FRH3_20210225_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), under authority
delegated by the Office of Management and Budget (OMB), has extended for three years,
without revision, the Recordkeeping and Disclosure Requirements Associated with Securities
Transactions Pursuant to Regulation H1 (FR H-3; OMB No. 7100-0196). Section 15C of the
Securities Exchange Act of 1934 (the Act), establishes federal regulation of brokers and dealers
of government securities, including banks and other financial institutions, and directs those
brokers and dealers to keep certain records.2 These requirements are implemented for state
member banks by sections 208.34(c), (d), and (g) of the Board’s Regulation H - Membership of
State Banking Institutions in the Federal Reserve System (12 CFR Part 208), which require that
non-exempt state member banks3 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.
The estimated total annual burden for FR H-3 is 105,827 hours.
Background and Justification
The Act authorizes the Department of the Treasury (Treasury) to enact regulations
concerning the protection of customer securities, as well as the financial responsibility, reporting,
and recordkeeping of brokers and dealers in government securities. Treasury consults with the
Securities and Exchange Commission (SEC), Board, and other federal banking regulatory
agencies in promulgating these regulations. Regulations promulgated by the Treasury exempt
state member banks from recordkeeping requirements imposed on government securities brokers
and dealers, if they are subject to the requirements of Regulation H.4 The recordkeeping and
disclosure requirements in Regulation H for state member banks are similar to requirements
imposed upon broker-dealers by the SEC and also have been adopted by the Federal Deposit
1

The title of this information collection was changed to include reporting requirements. However, after the
clearance was finalized, the reporting requirements were incorrectly classified and should have been classified as
disclosure requirements. The title and collection now removes the reference to reporting requirements.
2
12 U.S.C. § 78o-5(a), (d).
3
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
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. See 12 CFR 208.34(a)(1)(i)-(iv).
4
See 17 CFR 404.4(a)(1).

Insurance Corporation and Office of the Comptroller of the Currency. These requirements are
necessary to protect customers, to avoid or settle customer disputes, and to protect state member
banks against potential liability arising under the anti-fraud and insider trading provisions of the
Act. This information is not available from other sources.
Description of Information Collection
Each non-exempt state member bank effecting securities transactions for customers must
maintain certain records for at least three years following transactions and make certain
disclosures, as described below.
Recordkeeping Requirements
Each state member bank is required by section 208.34(c) of Regulation H to maintain the
following records for a securities transaction in any manner, provided that the information
required to be shown is clearly and accurately reflected and provides an adequate basis for the
audit of such information. Records may be maintained in hard copy, automated, or electronic
form provided the records are easily retrievable, readily available for inspection, and capable of
being reproduced in a hard copy.
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:
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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
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.
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 if the
bank is to receive remuneration from the customer or any other source in connection with
the transaction, and the remuneration is not determined pursuant to a prior written
agreement between the bank and the customer, a statement of the source and the amount
of any remuneration to be received, 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
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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 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,
viii. In the case of a transaction in a debt security subject to redemption before
maturity, a statement to the effect that the debt security may be redeemed in
whole or in part before maturity, that the redemption could affect the yield
represented and that additional information is available on request;
ix. In the case of a transaction in a debt security effected exclusively on the basis of a
dollar price:
A) The dollar price at which the transaction was effected;
B) The yield to maturity calculated from the dollar price; provided, however,
that this paragraph (c)(2)(ix)(B) shall not apply to a transaction in a debt
security that either has a maturity date that may be extended by the issuer
with a variable interest payable thereon, or is an asset-backed security that
represents an interest in or is secured by a pool of receivables or other
financial assets that are subject to continuous prepayment;
x.
In the case of a transaction in a debt security effected on the basis of yield:
A) The yield at which the transaction was effected, including the percentage
amount and its characterization (e.g., current yield, yield to maturity, or
yield to call) and if effected at yield to call, the type of call, the call date,
and the call price; and
B) The dollar price calculated from the yield at which the transaction was
effected; and
C) If effected on a basis other than yield to maturity and the yield to maturity
is lower than the represented yield, the yield to maturity as well as the
represented yield; provided, however, that this paragraph (c)(2)(x)(C) shall
not apply to a transaction in a debt security that either has a maturity date
that may be extended by the issuer with a variable interest rate payable
thereon, or is an asset-backed security that represents an interest in or is
secured by a pool of receivables or other financial assets that are subject to
continuous prepayment;
xi. In the case of a transaction in a debt security that is an asset-backed security
which represents an interest in or is secured by a pool of receivables or other
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financial assets that are subject continuously to prepayment, a statement
indicating that the actual yield of such asset-backed security may vary according
to the rate at which the underlying receivables or other financial assets are prepaid
and a statement of the fact that information concerning the factors that affect yield
(including at a minimum, the estimated yield, weighted average life, and the
prepayment assumptions underlying yield) will be furnished upon written request
of such customer; and
xii. In the case of a transaction in a debt security, other than a government security,
that the security is unrated by a nationally recognized statistical rating
organization, if that is the case.
The regulation also provides alternative notification procedures for certain investment
arrangements.5
As discussed above, pursuant to section 208.34(g)(4) of Regulation H, the written
policies and procedures adopted by state member banks must provide that certain bank officers
and employees make quarterly reports to the bank regarding their compliance with those policies
and procedures. The reports made pursuant to this provision are disclosure requirements
sponsored by the Board.
Respondent Panel
The FR H-3 panel comprises state member banks, excluding those that qualify for an
exemption pursuant to section 208.34(a)(1) of Regulation H.
Time Schedule for Information Collection
Maintenance of records of securities transactions and the disclosure requirements
discussed above are event-generated and must occur when securities are purchased or sold.
Section 208.34(c) requires that records be maintained for at least 3 years. Bank officers and
employees reporting relevant securities transactions in which they have a beneficial interest must
do so within ten days after the end of the calendar quarter. None of this information is submitted
to the Federal Reserve, or published or made available to the public by the Federal Reserve.
Public Availability of Data
No data collected pursuant to this information collection is made available to the public
by the Board.
Legal Status
FR H-3 is authorized pursuant to Section 23 of the Act (15 U.S.C. § 78w), which
empowers the Board to make rules and regulations implementing those portions of the Act for
which it is responsible. The Board also has the authority to require reports from state member
5

12 CFR 208.34(e).

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banks (12 U.S.C. §§ 248(a) and 324). 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).
Because these records and disclosures would be maintained at each banking organization,
the Freedom of Information Act (FOIA) would only be implicated if the Board obtained such
records as part of the examination or supervision of a banking organization. In the event the
records are obtained by the Board as part of an examination or supervision of a financial
institution, this information may be considered confidential pursuant to exemption 8 of the
FOIA, which protects information contained in “examination, operating, or condition reports”
obtained in the bank supervisory process (5 U.S.C. § 552(b)(8)). In addition, the information
may also be kept confidential under exemption 4 for the FOIA, which protects commercial or
financial information obtained from a person that is privileged or confidential (5 U.S.C. §
552(b)(4)).
Consultation Outside the Agency
There has been no consultation outside the Federal Reserve System.
Public Comments
On October 14, 2020, the Board published an initial notice in the Federal Register
(85 FR 65047) requesting public comment for 60 days on the extension, without revision, of
FR H-3. The comment period for this notice expired on December 14, 2020. The Board did not
receive any comments. On February 17, 2021, the Board published a final notice in the Federal
Register (86 FR 9939).
Estimate of Respondent Burden
As shown in the table below, the estimated total annual burden for FR H-3 is 105,827
hours. The number of respondents is based on the number of state member banks as of
December 31, 2019. State member bank totals are as of 2019, 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.
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. State member banks with trust departments must provide disclosures upon request for
discretionary accounts in addition to their responsibility for providing disclosures on all
nondiscretionary accounts. Further, these institutions must maintain records of each employee’s
securities transactions for those employees involved in investment decision making processes.
The estimated number of employee respondents reporting to their employers is based on an
estimated percentage of the total full-time equivalent employees at state member banks with trust
departments. These recordkeeping and disclosure requirements represent 1.2 percent of the
Board’s total paperwork burden.
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Estimated
number of
respondents6

FR H-3
Recordkeeping
State member banks (de novo)
Section 208.34(g)
Establish policies and procedures
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
Disclosure
State member banks with trust
departments
Section 208.34(d)
Securities transactions
State member banks without trust
departments
Section 208.34(d)
Securities transactions
Officers and employees of state
member banks with trust
departments
Section 208.34(g)
Employee quarterly report

Estimated
Estimated
Annual
average hours annual burden
frequency
per response
hours

1

1

40

40

209

12

2

5,016

209

12

2

5,016

545

4

0.25

545

545

12

0.25

1,635

545

12

0.25

1,635

209

12

16

40,128

545

12

5

32,700

2,389

4

2

19,112

Total

105,827

6

Of these respondents, 603 (96 state member banks with trust departments and 507 state member banks without
trust departments) are considered small entities as defined by the Small Business Administration (i.e., entities with
less than $600 million in total assets), https://www.sba.gov/document/support--table-size-standards. There are no
special accommodations given to mitigate the burden on small institutions.

7

The estimated total annual cost to state member banks is $5,007,791,7 while the estimated
total annual cost to individuals is $516,024.8 Accordingly, the estimated total annual cost to the
public for the FR H-3 is $5,523,815.
Sensitive Questions
These collections of information contain no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The estimated cost to the Federal Reserve System associated with these requirements is
negligible.

7

Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $20, 45% Financial Managers at
$71, 15% Lawyers at $70, 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 2019, published March 31, 2020, https://www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined
using the BLS Standard Occupational Classification System, https://www.bls.gov/soc/.
8
The average consumer cost of $27 is estimated using data from the BLS Economic News Release (USDL-20-0300)
https://www.bls.gov/news.release/archives/cewqtr_02202020.htm.

8