1. (a)

   1. (1) Any state-chartered bank, or bank holding company owning a state-chartered bank, that establishes a trading account (a “trading account” is a segregated account in which assets are held for resale by a bank that regularly engages in trading activities) should be aware that such trading account activity is a high-risk activity.
   2. (2) Due to the inherent risk, any state-chartered bank establishing such an account is required to maintain a written policy setting forth guidelines by which the purchase and sales may be conducted.
   3. (3) Such policy must receive the approval of the bank's board of directors, and notices of such approval, with a copy of the policy, forwarded to the Bank Commissioner.

2. (b) Notice.

   1. (1) Engaging in trading account activity is a high-risk activity.
   2. (2) Banks that engage in the purchase and sale of investments in anticipation of interest rate changes, price changes, and changes in the market or economic condition or for other speculative purposes are engaging in trading account type activities.
   3. (3) Such transactions must be conducted through the appropriate establishment of a trading account.
   4. (4) Failure to conduct such trading account type activities in a duly authorized trading account will result in the state or federal bank examiners declaring a bank's entire investment account a trading account and will require all investments to be marked to the lower of market value or acquisition cost.
   5. (5) In establishing a trading account, bank directors are reminded of the high risk and speculative nature of this type of banking activity.

3. (c) State Banking Board requirements. If, after considering the risk of loss, and the possibility of gain, a bank wishes to establish a trading account, it must consider and adopt a policy addressing the following:

   1. (1) The bank's board of directors shall adopt written objectives of the trading account;
   2. (2) The bank's board of directors shall designate the officer or officers authorized to negotiate such trading transactions;
   3. (3) The bank's board of directors shall establish the maximum dollar amount of exposure acceptable to its bank;
   4. (4) The bank's board of directors shall identify the type of trading instruments to be traded (treasury bills, government bonds, government agencies securities, tax exempt securities, commercial paper, certificates of deposit, banker's acceptances, put options, call options, other bonds, notes and debentures, gold and silver bullion);

   5. (5)

      1. (A) The bank's board of directors shall require all transactions to be recorded at the time a contractual obligation to purchase or to sell in an appropriate record at the bank reflecting the bank's obligation to purchase or the bank's obligation to sell.
      2. (B) At the time a transaction is consummated, the transaction shall be fully documented requiring invoicing, settlement sheets, etc.;
   6. (6) The bank's board of directors shall establish, prior to trading activities, the dollar amount of profit or loss it is willing for the bank to incur;

   7. (7)

      1. (A) The bank's board of directors shall approve a list of security dealers who are eligible for the designated officer or officers of the bank to enter into trade transactions.
      2. (B) In approving the list of the dealers, the bank's board of directors must obtain reasonable background information, current financial data, and such other information necessary to establish the character, integrity, and financial stability of the dealers which the bank's board of directors proposed to transact business;
   8. (8) The bank's board of directors shall require monthly written reports to be submitted by the officer or officers responsible for trading account activities for review by individual directors;
   9. (9) The bank's board of directors shall review the activities in the trading account, including the number of transactions, the bank's exposure, the profit or loss, and the trading account policy, regarding the adequacy of the policy and the bank's strict adherence to the policy, no less frequently than quarterly with such review being noted in the minutes of the board of directors' meetings; and

   10. (10) All transactions shall comply with, and meet all requirements of:

       1. (A) Arkansas’s banking laws and rules; and
       2. (B) Applicable federal banking laws.

4. (d)

   1. (1) All assets held in trading accounts are to be reported consistently at lower of the market value or acquisition cost.
   2. (2) It is recommended this reporting be made to the bank's board of directors no less frequently than monthly.

   3. (3) It is required that this reporting at the lower of market value or acquisition cost:

      1. (A) Be done no less frequently than quarterly; and
      2. (B) Reported in accordance with the instructions for the preparation of the Reports of Condition and Income.
5. (e) Transfers to and from a trading account, or any other account of the bank shall be recorded at market value at the time of the transfer and gains and losses recognized accordingly.
6. (f) All accounting of gains or losses resulting from trading account activities shall be consistent with reporting guidelines contained in the instructions for the Reports of Condition and Income.

7. (g) The bank's board of directors shall require written reports to the board that shall include, at a minimum, the following:

   1. (1) Total dollar amount held in the trading account;
   2. (2) Inventory list by issue with purchase price and current market value;
   3. (3) The number of trades that were engaged in during the previous month and the total dollar volume traded;
   4. (4) The dollar amount and the number of trades engaged in with each securities dealer;
   5. (5) The monthly profit or loss and the year-to-date profit or loss from the trading account activities, including unrealized losses; and
   6. (6) Any pending transactions (purchase and/or sale).

Codification Notes: This section was promulgated as Section 47-401.4 of the State Bank Department Rules prior to codification into the Code of Arkansas Rules. This section as promulgated prior to codification into the Code of Arkansas Rules provided as follows: "(Reference A.C.A. § 23-47-401)"