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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
FDIC--95--37
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.
{{10-31-96 p.4966}}
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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