NYSBL 96(9) and 200
January 12, 2005
Dear [ ]:
On behalf of [ ] (the "Bank"), you inquired whether a formal application to the New York State Banking Department (the
"Department") would be required for an indexed note program proposed to be conducted by the Bank."
The Proposed Program
According to the Bank's submissions, it is proposed that a Delaware entity (the "Issuer") be set up as a direct or wholly-owned subsidiary of the Bank to issue notes, the return of which will be indexed to the price of various reference obligations (the "indexed notes"), and that will be guaranteed by the New York Branch of the Bank (the "NY Branch"), as described below. The reference obligations will include U.S. and non-U.S. stocks and stock indices; commodities and commodity indices; currencies; interest rates; inflation indices; shares of mutual funds; and interests in hedge funds. The indexed notes may be cash-settled, or if physical settlement is contemplated, they may be cash settled at the option of the Issuer. Such notes are intended to be offered pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), as provided under Section 3(a)(2) thereof and as interpreted by the Securities and Exchange Commission. The indexed notes will be denominated in U.S. dollars and, although there is currently no
1 Your initial letter was dated May 20, 2004, followed by a subsequent submission containing details of the proposed program, dated October 18, 2004.
plan to do so, they may be listed on various exchanges. Furthermore, the indexed notes are intended to be offered in a minimum accepted investment amount of $ 100,000 each, and are intended to be offered to investors that at least meet the requirements of a "Qualified Purchaser", as that term is defined under Section 2(a)(51) of the Investment Company Act of 1940, as amended. The notes may or may not be principal protected.
The obligations of the Issuer with respect to the issuance of indexed notes will be guaranteed by the NY Branch. The NY Branch will, in turn, be fully and unconditionally indemnified by the Bank with respect to such guaranty. Pursuant to the terms of an arrangement to be agreed upon by the parties, the proceeds from the sale of each issuance will be lent by the Issuer to the Bank. The Bank will hedge its risks in connection with the issuance of indexed notes by entering into various hedging transactions, such as OTC and exchange-traded derivatives.
The Department hereby confirms that, after consideration of the Bank's submissions, no formal notice or application is required for the Bank or the NY Branch to conduct the proposed activities as described. The proposed guaranty of its affiliate Issuer's obligations is a legally permissible activity for the NY Branch.
It should be noted that, should the Department determine that circumstances required the Department to impose asset maintenance and/or additional asset pledge requirements on the NY Branch, the Department would have the right to include any outstanding guarantees issued by the NY Branch in connection with the described note program in the calculation of third-party liabilities requiring cover, irrespective of any obligation of the Bank to indemnify the NY Branch.
The Bank's October 18, 2004 submission with additional details about the proposed program, including additional information about the notes, and about the measures to be taken by the NY Branch to monitor its risks associated with its participation in the program, has also been taken into consideration by the Department. The Department will use the information the Bank has provided as a basis for follow-up review of the activities in future safety and soundness examinations of the NY Branch.
We trust that this is helpful. If you have any further questions, please do no hesitate to contact me at (212) 709-1652.
First Assistant Counsel - Banks
Cc: Deputy Lesser - Large Complex Banks Division