         Applicability o f the Federal Advisory Committee Act to
            Presidential Task Force on Market Mechanisms


The Presidential T ask Force on M arket M echanism s is exem pt from the requirem ents o f the Federal
  Advisory C om m ittee Act.

                                                                                                January 5, 1988

                                 M   em o ran d u m    O p in io n   for th e

                       S e n io r A s s o c ia t e C o u n s e l   to th e   P r e s id e n t


                                  Introduction and Summary

   This memorandum updates our submission to you of October 29, 1987, in
which we concluded that a proposed commission charged with studying volatil­
ity in securities markets would be exempt from the requirements of the Federal
Advisory Committee Act (“FACA”). You have requested that we update our
memorandum in light of the specific provisions of Executive Order No. 12614,
issued November 5, 1987, which set forth the purpose and functions of the Pres­
idential Task Force on Market Mechanisms (the “Task Force”). Specifically, you
have asked whether the Task Force would be exempt from the requirements im­
posed by FACA, in light of 5 U.S.C. app. § 4(b), which provides that FACA does
not apply to advisory committees “established or utilized by” the Federal Reserve
System.
   Our analysis is based on the following description of the Task Force contained
in Executive Order No. 12614:

         (1) The Task Force “shall be composed of five persons appointed
             by the President,” one of whom has been designated as chair­
             man;
         (2) the Task Force “shall review relevant analyses of the current
             and long-term financial condition of the Nation’s securities
             markets, identify problems that may threaten the short-term
             liquidity or long-term solvency of such markets, and analyze
             potential solutions to such problems that will both assure the
             continued smooth functioning of free, fair, and competitive
             securities markets and maintain investor confidence in such
             markets;”
         (3) the Task Force “shall provide appropriate recommendations
             to the President, to the Secretary of the Treasury, and to the
             Chairman of the Board of Governors of the Federal Reserve
             System;” and
         (4) “to the extent permitted by law and subject to the availability
             of funds therefor, the Executive Office of the President and

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                  the Department of the Treasury shall provide the Task Force
                  with such administrative services, funds, facilities, staff, and
                  other support service as may be necessary for the performance
                  of its functions.”

Given the composition, purpose, and functions of the Task Force as described in
the Executive Order, and based upon our understanding that its recommendations
to the Federal Reserve System would deal with matters within the scope of the
Federal Reserve System’s responsibilities, we conclude that the Task Force is ex­
empt from FACA.

                                                         Analysis

   W e begin, of course, with an examination o f the language of the statute itself.1
FACA generally applies “to each advisory committee,” except to the extent that
any Act of Congress specifies to the contrary. 5 U.S.C. app. § 4(a). This general
rule is, however, subject to an express limitation in FACA itself. Section 4(b) of
FACA, 5 U.S.C. app. § 4(b), states that “[n]othing in this Act shall be construed
to apply to any advisory committee established or utilized by (1) the Central In­
telligence Agency; or (2) the Federal Reserve System.” It follows that an “advi­
sory committee” that is either “established or utilized by” the Federal Reserve
System (or the Central Intelligence Agency) is exempt from FACA’s require­
ments.
   Since the Task Force is an “advisory committee”2 established by the President,
the key question is whether it is “utilized by” the Federal Reserve System. Inas­
much as the Task Force will report to the chairman of the Federal Reserve Board
on matters within the Federal Reserve System’s responsibilities (margin re­
quirements, broker loans, and the stability of the banking system), the Task Force
is “utilized by” the Federal Reserve System, within the plain meaning of that
term.3 Thus, the Task Force appears to be exempt from FACA’s requirements.
Moreover, the fact that the Task Force also reports to the Secretary of the Trea­
sury and the President in no way alters this conclusion. FACA does not require
that, in order to be exempt, an advisory committee must be utilized solely by the
Federal Reserve System (or the Central Intelligence Agency). The words of the

      1 See, e g.. Touche Ross & Co v. Redington, 442 U S. 560, 568 (1979); Greyhound Corp v Ml. Hood Stages,
Inc , 437 U.S 322 ,3 3 0 (1 9 7 8 ).
      2 FACA states, in pertinent part, that an “advisory committee” is “any committee, board, commission, council,
. . . o r any . . . subgroup th e re o f. . . which is (A ) established by statute or reorganization plan, or (B) established or
utilized by the President, or (C) established o r utilized by one o r more agencies, in the interest of obtaining advice
or recommendations for the President or one o r more agencies or officers o f the Federal Government.” 5 U.S.C.
app. § 3(2). The Task Force, which is established by the President and charged with making recommendations to
the Chairman o f the Federal Reserve System (as well as to the Secretary of the Treasury and the President), clearly
appears to qualify as an “advisory committee” within the meaning o f FACA.
      3 R egulations promulgated pursuant to FA C A state that an advisory committee is “utilized” by a federal agency
if it is used “as a preferred source from which to obtain advice o r recommendations on a specific issue or policy
within the scope o f [federal officials’] responsibilities." 41 C F.R. § 101-6.1003 (1987). The Task Force clearly
meets this description with respect to the Federal Reserve System.



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statutory exemption therefore cover those advisory committees, such as the Task
Force, that are utilized by the Federal Reserve System and other governmental
entities.4
   The limited legislative history bearing upon section 4(b) in no way undermines
the conclusion, drawn from that provision’s plain language, that section 4(b) ex­
empts the Task Force from FACA’s requirements. That legislative history em ­
phasized Congress’ concern with protecting the confidentiality of the delibera­
tions carried out by groups advising the Federal Reserve Board, given the possible
negative implications for our financial system should those deliberations become
public knowledge.5 This policy concern applies fully to the deliberations of the
Task Force. The impact of securities market volatility on the broker-age and bank­
ing systems — an issue that the Task Force is charged with studying — has sig­
nificant implications for financial stability.6

                                                  Conclusion

   For the foregoing reasons, we conclude that, provided the Task Force is uti­
lized in the manner described above, it is exempt from the requirements of FACA.

                                                                       C h a r l e s J. C o o p e r
                                                                   Assistant Attorney General
                                                                    Office o f Legal Counsel




     4 Nor are general requirements of FACA circumvented by giving full scope to the statutory exception contained
 in section 4(b) Because advisory committees must address issues relevant to the Federal Reserve System or the
Central Intelligence Agency to come with the ambit of this exception, only a relatively few committees will qual­
 ify for the exception
     5 The clause that became section 4(b) was originally introduced as an amendment by Senator Javits, during the
floor debate that preceded passage o f the Senate version o f FACA. That preliminary version o f section 4(b) stated
that “the provisions o f this act [FACA1 shall not apply to any advisory committee established for or utilized by the
Federal Reserve System.” 118 Cong. Rec. 30,273 (1972). (The final version of section 4(b), which also made ref­
erence to the Central Intelligence Agency, was adopted by the joint House-Senate Conference Committee on FACA.)
Senator Javits introduced the amendment in order to shield the “Federal Reserve Advisory Council” (“FAC”) from
FACA’s strictures According to Senator Javits, “everyone knows the speculation, financial, and otherwise, which
goes on around the world respecting the Federal Reserve System’s operations. In order to have an advisory coun­
cil at all, which would be very useful to them, they simply have to ask to be exempted from the provisions of this
bill.” Id Senator Javits cited a letter from Arthur F. Bums, Chairman o f the Federal Reserve Board, which stressed
that the draft FACA provisions regarding public disclosure o f FAC proceedings could “prove troublesome. Since
the FAC’s discussions cover a number o f subjects such as monetary policy, the international payments system, and
liquidity conditions in the banking system, premature publication o f views candidly expressed at FAC meetings
could prove harmful Discussion at these meetings is now full and frank and would be seriously inhibited if the
meetings were open to the public . . or even if minutes o f the meetings were published . . . . ” Id. Consistent with
the concerns identified by Senator Javits and Chairman Bums, Senator M etcalf added that “there are important con­
siderations in [FACA] that are clearly not involved and should not be a part o f the considerations as to the Federal
Reserve B o ard .. . . [M]any o f the propositions that are analyzed by the [Federal Reserve] [B]oard need to have se­
crecy of consideration and secrecy as to their activities.” Id
    6 Finally, there is no suggestion in the legislative history that the rationale underlying the FACA exemption
would be undermined if a group advising the Federal Reserve Board also were directed to advise another federal
agency, such as the Department o f the Treasury.


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