A broker-dealer authorized to engage in securities underwriting, dealing, or market-making may, under certain circumstances, be acquired by a bank holding company, by a foreign bank subject to the Bank Holding Company Act, or by a state member bank. The resulting subsidiaries and the institutions owning them are listed here under the following categories:
Section 20 subsidiaries
Section 4(k)(4)(E) securities subsidiaries
Financial subsidiaries of state member banks
Here is a brief description of the circumstances under which an institution may acquire a securities underwriting and dealing subsidiary.
Section 20 Subsidiaries
The Board may, on a case-by-case basis, grant prior approval to a
bank holding company or a foreign bank to engage to a limited extent
through a so-called section 20 subsidiary in underwriting and
dealing in securities that a member bank may not underwrite or deal
in directly (bank-ineligible securities). Such a subsidiary
is called a section 20 subsidiary in reference to a repealed
section of the Glass-Steagall Act that limited affiliations between
certain securities companies and member banks. A section 20
subsidiary is subject to eight prudential limitations or operating
standards designed to address certain safety and soundness concerns.
A section 20 subsidiary is also limited to deriving no more
than 25 percent of its gross revenue from underwriting or dealing
in bank-ineligible securities. A section 20 subsidiary
may be limited by the terms of its Board approval in the types of
securities that it may underwrite or deal in. No section 20
subsidiary may underwrite or deal in shares of an open-end investment
company or mutual fund.
Section 4(k)(4)(E) Securities Subsidiaries
A bank holding company or a foreign bank that elects to become or
be treated as a financial holding company pursuant to provisions
of the Gramm-Leach-Bliley Act that amended section 4(k)(4)(E)
of the Bank Holding Company Act, may engage in securities underwriting,
dealing, or market-making activities. The financial holding
company must notify the Board within thirty days after commencing
these activities. The Board has adopted an interim rule subjecting
these activities to two of the section 20 operating standards.
Financial Subsidiaries of State Member Banks
A state member bank that qualifies to control a financial subsidiary
under provisions of the Gramm-Leach-Bliley Act may engage through
the subsidiary in securities underwriting, dealing, or market-making
activities fifteen days after providing prior notice to the
Board.
