if with respect to a covered… is a qualifying foreign banking organization and is conducting the purchase or sale in compliance with subpart b of the board regulation k cfr through or ii with respect to a covered… covered banking entity… covered… covered… covered… covered… covered… covered… shall be deemed to have occurred solely outside of the united states only if the covered banking entity conducting the purchase or sale… no party to the purchase or sale is a resident of the united states iii no personnel of the covered banking entity who is directly involved in the purchase or sale is physically located in the united states and iv the purchase or sale is executed wholly outside of the united states reporting and recordkeeping requirements applicable to trading activities covered banking entity engaged in any proprietary trading activity permitted under through shall comply with the reporting and recordkeeping requirements described in appendix a to this part if the covered banking entity… is… equal to or greater than billion the recordkeeping requirements required under and appendix c to this part as applicable and such other reporting and recordkeeping requirements as agency may impose to evaluate the covered banking entity compliance with this subpart… covered… covered… covered… covered… covered… unless timely and effective disclosure and opportunity to negate or substantially mitigate… for which a conflict of interest may arise the covered banking entity makes… ii makes such disclosure explicitly and effectively and… information barriers the covered banking entity… covered… covered… covered… covered banking entity significantly increase the likelihood that the covered… fail… covered banking entity significantly increase the likelihood that the covered… fail… covered… definitions for purposes of this part… a commodity pool as… iii any issuer as defined… that is organized or offered outside of the united states that would be a covered fund as defined in paragraphs ii or iv of this section were it organized or offered under the laws or offered to one or more residents… iv any such similar fund as… may determine by rule as provided in section of the bhc act director has the same meaning as provided in of the board regulation o cfr… including without limitation a share equity security warrant option general partnership interest limited partnership interest membership interest trust certificate or other similar instrument in a covered fund whether voting or nonvoting or any derivative of such interest ii ownership interest does not include with respect to a covered fund carried interest an interest held by a covered banking entity or an affiliate subsidiary or employee thereof in a covered fund for which the covered banking entity or an affiliate subsidiary or employee thereof serves as investment manager investment adviser or commodity trading adviser… covered banking entity or the affiliate subsidiary or… services provided to the covered fund by the covered banking entity or the affiliate subsidiary or employee thereof provided that the covered banking entity or the affiliate subsidiary or… covered banking entity or the affiliate subsidiary or… the reinvested profit of the covered banking entity or the affiliate subsidiary or employee thereof does not share in the subsequent profits and losses of the covered fund the covered banking entity or the affiliate subsidiary or employee thereof does not provide funds to the covered fund in connection with acquiring or retaining this interest and the interest is not transferable by the covered banking entity or the affiliate subsidiary or employee thereof except to another affiliate or subsidiary thereof prime brokerage transaction means one or more products or services provided by a covered banking entity to a covered fund such as custody clearance securities borrowing or lending services trade execution or financing data operational and portfolio management support sponsor with respect to a covered fund means to serve… a covered fund… this subpart… directed trustee as that term is used in section of the employee retirement income security act u ii any covered banking entity that directs a person identified… assets of a covered fund for which such person identified in paragraph of this section serves as trustee shall be considered… of a covered fund does not prohibit a covered banking entity from… covered banking entity… covered banking entity pursuant to a credible plan or similar documentation outlining how the covered banking entity… covered banking entity does… this subpart the covered banking entity complies with the restrictions under of this subpart the covered… covered banking entity or an affiliate or subsidiary thereof and… covered banking entity… covered banking entity who is directly engaged in providing investment advisory or other services to the covered fund and the covered… or subsidiaries therefore the covered banking entity and its affiliates or subsidiaries… covered banking entity and its affiliates or subsidiaries in their capacity as investors in the covered fund ii… iii… iv the role of the covered banking entity and its affiliates subsidiaries… or subsidiaries… the prohibition contained in does not apply with respect to a covered banking entity acquiring and retaining any ownership interest in a covered fund that the covered banking entity or an affiliate or subsidiary thereof organizes and offers for the purposes of establishment establishing the covered… as required by paragraph… that does not exceed percent of the total outstanding ownership interests in the fund ownership limits with respect to an investment in any covered fund pursuant to paragraph of this section the covered banking entity… covered banking entity in any covered fund under… may not exceed percent of the total amount or value of outstanding ownership interests of the fund not… and ii the aggregate value of all ownership interests of the covered banking entity in all covered funds under… covered banking entity as provided under paragraph of this section limitations on investments in a single covered fund for purposes of determining whether a covered banking entity is in compliance with the limitations and restrictions on permitted investments in covered funds contained in paragraph of this section a covered banking entity shall calculate its amount and value of a permitted investment in a single covered fund as follows attribution of ownership interests to a covered banking entity… controlled investments any ownership interest held under by any entity that is controlled directly or indirectly by the covered banking entity for purposes of this part and ii noncontrolled investments the pro rata share of any ownership interest held under by any covered fund that is not controlled by the covered banking entity but in which the covered banking entity owns controls or holds with the power to vote more than percent of the voting shares calculation of amount of ownership interests in a single covered fund… does not exceed percent of the total outstanding ownership interests of the fund under paragraph of this section the aggregate amount of all ownership interests of the covered banking entity shall be the greater of… the value of any investment or capital contribution made with respect to all ownership interests held under by the covered banking entity in the covered fund divided by the value of all investments or capital contributions respectively made by all persons in that covered fund or the total number of ownership interests held under by the covered… persons in that covered fund ii inclusion of certain parallel investments to the extent that a covered banking entity is contractually obligated to directly invest in or is found to be acting in concert through knowing participation in a joint activity or parallel action toward a common goal of investing in one or more investments with a covered fund that is organized and offered by the covered banking entity whether or not pursuant to an express agreement such investments shall be included in any calculation required under paragraph of this section timing of single covered fund investment calculation the aggregate amount of all ownership interests of a covered banking entity in a single covered fund may at no time exceed the limits in this paragraph after the conclusion of the period provided in paragraph of this section methodology and standards for calculation for purposes of determining the amount or value of its investment in a covered fund under this paragraph a covered banking entity must calculate its investment… utilized by the covered fund for determining the aggregate value of the fund assets and ownership interests… determining the aggregate value of all permitted investments in all covered funds by a covered banking entity under paragraph ii… that covered banking entity shall be the sum of the value of each investment in a covered fund held under as determined in accordance with applicable accounting standards calculation of tier capital for purposes of determining compliance with paragraph ii… covered… covered… calculated by that covered… reported to its… and ii if a covered… covered… covered… pursuant to paragraph of this section in the case of a covered… covered… pursuant to… covered… a covered banking entity aggregate permitted investment in all covered funds… capital pursuant to the applicable capital rules a covered banking entity shall deduct the aggregate value of all permitted investments in all covered funds made or retained by a covered banking entity pursuant to this section as determined under paragraph of this section… covered banking entity the board may extend the period of time to meet the requirements under paragraphs and… covered… involve or result in material conflicts of interest between the covered… covered… ii market conditions iii the contractual terms governing the covered banking entity interest in the covered fund iv… covered banking entity to enable the covered… covered… vi the cost to the covered… vii whether… covered banking entity and unaffiliated… viii the covered… consultation in the case of a covered… approval of an application by the covered… u and this part ii consultation in the case of a covered… imposing conditions on the approval of a request by the covered… investments in sbics and related investments the prohibition contained in does not apply with respect to… by a covered banking entity or an affiliate or subsidiary thereof in one or more small business investment companies… that is… that is a qualified rehabilitation expenditure with respect to a qualified rehabilitation… by a covered banking entity provided that… connection with and related to individual or aggregated obligations or liabilities of the covered banking entity that are taken by the covered banking entity when acting as intermediary on behalf of a customer that is not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the covered fund or directly connected to a compensation arrangement with an employee that directly provides investment advisory or other services to the covered fund and ii designed to reduce the specific risks to the covered banking entity in connection with and related to such obligations or liabilities requirements for purposes of paragraph of this section… covered banking entity shall be a permissible risk mitigating hedging activity under this section only if the covered banking entity has established the internal compliance program required by subpart d designed to ensure the covered banking entity compliance with the requirements of this… instruments techniques and strategies that may be used for hedging internal controls and monitoring procedures and independent testing ii the acquisition or retention of an ownership interest in a covered fund… established by the covered banking entity pursuant to subpart d hedges or otherwise mitigates an exposure to a covered fund through an offsetting exposure to the same covered fund and in the same amount of ownership interest in that covered fund that arises out of a transaction conducted solely to accommodate a specific customer request with respect to or is directly connected to its compensation arrangement with an employee that directly provides investment advisory or other services to that… significant exposures that were not already present in individual or aggregated positions contracts or other holdings of a covered banking entity and that are not hedged contemporaneously… covered banking entity that is consistent with its written hedging policies and procedures maintains a substantially similar offsetting exposure to the same amount and type of ownership interest… and the risks and liquidity of those positions to the risk or risks the purchase or sale is intended to hedge or otherwise mitigate and mitigates any significant exposure arising out of the hedge after inception and iii the compensation arrangements of persons performing the risk mitigating hedging activities are designed not to reward proprietary risk taking documentation with respect to any acquisition or retention of an ownership interest in a covered fund by a covered banking entity pursuant to this paragraph the covered banking entity must document at the time the transaction is conducted the risk mitigating purpose of the acquisition or retention of an ownership interest in a covered fund ii the risks of the individual or aggregated obligation or liability of a covered banking entity that the acquisition or retention of an ownership interest in a covered fund is designed to reduce and iii the level of organization that is establishing the hedge… covered banking entity if the covered banking entity is not… is conducted… such… occurs solely outside of the united states an activity shall be considered to be conducted… only if with respect to a covered banking entity that is a foreign banking organization the covered banking entity is a qualifying foreign banking organization and is conducting the activity in compliance with subpart b of the board regulation k cfr et seq or ii with respect to a covered… covered banking entity… covered… covered… covered… covered… covered… covered banking entity in the united states an activity shall be considered to have occurred solely outside of the united states only if the covered banking entity engaging in the activity… no subsidiary affiliate or employee of the covered banking entity that is involved in the offer or sale of an ownership interest in the covered fund is incorporated or physically located in the united states or in one or more states and iii no ownership interest in such… loan securitizations the prohibition contained in does not apply with respect to the acquisition or retention by a covered banking entity of any… issuer of asset backed securities the assets or holdings of which are solely comprised of loans contractual rights or assets directly arising from those loans supporting the asset backed securities and interest rate or foreign exchange derivatives that materially relate to the terms of such loans or contractual rights or assets and ii are used for hedging purposes with respect to the securitization structure covered fund activities determined to be permissible the prohibition contained in does not apply to the acquisition or retention by a covered banking entity of any ownership interest in or acting as sponsor to bank owned life insurance a separate account which is used solely for the purpose of allowing a covered banking entity to purchase an insurance policy for which the covered banking entity is the beneficiary provided that the covered banking entity that purchases the insurance policy does not control… and ii holds its ownership interest in the separate account… certain other covered funds any of the following entities that would otherwise qualify as a covered fund a joint venture between the covered banking entity or one of its affiliates and any other person provided that the joint venture is an operating company and does not engage in any activity or make any investment that is prohibited under this part ii an acquisition vehicle provided that the sole purpose and effect of such entity is to effectuate a transaction involving the acquisition or merger of one entity with or into the covered banking entity or one of its affiliates iii an issuer of an asset backed security but only with respect to that amount or value of economic interest in a portion of the credit risk for an asset backed security that is retained by a covered banking entity that is a securitizer or originator in compliance with the minimum… any implementing regulations issued thereunder iv a wholly owned subsidiary of the covered banking entity that is engaged principally in performing bona fide liquidity management activities described in iii and carried on the balance sheet of the covered banking entity and a covered fund that is an issuer of asset backed securities described in the assets or holdings of which are solely comprised of loans contractual rights or assets directly arising from those loans supporting the asset backed securities and interest rate or foreign exchange derivatives that materially relate to the terms of such loans or contractual rights or assets and are used for hedging purposes with respect to the securitization structure the prohibition contained in does not apply to the acquisition or retention by a covered banking entity of any… but only if such ownership interest is acquired or retained by a covered banking entity or an affiliate or subsidiary thereof… if the covered banking entity divests the ownership interest within applicable time periods provided for by agency or pursuant to and in compliance with the conformance or extended transition period authorities provided for in subpart e of the board rules implementing section of the bhc act cfr through internal controls reporting and recordkeeping requirements applicable to covered fund activities and investments covered banking entity engaged in any covered fund activity or making or holding any investment permitted under this subpart shall comply with the internal controls reporting and recordkeeping requirements required under and appendix c to this part as applicable and such other reporting and recordkeeping requirements as agency may deem necessary to appropriately evaluate the covered banking entity compliance with this subpart… covered… covered… covered… covered banking entity or an affiliate or subsidiary thereof has taken an ownership interest if the covered… covered banking entity or an affiliate or subsidiary… top tier affiliate of the covered banking entity certifies in writing annually… covered… covered banking entity restrictions on transactions with covered funds a covered… covered… covered… and… covered… covered… covered… covered… covered… unless timely and effective disclosure and opportunity to negate or substantially mitigate… for which a conflict of interest may arise the covered banking entity makes… ii makes such disclosure explicitly and effectively and… information barriers the covered banking entity… covered… covered… covered… covered banking entity significantly increase the likelihood that the covered… fail… covered banking entity significantly increase the likelihood that the covered… fail… monitoring compliance enforcement program requirement except as provided in paragraph of this section each covered… and such program shall be appropriate for the… covered banking entity contents of compliance program… internal written policies and procedures reasonably designed to document describe and monitor trading activities subject to subpart b of this part… of this part including those permitted under through or through to ensure that such activities and investments… and identify potential areas of noncompliance… covered banking entity trading activities subject to subpart b of this part… of this part including those permitted under through or through… independent testing for the effectiveness of the compliance program conducted by qualified personnel of the covered… making and keeping… covered… additional standards in the case of any covered banking entity described… shall also satisfy the requirements and other standards contained in appendix c to this part a covered banking entity is subject to paragraph of this section if the covered banking entity engages in proprietary trading and… is equal to or greater than billion or equals percent or more of its total assets ii the covered banking entity invests in or has relationships with a covered fund and the covered banking entity has together with its affiliates and subsidiaries aggregate investments in one or more covered funds the average value of which is… equal to or greater than billion or sponsors or advises together with its affiliates and subsidiaries one or more covered funds the average total assets of which are… equal to or greater than billion or iii the agency deems it appropriate no program required for certain banking entities to the extent that a covered banking entity does not engage in activities or investments prohibited or restricted by subpart b or subpart c of this part a covered banking entity will have satisfied the requirements of this section if its existing compliance policies and procedures include measures that are designed to prevent the covered banking entity from becoming engaged in such activities or making such investments and which require the covered banking entity to develop and provide for the compliance program required under paragraph of this section prior to engaging in such activities or making such investments termination of activities or investments penalties for violations any covered… after due notice and an opportunity for hearing if agency finds reasonable cause to believe any covered… described in paragraph the agency may by order direct the banking entity to restrict limit or… reserved appendix… purposethis appendix sets forth reporting and recordkeeping requirements that certain covered… of this part… covered banking entity that… is… equal to or greater than billion… should be incorporated into the covered banking entity internal compliance program under and appendix c to this part purpose of this appendix is to assist covered… covered banking entity trading activities ii monitoring the covered banking entity trading activities iii identifying… covered… trading activities of trading units… units… trading activities of the covered banking entity and the individual trading units… covered banking entity covered trading activities… activities… covered… c… unit… covered… covered… part an ongoing basis covered banking entities should… should… many of the quantitative measurements discussed in this appendix will also be helpful to covered… apply trading activity means proprietary trading as defined in paragraph of trading unit means each of the following units of organization of a covered banking entity each discrete unit that is engaged in the coordinated implementation of a revenue generation strategy and that participates in the execution of any covered trading activity the agency expects that this will generally be the smallest unit of organization used by the covered banking entity to structure and control its risk taking activities and employees and will include each unit generally understood to be a single trading desk ii each organizational unit that is used to structure and control the aggregate risk taking activities and employees of one or more trading units described in paragraph the agency expects that this will generally include management or reporting divisions groups sub groups or other intermediate units of organization used by the covered banking entity to manage one or more discrete trading units e north american credit trading global credit trading etc iii all trading operations collectively and iv any other unit of organization specified by agency with respect to a particular banking entity… calculated… the quantitative measurements that must be furnished by a covered banking entity depend on the aggregate size of the covered banking entity trading activities and the activities in which its trading units engage as follows with respect to any covered banking entity that is engaged in any covered trading activity and has trading assets and liabilities… is… equal to or greater than billion each trading unit of the covered banking entity that is engaged in market making related activities subject to must furnish the following quantitative measurements calculated in accordance with this appendix value at risk and stress var var exceedance risk factor sensitivities risk and position limits comprehensive profit and loss portfolio profit and loss fee income and expense spread profit and loss comprehensive profit and loss attribution pay to receive spread ratio unprofitable trading days based on comprehensive profit and loss and unprofitable trading days based on portfolio profit and loss skewness of portfolio profit and loss and kurtosis of portfolio profit and loss volatility of comprehensive profit and loss and volatility of portfolio profit and loss comprehensive profit and loss to volatility ratio and portfolio profit and loss to volatility ratio inventory risk turnover inventory aging and customer facing trade ratio and each trading unit of the covered banking entity that is engaged in permitted trading activity subject to or must furnish the following quantitative measurements calculated in accordance with this appendix value at risk and stress var risk factor sensitivities risk and position limits comprehensive profit and loss and comprehensive profit and loss attribution and ii with respect to any covered banking entity that is engaged in any covered trading activity and has trading assets and liabilities… is… equal to or greater than billion and less than billion each trading unit of the covered banking entity that is engaged in market making related activities under must furnish the following quantitative measurement calculated in accordance with this appendix comprehensive profit and loss portfolio profit and loss fee income and expense spread profit and loss value at risk comprehensive profit and loss attribution volatility of comprehensive profit and loss and volatility of portfolio profit and loss and comprehensive profit and loss to volatility ratio and portfolio profit and loss to volatility ratio frequency of required calculation and reportinga covered… covered… a monthly basis or on any other reporting schedule… to agency no later than days after the end of that calendar month or on any other time basis requested by agency for example under section iv of this appendix a banking entity is required to report to agency the comprehensive profit and loss quantitative measurement as calculated for all trading days in june of any year no later than july of that year recordkeepinga covered… years quantitative measurementsa risk management measurements value at risk and stress value at riskdescription… portfolio… portfolio… stress calculation guidance banking entities should… unit… should… unit… portfolio… unit holdings should… by the larger portfolio period one trading day var exceedancedescription for purposes of this appendix var exceedance is the difference between var and portfolio profit and loss exclusive of spread profit and loss for a trading unit for any given calculation period period one trading day risk factor sensitivitiesdescription… unit portfolio profit and loss exclusive of spread… a trading unit risk factors i one or more underlying market variables that are significant sources of the trading unit profitability and risk general calculation guidance a covered banking entity should… unit… unit risk factor sensitivities should depend on the specific function of the trading unit… unit and furnished to agency should depend on the explicit risks assumed by the trading unit in general however reported risk factor sensitivities should be sufficient to account for a preponderance of the price variation in the trading unit holdings units should… sensitivities with respect to the related commodity type e precious metals oil and petroleum or agricultural products… sensitivities with respect to credit spread factors… sensitivities to interest rates at all relevant maturities credit related derivative positions credit positions sensitivities… sensitivity to equity prices and sensitivities… equity derivative positions equity position sensitivities… foreign exchange derivative positions sensitivities with respect to major currency pairs and maturities sensitivity to interest rates at relevant… sensitivities… positions methods used by a covered… units such as an equity price factor should be applied consistently across its trading units… unit to another period one trading day risk and position limitsdescription… unit… covered banking entity for a specific trading unit calculation guidance risk and position limits should be reported in the format used by the covered… unit… should be reported period one trading day source of revenue measurements comprehensive profit and lossdescription for purposes of this appendix comprehensive profit and loss is the net profit or loss of a trading unit material sources of trading revenue including for example dividend and interest income and expense over a specific period of time a trading unit comprehensive profit and loss for any given calculation period should generally equal the sum of the trading unit portfolio profit and loss and ii fee income calculation guidance comprehensive profit and loss generally should be computed using data on the value of a trading unit underlying holdings the prices at which those holdings were bought and sold and the value of any fees commissions sales credits spreads dividends interest income and expense or other sources of income from trading activities whether realized or unrealized comprehensive profit and loss should not include compensation costs or other costs required to operate the unit such as information technology costs or ii charges and adjustments made for internal reporting and management purposes such as accounting reserves period one trading day portfolio profit and lossdescription for purposes of this appendix portfolio profit and loss is a trading unit net profit or loss on its underlying holdings over a specific period of time whether realized or unrealized portfolio profit and loss should generally include… unit holdings including for example any dividend interest income or expense of a trading unit holdings portfolio profit and loss should not include direct fees commissions sales credits or other sources of trading revenue that are not directly related to the market value of the trading unit holdings calculation guidance in general portfolio profit and loss should be computed using data on a trading unit underlying holdings and the prices at which those holdings are marked for valuation purposes portfolio profit and loss should not include compensation costs or other costs required to operate the trading unit such as information technology costs or charges and adjustments made for internal reporting and management purposes such as accounting reserves period one trading day fee income and expensedescription for purposes of this appendix fee income and expense generally includes direct fees commissions and other distinct income for services provided by or to a trading unit over a specific period of time calculation guidance fee income and expense should be computed using data on direct fees that are earned by the trading unit for services it provides to clients customers or counterparties such as fees earned for structured transactions or sales commissions and credits earned for fulfilling a customer request whether realized or unrealized and similar fees paid by the trading unit to other service providers period one trading day spread profit and lossdescription for purposes of this appendix spread profit and loss is the portion of portfolio profit and loss that generally includes revenue generated by a trading unit from charging higher prices to buyers than the trading unit pays to sellers of comparable instruments over the same period of time i charging a spread such as the bid ask spread general calculation guidance spread profit and loss generally should be computed using data on the prices at which comparable instruments are either bought or sold by the trading unit as well as the turnover of these instruments spread profit and loss should be measured with respect to both the purchase and the sale of any position and should include both the spreads that are earned by the trading unit to execute transactions expressed as positive amounts and ii the spreads that are paid by the trading unit to initiate transactions expressed as negative amounts spread profit and loss should be computed by calculating the difference between the bid price or the ask price whichever is paid or received and the mid market price the mid market price is the average of bid and ask some asset classes in which a trading unit is engaged in market making related activities bid ask or similar spreads are widely disseminated constantly updated and readily available or otherwise reasonably ascertainable for purposes of calculating the spread profit and loss attributable to a transaction in such asset classes the trading unit should utilize the prevailing bid ask or similar spread on the relevant position at the time the purchase or sale is completed other asset classes in which a trading unit is engaged in market making related activities bid ask or similar spreads may not be widely disseminated on a consistent basis or otherwise reasonably ascertainable a covered banking entity must identify any trading unit engaged in market making related activities in an asset class for which the covered banking entity believes bid ask or similar spreads are not widely disseminated on a consistent basis or are not otherwise reasonably ascertainable and must be able to demonstrate that bid ask or similar spreads for the asset class are not reasonably ascertainable in such cases the trading unit should calculate the spread profit and loss for the relevant purchase or sale of a position in a particular asset class by using whichever of the following three alternatives the banking entity believes more accurately reflects prevailing bid ask or similar spreads for transactions in that asset class end of day spread proxy a proxy based on the bid ask or similar spread that is used to estimate or is otherwise implied by the market price at which the trading entity marks or in the case of a sale would have marked the position for accounting purposes at the close of business on the day it executes the purchase or sale end of day spread proxy ii historical data spread proxy a proxy based on historical bid ask or similar spread data in similar market conditions historical data spread proxy or iii any other proxy that the banking entity can demonstrate accurately reflects prevailing bid ask or similar spreads for transactions in the specific asset class covered banking entity selecting any of these alternatives should be able to demonstrate that the alternative it has chosen most accurately reflects prevailing bid ask or similar spreads for the relevant asset class if a covered banking entity chooses to calculate spread profit and loss for a particular trading unit using the end of day spread proxy then the banking entity should separately identify the portion of spread profit and loss that is attributable to positions acquired and disposed of on the same trading day if a banking entity chooses to calculate spread profit and loss for a particular trading unit using the historical data spread proxy the covered banking entity should be able to demonstrate that the historical data proxy is appropriate and continually monitor market conditions and adjust as necessary the historical data proxy to reflect any changes period one trading day comprehensive profit and loss attributiondescription… attribution analysis that divides the trading unit comprehensive profit and loss into the separate sources of risk and revenue that have caused any observed variation in comprehensive profit and loss this attribution analysis should attribute comprehensive profit and loss to specific market and risk factors that can be accurately and consistently measured over time any component of comprehensive profit and loss that cannot be specifically identified in the attribution analysis should be… loss calculation guidance the specific market and risk factors used by a trading unit in the attribution analysis should be tailored to the trading activities undertaken by the unit these factors should be measured consistently over time to facilitate historical comparisons the attribution analysis should also identify any significant factors that have a consistent and regular influence on comprehensive profit and loss such as risk factor sensitivities that have a significant influence on portfolio income customer spreads bid ask spreads or commissions that are earned factors that influence comprehensive profit and loss across different trading units should be measured and included in the attribution analysis in a comparable fashion period one trading day revenue relative to risk measurements volatility of comprehensive profit and loss and volatility of portfolio profit and lossdescription for purposes of this appendix volatility of comprehensive profit and loss generally is the standard deviation of the trading unit comprehensive profit and loss estimated over a given calculation period for purposes of this appendix volatility of portfolio profit and loss generally is the standard deviation of the trading unit portfolio profit and loss exclusive of spread profit and loss estimated over a given calculation period period days days and days comprehensive profit and loss to volatility ratio and portfolio profit and loss to volatility ratiodescription for purposes of this appendix comprehensive profit and loss to volatility ratio is a ratio of comprehensive profit and loss to the volatility of comprehensive profit and loss for a trading unit over a given calculation period for purposes of this appendix portfolio profit and loss to volatility ratio is a ratio of portfolio profit and loss exclusive of spread profit and loss to the volatility of portfolio profit and loss exclusive of spread profit and loss for a trading unit over a given calculation period period days days and days unprofitable trading days based on comprehensive profit and loss and unprofitable trading days based on portfolio profit and lossdescription for purposes of this appendix unprofitable trading days based on comprehensive profit and loss is the number or proportion of trading days on which a trading unit comprehensive profit and loss is less than zero over a given calculation period for purposes of this appendix unprofitable trading days based on portfolio profit and loss exclusive of spread profit and loss is the number or proportion of trading days on which a trading unit portfolio profit and loss exclusive of spread profit and loss is less than zero over a given calculation period period days days and days skewness of portfolio profit and loss and kurtosis of portfolio profit and lossdescription skewness of portfolio profit and loss and kurtosis of portfolio profit and loss should be calculated using standard statistical methods with respect to portfolio profit and loss exclusive of spread profit and loss period days days and days customer facing activity measurements inventory risk turnoverdescription for purposes of this appendix inventory risk turnover is a ratio that measures the amount of risk associated with a trading unit inventory as measured by risk factor sensitivities that is turned over by the trading unit over a specific period of time for each risk factor sensitivity the numerator of the inventory risk turnover ratio generally should be the absolute value of the risk factor sensitivity associated with each transaction over the calculation period the denominator of the inventory risk turnover ratio generally should be the value of each risk factor sensitivity for all of the trading unit holdings at the beginning of the calculation period calculation guidance as a general matter a trading unit should measure and report the inventory risk turnover ratio for each of the risk factor sensitivities calculated and furnished for that trading unit period days days and days inventory agingdescription for purposes of this appendix inventory aging generally describes the trading unit… for the following periods days days days days days and greater than days… unit assets and liabilities calculation guidance in general inventory aging should be computed using a trading unit trading activity data and should identify the trading unit aggregate assets and liabilities in addition inventory aging should… the asset aging schedule should record the value of the trading unit assets that have been held for days days days days days and greater than days the liability aging schedule should record the value of the trading unit liabilities that have been held for days days days days days and more than days period days days and days customer facing trade ratiodescription… unit to… unit… unit if the counterparty is neither a counterparty to a transaction executed on a designated contract market registered under the commodity exchange act or national securities exchange registered under the exchange act nor a broker dealer swap dealer security based swap dealer any other entity engaged in market making related activities or any affiliate thereof a broker dealer swap dealer or security based swap dealer any other entity engaged in market making related activities or any affiliate thereof may be considered a customer of the trading unit for these purposes if the covered banking entity treats that entity as a customer and has documented how and why the entity is treated as such period days days and days payment of fees commissions and spreads measurement pay to receive spread ratiodescription for purposes of this appendix the pay to receive spread ratio is a ratio comparing the amount of spread profit and loss and fee income that is earned by a trading unit to the amount of spread profit and loss and fee income that is paid by the trading unit calculation guidance the pay to receive spread ratio will depend on the amount of spread profit and loss and fee income that is earned by the trading unit for facilitating buy and sell orders and the amount of spread profit and loss that is paid by a trading unit as it initiates buy and sell orders the pay to receive spread ratio generally should be computed using the calculation of spread profit and loss described in this appendix except that spread paid should include the aggregate spread profit and loss of all transactions producing a negative spread profit and loss and spread received should include the aggregate spread profit and loss of all transactions producing a positive spread profit and loss period one trading day b commentary regarding identification of permitted market making related activitiesi purposethis appendix provides commentary describing the features of permitted market making related activities and distinctions between permitted market making related activities and prohibited proprietary trading the appendix applies to all covered banking entities that are engaged in market making related activities in reliance on the following commentary must be incorporated into the covered banking entity internal compliance program under as applicable… those set forth in and and appendix a commentarysection of the bhc act and prohibit any covered banking entity from engaging in proprietary trading which is generally defined as engaging as principal for the trading account of the covered banking entity in any transaction to purchase or sell a covered financial position however section of the bhc act and permit a covered banking entity to engage in proprietary trading that would otherwise be prohibited if the activity is conducted in connection with the covered banking entity market making related activities to the extent that such activities… and counterparties this commentary is intended to assist covered banking entities in identifying permitted market making related activities and distinguishing such activities from trading activities that even if conducted in the context of the covered banking entity market making operations would constitute prohibited proprietary trading overview of market making related activitiesin the context of trading activities in which a covered banking entity acts as principal market making related activities generally involve the covered banking entity either in the case of market making in a security that is executed on an organized trading facility or exchange passively providing liquidity by submitting resting orders that interact with the orders of others on an organized trading facility or exchange and acting as a registered market maker where such exchange or organized trading facility provides the ability to register as a market maker or ii in other cases providing an intermediation service to its customers by assuming the role of a counterparty that stands ready to buy or sell a position that the customer wishes to sell or buy a market maker customers generally vary depending on the asset class and market in which the market maker is providing intermediation services in the context of market making in a security that is executed on an organized trading facility or an exchange a customer is any person on behalf of whom a buy or sell order has been submitted by a broker dealer or any other market participant in the context of market making in a covered financial position in an over the counter market a customer generally would be a market participant that makes use of the market maker intermediation services either by requesting such services or entering into a continuing relationship with the market maker with respect to such services the status of being a registered market maker is not on its own a sufficient basis for relying on the exemption for market making related activity contained in registration as a market maker generally involves filing a prescribed form with an exchange or organized trading facility in accordance with its rules and procedures and complying with the applicable requirements for market makers set forth in the rules of that exchange or organized trading facility see e nasdaq rule new york stock exchange rule cboe futures exchange rule bats exchange rule in certain cases depending on the conventions of the relevant market e the over the counter derivatives market such a customer may consider itself or refer to itself more generally as a counterparty the primary purpose of market making related activities is to intermediate between buyers and sellers of similar positions for which service market makers are compensated resulting in more liquid markets and less volatile prices the purpose of such activities is not to earn profits as a result of movements in the price of positions and risks acquired or retained rather a market maker generally manages and limits the extent to which it is exposed to movements in the price of principal positions and risks that it acquires or retains or in the price of one or more material elements of those positions to the extent that it can a market maker will eliminate some or all of the price risks to which it is exposed however in some cases the risks posed by one or more positions may be sufficiently complex or specific that the risk cannot be fully hedged in other cases although it may be possible to hedge the risks posed by one or more positions the cost of doing so may be so high as to effectively make market making in those positions uneconomic if complete hedges were acquired in such cases in order to provide effective intermediation services market makers are required to retain at least some risk for at least some period of time with respect to price movements of retained principal positions and risks the size and type of risk that must be retained in such cases may vary widely depending on the type and size of the positions the liquidity of the specific market and the market structure as the liquidity of positions increases the frequency with which a market maker must take or retain risk in order to make a market in those positions generally decreases profitability of market making related activities relies on forms of revenue that reflect the value of the intermediation services that are provided to the market maker customers these revenues typically take the form of explicit fees and commissions or in markets where no such fees or commission are charged a bid ask or similar spread that is generated by charging higher prices to buyers than is paid to sellers of comparable instruments in the case of a derivative contract these revenues reflect the difference between the cost of entering into the derivative contract and the cost of hedging incremental residual risks arising from the contract these types of customer revenues provide the primary source of a market maker profitability typically a market maker holds at least some risk with respect to price movements of retained principal positions and risks as a result the market maker also incurs losses or generates profits as price movements actually occur but such losses or profits are incidental to customer revenues and significantly limited by the banking entity hedging activities customer revenues not revenues from price movements predominate the appropriate proportion of customer revenues to profits and losses resulting from price movements of retained principal positions and risks varies depending on the type of positions involved the typical fees commissions and spreads payable for transactions in those positions and the risks of those positions as a general matter the proportion of customer revenues generated when making a market in certain positions increases as the fees commissions or spreads payable for those positions increase the volatility of those positions prices decrease and the prices for those positions are less transparent a market maker business model entails managing and limiting the extent to which it is exposed to movements in the prices of retained principal positions and risks while generating customer revenues that are earned regardless of movements in the price of retained principal positions and risks a market maker typically generates significant revenue relative to the risks that it retains accordingly a market maker will typically demonstrate consistent profitability and low earnings volatility under normal market conditions the appropriate extent to which a market maker will demonstrate consistent profitability and low earnings volatility varies depending on the type of positions involved the liquidity of the positions the price transparency of the positions and the volatility of the positions prices as a general matter consistent profitability will decrease and earnings volatility will increase as the liquidity of the positions decrease the volatility of the positions prices increase and the prices for the positions are less transparent the primary purpose of market making related activities is to provide intermediation services to its customers market makers focus their activities on servicing customer demands and typically only engage in transactions with non customers to the extent that these transactions directly facilitate or support customer transactions in particular a market maker generally only transacts with non customers to the extent necessary to hedge or otherwise manage the risks of its market making related activities including managing its risk with respect to movements of the price of retained principal positions and risks to acquire positions in amounts consistent with reasonably expected near term demand of its customers or to sell positions acquired from its customers the appropriate proportion of a market maker transactions that are with customers versus non customers varies depending on the type of positions involved and the extent to which the positions are typically hedged in non customer transactions in the case of a derivatives market maker that engages in dynamic hedging the number of non customer transactions significantly outweighs the number of customer transactions as the derivatives market maker must constantly enter into transactions to appropriately manage its retained principal positions and risks as market prices for the positions and risks move and additional transactions with customers change the risk profile of the market maker retained principal positions a market maker generates revenues primarily by transacting with and providing intermediation services to customers a market maker typically engages in transactions that earn fees commissions or spreads as payment for its services transactions in which the market maker pays fees commissions or spreads i where it pays another market maker for providing it with liquidity services are much less frequent although in some cases obtaining liquidity services from another market maker and paying fees commissions or spreads may be necessary to prudently manage its risk with respect to price movements of retained principal positions and risks the appropriate proportion of a market maker transactions that earn rather than pay fees commissions or spreads varies depending on the type of positions involved the liquidity of the positions and the extent to which market trends increase the volatility of its risk with respect to price movements of retained principal positions and risks as a general matter the proportion of a market maker transactions that earn rather than pay fees commissions or spreads decreases as the liquidity of the positions decreases and the extent to which the price volatility of retained principal positions and risks increases because the primary purpose of market making related activities is to provide intermediation services to its customers a market maker does not provide compensation incentives to its personnel that primarily reward proprietary risk taking although a market maker may take into account revenues resulting from movements in the price of retained principal positions and risks to the extent that such revenues reflect the effectiveness with which personnel have effectively managed the risk of movements in the price of retained principal positions and risks a market maker that provides compensation incentives relating to revenues generally does so through incentives that primarily reward customer revenues and effective customer service overview of prohibited proprietary trading activitieslike permitted market making related activities prohibited proprietary trading involves the taking of principal positions by a covered banking entity unlike permitted market making related activities the purpose of prohibited proprietary trading is to generate profits as a result of or otherwise benefit from changes in the price of positions and risks taken whereas a market maker attempts to eliminate some or all of the price risks inherent in its retained principal positions and risks by hedging or otherwise managing those risks in a reasonable period of time after positions are acquired or risks arise a proprietary trader seeks to capitalize on those risks and generally only hedges or manages a portion of those risks when doing so would improve the potential profitability of the risk it retains a proprietary trader does not have customers because a proprietary trader simply seeks to obtain the best price and execution in purchasing or selling its proprietary positions a proprietary trader generates few if any fees commissions or spreads from its trading activities because it is not providing an intermediation service to any customer or other third party instead a proprietary trader is likely to pay fees commissions or spreads to other market makers when obtaining their liquidity services is beneficial to execution of its trading strategy because a proprietary trader seeks to generate profits from changes in the price of positions taken a proprietary trader typically provides compensation incentives to its personnel that primarily reward successful proprietary risk taking distinguishing permitted market making related activities from prohibited proprietary tradingbecause both permitted market making related activities and prohibited proprietary trading involve the taking of principal positions certain challenges arise in distinguishing permitted market making related activities and prohibited proprietary trading particularly in cases where both of these activities occur in the context of a market making operation particularly during periods of significant market disruption it may be difficult to distinguish between retained principal positions and risks that appropriately support market making related activities and positions taken or positions or risks not hedged for proprietary purposes connection with these challenges agency will apply the following factors in distinguishing permitted market making related activities from trading activities that even if conducted in the context of the covered banking entity market making operations would constitute prohibited proprietary trading the particular types of trading activity described in this appendix may involve the aggregate trading activities of a single trading unit a significant number or series of transactions occurring at one or more trading units or a single significant transaction among other potential scenarios in addition to meeting the terms of this appendix any transaction or activity for which a covered banking entity intends to rely on the market making exemption in must also satisfy all the requirements specified in as well as the other applicable requirements and conditions of this part risk managementabsent explanatory facts and circumstances particular trading activity in which a trading unit retains risk in excess of the size and type required to provide intermediation services to customers will be considered to be prohibited proprietary trading and not permitted market making related activity the agency will base a determination of whether a trading unit retains risk in excess of the size and type required for these purposes on all available facts and circumstances including a comparison of retained principal risk to the amount of risk that is generally required to execute a particular market making function hedging options that are available in the market and permissible under the covered banking entity hedging policy at the time the particular trading activity occurred the trading unit prior levels of retained risk and its hedging practices with respect to similar positions and the levels of retained risk and the hedging practices of other trading units with respect to similar positions to help assess the extent to which a trading unit risks are potentially being retained in excess of amounts required to provide intermediation services to customers agency will utilize the var and stress var var exceedance and risk factor sensitivities quantitative measurements as applicable among other risk measurements described in appendix a to this part and any other relevant factor this assessment will focus primarily on the risk measurements relative to the risk required for conducting market making related activities and any significant changes in the risk over time and across similarly situated trading units and banking entities facts and circumstances might include among other things market wide changes in risk changes in the specific composition of market making related activities temporary market disruptions or other market changes that result in previously used hedging or other risk management techniques no longer being possible or cost effective source of revenuesabsent explanatory facts and circumstances particular trading activity in which a trading unit primarily generates revenues from price movements of retained principal positions and risks rather than customer revenues will be considered to be prohibited proprietary trading and not permitted market making related activity the agency will base a determination of whether a trading activity primarily generates revenues from price movements of retained principal positions and risks rather than customer revenues on all available facts and circumstances including an evaluation of the revenues derived from price movements of retained principal positions and risks relative to its customer revenues and a comparison of these revenue figures to the trading unit prior revenues with respect to similar positions and the revenues of other covered banking entities trading units with respect to similar positions help assess the extent to which a trading unit revenues are potentially derived from movements in the price of retained principal positions and risks agency will utilize the comprehensive profit and loss portfolio profit and loss fee income and expense and spread profit and loss quantitative measurements as applicable both individually and in combination with one another e by comparing the ratio of spread profit and loss to portfolio profit and loss and any other relevant factor facts and circumstances might include among other things general upward or downward price trends in the broader markets in which the trading unit is making a market provided revenues from price movements in retained principal positions and risks are consistent sudden market disruptions or other changes causing significant unanticipated alterations in the price of retained principal positions and risks sudden and or temporary changes in the market e narrowing of bid ask spreads that cause significant unanticipated reductions in customer revenues or efforts to expand or contract a trading unit market share revenues relative to riskabsent explanatory facts and circumstances particular trading activity will be considered to be prohibited proprietary trading and not permitted market making related activity if the trading unit generates only very small or very large amounts of revenue per unit of risk taken does not demonstrate consistent profitability or demonstrates high earnings volatility the agency will base such a determination on all available facts and circumstances including an evaluation of the amount of revenue per unit of risk taken earnings volatility profitability exposure to risks and overall level of risk taking for the particular trading activities and a comparison of these figures to the trading unit prior results with respect to similar positions and the results of other covered banking entities trading units with respect to similar positions help assess the riskiness of revenues and the amount of revenue per unit of risk taken agency will utilize the volatility of comprehensive profit and loss and volatility of portfolio profit and loss comprehensive profit and loss to volatility ratio and portfolio profit and loss to volatility ratio and comprehensive profit and loss attribution quantitative measurements as applicable and any other relevant factor help assess the extent to which a trading unit demonstrates consistent profitability agency will utilize the unprofitable trading days based on comprehensive profit and loss and unprofitable trading days based on portfolio profit and loss quantitative measurements as applicable and any other relevant factor help assess the extent to which a trading unit is exposed to outsized risk agency will utilize the skewness of portfolio profit and loss and kurtosis of profit and loss quantitative measurements as applicable and any other relevant factor facts and circumstances might include among other things market disruptions or other changes causing significant unanticipated increases in a trading unit risk with respect to movements in the price of retained principal positions and risks market disruptions or other changes causing significant unanticipated increases in the volatility of positions in which the trading unit makes a market sudden and or temporary changes in the market e narrowing of bid ask spreads that cause significant unanticipated reductions in customer revenues and decrease overall profitability or efforts to expand or contract a trading unit market share customer facing activityabsent explanatory facts and circumstances particular trading activity will be considered to be prohibited proprietary trading and not permitted market making related activity if the trading unit does not transact through a trading system that interacts with orders of others or primarily with customers of the banking entity market making desk to provide liquidity services or retains principal positions and risks in excess of reasonably expected near term customer demands the agency will base such a determination on all available facts and circumstances including among other things an evaluation of the extent to which a trading unit transactions are with customers versus non customers and the frequency with which the trading unit retained principal positions and risks turn over and a comparison of these figures to the trading unit prior results with respect to similar positions and market situations and the results of other covered banking entities trading units with respect to similar positions help assess the extent to which a trading unit transactions are with customers versus non customers agency will utilize the customer facing trade ratio quantitative measurement as applicable and any other relevant factor to help assess the frequency with which the trading unit retained principal positions and risks turn over agency will utilize the inventory risk turnover and inventory aging quantitative measurements as applicable and any other relevant factor respect to a particular trading activity in which a trading unit either does not transact through a trading system that interacts with orders of others or primarily with customers of the banking entity market making desk to provide liquidity services explanatory facts and circumstances might include among other things sudden market disruptions or other changes causing significant increases in a trading unit hedging transactions with non customers or substantial intermediary trading required to satisfy customer demands and hedging management with respect to particular trading activity in which a trading unit retains principal positions and risks in excess of reasonably expected near term customer demands explanatory facts and circumstances might include among other things sudden market disruptions or other changes causing a significant reduction in actual customer demand relative to expected customer demand documented and reasonable expectations for temporary increases in customer demand in the near term and sudden market disruptions or other changes causing a significant reduction in the value of retained principal positions and risks such that it would be imprudent for the trading unit to dispose of the positions in the near term payment of fees commissions and spreadsabsent explanatory facts and circumstances particular trading activity in which a trading unit routinely pays rather than earns fees commissions or spreads will be considered to be prohibited proprietary trading and not permitted market making related activity the agency will base such a determination on all available facts and circumstances including among other things an evaluation of the frequency with which the trading unit pay fees commissions or spreads and the relative amount of fees commissions or spreads that is paid versus earned and a comparison of these figures to the trading unit prior results with respect to similar positions and the results of other covered banking entities trading units with respect to similar positions help assess the extent to which a trading unit is paying versus earning fees commissions and spreads agency will utilize the pay to receive spread ratio quantitative measurement as applicable and any other relevant factor facts and circumstances might include among other things sudden market disruptions or other changes causing significant increases in a trading unit hedging transactions with non customers for which it must pay fees commissions or spreads sudden unanticipated customer demand for liquidity that requires the trading unit itself to pay fees commissions or spreads to other market makers for liquidity services to obtain the inventory needed to meet that customer demand or significant unanticipated reductions in fees commissions or spreads earned by the trading unit explanatory facts and circumstances might also include a trading unit efforts to expand or contract its market share compensation incentivesabsent explanatory facts and circumstances the trading activity of a trading unit that provides compensation incentives to employees that primarily reward proprietary risk taking will be considered to be prohibited proprietary trading and not permitted market making related activity the agency will base such a determination on all available facts and circumstances including among other things an evaluation of the extent to which compensation incentives are provided to trading unit personnel that reward revenues from movements in the price of retained principal positions and risks the extent to which compensation incentives are provided to trading unit personnel that reward customer revenues and the compensation incentives provided by other covered banking entities to similarly situated personnel c minimum standards for programmatic compliancei overviewa purposethis appendix sets forth the minimum standards with respect to the establishment maintenance and enforcement by banking entities of internal compliance programs… or… part appendix requires that banking entities establish maintain and enforce an effective compliance program consisting of written policies and procedures internal controls a management framework independent testing training and recordkeeping that is reasonably designed to clearly document describe and monitor the covered trading and covered fund activities or investments and the risks of the covered banking entity related to such activities or investments identify… specifically addresses the varying nature of activities or investments conducted by different units of the covered banking entity organization including… subjects the effectiveness of the compliance program to independent review and testing makes senior management and intermediate managers… ensures that the board of directors and ceo review the effectiveness of the compliance program and facilitates supervision and examination of the covered banking entity covered trading and covered fund activities or investments by the agencies… apply management unit means any unit of organization of a covered banking entity that makes investments in or acts as sponsor to covered funds or has relationships with covered funds that the covered banking entity or an affiliate of subsidiary thereof has sponsored organized and offered or in which a covered fund sponsored or advised by the covered banking entity invests program means the internal compliance program established by a covered banking entity in accordance with and this appendix fund activity or investment means sponsoring any covered fund or making investments in or otherwise having relationships with any covered fund for which the covered banking entity or an affiliate or subsidiary thereof acts as sponsor or organizes and offers fund restrictions means the restrictions on covered fund activities or investments set forth in subpart c trading activity means proprietary trading as defined in trading unit means each of the following units of organization of a covered banking entity each discrete unit that is engaged in the coordinated implementation of a revenue generation strategy and that participates in the execution of any covered trading activity the agency expects that this will generally be the smallest unit of organization used by the covered banking entity to structure and control its risk taking activities and employees and will include each unit generally understood to be a single trading desk ii each organizational unit that is used to structure and control the aggregate risk taking activities and employees of one or more trading units described in paragraph the agency expects that this will generally include management or reporting divisions groups sub groups or other intermediate units of organization used by the covered banking entity to manage one or more discrete trading units e north american credit trading global credit trading etc iii all trading operations collectively and iv any other unit of organization specified by agency with respect to a particular banking entity required elementssection requires that covered banking entities establish maintain and enforce… or investments that effectively implements at a minimum the six elements required under paragraph of d compliance program structureeach covered banking entity subject to must be governed by a compliance program meeting the requirements of this appendix a covered banking entity may establish a compliance program on an enterprise wide basis to satisfy the requirements of and this appendix with respect to the covered banking entity and all of its affiliates and subsidiaries collectively provided that the program is clearly applicable both by its terms and in operation to all such affiliates and subsidiaries the program specifically addresses the requirements set forth in this appendix the program takes into account and addresses the consolidated organization business structure size and complexity as well as the particular activities risks and applicable legal requirements of each subsidiary and affiliate and the program is determined through periodic independent testing to be effective for the covered banking entity and all of its subsidiaries and affiliates an enterprise wide program established pursuant to this appendix will be subject to supervisory review and examination by any agency vested with rulewriting authority under section of the bhc act with respect to the compliance program and the activities or investments of any banking entity for which the agency has such authority further such agency will have access to all records related to the enterprise wide compliance program pertaining to any banking entity that is supervised by the agency vested with such rulewriting authority applicabilitythis appendix applies only to covered banking entities described in in addition agency may require any covered banking entity to comply with all or portions of this appendix if agency deems it appropriate for purposes the covered banking entity compliance with this part nothing in this appendix limits the authority of agency under any other provision of law or regulation to take supervisory examination or enforcement action including action to address unsafe or unsound practices or conditions deficient capital levels or violations of law internal policies and proceduresa covered trading activitiesa covered… reasonably designed to document describe and monitor the covered banking entity covered trading activities and the risks taken in these activities as follows these policies and procedures must be updated with a frequency sufficient for the covered banking entity to adequately control the applicable trading unit for purposes of this part of trading account the covered banking entity policies and procedures must specify how the banking entity evaluates the covered financial positions it acquires or takes and determines which of its accounts are trading accounts for purposes of subpart b of this part of trading units and organization structure the covered banking entity written policies and procedures must identify and document each trading unit within the organization and map each trading… the covered banking entity uses to manage or oversee the trading unit activities of missions and strategies the covered banking entity written policies and procedures for each trading unit must clearly articulate and document a comprehensive description of the mission i the nature of the business conducted and strategy i business model for the generation of revenues of the trading unit and include a description of how revenues are intended to be generated by the trading unit the activities that the trading unit… and instruments the expected holding period of and the market risk associated with covered financial positions in its trading account the types of clients customers and counterparties with whom trading is conducted by the trading unit how the trading unit if engaged in market making related activity under of this part identifies its customers for purposes of computing the customer facing trade ratio if applicable including documentation explaining when how and why a broker dealer swap dealer security based swap dealer any other entity engaged in market making related activities or any affiliate thereof is considered to be a customer of the trading unit for those purposes and the compensation structure of the employees associated with the trading unit mandates the covered banking entity must establish maintain document and enforce trader mandates for each trading unit at a minimum trader mandates must clearly inform each trader of the prohibitions and requirements… and his or her responsibilities for compliance with such requirements set forth appropriate parameters for each trader engaged in covered trading activities including the conditions for relying on the applicable exemptions in through the financial contracts products and underlying assets that the trader is permitted to trade pursuant to the covered banking entity internal controls the risk limits of the trader trading unit and the types and levels of risk that may be taken and the applicable trading unit hedging policy of risks and risk management processes the written policies and procedures for each trading unit must clearly articulate and document a comprehensive description of the risks associated with the trading unit such descriptions must include at a minimum the following elements… the trading units… a description of the types of risks that may be taken to implement the mission and strategy of the trading unit… unit is engaged including but not limited to all significant… any significant counterparty credit risk associated with the trading activity an articulation of the amount of risk allocated by the covered banking entity to such trading unit to implement the documented mission and strategy of the trading unit an explanation of how the risks allocated to such trading unit will be measured and an explanation of why the allocated risk levels are appropriate to the mission and strategy of the trading unit policies and procedures the covered banking entity must establish maintain and enforce policies and procedures for all of its trading units… at a minimum these hedging policies and procedures must articulate the following the manner in which the covered banking entity will determine that the risks generated by each trading unit have been properly and effectively hedged the instruments techniques and strategies the covered entity will use to hedge the risk of the positions or portfolios… the manner in which hedging strategies will be monitored… and the independent testing of hedging techniques and strategies of compliance the covered banking entity written policies and procedures must clearly articulate and document a comprehensive explanation of how the mission and strategy of each trading unit and its related risk levels comply with this part such explanation must identify which portions of the risk taking activity of the trading unit would or would not constitute covered trading activity identify activities of the trading unit… of how and where the activity occurs ando… describe how the covered… unit which must take into account potential or actual exposure to… assets or strategies that include significant embedded leverage assets or strategies that have demonstrated significant historical volatility… and… explain how each trading unit will comply with the reporting and recordkeeping requirements of and appendix a describe how the covered… covered banking entity and its clients customers or counterparties present in each trading unit and describe how the covered… covered banking entity of violations the covered banking entity written policies and procedures must require the covered banking entity… further such policies and procedures must include specific procedures that are reasonably designed to implement and monitor any required remediation and that assess the extent to which any violation indicates that modification to the covered banking entity compliance program is warranted with respect to any trading unit that is either used by the covered banking entity to structure and control the aggregate risk taking activities and employees of one or more other trading units or comprised of the entire trading operation of the covered banking entity the description of missions and strategies description of risks and risk management processes and explanation of compliance for such trading units may incorporate by reference the policies and procedures of the underlying trading units that the trading unit oversees and manages in the aggregate covered fund activities or investmentsa covered… that are reasonably designed to document describe and monitor the covered banking entity covered fund activities or investments and the risks taken in these activities or investments as follows of covered funds the covered banking entity policies and procedures must specify how the covered banking entity identifies covered funds that the covered banking entity sponsors organizes and offers or in which covered banking entity invests of asset management units and organization structure the covered banking entity written policies and procedures must identify and document each asset management unit within the organization and map each asset management… the covered banking entity uses to manage or oversee the asset management unit activities or investments of sponsorship activities related to covered funds the covered banking entity written policies and procedures for each asset management unit must clearly articulate and document a comprehensive description of the mission i the nature of the business conducted and strategy i business model for the generation of revenues of the asset management unit related to its sponsorship or organizing and offering of covered funds including a description of how such activities comply with this part and in particular the activities that the asset management unit is authorized to conduct including the nature of any trust fiduciary investment advisory or commodity trading advisory services offered to customers of the covered banking entity the types of customers to whom the asset management unit provides such services and to whom ownership interests in covered funds are sold the extent of any co investment activities of the covered banking entity including its directors or employees in covered funds offered to such customers and how the asset management unit complies with the requirements of subpart c of this part of investment activities of covered funds the covered banking entity written policies and procedures for each asset management unit must clearly articulate and document a comprehensive description of the mission i the nature of the business conducted and strategy i business model for the generation of revenues of the asset management unit related to its investments in covered funds including a description of how such activities comply with this part and in particular the asset management unit practices with respect to seed capital investments in covered funds including how the asset management unit reduces its investments in covered funds to amounts that are permitted de minimis investments within the required period of time the asset management unit practices with respect to co investments in covered funds including certain parallel investments as identified in how the asset management unit complies with the requirements of with respect to individual and aggregate investments in covered funds with respect to other permitted covered fund activities or investment how the asset management unit complies with the requirements of and how the asset management unit complies with the limitations on relationships with a covered fund under how the covered… covered… the asset management unit how the covered… covered banking entity related to the asset management unit and how the covered… asset management unit of violations the covered banking entity written policies and procedures must require the covered banking entity… further such policies and procedures must include specific procedures that are designed to implement monitor and enforce any required remediation and that assess the extent to which any violation indicates that modification to the covered banking entity compliance program is warranted internal controlsa covered trading activitiesa covered banking entity must establish maintain and enforce written internal controls that are… unit is appropriate and consistent with the description of mission strategy and risk mitigation for each trading unit contained in its written policies and procedures these written internal controls must also… further the internal controls must describe procedures for… written internal controls must include at a minimum the following risks instruments and products the covered banking entity must implement and enforce internal controls for each trading unit… the trading unit authorized risks instruments and products as documented in the covered banking entity written policies and procedures and trader mandates at a minimum these internal controls must monitor and govern… unit consistent with the covered banking entity written policies and procedures the type… consistent with the covered banking entity written policies and procedures and the financial contracts products and underlying assets that the trading unit may trade consistent with covered banking entity written policies and procedures limits the covered… each trading unit which shall include limits… measured under normal and stress market conditions and quantitative measurements the covered… covered… unit is consistent with its mission strategy and risk management process as documented in the covered banking entity written policies and procedures… in addition to the quantitative measurements reported by the covered banking entity to agency pursuant to appendix a to this part each covered banking must develop and implement to the extent necessary… units the covered banking entity analysis and quantitative measurement must incorporate the quantitative measurements reported by the covered banking entity to agency pursuant to appendix a and include at minimum the following… ongoing timely monitoring and review of calculated quantitative measurements heightened review of a quantitative measurement when such quantitative measurement raises any question regarding… shall include in depth analysis appropriate escalation procedures and documentation related to the review including the establishment of numerical thresholds for each trading unit for purposes of triggering such heightened review and immediate review and compliance investigation of the trading unit… unit… the quantitative measurement considered together with the facts and circumstances suggests a reasonable likelihood that the trading unit… and this part of compliance program effectiveness the covered banking entity must regularly monitor the effectiveness of its compliance program and take prompt action to address and remedy any deficiencies identified any actions taken to remedy deficiencies and violations shall be documented and maintained as a record of the banking entity covered fund activitiesa covered… the covered fund activities or investments of its asset management units are appropriate and consistent with the description of the asset management unit mission strategy and risk management process contained in the covered banking entity written policies and procedures the internal controls must at a minimum be designed to ensure that the covered banking entity complies with the requirements of for any covered fund in which it invests acts as sponsor or organizes and offers as well as the following investments in a covered fund the covered banking entity must implement and enforce internal controls in a way that monitors and limits the covered banking entity individual and aggregate investments in covered funds at a minimum the covered banking entity shall establish maintain and enforce internal controls reasonably designed to ensure that such investments are… at all times including… covered funds required by describing procedures for… and making the appropriate required disclosures in writing… covered banking entity as provided under monitoring relationships with a covered fund the covered banking entity must implement and enforce internal controls in a way that monitors and limits the covered banking entity sponsorship of and relationships with covered funds at a minimum the covered banking entity shall establish maintain and enforce internal controls reasonably designed to ensure that such activities and relationships are… at all times including… covered… surveillance of compliance program effectiveness the covered banking entity must regularly monitor the effectiveness of its compliance program and take prompt action to address and remedy any deficiencies identified any actions taken to remedy deficiencies and violations shall be documented and maintained as a record of the covered banking entity responsibility and accountability for the compliance programa covered banking entity must establish maintain and enforce a… covered… made… board of directors or similar corporate body and ceo reviews and approves the compliance program this management framework must include at a minimum governance the covered banking entity must ensure that its compliance program is reduced to writing approved by the board of directors or similar corporate body and noted in the minutes mandates the covered banking entity must establish maintain and enforce the trader mandates required by this appendix to clearly inform each trader within a trading unit of his or her responsibilities… part procedures the covered banking entity must establish maintain and enforce management procedures… provide for the designation of at least one person… covered banking entity for each trading unit… covered… procedures for the review by a manager of activities of the trading unit and the quantitative measurements pursuant to appendix a and any other quantitative measurements developed and tailored to the particular risks practices and strategies of the covered banking entity trading units… covered banking entity trading units and… proprietary risk taking… units or asset management units of the covered banking entity engaged in covered trading activities or covered fund activities or investments… unit or asset management unit management senior management is responsible for communicating and reinforcing the… as established by the board of directors or similar corporate body and… covered banking entity covered… once every twelve months such corrective action may include among other things divesture of the position cessation of the activity or disciplinary measures of directors or similar corporate body and ceo the board of directors or similar corporate body and ceo are responsible for setting an appropriate culture of compliance with this part and establishing clear policies regarding the management of covered trading activities and covered fund activities or investments… covered banking entity independent testinga covered banking entity must ensure that independent testing… covered banking entity internal audit department outside auditors consultants or other qualified independent parties regarding the effectiveness of the covered banking entity compliance program established pursuant to this appendix and and the covered banking entity compliance with this part a banking entity must take appropriate action to remedy any concerns identified by the independent testing e remedying deficiencies in its written policies and procedures and internal controls etc the required… covered banking entity covered… no less than once every twelve months… covered… covered banking entity written policies and procedures the effectiveness of the covered… covered banking entity management procedures trainingcovered banking entities must provide adequate training to trading personnel and managers of the covered banking entity as well as other appropriate personnel as determined by the covered banking entity… covered banking entity covered trading activities and covered fund activities or investments the training may be conducted by internal personnel or independent parties deemed appropriate by the covered banking entity based on its size and risk profile recordkeepingcovered banking… covered… end of common text adoption of the common rule textthe proposed adoption of the common rules by the agencies as modified by agency specific text is set forth below of the NA |
| 1633 List of Subjects in 12 CFR Part 44Banks, Banking, Compensation, Credit, Der… | penalties reporting NA | list of subjects in cfr part banks banking compensation credit derivatives government securities insurance investments national banks… |
| 1635 For the reasons stated in the Common Preamble, the Office of the Comptrolle… | for the reasons stated in the common… preamble the office of the comptroller of the currency NA | proposes to amend… |
| 1636 PART 44—PROPRIETARY TRADING AND CERTAIN INTEREST IN AND RELATIONSHIPS WITH … | for part is added to read… as follows u et seq u a a a… part is added as… set forth at the end of the common preamble removing agency wherever it appears and adding in its place the occ andb removing the agency wherever it appears… and adding in its place the occ section is under section of the bank holding company act of as amended u purpose section of the bank holding company act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities including national banks federal branches and agencies of foreign banks federal savings associations and certain subsidiaries thereof this part implements section of the bank holding company act by defining terms used in the statute and related terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to relationship to other authorities except as otherwise provided under section of the bank holding company act and notwithstanding any other provision of law the prohibitions and restrictions under section of… bank holding company act shall apply to the activities banking entity under other applicable provisions of law preservation of authority nothing in this part limits in… any way the authority of the occ to impose cftc or sec is the primary financial regulatory agency as defined in section of the dodd… frank wall street reform and consumer protection act u | part proprietary trading and certain interest in and relationships with covered funds the authority citation… part is amended bya… added to read as follows authority purpose and scope authority this part is issued by agency… covered banking entities described in this part takes effect on july… of a covered banking entity even if such activities are authorized for a covered… penalties for violation of this part by any covered banking entity provided under any other applicable statute paragraph of is added to read as follows definitions covered banking entity means any banking entity that is a national bank a federal branch or agency of a foreign bank a federal savings association or a federal savings bank and any subsidiary of a company described in paragraph through of this section other than a subsidiary for which the… NA |
| 1637 List of Subjects in 12 CFR Part 248Administrative practice and procedure, B… | cfr part administrative practice and procedure banks and banking capital compensation conflict of interests credit derivatives foreign banking government securities holding companies insurance insurance companies investments penalties reporting NA | list of subjects in… |
| 1640 For the reasons set forth in the Supplementary Information, the Board of Go… | for the reasons set forth in the supplementary information… the board of governors of the federal reserve system the text of the common rule as set forth at the end of the NA | proposes to add… |
| 1641 PART 248—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS (REGULATI… | for part is added to read as follows u u et… seq u u et seq and u et seq… part is added as… set forth at the end of the common preamble… part is amended by removing agency wherever… it appears and adding in its place the board… andb removing the agency wherever… it appears and adding in its place the board to read as follows authority purpose scope and relationship to other authorities authority this part regulation vv is issued by the board under section of the bank holding company act of as amended u as well as under the federal reserve act as amended u et seq section of the federal deposit insurance act as amended u the bank holding company act of as amended u et seq and the… international banking act of as amended u et seq purpose section of the bank holding company act establishes prohibitions and restrictions on proprietary trading and investments in or relationships… with covered funds by certain banking entities including state banks bank holding companies savings and loan… holding companies other companies that control an insured depository… foreign banking organizations and certain subsidiaries thereof this part implements section of the bank holding company act by defining terms used in the statute and related terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to relationship to other authorities except as otherwise provided in under section of the bank holding company act and notwithstanding any other provision of law the prohibitions and restrictions under section of… bank holding company act shall apply to the activities nothing in this part… limits in any way the authority of the board other than a subsidiary for which the occ fdic cftc or sec is the primary financial regulatory agency as defined in section of the dodd… frank wall street reform and consumer protection act u in… connection with and related to individual or aggregated positions is consistent… with the purposes of section of the bhc act to the board at least days… prior to the expiration of the applicable time period including information that… addresses the factors in paragraph of this section and of this section the board may… consider all the facts and circumstances related to the material conflicts of interest between… the banking entity and its clients customers or counterparties… would result directly or indirectly in a material exposure by the banking entity… to high risk assets or high risk trading strategies pose a threat to… the safety and soundness of the banking entity… or would pose a… threat to the financial stability of the united states the… contractual terms governing the banking entity interest in the investment and… the risks that disposing of or maintaining the investment the banking… entity or… the financial stability of the united states the cost to… the banking entity of divesting or disposing of the investment would involve or result in a material… conflict of interest between the banking entity and unaffiliated… clients… customers or counterparties to which it owes a duty consultation in… the case of a banking entity that is primarily by another federal banking agency the sec or the cftc… the board will consult with such agency prior to the board may… impose such conditions on any extension approved under paragraph 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 of the bhc act and this part consultation in… the case of a banking entity that is primarily by another federal banking agency the sec or the cftc… the board will consult with such agency prior to is consistent… with the purposes of section of the bhc act to the board at least days… prior to the expiration of the applicable time period under paragraph of this section the board may… consider all the facts and circumstances related to the conditions on any extension approved under paragraph of this section as the board determines are necessary or… appropriate to protect the safety and soundness of the or the financial stability of the united… states address material conflicts of interest or other unsound… practices or otherwise… further the purposes of section of the bhc act | part proprietary trading and relationships with covered funds regulation vv the authority citation… section is added… code of federal regulations title chapter ii part… members… covered banking entities described in this part takes effect on july… of a covered banking entity even if such activities are authorized for a covered banking entity under other applicable provisions of law in paragraph is revised and paragraph is added to read as follows definitions… under the bhc act including section of such act and other provisions of law to impose penalties for violation by any company or individual covered banking entity means any banking entity that is a state member bank as defined in cfr a bank holding company a savings and loan holding company as defined in u a a foreign banking organization as defined in cfr any company that controls an insured depository institution and any subsidiary of a company described in paragraph through of this section… add subpart e to read as follows e conformance period and extended transition period authoritiessec definitions conformance periods for banking entities engaged in prohibited proprietary trading or covered fund activities or investments conformance period for nonbank financial companies supervised by the board engaged in prohibited proprietary trading or covered fund activities and investments e conformance period and extended transition period authorities definitions purposes of this subpart illiquid fund means a covered fund that as of may was principally invested in illiquid assets or ii was invested in and contractually committed to principally invest in illiquid assets and makes all investments pursuant to and consistent with an investment strategy to principally invest in illiquid assets illiquid assets means any real property security obligation or other asset that is not a liquid asset because of statutory or regulatory restrictions applicable to the covered fund or asset cannot be offered sold or otherwise transferred by covered fund to a person that is unaffiliated with the relevant banking entity or because of contractual restrictions applicable to the covered fund or asset cannot be offered sold or otherwise transferred by the covered fund for a period of years or more to a person that is unaffiliated with the relevant banking entity liquid asset means cash or cash equivalents an asset that is traded on a recognized established exchange trading facility or other market on which there exist independent bona fide offers to buy and sell so that a price reasonably related to the last sales price or current bona fide competitive bid and offer quotations can be determined for the particular asset almost instantaneously an asset for which there are bona fide competitive bid and offer quotations in a recognized inter dealer quotation system or similar system or for which multiple dealers furnish bona fide competitive bid and offer quotations to other brokers and dealers on request an asset the price of which is quoted routinely in a widely disseminated publication that is readily available to the general public or through an electronic service that provides indicative data from real time financial networks an asset with an initial term of one year or less and the payments on which at maturity may be settled closed out or paid in cash or one or more other liquid assets described in paragraphs or of this section and any other asset that the board determines based on all the facts and circumstances is a liquid asset principally invested and related definitions a covered fund is principally invested in illiquid assets if at least percent of the fund consolidated total assets are illiquid assets or ii risk mitigating hedges entered into… in or holdings of illiquid assets is contractually committed to principally invest in illiquid assets if the fund organizational documents other documents that constitute a contractual obligation of the fund or written representations contained in the fund offering materials distributed to potential investors provide for the fund to be principally invested in assets described in paragraph of this section at all times other than during temporary periods such as the period prior to the initial receipt of capital contributions from investors or the period during which the fund investments are being liquidated and capital and profits are being returned to investors and has an investment strategy to principally invest in illiquid assets if the fund markets or holds itself out to investors as intending to principally invest in assets described in paragraph of this section or ii has a documented investment policy of principally investing in assets described in paragraph of this section conformance periods for banking entities engaged in prohibited proprietary trading or covered fund activities or investments conformance period in general except as provided in paragraph or of this section a banking entity shall bring its activities and investments into compliance with the requirements of section of the bhc act u and this part no later than years after july new banking entities a company that was not a banking entity or a subsidiary or affiliate of a banking entity as of july and becomes a banking entity or a subsidiary or affiliate of a banking entity after that date shall bring its activities and investments into compliance with the requirements of section of the bhc act u and this part before the later of the conformance date determined in accordance with paragraph of this section or ii years after the date on which the company becomes a banking entity or a subsidiary or affiliate of a banking entity extended conformance period the board may extend the two year period under paragraph or of this section by not more than three separate one year periods if in the judgment of the board each such one year extension… u and this part and would not be detrimental to the public interest illiquid funds extended transition period the board may further extend the period provided by paragraph of this section during which a banking entity may acquire or retain an ownership interest in or otherwise provide additional capital to a covered fund if the fund is an illiquid fund and ii the acquisition or retention of such interest or provision of additional capital is necessary to fulfill a contractual obligation of the banking entity that was in effect on may duration limited the board may grant a banking entity only one extension under paragraph of this section and such extension may not exceed years beyond any conformance period granted under paragraph of this section and ii shall terminate automatically on the date during any such extension on which the banking entity is no longer under a contractual obligation described in paragraph ii of this section contractual obligation for purposes of this paragraph a banking entity has a contractual obligation to take or retain an ownership interest in an illiquid fund if the banking entity is prohibited from redeeming all of its ownership interests in the fund and from selling or otherwise transferring all such ownership interests to a person that is not an affiliate of the banking entity under the terms of the banking entity ownership interest in the fund or the banking entity other contractual arrangements with the fund or unaffiliated investors in the fund or if the banking entity is the sponsor of the fund under the terms of a written representation made by the banking entity in the fund offering materials distributed to potential investors ii a banking entity has a contractual obligation to provide additional capital to an illiquid fund if the banking entity is required to provide additional capital to such fund under the terms of its ownership interest in the fund or the banking entity other contractual arrangements with the fund or unaffiliated investors in the fund or if the banking entity is the sponsor of the fund under the terms of a written representation made by the banking entity in the fund offering materials distributed to potential investors and iii a banking entity shall be considered to have a contractual obligation for purposes of paragraph or ii of this section only if the obligation may not be terminated by the banking entity or any of its subsidiaries or affiliates under the terms of its agreement with the fund and in the case of an obligation that may be terminated with the consent of other persons the banking entity and its subsidiaries and affiliates have used their reasonable best efforts to obtain such consent and such consent has been denied approval required to hold interests in excess of time limit the conformance period in paragraph of this section may be extended in accordance with paragraph or only with the approval of the board a banking entity that seeks the board approval for an extension of the conformance period under paragraph or for an extended transition period under paragraph must submit a request in writing… provide the reasons why the banking entity believes the extension should be granted… provide a detailed explanation of the banking entity plan for divesting or conforming the activity or investment factors governing board determinations extension requests generally in reviewing any application by a specific company for an extension under paragraph or… activity investment or fund including to the extent relevant whether the activity or investment involves or results in… would… ii market conditions iii the nature of the activity or investment iv the date that the banking entity contractual obligation to make or retain an investment in the fund was incurred and when it expires… fund vi the degree of control held by the banking entity over investment decisions of the fund vii the types of assets held by the fund including whether any assets that were illiquid when first acquired by the fund have become liquid assets such as for example because any statutory regulatory or contractual restrictions on the offer sale or transfer of such assets have expired viii the date on which the fund is expected to wind up its activities and liquidate or its investments may be redeemed or sold ix the total exposure of the banking entity to the activity or… or activity may pose to… activity or investment within the applicable period xi whether the divestiture or conformance of the activity or… xii the banking entity prior efforts to divest or conform the activity or investment including with respect to an illiquid fund the extent to which the banking entity has made efforts to terminate or obtain a waiver of its contractual obligation to take or retain an equity partnership or other ownership interest in or provide additional capital to the illiquid fund and xiii any other factor that the board believes appropriate timing of board review the board will seek to act on any request for an extension under paragraph or of this section no later than calendar days after the receipt of a complete record with respect to such request… supervised… the approval of a request by the banking entity for an extension under paragraph or of this section authority to impose restrictions on activities or investments during any extension period in general… or… u… supervised… imposing conditions on the approval of a request by the banking entity for an extension under paragraph or of this section conformance period for nonbank financial companies supervised by the board engaged in prohibited proprietary trading or covered fund activities and investments divestiture requirement a nonbank financial company supervised by the board shall come into compliance with all applicable requirements of section of the bank holding company act u and this subpart including any capital requirements or quantitative limitations adopted thereunder and applicable to the company not later than years after the date the company becomes a nonbank financial company supervised by the board extensions the board may by rule or order extend the two year period under paragraph of this section by not more than three separate one year periods if in the judgment of the board each such one year extension… u and this part and would not be detrimental to the public interest approval required to hold interests in excess of time limit a nonbank financial company supervised by the board that seeks the board approval for an extension of the conformance period under paragraph of this section must submit a request in writing… provide the reasons why the nonbank financial company supervised by the board believes the extension should be granted and provide a detailed explanation of the company plan for conforming the activity or investment to any applicable requirements established under section or of the bank holding company act u and factors governing board determinations in general in reviewing any application for an extension… nonbank financial company and the request including to the extent determined relevant by the board the factors described in of this chapter timing the board will seek to act on any request for an extension under paragraph of this section no later than calendar days after the receipt of a complete record with respect to such request authority to impose restrictions on activities or investments during any extension period the board may impose… nonbank financial company… NA |
| 1642 List of Subjects in 12 CFR Part 351Banks, banking, Capital, Compensation, C… | credit derivatives government securities insurance insurance companies investments penalties reporting and recordkeeping requirements risk risk retention NA | list of subjects in cfr part banks banking capital compensation conflict of interests… |
| 1644 For the reasons set forth in the Supplementary Information, the Federal Dep… | for the reasons set forth… in the supplementary information the federal deposit insurance corporation the text of the common rule as set forth at the end of the supplementary information as part to chapter NA | proposes to add… |
| 1645 PART 351—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS13. The au… | for part is… added to read as follows u u et seq part is added as… set forth at the end of the common preamble… part is amended by removing agency wherever it appears and adding in its place the fdic andb removing the agency wherever… it appears and adding in its place the fdic to read as follows authority purpose scope and relationship to other authorities authority this part is issued by the fdic under section of the bank holding company act of as amended u purpose section of the bank holding company act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds… by certain banking entities including any insured depository institution… for… which the fdic is the appropriate federal banking agency… this part implements section of the bank holding company act by defining terms used in the statute and related terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to for… which the fdic is the appropriate federal banking agency relationship to other authorities except as otherwise provided in under section of the bank holding company act and notwithstanding any other provision of law the prohibitions and restrictions under section of… bank holding company act shall apply to the activities for which… the fdic is the appropriate federal banking agency as defined… in section of NA | part proprietary trading and relationships with covered funds the authority citation… and et seq… section is added… any insured depository institution… this part takes effect on july… of a covered banking entity even if such activities are authorized for a covered banking entity under other applicable provisions of law paragraph of is added to read as follows definitions covered banking entity means any banking entity that is an insured depository institution… that term is… |
| 1646 List of Subjects in 17 CFR Part 255Banks, Brokers, Dealers, Investment advi… | NA | list of subjects in… |
| 1648 For the reasons set forth in the Supplementary Information, the Securities … | for… the reasons set forth in the supplementary information the the text of the common rule as set forth at the end of the supplementary information as part to chapter NA | securities and exchange commission proposes to add… |
| 1649 PART 255—PROPRIETARY TRADING AND RELATIONSHIPS WITH COVERED FUNDS18. The au… | and relationships with covered funds the authority for… part is added to read as follows u u part is added as… set forth at the end of the common preamble… part is amended by removing… agency wherever it appears and adding in its place… sec andb removing the agency wherever… it appears and adding in its place the sec to read as follows authority purpose scope and relationship to other authorities authority this part is issued by the sec under section of… the bank holding company act of as amended u purpose section of the bank holding company act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities including registered broker dealers registered investment advisers and registered security based swap dealers among others identified in section of the dodd frank wall street reform and consumer protection act of u this part implements section of the bank holding company act by defining terms used in the statute and related terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to relationship to other authorities… except as otherwise provided in under section of the act and notwithstanding any other provision of law… the prohibitions and restrictions under section of bhc act for which… the… sec is the primary financial regulatory agency as defined in section of the dodd frank… wall street reform and consumer protection act of u prohibition on acquiring or retaining an ownership interest… in and having certain relationships with a covered fund banking entity may not as principal directly or indirectly acquire or retain… any ownership interest in or sponsor a covered fund of the dodd… frank wall street reform and consumer protection act of comptroller of the currency order of… the board of governors of the federal reserve system secretary of the board order of the board… of directors at washington dc this th day of | part proprietary trading… o o q w… section is added… and sections f f and of the securities exchange act of u o o q w code of federal regulations title chapter ii part… covered banking entities described in this part takes effect on july… bhc… shall apply to the activities of a covered banking entity even if such activities are authorized for a covered banking entity under other applicable provisions of law paragraph of is added to read as follows definitions covered banking entity means any entity described in paragraph of this section… section is revised to read as follows… general prohibition except as otherwise provided in this subpart a covered… registered investment advisers a covered banking entity that is a covered banking entity because it is an investment adviser identified in section iii… shall comply with the restrictions on covered fund activities or investments set forth in subpart c and of subpart d issued by the agency identified in section of the federal deposit insurance act u that regulates the banking entity described in or with which the investment adviser is affiliated to paragraph nothing set forth in paragraph of this section shall limit the sec authority under any other provision of law including pursuant to section of the bank holding company act october john walsh acting… october jennifer j johnson… october federal deposit insurance corporation e feldman executive secretary NA |
Final Rule text that was added or changed from the Proposed Rule
# rule text without preamble
frr10 <- filter(fr10, !preamble)
prr10 <- filter(pr10, !preamble)
# final rule 10-grams not in proposed rule
frr10 %<>%
mutate(new = !tengram %in% prr10$tengram,
word1 = str_extract(tengram, "\\w+") )
frr10 %<>%
group_by(id) %>%
# mark transitions from new to new or new to new text
mutate(trans = ifelse(new & !lead(new) | !new & lead(new), T, F)) %>%
# if old, the next 9 are also old
mutate(fix = reduce(map(1:9, ~ lag(trans, ., 0)), `+`)) %>%
mutate(new = ifelse(fix>0 & new == T, F, new)) %>%
mutate(word1 = ifelse(trans, str_c(word1, "..."), word1))
frr10 %<>%
# collapse words
group_by(new, id) %>%
summarise(word_count = n(),
text = paste(word1, collapse = " "))
frr10 %>%
ggplot() +
aes(x = id, y = word_count, fill = new) +
geom_col() +
coord_flip() +
labs(fill = "Added or Changed in Final Rule",
x = "",
"Number of words") +
facet_wrap("id", scales = "free", ncol = 1) +
theme_minimal() +
theme(axis.text.y = element_blank(),
panel.grid.major.y = element_blank(),
strip.text = element_text(hjust = 0),
legend.position = "top") 
frr10 %>%
ungroup() %>%
select(-word_count) %>%
spread(key = new, value = text) %>%
rename(`Words from phrases that were also in the Proposed Rule` = `FALSE`,
`Words not from phrases that were also in the Proposed Rule` = `TRUE`) %>%
kablebox()| id | Words from phrases that were also in the Proposed Rule | Words not from phrases that were also in the Proposed Rule |
|---|---|---|
| 4696 PART [__] PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WI… | part proprietary trading and certain interests in and relationships with covered fundssubpart a authority and definitionssec authority purpose scope and relationship to other authorities reserved definitions b proprietary trading prohibition on proprietary trading permitted underwriting and market making related activities permitted… risk mitigating hedging activities other permitted proprietary trading activities reserved subpart c covered fund activities and investments prohibition on acquiring or retaining an ownership interest in and having certain… relationships with a covered fund permitted organizing and offering a covered fund permitted investment in a… covered fund other permitted… covered fund activities and investments limitations on relationships with a covered fund other limitations… on permitted covered fund activities and investments reserved reserved… reserved… reserved subpart d compliance program requirement violations program for a authority and definitions authority purpose scope and relationship to other authorities reserved definitions otherwise specified for purposes of this part affiliate… has the same meaning as in section of the bank holding company… has the same meaning as in section of the any company that is treated as a bank holding company for purposes of… section of the international banking act of u and any… affiliate or subsidiary of any entity described in paragraphs as defined in… section of the small business investment act of u of the… dodd frank wall street reform and consumer protection act… board means… the board of governors of the federal reserve system has the same meaning… as in section of the exchange act u c… depository institution has the same meaning as in… section of the federal deposit insurance act u derivative derivative means any swap as that term is defined in section a of the commodity exchange act u a or security based swap as that term is… defined in section of the exchange act u c commodity for deferred shipment… or delivery that is intended to be physically settled any foreign exchange forward as that term is defined in section a of the commodity exchange act u a or foreign exchange swap as that term is defined in… section a of the commodity exchange act u a any agreement contract or transaction in foreign currency described in section of… the commodity exchange act u any agreement contract or in a commodity other than foreign currency described… in section of the commodity exchange act u and any transaction authorized… under section of the commodity exchange act u or… a derivative does not include any consumer commercial or other agreement contract or transaction that the cftc and sec have further defined by joint regulation interpretation guidance or other action as not within the definition of swap as that term is defined in section a of the commodity exchange act u a or security based swap as that term is… defined in section of the exchange act u c any identified banking product as defined in section of the legal certainty for bank products act of u that… is subject to section of that act u a exchange act means… the securities exchange act of u a et seq commodity has the same meaning as in… section a of the commodity exchange act u a federal banking agencies means the board the… office of the comptroller of the currency and the other than the united states that is engaged in the supervision of… insurance companies under foreign insurance law general account means by… a state insurance regulator or a foreign insurance regulator insured depository institution has the same meaning as in section of the… federal deposit insurance act u but does not include insured depository institution that is described in section of the bhc act u loan means any loan… lease extension of credit or secured or unsecured receivable in section of the dodd… frank wall street reform and consumer protection act u any contract to… buy purchase or otherwise acquire for security futures products any contract agreement or transaction… for future delivery with respect to a commodity future any contract agreement or… transaction for future delivery with respect to a derivative the execution termination prior to its scheduled maturity date assignment exchange or similar transfer or conveyance of or extinguishing of rights or… obligations under a derivative as the context may require… qualifying foreign banking organization means… a foreign banking organization that qualifies as such under or sec means the securities and exchange commission sale and sell each include any contract to sell or otherwise dispose of for security futures products such terms include any contract agreement or transaction for future delivery with respect to a commodity future such terms include any contract agreement or transaction for future delivery with respect to a derivative such terms include the execution termination prior to its scheduled maturity date assignment exchange or similar transfer or conveyance of or extinguishing of rights or obligations under a derivative as the context may require security has the meaning specified in section… of the exchange act u c security based swap has the same meaning… as in section of the exchange act u c security future has the meaning… specified in section of the exchange act u c separate account means… an account established and maintained by an insurance company under which income gains and losses whether or not realized from assets allocated to such account are in accordance with the applicable contract credited to or charged against such account without regard to… other income gains or losses of the insurance company subsidiary… has the same meaning as in section of the or a similar official or agency of a state that is engaged in… the supervision of insurance companies under state insurance law subpart b proprietary trading prohibition on proprietary trading… prohibition except as otherwise provided in this subpart a proprietary trading means… engaging as principal for the trading account of the… banking entity… in any purchase or sale of one or more trading account trading… account means any account that is used by a principally for the purpose of short term resale benefitting from actual or expected short term price movements realizing short… term arbitrage profits or hedging one or more positions calculates risk… based capital ratios under the market risk capital rule in the business of… a dealer swap dealer or security based swap dealer engaged in the business of a dealer swap dealer or security based swap dealer… outside of the united states to the extent the principally for any… of the purposes described in paragraph of this section a contract of sale of a commodity for future delivery or option on a… contract of sale of a commodity for future delivery a contract… of sale of a commodity for future delivery or option on a contract… of sale of a commodity for future delivery or under a… repurchase or reverse repurchase agreement pursuant to which the… banking entity has simultaneously agreed in writing to both purchase and sell a stated asset at stated prices and on… stated dates or on demand with the same counterparty banking entity lends or borrows a security temporarily to or from another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such security and has the right to terminate the transaction and to recall… the loaned security on terms agreed by the parties in… accordance with a documented liquidity management plan of the contemplated and authorized by the plan be principally… for the purpose of managing the liquidity of the… banking entity and not for the purpose of short term resale benefitting from actual or expected short term price movements realizing short term arbitrage profits or… hedging a position taken for such short term purposes for… liquidity management purposes be highly liquid and limited to expect to give rise to appreciable profits or… losses as a result of short term price movements for such purposes to an amount that is consistent with the banking entity… near term funding needs including deviations from normal operations as estimated… and documented pursuant to methods specified in the plan is consistent with agency… s supervisory requirements guidance and expectations regarding liquidity management in the ordinary course… of collecting a debt previously contracted in good faith definition of other terms… related to proprietary trading for purposes of this subpart has the same meaning… as in section of the exchange act u c… commodity has the same meaning as in section a of the commodity exchange act u a except that a commodity does not include any security contract of sale of a commodity for future delivery means a contract of sale as that term is defined in section a of the commodity exchange act u a for future delivery as that term is defined in… section a of the commodity exchange act u a a derivatives clearing organization registered under… section b of the commodity exchange act u a under section… b of the commodity exchange act u a or the… market risk capital rule that is applicable to the banking… entity that is affiliated with a bank holding company banking entity… to which a market risk capital rule is applicable the market risk capital rule… that is applicable to the affiliated bank holding company permitted underwriting and market making… related activities underwriting activities permitted underwriting activities the prohibition position are designed not to exceed the reasonably… expected near term demands of clients customers or counterparties internal compliance program… required by subpart d of this part that is banking entity compliance with the requirements of paragraph of this section… including reasonably designed written policies and procedures internal controls the reasonably… expected near term demands of clients customers or counterparties a distribution of securities means an offering of securities whether… or not subject to registration under the securities act underwriter… means a person who has agreed with an issuer engage in… a distribution of… securities for or… on behalf of the issuer or selling security holder manage… a distribution of… securities for or… on behalf of the issuer or selling security holder in a distribution of such securities for or… on behalf of the issuer or selling security holder market making… related activities permitted market making related activities the prohibition the reasonably… expected near term demands of clients customers or counterparties internal compliance program… required by subpart d of this part that is banking entity compliance with the requirements of paragraph of this section… including reasonably designed written policies and procedures internal controls permitted risk mitigating… hedging activities… permitted risk mitigating… hedging activities the prohibition contained in does not apply banking entity in connection with and related to… individual or aggregated positions contracts or other holdings of 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 requirements internal compliance program… required by subpart d of this part that is of this section… including reasonably designed written policies and procedures regarding the in… accordance with the written policies procedures and internal controls risks including market risk counterparty or other credit… risk currency or foreign exchange risk interest rate risk risk basis risk or… similar risks arising in connection with and related to does not… give rise at the inception of the hedge to is… subject to continuing review monitoring and management by the… banking entity that is consistent with the written hedging… policies and procedures required under paragraph of this section based upon the… facts and circumstances of the underlying and hedging positions positions… contracts or other holdings the risks of which the positions… contracts or other holdings the risks of which the contained in does… not apply to the purchase or sale by a 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 u et seq… an… obligation of any state or any political subdivision thereof of the… dodd frank wall street reform and consumer protection act the united states… the prohibition… contained in does… not apply to the purchase or sale of a directly or indirectly controlled by a… banking entity that is organized under the laws of banking entity that… is organized under the laws of the united states contained in does… not apply to the purchase or sale of a under… the laws of the united states or any state organized… under the laws of the united states or of contained in… does not apply to the purchase or sale of contained in… does not apply to the purchase or sale of acting… as riskless principal in a transaction in which the… banking entity… after receiving an order to purchase or sell a for its own account to offset… a contemporaneous sale to or purchase from the customer contained in… does not apply to the purchase or sale of the… insurance company or its affiliate purchases or sells the the insurance company 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 the appropriate federal banking agencies after consultation with the financial stability oversight… council and the relevant insurance commissioners of the states have not jointly determined after notice and comment that a particular law regulation or written guidance described in paragraph of this section is insufficient to protect the safety and soundness of the covered banking… entity or the financial stability of the united states contained in… does not apply to the purchase or sale of directly or indirectly controlled by a banking entity that is organized… under the laws of the united states or of pursuant to paragraph or of section of… the bhc act and iii the purchase or sale of… paragraph of this section a purchase or sale of pursuant… to paragraph or of section of the bhc act banking entity… that is a foreign banking organization the banking entity banking… entity that is not a foreign banking organization the is not organized… under the laws of the united states or of meets at least… two of the following requirements total assets of the… banking entity held outside… of the united states exceed total assets of the… banking entity held in the united… states 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… 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 a purchase or sale organized… under the laws of the united states or of organized… under the laws of the united states or of organized… under the laws of the united states or of organized… under the laws of the united states or of organized… under the laws of the united states or of registered… with the sec under section of the exchange act registered with… the sec under section f of the exchange act limitations on permitted proprietary trading activities no transaction class of transactions or activity may be deemed permissible under through if the transaction class of transactions or activity would involve or result in a… material conflict… of interest between… the… banking entity and its clients customers or counterparties result directly or indirectly… in a material exposure by the… banking entity to a high risk asset or a high risk trading strategy or pose a threat to… the safety and soundness of the… banking entity or to the financial stability of the united states definition of material conflict of interest 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 interests being materially adverse to the interests of its client customer or counterparty with… respect to such transaction class of transactions or activity prior to effecting the specific transaction or class or… type of transactions or engaging in the specific activity 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 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 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 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 establishment of information barriers the conflict of interest may involve or result in a materially adverse effect on a client customer or counterparty definition of high risk asset and high risk trading strategy for purposes of this section high risk asset means an asset or group… of related assets that would if held by a banking… entity would incur a substantial financial loss… or would pose a… threat to the financial stability of the united states… high risk trading strategy means a… trading strategy that would if engaged in by a banking… entity would incur a substantial financial loss… or would pose a… threat to the financial stability of the united states reserved subpart c covered funds activities and investments prohibition on acquiring or retaining an ownership interest in and having certain relationships with a covered fund… prohibition 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 acquiring or retaining… an ownership interest in a covered fund by a in the ordinary course… of collecting a debt previously contracted in good faith trustee… or in a similar fiduciary capacity for a customer covered fund means an issuer that would be an investment company as defined in the investment company act of u a et seq but for… section or of that act u a or ii section… a of the commodity exchange act u a for organized… under the laws of the united states or of the… appropriate federal banking agencies the sec and the cftc organized… under the laws of the united states or of the investment decisions regarding… the underlying assets or holdings of the separate account in compliance… with applicable supervisory guidance regarding bank owned life insurance defined… in section of the federal deposit insurance act u as defined in… section of the small business investment act of u designed primarily to promote the public welfare of the type permitted under paragraph of section of the revised statutes of the united states u including the welfare of low and moderate income communities or… families such as providing housing services or jobs or building or certified historic structure as such terms are defined in section of the internal revenue code… of or a similar state historic tax credit program of the… dodd frank wall street reform and consumer protection act the… appropriate federal banking agencies the sec and the cftc is consistent… with the purposes of section of the bhc act applicable accounting standards means u generally accepted accounting… principles or such other accounting standards applicable to a banking entity uses in the ordinary course… of its business in preparing its consolidated financial statements security has the meaning… specified in section of the exchange act u c in… section of the investment company act of u a ownership interest ownership… interest means any equity partnership or other similar interest so long as the sole purpose… and effect of the interest is to allow the employee thereof to share in the… profits of the covered fund as performance compensation for employee thereof may be obligated under the terms of such interest to return profits previously received… all such profit once allocated is distributed to the employee thereof… promptly after being earned or if not so distributed that would be a covered transaction as defined in… section a of the federal reserve act u c 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 trustee for purposes of a trustee does not include a trustee that does not exercise investment… discretion with respect to a covered fund including a in paragraph of this section or that… possesses authority and discretion to manage and control the a… trustee of such covered fund permitted organizing and offering acquiring or retaining an ownership interest… in or acting as sponsor to a covered fund 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 the provides bona fide trust fiduciary investment advisory or commodity trading advisory services 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 intends to provide advisory or similar services to… its customers through organizing and offering such fund the not acquire or retain an ownership… interest in the covered fund except as permitted under 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 the covered fund for corporate marketing promotional or other purposes does not share the same name… or a variation of the same name with the does not use the word bank… in its name no director or employee of the takes or retains an ownership interest in the covered… fund except for any director or employee of the banking entity clearly and conspicuously discloses in writing to any prospective and actual investor in the covered fund such as through disclosure in the covered fund offering documents that any losses in such covered fund will be borne solely by… investors in the covered fund and not by the losses in such covered fund will be limited to losses attributable to the… ownership interests in the covered fund held by the that such investor should read the… fund offering documents before investing in the covered fund… 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 employees in sponsoring… or providing any services to the covered fund and complies with any additional rules of the appropriate federal banking agencies the sec or the cftc as provided in section 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 acquiring or retaining an ownership interest in or acting… as sponsor to a covered fund that is an the obligations or performance of the covered… fund or of any covered fund in which such permitted investment in a covered fund… authority and limitations on permitted investments in covered funds fund and providing the fund with sufficient initial equity for… investment to permit the fund to attract unaffiliated investors of this section or ii de minimis investment… making and retaining an investment in the covered fund must actively seek unaffiliated investors to reduce through redemption sale dilution or other methods… the aggregate amount of all ownership interests of the to… the amount permitted in paragraph of this section and later than year after the date of establishment of the fund or such longer period as may be provided… by the board pursuant to paragraph of this section requirements of… section g of the exchange act u o and may… not exceed percent of the tier capital of the shall be calculated… as of the last day of each calendar quarter the amount and value of a banking entity… permitted investment in any single covered fund shall include for purposes of… determining whether an investment in a single covered fund banking entity in a covered fund divided by… the total number of ownership interests held by all without… regard to committed funds not yet called for investment without… regard to committed funds not yet called for investment in… the same manner and according to the same standards for purposes of… determining whether an investment in a single covered fund requirements… of section g of the exchange act u o requirements of… section g of the exchange act u o and in… the same manner and according to the same standards aggregate… permitted investments in all covered funds for purposes of of this section… the aggregate value of all ownership interests held by of this section entities that are… required to hold and report tier capital if a… banking entity… is required to calculate and report tier capital the… banking entity tier capital… shall be equal to the amount of tier capital banking entity as of… the last day of the most recent calendar quarter banking entity is… not required to calculate and report tier capital the… banking entity tier capital shall be determined… to be equal to in the case of a… banking entity that is controlled directly or indirectly by… a depository institution that calculates and reports tier capital the amount… of tier capital reported by such controlling depository institution banking entity that is not controlled directly or indirectly by a depository institution that calculates and… reports tier capital 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 the amount of tier capital reported by the top tier affiliate of such… covered banking entity that calculates and reports tier capital paragraph of this section and 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 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 organized… under the laws of the united states or of organized… under the laws of the united states or of capital treatment for a permitted… investment in a covered fund for purposes of calculating from the banking entity… tier capital as determined under paragraph of this section extension of time… to divest an ownership interest upon application by a of this section for up to 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 be submitted to the board at least days prior to the expiration of the applicable time period ii provide the reasons for application including information that addresses the factors… in paragraph of this section and iii explain the… banking entity plan for reducing the permitted investment in a covered fund through redemption sale dilution or other methods as required in paragraph of this section factors governing board determinations in reviewing any application under paragraph of this section the board may consider all the facts and circumstances related to the permitted investment… in a covered fund including 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 the… contractual terms governing the banking entity interest in the the date on which the covered fund is expected to… have attracted sufficient investments from investors unaffiliated with the banking entity to… comply with the limitations in paragraph of this section 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 the cost to… the… banking entity of divesting… or disposing of the investment within the applicable period the divestiture or conformance of the investment would involve or result in a material… conflict of interest between the banking entity and unaffiliated clients… customers or counterparties to which it owes a duty banking entity 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 and… ix any other factor that the board believes appropriate… authority to impose restrictions on activities or investment during any extension period the board may impose such conditions on any extension approved under paragraph 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 of the bhc act… and this part 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 banking entity for an extension under paragraph of this… section other permitted covered fund activities and investments permitted does not apply with… respect to an ownership interest in a covered fund internal compliance program… required by subpart d of this part that is of… this section including reasonably designed written policies and procedures the acquisition… or retention of the ownership interest… is made in… accordance with the written policies procedures and internal controls covered fund does not… give rise at the inception of the hedge to and is… subject to continuing review monitoring and management by the certain permitted covered fund activities and investments… outside of the united states the prohibition contained in does not apply to the acquisition or retention of any ownership interest in… or the sponsorship of a covered fund by a 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 pursuant to paragraph or of section… of the bhc act iii no ownership interest in covered fund is offered for sale or sold to a… resident of the united states and iv the activity pursuant… to paragraph or of section of the bhc act banking entity… that is a foreign banking organization the banking entity banking… entity that is not a foreign banking organization the is not organized under the laws of the… united states or of one or more states and meets at least… two of the following requirements total assets of the… banking entity held outside… of the united states exceed total assets of the… banking entity held in the united… states 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… 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 offered for sale… or sold to a resident of the united states organized… under the laws of the united states or of organized… under the laws of the united states or of organized… under the laws of the united states or of organized… under the laws of the united states or of of any ownership… interest in or the sponsorship of a covered fund 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 the appropriate federal banking agencies after consultation with the financial stability oversight… council and the relevant insurance commissioners of the states have not jointly determined after notice and comment that a particular law regulation or written guidance described in paragraph of this section is… insufficient… to protect the safety and soundness of the banking… entity or the financial stability of the united states… limitations on relationships with a covered fund relationships with a covered fund except… as provided for in paragraph 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 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 a of… the federal reserve act u c as if such… banking entity and the affiliate thereof were a member bank and the covered fund were… an affiliate thereof notwithstanding paragraph of this section a… banking entity may acquire and retain any ownership interest in… a covered fund in accordance with the requirements of 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 is in… compliance with each of the limitations set forth in with respect… to a covered fund organized and offered by such thereof… the chief executive officer or equivalent officer of the 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 the board has not determined that such transaction is inconsistent with… the safe and sound operation and condition of the 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 shall be subject to section b of… the federal reserve act u c as if such… banking entity were a member bank and such covered fund were an affiliate thereof restrictions on prime brokerage transactions a prime brokerage transaction permitted under paragraph ii of this section shall be subject to section b of the federal reserve act u c… as if the counterparty were an affiliate of the… banking entity other limitations on permitted covered fund activities no transaction class of… transactions or activity may be deemed permissible under through if the transaction class of transactions or activity would involve or result in a… material conflict… of interest between… the… banking entity and its clients customers or counterparties result directly or indirectly… in a material exposure by the… banking entity to a high risk asset or a high risk trading strategy or pose a threat to… the safety and soundness of the… banking entity or to the financial stability of the united states definition of material conflict of interest 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 interests being materially adverse to the interests of its client customer or counterparty with… respect to such transaction class of transactions or activity prior to effecting the specific transaction or class or… type of transactions or engaging in the specific activity 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 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 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 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 establishment of information barriers the conflict of interest may involve or result in a materially adverse effect on a client customer or counterparty definition of high risk asset and high risk trading strategy for purposes of this section high risk asset means an asset or group… of related assets that would if held by a banking… entity would incur a substantial financial loss… or would pose a… threat to the financial stability of the united states… high risk trading strategy means a… trading strategy that would if engaged in by a banking… entity would incur a substantial financial loss… or would pose a… threat to the financial stability of the united states reserved… reserved subpart d compliance program requirement violations program for 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 of the bhc act and this part size scope… and complexity of activities and business structure of the in paragraph of this section the compliance program required by… paragraph of this section at a minimum shall include and activities and investments with… respect to a covered fund subject to subpart c comply with section of the bhc act and this part… a system of internal controls reasonably designed to monitor… compliance with section of… the bhc act and this part… and to prevent the occurrence of activities or investments that are prohibited by section of the bhc act and this part a management framework that clearly delineates responsibility and accountability for compliance with… section of the bhc act and this part and banking entity or by a qualified outside party training for trading personnel and managers as well as other appropriate personnel… to effectively implement and enforce the compliance program and… records sufficient to demonstrate compliance with section… of the bhc act and this part which a… banking entity must promptly provide to agency upon request and… retain for a period of no less than years has together… with its affiliates and subsidiaries trading assets and liabilities the average… gross sum of which on a worldwide consolidated basis as measured as of the last… day of each of the four prior calendar quarters as measured as of the last… day of each of the four prior calendar quarters organized… under the laws of the united states or of organized… under the laws of the united states or of of… section of the bhc act and this part and banking entity that engages in an activity or makes an investment in violation of… section of the bhc act or this part or in a manner that functions as an evasion of the requirements of section 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 of the bhc act or this part shall terminate… the activity and as relevant dispose of the investment banking entity… has engaged in an activity or made… an investment in violation of… section of the bhc act or this part or that functions as an evasion of the requirements… of section of the bhc act or this part compliance with… section of the bhc act and this part including a to… part reporting and recordkeeping requirements for covered trading activitiesi banking entities must satisfy in connection with the… restrictions on proprietary trading set forth in subpart b… proprietary trading… restrictions pursuant to this appendix generally applies to a these entities are required to furnish periodic reports to agency regarding a variety of quantitative measurements of their covered trading activities which vary depending on… the scope and size of covered trading activities and create and maintain records documenting the preparation and… content of these reports the requirements of this appendix banking entities and agency in better understanding… and evaluating the scope type and profile of the trading… activities that warrant further review or examination by the… banking entity to verify compliance… with the proprietary trading restrictions iv evaluating whether the engaged in market making related activities subject to are consistent with the requirements governing permitted market making related… activities evaluating whether the covered trading activities of trading that are engaged in permitted trading activity subject to or i 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 of the banking entity to help establish the appropriate frequency and scope of examination by agency of such activities and… vii assessing and addressing the risks associated with the 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 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 of the bhc act and this part and to have… an effective compliance program as required by and appendix to this part the effectiveness of particular quantitative measurements may differ based on the profile of the banking entity businesses… in general and more specifically of the particular trading including types of instruments traded trading activities and strategies and history and experience e 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 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 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 through that result in a material exposure… to high risk assets or high risk trading strategies be escalated within the banking entity for review… further analysis explanation to agency and remediation where appropriate banking entities in identifying and managing the risks related to their covered trading activities definitionsthe terms used in this appendix have the same meanings as set forth in and in… addition for purposes of this appendix the following definitions period means the period of… time for which a particular quantitative measurement must be any increase… or decrease in the market value of a trading reporting and… recordkeeping of quantitative measurementsa scope of required reportinggeneral scope banking entity must calculate… any applicable quantitative measurement for each trading day a… banking entity… must report each applicable quantitative measurement to agency on requested by agency all… quantitative measurements for any calendar month must be reported banking entity must for any quantitative measurement furnished to agency pursuant to this appendix and create and maintain records documenting the preparation and content of these reports as well as such information as is necessary to permit agency to verify… the accuracy of such reports for a period of for purposes of this appendix risk and position limits are the constraints… that define the amount of risk that a trading is permitted to take… at a point in time as defined by the banking entity… for the purposes of risk management of each trading 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 for purposes of this… appendix risk factor sensitivities are changes in a trading profit and loss that are expected… to occur in the event of a change in report the risk factor sensitivities that… are monitored and managed as part of the trading overall risk management policy the… underlying data and methods used to compute a trading and the internal risk management models employed the number and type of risk factor… sensitivities that are monitored and managed by a trading 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 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 that are sufficiently granular to account for specific credit sectors and… market segments the maturity profile of the positions and volatility and or correlation sensitivities expressed in a manner that demonstrates any significant non… linearities and the maturity profile of the positions 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 that differentiate between important equity market sectors and segments… such as a small capitalization equities and international equities 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 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 banking entity to calculate… sensitivities to a common factor shared by multiple trading so… that the sensitivities can be compared from one trading for purposes of this appendix value at risk var is the commonly used percentile measurement of the risk of… future financial loss in the value of a given over a specified period of time based on current market conditions for purposes of this appendix stress value at risk stress var is the percentile measurement of the risk of… future financial loss in the value of a given over a specified period of time based… on market conditions during a period of significant financial compute and report var and stress var by employing generally accepted standards and methods of… calculation var should reflect a loss in a trading that is expected to be exceeded less than one percent of the time over a one day period for those banking entities that are subject to regulatory capital requirements imposed… by a federal banking agency var and stress var be computed and reported in a manner that is consistent with… such regulatory capital requirements in cases where a trading does not have a standalone var or… stress var calculation but is part of a larger for which a var or stress var calculation is performed a var… or stress var calculation that includes only the trading be performed consistent with… the var or stress var model and methodology used for purposes of… this appendix comprehensive profit and loss attribution is an that… are monitored and managed as part of the trading identified… as an unexplained portion of the comprehensive profit and aggregate assets and liabilities and the amount of… time that those assets and liabilities have been held… inventory… aging should measure the age profile of the trading include two schedules… an asset aging schedule and a liability aging schedule for purposes of this appendix the… customer facing trade ratio is a ratio comparing the… transactions involving… a counterparty that is a customer of the trading transactions involving a… counterparty that is not a customer of the trading the number of transactions involving… a counterparty that is a customer of the trading the number of transactions involving a… counterparty that is not a customer of the trading of transactions involving… a counterparty that is a customer of the trading of transactions involving a… counterparty that is not a customer of the trading for purposes of calculating the customer facing trade ratio a counterparty… is considered to be a customer of the trading for ensuring and monitoring compliance with the prohibitions and restrictions on proprietary trading and covered fund activities and investments set… forth in section of the bhc act and this potential areas of noncompliance and prevent activities or investments prohibited by or that do not comply… with section of the bhc act and this part the size scope… complexity and risks of the individual activities or investments accountable… for the effective implementation of the compliance program and to… the division business line or other organizational structure that is authorized to conduct including… authorized instruments and products and ii authorized hedging strategies including an enumeration of material… risks resulting from the activities in which the trading price risks such… as basis volatility and correlation risks as well as in compliance… with section of the bhc act and this part a… description of the supervisory and risk management structure governing including a description of processes for initial and… senior level review of new products and new strategies that are reasonably designed to… ensure that trading activity is conducted in conformance… with… section of the bhc act and this part and banking… entity must establish and enforce risk limits appropriate for based on probabilistic and non probabilistic measures of potential… loss e value at risk and notional exposure respectively the types and levels… of risks that may be taken by each trading of hedging instruments used hedging… strategies employed and the amount of risk effectively hedged banking entity… must establish maintain and enforce written policies and procedures… regarding… the use of risk mitigating hedging instruments and strategies the… individual or aggregated positions contracts or other holdings of the level of the… organization at which hedging activity and management will occur the risk… management processes used to control unhedged or residual risks banking entity… must perform robust analysis and quantitative measurement of its… trading activities that is reasonably designed… to ensure that the trading activity of each trading monitor and assist in the identification of potential and actual prohibited proprietary trading… activity and prevent the occurrence of prohibited proprietary trading to facilitate compliance with this part additional quantitative measurements specifically tailored to… the particular risks practices and strategies of its trading internal controls and written policies and procedures reasonably designed… to ensure the accuracy and integrity of quantitative measurements compliance with… section of the bhc act and this part including activities escalation to… senior management with oversight responsibilities for the applicable trading timely notification to agency appropriate remedial action e divesting of impermissible positions cessation of impermissible activity disciplinary actions and documentation… of the investigation findings and remedial action taken when has… violated any part of section of the bhc act that will be conducted in… reliance on exemptions contained in through including an explanation which exemption is being relied on and how the activity meets… the specific requirements for reliance on the applicable exemption banking entity monitors for and prohibits potential or actual material exposure to high risk assets… or high risk trading strategies presented by each trading assets whose values cannot be externally priced or where valuation is reliant on… pricing models whose model inputs cannot be externally validated new products with rapid growth… including those that do not have a market history assets or strategies for which the application of capital and… liquidity standards would not adequately account for the risk assets or strategies that result in large… and significant concentrations to sectors risk factors or counterparties material conflicts of interest between… the banking entity and its clients customers or counterparties be reasonably designed and established… to effectively monitor and identify for further analysis any… trading activity that may indicate potential violations of section of the bhc act and this part and to prevent actual violations of… section of the bhc act and this part the remedying violations of… section of the bhc act and this part and to promptly document address and remedy any violation of section of the bhc act or this… part and document all proposed and actual remediation efforts unit to… the division business line or other organizational structure that banking entity monitors for and prohibits… potential or actual… material conflicts of interest between… the… banking… entity and its clients customers or counterparties related to banking entity monitors for and prohibits potential or actual transactions or activities… that may threaten the safety and soundness of the banking entity monitors for and prohibits potential or actual material exposure to high… risk assets or high risk trading strategies presented by assets whose values cannot be externally priced or where valuation is reliant on… pricing models whose model inputs cannot be externally validated assets whose changes… in values cannot be adequately mitigated by effective hedging new products with rapid growth… including those that do not have a market history assets or strategies for which the application of capital and… liquidity standards would not adequately account for the risk banking entity must establish maintain and enforce… internal controls that are reasonably designed to ensure that of… section of the bhc act and this part and be reasonably designed and established to… effectively monitor and identify for further analysis any covered that may… indicate potential violations of section of the bhc act monitoring the amount and timing… of seed capital investments for compliance with the limitations including but not… limited to the redemption sale or disposition requirements of calculating… the individual and aggregate levels of ownership interests in attributing the appropriate instruments… to the individual and aggregate ownership interest calculations above to prospective and actual investors in any… covered fund organized and offered or sponsored by the monitoring… for and preventing any relationship or transaction between the… banking… entity and a covered fund that is prohibited under be reasonably designed and established to… effectively monitor and identify for further analysis any covered that may… indicate potential violations… of… section of the bhc act or… this part and to prevent actual violations of… section of the bhc act and this part the remedying violations of… section of the bhc act and this part and to promptly document address and remedy any violation of… section of the bhc act or this part including management framework to manage its business and employees with a view to preventing violations of… section of the bhc act and this part a… banking entity must have an appropriate management… framework reasonably designed to ensure that appropriate personnel are… responsible and accountable for the effective implementation and enforcement of the compliance program a clear reporting line… with a chain of responsibility is delineated and the reasonably designed to achieve compliance with section of the… bhc act and this part which at a minimum with… authority to carry out the management responsibilities of the written… procedures addressing the management of the activities of the… banking entity that are reasonably designed to achieve compliance… with section of the bhc act and this part a description of the management system including the titles qualifications and locations of managers and the… specific responsibilities of each person with respect to the procedures for determining compensation arrangements for traders engaged in underwriting or market making related activities under or risk mitigating hedging activities under so… that such compensation arrangements are designed not to reward line… managers managers with responsibility for one or more trading are accountable for the effective implementation and enforcement of… the compliance program with respect to the applicable trading culture of compliance with… section of the bhc act and this part and comply with section of the bhc act and this… part the board of directors or similar corporate body body must ensure that senior management is fully capable qualified and properly motivated to manage compliance with… this part in light of the organization business activities the board of directors or similar corporate body must… also ensure that senior management has established appropriate incentives to support compliance with this part including the implementation of a compliance program meeting the requirements of this… appendix into management goals and compensation structures across the implementing and enforcing the approved compliance program senior management must also ensure that effective corrective action is taken when failures in compliance with section of the bhc act and this part are identified senior management and control personnel charged with overseeing compliance with… section of the bhc act and this part should report to the board or an appropriate committee thereof on the effectiveness of the compliance program and compliance matters with a frequency appropriate… to the size scope and risk profile of the trading activities and covered… fund activities or investments which shall be at least reasonably designed to achieve compliance with section… of the bhc act and this part in the independent testing must occur with a frequency appropriate… to the size scope and risk profile of the trading and covered… fund activities or investments which shall be at least this independent testing must include an… evaluation of the overall adequacy and effectiveness of the… banking entity compliance program including an analysis of the extent to which the program contains all the… required elements of this appendix the effectiveness of the… banking entity internal controls including an analysis and documentation of instances in which such internal controls have been breached and how such breaches… were addressed and resolved and the effectiveness of the is… conducted by a qualified independent party such as the in order to effectively implement and enforce the compliance program this training should occur with a frequency appropriate… to the size and the risk profile of the entities must create and retain records sufficient to demonstrate compliance and support… the operations and effectiveness of the compliance program a… banking entity must retain these records… for a period that is no less than years in a form that allows it to promptly NA | limitations on permitted proprietary trading activities reserved… underwriting and market making with respect to… compliance reporting termination of activities or investments penalties for violations a reporting and recordkeeping requirements for covered trading activitiesappendix b enhanced minimum standards for compliance programssubpart… bank holding company act of u… bank holding company act of u banking entity except as provided in paragraph of this section banking entity means any insured depository institution ii any company that controls an insured depository institution iii… iv… ii or iii of this section banking entity does not include a covered fund that is not itself a banking entity under paragraphs ii or iii of this section ii a portfolio company held under the authority contained in section or of the bhc act u or any portfolio concern as defined under cfr that is controlled by a small business investment company… so long as the portfolio company or portfolio concern is not itself a banking entity under paragraphs ii or iii of this section or iii the fdic acting in its corporate capacity or as conservator or receiver under the federal deposit insurance act or title ii… cftc means the commodity futures trading commission dealer… except as provided in paragraph of this section… ii any purchase or sale of a commodity that is not an excluded… iii… iv… transaction… vi… or ii… employee includes a member of the immediate family of the employee… excluded… fdic means the federal deposit insurance corporation… fdic foreign banking organization has the same meaning as in section of the board regulation k cfr but does not include a foreign bank as defined in section of the international banking act of u that is organized under the laws of the commonwealth of puerto rico guam american samoa the united states virgin islands or the commonwealth of the northern mariana islands foreign insurance regulator means the insurance commissioner or a similar official or agency of any country… all of the assets of an insurance company except those allocated to one or more separate accounts insurance company means a company that is organized as an insurance company primarily and predominantly engaged in writing insurance or reinsuring risks underwritten by insurance companies subject to supervision as such… and not operated for the purpose of evading the provisions of section of the bhc act u… an… that is not a security or derivative primary financial regulatory agency has the same meaning as… purchase includes… purchase includes… purchase includes… purchase includes… section or of the board regulation k cfr… dealer… aa… bb… in connection with one or more insurance contracts to hold assets that are legally segregated from the insurance company other assets… cc state means any state the district of columbia the commonwealth of puerto rico guam american samoa the united states virgin islands and the commonwealth of the northern mariana islands dd… bank holding company act of u ee state insurance regulator means the insurance commissioner… ff swap dealer has the same meaning as in section of the commodity exchange act u a… banking entity may not engage in proprietary trading… financial instruments definition of… banking entity to purchase or sell one or more financial instruments… resulting from the purchases or sales of financial instruments described in paragraphs or of this section ii purchase or sell one or more financial instruments that are both market risk capital rule covered positions and trading positions or hedges of other market risk capital rule covered positions if the banking entity or any affiliate of the banking entity is an insured depository institution bank holding company or savings and loan holding company and… or iii purchase or sell one or more financial instruments for any purpose if the banking entity is licensed or registered or is required to be licensed or registered to engage… to the extent the instrument is purchased or sold in connection with the activities that require the banking entity to be licensed or registered as such or is… instrument is purchased or sold in connection with the activities of such business rebuttable presumption for certain purchases and sales the purchase or sale of a financial instrument by a banking entity shall be presumed to be for the trading account of the banking entity under paragraph of this section if the banking entity holds the financial instrument for fewer than sixty days or substantially transfers the risk of the financial instrument within sixty days of the purchase or sale unless the banking entity can demonstrate based on all relevant facts and circumstances that the banking entity did not purchase or sell the financial instrument… financial instrument financial instrument means a security including an option on a security ii a derivative including an option on a derivative or iii… a financial instrument does not include a loan ii a commodity that is not an excluded commodity other than foreign exchange or currency a derivative… an… iii foreign exchange or currency proprietary trading proprietary trading does not include any purchase or sale of one or more financial instruments by a banking entity that arises… any purchase or sale of one or more financial instruments by a banking entity that arises under a transaction in which the… any purchase or sale of a security by a banking entity for the purpose of liquidity management… banking entity that specifically contemplates and authorizes the particular securities to be used for liquidity management purposes the amount types and risks of these securities that are consistent with liquidity management and the liquidity circumstances in which the particular securities may or must be used ii requires that any purchase or sale of securities… iii requires that any securities purchased or sold… securities the market credit and other risks of which the banking entity does not reasonably… iv limits any securities purchased or sold for liquidity management purposes together with any other instruments purchased or sold… of the banking entity or any affiliate thereof… includes written policies and procedures internal controls analysis and independent testing to ensure that the purchase and sale of securities that are not permitted under or of this subpart are for the purpose of liquidity management and in accordance with the liquidity management plan described in paragraph of this section and vi… any purchase or sale of one or more financial instruments by a banking entity that is a derivatives clearing organization or a clearing agency in connection with clearing financial instruments any excluded clearing activities by a banking entity that is a member of a clearing agency a member of a derivatives clearing organization or a member of a designated financial market utility any purchase or sale of one or more financial instruments by a banking entity so long as the purchase or sale satisfies an existing delivery obligation of the banking entity or its customers including to prevent or close out a failure to deliver in connection with delivery clearing or settlement activity or ii the purchase or sale satisfies an obligation of the banking entity in connection with a judicial administrative self regulatory organization or arbitration proceeding any purchase or sale of one or more financial instruments by a banking entity that is acting solely as agent broker or custodian any purchase or sale of one or more financial instruments by a banking entity through a deferred compensation stock bonus profit sharing or pension plan of the banking entity that is established and administered in accordance with the law of the united states or a foreign sovereign if the purchase or sale is made directly or indirectly by the banking entity as trustee for the benefit of persons who are or were employees of the banking entity or any purchase or sale of one or more financial instruments by a banking entity… provided that the banking entity divests the financial instrument as soon as practicable and in no event may the banking entity retain such instrument for longer than such period permitted by the agency… anonymous means that each party to a purchase or sale is unaware of the identity of the other party ies to the purchase or sale clearing agency… derivatives clearing organization means… ii a derivatives clearing organization that pursuant to cftc regulation is exempt from the registration requirements… iii a foreign derivatives clearing organization that pursuant to cftc regulation is permitted to clear for a foreign board of trade that is registered with the cftc exchange unless the context otherwise requires means any designated contract market swap execution facility or foreign board of trade registered with the cftc or for purposes of securities or security based swaps an exchange as defined under section of the exchange act u c or security based swap execution facility as defined under section of the exchange act u c excluded clearing activities means with respect to customer transactions cleared on a derivatives clearing organization a clearing agency or a designated financial market utility any purchase or sale necessary to correct trading errors made by or on behalf of a customer provided that such purchase or sale is conducted in accordance with for transactions cleared on a derivatives clearing organization the commodity exchange act cftc regulations and the rules or procedures of the derivatives clearing organization or for transactions cleared on a clearing agency the rules or procedures of the clearing agency or for transactions cleared on a designated financial market utility that is neither a derivatives clearing organization nor a clearing agency the rules or procedures of the designated financial market utility ii any purchase or sale in connection with and related to the management of a default or threatened imminent default of a customer provided that such purchase or sale is conducted in accordance with for transactions cleared on a derivatives clearing organization the commodity exchange act cftc regulations and the rules or procedures of the derivatives clearing organization or for transactions cleared on a clearing agency the rules or procedures of the clearing agency or for transactions cleared on a designated financial market utility that is neither a derivatives clearing organization nor a clearing agency the rules or procedures of the designated financial market utility iii any purchase or sale in connection with and related to the management of a default or threatened imminent default of a member of a clearing agency a member of a derivatives clearing organization or a member of a designated financial market utility iv any purchase or sale in connection with and related to the management of the default or threatened default of a clearing agency a derivatives clearing organization or a designated financial market utility and any purchase or sale that is required by the rules or procedures of a clearing agency a derivatives clearing organization or a designated financial market utility to mitigate the risk to the clearing agency derivatives clearing organization or designated financial market utility that would result from the clearing by a member of security based swaps that reference the member or an affiliate of the member designated financial market utility has the same meaning as in section of the dodd frank act u issuer has the same meaning as in section of the securities act of u b market risk capital rule covered position and trading position means a financial instrument that is both a covered position and a trading position as those terms are respectively defined in the case of a banking entity that is a bank holding company savings and loan holding company or insured depository institution under… banking entity and ii in the case of a… or savings and loan holding company other than a… under… or savings and loan holding company market risk capital rule means the market risk capital rule that is contained in subpart f of cfr part cfr parts and or cfr part as applicable municipal security means a security that is a direct obligation of or issued by or an obligation guaranteed as to principal or interest by a state or any political subdivision thereof or any agency or instrumentality of a state or any political subdivision thereof or any municipal corporate instrumentality of one or more states or political subdivisions thereof 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… contained in does not apply to a banking entity underwriting activities conducted in accordance with this paragraph requirements the underwriting activities of a banking entity are permitted under paragraph of this section only if the banking entity is acting as an underwriter for a distribution of securities and the trading desk underwriting position is related to such distribution ii the amount and type of the securities in the trading desk underwriting… and reasonable efforts are made to sell or otherwise reduce the underwriting position within a reasonable period taking into account the liquidity maturity and depth of the market for the relevant type of security iii the banking entity has established and implements maintains and enforces an… reasonably designed to ensure the… analysis and independent testing identifying and addressing the products instruments or exposures each trading desk may purchase sell or manage as part of its underwriting activities limits for each trading desk based on the nature and amount of the trading desk underwriting activities including… on the amount types and risk of its underwriting position level of exposures to relevant risk factors arising from its underwriting position and period of time a security may be held internal controls and ongoing monitoring and analysis of each trading desk compliance with its limits and authorization procedures including escalation procedures that require review and approval of any trade that would exceed a trading desk limit demonstrable analysis of the basis for any temporary or permanent increase to a trading desk limit and independent review of such demonstrable analysis and approval iv the compensation arrangements of persons performing the activities described in this paragraph are designed not to reward or incentivize prohibited proprietary trading and the banking entity is licensed or registered to engage in the activity described in this paragraph in accordance with applicable law definition of distribution for purposes of this paragraph… of 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 definition of underwriter for purposes of this paragraph… or selling security holder to purchase securities from the issuer or selling security holder for distribution… or… or ii a person who has agreed to participate or is participating… definition of selling security holder for purposes of this paragraph selling security holder means any person other than an issuer on whose behalf a distribution is made definition of underwriting position for purposes of this paragraph 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 definition of client customer and counterparty for purposes of this paragraph 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… contained in does not apply to a banking entity market making related activities conducted in accordance with this paragraph requirements the market making related activities of a banking entity are permitted under paragraph of this section only if 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 market maker inventory are designed not to exceed on an ongoing basis… based on the liquidity maturity and depth of the market for the relevant types of financial instrument and 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… reasonably designed to ensure the… analysis and independent testing identifying and addressing the financial instruments each trading desk stands ready to purchase and sell in accordance with paragraph of this section 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 iii 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 limits for each trading desk based on the nature and amount of the trading desk market making related activities that address the factors prescribed by paragraph ii of this section on the amount types and risks of its market maker inventory the amount types and risks of the products instruments and exposures the trading desk may use for risk management purposes the level of exposures to relevant risk factors arising from its financial exposure and the period of time a financial instrument may be held internal controls and ongoing monitoring and analysis of each trading desk compliance with its limits and authorization procedures including escalation procedures that require review and approval of any trade that would exceed a trading desk limit demonstrable analysis that the basis for any temporary or permanent increase to a trading desk limit is consistent with the requirements of this paragraph and independent review of such demonstrable analysis and approval iv to the extent that any limit identified pursuant to paragraph iii 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 the compensation arrangements of persons performing the activities described in this paragraph 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 in accordance with applicable law definition of client customer and counterparty for purposes of paragraph 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 market making related services by obtaining such services responding to quotations or entering into a continuing relationship with respect to such services provided that 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 billion or more as measured in accordance with of subpart d unless the trading desk documents how and why a particular trading desk or other organizational unit of the entity should be treated as a client customer or counterparty of the trading desk for purposes of paragraph of this section or 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 definition of financial exposure for purposes of this paragraph 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 market making related activities definition of market maker inventory for the purposes of this paragraph 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 of this section that are managed by the trading desk including the trading desk open positions or exposures arising from open transactions… to the risk mitigating hedging activities of a… the… the risk mitigating hedging activities of a banking entity are permitted under paragraph of this section only if the banking entity has established and implements maintains and enforces an… reasonably designed to ensure the banking entity compliance with the requirements… 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 being hedged and such correlation analysis demonstrates that the hedging activity demonstrably reduces or otherwise significantly mitigates the specific identifiable risk being hedged the risk mitigating hedging activity is conducted… 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… commodity price… 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… any significant new or additional risk that is not itself hedged contemporaneously in accordance with this section iv… 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… contracts and other holdings of the banking entity and the risks and liquidity thereof and requires ongoing recalibration of the hedging activity by the banking entity to ensure that the hedging activity satisfies the requirements set out in paragraph of this section and is not prohibited proprietary trading and the compensation arrangements of persons performing risk mitigating hedging activities are designed not to reward or incentivize prohibited proprietary trading documentation requirement a banking entity must comply with the requirements of paragraphs and 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 not established by the specific trading desk establishing or responsible for the underlying… hedging activity is designed to reduce ii established by the specific trading desk establishing or responsible for the underlying… 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 written policies and procedures established under paragraph of this section or under iii 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 in connection with any purchase or sale identified in paragraph of this section a banking entity must at a minimum and contemporaneously with the purchase or sale document the specific identifiable risk 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 a banking entity must create and retain records sufficient to demonstrate compliance with the requirements of this paragraph for a period that is no less than five years in a form that allows the banking entity to promptly produce such records to agency on request or such longer period as required under other law or this part other permitted proprietary trading activities permitted trading in domestic government obligations the prohibition… banking entity of a financial instrument that is an obligation of or issued or guaranteed by the united states an obligation participation or other instrument of or issued or guaranteed by an agency of the united states… including any municipal security or 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… permitted trading in foreign government obligations affiliates of foreign banking entities in… 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 the banking entity is organized under or is… a foreign sovereign and is not directly or indirectly controlled by a top tier… 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 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 foreign affiliates of a u banking entity the prohibition… 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… so long as the foreign entity is a foreign bank as defined in section of the board regulation k cfr 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… any state permitted trading on behalf of customers fiduciary transactions the prohibition… financial instruments by a banking entity acting as trustee or in a similar fiduciary capacity so long as 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 riskless principal transactions the prohibition… financial instruments by a banking entity… financial instrument from a customer purchases or sells the financial instrument… permitted trading by a regulated insurance company the prohibition… financial instruments by a banking entity that is an insurance company or an affiliate of an insurance company if… financial instruments solely for the general account of the insurance company or ii a separate account established by… and foreign jurisdictions as appropriate… permitted trading activities of foreign banking entities the prohibition… financial instruments by a banking entity if the banking entity is not organized or… any state ii the purchase or sale by the banking entity is made… meets the requirements… financial instruments by a banking entity is made… for purposes of paragraph ii of this section only if the purchase or sale is conducted in accordance with the requirements of paragraph of this section and ii with respect to a… meets the qualifying foreign banking organization requirements of section or of the board regulation k cfr or as applicable or with respect to a… banking entity… any state and the banking entity on a fully consolidated basis… by a banking entity is permitted for purposes of this paragraph if 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… 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… 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… any state iv no financing for the banking entity purchases or sales is provided directly or indirectly by any branch or affiliate that is located in the united states or… any state and the purchase or sale is not conducted with or through any u entity other than a purchase or sale with the foreign operations of a u entity if no personnel of such u entity that are located in the united states are involved in the arrangement negotiation or execution of such purchase or sale 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 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 for purposes of this paragraph a u 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… any state for purposes of this paragraph a u 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 branch agency or subsidiary for purposes of this paragraph unaffiliated market intermediary means an unaffiliated entity acting as an intermediary that is a broker or dealer… or exempt from registration or excluded from regulation as such ii a swap dealer registered with the cftc under section s of the commodity exchange act or exempt from registration or excluded from regulation as such iii a security based swap dealer… or exempt from registration or excluded from regulation as such or iv a futures commission merchant registered with the cftc under section f of the commodity exchange act or exempt from registration or excluded from regulation as such… and the banking entity has not taken at least one of the actions in paragraph of this section… the banking entity timely and effective disclosure has made… such disclosure is made… ii information barriers… banking entity significantly increase the likelihood that the… banking entity significantly increase the likelihood that the… reserved… paragraph of this section does not include… banking entity acting solely as agent broker or custodian so long as the activity is conducted for the account of or on behalf of a customer and 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… 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 agency or iv on behalf of customers as… that is not a covered fund so long as the activity is conducted for the account of or on behalf of the customer and the banking entity and its affiliates do not have or retain beneficial ownership of such ownership interest definition of covered fund except as provided in paragraph of this section… any commodity pool under… which the commodity pool operator has claimed an exemption under cfr or a commodity pool operator is registered with the cftc as a commodity pool operator in connection with the operation of the commodity pool substantially all participation units of the commodity pool are owned by qualified eligible persons under cfr and and participation units of the commodity pool have not been publicly offered to persons who are not qualified eligible persons under cfr and or iii for any banking entity that is or is controlled directly or indirectly by a banking entity that is located in or… any state an entity that is organized or established outside the united states and the ownership interests of which are offered and sold solely outside the united states 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 has as its sponsor that banking entity or an affiliate thereof or has issued an ownership interest that is owned directly or indirectly by that banking entity or an affiliate thereof an issuer shall not be deemed to be a covered fund under paragraph iii of this section if were the issuer subject to u securities laws the issuer could rely on an exclusion or exemption from the definition of investment company under the investment company act of u a et seq other than the exclusions contained in section and of that act for purposes of paragraph iii of this section a u 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 branch agency or subsidiary notwithstanding paragraph of this section unless… jointly determine otherwise a covered fund does not include foreign public funds subject to paragraphs ii and iii below an issuer that is organized or established outside of the united states is authorized to offer and sell ownership interests to retail investors in the issuer home jurisdiction and 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… 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 of this section for such issuer unless ownership interests in the issuer are sold predominantly to persons other than such sponsoring banking entity such issuer affiliates of such sponsoring banking entity or such issuer and directors and employees of such entities iii for purposes of paragraph of this section the term public offering means a distribution as defined in of subpart b of securities in any jurisdiction outside the united states to investors including retail investors provided that the distribution complies with all applicable requirements in the jurisdiction in which such distribution is being made the distribution does not restrict availability to investors having a minimum level of net worth or net investment assets and the issuer has filed or submitted with the appropriate regulatory authority in such jurisdiction offering disclosure documents that are publicly available 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 up to five percent of the entity outstanding ownership interests less any amounts outstanding under paragraph 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 percent of the entity 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 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 is comprised of no more than 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 acquisition vehicles an issuer 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 foreign pension or retirement funds a plan fund or program providing pension retirement or similar benefits that is 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 insurance company separate accounts a separate account provided that no banking entity other than the insurance company participates in the account profits and losses 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 controls… or ii participates in the profits and losses of the separate account other than… loan securitizations scope an issuing entity for asset backed securities that satisfies all the conditions of this paragraph and the assets or holdings of which are comprised solely of loans as defined in of subpart a 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 iii of this section interest rate or foreign exchange derivatives that meet the requirements of paragraph iv of this section and special units of beneficial interest and collateral certificates that meet the requirements of paragraph of this section ii impermissible assets for purposes of this paragraph the assets or holdings of the issuing entity shall not include any of the following a security including an asset backed security or an interest in an equity or debt security other than as permitted in paragraph iii of this section a derivative other than a derivative that meets the requirements of paragraph iv of this section or a commodity forward contract iii permitted securities notwithstanding paragraph ii of this section the issuing entity may hold securities if those securities are cash equivalents for purposes of the rights and assets in paragraph of this section or 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 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 of this section and 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 of this section 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 the special purpose vehicle that issues the special unit of beneficial interest or collateral certificate meets the requirements in this paragraph 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 and does not directly or indirectly transfer any interest in any other economic or financial exposure 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 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 qualifying asset backed commercial paper conduits an issuing entity for asset backed commercial paper that satisfies all of the following requirements the asset backed commercial paper conduit holds only loans and other assets permissible for a loan securitization under paragraph of this section and asset backed securities supported solely by assets that are permissible for loan securitizations under paragraph 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 the asset backed commercial paper conduit issues only asset backed securities comprised of a residual interest and securities with a legal maturity of days or less and 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 a regulated liquidity provider means a depository institution as… a bank holding company as defined in section of the bank holding company act of u or a subsidiary thereof a savings and loan holding company as defined in section a of the home owners loan act u a provided all or substantially all of the holding company activities are permissible for a financial holding company under section of the bank holding company act of u or a subsidiary thereof a foreign bank whose home country supervisor as defined in of the board regulation k cfr 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 the united states or a foreign sovereign qualifying covered bonds scope an entity owning or holding a dynamic or fixed pool of loans or other assets as provided in paragraph 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 of this section ii covered bond for purposes of this paragraph a covered bond means 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 of this section or a debt obligation of an entity that meets the conditions set forth in paragraph 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 of this section of such foreign banking organization sbics and public welfare investment funds an issuer that is a small business investment company… 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… qualified rehabilitation expenditures with respect to a qualified rehabilitated… registered investment companies and excluded entities an issuer that is registered as an investment company under section of the investment company act of u a or that is formed and operated pursuant to a written plan to become a registered investment company as described in of subpart d and that complies with the requirements of section of the investment company act of u a ii that may rely on an exclusion or exemption from the definition of investment company under the investment company act of u a et seq other than the exclusions contained in section and of that act or iii that has elected to be regulated as a business development company pursuant to section of that act u a 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 of subpart d and that complies with the requirements of section of the investment company act of u a issuers in conjunction with the fdic 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 capacity as conservator or receiver under the federal deposit insurance act or title ii… other excluded issuers any issuer that… jointly determine the exclusion of which… ii a determination made under paragraph of this section will be promptly made public definition of other terms related to covered funds for purposes of this subpart… banking entity that the agency determines are appropriate and that the… asset backed… director has the same meaning as provided in section of the board regulation o cfr issuer has the same meaning as… 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… an other similar interest means an interest that 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 has the right under the terms of the interest to receive a share of the income gains or profits of the covered fund 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 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 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 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 any synthetic right to have receive or be allocated any of the rights in paragraphs through 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… entity or employee or former… 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… entity or employee or former… 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 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 of this subpart and 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 prime brokerage transaction means any transaction… that is provided in connection with custody clearance and settlement securities borrowing or lending services trade execution financing or data operational and administrative support resident of the united states means a person that is a u person as defined in rule of the sec regulation s cfr sponsor means with respect to a covered fund 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 ii of this section… paragraph of this section and of subpart c… trustee that is subject to the direction of an unaffiliated named fiduciary who is not a trustee pursuant to section of the employee retirement income security act u or a trustee that is subject to fiduciary standards imposed under foreign law that are substantially equivalent to those described in paragraph of this section ii any entity that directs a person described… investment decisions of a covered fund for which such person serves as trustee shall be considered to be… underwriting and market making with respect to a covered fund organizing and offering a covered fund in general notwithstanding of this subpart a banking entity is not prohibited from… in connection with… banking entity or an affiliate thereof… banking entity or an affiliate thereof pursuant to a written plan or similar documentation outlining how the banking entity or such affiliate… banking entity and its affiliates do… of this subpart the banking entity and its affiliates comply with the requirements of of this subpart the banking entity and its affiliates do… banking entity or an affiliate thereof and ii… banking entity or an affiliate thereof… 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 the… banking entity or its affiliates therefore the banking entity… 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… and the role of the banking entity and its affiliates… ii… organizing and offering an issuing entity of asset backed securities notwithstanding of this subpart a banking entity is not prohibited from… 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 through of this section for purposes of this paragraph 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 g of the exchange act u o of the issuing entity or acquiring or retaining an ownership interest in the issuing entity as required by section g of that act u o and the implementing regulations issued thereunder underwriting and market making in ownership interests of a covered fund the prohibition contained in of this subpart does not apply to a banking entity underwriting activities or market making related activities involving a covered fund so long as those activities are conducted in accordance with the requirements of or of subpart b respectively 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 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 g of the exchange act u o or is acquiring and retaining an ownership interest in such covered fund in compliance with section g of that act u o and the implementing regulations issued thereunder each as permitted by paragraph of this section or directly or indirectly guarantees assumes or otherwise insures… 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 ii and of this subpart and 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 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 are included in the calculation of all ownership interests under iii and of this subpart… notwithstanding the prohibition contained in 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 for the purposes of establishment establishing the… subject to the limits contained in paragraphs and iii… subject to the limits contained in paragraphs ii and iii of this section investment limits seeding period with respect to an investment in any covered fund made or held pursuant to paragraph of this section the banking entity and its affiliates… banking entity in the covered fund… must no… conform its ownership interest in the covered fund to the limits in paragraph ii of this section ii per fund limits except as provided in paragraph ii of this section an investment by a banking entity and its affiliates in any covered fund made or held pursuant to paragraph ii of this section may not exceed percent of the total number or value of the outstanding ownership interests of the fund 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 percent of the total fair market value of the ownership interests of the fund measured in accordance with paragraph of this section unless a greater percentage is retained by the banking entity and its affiliates in compliance with the… 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 g 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… banking entity as provided under paragraph of this section and… iv date of establishment for purposes of this section the date of establishment of a covered fund shall be 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 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 rules of construction attribution of ownership interests to a covered banking entity for purposes of paragraph of this section… any ownership interest held under 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 of this section a registered investment company sec regulated business development companies or foreign public fund as described in of this subpart will not be considered to be an affiliate of the banking entity so long as the banking entity does not own control or hold with the power to vote percent or more of the voting shares of the company or fund and 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 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 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 calculation of permitted ownership interests in a single covered fund except as provided in paragraph or… complies with the restrictions on ownership interests under paragraphs and ii of this section 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… entities in that covered fund as of the last day of each calendar quarter both measured… 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… 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 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… issuing entities of asset backed securities in the case of an ownership interest in an issuing entity of asset backed securities… complies with the restrictions on ownership interests under paragraphs and ii of this section for securitizations subject to the… the calculations shall be made as of the date and according to the valuation methodology applicable pursuant to the… 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 iv 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 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… multi tier fund investments 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 and ii of this section the banking entity permitted investment in such funds shall be measured only by reference to the value of the master fund the banking entity permitted investment in the master fund shall include any investment by the banking entity in the master fund as well as the banking entity 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 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 permitted investment in that other fund shall include any investment by the banking entity in that other fund as well as the banking entity 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 percent of the amount or value of any single covered fund… paragraph iii… 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 ii of this subpart on a historical cost basis calculation of tier capital for purposes of paragraph iii… of the… as reported to its primary financial regulatory agency and ii if a… be equal to… in the manner described in paragraph of this section in the case of a… be equal to… in the manner described in… be equal to… iii treatment of foreign banking entities foreign banking entities except as provided in paragraph iii 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… any state the tier capital of the banking entity shall be the consolidated tier capital of the entity as calculated under applicable home country standards u affiliates of foreign banking entities with respect to a banking entity that is located or… any state and is controlled by a foreign banking entity identified under paragraph iii of this section the banking entity tier capital shall be as calculated under paragraphs or ii of this section… compliance with the applicable regulatory capital requirements a banking entity shall deduct… the greater of 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 ii of subpart c on a historical cost basis plus any earnings received and the fair market value of the banking entity ownership interests in the covered fund as determined under paragraph ii or of this section together with any amounts paid by the entity or employee thereof in connection with obtaining a restricted profit interest under ii of subpart c if the banking entity accounts for the profits or losses of the fund investment in its financial statements… banking entity the board may extend the period under paragraph… ii… covered fund iii… banking entity to enable the… iv… vi whether the investment or… parties including… vi the… viii market conditions… acting on an application by the… risk mitigating hedging activities the prohibition contained in of this subpart… 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 requirements the risk mitigating hedging activities of a banking entity are permitted under this paragraph only if the banking entity has established and implements maintains and enforces an… reasonably designed to ensure the banking entity compliance with the requirements… and internal controls and ongoing monitoring management and authorization procedures including relevant escalation procedures and ii… required under this section 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… any significant new or additional risk that is not itself hedged contemporaneously in accordance with this section… 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… of this subpart… banking entity only if the banking entity is not organized or… or investment by the banking entity is… the… or investment occurs solely outside of the united states an activity or investment by the banking entity is… for purposes of paragraph ii of this section only if the activity or investment is conducted in accordance with the requirements of this section and ii with respect to a… meets the qualifying foreign banking organization requirements of section or of the board regulation k cfr or as applicable or with respect to a… banking entity… the banking entity on a fully consolidated basis… banking entity in the united states an ownership interest in a covered fund is not… for purposes of paragraph 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 an activity or investment occurs solely outside of the united states for purposes of paragraph iv of this section only if 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… 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… 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… any state and iv no financing for the banking entity ownership or sponsorship is provided directly or indirectly by any branch or affiliate that is located in the united states or… any state for purposes of this section a u 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 branch agency or subsidiary permitted covered fund interests and activities by a regulated insurance company the prohibition contained in of this subpart does not apply to the acquisition or retention by an insurance company or an affiliate thereof… only if 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 the acquisition and retention of the ownership interest… and foreign jurisdictions as appropriate… that organizes and offers a covered fund pursuant to of this subpart or that continues to hold an ownership interest in accordance with of this subpart… or… banking entity or an affiliate thereof has taken an ownership interest if the… of this subpart… banking entity or an affiliate… banking entity certifies in writing annually to agency… banking entity restrictions on transactions with covered funds a… of this subpart or that continues to hold an ownership interest in accordance with of this subpart… of this subpart… and the banking entity has not taken at least one of the actions in paragraph of this section… the banking entity timely and effective disclosure has made… such disclosure is made… ii information barriers… banking entity significantly increase the likelihood that the… banking entity significantly increase the likelihood that the… reserved reserved… compliance reporting program requirement each… the terms scope and detail of the compliance program shall be appropriate for the types… banking entity contents of compliance program except as provided… written policies and procedures reasonably designed to document describe monitor and limit trading activities subject to subpart b including those permitted under to of subpart b including setting monitoring and managing required limits set out in and… including those permitted under through 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 of the bhc act and this part… 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 independent testing and audit of the effectiveness of the compliance program conducted periodically by qualified personnel of the… or such longer period as required by agency additional standards in addition to the requirements in paragraph of this section the compliance program of a banking entity must satisfy the requirements and other standards contained in appendix b if the banking entity engages in proprietary trading permitted under subpart b and is required to comply with the reporting requirements of paragraph of this section the banking entity has reported total consolidated assets as of the previous calendar year end of billion or more or in the case of a foreign banking entity has total u assets as of the previous calendar year end of billion or more including all subsidiaries affiliates branches and agencies of the foreign banking entity operating located or organized in the united states or agency notifies the banking entity in writing that it must satisfy the requirements and other standards contained in appendix b to this part reporting requirements under appendix a to this part a banking entity engaged in proprietary trading activity permitted under subpart b shall comply with the reporting requirements described in appendix a if the banking entity other than a foreign banking entity as provided in paragraph ii of this section… 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… equals or exceeds the threshold established in paragraph 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 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… equals or exceeds the threshold established in paragraph of this section or iii agency notifies the banking entity in writing that it must satisfy the reporting requirements contained in appendix a the threshold for reporting under paragraph of this section shall be billion beginning on june billion beginning on april and billion beginning on december frequency of reporting unless agency notifies the banking entity in writing that it must report on a different basis a banking entity with billion or more in trading assets and liabilities as calculated in accordance with paragraph of this section shall report the information required by appendix a for each calendar month within days of the end of the relevant calendar month beginning with information for the month of january such information shall be reported within 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 days of the end of that calendar quarter unless agency notifies the banking entity in writing that it must report on a different basis additional documentation for covered funds any banking entity that has more than billion in total consolidated assets as reported on december of the previous two calendar years shall maintain records that include documentation of the exclusions or exemptions other than sections and of the investment company act of 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 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 or of subpart c documentation supporting the banking entity determination that the fund is not a covered fund pursuant to one or more of those exclusions for each seeding vehicle described in 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 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 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 of subpart c for any banking entity that is or is controlled directly or indirectly by a banking entity that is located in or… any state if the aggregate amount of ownership interests in foreign public funds that are described in 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… any state exceeds 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 aggregate amount of ownership interests in foreign public funds is below million for two consecutive calendar quarters and for purposes of paragraph of this section a u 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 branch agency or subsidiary simplified programs for less active banking entities 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 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 of subpart b banking entities with modest activities a banking entity with total consolidated assets of billion or less as reported on december 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 of subpart b may satisfy the requirements of this section by including in its existing compliance policies and procedures appropriate references to the requirements… adjustments as appropriate given the activities size scope and complexity of the banking entity termination of activities or investments penalties for violations any… acts… upon discovery promptly… whenever agency finds reasonable cause to believe any… engaged in any activity or made any investment… agency may take any action permitted by law to enforce… directing the banking entity to restrict limit or terminate any or all activities under this part and dispose of any investment… purposea this appendix sets forth reporting and recordkeeping requirements that certain… banking entity that together with its affiliates and subsidiaries has significant trading assets and liabilities… ii… must be incorporated into the banking entity internal compliance program under and appendix b the purpose of this appendix is to assist… banking entity covered trading activities ii monitoring the banking entity covered trading activities iii identifying covered… covered trading activities of trading desks… desks… covered trading activities of the banking entity and the individual trading desks… banking entity covered trading activities the… activities 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 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 e in… b… desk… part on an ongoing basis banking entities must… and or… must… the quantitative measurements discussed in this appendix should be helpful to… apply… calculated profit and loss means the net profit or loss of a trading desk material sources of trading revenue over a specific period of time including for example… desk holdings dividend income and interest income and expense trading activity means trading conducted by a trading desk under or a banking entity may include trading under or measurement frequency means the frequency with which a particular quantitative metric must be calculated and recorded 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… each banking entity made subject to this part by 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 ratiob frequency of required calculation and reporting a… the reporting schedule established in unless otherwise… within the time period required by c recordkeeping a… years from the end of the calendar year for which the measurement was taken quantitative measurementsa risk management measurements risk and position limits and usagei description… desk… banking entity for a specific trading desk usage represents the portion of the trading desk 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 and 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 risk and position limits and are useful in evaluating and setting these limits in the broader context of the trading desk overall activities particularly for the market making activities under and hedging activity under accordingly the limits required under iii and must meet the applicable requirements under iii and 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 general calculation guidance risk and position limits must be reported in the format used by the… desk… must be reported calculation period one trading day measurement frequency daily risk factor sensitivitiesi description… desk comprehensive… one or more underlying variables that are significant sources of the trading desk profitability and risk general calculation guidance a banking entity must… desk… desk risk factor sensitivities will depend on the specific function of the trading desk… desk and furnished to agency will depend on the explicit risks assumed by the trading desk in general however reported risk factor sensitivities must be sufficiently granular to account for a preponderance of the expected price variation in the trading desk holdings trading desks must… risk factors with respect to the related commodities set out in cfr… risk factors with respect to credit spreads… 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… derivative positions risk factor sensitivities such as equity… risk factors for equity prices and risk factors… foreign exchange derivative positions risk factors with respect to major currency pairs and maturities exposure to interest rates at relevant maturities… risk factors… shifts parallel and non parallel in the interest rate curve as well as the maturity profile of the positions the methods used by a… desks such as an equity price factor must be applied consistently across its trading desks… desk to another calculation period one trading day measurement frequency daily value at risk and stress value at risk i description… set of aggregated positions… set of aggregated positions… stress general calculation guidance banking entities must… desk… must… desk… aggregation of positions… desk holdings must… for the larger aggregation of positions calculation period one trading day measurement frequency daily source of revenue measurements comprehensive profit and loss attribution i description… analysis that attributes the daily fluctuation in the value of a trading desk positions to various sources first the daily profit and loss of the aggregated positions is divided into three categories profit and loss attributable to a trading desk existing positions that were also positions held by the trading desk as of the end of the prior day existing positions ii profit and loss attributable to new positions resulting from the current day trading activity new positions and iii residual profit and loss that cannot be specifically attributed to existing positions or new positions the sum of ii and iii must equal the trading desk comprehensive profit and loss at each point in time in addition profit and loss measurements must calculate volatility of comprehensive profit and loss i the standard deviation of the trading desk one day profit and loss in dollar terms for the reporting period for at least a and day lag period from the end of the reporting period and any other period that the banking entity deems necessary to meet the requirements of the rule the comprehensive profit and loss associated with existing positions must reflect changes in the value of these positions on the applicable day the comprehensive profit and loss from existing positions must be further attributed as applicable to changes in the specific risk factors and other factors… desk overall risk management policies and procedures and ii any other applicable elements such as cash flows carry changes in reserves and the correction cancellation or exercise of a trade the comprehensive profit and loss attributed to new positions must reflect commissions and fee income or expense and market gains or losses associated with transactions executed on the applicable day new positions include purchases and sales of financial instruments and other assets liabilities and negotiated amendments to existing positions the comprehensive profit and loss from new positions may be reported in the aggregate and does not need to be further attributed to specific sources the portion of comprehensive profit and loss that cannot be specifically attributed to known sources must be allocated to a residual category… loss significant unexplained profit and loss must be escalated for further investigation and analysis general calculation guidance the specific categories used by a trading desk in the attribution analysis and amount of detail for the analysis should be tailored to the type and amount of trading activities undertaken by the trading desk the new position attribution must be computed by calculating the difference between the prices at which instruments were bought and or sold and the prices at which those instruments are marked to market at the close of business on that day multiplied by the notional or principal amount of each purchase or sale any fees commissions or other payments received paid that are associated with transactions executed on that day must be added subtracted from such difference these factors must be measured consistently over time to facilitate historical comparisons calculation period one trading day iv measurement frequency daily customer facing activity measurements inventory turnover i description for purposes of this appendix inventory turnover is a ratio that measures the turnover of a trading desk inventory the numerator of the ratio is the absolute value of all transactions over the reporting period the denominator of the ratio is the value of the trading desk inventory at the beginning of the reporting period general calculation guidance for purposes of this appendix for derivatives other than options and interest rate derivatives value means gross notional value for options value means delta adjusted notional value and for interest rate derivatives value means year bond equivalent value calculation period days days and days measurement frequency daily inventory aging i description for purposes of this appendix inventory aging generally describes a schedule of the trading desk… desk assets and liabilities general calculation guidance in general inventory aging must be computed using a trading desk trading activity data and must identify the value of a trading desk aggregate assets and liabilities inventory aging must… each schedule must record the value of assets or liabilities held over all holding periods for derivatives other than options and interest rate derivatives value means gross notional value for options value means delta adjusted notional value and for interest rate derivatives value means year bond equivalent value calculation period one trading day measurement frequency daily customer facing trade ratio trade count based and value based i description… desk to ii the… desk a trade count based ratio must be computed that records… desk and… desk a value based ratio must be computed that records the value… desk and the value… desk general calculation guidance… desk if the counterparty is a market participant that makes use of the banking entity market making related services by obtaining such services responding to quotations or entering into a continuing relationship with respect to such services however a trading desk or other organizational unit of another banking entity would not be a client customer or counterparty of the trading desk if the other entity has trading assets and liabilities of billion or more as measured in accordance with unless the trading desk documents how and why a particular trading desk or other organizational unit of the entity should be treated as a client customer or counterparty of the trading desk transactions conducted anonymously on an exchange or similar trading facility that permits trading on behalf of a broad range of market participants would be considered transactions with customers of the trading desk for derivatives other than options and interest rate derivatives value means gross notional value for options value means delta adjusted notional value and for interest rate derivatives value means year bond equivalent value calculation period days days and days measurement frequency daily b to part enhanced minimum standards for compliance programs i overviewsection requires certain banking entities to establish maintain and enforce an enhanced compliance program that includes the requirements and standards in this appendix as well as the minimum written policies and procedures internal controls management framework independent testing training and recordkeeping provisions outlined in this appendix sets forth additional minimum standards with respect to the establishment oversight maintenance and enforcement by these banking entities of an enhanced internal compliance program… part this compliance program must be reasonably designed to identify document monitor and report the permitted trading and covered fund activities and investments of the banking entity identify monitor and promptly address the risks of these covered activities and investments and… establish and enforce appropriate limits on the covered activities and investments of the banking entity including limits on… consistent with the requirements of section of the bhc act and this part subject the effectiveness of the compliance program to periodic independent review and testing and ensure that the entity internal audit corporate compliance and internal control functions involved in review and testing are effective and independent make senior management and others as appropriate… ensure that the board of directors and chief executive officer or equivalent of the banking entity review the effectiveness of the compliance program and facilitate supervision and examination by the agencies of the banking entity permitted trading and covered fund activities and investments enhanced compliance programa proprietary trading activities a banking entity must establish maintain and enforce a compliance program that includes written policies and procedures that are appropriate for the types size and complexity of and risks associated with its permitted trading activities the compliance program may be tailored to the types of trading activities conducted by the banking entity and must include a detailed description of controls established by the banking entity to reasonably ensure that its trading activities are conducted in accordance with the requirements and limitations applicable to those trading activities under section of the bhc act and this part and provide for appropriate revision of the compliance program before expansion of the trading activities of the banking entity a banking entity must devote adequate resources and use knowledgeable personnel in conducting supervising and managing its trading activities and promote consistency independence and rigor in implementing its risk controls and compliance efforts the compliance program must be updated with a frequency sufficient to account for changes in the activities of the banking entity results of independent testing of the program identification of weaknesses in the program and changes in legal regulatory or other requirements trading desks the banking entity must have written policies and procedures governing each trading desk that include a description of the process for identifying authorizing and documenting financial instruments each trading desk may purchase or sell with separate documentation for market making related activities conducted in reliance on and for hedging activity conducted in reliance on ii a mapping for each trading desk… is responsible for managing and overseeing the trading desk activities iii the mission i the type of trading activity such as market making trading in sovereign debt etc and strategy i methods for conducting authorized trading activities of each trading desk iv the activities that the trading desk… techniques and instruments v the types and amount of risks allocated by the banking entity to each trading desk to implement the mission and strategy of the trading desk… desk is authorized to engage including but not limited to… counterparty credit risk risk assessments must take into account both the risks inherent in the trading activity and the strength and effectiveness of controls designed to mitigate those risks vi how the risks allocated to each trading desk will be measured vii why the allocated risks levels are appropriate to the activities authorized for the trading desk viii the limits on the holding period of and the risk associated with financial instruments under the responsibility of the trading desk ix the process for setting new or revised limits as well as escalation procedures for granting exceptions to any limits or to any policies or procedures governing the desk the analysis that will be required to support revising limits or granting exceptions and the process for independently reviewing and documenting those exceptions and the underlying analysis x the process for identifying documenting and approving new products trading strategies and hedging strategies xi the types of clients customers and counterparties with whom the trading desk may trade andxii the compensation arrangements including incentive arrangements for employees associated with the trading desk which may not be designed to reward or incentivize prohibited proprietary trading or excessive or imprudent risk taking description of risks and risk management processes the compliance program for the banking entity must include a comprehensive description of the risk management program for the trading activity of the banking entity the compliance program must also include a description of the governance approval reporting escalation review and other processes the banking entity will use to reasonably ensure that trading activity is conducted… trading activity in similar financial instruments should be subject to similar governance limits testing controls and review unless the banking entity specifically determines to establish different limits or processes and documents those differences descriptions must include at a minimum the following elements… all trading activity… ii a description of the process for developing documenting testing approving and reviewing all models used for valuing identifying and monitoring the risks of trading activity and related positions including the process for periodic independent testing of the reliability and accuracy of those models iii a description of the process for developing documenting testing approving and reviewing the limits established for each trading desk iv a description of the process by which a security may be purchased or sold pursuant to the liquidity management plan including the process for authorizing and monitoring such activity to ensure compliance with the banking entity liquidity management plan and the restrictions on liquidity management activities in this part v a description of the management review process including escalation procedures for approving any temporary exceptions or permanent adjustments to limits on the activities positions strategies or risks associated with each trading desk andvi the role of the audit compliance risk management and other relevant units for conducting independent testing of trading and hedging activities techniques and strategies authorized risks instruments and products the banking entity must implement and enforce limits and internal controls for each trading desk… with the banking entity written policies and procedures the… the activity of each trading desk these limits should be… and measured under normal and stress market conditions at a minimum these internal controls must monitor establish and enforce limits on the financial instruments including at a minimum by type and exposure that the trading desk may trade ii… desk andiii the types… hedging policies and procedures the… that at a minimum describe the positions techniques and strategies that each trading desk may use to hedge the risk of its positions ii the manner in which the banking entity will identify the risks arising in connection with and related to… the banking entity that are to be hedged and determine that those risks have been properly and effectively hedged iii… iv the manner in which hedging strategies will be monitored and the personnel responsible for such monitoring v… andvi the process for developing documenting testing approving and reviewing all hedging positions techniques and strategies permitted for each trading desk and for the banking entity in reliance on analysis and quantitative measurements the… desk is consistent with the banking entity compliance program… analysis and models used to determine measure and limit risk must be rigorously tested and be reviewed by management responsible for trading activity to ensure that trading activities limits strategies and hedging activities do not understate the risk and exposure to the banking entity or allow prohibited proprietary trading this review should include periodic and independent back testing and revision of activities limits strategies and hedging as appropriate to contain risk and ensure compliance in addition to the quantitative measurements reported by any banking entity subject to appendix a to this part each banking entity must develop and implement to the extent appropriate… desks the banking entity analysis and quantitative measurements must incorporate the quantitative measurements reported by the banking entity pursuant to appendix a if applicable and include at a minimum the following… ii ongoing timely monitoring and review of calculated quantitative measurements iii the establishment of numerical thresholds and appropriate trading measures for each trading desk and heightened review of trading activity not consistent with those thresholds to ensure… analysis of the measurement results or other information appropriate escalation procedures and documentation related to the review andiv immediate review and compliance investigation of the trading desk… desk… quantitative measurements or other information considered together with the facts and circumstances or findings of internal audit independent testing or other review suggest a reasonable likelihood that the trading desk… or this part other compliance matters in addition to the requirements specified above the banking entity compliance program must identify activities of each trading desk… of how and where in the organization the activity occurs andb… ii include an explanation of the process for documenting approving and reviewing actions taken pursuant to the liquidity management plan where in the organization this activity occurs the securities permissible for liquidity management the process for ensuring that liquidity management activities are not conducted for the purpose of prohibited proprietary trading and the process for ensuring that securities purchased as part of the liquidity management plan are highly liquid and conform to the requirements of this part iii describe how the… desk that relies on the exemptions contained in and through which must take into account potential or actual exposure to… b assets whose changes in value cannot be adequately mitigated by effective hedging c… d assets or strategies that include significant embedded leverage e assets or strategies that have demonstrated significant historical volatility f… andg… iv establish responsibility for compliance with the reporting and recordkeeping requirements of subpart b and andv establish policies for monitoring and prohibiting potential or actual… remediation of violations the banking entity compliance program must… compliance program must describe procedures for identifying and… must include at a minimum a requirement… the compliance program must include specific written policies and procedures that are reasonably designed to assess the extent to which any activity indicates that modification to the banking entity compliance program is warranted and to ensure that appropriate modifications are implemented the written policies and procedures must provide for prompt notification to appropriate management including senior management and the board of directors of any material weakness or significant deficiencies in the design or implementation of the compliance program of the banking entity covered fund activities or investments a banking entity must establish maintain and enforce a compliance program that includes written policies and procedures that are appropriate for the types size complexity and risks of the covered fund and related activities conducted and investments made by the banking entity identification of covered funds the banking entity compliance program must provide a process which must include appropriate management review and independent testing for identifying and documenting covered funds that each unit within the banking entity organization sponsors or organizes and offers and covered funds in which each such unit invests in addition to the documentation requirements for covered funds as specified under the documentation must include information that identifies all pools that the banking entity sponsors or has an interest in and the type of exemption from the commodity exchange act whether or not the pool relies on section of the regulations under the commodity exchange act and the amount of ownership interest the banking entity has in those pools identification of covered fund activities and investments the banking entity compliance program must identify document and map each unit within the organization that is permitted to acquire or hold an interest in any covered fund or sponsor any covered fund and map each… will be responsible for managing and overseeing that unit activities and investments explanation of compliance the banking entity compliance program must explain how the… its covered fund activities and investments ii the… banking entity related to its covered fund activities and investments andiii the… its covered fund activities and investments taking into account potential or actual exposure to… b… c… d assets or strategies that include significant embedded leverage e assets or strategies that have demonstrated significant historical volatility f… andg assets or strategies that expose the banking entity to large and significant concentrations with respect to sectors risk factors or counterparties description and documentation of covered fund activities and investments for each organizational unit engaged in covered fund activities and investments the banking entity compliance program must document the covered fund activities and investments that the unit is authorized to conduct ii the banking entity plan for actively seeking unaffiliated investors to ensure that any investment by the banking entity conforms to the limits contained in or registered in compliance with the securities laws and thereby exempt from those limits within the time periods allotted in andiii how it complies with the requirements of subpart c internal controls a… its covered fund activities or investments comply with the requirements… are appropriate given the limits on risk established by the banking entity these written internal controls must… fund activity or investment… or this part the internal controls must at a minimum require monitoring and limiting the banking entity individual and aggregate investments in covered funds ii… under subpart c… and the effectiveness of efforts to seek unaffiliated investors to ensure compliance with those limits iii… one or more covered fund required by iv… v making disclosures… banking entity as provided under vi… including where the banking entity has been designated as the sponsor investment manager investment adviser or commodity trading advisor to a covered fund by another banking entity andvii appropriate management review and supervision across legal entities of the banking entity to ensure that services and products provided by all affiliated entities comply with the limitation on services and products contained in remediation of violations the banking entity compliance program must… fund activity or investment… banking entity compliance program must describe procedures for identifying and… must include at a minimum a requirement… and document all proposed and actual remediation efforts the compliance program must include specific written policies and procedures that are reasonably designed to assess the extent to which any activity or investment indicates that modification to the banking entity compliance program is warranted and to ensure that appropriate modifications are implemented the written policies and procedures must provide for prompt notification to appropriate management including senior management and the board of directors of any material weakness or significant deficiencies in the design or implementation of the compliance program of the banking entity responsibility and accountability for the compliance programa a banking entity must establish maintain and enforce a governance and… compliance program is reviewed periodically by senior management the board of directors or equivalent governance body and senior management should have the appropriate authority and access to personnel and information within the organizations as well as appropriate resources to conduct their oversight activities effectively corporate governance the banking entity must adopt a written compliance program approved by the board of directors an appropriate committee of the board or equivalent governance body and senior management management procedures the banking entity must establish maintain and enforce a governance framework that is… provides for the designation of appropriate senior management or committee of senior management… banking entity for each trading desk and for each organizational unit engaged in covered fund activities ii… including… banking entity activities governed by section of the bhc act and this part andb… or incentivize prohibited proprietary trading and appropriately balance risk and financial results in a manner that does not encourage employees to expose the banking entity to excessive or imprudent risk business… desks of the banking entity… desk board of directors or similar corporate body and senior management the board of directors or similar corporate body and senior management are responsible for setting and communicating an appropriate… ensuring that appropriate policies regarding the management of trading activities and covered fund activities or investments are adopted to… such as a designated committee of the board or an equivalent governance… and the expectations of the board of directors… and adequate resources… banking entity senior management senior management is responsible for… review the compliance program for the banking entity periodically and… banking entity… annually ceo attestation based on a review by the ceo of the banking entity the ceo of the banking entity must annually attest in writing to agency that the banking entity has in place processes to establish maintain enforce review test and modify the compliance program established under this appendix and of this part in a manner… case of a u branch or agency of a foreign banking entity the attestation may be provided for the entire u operations of the foreign banking entity by the senior management officer of the united states operations of the foreign banking entity who is located in the united states independent testinga… banking entity… annually… banking entity management procedures a banking entity must ensure that independent testing regarding the effectiveness of the banking entity compliance program… banking entity internal audit department compliance personnel or risk managers independent of the organizational unit being tested outside auditors consultants or other qualified independent parties a banking entity must promptly take appropriate action to remedy any significant deficiencies or material weaknesses in its compliance program and to terminate any violations of section of the bhc act or this part trainingbanking entities must provide adequate training to personnel and managers of the banking entity engaged in activities or investments governed by section of the bhc act or this part as well as other appropriate supervisory risk independent testing and audit personnel… banking entity trading activities and covered fund activities or investments recordkeepingbanking… or such longer period as required by agency… |
| 4697 List of Subjects12 CFR Part 44Banks, Banking, Capital Compensation, Credit,… | penalties reporting and… recordkeeping requirements risk risk retention securities trusts and trustees… cfr part administrative practice and procedure banks and banking capital compensation conflict of interests credit derivatives foreign banking government securities holding companies insurance insurance companies investments penalties reporting and… recordkeeping requirements risk risk retention securities trusts and trustees credit derivatives government securities insurance insurance companies investments penalties reporting and recordkeeping requirements risk risk retention securities… state nonmember banks state savings associations trusts and trustees… NA | list of subjects cfr part banks banking capital compensation credit derivatives government securities insurance investments national banks federal savings associations federal branches and agencies… cfr part banks banking capital compensation conflicts of interest… |
| 4701 For the reasons stated in the Common Preamble, the Office of the Comptrolle… | for the reasons stated in the common… preamble the office of the comptroller of the currency NA | hereby amends… |
| 4702 PART 44—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WITH… | part proprietary… trading and certain interests in… and relationships with covered funds the authority for part is added to read… NA | NA |
| 4703 2. Part 44 is added as set forth at the end of the Common Preamble…. | part is added NA | NA |
| 4704 3. Part 44 is amended by:a. Removing “[Agency]” wherever it appears and add… | part is amended by removing agency wherever it appears and adding in its place the occ andb removing the agency wherever it appears… and adding in its place the occ section is to read as follows authority purpose scope and relationship to… other authorities authority this part is issued by the under section of the bank holding company act of as amended u purpose section of the bank holding company… act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities including national banks federal branches and agencies of foreign banks federal savings associations and certain subsidiaries thereof this part implements section of the bank holding company act by defining terms used in the statute and related… terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to relationship to other authorities except as otherwise… provided under section of the bank holding company act and notwithstanding any other provision… of law the prohibitions and restrictions under section of banking entity under other applicable provisions of law preservation of authority nothing in this part limits in… any way the authority of the occ to impose | revised… occ… on… on… banking entities for which the occ is authorized to issue regulations under section of the bank holding company act u and take actions under section of that act u these include national banks federal branches and federal agencies of foreign banks federal savings associations federal savings banks and any of their respective subsidiaries except a subsidiary for which there is a different primary financial regulatory agency as that term is defined in this part… or this part… the bank holding company act and this part shall apply to the activities and investments of a banking entity identified in paragraph of this section even if such activities and investments are authorized for the… on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity investment or relationship covered under section of the bank holding company act or this part or additional penalties for violation of NA |
| 4707 For the reasons set forth in the Supplementary Information, the Board of Go… | for the reasons set forth in the supplementary information… the board of governors of the federal reserve system the text of the common rule as set forth at the end of the NA | is adding… |
| 4708 PART 248—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | part proprietary… trading and certain interests in and relationships with covered the authority for part is added to read as follows u u NA | funds regulation vv… |
| 4709 6. Part 248 is added as set forth at the end of the Common Preamble…. | part is added NA | NA |
| 4710 7. Part 248 is amended by removing “[Agency]” wherever it appears and addin… | removing agency NA | part is amended by… |
| 4711 8. Part 248 is amended by removing “the [Agency]” wherever it appears and a… | removing the agency NA | part is amended by… |
| 4712 9. Section 248.1 is revised to read as follows:§ 248.1 Authority, purpose, … | to read as follows authority purpose scope and relationship to other authorities authority this part regulation vv is issued by the board under section of the bank holding company act of as amended u as well as under the federal reserve act as amended u et seq section of the federal deposit insurance act as amended u the bank holding company act of as amended u et seq and the… international banking act of as amended u et seq… purpose section of the bank holding company… act establishes prohibitions and restrictions on proprietary trading and investments in or relationships… with covered funds by certain banking entities including state banks bank holding companies savings and loan… holding companies other companies that control an insured depository foreign banking organizations and certain subsidiaries thereof this part implements section of the bank holding company act by defining terms used in the statute and related… terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to any company that is treated as a bank holding company… for purposes of section of the international banking act other than a subsidiary for which the occ fdic cftc or sec is the primary financial regulatory agency as defined in section of the dodd frank… wall street reform and consumer protection act of u… relationship to other… authorities except as otherwise provided under section of the and notwithstanding any other provision of law… the prohibitions and restrictions under section of bhc act banking entity under other applicable provisions of law preservation of authority nothing in this part… limits in any way the authority of the board | section is revised… on… member… institution… on… banking entities for which the board is authorized to issue regulations under section of the bank holding company act u and take actions under section of that act u these include any state bank that is a member of the federal reserve system any company that controls an insured depository institution including a bank holding company and savings and loan holding company… u and any subsidiary of the foregoing… bhc act or this part… and this part shall apply to the activities of a banking entity even if such activities are authorized for the… to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity investment or relationship covered under section of the bank holding company act or this part or additional penalties for violation of NA |
| 4715 For the reasons set forth in the Supplementary Information, the Federal Dep… | for the reasons set forth… in the supplementary information the federal deposit insurance corporation the text of the common rule as set forth at the end of the supplementary information as part to chapter NA | is adding… |
| 4716 PART 351—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | part proprietary… trading and certain interests in… and relationships with covered funds the authority for part… is added NA | NA |
| 4717 11. Part 351 is added as set forth at the end of the Common Preamble…. | part is added NA | NA |
| 4718 12. Part 351 is amended by:a. Removing “[Agency]” wherever it appears and a… | part is amended by removing agency wherever it appears and adding in its place the fdic andb removing the agency NA | NA |
| 4719 13. Section 351.1 is revised to read as follows:§ 351.1 Authority, purpose,… | to read as follows authority purpose scope and relationship to other authorities authority this part is issued by the fdic under section of the bank holding company act of as amended u purpose section of the bank holding company act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds… by certain banking entities including any insured depository institution defined… in section of the federal deposit insurance act u for which… the fdic is the appropriate federal banking agency as… defined… in section of the federal deposit insurance act… u this part implements section of the bank holding company act by defining terms used in the statute and related terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to for which… the fdic is the appropriate federal banking agency as relationship to other authorities except as otherwise provided in under section of the bank holding company act and notwithstanding any other provision of law the prohibitions and restrictions under section of… bank holding company act shall apply to the activities banking entity under other applicable provisions of law preservation of authority nothing in this… part limits in any way the authority of the | section is revised… as… and certain subsidiaries thereof… insured depository institutions… defined in section of the federal deposit insurance act and certain subsidiaries of the foregoing… and investments of a banking entity even if such activities and investments are authorized for a… fdic to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity investment or relationship covered under section of the bank holding company act or this part or additional penalties for violation of NA |
| 4722 For the reasons stated in the Common Preamble, the Securities and Exchange … | the text of the common rule as set forth at the end of the supplementary information as part to chapter NA | for the reasons stated in the common preamble the securities and exchange commission is adding… |
| 4723 PART 255—PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS WIT… | part proprietary… trading and certain interests in… and relationships with covered funds the NA | NA |
| 4724 15. Part 255 is added as set forth at the end of the Common Preamble…. | part is added NA | NA |
| 4725 16. Part 255 is amended by:a. Removing “[Agency]” wherever it appears and a… | part is amended by removing agency wherever… it appears and adding in its place the… sec andb removing the agency NA | NA |
| 4726 17. Section 255.1 is revised to read as follows:§ 255.1 Authority, purpose,… | to read as follows authority purpose scope and relationship to other authorities authority this part is issued by the sec under section of the bank holding company act of as amended u purpose section of the bank holding company act establishes prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds by certain banking entities including registered broker dealers registered investment advisers and registered security based swap dealers among others identified in section of the dodd frank wall street reform and consumer protection act of u this part implements section of the bank holding company act by defining terms used in the statute and related terms establishing prohibitions and restrictions on proprietary trading and investments in or relationships with covered funds and explaining the statute requirements scope this part implements section… of the bank holding company act with respect to for which… the sec is the primary financial regulatory agency as relationship to other authorities except as otherwise provided under section of the bank holding company act and notwithstanding any other provision of law the prohibitions and restrictions under section of… bank holding company act shall apply to the activities banking entity under other applicable provisions of law preservation of authority nothing in this… part limits in any way the authority of the | section is revised… banking entities… that term is defined in this part… and investments of a banking entity identified in paragraph of this section even if such activities and investments are authorized for the… sec to impose on a banking entity identified in paragraph of this section additional requirements or restrictions with respect to any activity investment or relationship covered under section of the bank holding company act or this part or additional penalties for violation of NA |
| 4727 Dated: December 10, 2013.Thomas J. Curry,Comptroller of the Currency.By ord… | comptroller of the currency order of… the board of governors of the federal reserve system secretary of the board order of the board… of directors at washington dc this th day of | dated december thomas j curry… december robert dev frierson… december federal deposit insurance corporation e feldman executive secretaryby NA |