Banking Interpretations

NYSBL 200

May 5, 2006

Barbara Mendelson, Esq.
Morrison Foerster
1290 Avenue of the Americas
New York, NY 10104-0050

Dear Ms. Mendelson:

This is in response to your written submission of [ ] 2006, as well as the meeting of the same date with Department representatives, at which you sought the Department's views as to whether any notice to or approval of the Department would be required in connection with your client's proposed advisory services to be conducted through a subsidiary, or whether the Department would otherwise raise objections to the proposed activities to be conducted by the subsidiary. You also provided certain followup information in an email dated [ ] 2006.

By way of background, I will restate here the salient facts in your [ ] 2006 submission.

[ ] ( “ “ or the "Bank" ) intends to establish a subsidiary company to be formed as a Delaware corporation (the "Subsidiary") that would engage in activities further described below. The Subsidiary would establish its office in New York to house, in its initial phase, four employees who will provide discretionary investment management services exclusively to the Bank's [ ] head office. The Subsidiary will only provide advisory services, and will not engage in underwriting or dealing activities. The Subsidiary's staff will report functionally to the Bank's Treasury in [ ].

The Subsidiary would be established as a subsidiary of the Bank's wholly-owned Delaware subsidiary, [ ] and would provide services to [ ]. In this regard, the Subsidiary would act as a discretionary investment advisor and manager for an account held by a wholly-owned subsidiary of the Bank, organized outside of the United States and [ ] formed solely for the purpose of holding the account 1.(the ("[ ] Account" ). [ ] would control that offshore subsidiary, and thus the [ ] account, and would provide detailed investment management guideIines to the Subsidiary. Any variation from the investment management guidelines would require the approval of Bank management. The [ ] Account would be held by a third-party prime broker custodian, and an unaffiliated SEC-registered broker/dealer would effect the acquisition and disposition of instruments and positions.

Under this proposal, the Subsidiary would trade solely for the [ ] Account and would not hold itself out to the public as engaging in an investment advisory business but rather as a servicing company for its parent Bank.2. The Subsidiary would execute all trades through through an SEC- registered broker-dealer. The Subsidiary would have authority to conduct trading operations within the investment guidelines, including capital allocation and risk parameters established by the Bank in [ ] and subject to customary lines of reporting to Bank management in [ ].

Based on the representations in your submission, the Department would not require a formal notice or application from the Bank for the establishment of the Subsidiary, nor would the Department raise an objection to the proposed activities of the Subsidiary. Since the Subsidiary's activities would be limited to providing the discretionary investment management services only for the Bank's head office, the Subsidiary would not be holding itself out to third parties as engaged in this activity in New York. Accordingly, the risk of the Subsidiary being viewed as an office of the Bank conducting business with third parties on behalf of the Bank appears low. Although the Subsidiary would have authority to conduct trading operations within the investment guidelines of the head office, the [ ] Account would be held by a third-party prime broker custodian, and an unaffiliated SEC-registered broker/dealer would effect the acquisition and disposition of instruments. This fact further supports the limited nature of the Subsidiary's activities vis-a-vis third parties. The Department is of the opinion that the Bank may establish a Subsidiary in New York as described to engage in the proposed discretionary investment management activities without requiring formal notice to, or a license or approval from the Department.

I hope that the foregoing is helpful.

Sincerely,

Rosanne Notaro
First Assistant Counsel


1 The Bank intends that the [ ] Account will engage in repurchase transactions. Because the opposed agent for these repurchase transactions has advised that bankruptcy law in [ ] is not settled with respect to the enforceability of certain provisions of standard repurchase agreements, the Bank has determined that it will hold these assets in a wholly-owned subsidiary, rather than directly on its books. The interest in the subsidiary would be reflected on the Bank's books, and the Bank would have sole control over the subsidiary. The subsidiary would also fall within the regulatory oversight of [ ].

2[ ]