Letter 37: Securities Brokerage Services
This Interpretive Letter provides general guidance to Wisconsin state chartered banks engaged or proposing to engage in securities brokerage services. It is intended to alert the banking industry to supervisory concerns and legal issues relating to such programs.
Securities brokerage services include the purchase or sale, or arranging for the purchase or sale, of stock, bonds, debentures, notes or other securities solely as agent for the accounts of customers. A bank may provide investment advice as part of its securities brokerage services.
Historically, commercial banks in Wisconsin have provided these services. These services are closely related and incidental to other banking powers specifically described in the statutes. There is no restriction upon or prohibition against the offering of these services, provided a bank trades solely for the accounts of its customers and not for its own account. Moreover, these services are specifically permitted to national banks. (12 U.S.C. §24(7).)
A bank may provide securities brokerage services at its home office or at any authorized branch office. In addition, a bank may provide these services at other locations provided the bank does not make loans, accept deposits, provide trust services other than as permitted by sec. 221.04(6m), Wis. Stats., or cash checks or other negotiable instruments at such location.
A bank may organize or acquire a corporate subsidiary for the purpose of providing securities brokerage services. However, before doing so, it must obtain the written approval of the Commissioner of Banking and otherwise comply with Bkg. 3.04.
Traditionally, licensed securities sales agents have been paid on a commission basis. It is not an imprudent banking practice for a bank to pay its employees or the employees of a subsidiary who are so licensed on a commission or similar incentive basis.
Trustees have a special fiduciary responsibility to assure that securities trades on behalf of trust account customers are executed with a minimum of error for the lowest reasonable price. With that duty in mind, trust departments should refrain from executing trades through the securities brokerage services department of the bank or any of its affiliates or subsidiaries without first obtaining the customer's authorization, or otherwise establishing that to do so is in conformity with its fiduciary responsibility.
Each bank, bank subsidiary, or bank employee who provides investment advice must observe the applicable licensing requirements of the Office of the Commissioner of Securities, and comply with applicable securities laws and rules. In order to avoid any possible conflicts of interest, no investment advice may be given regarding the equity or debt securities of the bank or of any affiliate of the bank.
Underwriting is not securities brokerage services, and this Interpretive Letter is not intended to reach the issues involved in offering this particular service. As a result, this letter may not be construed to suggest that a bank may engage in underwriting of any security other than obligations of the United States, or general obligations of any state or political subdivision thereof or other government securities of the type described in 12 U.S.C. §24(7), which Wisconsin banks have traditionally purchased for their own account.
Bkg. Ltr. #37, October 19, 1990, Commissioner Sherry