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Release Date: February 18, 1997

For immediate release

The Federal Reserve Board today announced its approval of the notice by Canadian Imperial Bank of Commerce, Toronto, Canada, to trade for its own account, for purposes other than hedging, in futures, options, and options on futures contracts based on securities indices and money market instruments.

Attached is the Board's Order relating to this action.

Canadian Imperial Bank of Commerce
Toronto, Canada

Order Approving a Notice to Engage in Certain Nonbanking Activities

Canadian Imperial Bank of Commerce, Toronto, Canada ("Canadian Imperial"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.23 of the Board's Regulation Y (12 C.F.R. 225.23) to engage de novo through its wholly owned subsidiary, CIBC Investment Corporation, New York, New York ("Company"), in trading for its own account, for purposes other than hedging, in futures, options, and options on futures contracts based on securities indices and money market instruments.

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 1889 (1997)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act.

Canadian Imperial, with total consolidated assets of approximately $147.4 billion,1 is the second largest banking organization in Canada.2 In the United States, Canadian Imperial operates a branch in Chicago, Illinois; agencies in New York, New York, Los Angeles and San Francisco, California, and Atlanta, Georgia; and a representative office in Houston, Texas. Canadian Imperial also engages through its subsidiary, Wood Gundy Securities Corporation, New York, New York, in a broad range of permissible nonbanking activities in the United States, including underwriting and dealing in, to a limited extent, debt and equity securities that are not eligible to be underwritten by a member bank ("bank-ineligible securities").

Canadian Imperial proposes that Company trade for its own account, for purposes other than hedging, in options, options on futures, and futures on certain securities indices and money market instruments ("derivative contracts").3 Canadian Imperial has stated that Company will not underwrite any securities, act as a dealer in any securities (including acting as a market-maker, specialist, or registered options trader on any exchange), purchase or sell securities on behalf of customers, or otherwise hold itself out to the public as being willing to buy and sell securities as principal.4 Company will execute its trades through affiliated or unaffiliated broker-dealers and futures commission merchants ("FCMs").

The Board previously has determined that the proposed trading activities are closely related to banking within the meaning of section 4(c)(8) of the BHC Act.5 In order to approve this notice, the Board also must consider whether the performance of the proposed activities is a proper incident to banking, that is, whether the activities proposed "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."6 As part of its evaluation of these factors, the Board considers the financial condition and managerial resources of the notificant and its subsidiaries and the effect the transaction would have on such resources.7 Based on all the facts of record, including relevant reports of examination, the Board has concluded that financial and managerial considerations are consistent with approval of the proposal.

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In reviewing the proposal under the proper incident to banking standard, the Board also has considered Company's proposed risk management policies and procedures. The Board notes that Canadian Imperial has substantial experience in trading derivative contracts based on securities and securities indices. The Board also notes that Company, as a registered broker-dealer, must comply with the SEC's net capital rules.8 Canadian Imperial has committed that Company would conduct its proposed trading activities pursuant to the risk management policies and procedures that the Board has relied on in other cases to address the credit, market, and operational risks arising out of similar derivative contracts transactions.9 The Board has carefully reviewed these policies, procedures, systems, and controls. On the basis of this review, and all of the facts of record, the Board believes that Company's risk management policies, procedures, systems, and controls include the principal components of an effective system capable of monitoring and controlling the risks inherent in the proposed activities.10

There is no evidence in the record to indicate that Canadian Imperial's proposal would result in any undue concentration of resources or decreased or unfair competition. In addition, the Board believes that Company's conduct of the proposed trading activities could lead to greater market efficiency and increased liquidity for the derivative contracts that Company proposes to trade. Accordingly, the Board has concluded that the balance of the public interest factors it is required to consider under the proper incident to banking standard of section 4(c)(8) of the BHC Act is favorable and consistent with approval of this notice.

Based on the foregoing, and in light of all the facts of record, the Board has determined that the notice should be, and hereby is, approved. Approval of this notice is specifically conditioned on compliance by Canadian Imperial with all the commitments made in connection with the proposal and with the conditions stated or referred to in this order. The Board's determination also is subject to all the terms and conditions set forth in Regulation Y, including those in sections 225.7 and 225.23(g) (12 C.F.R. 225.7 and 225.23(g)), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, and to prevent evasion of, the provisions of the BHC Act and the Board's regulations and orders issued thereunder. In approving the proposal, the Board has relied on all the facts of record and all the representations and commitments made by Canadian Imperial. These commitments and conditions shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decisions, and may be enforced in proceedings under applicable law.

This transaction shall not be consummated later than three months after the effective date of this order, unless such period is extended for good .cause by the Board or the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors,11 effective February 18, 1997.

(signed) Jennifer J. Johnson

Jennifer J. Johnson

Deputy Secretary of the Board


1 Asset data are as of October 31, 1996, and are based on the exchange rate applicable on that date.

2 Ranking data are as of December 31, 1995.

3 Certain of the derivative contracts that Company would trade are bank-ineligible securities for purposes of section 20 of the Glass-Steagall Act. See Swiss Bank Corporation, 82 Federal Reserve Bulletin 685, 687 n.8 (1996).

4 Canadian Imperial has stated that Company will be registered as a broker-dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.) and will be a member of the National Association of Securities Dealers, Inc. ("NASD"). Company will, therefore, be subject to the recordkeeping and reporting obligations and other requirements of the Securities Exchange Act of 1934, the SEC, and the NASD.

5 See Swiss Bank Corporation, 81 Federal Reserve Bulletin 185 (1995) ("Swiss Bank Order"); see also Swiss Bank Corporation, 76 Federal Reserve Bulletin 759 (1991). The Board has proposed adding the trading activities proposed by Canadian Imperial to the list of permissible activities in Regulation Y. Specifically, the Board has proposed to permit bank holding companies to trade and invest in futures, options, and similar contracts based on financial or nonfinancial assets, or an index or group of such assets -- provided a state member bank is authorized to invest in the asset underlying the contract; the contract requires cash settlement; or the contract allows assignment, offset or termination prior to delivery. See 61 Federal Register 47,242, 47,254, 47,275 (1996).

6 12 U.S.C. § 1843(c)(8).

7 See 12 C.F.R. 225.24; see also The Fuji Bank, Limited, 75 Federal Reserve Bulletin 94 (1989); Bayerische Vereinsbank AG, 73 Federal Reserve Bulletin 155 (1987).

8 See 12 C.F.R. 240.15c3-1.

9 See Swiss Bank Order at 195 & n.57; Long-Term Credit Bank of Japan, Limited, 79 Federal Reserve Bulletin 345 (1993).

10 Because Company would not engage in investment advisory, brokerage, and other customer activities, Company would avoid the potential for conflicts of interest in conducting the proposed trading activity.

11 Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Phillips, and Meyer.

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