What is 'Regulation R'

Regulation R provides exemptions for banks from broker status as directed by Section 3 of the Securities Exchange Act of 1934. Section 3 of the Act was amended by the 1999 Gramm-Leach-Bliley Act and primarily focuses on regulations for broker-dealers and brokerage transactions.

BREAKING DOWN 'Regulation R'

Regulation R provides exceptions for banks offering certain brokerage services as defined by Section 3 of the Securities Exchange Act of 1934. Regulation R gives banks broader latitude for their operational activities under bank status, allowing them to provide certain brokerage transactions without registration as a broker-dealer.

In 1999, Section 3 of the Securities Exchange Act of 1934 was modified to include provisions instituted from the Gramm-Leach-Bliley Act (GLBA). This Act was known for modernizing and expanding governance of the financial markets. Much of the focus from GLBA was on expanding the offerings a single financial service firm was able to provide.

The 1999 provisions from GLBA allowed financial companies to offer a broader range of services. It also allowed financial companies to more freely partner for mergers involving expansion of services for customers. Prior to 1999, financial service companies were primarily restricted to focusing their products around a single service offering.

Exceptions for Banks

In 2007 the Federal Reserve and the Securities and Exchange Commission issued final details on Regulation R. Regulation R outlines exceptions for banks who seek exemption from broker-dealer registration requirements in the amended Securities Exchange Act of 1934. It includes exceptions provided for in the Securities and Exchange Act of 1934 and also adds some additional criteria for exemption. Overall, banks can receive exemption from broker-dealer registration when securities transactions are part of the bank's trust and fiduciary, custodial and deposit sweep functions. Exemptions can also relate to foreign securities transactions, and non-custodial securities lending transactions conducted in an agency capacity. Generally however banks must partner with a third party to offer brokerage services. Thus, activities of banks that fall outside of specified exemptions must be referred to their partnering registered broker-dealer for transaction.

In some cases, banks may choose to acquire a broker-dealer as a subsidiary to comply with market rules and regulations. Merrill Lynch’s merger with Bank of America provides one example. Merrill Lynch was acquired by Bank of America in 2009. Merrill Lynch offers a wide range of brokerage services and serves as the primary broker-dealer partner for Bank of America. Bank of America’s clients are referred to Merrill Lynch for financial advice, full service brokerage transactions and discount brokerage transactions through the Merrill Edge platform. This partnership supports compliance with Section 3 of the Securities Exchange Act of 1934 and Regulation R.

  1. The Gramm-Leach-Bliley Act of 1999 ...

    The Gramm-Leach-Bliley Act of 1999 (GLBA) was a bipartisan regulation ...
  2. SEC Form 1

    SEC Form 1 is an application for, or amendments to, registration ...
  3. Broker-Dealer

    Broker-dealer is used in U.S. securities regulation parlance ...
  4. SEC Form T-4

    An application for exemption from certain sections of the Trust ...
  5. Series 82

    The Series 82 is a certification giving financial professionals ...
  6. Covered Security

    Covered security refers to a classification of securities that ...
Related Articles
  1. Investing

    Bank of America Wants to Give Merrill Lynch Customers Banking Perks

    Bank of America is courting Merrill Lynch clients, offering them incentives for opening checking and savings accounts at the bank.
  2. Financial Advisor

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  3. Insights

    Merrill Considers Alternatives to Fee-Only Model

    In the wake of the fiduciary rule, Merrill Lynch is dropping commission-based transactions from all of its retirement accounts, with possible exceptions.
  4. Insights

    Merrill Lynch Seeks to Boost Merrill Edge Referrals With New Bonus Program

    Merrill Lynch wants brokers to refer clients to other products including Merrill Edge and will compensate them for it.
  5. Investing

    Merrill Edge Added 200 New Advisors in 2017, With More to Come

    Merrill Edge added 200 advisors last year, and more are expected to join the robo-advisory service in 2018.
  6. Investing

    Decline Of The Independent Broker-Dealer

    Since the financial crisis of 2008-2009 the numbers of independent broker-dealers have been steadily declining. Find out why, and if the trend will continue.
  7. Investing

    Fidelity Investments Makes the Case for Banking at a Brokerage

    Forget banks – Fidelity offered up some reasons to conduct financial transactions at your brokerage.
  8. Investing

    How Bank of America Holds 1/8 of All U.S. Deposits

    Bank of America isn't America's central bank, but given its size and spread, you could be forgiven this misapprehension.
  9. Trading

    Get To Know These Crucial US Options Market Regulations

    How are options regulated in the U.S and which organizations are involved in options market regulations?
  10. Investing

    Bank Of America Sets Strategy

    Bank of America held an analyst meeting and touted the bank's brand, distribution network and product offerings.
  1. What impact does government regulation have on the financial services sector?

    Learn about how the financial services industry is affected by government regulation, and the different types of regulations ... Read Answer >>
  2. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  3. How are asset management firms regulated?

    Find out how the asset management industry is regulated and how those regulations fit within the broader scope of financial ... Read Answer >>
Hot Definitions
  1. Investment Advisor

    An investment advisor is any person or group that makes investment recommendations or conducts securities analysis in return ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  4. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  5. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  6. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
Trading Center