Regulation R

What Is Regulation R?

Regulation R was carried out in 2007 as a provision of the Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act centers around regulations for broker-dealers and brokerage transactions.

Regulation R gives special cases for banks to offer certain brokerage services once defined in the Securities Exchange Act of 1934.

Broker-Dealer

A broker-dealer is an individual or firm that acts as an intermediary between an investor and a securities exchange.

Grasping Regulation R

Regulation R gives banks a more extensive scope to their operational activities under bank status, permitting them to give certain brokerage transactions without registration as a broker-dealer.

In 1999, Section 3 of the Securities Exchange Act of 1934 was modified to incorporate provisions organized from the Gramm-Leach-Bliley Act (GLBA). This Act was known for modernizing and extending the governance of the financial markets. A significant part of the concentration from GLBA expanded the offerings a single financial service firm could give.

GLBA permitted financial companies to partner for mergers including the expansion of services for customers. Before 1999, financial service companies were basically restricted to centering their products around a single service offering.

Special cases for Banks

In 2007, the Federal Reserve and the Securities and Exchange Commission issued last subtleties on Regulation R. Banks can receive an exemption from broker-dealer registration when securities transactions are part of the bank's trust and fiduciary, custodial, and deposit sweep capabilities.

Exemptions can likewise connect with foreign securities transactions, and non-custodial securities lending transactions directed in an agency capacity. Generally, nonetheless, banks must partner with an outsider to offer brokerage services. Subsequently, activities of banks that fall outside of indicated exemptions must be alluded to their partnering registered broker-dealer for the transaction.

At times, banks might decide to gain a broker-dealer as a subsidiary to conform to market rules and regulations. Merrill Lynch's merger with Bank of America gives one model. Merrill Lynch was acquired by Bank of America in 2009. Merrill Lynch offers an extensive variety of brokerage services and fills in as the primary broker-dealer partner for Bank of America.

Bank of America alludes clients to Merrill Lynch for financial guidance, full-service brokerage transactions, and discount brokerage transactions through the Merrill Edge platform. This partnership upholds compliance with Section 3 of the Securities Exchange Act of 1934 and Regulation R.

FAQ

What Are Some of the Requirements for Banks Under Regulation R?

The Gramm-Leach-Bliley Act and Regulation R impletmentation requires financial institutions, companies that offer consumers financial products or services like loans, financial or investment counsel, or insurance to clarify their data sharing practices for their customers and to shield sensitive data.

What Investments Can Be Sold by Banks Under Regulation R?

Regulation R permits the sale of mutual funds, annuities, and other non-deposit investments to retail customers.

How Did the Gramm-Leach-Bliley Act Affect the Exchange Act of 1934?

Regulation R was carried out under the Gramm-Leach-Bliley Act (GLBA) of 1999, which brought down large numbers of the barriers that were raised between the banking and securities industries by the Exchange Act of 1934, made to administer securities transactions on the secondary market.