Credit Suisse First Boston Corporation

October 21, 2002

Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, D.C. 20551
Re: Docket No. R-1128
(regs.comments@federalreserve.gov)

Office of the Comptroller of the Currency
250 E Street, SW
Public Information Room
Mail Stop 1-5
Washington, D.C. 20219
Attention: Docket No. 02-13
(regs.comments@occ.treas.gov)

Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 5th Street NW
Washington, D.C. 20549-0609
Re: File No. S7-32-02
(rule-comments@sec.gov)

Re: Comments on Draft Interagency White Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System

Credit Suisse First Boston Corporation (CSFB) and its subsidiary Pershing submits the following response to the "Draft Interagency White Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System" (the "Draft White Paper"), published in the Federal Register by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission (collectively the "Agencies"). CSFB welcomes the opportunity to comment further on the beginning of a critical dialog with the Agencies in order to protect the U.S. Financial System in the event of a catastrophic event.

As an organization that was significantly impacted by the events of September 11th, 2001 through the loss of our facilities at 5 World Trade Center, and as a significant participant in most financial markets, we well understand the benefits to our clients and the marketplace of a robust and comprehensive disaster recovery solution. The lessons of September 11th 2001 are particularly important in this regard, especially given the manner in which the Financial System responded. While there were problems and CSFB strongly agrees these problems should be addressed, it is also true that the system responded with remarkable resiliency. The Agencies played a major role in this recovery and should be commended for their tireless efforts to assist market participants by providing flexible responses to financial market issues and problems. CSFB believes that co-operative efforts of the Agencies, infrastructure and utilities providers and financial market participants such as were seen in the aftermath of September 11th needs to be the foundation of any successful disaster recovery solution for the U.S. financial markets. We are therefore concerned that the White Paper suggests the potential for a somewhat inflexible set of guidelines at such an early stage of the discussions and would urge the Agencies to engage in a further period of consultation before publication of any formal guidance.

In addition, we believe it is vital that all of the core infrastructure providers receive similar regulatory guidance from their relevant Government Agency. Huge investments in new recovery facilities will potentially be required of the Financial Industry and without similar investment in infrastructure by the telecommunications and utilities, recovery following a regional, wide scale disaster would be unsuccessful.

In addition to submitting this response, CSFB is a signatory to the joint response from the Securities Industry Association and the Bond Market Association, the Financial Services Round Table and BITS and a collective response from Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers and Merrill Lynch.

Some of the specific concerns of CSFB are as follows:

Scenario / Scope

In order to plan effectively for the recovery of critical activities, CSFB believes that it is necessary to better define the "wide-scale, regional disruptions" envisaged.

In assessing the locations and capabilities of our recovery facilities we must strike a careful balance between risk elimination and risk mitigation. Clearly defined scenarios will allow the cost-benefit analysis to be calculated and then decisions to be made as to which risks an organization can afford to protect itself against.

We also believe that in the most extreme scenario, an event which has an impact across a 200 to 300 mile area, millions of people will be affected in the North East Region both indirectly through loss of power, telecommunications, public transportation and public services, (hospitals, emergency services, water treatment etc.) and directly through loss of personal property and housing, injury or even significant loss of life. Recovery and resumption may not be a reasonable or even realistic objective for individual organizations under these circumstances. For this kind of catastrophic disaster a different set of planning assumptions should be considered to assist firms in what planning might be required by the Federal Government.

Definitions - Critical Markets and Products

The Agencies have defined the "critical markets" as Federal funds, foreign exchange and commercial paper and government, corporate and mortgage-backed securities and have asked whether any critical markets have been excluded. Given the inter-dependent nature of the markets as a whole, further understanding of the criteria used to determine what are the "critical markets" will assist firms in determining whether all critical markets have been included. For example, is a market critical because it is essential to provide the necessary capital and liquidity to allow for organizations and individuals to provide for or obtain food, clothing, shelter and medical services? Otherwise, we run the risk of defining all markets as "critical".

Definitions - Critical Firms

In relation to the definition of `core clearing and settlement organizations' and `firms that play significant roles in critical financial markets', we believe that the definition of core clearing and settlement organizations should be limited to market utilities, depositories and clearing banks.

In addition, while it is clear from the definition that we have obligations to the marketplace as a firm that plays a significant role in many financial markets, we believe that further definition would be valuable in order to ensure consistency, transparency and fair application of the guidance to the market.

We agree with the Agencies suggestion to develop more detailed assessment criteria for determining which Firms play a significant role in critical markets. Objective, industry recognized metrics are key to this process; such metrics could be produced by an independent authority and published at a minimum on an annualized basis. Firms can utilise these metrics (volume or $ value of transactions over an elapsed period of time) to self-determine criticality against thresholds defined by the Agencies. This same set of guidance should also apply equally to core clearing and settlement organizations and market utilities.

Having determined and agreed with the Agencies that a firm now plays a significant role, firms should be allowed to prepare a plan to comply that will follow reasonable timescales, leveraging the normal investment cycle over a number of years.

Critical Infrastructure/Telecommunications

CSFB believes that in order to provide the most successful recovery solution possible for the US Financial Markets, the Agencies should recognise that there are important predicate services upon which the successful recovery of every "critical firms" depend. The White Paper is based upon the occurrence of a major regional catastrophic event. Such an event, which could take many forms, will inherently involve the potential for interruption of telecommunications services upon which the market depends. Even a firm with the most sophisticated recovery capability will be unable to clear and settle if it is unable to communicate with core market utility providers. We therefore fully support initiatives to ensure adequate preparedness across all industry participants, particularly those providing fundamental services - from market utilities such as The Depository Trust Company, to the core infrastructure providers such as the utilities and telecommunications companies. Indeed the reliance of the Financial Services industry on these infrastructure organizations cannot be over-emphasized and it is clear that there is still significant vulnerability in the overall environment as a result of the dependencies on a limited number of key organizations.

We believe the Agencies must work with other government departments and agencies in order to ensure the ultimate success of business continuity planning by U.S. financial institutions. CSFB strongly advises that the Agencies focus on telecommunications system as a first tier issue. Thought should be given to establishing a similar set of regulatory guidance for these organizations, which would not only include enhancements to the resiliency of their existing facilities, but might set minimum standards for the implementation of future facilities and services. Thus over a period of time enhanced resiliency and redundancy can be designed into the systems.

CSFB would also suggest that the next most critical priority of the Agencies should be the adequacy of recovery planning by the market utilities such as the `core clearing and settlement organizations' rather than concentrating on requirements for even `critical' firms which will be useless without the relevant infrastructure and the utilities.

Distance between Primary & Recovery Facilities

In relation to perhaps one of the most fundamental tenets of the White Paper, the distance between primary and recovery facilities, we believe a prescriptive distance will not achieve the resiliency goals the Agencies are seeking. Current technology limitations, CSFB believes, prohibit the distance and time to recover guidelines set out in the paper. In particular the distance for successful `active-active' mirroring technology is 60-100km (as noted in the draft white paper) and other asynchronous processing results in lost data and necessary reconstruction of transactions. The Agencies should open a dialogue with the industry as to what level of lost data and reconstruction is or would be viewed as acceptable by the Agencies for a remote recovery facility, beyond the current technological limits.

In addition, given the extreme scenarios envisaged by the White Paper, significant risks will not be mitigated by an arbitrary 200-300 mile distance limitation, which might suggest that Washington (an equally high risk location as New York City) is a suitable location for recovery facilities.

We believe that firms should be encouraged to follow a risk and threat based approach to business continuity planning, allowing firms to have flexibility to determine solutions within broad guidelines. Focus could be given to whether a firm maintains sufficient resources at locations with separate labor pools, water supplies, transportation networks telecommunications and power infrastructure, rather than arbitrary distance criteria.

Time Requirements

The time requirements suggested by the White Paper are also in our view problematic. These time requirements do not provide sufficient flexibility for firms to consider numerous alternatives including utilisation of facilities in foreign market locations, multiple firm co-operative facilities and other creative solutions that have the potential to provide more viable solutions to recovery issues. In particular, CSFB respectfully suggests that a period of one year for planning for such major technology, facilities and personnel programs would be a reasonable time frame. Further we would recommend that as long as a firm has provided an adequate plan it should be allowed maximum flexibility in implementing the plan and not be held to any arbitrary timeline. Moreover we believe that market pressures will serve to force firms to adopt sound practices within a reasonable timeframe.

Cost

As the Agencies are well aware, CSFB had, before September 11th, already committed to a significant program of work to improve its recovery capabilities in early 2001. This has been agreed and discussed with both the Federal Reserve Bank of New York and New York State Banking Department's Examination Teams. Since that time, CSFB has invested approaching $100 million in new disaster recovery facilities, which include new remote data center space, additional contingency seats for both our trading and support environments and the supporting mainframe and distributed technology systems.

If CSFB is required to prepare additional disaster recovery facilities against the extreme scenarios that are envisaged by the Agencies, large parts of this investment will be wasted and significant further investment will be incurred. We request that the Agencies carefully consider the cost-benefit implications of this expense on the Industry as a whole and be prepared to support this expenditure with potential tax concessions or Federal funding.

Regulatory Requirements/Guidelines

Credit Suisse First Boston would like the Agencies to consider these sound practices as guidelines as opposed to regulatory requirements. We believe that all organizations that are likely to be affected by the White Paper have already taken considerable steps to ensure the resiliency of their operations.

We believe that as major market participant in all major financial centers globally, it is our responsibility to have in place the most robust recovery capability that current technology and cost constraints allows, our customers and counter parties demand no less.

Alternative Solutions

CSFB believes that further analysis could be performed to contribute to the overall initiative to improve the resiliency of the US financial system. For example, preparation of a catalogue of existing recovery facilities for all major market participants, an analysis of the feasibility of using foreign market centers, and exploration of the potential use of cooperative facilities.

We note that during the comment period on the White Paper, the Department of the Treasury has undertaken a survey of existing facilities, and perhaps there exists between the Agencies a master catalogue of all existing recovery facilities, their capacity and any additional facilities that are in the planning stage. CSFB believes this information could be extremely valuable in the event of any future disruption and in any event could be instructive as to the infrastructure issues and market utility issues presently posed by existing facilities. CSFB would suggest that sound planning for the future should be based not only on the experiences of September 11th but also by the foundation of what actually exists today. CSFB would be pleased to participate in such an exercise.

CSFB also believes that the Agencies should invest more time in the exploration of the potential to allow global firms with major facilities in other market centers to utilise these facilities in the event of a truly "wide-scale, regional disruption". In the event of such a truly catastrophic event with the attendant disruption of infrastructure and market utility availability, it is not unreasonable to consider the use of facilities in other market centers such as London to allow clearance and settlement of open transactions. If such facilities could be utilized, it would reduce the need for completely redundant facilities with the attendant issues of cost and separate labor pools. We have attached examples of restrictions, which would acts as impediments to the use of non-U.S. facilities as an appendix to this letter. This list is by no means exhaustive and we would be happy to assist in a comprehensive assessment of relief that could prove extremely effective in supporting recovery from an extraordinary regional disaster.

CSFB would also suggest that the White Paper is lacking guidance as to whether distant recovery facilities may be used on a co-operative basis, and if so, may they be shared between market utilities and critical firms, or among critical firms and are there limitations on such co-operative arrangements? In the immediate post-September 11th trading environment, for example, large firms who had capacity shared that capacity with smaller firms. Would such sharing be possible between large firms? In the event that the Agencies move forward with similar requirements for market utilities, it would in our view be natural that one or more firms could combine their recovery operations with a utility. CSFB believes such co-operative efforts between and among firms could be a valuable solution to the need for distant recovery solutions.

CSFB appreciates the opportunity to comment on the White Paper and would further wish to note the extensive efforts made by the staffs of the Agencies to work with the Financial Industry participants toward the common goal of resiliency of the clearance and settlement system. CSFB welcomes the willingness of the Agencies to consider new and creative solutions to the issues posed by the White Paper and we look forward to the dialog to come.

Credit Suisse First Boston Corporation
On behalf of itself and its affiliate,
Pershing Division of Donaldson Lufkin & Jenrette Securities Corporation

Gerard Leahy
Director
Business Continuity Group

Appendix

Examples of legal and regulatory restrictions that would prevent an organization leveraging global staff and facilities:

Appendix

CSFB concurs with the examples of potential legal and regulatory constraints to liquidity given in the joint response from Citigroup, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Lehman Brothers and Merrill Lynch. In addition, where Securities are lost or destroyed because of damage or destruction of facilities the following additional relief might be considered:

Rule 15c 3-3

Consider the destroyed securities to be bona fide items in transfer under 15c3-3(c)(3),
hence in the dealer's possession or control and with no related credit in the reserve
formula computation pending replacement of the security.

Rule 15c 3-1

Relief from a variety of required capital charges, pursuant to Rule 15c3-1(c), resulting from lost securities certificates, unpaid insurance claims and other unpaid receivables and claims.

Rule 17a-13(b)(2)

Allow the dealer to take an exemption from the quarterly securities count and verification procedures destroyed securities, provided the SEC believes the dealer is taking reasonable steps to replace the destroyed securities.