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4000 - Advisory Opinions

Whether Post-Trade Confirmation and Matching Messages Transmitted Through an Electronic Trade Confirmation System Meet the Requirements of FDIC Part 344


November 3, 1995

Gerald J. Gervino, Senior Attorney

In your letter of February 22, 1995, which you have supplemented by additional letters of March 30, and September 28, 1995, you request assurance from the staff of the Federal Deposit Insurance Corporation ("FDIC"). You ask that we confirm your opinion that post-trade confirmation and matching messages transmitted through the Match-EM system, meet the requirement of Part 344 of the regulations of the FDIC that a written confirmation be furnished to each customer for which an insured nonmember bank effects securities transactions. You have also provided us with a copy of the September 27, 1995 SEC response to your firm's letter on the subject.

EMTA is a non-profit membership corporation organized in 1990 under New York law by eleven global financial institutions (including among others, Bear Stearns, Chase Manhattan Bank, Chemical Bank, Citibank, ING, J.P. Morgan, Morgan Grenfell and Salamon Brothers). EMTA was formed to promote greater efficiency and professionalism in the trading of debt and equity instruments owed, issued or guaranteed by the sovereigns of or other entities located in, countries that are not members of the Organization for Economic Cooperation and Development and Mexico.1 In carrying out its purposes it has, among other things, published a voluntary Code of Conduct, guidelines as to recommended market practices on various aspects of trading in Emerging Market Debt Instruments and forms of standard documentation. EMTA is a voluntary trade association, and its Code of Conduct and market practices are not binding on EMTA's members.

EMTA's Full Members are predominantly U.S. commercial banks (both national and state), non-U.S. commercial banks, U.S. and non-U.S. broker-dealers and, in a few instances, other sophisticated financial institutions in the United States or abroad. EMTA's Full members conduct a substantial majority of the global trading in Emerging Markets Debt Instruments. According to EMTA's 1994 the overall volume of global trading in such instruments was nearly U.S. $2.766 trillion in 1994.

Trading in Emerging Markets Debt Instruments by EMTA's Full Members occurs on the basis of oral telephone conversations between traders, which are considered binding but are subject to post-trade confirmation. It is established market practice for such confirmations to be prepared by the seller and sent to the buyer within 24 hours after the time of the oral trade. The buyer may then check the confirmation for accuracy. Because of the global nature of the marketplace and the complexity of many Emerging Markets Debt Instruments, the process of confirming and matching trades of Emerging Markets Debt Instruments is not only relatively expensive and inefficient, but also results in frequent delays of up to several days before counterparties have finally confirmed with certainty the details of their trades.

EMTA and General Electric Information Services, Inc. ("GEIS") developed an electronic trade confirmation and information matching system known as "Match-EM" for trades in Emerging Markets Debt Instruments. Each EMTA Full Member subscribing to Match-EM will, after an oral trade has been made, input the material terms of the trade into Match-EM. If specified information for a trade is the same as the information input by the applicable counterparty, the information will be matched, and each party to the trade will be automatically notified, upon logging onto Match-EM, that a match of information has occurred with respect to that trade. Each subscriber will be able to view a list of its trades that have not been matched with information supplied by the counterparties to those trades. Subscribers can then resolve discrepancies as to the exact terms of the trade.

Match-EM will play no other role in effecting trades or in clearing or settling confirmed trades, except that EMTA contemplates that, at a later date, it may be possible for information in Match-EM about particular trades to be transmitted directly to clearing systems such as Euroclear or Cedel in order to permit settlement of such trades. Subscribers to Match-EM ("Subscribers") will consist exclusively of Full Members of EMTA. Subscribers will agree to use Match-EM, rather than hard-copy confirmations, to confirm all trades of specified Emerging Markets Debt Instruments. Each Subscriber will be required to comply with SEC Rule 10b-10, if applicable.

Information concerning matched and unmatched trades will be stored for at least 90 days after settlement, after which it will be placed on an archive-storage system for five years. The GEIS data-processing facility is protected by guards and electronic devices, and access to the facility is restricted. The facility also has back-up power, telecommunications circuits and data-processing equipment. Client data is backed up weekly on permanent discs that are stored at an off-site location. Client data is backed up weekly on permanent discs that are stored at an off-site location.

EMTA believes that electronically transmitted confirmations through the Match-EM system would satisfy Part 344 of our regulations. The SEC and the Board of Governors of the Federal Reserve System have provided favorable opinions to EMTA.

Based upon the representations that you have made to us and to the SEC, it would appear that the program's electronic confirmations furnished under the circumstances that you have outlined, would satisfy the "written" confirmation requirements of Part 344, if they meet all the other requirements of Part 344.

If you have any further questions, please write or call me at (202) 898-3723. My Fax number is (202) 898-3715.

1Debt instruments issued by such entities (including both debt securities and commercial bank loans) are referred to in this letter as "Emerging Markets Debt Instruments". Go back to Text

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