July 2, 1992
Mr. Richard S. Allen
Senior Vice President
First Interstate Bank of Oregon, N.A.
Investment Division, T-15
P.O. Box 3780
Portland, Oregon 97208-3780
Dear Mr. Allen:
This is in response to your letter of June 11, 1992, concerning the written confirmation requirement for repurchase transactions where the financial institution that is a counterparty to the transaction retains custody of the securities that are the subject of the transaction (hold-in-custody repo). These transactions must be confirmed in writing by financial institutions that retain custody of the securities as stipulated in the regulations promulgated by the Department of the Treasury (Department) pursuant to the Government Securities Act of 1986 (GSA) (17 CFR Ch. IV).
Specifically, you ask whether paragraph 17 CFR 403.5(d)(1)(ii) could be interpreted to mean that facsimile (fax) transmissions of confirmations by First Interstate Bank of Oregon (the Bank) to counterparties would constitute compliance with the written confirmation requirement of the section. We understand the facts of your request to be the following: You state that the Bank offers an automated cash management and overnight investment service for certain corporate and substantial individual customers, part of which service includes the offer of overnight repurchase transactions to customers. You also state the Bank wishes to offer overnight repurchase agreements to customers only on a hold-in-custody basis, and in order to minimize its cost of complying with the regulation, the Bank desires to send customer confirmations by fax. You state that if fax transmissions are unavailable to any customer at any time or for any reason, the Bank will provide written confirmation of repurchase transactions by mail or by other appropriate means. In addition, you state that although the Securities Exchange Act of 1934, into which the GSA was incorporated, does not define “written,” Section 2(9) of the Securities Act of 1933 defines the term “write” or “written” to include “printed, lithographed or any means of graphic communication.” You also state that a fax transmission would seem to qualify as a graphic communication, creating a permanent record which the customer can retain, and that given the complementary objectives of the Securities Act and the Securities Exchange Act, it seems reasonable to use the definition of “written” in the former to interpret regulations issued pursuant to the latter.
Paragraph 403.5(d)(1)(ii) of the GSA regulations states that a financial institution that retains custody of securities that are the subject of a repurchase transaction between the financial institution and a counterparty shall confirm in writing the specific securities that are the subject of the repurchase transaction. The confirmation must be issued at the end of the day in which the transaction was initiated and at the end of any other day during which other securities are substituted if the substitution results in a change to issuer, maturity date, par amount, or coupon rate specified in the previous confirmation.
The Department views a fax transmission by a financial institution as an acceptable means of issuing the written confirmation as required by paragraph 403.5(d)(1)(ii), provided the counterparty has agreed to accept confirmations by this method. However, it is important to note that an unsuccessful fax transmission of a confirmation would not relieve the financial institution of its obligation under this section. Delivery of the confirmation, which must be issued by the end of the day, would still need to be accomplished by other appropriate means. Please note that section 404.4(a) of the GSA regulations requires that government securities brokers and dealers that are national banks comply with the recordkeeping provision of 12 CFR 12, which includes a requirement that the bank retain copies of customers' confirmations for 3 years.
Identical confirmation requirements are applicable to registered government securities brokers and dealers conducting hold-in-custody repos pursuant to section 403.4. Therefore, an acceptable form of confirmation issuance for a financial institution would be equally applicable to a registered government securities broker or dealer. Additionally, we understand that the staff of the Securities and Exchange Commission would not object to a similar application of the provisions of 17 CFR 240.15c3-3(b)(4) to registered brokers and dealers.
Accordingly, pursuant to 15 U.S.C. 78o-5(b), we interpret the provisions of 17 CFR 403.5(d)(1)(ii) to mean that successful transmission by fax by a financial institution of a confirmation to a hold-in-custody repo counterparty that has agreed to accept confirmations by fax constitutes compliance with the requirement for issuance of a written confirmation.
This interpretation is premised upon the specific facts and representations concerning the confirmation of transactions as you have described them. Any change in facts or circumstances from what you have represented could lead to a change to this interpretation.
Pursuant to 17 CFR 400.2(c)(7)(i), this letter and your incoming correspondence will be made immediately available to the public.
Richard L. Gregg
cc: Mr. John Kerr
National Bank Examiner
Comptroller of the Currency
Washington, D.C. 20219