# O

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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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Washington, DC 20219

**Interpretive Letter #1059**

April 13, 2006 **May 2006**

Subject: Authority of a National Bank to Engage in Financial
Intermediation Transactions

Dear **\[ \]**:

This responds to your request that the Office of the Comptroller of the
Currency ("OCC") confirm that it is permissible for your client, **\[
\]** ("Bank"), to engage in customer-driven,[^1] perfectly matched,
cash-settled derivative transactions (such as swaps, options, forwards,
caps, floors, collars and futures) where payments are based on prices of
three reference assets: (i) polypropylene: injection molding (copoly)
(2,6); (ii) old corrugated cardboard #11 (OCC 11); and (iii) the Dow
Jones AIG Commodity Index (DJ-AIGCI).

In OCC Interpretive Letter No. 1039 (September 13, 2005), we determined
that a national bank may engage in customer-driven, perfectly matched,
cash-settled derivative transactions on the reference assets identified
in the letter as part of a permissible financial intermediation
business. The permissibility of the activity was conditioned on the
national bank in question having established, to the satisfaction of its
examiner-in-charge ("EIC"), an appropriate risk measurement and
management process for the activities.[^2]

On the basis of the analysis and subject to the conditions set forth in
detail in OCC Interpretive Letter No. 1039, we conclude that the Bank
may similarly act as a financial intermediary in customer-driven,
perfectly matched, cash-settled derivative transactions on the reference
assets described above,[^3] provided the Bank's EIC is satisfied that
the Bank has adequate risk management systems and controls to conduct
the activities on a safe and sound basis. Our conclusions herein are
specifically based on the Bank's representations and written submissions
describing the facts and circumstances of the subject transactions. Any
change in the facts or circumstances could result in different
conclusions. If you have any questions concerning this letter, please
contact Tena M. Alexander, Special Counsel, Securities and Corporate
Practices Division, at (202) 874-5210.

Sincerely,

*Signed*

Julie L. Williams

First Senior Deputy Comptroller

and Chief Counsel

[^1]: A "customer-driven" transaction is one entered into for a
    customer's valid and independent business purpose. *See* OCC
    Interpretive Letter No. 892 (September 13, 2000).

[^2]: This process is necessary for the Bank to achieve its customer
    risk management objectives in a safe and sound manner and, thus,
    must be established before the OCC can conclude that the activities
    are permissible for the Bank.

[^3]: The OCC recently confirmed that polypropylene is a permissible
    reference asset for these transactions. OCC Interpretive Letter No.
    1056 (March 29, 2006). Our approval of polypropylene as a reference
    asset for customer-driven, perfectly matched, cash-settled
    derivative transactions in OCC Interpretive Letter No. 1056
    encompasses its different grades, including the polypropylene:
    injection molding (copoly) (2,6) which is the subject of your
    request.