Full text of Federal Reserve Bank of New York Circulars : 8179. Amendment to Regulation H

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F E D E R A L R E S E R V E BANK
O F N EW Y O R K

Circular No. 8179-1
September 14, 1977 J
AM EN DM EN T TO REG U L A T IO N H
Filing Requirements For M unicipal Securities Dealers
To A ll Member Banks, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has amended, effective October 31,
1977, its Regulation H — Membership of State Banking Institutions in the Federal Reserve System
— to require State member banks, and their subsidiaries, departments, and divisions, that are mu­
nicipal securities dealers to file with the Board o f Governors information about persons who are
associated with those dealers as municipal securities principals or municipal securities representa­
tives. In addition, the Board has determined not to adopt a proposed amendment to Regulation Y
— Bank Holding Companies— that would have established the same filing requirements for munic­
ipal securities principals and representatives associated with bank holding companies; the proposal
was included in our Circular No. 8089, dated April 11, 1977.
Form MSD-4, “ Uniform Application for Municipal Securities Principal or Municipal Securi­
ties Representative Associated with a Bank Municipal Securities Dealer/’ and Form MSD-5 “ Uni­
form Termination Notice for Municipal Securities Principal or Municipal Securities Representative
Associated with a Bank Municipal Securities Dealer,” for use in complying with the amendment to
Regulation H, together with related instructions, may be obtained from this Bank after September
20, upon request directed to our Regulations Division (Tel. No. 212-791-5914).
In submitting the amendment for publication in the Federal Register, the Board of Governors
issued the following explanatory notice:
A G E N C Y : Board of Governors of the Federal Reserve
System.
A C T IO N : Final rule.
S U M M A R Y : This rule requires State member banks,
and their subisidiaries, departments, and divisions, that
are municipal securities dealers to file with the Board
information about persons who are associated with them
as municipal securities principals or municipal securi­
ties representatives. The Board believes that these re­
quirements will facilitate compliance by those dealers
with Municipal Securities Rulemaking Board rules con­
cerning the qualification of municipal securities princi­
pals and municipal securities representatives.
E FFE C T IV E D A T E : October 31, 1977.
FO R F U R T H E R IN F O R M A T IO N C O N T A C T :
Robert S. Plotkin, Assistant Director, Division of Bank­
ing Supervision and Regulation, Board of Governors of
the Federal Reserve System, Washington, D.C. 20551
(202-452-2782).
S U P P L E M E N T A R Y IN F O R M A T IO N : On March
30, 1977, the Board issued for comment in the Federal
Register (42 FR 16821) proposed amendments to its
Regulation H (12 CFR 208) and Regulation Y (12
CFR 225) to require State member banks and bank
holding companies, and certain of their subsidiaries, de­
partments, and divisions, that are municipal securities
dealers for which the Board is the appropriate regula­
tory agency under section 3 (a ) (34) of the Securities
Exchange Act of 1934 (15 U.S.C. 7 8 c (a )(3 4 )) to file
with the Board information about persons who are asso­
ciated with them as municipal securities principals or
municipal securities representatives. In conjunction with



that proposal, the Board also proposed Form MSD-4,
“ Uniform Application for Municipal Securities Prin­
cipal or Municipal Securities Representative Associated
with a Bank Municipal Securities Dealer,” and Form
MSD-5, “ Uniform Termination Notice for Municipal
Securities Principal or Municipal Securities Represent­
ative Associated with a Bank Municipal Securities
Dealer,” for use in complying with the proposed amend­
ments to Regulations H and Y.
Concurrent with the Board’s proposal of amendments
to Regulations H and Y, the Federal Deposit Insurance
Corporation and the Comptroller of the Currency pro­
posed similar regulations requiring the filing of proposed
Forms MSD-4 and MSD-5. Proposed Form MSD-4
and proposed Form MSD-5 were drafted jointly by the
Board, the Federal Deposit Insurance Corporation, and
the Comptroller of the Currency for use by municipal
securities dealers subject to their regulation. After con­
sidering the comments submitted on the proposed
amendments to Regulations H and Y and proposed
Forms MSD-4 and MSD-5 and working with the Fed­
eral Deposit Insurance Corporation and the Comptroller
of the Currency in drafting final Forms MSD-4 and
MSD-5, the Board has adopted the amendment to Reg­
ulation H and forms substantially as proposed, but has
determined not to adopt the proposed amendment to
Regulation Y at this time.
The proposed amendment to Regulation Y would
have established a record system for municipal securi­
ties principals and representatives associated with bank
holding companies. The activities of bank holding com­
panies are generally limited by the Bank Holding Com­
pany Act to those the Board determines to be “ so closely
related to banking or managing or controlling banks

( over)

as to be a proper incident thereto.” The Board has not
made such a determination concerning municipal securi­
ties dealer activities and accordingly, as a general
matter, bank holding companies are not permittted to
engage in such activities at this time. On October 19,
1976, the Board suspended for a period of time not to
exceed twelve months a proposed regulation that would
permit bank holding companies generally to engage in
certain municipal securities activities. In the event the
Board upon further consideration determines that mu­
nicipal securities dealer activities should be permissible
for bank holding companies, the Board may also at that
time adopt the proposed amendment to Regulation Y
with modifications similar to those the Board has made
in the amendment to Regulation H.
As a result of the comments received, the following
changes have been made in the amendment and form s:
1. The period during which municipal securities
dealers must retain copies of forms or state­
ments that they are required to file with the
Board under the amendment to Regulation H
is specified as until at least three years after the
termination of the employment or other associa­
tion with the dealer of the municipal securities
principal or municipal securities representative
to whom the form or statement relates. That
retention requirement is parallel to the one im­
posed on municipal securities dealers under
paragraph (c ) of Municipal Securities Rulemaking Board Rule G-7.
2. The instructions to Forms M SD-4 and MSD-5
have been revised to require that only the origi­
nal of Forms M SD-4 and MSD-5 be manually
signed.
3. For purposes of Forms M SD-4 and MSD-5 and
the instructions thereto, the term bank municipal
securities dealer has been defined as a municipal
securities dealer which is a bank or a subsidiary
or a department or division of a bank.
4. Item 8 of proposed Form MSD-4 (Item 6 of
final Form M SD -4) has been changed to indi­
cate that qualification as both a municipal securi­
ties principal and municipal securities represen­
tative can be requested on a single Form
MSD-4.
5. Item 9 of proposed Form M SD-4 (Item 7 of
final Form M SD -4), which describes the func­
tions to be performed by a municipal securities

principal or municipal securities representative,
has been expanded to reflect a change in Munici­
pal Securities Rulemaking Board rules effected
after Form MSD-4 was proposed for comment.
6. The “ permitted to resign” and “ voluntary” rea­
sons for termination contained in Item 8 of pro­
posed Form MSD-5 (Item 7 of final Form
M SD-5) have been combined into a single “ re­
signed” category. Further, municipal securities
dealers are required to furnish full details about
the reason for termination only if the termina­
tion is related to a violation or probable viola­
tion of securities or banking law.
7. Editorial changes have been made in Forms
MSD-4 and MSD-5 and the instructions thereto
for clarification purposes.
The Board considered but decided not to adopt a sug­
gestion that Form MSD-4s, Form MSD-5s, and state­
ments received pursuant to paragraph (c ) of Municipal
Securities Rulemaking Board Rule G-7 be considered
filed with the Board when mailed. Upon receipt of a
Form MSD-4 or Form MSD-5, the Board will remit
to the sender the acknowledgment found at the bottom
of the form.
The Board also noted the concern expressed in several
comments about the effect of Item 10 of proposed Form
MSD-4 (Item 8 of final Form M SD-4) on the privacy
of individuals. In completing Item 10 municipal securi­
ties dealers are required to confirm that they have made
the inquiry of former employers of a municipal securi­
ties principal or municipal securities representative re­
quired under paragraph (d ) of Municipal Securities
Rulemaking Board Rule G-7. Since Item 10 reflects a
Municipal Securities Rulemaking Board requirement,
the Board decided not to alter Item 10 other than to
renumber it as Item 8.
The Board prescribed Form MSD-4 for purposes of
paragraph (b ) of Municipal Securities Rulemaking
Board Rule G-7 which becomes effective on October 15,
1977. Printed copies of Forms MSD-4 and MSD-5 will
be available from the Federal Reserve Banks and the
Board of Governors of the Federal Reserve System on
and after September 20, 1977. The amendment to Regu­
lation H will become effective on October 31, 1977. In
the proposed amendment to Regulation H the paragraph
to be added was designated 12 CFR 208.8(h). As
adopted, that paragraph has been redesignated 12 CFR
208.8(j).

System o f Records
The Board of Governors has adopted a new System of Records, entitled “ Municipal Securi­
ties Principal and Municipal Securities Representative Records,” as required by the Privacy Act
of 1974, affecting persons who are or seek to be municipal securities principals or representatives.
The text of the proposed System of Records was contained in our Circular No. 8089. On August 8,
1977, the Board adopted the System with only minor changes; the final text of the new System
was published in the Federal Register of August 24, 1977.
Rules Regarding Delegation o f Authority
The Board of Governors has also adopted an amendment to its Rules Regarding Delegation of
Authority to delegate, to the Director of its Division of Banking Supervision and Regulation, cer­
tain of its functions in connection with the administration of Municipal Securities Rulemaking
Board rules. This amendment will be incorporated into a pending revision of the Board’s Rules
Regarding Delegation of Authority pamphlet, which will be sent to you as soon as it is available.

*

*

*

Enclosed is a copy of the amendment to Regulation H. Questions thereon may be directed to
Regulations
Division (Tel. No. 212-791-5914).
our
P a u l A. V o l c k e r ,



President.

Board of Governors of the Federal Reserve System
M EM BERSH IP OF STATE B A N K IN G IN STITUTIONS
IN TH E FED ERAL RESERVE SYSTEM

A M E N D M E N T TO R E G U L A T IO N H
Effective October 31, 1977, §208.8 is amended
by adding a new paragraph ( j ) thereto, to read
as follows:
SECTIO N 208.8— B A N K IN G PRACTICES
*
*
*

(g )

[R eserved]

(i)

[Reserved]

(h) [R eserved]
(j) State member banks, and subsidiaries,
departments, and divisions thereof, which are
municipal securities dealers.
(1 ) For purposes of this paragraph, the
terms herein have the meanings given them in
section 3 (a ) of the Securities Exchange Act of
1934 (15 U.S.C. §7 8 c(a )) and the rules of the
Municipal Securities Rulemaking Board. The
term Act shall mean the Securities Exchange
Act of 1934 (15 U.S.C. §78a et seq.).
(2 ) On and after October 31, 1977, a State
member bank of the Federal Reserve System,
or a subsidiary or a department or a division
thereof, that is a municipal securities dealer
shall not permit a person to be associated with
it as a municipal securities principal or muni­
cipal securities representative unless it has filed
with the Board an original and two copies of
Form MSD-4, “ Uniform Application for Mu­
nicipal Securities Principal or Municipal Se­
curities Representative Associated with a Bank
Municipal Securities Dealer,” completed in
accordance with the instructions contained
therein, for that person. Form M SD-4 is pre­
scribed by the Board for purposes of paragraph
(b ) of Municipal Securities Rulemaking Board
Rule G-7, “ Information Concerning Associated
Persons.”
(3 ) Whenever a municipal securities dealer
receives a statement pursuant to paragraph (c )
of Municipal Securities Rulemaking Board Rule
G-7, “ Information Concerning Associated Per­
sons,” from a person for whom it has filed a
Form M SD-4 with the Board pursuant to subparagraph (2 ) of this paragraph, such dealer
shall, within ten days thereafter, file three copies
of that statement with the Board accompanied
by an original and two copies of a transmittal
letter which includes the name of the dealer and

a reference to the material transmitted identify­
ing the person involved and is signed by a mu­
nicipal securities principal associated with the
dealer.
(4 ) Within thirty days after the termination
of the association of a municipal securities prin­
cipal or municipal securities representative with
a municipal securities dealer that has filed a
Form MSD-4 with the Board for that person
pursuant to subparagraph (2 ) of this para­
graph, such dealer shall file an original and two
copies of a notification of termination with the
Board on Form MSD-5, “ Uniform Termination
Notice for Municipal Securities Principal or
Municipal Securities Representative Associated
with a Bank Municipal Securities Dealer,”
completed in accordance with instructions con­
tained therein.
(5 ) A municipal securities dealer that files a
Form MSD-4, Form MSD-5, or statement with
the Board under this paragraph shall retain a
copy of each such Form MSD-4, Form MSD-5,
or statement until at least three years after the
termination of the employment or other associ­
ation with such dealer of the municipal securi­
ties principal or municipal securities represen­
tative to whom the form or statement relates.
(6 ) The date that the Board receives a Form
MSD-4, Form MSD-5, or statement filed with
the Board under this paragraph shall be the date
of filing. Such a Form MSD-4, Form MSD-5,
or statement which is not prepared and executed
in accordance with the applicable requirements
may be returned as unacceptable for filing. A c­
ceptance for filing shall not constitute any find­
ing that a Form MSD-4, Form MSD-5, or
statement has been completed in accordance with
the applicable requirements or that any infor­
mation reported therein is true, current, com­
plete, or not misleading. Every Form MSD-4,
Form MSD-5, or statement filed with the Board
under this paragraph shall constitute a filing
with the Securities and Exchange Commission
for purposes of section 17(c) (1 ) of the Act (15
U.S.C. § 7 8 q ( c ) ( l ) ) and a “ report,” “ applica­
tion,” or “ document” within the meaning of
section 32(a) of the Act (15 U.S.C. § 7 8 ff(a )).
(15 U.S.C. §§78o-4(c) (5 ), 78q, and 78w and
12 U.S.C. 2 48(a).)

For this Regulation to be complete, retain:
1) Regulation H pamphlet, as amended effective March 18, 1969.
2) Amendments effective December 21, 1973; March 2, 1974; September 16, 1974; Sep­
tember 22, 1974; December 1, 1975; February 26, 1976; and April 13, 1977.
3 ) This slip sheet.


[Enc. Cir. No. 8179]


P R IN T E D IN N E W

YORK