The Securities and Exchange Commission has given the nod to Credit Suisse First Boston allowing it to execute certain derivatives trades direct with customers. In a no-action letter the agency exempted CSFB from Section 206(3) of the Investment Advisers Act of 1940, which requires firms to get a customer's consent every time it acts as the principle in a transaction with the customer. The letter allows CSFB to obtain a single written consent that will be valid for all transactions.
The exemption relates to covered call options. According to a CSFB letter requesting the no-action, the firm recommends options transactions to high-net-worth clients. But previously the clients have had to set up new trading accounts with other firms to purchase the options, which is time consuming and potentially costly for clients. Under the no-action exemption CSFB will purchase the options from another firm and sell them to the customer at exactly the same price that CSFB paid--transactions the firm dubbed "mirror trades." The Adviser Act requires customer consent for every transaction to ensure customers are aware of possible conflicts of interest when an adviser also acts as principle. But, because CSFB's trades simply replicate trades with other firms, there are fewer potential conflicts, the firm argued in its letter.
In its no-action the SEC stated CSFB must renew each customer's consent at least once a year and must allow customers to cancel their consent at any time. Calls to Kenneth Fang, senior counsel in the Division of Investment Management and to Kathryn McGrath, partner with Mayer, Brown, Rowe & Maw in Washington, D.C., who drafted CSFB's letter, were not returned by press time.
