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Leslie Bonacum
Neil Allen

CCH Outlines Implications of Financial Services Reform
On Securities Industry

(RIVERWOODS, ILL., November 8, 1999) – While the Gramm-Leach-Bliley Act certainly will change the landscape of the banking industry, it also will have a significant impact on the securities industry and securities professionals, according to CCH INCORPORATED (CCH), a leading provider of securities, banking and business law information, software and services.

Specifically, Title II of the Act sets forth changes related to the securities industry. Among these, the Act replaces the broad exemption banks had enjoyed from Securities and Exchange Commission (SEC) regulation with more limited exemptions and directs the SEC and the Federal Reserve Board to work together on establishing rules for future hybrid financial products. In addition, it will require banks that advise mutual funds to register with the SEC as investment advisers, and require banks selling mutual funds to clearly disclose that these funds are not federally insured.

Also, the Act creates a new, voluntary investment bank holding company structure to be supervised by the SEC.
"A dominant theme of the Act is functional regulation. As a result, the federal securities laws have been amended to incorporate the functional regulation of bank securities activities," said James Hamilton, an attorney and senior securities law analyst for CCH.

Limiting Broker-Dealer Exemptions

The Act replaces the blanket exemption that banks had from SEC broker-dealer regulation with a more limited set of exemptions for activities in which banks have been traditionally engaged, including trust activities and transactions involving commercial paper, employee and shareholder benefit plans and custody services. Also, banks will be able to continue to participate in the derivatives business for all credit and equity swaps, other than equity swaps to retail customers.

Team Approach to Regulating Hybrid Products

Anticipating the creation of hybrid banking and securities products in the future, the new legislation requires a rulemaking and resolution process between the SEC and the Federal Reserve Board.

"Congress has codified a process requiring the SEC to conduct rulemaking before regulating any bank sales of new hybrid products," noted Hamilton.

Under the legislation, the SEC must first undertake a rulemaking process in which it would have to determine that the new hybrid product is a security. Also, it would have to seek input from the Federal Reserve Board. If the SEC and Federal Reserve don’t agree on the definition of the product, then the matter can be brought to the U.S. Court of Appeals for the District of Columbia for a determination.

Registration Requirements and Clear Disclosure

The legislation requires banks that advise mutual funds to register with the SEC as investment advisers, subjecting them to the same regulatory guidelines as other advisers to mutual funds. In addition, banks that sell mutual funds must prominently disclose that, unlike bank deposits, these investments are not federally insured. The Act instructs the SEC to develop the specific rules on how this disclosure needs to be provided to consumers.

"There has been concern that purchasers of mutual funds sold through a bank may become confused and act on an implied belief that the investment is guaranteed by the bank or the federal government," said Hamilton. "This provision for disclosure should help reduce confusion and allay that fear."

Investment Bank Holding Companies

Another provision of the legislation is geared largely toward making it easier for foreign financial regulators to know who is the primary U.S. regulator of U.S. financial institutions. Under the Act, a new investment bank holding company structure has been created which will have SEC oversight, and broker-dealers (that do not have insured depository affiliates) can voluntarily take on this structure.

"If you’re a large broker-dealer doing business abroad, adopting an investment bank holding company structure could make it easier to conduct international business," said Hamilton. "Brokerage firms electing to place themselves under the supervision offered by the investment bank holding company will satisfy the expectations of foreign jurisdictions that the entity be subject to comprehensive supervision."

Electronic Access to Full-Text, New Stories

As a leading provider of securities and banking law information on the Internet, CCH provides electronic access to the full text of the Act, and related documents and developments, on its Banking and Finance Internet site: Visitors can retrieve news stories quickly and then link to the text of the bill as agreed to by the Conference Committee, as well as access the Conference Committee report.

While at the site, visitors can request immediate notification as soon as CCH has published its authoritative explanatory book on the Act: Financial Services Modernization – Gramm-Leach-Bliley Act – Law and Explanation. The single-volume reference of approximately 275 pages can be ordered in November for delivery in December 1999.

Pricing and Availability

To order or for more information on Financial Services Modernization – Gramm-Leach-Bliley Act – Law and Explanation, call 800-248-3248. Single copy price is $45, plus additional tax, shipping and handling.


CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, banking, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer U.S. The CCH web site can be accessed at

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EDITORS NOTE: Media interested in speaking with CCH securities law analyst Jim Hamilton or obtaining editorial review copies of Financial Services Modernization – Gramm-Leach-Bliley Act – Law and Explanation are available upon request. Contact Leslie Bonacum, 847-267-7153 or



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