SEC Division of Trading and Markets no-action letter: Goldman, Sachs & Co.

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August 14, 2003

Steve W. Stone, Esq. Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004

Re: Goldman, Sachs & Co. - Request for Exemption from Rule 10b-10

Dear Mr. Stone:

Based on the facts and representations set forth in your letter of August 12, 2003, the Commission grants Goldman, Sachs & Co. and its affiliated broker-dealers (collectively "GS&Co.") an exemption, pursuant to Rule 10-10(f) under the Securities Exchange Act of 1934 ("Exchange Act"), from the trade-by-trade confirmation delivery requirements of Rule 10b-10(a) so that GS&Co. may send those GS&Co. clients that have granted GS&Co. investment discretion over their accounts ("Discretionary Clients") and who have requested them, periodic statements not less often than monthly, in lieu of trade-by-trade confirmations, that contain all of the information required by Rule 10b-10 for transactions in securities, including options, effected by GS&Co. in their accounts during the applicable period.

In particular, we note the following:

GS&Co. will develop a form of written or electronic consent for Discretionary Clients who request not to receive trade-by-trade confirmations and, in lieu thereof, receive a periodic statement that contains the same information that would have been in the trade-by-trade confirmation for each transaction. New Discretionary Clients will elect to receive a periodic statement in lieu of trade-by-trade confirmations by executing a separate signature line, specifically providing for such consent, contained in the client's account opening documentation.

Clients electing not to receive trade-by-trade confirmations could later change their minds and request, for no additional cost, trade-by-trade confirmations for any transaction since the date of the last periodic statement, for all subsequent transactions or, if they wish, for previous transactions effected for up to a one-year period preceding the last periodic statement.

GS&Co. will send all information required by Rule 10b-10 to Discretionary Clients in a periodic statement on at least a monthly basis.

Discretionary Clients will have access to GS&Co.'s website and will be able to view, on the next business day after trade date (T+1), information on trades effected in their accounts, including the transaction date, the type of transaction (e.g., buy or sell), the security, the execution prices and the quantity. Discretionary Clients will also be able to obtain all transaction information required to be disclosed under Rule 10b-10 either by telephoning their GS&Co. account representative or by requesting the trade-by-trade confirmation for the particular transaction. In addition, by October 1, 2010, GS&Co. will make available electronically to Discretionary Clients, on a T+1 basis, all of the information required by Rule 10b-10 for trades effected in their accounts.

GS&Co. will continue to generate and send trade-by-trade confirmations to those Discretionary Clients who do not elect to receive periodic statements in lieu of trade-by-trade confirmations.

GS&Co. will also continue to generate and retain, in accordance with Exchange Act Rule 17a-3 and 17a-4, trade-by-trade confirmations for Discretionary Clients who elect to receive periodic statements in lieu of trade-by-trade confirmations.

GS&Co. will generate and send trade-by-trade confirmations to any third-parties that serve as custodians for the accounts of any Discretionary Clients.

GS&Co. will not require or request that Discretionary Clients elect not to receive trade-by-trade confirmations or suggest that such an election is required, but will make information available on how such clients could make such an election.

This exemption from Rule 10b-10 is based solely upon the representations you have made and is limited strictly to the facts and conditions described in your letter. In the event that a material change occurs with respect to any of the facts or representations presented, periodic statements should be discontinued and the use of trade-by-trade confirmations should be reinstated for the transactions described above pending presentation of the facts for our consideration. The Division expresses no view with respect to other questions GS&Co.'s activities may raise, including the applicability of any other federal or state laws or the applicability of self-regulatory organization rules concerning customer account statements or confirmations.

For the Commission, by the Division of Market Regulation pursuant to delegated authority, 1

Catherine McGuire Chief Counsel

1

17 CFR 200.30-3(a)(32).

Incoming Letter

Steven W. Stone 202.739.5453 sstone@morganlewis.com

August 12, 2003

Catherine McGuire Associate Director and Chief Counsel Division of Market Regulation Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Mail Stop 10-1

Re: Goldman, Sachs & Co. - Request for Exemption from Rule 10b-10

Dear Ms. McGuire:

On behalf of Goldman, Sachs & Co. and its affiliated broker-dealers ("GS&Co."), we request an exemption, pursuant to Rule 10b-10(f) of the Securities Exchange Act of 1934 ("Exchange Act"), from the trade-by-trade confirmation delivery requirements of Rule 10b-10(a), for transactions in securities, including options, in which GS&Co. or its affiliates exercise investment discretion. 1 GS&Co. requests this relief to permit it to send requesting clients, in lieu of trade-by-trade confirmations, a periodic statement not less often than monthly, that contains the information required by Rule 10b-10(a) for discretionary transactions effected by GS&Co. during the applicable period.

Introduction

GS&Co. is a leading global investment banking and securities firm that provides a broad range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. GS&Co. is a broker-dealer registered with the Securities and Exchange Commission ("Commission") pursuant to Section 15(b) of the Exchange Act, and is a member of the New York Stock Exchange, Inc. ("NYSE") and the National Association of Securities Dealers, Inc. ("NASD"). GS&Co. also is an investment adviser registered with the Commission pursuant to Section 203(c) of the Investment Advisers Act of 1940 ("Advisers Act").

GS&Co. provides advice to clients as an incident to its broker-dealer business, including under circumstances where clients grant GS&Co. investment discretion over their brokerage accounts. 2 Many GS&Co. clients have granted GS&Co. investment discretion over their accounts ("Discretionary Clients"), thereby choosing to rely on GS&Co. to provide ongoing oversight and to make and effect related investment decisions for their accounts. A number of these Discretionary Clients have asked GS&Co. to suppress trade-by-trade confirmations because they prefer to monitor their accounts only periodically through their account statements or otherwise through the information GS&Co. makes available to its clients.

GS&Co.'s Proposal

GS&Co. proposes to make available to Discretionary Clients the ability to receive, in lieu of trade-by-trade confirmations, a periodic statement, not less often than monthly, containing the information that would have been required to be disclosed in trade-by-trade confirmations pursuant to Rule 10b-10 absent the requested relief. In implementing this proposal, GS&Co. would do the following:

GS&Co. would develop a form of written or electronic consent for Discretionary Clients who request not to receive trade-by-trade confirmations and, in lieu thereof, receive a periodic statement that contains the same information that would have been in the trade-by-trade confirmation for each transaction. 3 Clients electing not to receive trade-by-trade confirmations could later change their minds and request, for no additional cost, trade-by-trade confirmations for any transaction since the date of the last periodic statement, for all subsequent transactions or, if they wish, for previous transactions effected for up to a one-year period preceding the last periodic statement.

GS&Co. would send all information required in such trade-by-trade confirmations to Discretionary Clients in a periodic statement on at least a monthly basis.

GS&Co. would inform Discretionary Clients that they could receive an interim update and further details concerning any transaction effected between periodic statements (either by calling a GS&Co. representative or by checking on GS&Co.'s client website), 4 and GS&Co. would provide such information at no additional cost.

GS&Co. would continue to generate and send trade-by-trade confirmations for those Discretionary Clients who do not elect to receive periodic statements in lieu of trade-by-trade confirmations. GS&Co. would also continue to generate and retain, in accordance with Exchange Act Rules 17a-3 and 17a-4, trade-by-trade confirmations for Discretionary Clients who elect to receive periodic statements in lieu of trade-by-trade confirmations.

GS&Co. would generate and send trade-by-trade confirmations to any third-parties that serve as custodians for the accounts of any Discretionary Clients.

GS&Co. would not require or request that Discretionary Clients elect not to receive trade-by-trade confirmations, but would make information available on how such clients could make such an election. GS&Co. client communications would inform existing and new Discretionary Clients about their ability to receive confirmations on a trade-by-trade basis or in periodic statements, but would not suggest which choice is best. Such client communications also would inform Discretionary Clients that, if interested, they should contact a GS&Co. representative to obtain more information or to obtain a copy of a written or electronic consent to request a periodic statement in lieu of trade-by-trade confirmations. These client communications would not suggest that such an election is required for GS&Co. discretionary accounts or that the clients would incur additional costs if they did not elect to receive periodic statements in lieu of trade-by-trade confirmations.

Prior Commission Action

Rule 10b-10(a) under the Exchange Act requires a broker-dealer to send a trade-by-trade confirmation to its client at or before completion of each transaction. In various circumstances, the Commission and its staff has permitted broker-dealers to send the trade-by-trade confirmation either to a fiduciary with investment discretion over the account or to a third-party other than the client. For example, where an account is managed by an investment adviser, a broker-dealer may send the trade-by-trade confirmation to the client's investment adviser instead of the client, provided that the broker-dealer sends the client a periodic statement, not less than quarterly, that contains all of the information required for each included transaction by Rule 10b-10. 5 Moreover, in certain circumstances a broker-dealer may send a trade-by-trade confirmation to an account's third-party custodian that is authorized to receive securities and disburse funds for the account. 6

The Commission staff, pursuant to delegated authority, 7 has permitted broker-dealers to send to clients a periodic statement in lieu of trade-by-trade confirmations where the broker-dealer was dually registered as an investment adviser or where the account was managed by an investment adviser affiliated with the broker-dealer. 8 Moreover, the staff has granted an exemption on behalf of all broker-dealer sponsors of wrap fee programs, permitting such broker-dealers to confirm transactions in wrap fee programs through periodic statements in lieu of trade-by-trade confirmations. 9

The relief requested by GS&Co. is similar to that granted previously by the staff, except that the person exercising investment discretion over the account may be acting in the capacity of a registered broker-dealer, rather than a registered investment adviser. In its broker-dealer capacity, GS&Co.'s actions will be governed both by the federal securities laws and by the rules of the NYSE and the NASD that govern discretionary accounts. For example, both NYSE and NASD rules impose heightened supervisory requirements over transactions effected on behalf of discretionary brokerage accounts. 10 Moreover, these transactions will be governed by the suitability and best execution standards for registered broker-dealers, which parallel those for registered investment advisers. 11 Indeed, when formulating proposed Rule 206(4)-5 under the Advisers Act, which would have created an express suitability obligation for investment advisers, the Commission looked primarily to interpretations of the scope of broker-dealer suitability obligations under the Exchange Act. 12

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GS&Co. believes that, under the terms of the proposed exemption, Discretionary Clients will be provided the investor protections contemplated by Rule 10b-10 without obligating such clients to receive trade-by-trade confirmations where they have elected to forego day-to-day monitoring of their account through trade-by-trade confirmations. The proposal will not diminish GS&Co.'s clients' right to receive confirmations on request if desired, and it will give clients the option to rely on a periodic statement instead.

We welcome the opportunity to discuss this request with you. If you have any questions regarding this request, please call me at 202.739.5453 or Jack Drogin at 202.739.5380. On behalf of GS&Co., we appreciate the staff's consideration of this request.

Very truly yours,

Steven W. Stone

1

GS&Co. is requesting relief for transactions over which GS&Co. or its affiliates exercise investment discretion. Where the client exercises trading discretion, GS&Co. will send a trade-by-trade confirmation consistent with Rule 10b-10. GS&Co. is only requesting relief from Rule 10b-10 and will continue to generate and send trade-by-trade confirmations of any transactions GS&Co. effects pursuant to a hold-in-custody repurchase agreement as required by Rule 15c3-3(b)(4). 2

GS&Co. and its affiliates, including Goldman Sachs Asset Management, L.P., also provide advice, as an investment adviser, to clients including through GS&Co.'s Investment Management Division, which includes Private Wealth Management. 3

New Discretionary Clients may be able to elect to receive a periodic statement in lieu of trade-by-trade confirmations by executing a separate signature line, specifically providing for such consent, contained in the client's account opening documentation. 4

GS&Co. does not currently make confirmations available on its client website, but intends to make this information available electronically over the next seven years. Discretionary Clients who enroll to access GS&Co.'s client website will be able to view, on the next business day after trade date ("T+1"), information on trades effected in their accounts, including the transaction date, the type of transaction ( e.g., buy or sell), the security, the execution price and the quantity. Discretionary Clients also will be able to obtain all other transaction information required to be disclosed under Rule 10b-10 either by telephoning their GS&Co. account representative or by requesting the trade-by-trade confirmation for the particular transaction. 5

See Securities Exchange Act Release No. 34962 (November 10, 1994). 6

Id . 7

See 17 C.F.R. § 200.30-3(a)(32). 8

See

Donaldson, Lufkin & Jenrette Securities Corporation (August 21, 1997); Scudder Investor Services, Inc. (February 11, 1998); and Advest, Inc. (July 19, 1999). 9

See

Money Management Institute, Securities Industry Association (August 23, 1999). 10

See, e.g., NYSE Rule 408 and NASD Rule 2510 (requiring heightened supervision of discretionary brokerage accounts); NYSE Rules 722 and 724 and NASD Rule 2860(b) (requiring supervision of discretionary options accounts); and NYSE Rule 414(i) and NASD Rule 2845 (stating that the rules governing supervision of discretionary accounts in options govern discretionary accounts in currency warrants, currency index warrants, and stock index warrants). To help fulfill GS&Co.'s obligations for discretionary accounts, GS&Co. compliance personnel review trading in accounts of Discretionary Clients by, among other things, reviewing a daily discretionary account report that presents information about discretionary trades, including capacity and all other information with regard to a transaction required to be reported on confirmations under Rule 10b-10 (other than certain yield information relating to debt securities). 11

The regulatory schemes for broker-dealers and investment advisers are not parallel in all respects. For example, Section 206(3) of the Advisers Act imposes additional requirements on investment advisers effecting agency cross and principal transactions in client accounts. 12

See Investment Advisers Act Release No. 1406 (March 16, 1994).

http://www.sec.gov/divisions/marketreg/mr-noaction/goldman081403.htm

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Modified: 08/15/2002