Supervised Investment Bank Holding Companies

The Securities and Exchange Commission ("Commission") is adopting rules to implement Section 17(i) of the Securities Exchange Act of 1934, which created a new framework for supervising an investment bank holding company ("IBHC"). An IBHC that meets specified criteria may elect to become a supervised investment bank holding company ("SIBHC") and be subject to supervision on a group- wide basis by filing a notice of intention with the Commission. Pursuant to the statute and these new rules, an IBHC is eligible to be an SIBHC if it is not affiliated with certain types of banks and has a subsidiary broker-dealer with a substantial presence in the securities markets. These rules provide an IBHC with a process to become supervised by the Commission as an SIBHC, and establish regulatory requirements for an SIBHC, including requirements regarding its group- wide internal risk management control system, recordkeeping, and periodic reporting (including reporting of consolidated computations of allowable capital and risk allowances consistent with the standards published by the Basel Committee on Banking Supervision). The Commission also is adopting an exemption to the Commission's risk assessment rules to exempt a broker-dealer that is affiliated with an SIBHC from those rules because these new SIBHC rules will require that an SIBHC maintain substantially the same records and make substantially the same reports to the Commission that a broker-dealer must maintain and make pursuant to the risk assessment rules. Finally, the Commission is amending the audit requirements for over-the-counter ("OTC") derivatives dealers to permit OTC derivatives dealers to file, as part of their annual audits, a supplemental report regarding the firm's internal risk management control systems based on agreed-upon procedures rather than auditing standards.