FRH3_20180223_omb

Supporting Statement for the
Recordkeeping and Disclosure Requirements Associated with
Securities Transactions Pursuant to Regulation H
(FR H-3; OMB No. 7100-0196)
Summary
The Board of Governors of the Federal Reserve System (Board), proposes to extend for
three years, without revision, the Recordkeeping and Disclosure Requirements Associated with
Securities Transactions Pursuant to Regulation H (FR H-3; OMB No. 7100-0196). These
requirements are pursuant to sections 208.34(c), (d), and (g) of Regulation H - Membership of
State Banking Institutions in the Federal Reserve System, which require that state member banks
effecting securities transactions for customers establish and maintain a system of records of these
transactions, furnish confirmations of transactions to customers that disclose certain information,
and establish written policies and procedures relating to securities trading. State member banks
are required to maintain records created per these requirements for three years following a
securities transaction. These requirements are necessary to protect the customer, to avoid or
settle customer disputes, and to protect the institution against potential liability arising under the
anti-fraud and insider trading provisions of the Securities Exchange Act of 1934 (Securities
Exchange Act). The annual paperwork burden imposed on the 829 state member banks for these
event-generated requirements is estimated to be 96,851 hours.1
Background and Justification
The Government Securities Act of 1986, as implemented by the U.S. Department of the
Treasury, exempts state member banks from recordkeeping requirements imposed on
government securities brokers and dealers, if they are subject to the requirements of
Regulation H.2 The recordkeeping and disclosure requirements in Regulation H for state
member banks are similar to requirements imposed upon broker-dealers by the Securities and
Exchange Commission (SEC) and also have been adopted by the Federal Deposit Insurance
Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and, formerly, the
Office of Thrift Supervision (OTS) for state non-member and national banks and savings
associations, respectively.
Description of Information Collection
The requirements of section 208.34 of Regulation H apply to all state member banks that
effect more than 500 government securities brokerage transactions per year, unless the institution
has filed a written notice, or is required to file notice, with the Board that it acts as a government
securities broker or a government securities dealer. These requirements also do not apply to
activities of foreign branches of state member banks, activities of nonmember, non-insured trust
company subsidiaries of bank holding companies, or activities that are subject to regulations
1

State member bank totals are as of year-end 2016, and do not include state chartered nondepository trust
companies that are members of the Federal Reserve, which typically do not conduct activities that would require
recordkeeping pursuant to this regulation.
2
See 17 CFR 404.4(a)(1).

promulgated by the Municipal Securities Rulemaking Board. In addition, state member banks
with an annual average of less than 200 securities transactions for customers over the prior three
calendar years (exclusive of transactions in U.S. government and agency obligations) are exempt
from these Regulation H recordkeeping and disclosure requirements.
Each state member bank effecting securities transactions for customers must maintain
records and copies of disclosures as described below for three years following the transaction.
Records may be maintained in hard copy, automated, or electronic format. There is no
regulatory reporting form associated with these requirements.
Recordkeeping Requirements
Each state member bank is required by section 208.34(c) to maintain the following
records for a securities transaction in hard copy, automated or electronic form, provided that the
records are easily retrievable, readily available for inspection and capable of being reproduced in
a hard copy format:
(1) Chronological “records of original entry” containing an itemized daily record of all
purchases and sales of securities. The records of original entry shall show the account or
customer for which each such transaction was effected, the description of the securities,
the unit and aggregate purchase or sale price (if any), the trade date and the name or other
designation of the broker-dealer or other person from whom purchased or to whom sold,
(2) Account records for each customer which shall reflect all purchases and sales of
securities, all receipts and deliveries of securities, and all receipts and disbursements of
cash with respect to transactions in securities for such account and all other debits and
credits pertaining to transactions in securities,
(3) A separate memorandum (order ticket) of each order to purchase or sell securities
(whether executed or cancelled), which shall include:
i.
the account(s) for which the transaction was effected,
ii. whether the transaction was a market order, limit order, or subject to special
instructions,
iii. the time the order was received by the trader or other bank employee responsible
for effecting the transaction,
iv. the time the order was placed with the broker-dealer, or if there was no brokerdealer, the time the order was executed or cancelled,
v.
the price at which the order was executed, and
vi. the broker-dealer utilized,
(4) A record of all broker-dealers selected by the bank to effect securities transactions and
the amount of commissions paid or allocated to each such broker during the calendar
year, and
(5) A copy of the notifications described in the disclosure section below.
Each state member bank is also required, under section 208.34(g), to establish and
maintain written policies and procedures providing:
(1) Assignment of responsibility for supervision of persons who:
i.
transmit or place orders with broker-dealers, or
ii. execute transactions in securities for customers, or

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iii.

process orders for notification and settlement purposes; or perform other back office
functions,
(2) For the fair and equitable allocation of securities and prices to accounts under listed
circumstances,
(3) For the crossing of buy and sell orders where applicable and permissible under law, and
(4) That bank officers and employees who make investment recommendations or decisions
for the accounts of customers, who participate in the determination of such
recommendations or decisions, or who, in connection with their duties, obtain
information concerning which securities are being purchased or sold or recommended for
such action, must report to the bank, within 10 days after the end of the calendar quarter,
all transactions in securities made by them or on their behalf, either at the bank or
elsewhere, in which they have a beneficial interest. The report shall identify the
securities purchased or sold and indicate the dates of the transactions and whether the
transactions were purchases or sales. Excluded from this requirement are transactions for
the benefit of the officer or employee over which the officer or employee has no direct or
indirect influence or control, transactions in mutual fund shares, and all transactions
involving in the aggregate $10,000 or less during the calendar quarter. For purposes of
this paragraph, the term “securities” does not include government securities.
The regulation also provides alternative procedures for certain investment arrangements.
Disclosure Requirements
For each securities transaction, the state member bank is required, under section
208.34(d), to furnish its customers with either:
(1) A copy of the broker-dealer confirmation relating to the securities transaction; and certain
statements associated with any remuneration received by the bank, or
(2) A written notification disclosing:
i.
the name of the bank,
ii. the name of the customer,
iii. whether the bank is acting as agent for the customer, as agent for both the customer
and some other person, as principal for its own account, or in any other capacity,
iv. the date of execution and a statement that the time of execution is available upon
written request specifying the identity, price and number of shares or units (or
principal amount in the case of debt securities) of such security purchased or sold
by the customer,
v.
the amount of any remuneration received or to be received, directly or indirectly, by
any broker/dealer from such customer in connection with the transaction,
vi. the amount of any remuneration received or to be received by the bank from the
customer and the source and amount of any other remuneration to be received by
the bank in connection with the transaction, unless remuneration is determined
pursuant to a written agreement between the bank and the customer, provided,
however, in the case of government securities and municipal securities, this
paragraph shall apply only with respect to remuneration received by the bank in an
agency transaction. If the bank elects not to disclose the source and amount of
remuneration it has or will receive from a party other than the customer pursuant to

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this paragraph, the written notification must disclose whether the bank has received
or will receive remuneration from a party other than the customer, and that the bank
will furnish within a reasonable time the source and amount of this remuneration
upon written request of the customer. This election is not available, however, if,
with respect to a purchase, the bank was participating in a distribution of that
security, or with respect to a sale, the bank was participating in a tender offer for
that security,
vii. the name of the broker-dealer utilized or, where there is no broker/dealer, the name
of the person from whom the security was purchased or to whom it was sold, or the
fact that such information will be furnished within a reasonable time upon written
request, and
viii. additional information on yield when a transaction in a debt security meets any of
the following conditions:
 is subject to redemption before maturity,
 is effected exclusively on the basis of a dollar price,
 is effected on the basis of yield,
 is in an asset-backed security which represents an interest in or is secured by a
pool of receivables or other financial assets that are subject continuously to
prepayment, or
 is in a debt security, other than a government security, that is unrated by a
nationally recognized statistical rating organization.
Time Schedule for Information Collection
Maintenance of records of securities transactions is event-generated and must occur when
securities are purchased or sold. Section 208.34(c) requires that records be maintained for
3 years. State member banks also must collect a quarterly report on certain bank employees’
securities transactions. None of this information is submitted to the Federal Reserve, available to
the public, or published.
Regulation H also requires that bank officers and employees who make investment
recommendations or decisions for the accounts of customers, who participate in the
determination of such recommendations or decisions, or who, in connection with their duties,
obtain information concerning which securities are being purchased or sold or recommended for
such action, must report to the bank, within 10 days after the end of the calendar quarter, all
transactions in securities made by them or on their behalf, either at the bank or elsewhere, in
which they have a beneficial interest.
Legal Status
The FR H-3 is authorized by section 23 of the Securities Exchange Act (15 U.S.C. 78w)
which empowers the Board to make rules and regulations implementing those portions of the
Securities Exchange Act for which it is responsible. The requirements of 12 CFR 208.34(c), (d),
and (g) also are impliedly authorized by section 9 of the Federal Reserve Act (12 U.S.C. 325)
which requires state member banks to submit to examinations by the Federal Reserve System.
These securities transactions requirements appear to be reasonably related to the Board’s

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supervisory authority with respect to the safety and soundness of state member banks.
Accordingly, the Board is authorized by implication under 12 U.S.C. 325 to impose these
recordkeeping, disclosure, and policy establishment requirements. The obligation of a state
member bank to comply with the Regulation H requirements is mandatory, save for the limited
exceptions set forth in 12 CFR 208.34(a).
Inasmuch as the Federal Reserve System does not collect or receive any information
concerning securities transactions pursuant to these requirements, no issues of confidentiality
normally will arise. If, however, these records were to come into the possession of the Board,
they may be protected from disclosure pursuant to exemption 4 of the Freedom of Information
Act (FOIA) (5 U.S.C. 552(b)(4)), under the standards set forth in National Parks and
Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974), to the extent an institution
can establish the potential for substantial competitive harm. They also may be subject to
withholding under FOIA exemption 6 (5 U.S.C. 552(b)(6)), should disclosure constitute an
unwarranted invasion of personal privacy. Additionally, if such information were included in the
work papers of System examiners or abstracted in System reports of examination, the
information also may be protected under exemption 8 of FOIA (5 U.S.C. 552(b)(8)). Any
withholding determination would be made on a case-by-case basis in response to a specific
request for disclosure of the information.
Consultation Outside the Agency
On November 27, 2017, the Board published an initial notice in the Federal Register
(82 FR 56022) requesting public comment for 60 days on the extension, without revision, of the
FR H-3. The comment period for this notice expired on January 26, 2018. The Board did not
receive any comments. On February 15, 2018, the Board published a final notice in the Federal
Register (83 FR 6850) and the information collection will be extended as proposed.
Estimate of Respondent Burden
The total annual burden estimate of 96,851 hours comprises recordkeeping and disclosure
burden for state member banks. The number of respondents reflects the number of state member
banks subject to these requirements, based on data as of year-end 2016. The burden estimates
presented in the following are based on three categories of respondents: (1) one new state
member bank (de novo), (2) state member banks with trust departments of which there are 228,
and (3) state member banks without trust departments of which there are 601.3 All 829
institutions are subject to these requirements.
State member banks with trust departments incur more burden than state member banks
without trust departments. The higher burden for the former respondents is attributed to the
additional responsibilities related to their investment discretion over customers’ managed
accounts.4 State member banks with trust departments must provide disclosures upon request for
discretionary accounts in addition to their responsibility for providing disclosures on all
3

Reports of Condition and Income (Call Reports) (FFIEC 031, FFIEC 041, and FFIEC 051; OMB No. 7100-0036).
Investment discretion is the authority to determine or make decisions as to what securities or other property shall
be purchased or sold by or for an account.
4

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nondiscretionary accounts. Further, these institutions must maintain records of each employee’s
securities transactions for those employees involved in investment decision making processes.
Recordkeeping Requirements
As noted, the recordkeeping requirements include the documentation of the details of
customer transactions, establishing and maintaining written policies and procedures, and the
maintenance of quarterly reports filed by employees to the institution regarding the employees’
securities activities. The Federal Reserve estimates that, to comply with the recordkeeping
requirements of securities transactions and policies and procedures, the 228 respondents with
trust powers will take on average two hours per month and the 601 respondents without trust
powers will take on average 15 minutes per month. The Federal Reserve estimates on average
one new state member bank (de novo) will establish policies and procedures relating to securities
transactions. In addition, the Federal Reserve estimates that, for the recordkeeping requirements
of employee quarterly reports, respondents with trust powers will take on average two hours per
quarter and respondents without trust powers will take on average 15 minutes per quarter. The
total burden hours for recordkeeping are estimated to be 17,015 hours.
Disclosure Requirements
As noted, the disclosure requirements include notifications to customers for all securities
transactions effected by the institution for its non-discretionary accounts. Additionally, upon the
customer’s request, the institution must provide notifications to customers for securities
transactions effected by the institution for discretionary accounts. The Federal Reserve estimates
that, to comply with the disclosure requirements of securities transactions, the 228 respondents
with trust powers will take, on average, 16 hours per month, and the 601 respondents without
trust powers will take on average 5 hours per month. The total burden hours for disclosure
requirements is estimated to be 79,836 hours. These recordkeeping and disclosure requirements
represent less than 1 percent of total Federal Reserve System paperwork burden.

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Estimated
Estimated
Number of Annual
average hours annual burden
respondents5 frequency
per response
hours

FR H-3
Recordkeeping
State member banks (de novo)
Section 208.34(g)
Establish policies and procedures

1

1

40

40

228

12

2

5,472

228

12

2

5,472

228

4

2

1,824

601

12

0.25

1,803

601

12

0.25

1,803

601

4

0.25

601
17,015

Disclosure
State member banks with trust
departments
Section 208.34(d)
Securities transactions

228

12

16

43,776

State member banks without trust
departments
Section 208.34(d)
Securities transactions

601

12

5

36,060
79,836

State member banks with trust
departments
Section 208.34(c)
Securities transactions
Section 208.34(g)
Policies and procedures
Section 208.34(g)
Employee quarterly report
State member banks without trust
departments
Section 208.34(c)
Securities transactions
Section 208.34(g)
Policies and procedures
Section 208.34(g)
Employee quarterly report

Total

96,851

5

Of these respondents, 580 (108 state member banks with trust departments and 472 state member banks without
trust departments) are considered small entities as defined by the Small Business Administration (i.e., entities with
less than $550 million in total assets) www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sbasize-standards/table-small-business-size-standards.

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The total annual cost to the public is estimated to be $5,317,120.6
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The cost to the Federal Reserve System associated with these recordkeeping and
disclosure requirements is negligible.

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Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rate (30% Office & Administrative Support at $18, 45% Financial Managers at
$67, 15% Lawyers at $67, and 10% Chief Executives at $93). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2016, published March 31, 2017, www.bls.gov/news.release/ocwage.nr0.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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