I hope someone can help me with this question. Concerning sweep confirmations, I was under the impression that it was a requirement for each sweep account to have a specific security (or securities) pledged and this was to be listed on the confirmation. That is, each confirmation would have a different security listed and even if the security was larger than the balance in the sweep account, the security couldn't be pledged to another account. Is this correct?

Haven't looked at this in a while, but if you are a National Bank - some of the rules are found here:

12 CFR 12

I'm bumping this back up because it's becoming a serious discussion. Is anyone familiar with this? Any help would be appreciated. We are a state/FDIC bank.

Autumn,

I believe you are correct in that a sweep arrangement must be secured by a specific security. That would be why we add substitution of security language to the agreement.

I'm not sure about using the same security for two sweep arrangements. I think you can, provided the value is there, but then the substitution of security language would be even more important, should you actually have to redeem the security for one customer and not the other.

Keeping the securities separate per customer is the cleanest and easiest path to take.

Have you called the FDIC hotline? I have a contact in Wisconsin I could share with you if you're interested.

kmg

I finally found it. The FDIC opined that in order to split a security between two customers, you had to include their fractional interest in the security on their confirmation letter in order for it not to be considered a pooled transaction. See here - last paragraph of Advisory Opinion 96-1:

Interpretation of the Department of Treasury Regulations Implementing the Government Securities Act

Thanks so much. I've printed everything and I'm going to give it to our Internal Auditor.

Wlavoie,

Maybe I shouldn't share my little secret, because they do actually call me back! I call the FDIC Consumer Compliance Hotline in Chicago at (312) 382-6926. Generally, I get a response the same day or the next day.

By now they probably have my name and number memorized!

kmg