(a) Qualifying
master netting agreements. In order to recognize an agreement
as a qualifying master netting agreement as defined in section 249.3,
a Board-regulated institution must:
(1) Conduct sufficient legal review to
conclude with a well-founded basis (and maintain sufficient written
documentation of that legal review) that:
(i) The agreement meets the requirements
of the definition of qualifying master netting agreement in section
249.3; and
(ii) In the event
of a legal challenge (including one resulting from default or from
receivership, bankruptcy, insolvency, liquidation, resolution, or
similar proceeding) the relevant judicial and administrative authorities
would find the agreement to be legal, valid, binding, and enforceable
under the law of the relevant jurisdictions; and
(2) Establish and maintain written
procedures to monitor possible changes in relevant law and to ensure
that the agreement continues to satisfy the requirements of the definition
of qualifying master netting agreement in section 249.3.
(b) Operational deposits. In order
to recognize a deposit as an operational deposit as defined in section
249.3:
(1) The related
operational services must be performed pursuant to a legally binding
written agreement, and:
(i) The termination of the agreement must be subject to a minimum
30 calendar-day notice period; or
(ii) As a result of termination of the agreement or transfer of services
to a third-party provider, the customer providing the deposit would
incur significant contractual termination costs or switching costs
(switching costs include significant technology, administrative, and
legal service costs incurred in connection with the transfer of the
operational services to a third-party provider);
(2) The deposit must be held in an
account designated as an operational account;
(3) The customer must hold the deposit
at the Board-regulated institution for the primary purpose of obtaining
the operational services provided by the Board-regulated institution;
(4) The deposit account must not be
designed to create an economic incentive for the customer to maintain
excess funds therein through increased revenue, reduction in fees,
or other offered economic incentives;
(5) The Board-regulated institution must demonstrate that the deposit
is empirically linked to the operational services and that it has
a methodology that takes into account the volatility of the average
balance for identifying any excess amount, which must be excluded
from the operational deposit amount;
(6) The deposit must not be provided in connection with the Board-regulated
institution’s provision of prime brokerage services, which, for the
purposes of this part, are a package of services offered by the Board-regulated
institution whereby the Board-regulated institution, among other services,
executes, clears, settles, and finances transactions entered into
by the customer or a third-party entity on behalf of the customer
(such as an executing broker), and where the Board-regulated institution
has a right to use or rehypothecate assets provided by the customer,
including in connection with the extension of margin and other similar
financing of the customer, subject to applicable law, and includes
operational services provided to a non-regulated fund; and
(7) The deposits must not be for arrangements
in which the Board-regulated institution (as correspondent) holds
deposits owned by another depository institution bank (as respondent)
and the respondent temporarily places excess funds in an overnight
deposit with the Board-regulated institution.
