Section 0180-19-.04 - CATEGORY II: INVESTMENT SERVICES AND SECURITIES ACTIVITIES(1) A state-chartered bank may directly, or indirectly, through an existing subsidiary, through the establishment or acquisition of a subsidiary or through an unaffiliated securities company engage in the following investment services and securities activities, subject to the Commissioner's approval of the application to engage in the activities: (a) Provide portfolio investment advice to customers;(b) Serve as investment adviser to investment companies, including but not limited to open-end and closed-end mutual funds, private investment companies and investment companies registered under the "Investment Companies Act of 1940";(c) Serve as investment or financial adviser to states, counties and municipalities or subdivisions or instrumentalities thereof;(d) Act as general partner to investment partnerships;(e) Act as dealer-manager or financial adviser to corporations or partnerships, including but not limited to providing valuation advice, opinions with respect to sales or purchases of assets, corporate restructuring, issuances of securities, mergers and other acquisitions;(f) Engage in the sale, distribution and underwriting of, and deal in, commercial paper issued by any entity;(g) Engage in the sale, distribution, and underwriting of and deal in promissory notes secured by real estate mortgages, credit obligations secured by real or personal property or manufactured housing, participation interests in promissory notes and credit obligations, and mortgage related payment bonds secured by promissory notes;(h) Engage in the sale, distribution, and underwriting of, and deal in stocks, bonds, debentures, notes, mutual fund shares or unit investment trust interest, and other securities which may be sold by a broker-dealer, financial institution or investment company under Tennessee law;(i) Engage in the underwriting of direct obligations of or obligations for which is pledged the full faith and credit of the United States, or any agency thereof, or a state or territory of the United States, or a subdivision, instrumentality, or public authority organized under the laws of such state or territory, or pursuant to a contract between two (2) or more states;(j) Engaging in credit life reinsurance in an amount approved by the Commissioner; and(k) Engaging in any securities activity in which a national bank or a member bank of the federal reserve may engage.(2) Based upon safety and soundness concerns, securities underwriting shall not be performed by the bank directly and can only be performed through a subsidiary of the bank that is separately capitalized. However, if a national bank can engage in the underwriting of certain securities directly, then a state-chartered bank can underwrite the same type of securities, subject to the same limitations applicable to a national bank.(3) A state-chartered bank may not establish or acquire a subsidiary that engages in the sale, distribution, or underwriting of stocks, bonds, debentures, notes or other securities; conducts any activities for which the subsidiary is required to register with the Securities and Exchange Commission as broker/dealer; acts as an investment adviser to any investment company; or engages in any other securities activity unless: (a) Except as provided by paragraph (4) of this rule, the subsidiary's underwriting activities which would not be permitted under federal law to be conducted in a national bank or member bank of the federal reserve system shall be limited to the following: 1. Underwriting of investment quality debt securities;2. Underwriting of investment quality equity securities;3. Underwriting of investment companies not more than twenty-five percent (25%) of whose investments consist of investments other than investment quality debt securities and/or investment quality equity securities; and4. underwriting of investment companies not more than twenty-five percent (25%) of whose investments consist of investments other than obligations of the United States or U.S. government agencies, repurchase agreements involving such obligations, bank certificates of deposit, bankers acceptances and other bank money instruments, short-term corporate debt instruments, and other similar investments normally associated with a money market fund; and(b) The subsidiary is, and thereafter continues to be, a bona fide subsidiary as defined in Rule 0180-19-02 if the subsidiary conducts securities activities not permitted under federal law to be conducted in a national bank or member bank of the federal reserve system.(4) Paragraph (3) of this rule notwithstanding, a securities subsidiary of a state-chartered bank may engage in underwriting activities other than as limited thereby provided the following conditions are met: (a) The subsidiary is a member in good standing of the National Association of Securities Dealers ("NASD");(b) No director, officer, general partner, employee, or ten percent (10%) shareholder of any class of voting securities of the subsidiary has been convicted within the past five (5) years of any felony or misdemeanor in connection with the purchase or sale of any security involving the making of a false filing with the securities and exchange commission or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment adviser;(c) Neither the subsidiary nor any of its directors, officers, general partners, employees, or 10 percent (10%) shareholders of any class of voting securities of the subsidiary is subject to any state or federal administrative order or court order, judgment, or decree entered in the past five (5) years temporarily or preliminary enjoining or restraining such person or subsidiary from engaging in, or continuing, any conduct or practice in connection with the purchase or sale of any security involving the making of a false filing with the securities and exchange commission or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment adviser; provided, however, the Commissioner may waive or modify this prohibition upon good cause shown;(d) None of the subsidiary's directors, officers, general partners, employees, or ten percent (10%) shareholders of any class of voting securities of the subsidiary are subject to an order entered within the past five (5) years of the securities and exchange commission entered pursuant to Section 15(b) or 15B(c) of the Securities Exchange Act of 1934 ( 15 U.S.C. 780, 780-4) or Section 203(c) or (f) of the Investment Advisers Act of 1940 ( 15 U.S.C. 80b - 3(c), (f); and(e) All officers of the subsidiary who have supervisory responsibility for underwriting activities have at least five (5) years experience in similar activities at NASD member securities firms.(5) The Commissioner may suspend or revoke the approval of the state-chartered bank to engage in securities activities directly or indirectly, if any of the following occur:(a) The capital, assets, management, earnings, liquidity, or sensitivity to market risk of the state-chartered bank becomes unsatisfactory;(b) The Commissioner determines the securities activities are being conducted unlawfully or in an unsafe or unsound manner;(c) Other relevant occurrences dictate that the Commissioner suspend or revoke the state-chartered bank's authority to engage in direct or indirect securities activities; or(d) The Commissioner determines that the application submitted for approval to engage in securities activities contained false or misleading information.(6)(a) Without the prior written consent of the Commissioner, a state-chartered bank shall be prohibited from transferring any classified asset or any property or interest therein which is collateral for a classified asset to its bank securities department, its securities subsidiary or any other financial institution.(b) Without the prior written consent of the Commissioner, a securities subsidiary of a state-chartered bank shall be prohibited from securitizing an asset for sale to investors which has been classified by state or federal regulatory authorities.(7)(a) No person may be employed in a bank securities department or in a securities subsidiary who: 1. Is currently subject to any state or federal administrative enforcement order or judgment entered by the state or federal securities administrator within the past five (5) years or is subject to any state or federal administrative enforcement order or judgment in which fraud or deceit, including but not limited to making untrue statements of material facts or omitting to state material facts, was found and the order or judgment was entered within the past five (5) years;2. Is subject to any state or federal administrative enforcement order or judgment which prohibits, denies or revokes the use of any exemption from registration in connection with the offer, purchase, or sale of securities;3. Is currently subject to any order, judgment, or decree of any court of competent jurisdiction temporarily or preliminary restraining or enjoining, or is subject to any jurisdiction permanently restraining or enjoining, such party from engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with a state or federal agency entered within the past five (5) years; or4. Has been convicted within the past five (5) years of any felony or misdemeanor in connection with the offer, purchase or sale of any security or any felony involving fraud or deceit, including but not limited to forgery, embezzlement, obtaining money under false pretenses, larceny or conspiracy to defraud.(b) Upon a showing of just cause by an applicant, the Commissioner may waive any of the prohibitions contained in subparagraphs (7)(a)1., 2., 3., or 4. above.Tenn. Comp. R. & Regs. 0180-19-.04
Original rule filed June 25, 1990; effective September 26, 1990. Repeal and new rule filed August 31, 1998; effective December 29, 1998.Authority: Public Chapter 168, "Acts of 1989"; Section 1; T.C.A. §§ 45-1-107; 45-2-1601 and 45-2-1602.