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July 21, 1997

Bradley K. Sabel, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022-6069

Dear Mr. Sabel:

This is in response to your letter of July 17, 1997, requesting guidance on the proposed organization of the Emerging Markets Clearing Corporation ("EMCC"). I understand from your inquiry that EMCC would be engaged in the clearing and guaranteed settlement of debt securities issued by sovereigns or entities located in countries in emerging markets, which are generally defined in your letter as Mexico and those countries that are not members of the Organization for Economic Cooperation and Development. EMCC would be owned by the Emerging Markets Traders Association ("EMTA"), the International Securities Market Association ("ISMA"), the National Securities Clearing Corporation ("NSCC") and institutional participants that include foreign banks and bank holding companies (collectively "Banking Participants") subject to the Bank Holding Company Act ("BHC Act").1

You indicate that 40 percent of the outstanding stock of EMCC would be held by EMTA, ISMA, and NSCC, with each organization owning, respectively, 15 percent, 10 percent, and 15 percent of EMCC. The remaining 60 percent of outstanding EMCC stock would be held by the institutional participants. In light of these facts, you have requested guidance on whether an application under the BHC Act would be required for the proposed investment by the Bank Participants.

Your letter states that no Banking Participant would acquire more than 5 percent of the outstanding voting shares of EMCC. You also state that the investment of each Banking Participant in EMCC would be passive and noncontrolling. There is no indication in your letter that the Banking Participants are acting in concert with other participants in making the investments or that the investments would be considered as an entrepreneurial enterprise.2 Instead, the Banking Participants would acquire stock as a means to participate in the trading and clearing operations of EMCC.

In light of the facts you have presented, and for the reasons discussed above, I conclude that the proposed investment in EMCC by the Banking Participants would be permissible under section 4(c)(6) of the BHC Act. Accordingly, I conclude that the proposed transaction may be consummated without further action by the Federal Reserve System.

This opinion is limited solely to the transaction described above and does not authorize any other transaction. Any material change in the facts stated above should be communicated to Board staff. If you have any questions, please contact Bob Frierson (202/452-3711) of the Board's Legal Division.


(signed) J. Virgil Mattingly

J. Virgil Mattingly

General Counsel


1. The BHC Act is made applicable by Section 8 of the International Banking Act of 1978, 12 U.S.C. 3106, to foreign banks that maintain a branch or agency in the United States or that control commercial lending companies organized under state law. Return to text

2. See 12 C.F.R. 225.137 Return to text

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