ANAHEIM, Calif. – The industry is still buzzing about theanticipation of an SEC rule adoption that opens the door for creditunions to engage in certain transactions without having to registerwith or as a broker dealer. While that new regulation could come asearly as December, it would not take effect until Jan. 2006,according to the SEC, which will continue to review comment lettersuntil Aug. 2. The SEC's proposed rule would allow credit unions toprovide onsite or electronic registered broker services for membersand earn a percentage of the resulting commissions; set uparrangements to sweep funds in member share accounts into and outof no-load money market mutual funds; and buy and sell securitiesfor their own accounts and as fiduciaries for their members. At theforefront of at least one of the areas – sweep accounts – has been$569 million Evangelical Christian Credit Union (ECCU), whichsought relief from the SEC as far back as December 2000 asking theCommission for the ability to bypass a broker-dealer “middleman.”In July 2002, the credit union announced it would offer a sweepproduct to its faith-based member organizations through FederatedInvestors, Inc. At the time, ECCU planned to transition fromFederated and offer the service directly should the SEC grant itsrequest. Today, the relationship with Federated is still intact butno one could have imagined credit unions would even be consideredin the 11 exemptions the SEC has recently extended to them, saidMark Jones, ECCU vice president of enterprise application andproduct management. “This is quite significant authority, it goesway beyond sweep accounts, Jones said. “In essence, (it) haschanged the fundamental definition of what a bank is.” Jones saidthis “huge gain” may call for changes in credit unions' systems,most which don't have a sweep functionality. Meanwhile, the lowinterest rate environment has hammered ECCU's sweep product withmost members using them for automation rather than actual sweepingof funds. “Rates have hit historical lows so we've had limitedsuccess,” Jones said. “We're about 150 basis points away” from aninterest rate scenario when the product will become more popular,he predicted. Jones said ECCU plans to submit an additional commentletter to the SEC on sweep accounts. The three areas ofsignificance to credit unions are occurring in some fashion today,said Kevin Thompson, associate general counsel for CUNA MutualGroup. Clarifications rather that permission were sought from theSEC through a no-action letter from CUNA last year on networkingarrangements as well as with sweep accounts led by ECCU. Fiduciaryrelationships also needed clarity, Thompson said. CUNA is stillwaiting on a response from the SEC on that no-action letter, headded. Indeed, CUNA has been working with the SEC to protect creditunions and their credit union service organizations which haddeveloped networking arrangements subsequent to NCUA's letter 150but which SEC has questioned in light of the Gramm-Leach-Blileyamendments. “The newest area for credit unions will be in the trustareas,” Thompson said. “The proposal is about 150 pages long. Ifyou peel back the layers, there will be other areas of note forcredit unions.” The culmination of the inclusion of credit unionscomes from more than three years of open communication lines withthe SEC, Thompson said. CUNA has been working with the SEC on thesesecurities related issues under the auspices of the CUNA BrokerageActivities Task Force (BATForce). The BATForce, which includesrepresentatives from CUNA Mutual, NAFCU, several credit unions anda credit union-owned broker dealer, worked with the SEC as well asthe NCUA to advance and protect credit unions' capabilities toengage in certain brokerage activities. Mark Allen, president/CEOof XCU Capital and a member of BATForce, says credit unions arealready starting to move investment program back in house. Over thelast two years, he's noticed that XCU Capital's newest creditunions clients have moved toward managed programs with the smallerto medium-sized ones moving away from customized solutions. “Overthe long term, integrating back into the credit union will be apositive step,” Allen said, adding should the SEC proposal beadopted, it won't be seen as a threat to the more than 80relationships the credit-union owned broker provides services for.“This is a huge development,” Thompson said. “There is receptivityfrom the SEC. They want to understand how credit unions work. Ourvoices are being heard.” [email protected]

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