examination of a registered clearing agency be amended to limit this reporting requirement to information relating to the clearing agency function insofar as insured banks are concerned, so as not to imply that unrelated information developed in the course of a general examination of the insured bank need also be reported to the SEC.

As to the transfer agency function, S. 2058 would require registration statements to be filed with the appropriate regulatory agency but, as with the clearing agency function, substantive rulemaking authority would be lodged exclusively with the SEC. The three Federal bank regulatory agencies would be consulted by the SEC in the exercise of its rulemaking authority and the bank regulatory agencies would have the enforcement responsibility with respect to insured banks acting as transfer agents, except that the second sentence of the proposed section 17B(j) appears to give the SEC a residual, concurrent enforcement jurisdiction with respect to banks acting in this capacity. That subsection seems to grant the SEC power to enforce compliance "by any person with the requirements imposed under this section." We recommend that the breadth of the term "by any person" does not seem fully to conform to the concept of lodging exclusive enforcement jurisdiction in the Federal bank regulatory agencies with respect to insured banks acting as transfer agents. We therefore recommend that subsection (j) be amended so as definitely to preclude the possible construction that the SEC is being given concurrent enforcement authority with respect to insured banks acting in this capacity.

The Corporation in the past has strongly recommended that the Federal bank regulatory agencies be granted the same enforcement tools as would be granted by the proposed legislation to the SEC. To this end we recommend that the proposed section 17B (j) be amended to give the Federal bank regulatory agencies enforcement authority similar to that granted therein to the SEC. That subsection might be amended to read as follows:

"(j) The appropriate regulatory agency may, after appropriate
notice and opportunity for hearing, by order, censure or bar
or suspend or place limitations upon any transfer agent, or any
officer, director, or employee of any transfer agent, or revoke
the registration of any transfer agent, if such agency finds
that such censure, barring, suspension, placing of limitations,
or revocation is in the public interest or for the protection of
investors and that such transfer agent or any officer, director,
or employee thereof has willfully violated or is unable to
comply with any provision of this section or any rule or
regulation promulgated thereunder pertaining to such transfer
agent or any officer, director, or employee thereof."

If amended as recommended above, the Corporation would support
enactment of S. 2058.

Sincerely,

Frank Wille

Chairman

I am writing in response to your letter of June 29, 1973, in which you invite the comments of the Board of Governors on S. 2058, which appears to be substantially similar to legislation passed by the Senate last year.

Under the arrangement in S. 2058, the Securities and Exchange Commission is authorized to prescribe rules relating to clearing agencies (defined to include depositories) and transfer agents. Enforcement authority respecting the application of such rules to such institutions which are banking organizations (banks, bank holding companies and subsidiaries thereof) is lodged in the three Federal bank supervisory agencies: the Comptroller of the Currency in the case of national banks, the Federal Deposit Insurance Corporation in the case of State nonmember insured banks, and the Federal Reserve in the case of State member banks, bank holding companies, and nonbank subsidiaries thereof. Clearing agencies and transfer agents which are not banking organizations will be subject to the enforcement jurisdiction of the SEC.

The Board feels that the provisions of the bill requiring consultation and cooperation among the agencies responsible for administering the legislation are of great importance. The function of acting as a clearing agency (depository) is being carried out by Depository Trust Co., which is chartered as a bank, and is a member bank of the Federal Reserve System. In seems most probable that most other depositories will similarly be State member banks of the Federal Reserve System, and, as such, subject to examination and supervision by the State chartering authority and the Federal Reserve. Because of these unique features of the developing clearing agencies

(depositories), the Board believes that more widespread utilization
of such institutions will be made if the rules governing clearing
agencies (depositories) are the product of a joint effort by the
SEC and the bank regulatory agencies. Although we regard the
assignment of joint responsibility for rule-writing to more than
one Federal agency to be generally disadvantageous as a regulatory
procedure, we believe that the public acceptability of bank clear-
ing agencies (depositories)--which is vital to success of the entire
program--will be enhanced by providing for the concurrence of the
appropriate bank supervisory agency prior to the adoption of any
rule by the SEC applying to any clearing agency (depository) which
is a bank.

S. 2058 appears to authorize the adoption of reasonable rules setting standards relating to the financial condition and character of a prospective participant in any clearing agency (depository). Since the matter of integrity is so important in the carrying on of the clearing agency (depository) function--a function which is essentially fiduciary in nature--we believe that the proposed legislation should clearly authorize the adoption of reasonable rules relating to denial of participation in any clearing agency (depository) based upon adverse financial or character factors.

I trust these comments will prove helpful to you, and we are enclosing for your consideration several suggestions for technical amendments relative to the proposed legislation. The Board appreciates having had the opportunity to comment on proposed S. 2058.

FEDERAL RESERVE BOARD

Proposed Amendments to S. 2058

(A) On page 27, line 11, paragraph (i) should be amended to

read as follows so that (1) the powers encompassed in the Financial Institutions Supervisory Act will apply to both clearing agencies and transfer agents and (2) temporary orders may issue under that Act to prevent prejudicing the interests of any person affected, and not merely depositors:

"(i) Compliance with the requirements imposed by this section and section 17A of this Act may be enforced under

section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818).

by the appropriate regulatory agencies other than the

Commission. For the purpose of the exercise by the appropriate
regulatory agency of its powers under section 8 of the Federal
Deposit Insurance Act, any State member bank of the Federal
Reserve System, including each subsidiary thereof, and any
bank holding company and nonbank subsidiary of a bank holding
company, acting as a clearing agency or as a transfer agent, shall
be considered an insured bank. Any violation of any requirement
imposed under this section or section 17A of this Act upon banks,
bank holding companies, or nonbank subsidiaries of bank holding
companies registered as transfer agents or clearing agencies is
a violation of the requirements imposed under the Federal Deposit
Insurance Act and shall constitute adequate basis for the
issuance of orders under section 8(b) and 8(c) of that Act; and
for the purposes of this sentence the reference in section 8(c)

to "depositors" shall be deemed to include all persons doing business with a transfer agent or a clearing agency. In addition to its power under section 8 of the Federal Deposit Insurance Act, each of such appropriate regulatory agencies may, for the purpose of enforcing compliance with this

section or section 17A of this Act or any rule thereunder,

exercise any other authority conferred on it by law."

(B) In order to permit participant banks to purchase stock

in depositories as is now required of all participants in Depository Trust Company, Section 5136 of the Revised Statutes (12 USC 24) should be amended by adding the following provision:

"Tenth. Notwithstanding any other provision in this section, to acquire or hold shares of stock or obligations issued by a corporation engaged solely in the functions of

a 'clearing agency' as defined in section 3 (a) of the

Securities Exchange Act of 1934."