Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 3b-17 -- Definitions of Terms Used in Section 3(a)(4) of the Act

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1. The term chiefly compensated means that the "relationship compensation" received by a bank from a trust or fiduciary account exceeds the "sales compensation" received by the bank from such account during the immediately preceding year, which is either a calendar year or other fiscal year consistently used by the bank for recordkeeping and reporting purposes.
   
   
2. The term flat or capped per order processing fee equal to not more than the cost incurred by the bank in connection with executing securities transactions for trustee and fiduciary customers means a fee that is no more than the amount a broker-dealer charged the bank for executing the transaction, plus the costs of any resources of the bank that are exclusively dedicated to transaction execution, comparison, and settlement for trust and fiduciary customers.
   
   
3. The term indenture trustee means any trustee for an indenture to which the definition given in Section 303 of the Trust Indenture Act of 1939 (15 U.S.C. 77ccc) applies, and any trustee for an indenture to which the definition in Section 303 of the Trust Indenture Act of 1939 (15 U.S.C. 77ccc) would apply but for an exemption from qualification pursuant to Section 304 of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd).
   
   
4. The term investment adviser if the bank receives a fee for its investment advice means a bank that has a relationship with the customer paying the fee in which the bank:
   
   
   1. Provides, in return for the fee, continuous and regular investment advice to the customer's account that is based upon the individual needs of the customer; and
      
      
   2. Under state law, federal law, contract, or customer agreement owes a duty of loyalty, including an affirmative duty to make full and fair disclosure to the customer of all material facts relating to conflicts.
      
      
5. The term money market fund means an open-end management investment company registered under the Investment Company Act of 1940 that is regulated as a money market fund pursuant to Rule 2a-7.
   
   
6. 
   
   1. The term no-load in the context of an investment company registered under the Investment Company Act of 1940 means:
      
      
      1. Purchases of the investment company's securities are not subject to a sales load, as that term is defined in Section 2(a)(35) of the Investment Company Act of 1940, or a deferred sales load, as that term is defined in Rule 6c-10; and
         
         
      2. The investment company's total charges against net assets for sales or sales promotion expenses and personal service or the maintenance of shareholder accounts do not exceed 0.25 of 1% of average net assets annually and are disclosed in the money market fund's prospectus.
         
         
   2. For purposes of paragraph (f)(1) of this section, charges for the following will not be considered charges for personal service or for the maintenance of shareholder accounts:
      
      
      1. Transfer agent and subtransfer agent services for beneficial owners of the investment company shares;
         
         
      2. Aggregating and processing purchase and redemption orders;
         
         
      3. Providing beneficial owners with statements showing their positions in the investment companies;
         
         
      4. Processing dividend payments;
         
         
      5. Providing subaccounting services for investment company shares held beneficially;
         
         
      6. Forwarding shareholder communications, such as proxies, shareholder reports, dividend and tax notices, and updating prospectuses to beneficial owners; or
         
         
      7. Receiving, tabulating, and transmitting proxies executed by beneficial owners.
         
         
7. 
   
   1. The term nominal one-time cash fee of a fixed dollar amount means a payment in either of the following forms that meets the requirements of subparagraph (2):
      
      
      1. A payment that does not exceed one hour of the gross cash wages of the unregistered bank employee making a referral; or
         
         
      2. Points in a system or program that covers a range of bank products and non-securities related services where the points count toward a bonus that is cash or non-cash if the points (and their value) awarded for referrals involving securities are not greater than the points (and their value) awarded for activities not involving securities.
         
         
   2. Regardless of the form of payment, the payment may not be related to:
      
      
      1. The size, value, or completion of any securities transaction;
         
         
      2. The amount of securities-related assets gathered;
         
         
      3. The size or value of any customer's bank or securities account; or
         
         
      4. The customer's financial status.
         
         
8. The term referral means a bank employee arranging a first securities-related contact between a registered broker-dealer and a bank customer, but does not include any activity (including any part of the account opening process) related to effecting transactions in securities beyond arranging that first contact.
   
   
9. The term relationship compensation means any compensation received by a bank in connection with activities for which the bank relies on an exception under Section 3(a)(4)(B)(ii) of the Act that is received directly from a customer or beneficiary, or directly from the assets of the trust or fiduciary account, and consists solely of an administration or annual fee (payable on a monthly, quarterly, or other basis), a percentage of assets under management fee, or a flat or capped per order processing fee equal to not more than the cost incurred by the bank in connection with executing securities transactions for trust and fiduciary accounts, or any combination of such fees.
   
   
10. The term sales compensation means any compensation received by a bank in connection with activities for which the bank relies on an exception under Section 3(a)(4)(B)(ii) of the Act that:
    
    
    1. Is a fee for effecting a transaction in securities that is not a flat or capped per order processing fee equal to not more than the cost incurred by the bank in connection with executing securities transactions for trustee and fiduciary customers;
       
       
    2. Is compensation that if paid to a broker or dealer would be payment for order flow, as defined in Rule 10b-10;
       
       
    3. Is a finders' fee received in connection with a securities transaction or account, except a fee received pursuant to Section 3(a)(4)(B)(i) of the Act;
       
       
    4. Is a fee paid for an offering of securities that is not received directly from a customer or beneficiary, or directly from the assets of the trust or fiduciary account;
       
       
    5. Is a fee paid pursuant to a Rule 12b-1 plan under the Investment Company Act of 1940; or
       
       
    6. Is a fee paid by an investment company for personal service or the maintenance of shareholder accounts, except a fee that is not part of a Rule 12b-1 plan under the Investment Company Act of 1940 for:
       
       
       1. Transfer agent and subtransfer agent services for beneficial owners of shares in the investment company;
          
          
       2. Aggregating and processing purchase and redemption orders;
          
          
       3. Providing beneficial owners with statements showing their positions in the investment companies;
          
          
       4. Processing dividend payments;
          
          
       5. Providing subaccounting services for shares in the investment company held beneficially;
          
          
       6. Forwarding shareholder communications, such as proxies, shareholder reports, dividend and tax notices, and updating prospectuses to beneficial owners; or
          
          
       7. Receiving, tabulating, and transmitting proxies executed by beneficial owners.
          
          
11. The term trustee capacity in Section 3(a)(4)(B)(ii) of the Act includes an indenture trustee or a trustee for a tax-deferred account described in Sections 401(a), 408, and 408A under subchapter D and in Section 457 under subchapter E of the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.).
    
    

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