Vendor to Credit Unions
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*Note: This is a letter we received from the NCUA clarifying our ability to
serve credit unions as a vendor versus a broker. If you would like to see a copy of the
original, we would be happy to fax or mail it. Also, although at the time we were not
registered FINRA representatives, both the president and one of the sales specialists now have their securities license.
National Credit Union Administration
November 25, 1997
Michael Morse, President
Jumbo C.D. Investments
P.O. Box 454
Dixon, CA 95620
Dear Mr. Morse:
This is in response to your letter dated September 3, 1997 requesting clarification of Part
703 as it relates to the activities of Jumbo CD Investments. I apologize for the delay
in our reply.
Part 703. §703.50 of the NCUA Rules and Regulations, which is effective January 1, 1998,
states that a federal credit union may use a third-party entity to purchase and sell investments
(a "broker-dealer") as long as the broker-dealer either is registered with the Securities and Exchange
Commission (SEC) or is a depository institution whose broker-dealer activities are regulated by a federal
regulatory agency. You believe your company, Jumbo CD Investments, would be prohibited from dealing with credit
unions due to this requirement since it is neither registered with the SEC nor a depository institution whose
broker-dealer activities are regulated by a federal regulatory agency. You have requested exemption from
Part 703 in order to continue to offer your services.
Program. Jumbo CD Investments acts as a referral service between issuers of certificates of
deposit (CDs) and buyers. All transactions are executed through the Fedwire system in the name of the credit union and
at its direction only. Jumbo CD Investments does not handle any credit union funds and does not have
any control over the credit union's investments. The credit union deals directly with the depository institution
and the credit union is free to redeem its funds or rollover the deposit. Jumbo CD Investments is registered as a
deposit
broker with the Federal Deposit Insurance Corporation (FDIC).
It was not our intent that Part 703 limit the activities as described above. Therefore, the NCUA Board, at its
November 24, 1997 meeting, approved amendments to the rule which would permit the activity you describe. §703.50
was amended to add the following language:
(c) The requirements of paragraph (a) of this section do not apply when
you purchase a certificate of deposit or share certificate directly from a bank, credit union
or other depository institution.
Jumbo CD Investments may continue to provide services to federal credit unions as
long as the credit union's funds are not transferred to, or through Jumbo CD Investments, its subsidiaries, or affiliates,
and as long as the credit union has the account relationship directly with the depository institution and receives interest
and principal payments directly from the depository institution.
You may use a copy of this letter to inform your clients of our position in this matter.
Sincerely,
David M. Marquis
Director
Office of Examination and Insurance
