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Release Date: February 18, 1997

For immediate release

The Federal Reserve Board today announced its approval of the notices by The Toronto-Dominion Bank, Toronto, Canada, and its wholly owned subsidiary, Waterhouse Investor Services, Inc., New York, New York, to acquire 50 percent of the voting shares of Marketware International, Inc., Holmdel, New Jersey, and thereby develop and sell computer software that would allow brokerage customers to purchase and sell securities over the Internet by means of personal computers.

Attached is the Board's Order relating to this action.

The Toronto-Dominion Bank
Toronto, Canada

Waterhouse Investor Services, Inc.
New York, New York

Order Approving Notices to Engage in Certain Data Processing Activities

The Toronto-Dominion Bank, Toronto, Canada ("TDB"), and its wholly owned subsidiary, Waterhouse Investor Services, Inc., New York, New York ("Waterhouse"), bank holding companies within the meaning of the Bank Holding Company Act ("BHC Act"), have requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.23(a) of the Board's Regulation Y (12 C.F.R. 225.23(a)) to acquire 50 percent of the voting shares of Marketware International, Inc., Holmdel, New Jersey ("Company"), and thereby engage in certain data processing activities pursuant to section 225.25(b)(7) of Regulation Y (12 C.F.R. 225.25(b)(7)).1 Company proposes to develop and sell computer software that would allow brokerage customers to purchase and sell securities over the Internet by means of personal computers.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 1118 and 3900 (1997)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

TDB, with total consolidated assets of $93.5 billion, is the fifth largest commercial bank in Canada.2 In the United States, TDB operates a branch in New York, New York; an agency in Houston, Texas; representative offices in New York, New York, and Chicago, Illinois; and, through Waterhouse, a bank in White Plains, New York. TDB engages through its subsidiaries in a broad range of permissible nonbanking activities in the United States, including underwriting and dealing in debt and equity securities to a limited extent. TDB also engages through Waterhouse's subsidiary, Waterhouse Securities, Inc., New York, New York ("WSI"), in providing discount brokerage services pursuant to section 225.25(b)(15) of Regulation Y (12 C.F.R. 225.25(b)(15)).

Company proposes to develop, market, and sell computer software to WSI and other broker-dealers and financial institutions3 that would permit customers of those entities to purchase and sell securities over the Internet using personal computers.4 Company's software would be maintained on a host computer operated by a broker or the broker's service provider and would be available for use by customers after accessing the Internet through an unaffiliated Internet service provider. The software would enable customers to initiate transactions and to obtain information concerning their securities brokerage accounts. Company also would provide software maintenance and product support.5

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The proposed activities appear to be the type of data processing and transmission activities that are permissible for bank holding companies under section 4(c)(8) of the BHC Act and section 225.25(b)(7) of Regulation Y. The Board previously has determined by regulation that providing data processing and data transmission services, facilities (including hardware and software), data bases or access to such operations by any technological means is closely related to banking and, therefore, permissible for bank holding companies under section 4(c)(8) of the BHC Act if the data involved in the proposed activity are financial, banking, or economic in nature.6 The Board also has approved the development and sale by bank holding companies of software designed to permit customers to conduct basic banking transactions and personal financial management on their personal computers,7 and software designed to process and transmit financial, banking or economic data from the customer to a financial institution over the Internet.8 Based on the foregoing and all other facts of record, the Board has concluded that the activities proposed by Company are closely related to banking within the meaning of the BHC Act and constitute permissible data processing and transmission services under Regulation Y.9

In order to approve the proposal, the Board also must determine that the proposed activities are a proper incident to banking; that is, that the proposal "can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."10 As part of its review of these factors, the Board has considered the financial and managerial resources of TDB, Waterhouse, and Company, and the effect the proposal would have on such resources.11 Based on all the facts of record, the Board has concluded that financial and managerial considerations are consistent with approval of the proposal.

The Board expects that the proposed activities would result in benefits to consumers, broker-dealers, and financial institutions. Company's software would enable securities brokerage customers to initiate transactions and communicate with their brokers using personal computers during business and non-business hours. The software would provide broker-dealers and financial institutions with additional means of making their securities brokerage services available to the public and, thereby, could produce additional sources of transaction volume and resulting fee income. Company's entry into this market also would increase the level of competition among existing providers of these software products. In addition, there is no evidence in the record that consummation of the proposal would produce any significant adverse effects, such as decreased or unfair competition, undue concentration of resources, or conflicts of interests.

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The Board previously has considered the risks presented when banking services are made available over the Internet and noted that the nature of these risks is not different from those associated with more traditional banking operations.12 The purchase and sale of securities over the Internet presents similar risks, and Company's proposed software uses various security measures, including cryptography and a user identification system, to attempt to maintain the privacy of transactions and to protect the underlying data.13

Based on all the facts of record, the Board has determined that the balance of the public interest factors it is required to consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable, and consistent with approval of the proposal.

Based on the foregoing and all the facts of record, the Board has determined that the proposal should be, and hereby is, approved. Approval of the proposal is specifically conditioned on compliance by TDB, Waterhouse, and Company with all the commitments made in connection with the proposal and with the conditions referred to in this order. The Board's determination also is subject to all the conditions set forth in Regulation Y, including those in sections 225.7 and 225.23(g) of Regulation Y (12 C.F.R. 225.7 and 225.23(g)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. For purposes of this action, these commitments and conditions shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law.

This transaction shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors,14 effective February 18, 1997.

(signed) Jennifer J. Johnson

Jennifer J. Johnson

Deputy Secretary of the Board


1 The remaining 50 percent of Company would be owned by two individuals, each controlling 25 percent.

2 Asset data are as of October 31, 1996, and are based on the exchange rate between Canadian and U.S. dollars applicable on that date.

3 For purposes of this order, "financial institution" means a bank, bank holding company, thrift institution, thrift holding company, and subsidiaries of these companies.

4 Company's software systems would perform two functions: (a) permit retail customers to have computer access to their securities brokerage accounts, and (b) allow broker-dealers and financial institutions to integrate customer-generated electronic brokerage transactions with their back-office operations.

5 TDB indicates that software maintenance and product support encompass: (1) enhancements to the computer software and other routine modifications related to application problems identified by Company's broker-dealer and financial institution client base; and (2) support provided to Company's client base to resolve problems encountered in software development and implementation.

6 See 12 C.F.R. 225.25(b)(7).

7 The Royal Bank of Canada, 82 Federal Reserve Bulletin 363 (1996).

8 See Cardinal Bancshares, Inc., 82 Federal Reserve Bulletin 674 (1996) ("Cardinal Order"). See also Citicorp, 72 Federal Reserve Bulletin 497 (1986) (stating that processing services involving on-line transactions and quotation data for financial instruments such as stocks, bonds and mutual funds are closely related to banking).

9 See 12 C.F.R. 225.25(b)(7). TDB and Waterhouse have committed that Company will provide the proposed services in accordance with the limitations established in Regulation Y.

10 12 U.S.C. § 1843(c)(8).

11 See 12 C.F.R. 225.24. See also The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); and Bayerische Vereinsbank, AG, 73 Federal Reserve Bulletin 155 (1987).

12 See Cardinal Order, 82 Federal Reserve Bulletin at 676.

13 In the Cardinal Order, the Board recommended that banking organizations considering whether to provide services over the Internet analyze carefully the associated risks, and evaluate carefully whether those risks were consistent with their policies relating to the security of customer information and other data. Similarly, the Board expects organizations considering whether to use Company's software to conduct a careful analysis of the risks presented in order to mitigate the possibility that such activities would result in unsound banking or financial practices.

14 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.

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