Document ID: SEC-2008-1308-0001
Agency: sec
Document Type: Notice
Title: Order Granting Temporary, Conditional Relief from the Net Capital Rule for Barclays Capital, Inc.
Posted Date: 2008-09-25T04:00Z

[Federal Register: September 25, 2008 (Volume 73, Number 187)]
[Notices]               
[Page 55571-55572]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se08-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 58612]

 
Order Granting Temporary, Conditional Relief From the Net Capital 
Rule for Barclays Capital, Inc.

September 22, 2008.
    Barclays Capital, Inc. (``Barclays Capital'') is a broker-dealer 
registered with the Securities and Exchange Commission 
(``Commission''). Barclays Capital's ultimate holding company is 
Barclays Group (``Barclays Group''), which is supervised by the United 
Kingdom Financial Services Authority. Barclays Group, through Barclays 
Capital, has entered into an agreement to purchase substantially all of 
the assets, businesses and personnel of Lehman Brothers Inc. 
(``Lehman'').
    On November 9, 2005, the Commission issued an Order approving 
Lehman's application to use the alternative method of computing net 
capital contained in Appendix E (``Appendix E'') to Rule 15c3-1 (17 CFR 
240.15c3-1e) under the Securities Exchange Act of 1934 (``Exchange 
Act''). In a September 19, 2008 letter to the Commission, Barclays 
Capital and Barclays Group applied to the Commission for an exemption 
that would permit Barclays Capital, as successor to a substantial 
portion of Lehman's assets and liabilities, to continue to use for a 
temporary period the alternative method of computing net capital 
contained in Appendix E solely when computing capital charges for the 
positions it acquires from Lehman.
    Pursuant to paragraph (b)(3) of Rule 15c3-1, the Commission may, 
upon written application, exempt from the provisions of Rule 15c3-1, 
either unconditionally or on specified terms and conditions, any broker 
or dealer who satisfies the Commission that, because of the special 
nature of its business, its financial position, and the safeguards it 
has established for the protection of customers' funds and securities, 
it is not necessary in the public interest or for the protection of 
investors to subject the particular broker or dealer to the provisions 
of Rule 15c3-1.
    In its letter, Barclays Capital and Barclays Group have represented 
to the Commission that until such time as the Commission acts on 
Barclays Capital's application to use the alternate net capital 
treatment and supervision on a consolidated basis, Barclays Capital 
will:
    (1) File a draft application promptly, and cooperate and file with 
the Commission a plan to complete all requirements of such application 
process (including a timeline) and file a completed application in 
accordance with Appendix E to Exchange Act Rule 15c3-1 within 180 days 
of the bankruptcy court's approval of Barclays' acquisition of Lehman's 
assets. In the event Barclays Capital will not be able to file a 
completed application with respect to the various provisions related to 
VaR Models, Barclays Capital will promptly inform the Commission of 
such; and

[[Page 55572]]

    (2) Devote the appropriate resources and personnel to support such 
alternate net capital treatment and supervision on a consolidated 
basis, including any additional conditions the Commission may find to 
be necessary or appropriate in the public interest or for the 
protection of investors.
    In addition, Barclays Capital stated in its letter that, based on a 
pro-forma net capital computation, it would have in excess of $6.5 
billion in Tentative Net Capital, as defined.
    In order to facilitate both a smooth transition of the Lehman 
assets and liabilities to Barclays Capital and continued oversight of 
this business, the Commission believes some additional conditions are 
necessary, as follows:
    (1) Until such time as the Commission determines otherwise, 
Barclays Capital must maintain at least $6 billion in Tentative Net 
Capital;
    (2) Until such time as the Commission determines otherwise, the 
basic market risk and credit risk computations for the positions 
Barclays Capital acquires from Lehman must be done using the modeling 
infrastructure used by Lehman prior to the transfer of Lehman's assets 
and liabilities to Barclays Capital; and
    (3) Until such time as the Commission determines otherwise, the 
basic market risk and credit risk computations must be supervised by 
individuals who fully understand the operation of Lehman's models 
(including the inputs and techniques unique to Lehman's models) and the 
securities that Lehman has been permitted to model, and that have at 
least one year of experience working with Lehman's models. According to 
Barclays Capital's letter, it has agreed to acquire substantially all 
personnel of Lehman, such that it should have employees that meet these 
requirements on its staff to continue to meet this condition for the 
exemption.
    Barclays Capital will need to maintain Tentative Net Capital of at 
least $6 billion. By increasing its Tentative Net Capital to at least 
$6 billion, Barclays Capital will significantly improve its financial 
position. In addition, the movement of these accounts from Lehman to 
Barclays Capital will further protect customers by providing for a 
seamless transfer of customers' accounts from Lehman to a financially 
sound broker-dealer. Further, this temporary relief is specific to the 
business Barclays Capital purchases from Lehman, using models already 
reviewed and approved by the Commission, and the computations will be 
performed by persons familiar to Lehman's models and processes. This 
relief will extend only until the Commission acts on Barclays Capital's 
application to compute market and credit risk capital charges pursuant 
to Appendix E, which Barclays Capital has agreed to submit within 180 
days of the bankruptcy court's approval of Barclays Capital's 
acquisition of Lehman's assets. As such, because of the special nature 
of Barclays Capital's business, its financial position, and the 
safeguards it has established for the protection of customers' funds 
and securities, the Commission finds that approval of this request, 
subject to the fulfillment by Barclays Capital and its ultimate holding 
company Barclays Group of these representations and conditions, is 
appropriate in the public interest or for the protection of investors.
    Accordingly,
    It is ordered, under paragraph (b)(3) of Rule 15c3-1 (17 CFR 
240.15c3-1) under the Exchange Act, that Barclays Capital may calculate 
capital charges for the positions it purchases from Lehman Brothers 
Inc. using the market risk standards of Appendix E to compute a 
deduction for market risk on some or all of the positions, instead of 
the provisions of paragraphs (c)(2)(vi) and (c)(2)(vii) of Rule 15c3-1, 
and using the credit risk standards of Appendix E to compute a 
deduction for credit risk on the credit exposures arising from 
transactions in derivatives instruments, instead of the provision of 
paragraph (c)(2)(iv) of Rule 15c3-1, subject to the fulfillment by 
Barclays Capital and Barclays Group of the representations and 
conditions set forth above.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E8-22503 Filed 9-24-08; 8:45 am]

BILLING CODE 8010-01-P