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United States Code (Last Updated: May 24, 2014) |
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Title 12. BANKS AND BANKING |
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Chapter 17. BANK HOLDING COMPANIES |
§ 1851. Prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds
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(a) In general (1) Prohibition Unless otherwise provided in this section, a banking entity shall not— (A) engage in proprietary trading; or (B) acquire or retain any equity, partnership, or other ownership interest in or sponsor a hedge fund or a private equity fund. (2) Nonbank financial companies supervised by the Board Any nonbank financial company supervised by the Board that engages in proprietary trading or takes or retains any equity, partnership, or other ownership interest in or sponsors a hedge fund or a private equity fund shall be subject, by rule, as provided in subsection (b)(2), to additional capital requirements for and additional quantitative limits with regards to such proprietary trading and taking or retaining any equity, partnership, or other ownership interest in or sponsorship of a hedge fund or a private equity fund, except that permitted activities as described in subsection (d) shall not be subject to the additional capital and additional quantitative limits except as provided in subsection (d)(3), as if the nonbank financial company supervised by the Board were a banking entity.
(b) Study and rulemaking (1) Study Not later than 6 months after July 21, 2010 , the Financial Stability Oversight Council shall study and make recommendations on implementing the provisions of this section so as to—(A) promote and enhance the safety and soundness of banking entities; (B) protect taxpayers and consumers and enhance financial stability by minimizing the risk that insured depository institutions and the affiliates of insured depository institutions will engage in unsafe and unsound activities; (C) limit the inappropriate transfer of Federal subsidies from institutions that benefit from deposit insurance and liquidity facilities of the Federal Government to unregulated entities; (D) reduce conflicts of interest between the self-interest of banking entities and nonbank financial companies supervised by the Board, and the interests of the customers of such entities and companies; (E) limit activities that have caused undue risk or loss in banking entities and nonbank financial companies supervised by the Board, or that might reasonably be expected to create undue risk or loss in such banking entities and nonbank financial companies supervised by the Board; (F) appropriately accommodate the business of insurance within an insurance company, subject to regulation in accordance with the relevant insurance company investment laws, while protecting the safety and soundness of any banking entity with which such insurance company is affiliated and of the United States financial system; and (G) appropriately time the divestiture of illiquid assets that are affected by the implementation of the prohibitions under subsection (a). (2) Rulemaking (A) In general Unless otherwise provided in this section, not later than 9 months after the completion of the study under paragraph (1), the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, shall consider the findings of the study under paragraph (1) and adopt rules to carry out this section, as provided in subparagraph (B).
(B) Coordinated rulemaking (i) Regulatory authority The regulations issued under this paragraph shall be issued by— (I) the appropriate Federal banking agencies, jointly, with respect to insured depository institutions; (II) the Board, with respect to any company that controls an insured depository institution, or that is treated as a bank holding company for purposes of section 8 of the International Banking Act, are satisfied; and (iii) the Board has determined that such transaction is consistent with the safe and sound operation and condition of the banking entity. (B) Treatment of prime brokerage transactions For purposes of subparagraph (A), a prime brokerage transaction described in subparagraph (A) shall be subject to section 371c–1 of this title as if the counterparty were an affiliate of the banking entity.
(4) Application to nonbank financial companies supervised by the Board The appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission shall adopt rules, as provided in subsection (b)(2), imposing additional capital charges or other restrictions for nonbank financial companies supervised by the Board to address the risks to and conflicts of interest of banking entities described in paragraphs (1), (2), and (3) of this subsection.
(g) Rules of construction (1) Limitation on contrary authority Except as provided in this section, notwithstanding any other provision of law, the prohibitions and restrictions under this section shall apply to activities of a banking entity or nonbank financial company supervised by the Board, even if such activities are authorized for a banking entity or nonbank financial company supervised by the Board.
(2) Sale or securitization of loans Nothing in this section shall be construed to limit or restrict the ability of a banking entity or nonbank financial company supervised by the Board to sell or securitize loans in a manner otherwise permitted by law.
(3) Authority of Federal agencies and State regulatory authorities Nothing in this section shall be construed to limit the inherent authority of any Federal agency or State regulatory authority under otherwise applicable provisions of law.
(h) Definitions In this section, the following definitions shall apply: (1) Banking entity The term “banking entity” means any insured depository institution (as defined in section 1813 of this title), any company that controls an insured depository institution, or that is treated as a bank holding company for purposes of section 8 of the International Banking Act of 1978, and any affiliate or subsidiary of any such entity. For purposes of this paragraph, the term “insured depository institution” does not include an institution that functions solely in a trust or fiduciary capacity, if— (A) all or substantially all of the deposits of such institution are in trust funds and are received in a bona fide fiduciary capacity; (B) no deposits of such institution which are insured by the Federal Deposit Insurance Corporation are offered or marketed by or through an affiliate of such institution; (C) such institution does not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others or make commercial loans; and (D) such institution does not— (i) obtain payment or payment related services from any Federal Reserve bank, including any service referred to in section 248a of this title; or (ii) exercise discount or borrowing privileges pursuant to section 461(b)(7) of this title. (2) Hedge fund; private equity fund The terms “hedge fund” and “private equity fund” mean an issuer that would be an investment company, as defined in the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.), but for section 3(c)(1) or 3(c)(7) of that Act [15 U.S.C. 80a–3(c)(1), (7)], or such similar funds as the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission may, by rule, as provided in subsection (b)(2), determine.
(3) Nonbank financial company supervised by the Board The term “nonbank financial company supervised by the Board” means a nonbank financial company supervised by the Board of Governors, as defined in section 5311 of this title.
(4) Proprietary trading The term “proprietary trading”, when used with respect to a banking entity or nonbank financial company supervised by the Board, means engaging as a principal for the trading account of the banking entity or nonbank financial company supervised by the Board in any transaction to purchase or sell, or otherwise acquire or dispose of, any security, any derivative, any contract of sale of a commodity for future delivery, any option on any such security, derivative, or contract, or any other security or financial instrument that the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission may, by rule as provided in subsection (b)(2), determine.
(5) Sponsor The term to “sponsor” a fund means— (A) to serve as a general partner, managing member, or trustee of a fund; (B) 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 fund; or (C) to share with a fund, for corporate, marketing, promotional, or other purposes, the same name or a variation of the same name. (6) Trading account The term “trading account” means any account used for acquiring or taking positions in the securities and instruments described in paragraph (4) principally for the purpose of selling in the near term (or otherwise with the intent to resell in order to profit from short-term price movements), and any such other accounts as the appropriate Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission may, by rule as provided in subsection (b)(2), determine.
(7) Illiquid fund (A) In general The term “illiquid fund” means a hedge fund or private equity fund that— (i) as of May 1, 2010 , was principally invested in, or was invested and contractually committed to principally invest in, illiquid assets, such as portfolio companies, real estate investments, and venture capital investments; and(ii) makes all investments pursuant to, and consistent with, an investment strategy to principally invest in illiquid assets. In issuing rules regarding this subparagraph, the Board shall take into consideration the terms of investment for the hedge fund or private equity fund, including contractual obligations, the ability of the fund to divest of assets held by the fund, and any other factors that the Board determines are appropriate. (B) Hedge fund For the purposes of this paragraph, the term “hedge fund” means any fund identified under subsection (h)(2), and does not include a private equity fund, as such term is used in section 80b–3(m) of title 15.
References In Text
Section 8 of the International Banking Act, referred to in subsec. (b)(2)(B)(i)(II), probably means section 8 of Pub. L. 95–369, known as the International Banking Act of 1978, which enacted section 3106 of this title and amended section 1841 of this title.
The Farm Credit Act of 1971, referred to in subsec. (d)(1)(A), is Pub. L. 92–181,
Section 102 of the Small Business Investment Act of 1958, referred to in subsec. (d)(1)(E), probably should be section 103 of the Small Business Investment Act of 1958, which is classified to section 662 of Title 15, Commerce and Trade.
Section 8 of the International Banking Act of 1978, referred to in subsec. (h)(1), is section 8 of Pub. L. 95–369, which enacted section 3106 of this title and amended section 1841 of this title.
The Investment Company Act of 1940, referred to in subsec. (h)(2), is title I of act Aug. 22, 1940, ch. 686, 54 Stat. 789, which is classified generally to subchapter I (§ 80a–1 et seq.) of chapter 2D of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 80a–51 of Title 15 and Tables.
Effective Date
Section effective 1 day after