District Circular Letters

February 27, 2002

BANKING SUPERVISION AND REGULATION:
ACQUIRING STOCK TO HEDGE EQUITY DERIVATIVE TRANSACTIONS

To State Member Banks,
Bank Holding Companies,
and Others Concerned
in the Twelfth Federal Reserve District

Acquisition of Stock to Hedge Equity Derivative Transactions

The Federal Reserve Board will not apply section 9 of the Federal Reserve Act to prohibit a state member bank from acquiring equity securities to hedge the bank's customer-driven equity derivative transactions if such purchases are made in accordance with the conditions and restrictions applicable to national banks.

Any state member bank that seeks to acquire equity securities to hedge the bank's equity derivative transactions must receive the prior approval of the Board's Director of Banking Supervision and Regulation. In addition, a state member bank may engage in equity hedging activities only to the extent permitted by state law, and the bank must comply with any applicable state notice or approval requirements.

Please see the complete Board statement (PDF - 11KB).

Additional Information

All circulars and documents are available on the Internet through the Federal Reserve Bank of San Francisco's Internet site, at http://www.frbsf.org/banking/letters. For additional information about the above statement, please contact our Banking Supervision and Regulation Department at (415) 974-2225.

FEDERAL RESERVE BANK OF SAN FRANCISCO