Written Agreements

This letter was addressed to each of the Appropriate Regulatory Agencies for Depository Institutions, the Securities and Exchange Commission, the National Association of Securities Dealers and the New York Stock Exchange. Names and addresses appear at the end of this document.

August 2, 1990

Mr. Thomas O'Nell
Review Examiner, Compliance
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429

Dear Mr. O'Nell:

We have received inquiries recently concerning the requirement that hold-in-custody repurchase transactions be conducted pursuant to a written agreement as stipulated in the Government Securities Act (GSA) regulations (17 CFR Ch. IV). Specifically, we have been asked whether sections 17 CFR 403.1, 403.4(e), and 403.5(d) could be interpreted such that a government securities broker or dealer could conduct a hold-in-custody repurchase transaction without first having a signed written repurchase agreement in place with its counterparty.

The Department views an executed written agreement as a sound business practice for any type of repurchase transaction and as a fundamental tool for strengthening customer protection, particularly for hold-in-custody repurchase transactions. A written agreement, with the required disclosures, is important to advise the customer of risks that may be associated with these transactions, to clarify the intended nature and the terms of the transactions undertaken between the parties, and to document the obligations agreed to by each party. Thus, the regulations require a signed written repurchase agreement to be in effect before a government securities broker or dealer enters into a hold-in-custody repurchase transaction with a customer.

Accordingly, pursuant to 15 U.S.C. 78o-5(b), we interpret the provisions of 17 CFR 403.1, 403.4(e), and 403.5(d) to require government securities brokers and dealers to obtain executed written agreements with their counterparties prior to entering into hold-in-custody repurchase transactions.

This interpretation is being sent to the Securities and Exchange Commission, each appropriate regulatory agency for depository institutions, the National Association of Securities Dealers, and the New York Stock Exchange. Pursuant to 17 CFR 400.2(c)(7)(i), this letter will be made immediately available to the public.

Sincerely,
Richard L. Gregg
Commissioner

Additional Addressees:

Mr. Robert Plotkin
Assistant Director
Division of Banking, Supervision and Regulation
Federal Reserve Board
Washington, D.C. 20551

Mr. Owen Carney
Office of the Comptroller of the Currency
Washington, D.C. 20219

Mr. Jonathan Fiechter
Senior Deputy Director
Supervision-Policy
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552

Mr., Mark Fitterman
Division of Market Regulation
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549

Mr. Thomas R. Cassella
Vice President, Financial Responsibility
National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20219

Mr. Edward Kwalwasser
New York Stock Exchange
11 Wall Street
New York, New York 10005