Regulation: SEC Delays Banks'Broker-Dealer Rule

The Securities and Exchange Commission issued interim rules Friday that temporarily relieve banks from having to set up registered broker-dealer entities for certain securities activities, including some involving municipal bonds.

The temporary rules exempt banks until Oct. 1 from having to register as broker-dealers for any of their securities activities and say that until Jan. 1 the compensation that banks either receive or pay their employees will not affect their ability to qualify for any of the exemptions from broker-dealer registration requirements.

The interim rules, which the SEC said April 18 that it planned to issue, are designed to overcome anxiety in the banking industry over a provision in the Gramm-Leach-Bliley Act that gave banks until May 12 to make sure their securities activities are conducted within a registered broker-dealer entity or fall within one of the exemptions from broker-dealer registration provided by the act.

The act permits banks to engage in municipal underwriting and brokerage activities within the bank and outside a broker-dealer entity, but some potentially related activities, such as sales of asset-backed securities or debt instruments on a riskless principal basis, would have to be conducted in a separate broker-dealer entity. The delay until Oct. 1 gives banks time to move the activities into separate entities.