Subject: National Bank Use of Certain Debt Securities Acquired for Investment and Equity Securities Acquired as Hedges as Collateral for Repurchase Agreement Transactions (Repo)
The Banks would not purchase securities principally for resale to others, would not maintain an inventory of securities for resale, and would not hold themselves out as being in the business of dealing or making market in the securities at issue. Based on the foregoing, the proposed activities would not constitute impermissible dealing.
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In this case, [ ] would acquire or hold equity securities as a hedge to customer-driven derivative activities and would not purchase equities for the purpose of serving as collateral. The use as collateral is secondary and subordinate to bona fide hedging of customer-driven derivatives activities. If a derivative terminated early, [ ] represents that it would promptly substitute collateral and sell the equity securities. Throughout the repo transaction, [ ] would retain the market risk associated with the equity securities and reflect the securities on its balance sheet. The securities would thereby continue to serve ss an effective hedge while serving as collateral. In light of the foregoing, the proposed use of the equity securities as collateral is not inconsistent with the requirements of 12 C.F.R. § 7.1030(e).
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