US rules on broker-dealer services

THESE rules were adopted in June 1998 by the North American Securities Administrator's Association.

They apply exclusively to broker-dealer services conducted by broker-dealers on the premises of a financial institution where retail deposits are taken. These rules do not alter or abrogate a broker-dealer's obligations to comply with other applicable laws, rules, or regulations that may govern the operations of broker-dealers and their agents, including but not limited to, supervisory obligations. These rules do not apply to broker-dealer services provided to non-retail customers.

Definitions

For purposes of these rules, the following terms have the meanings indicated:

*``Financial institution'' means federal and state-chartered banks, savings and loan associations, savings banks, credit unions, and the service corporations of such institutions located in [name of State].

*``Networking arrangement'' means a contractual or other arrangement between a broker-dealer and a financial institution pursuant to which the broker-dealer conducts broker-dealer services on the premises of such financial institution where retail deposits are taken.

*``Broker-dealer services'' means the investment banking or securities business as defined in paragraph (p) of Article I of the By-Laws of the National Association of Securities Dealers, Inc.

Broker-dealer conduct

No broker-dealer shall conduct broker-dealer services on the premises of a financial institution where retail deposits are taken unless the broker-dealer complies initially and continuously with the following requirements:

Setting

Wherever practical, broker-dealer services shall be conducted in a physical location distinct from the area in which the financial institution's retail deposits are taken. In those situations where there is insufficient space to allow separate areas, the broker-dealer has a heightened responsibility to distinguish its services from those of the financial institution.

In all situations, the broker-dealer shall identify its services in a manner that clearly distinguishes those services from the financial institution's retail deposit-taking activities. The broker-dealer's name shall be clearly displayed in the area in which the broker-dealer conducts its services.

Networking arrangements and program management

Networking arrangements shall be governed by a written agreement that sets forth the responsibilities of the parties and the compensation arrangements.

Networking arrangements must provide that supervisory personnel of the broker-dealer and representatives of state securities authorities, where authorized by state law, will be permitted access to the financial institution's premises where the broker-dealer conducts broker-dealer services in order to inspect the books and records and other relevant information maintained by the broker-dealer with respect to its broker-dealer services. Management of the broker-dealer shall be responsible for ensuring that the networking arrangement clearly outlines the duties and responsibilities of all parties, including those of financial institution personnel.

Customer disclosure

At or prior to the time that a customer's securities brokerage account is opened by a broker-dealer on the premises of a financial institution where retail deposits are taken, the broker-dealer shall:

i. disclose, orally and in writing, that the securities products purchased or sold in a transaction with the broker-dealer:

(a) are not insured by the Federal Deposit Insurance Corporation (``FDIC'');

(b) are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution; and

(c) are subject to investment risks, including possible loss of the principal invested.

ii. make reasonable efforts to obtain from each customer during the account opening process a written acknowledgment of the disclosures required by paragraph (C)(3)(a)(i).

(b) If broker-dealer services include any written or oral representations concerning insurance coverage, other than FDIC insurance coverage, then clear and accurate written or oral explanations of the coverage must also be provided to the customers when such representations are first made.

Excerpts from the North American Securities Administrator's Association model rules for the sale of securities at financial institutions.