| TO: | CHIEF EXECUTIVE OFFICER |
| SUBJECT: | Overnight Hold-In-Custody Repurchase Transactions |
The federal bank regulators have received numerous questions recently about whether daily confirmation disclosures for overnight hold-in-custody repurchase agreement transactions (commonly referred to as "sweep repos") are necessary. Several banks have commented that daily confirmations are unnecessary, burdensome and costly. They have requested permission to issue confirmations less frequently; some have suggested monthly rather than daily.
This is to inform you that the staffs of the Federal Deposit Insurance Corporation along with the Comptroller of the Currency and the Federal Reserve Board have reviewed the situation and continue to believe, based on the Government Securities Act of 1986 (GSA), that banks must make available for delivery on a daily basis confirmations for each sweep repo transaction.
The Treasury Department's Bureau of the Public Debt (Bureau), responsible for regulations implementing the GSA, requires government securities broker-dealers to issue a confirmation for repurchase transactions by the end of the day in which a transaction is initiated and on any day in which substitution of securities occurs. These confirmation requirements apply to all repurchase transactions in which the selling institution keeps control of the underlying securities. In addition, the operational requirements for a daily sweep repo program currently require institutional control of the underlying securities. The Bureau only permits exclusions from the confirmation requirements for situations involving foreign corporations, partnerships, trusts or non-U.S. citizens residing outside of the United States.
In December 1992, the Federal Financial Institutions Examination Council's Regulatory Burden Study Group, in consultation with the Bureau, reviewed the issue of whether daily confirmations are burdensome. The Bureau declined to amend the requirements because daily confirmations provide fundamental customer protection. The confirmations allow the customer to act or react knowledgeably and promptly in current and future transactions.
The Bureau has stated that daily confirmations of sweep repos are necessary because they "are recurring transactions, generally giving rise to a new repurchase transaction daily." The requirement that the confirmation take place by "the end of the business day" means prior to opening for the next day of business; thus, confirmation must be available for delivery before or at the start of the bank's next business day.
If your bank desires a legal interpretation regarding confirmation requirements or other government securities regulations, call or write The Bureau of the Public Debt, Government Securities Staff, Washington, DC 20239, (202-219-3632). For further information, contact Hugh W. Conway, Special Programs Coordinator, in the Division of Supervision's Special Activities Section (202-898-6812).
Nicholas J. Ketcha Jr.
Acting Director
Distribution
FDIC Supervised Banks (Commercial and Savings)