Debevoise & Plimpton LLP

Debevoise

&Plimpton

Debevoise & Plimpton LLP

919ThirdAvenue

New York, NY 10022

+1212 909 6000

Steven J. Slutzky

Partner

sjslutzky®debevoise.com

+1212 909 6036

May 20,2015

VIA FIRST CLASS MAIL AND EMAIL

Mary Kosterlitz, Esq.

Chief, Office of Enforcement Liaison

Division of Corporation Finance

U.S. Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-7553

United States of America v. UBS AG

Dear Ms. Kosterlitz:

We submit this letter on behalf of our client, UBS AG, a reporting company

registered under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act")

and the settling defendant in the above-captioned criminal proceeding (the "Settling

Firm").

We hereby request a determination by the U.S. Securities and Exchange

Commission (the "Commission") or the Division of Corporation Finance (the

"Division"), acting pursuant to authority duly delegated by the Commission, that the

Settling Firm should not be an "ineligible issuer" as defined under Rule 405 promulgated

under the Securities Act of 1933 (the "Securities Act") as a result of the entry of a Guilty

Plea against the Settling Firm, which is described below. Relief from the ineligible issuer

provisions is appropriate in the circumstances of this case for the reasons set forth below.

The Settling Firm requests that this determination be made effective as of the date of the

Guilty Plea.

BACKGROUND

On December 18, 2012, the United States Department of Justice, Criminal

Division, Fraud Section ("DOJ Criminal Division") and the Settling Firm entered into a

Non-Prosecution Agreement ("LIBOR NPA") related to the LIBOR Conduct, described

and defined below.

www.debevoise.com

Mary Kosterlitz, Esq.

May 20,2015

Following an initial media report in 2013 of widespread irregularities in the

foreign exchange ("FX") markets, the Settling Firm immediately commenced an internal

review of its FX business (although the article did not identify or implicate the Settling

Firm). After identifying certain issues, the Settling Firm notified the Department of

Justice that it had identified evidence of potential FX market trading coordination and

thereafter provided extensive cooperation to the Department of Justice and other relevant

regulators in connection with investigations ·[nto FX-related conduct. 1

As set forth in a Plea Agreement, dated May 20, 2015, entered into by the Settling

Firm and the DOJ Criminal Division (the "Plea Agreement"), the DOJ Criminal Division

determined that the Settling Firm had breached the LIB OR NP A. Relevant

considerations in reaching that determination included certain conduct described in

Exhibit 1 the Plea Agreement ("Factual Basis for Breach"), namely certain employees

engaged in (i) fraudulent and deceptive currency trading and sales practices in conducting

certain foreign exchange ("FX") market transactions with customers via telephone, email,

and/or electronic chat, to the detriment of the UBS AG's customers, and (ii) collusion

with other participants in certain FX markets (the "FX Conduct").

Further, the Settling Firm agreed to:

(i)

Plead guilty to a one-count Information (the "Information") in the

United States District Court, District of Connecticut (the "District

Court") charging wire fraud, in violation of Title 18, United States

Code Section 1343 and 2. The Information charges that between

approximately 2001 and in or about 2010, the Settling Firm devised

and engaged in a scheme to defraud counterparties to interest rate

derivatives transactions by secretly manipulating benchmark interest

rates to which the profitability of those transactions was tied (the

"LIBOR Conduct").

In November 2014, the Settling Firm reached settlements with the U.K. Financial Conduct Authority

("FCA") and the U.S. Commodity Futures Trading Commission ("CFTC") in connection with their

investigations into the FX Conduct, and the Swiss Financial Market Supervisory Authority

("FINMA") issued an order concluding its formal proceedings with respect to the FX Conduct and

precious metals ("PM") trading. In addition to paying fines, the Settling Firm has ongoing obligations

to cooperate with these authorities and to undertake certain remediation, including actions to improve

processes and controls and requirements imposed by FINMA to apply compensation restrictions for

certain employees and to automate at least 95% of its global FX trading. In December 2014, the

Hong Kong Monetary Authority concluded an investigation ofthe FX Conduct, and found no

evidence of collusion or manipulation but did find internal control deficiencies in the Settling Firm's

FX trading operations. In addition, the Settling Firm is currently finalizing settlements with other

regulators in connection with the FX Conduct and expects that those will result in the payment of

additional fmes and the undertaking of additional remedial measures; however, none ofthese

settlements will require relief under 17 CFR § 230.405 orl7 CFR § 200.30-l(a)(IO).

UBS WKSI

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Mary Kosterlitz, Esq.

May 20,2015

The Information charges that the Settling Firm committed wire fraud in

furtherance ofthat scheme in violation ofTitle 18, United States Code,

Sections 1343 and 2 on or about June 29, 2009 by transmitting or

causing the transmission of electronic communications, specifically:

(i) an electronic chat between a senior derivatives trader (the "UBS

Trader") employed by a subsidiary of the Settling Firm and a Londonbased interdealer derivatives broker (the "Broker"), in which the UBS

Trader requested the Broker submit an increased Yen LIB OR rate

favorable to the UBS Trader's position; (ii) a telephone call placed by

the Broker at the UBS Trader's request to a Yen LIBOR submitter at

another Yen panel bank, in which the Broker requested that the

submitter increase the panel bank's Yen LIBOR submission that day;

(iii) an electronic chat between the UBS Trader and a junior derivatives

trader employed by the Settling Firm, who also served as a Yen LIBOR

submitter for the Settling Firm (the "UBS Submitter"), in which the

UBS Trader requested that the UBS Submitter increase the Settling

Firm's Yen LIBOR submission rate to a rate favorable to the UBS

Trader's trading positions; (iv) a subsequent Yen Libor submission

from the Settling Firm to Thomson Reuters reflecting an

accommodation of the UBS Trader's request to the UBS Submitter; and

(v) a subsequent publication of a Yen LIBOR rate.

(ii)

Pay a fine of $203 million in connection with the conduct charged in

the Information.

(iii)

A three-year term of probation, in which the Settling Firm would (i) not

commit another federal crime during the term of probation; (ii)

implement and continue to implement a compliance program designed

to prevent and detect misconduct related to the benchmark interest rate

and FX markets throughout its operations including those of its

affiliates and subsidiaries and to provide annual reports to the probation

officer and the DOJ Criminal Division on its progress; (iii) further

strengthen its compliance program and internal controls as required by

other regulatory and enforcement authorities that have addressed any of

the misconduct related to the benchmark interest rate and FX markets;

(iv) submit to the DOJ Criminal Division any report drafted by any

compliance consultant or monitor imposed by the Board of Governors

of the Federal Reserve System; and (v) promptly bring to the attention

of the DOJ Criminal Division all credible evidence or allegations of

criminal conduct by the Settling Firm or any of its employees that

relate to violations of U.S. laws concerning fraud or governing

securities and commodities markets.

UBS WKSI

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Mary Kosterlitz, Esq.

May 20,2015

In turn, the DOJ Criminal Division has agreed that it will not file additional

criminal charges against the Settling Firm or any of its affiliates or subsidiaries relating to

the LIBOR Conduct or the FX Conduct.

The Applicant expects to enter a guilty plea in the District Court (the "Guilty

Plea") and expects that the District Court will enter a judgment against the Settling Firm

(the "Judgment") that will require remedies that are materially the same as set forth in the

Plea Agreement.

DISCUSSION

Effective on December 1, 2005, the Commission reformed and revised the

registration, communications, and offering procedures under the Securities Act. 2 As part

of these reforms, the Commission created a new category of issuer defined under Rule

405 as a well-known seasoned issuer ("WKSI"). A WKSI is eligible under the new rules,

among other things, to register securities for offer and sale under an "automatic shelf

registration statement," as so defined. A WKSI is also eligible for the benefits of a

streamlined registration process including the use of free-writing prospectuses in

registered offerings pursuant to Rules 164 and 43 3 under the Securities Act. These

benefits, however, are unavailable to issuers defined as "ineligible issuers"3 under Rule

405.

An issuer is an "ineligible issuer," as defined under Rule 405, if, among other

things, "[w]ithin the past three years, the issuer or any entity that at the time was a

subsidiary of the issuer was convicted of any felony or misdemeanor described in

paragraphs (i) through (iv) of section 15(b)(4)(B) ofthe Securities Exchange Act of

1934," Rule 405(1)(v). Notwithstanding the foregoing, paragraph (2) of the definition

provides that an issuer "shall not be an ineligible issuer if the Commission determines,

upon a showing of good cause, that it is not necessary under the circumstances that the

issuer be considered an ineligible issuer." The Commission has delegated authority to the

Division of Corporation Finance to make such a determination pursuant to 17 CPR §

200.30-l(a)(lO).

The Guilty Plea will be deemed to render the Settling Firm an ineligible issuer for

a period of three years after the date of the Guilty Plea. This result would preclude the

2

Securities Offering Reform, Securities Act Release No. 8591, Exchange Act Release No. 52,056,

Investment Company Act Release No. 26,993,70 Fed. Reg. 44,722,44,790 (Aug. 3, 2005).

3

This request for relief is not intended to be limited solely for the purpose of continuing to qualify as a

WKSI, but for all purposes of the definition of"ineligible issuer" under Rule 405 including but not

limited to whatever purpose the definition may now or hereafter be used under the federal securities

laws, including Commission rules and regulations.

UBS WKSI

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Mary Kosterlitz, Esq.

May20, 2015

Settling Firm from qualifying as a WKSI and having the benefits of automatic shelf

registration and other provisions of the Securities Offering Reform for three years.

As set forth above, Rule 405 authorizes the Commission to determine for good

cause that an issuer shall not be an ineligible issuer, notwithstanding that the issuer or a

subsidiary of the issuer becomes subject to an otherwise disqualifying order. The Settling

Firm believes that there is good cause for the Commission to make such a determination

based on precedent as well as the Division's Statement4 on granting such waivers, on the

following grounds:

1.

Misconduct.

(a)

The Persons Responsible for, and the Duration of, the Alleged

LIBOR

While the Settling Firm acknowledges that the misconduct alleged in the

Information occurred over a prolonged period of time (from 2001 through June 2010), it

involved only approximately 14 ofUBS' approximately 65,000 total employees;

members of senior management of UBS were not implicated in the misconduct; none of

the misconduct involved the Settling Firm's filings with the Commission (the "UBS AG

Disclosures"); and while some of the individuals involved in the trader-related conduct

described in the Exhibit 3 of the Plea Agreement ("LIBOR Statement of Facts") were

employees of the Settling Firm, none of these individuals had any responsibility for, or

role in, preparing the UBS AG Disclosures. All of the individuals at the Settling Firm

who were identified as being responsible for the conduct alleged in the Information have

either resigned or have had their employment terminated. Therefore, the misconduct

cannot be viewed as pervasive within the Settling Firm.

As none ofthe members of the Settling Firm's senior management were

implicated in the misconduct, the conduct alleged in the Information ended in 201 0 and

the individuals responsible for the misconduct are no longer employed by the Settling

Firm, we believe the foregoing discussion addresses these concerns. Finally, as noted in

the discussion concerning remedial actions, the Settling Firm has taken a number of

actions to reinforce its commitment to compliance.

4

Division of Corporation Finance, Revised Statement on Well-Known Seasoned Issuer Waivers (April

24, 2014), available at http://www.sec.gov/divisions/corpfin/guidance/wksi-waivers-interp031214.htm (the "Division Statement"). We note that the Division Statement relates to the grant of

waivers that are necessary as a result of violations of the federal securities laws. While the Judgment

does not assert any such violations, we believe that the standards set forth in the Division Statement

are relevant to its consideration ofthe request for a waiver.

UBS WKSI

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Mary Kosterlitz, Esq.

(b)

May 20,2015

FX

The Settling Firm acknowledges that the FX Conduct occurred prior to and

continuing after December 18,2012. It involved less than 10 ofUBS' approximately

65,000 total employees. Members of senior management ofUBS were not implicated in

the misconduct. The Settling Firm has taken appropriate disciplinary action against the

individuals responsible for the FX Conduct. In some cases, UBS has delayed taking final

action pending resolution of the DOJ Criminal Division's investigation in order to ensure

the ongoing cooperation of relevant individuals.

As none of the members of the Settling Firm's senior management were

implicated in the misconduct, the conduct alleged has ended, and UBS has already taken

or intends to take appropriate disciplinary action we believe the foregoing discussion

addresses these concerns. Finally, as noted in the discussion concerning remedial

actions, the Settling Firm has taken a number of actions to reinforce its commitment to

compliance.

2.

Role of Individuals in Preparing UBS AG Disclosures.

In addition, none of the LIBOR or FX Conduct pertains to activities undertaken

by the Settling Firm, its affiliates, or its subsidiaries in connection with its filings with the

Commission (the "UBS AG Disclosures"). Nor did any of the individuals have any

responsibility for preparing the UBS AG Disclosures. There is no connection between

the alleged conduct and the integrity ofUBS AG Disclosures made by the Settling Firm

or any of its affiliates, with respect to the business or operations ofthe Settling Form or

any of its affiliates as issuers.

The Settling Firm has rigorous procedures relating to the preparation of its filings

with the Commission. Input from functions preparing preliminary drafts of disclosures

was and is subject to challenge, comment and revision by a number of functions

including investor relations, accounting, legal, risk control and communications under the

management ofthe Group External Reporting team. The disclosure process subject to the

oversight of the Group Disclosure Committee, which reviews material changes in

disclosure or new disclosures, disclosure aspects of changes in accounting and reporting

requirement and assessing identified areas of particular risk or sensitivity. The

Disclosure Committee is chaired by the Group Chief Financial Officer and includes the

Group CEO, Group Chief Risk Officer and Group General Counsel and well as

representatives of Group External Reporting, Finance, Investor Relations, Legal and

Corporate Communications.

Moreover, neither the Information relating to LIBOR conduct nor the Factual

Basis for Breach involves any allegations that the Settling Firm committed scienter-based

violations of the Securities Act or the Exchange Act in respect of the conduct.

UBS WKSI

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Mary Kosterlitz, Esq.

3.

Remedial Steps Taken.

(a)

LIBOR Conduct

May 20,2015

After extensive investigation, the Department of Justice and the Settling Firm

have negotiated a settlement reflected in the Plea Agreement. The Settling Firm has

agreed to comply with several undertakings pursuant to the Plea Agreement, including,

among other things, the undertakings and payment of the fine described above.

The Settling Firm has previously agreed to various undertakings pursuant to

investigations and settlements with the authorities in the United States, the United

Kingdom, Japan, Singapore, Hong Kong, and Switzerland related to the LIBOR Conduct.

UBS paid fines and disgorgements totaling CHF 1.4 billion to U.S., U.K. and Swiss

authorities to resolve investigations related to the LIBOR Conduct, including $500

million to the Department of Justice, GBP 160 million to the FCA, and CHF 59 million to

FINMA.

Further, in connection with an Order dated December 19, 2012, issued by the

CFTC with respect to the matters described therein, UBS agreed to extensive

undertakings to ensure the integrity and reliability of its benchmark interest rate

submissions by (i) determining its submissions based on specific factors, adjustments and

considerations; (ii) conducting supervisory review of each daily submission; (iii) ensuring

minimum qualifications of submitters and supervisors; (iv) implementing firewalls to

prevent improper communications and submissions; (v) providing certain documents to

the CFTC upon request and without a subpoena; (vi) developing and maintaining

monitoring systems and performing periodic internal audits and annual external audits;

(vii) developing policies, procedures and controls to comply with the undertakings; and

(viii) developing a training program for all submitters and supervisors and traders who

deal with the benchmark interest rate; and (ix) making periodic reports to the commission

on compliance with the undertakings. The Settling Firm has complied with these

undertakings and submitted a final report to the CFTC on December 18, 2013. The

Settling Firm has also complied with additional undertakings imposed by FINMA.

In addition to the specifics steps taken to fulfill the CFTC undertakings, lessons

learned from the LIBOR matter drove the Settling Firm to have much greater focus

overall on supervising, monitoring and surveillance of intra-day conduct and behaviors to

complement the end-of-day control framework that was then prominent. The firm-wide

Principles and Behaviors program, sponsored by the Group Chief Executive Officer is

designed to significantly strengthen three core behaviors across the firm (Integrity,

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Mary Kosterlitz, Esq.

May 20,2015

Collaboration, and Challenge) to strengthen the culture and foster greater alignment to

protecting the firm's reputation and ensuring long-term and sustainable performance. In

2013, the Group Chief Executive Officer's decision to integrate the Compliance function

with Operational Risk Control was an important step in bringing a risk management

approach and control discipline to the Compliance activities in the second line of defense.

It has enabled the Settling Firm to clarify the roles, responsibilities and control

expectations for the 2nd line of defense and supports the implementation of an industry

leading monitoring and surveillance capability.

Based on the lessons learned from the LIBOR investigation itself, the Settling

Firm significantly tightened the coordination and governance over high risk legal,

regulatory or conduct matters, including establishing a cross-functional investigations

sounding board, assigning leadership accountability aligned to the potential tail risk

should any allegation or speculation prove to be true, and applying the learnings across

the organization. This serves as an important component of the overall compliance

program. Fully leveraging this very protocol led to the firm investigating the initial

allegations in the media which led to the firm identifying the FX issue and everything

that followed.

(b)

FX Conduct

As noted above, after learning of potentially inappropriate practices in the FX

industry in media reports in June of2013- none of which specifically mentioned the

Settling Firm - a newly formed Investigations Sounding Board launched an internal

investigation into potential misconduct in the FX spot markets. From early on in its

investigation, the Settling Firm consistently provided the Department of Justice with

detailed, real-time reports of its investigation findings and repeatedly solicited the

Department's input and approval of changing investigation priorities and altered

significantly the investigation plan on different occasions at the request of the

Department. The Settling Firm believes that it was the first bank to report FX

misconduct to the Department of Justice and other authorities.

While the Settling Firm believes that its control environment for FX rates during

the investigation period was proportionate to prevailing industry standards and the

systems and controls of peer institutions, the Settling Firm has adopted significant

remedial measures to address problems that it identified. In fact, the Settling Firm is

making a significant investment in adopting measures to align its FX business with many

of the same standards in place for its business in fully regulated markets.

UBS WKSI

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Mary Kosterlitz, Esq.

May 20,2015

First, since the early stages ofthe FX investigation, the Settling Firm has been

transitioning its FX business to adopt principles, systems, and controls more akin to that

of regulated markets. For example, the Settling Firm is introducing continuous

transaction monitoring and detailed time stamping of orders to ensure it can conduct

additional forensic analysis of trading activity. These initiatives, although requiring

significant further investment in overhauling systems and processes, are developed,

funded, and in place.

Second, following detection of the FX issues, the Settling Firm conducted an indepth review of the FX business to identify areas in need of improvement. Since then,

the Settling Firm has undertaken actions to significantly improve compliance monitoring,

intraday supervision and operational risk management assessment to more swiftly detect

inappropriate activity. For instance, the Settling Firm has made the following

improvements:

Strengthened Front Office Processes

•

•

•

•

•

•

•

•

•

•

•

Standardized the fixing order process

Closed FX management books

Instituted a formal process of review and supervision of enhanced conduct risk

Designed brokerage management information in order to facilitate the

identification of possible collusion between FX traders and brokers

Recalibrated the FX "business owned limits" to align them to market risk appetite

and historical utilization

Reviewed the FX supervisory hierarchy

Revised guidance on handling client error

Improved the consistency of disclosing trading conflicts in Terms and Conditions

to clients

Updated chat room standards and controls, which were implemented in November

2013

Prohibited the use of personal mobile phones on trading floors for all Investment

Bank sales and trading staff

Implemented a series of measures to manage obligations and expectation to

clients and markets over potential conflicts of interests

Strengthened Front Office Systems

•

As of December 2014, implemented an enhanced booking and risk management

workflow for all FX prime brokerage cash trades, fully segregating prime

brokerage components of trades from FX sales and trading

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Mary Kosterlitz, Esq.

May 20,2015

Enhanced Guidance and Training

•

•

•

Significantly strengthened its "FX, Rates & Credit Global Handbook," which

includes new sections covering client and market conduct requirements, behavior,

and communication

Mandatory training (both live and computer-based) linked to these guidelines has

been completed for all Investment Bank sales and trading staff globally; this

training is mandatory for all Investment Bank staff, including new joiners

FX management has completed a full review of the content of the "FX, Rates &

Credit Global Handbook" against existing Key Procedural Controls, with new

controls being implemented where required

The Settling Firm has taken disciplinary actions (including terminations,

suspensions and significant penalties related to compensation against these individuals)

against employees who were found through the FX investigation to have engaged in

misconduct, who failed to effectively execute their supervisory duties, or who uniquely

and materially contributed to key control deficiencies.

In addition to the significant remedial measures the Settling Firm has already

adopted, the Settling Firm has also agreed to specific remediation undertakings in

connection with the November 2014 government resolutions. In connection with the

CFTC order described above in footnote 1, the Settling Firm represented that it had

already undertaken certain steps intended to make reasonable efforts to ensure the

integrity of the FX markets including, but not limited to, the following: (i) strengthening

mandatory training requirements for all FX employees, with a heavy focus on appropriate

trading behavior; (ii) implementing new procedures regarding the appropriate use of chat

rooms as a form of communication, including the prohibition of nearly all participation

by Investment Bank staff in multi-bank chat rooms; and (iii) strengthening supervision

and surveillance of FX trading desks, including the ongoing introduction of specific trade

surveillance systems and enhancements to electronic communication monitoring.

In connection with the FCA settlement, the Settling Firm must conduct an audit of

the following areas to ensure its culture, governance arrangements, policies, procedures,

systems, and controls are appropriate and adequate to effectively manage specific risks

with respect to the FX business: (i) front office culture; (ii) the adequacy of the first line

of defense (i.e. the risk and control environment relating to daily operations, including

monitoring of traders' activity and conduct); (iii) the adequacy of the second and third

lines of defense (e.g. compliance, audit, risk); (iv) the adequacy of the challenge of risk

management by the second and third lines of defense; (v) the role and appropriateness of

financial incentives and performance management; (vi) the adequacy of training for the

specific relevant business area; (vii) the adequacy of communications monitoring and

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Mary Kosterlitz, Esq.

May 20,2015

surveillance; (viii) the adequacy of the management of conflicts of interest; and (ix)

benchmarks, whether trading, judgment, or submissions based, which fall within any of

these business areas. If this audit identifies any areas requiring improvement, the Settling

Firm must implement appropriate remedial action.

In connection with the FINMA order, the Settling Firm must (i) automate at least

95% of global FX and PM trading by December 31, 20 16; (ii) implement and improve

controls with respect to the remaining FX voice trading; (iii) implement adequate

monitoring, supervision, and analysis instruments with respect to market abusive conduct

in the Investment Bank; (iv) implement and improve control measures to avoid conflicts

of interest between client trading and the active proprietary trading (i.e., the trading of

traders' own positions on behalf of the bank, independent of risk management/hedging in

connection with client orders), including the organizational and personnel separation of

client and active proprietary trading; (v) clarify guidelines on personal account dealing,

expand controls and oversight of personal account dealing, and enhance sanctions for

violations of these guidelines; (vi) conduct an annual review of the compensation process

within the Investment Bank through an internal audit regarding the impact of the

compliance and risk conduct of employees on their compensation, as well as on the

adequacy of senior management decisions made during the process, for a period of two

years from fiscal year 2014;(vii) implement a maximum annual variable salary

component of twice the fixed annual income (2:1) for the FX and PM trading business for

a period of two years from fiscal year 2014; (viii) implement of a maximum annual

variable salary component of twice the fixed annual income (2:1) for persons with a total

salary of over CHF 1 million in the Investment Bank for a period of two years from fiscal

year 2014 (although there may be exceptions based on adequate consideration of

employee conduct and the adherence to compliance objectives); and (ix) strengthen the

whistleblower process.

In addition, in connection with other settlements currently being finalized with

other regulators, the Settling Firm expects to make a number of significant undertakings

that address its internal controls and compliance program and its compliance risk

management program.

Also in connection with these resolutions, the Settling Firm has paid a total of

CHF 774 million, including GBP 234 million in fines to the FCA, $290 million in fines

to the CFTC, and CHF 134 million to FINMA representing confiscation of costs avoided

and profits.

(c)

UBS WKSI

Additional Firmwide Reform

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Mary Kosterlitz, Esq.

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The work undertaken in relation to FX is part of a much broader program focused

on strengthening front office processes and systems, and enhanced guidance and training.

This includes (i) transactional monitoring to cover all asset classes and client and

proprietary flows; (ii) enhanced monitoring of electronic communications to cover all email flow and chat channels in all jurisdictions; (iii) preliminary monitoring of audio

communications; (iv) trader surveillance to monitor and detect rogue trading; (v)

monitoring and assessment of employee behavioral indicators to identify outliers; (vi)

expanded cross border monitoring that goes beyond the traditional control-based

monitoring; and (vii) improved processes associated with the firm's whistleblowing

policy.

In addition, the Settling Firm's incentive and compensation structure has been

reformed to ensure that inappropriate behavior is not incentivized and that there are

consequences for misconduct. The Settling Firm believes that it was the first in the

industry to implement longer compensation deferral periods and greater clawback

powers. For employees whose compensation exceeds a certain level, a significant portion

of their performance award is deferred up to five years and includes forfeiture provisions

for material misconduct. In addition, the Settling Firm considers compliance related

violations, for example failure to complete mandatory training on time or failure to

comply with personal account dealing policy, in an individual's performance review, and

repeat violations can lead to sanctions.

(d)

Past Waivers from Being Considered an Ineligible Issuer

The Commission has previously granted the Settling Firm and its affiliates six

waivers from being considered an ineligible issuer, five of which, as discussed in the

bullets below, were in connection with conduct wholly unrelated to the conduct alleged in

the Information. The waiver in connection with United States of America v. UBS

Securities Japan Co. Ltd., related to the same facts that are alleged in the Information and

was granted by the Commission to an affiliate of the Settling Firm on September 13,

2013, more than two years after the Settling Firm had ceased the conduct alleged in the

Information.

Four of the other waivers were granted by the Commission after the Settling Firm

had ceased the conduct alleged in the Information. Only the waiver granted on December

9, 2008 (the "2008 Waiver") was granted while the conduct alleged in the Information

was occurring, but as it related to conduct unrelated to the conduct alleged in the

Information, the remedial measures put in place by the Settling Firm as a result of the

2008 Waiver could not have prevented, led to an earlier discovery of, or raised red flags

about the conduct alleged in the Information.

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Mary Kosterlitz, Esq.

May 20,2015

•

In the Matter of Auction Rate Securities Liquidity Issues (File No. H0-10915A) (Dec. 9, 2008) related to alleged conduct by UBS Financial Services Inc.

("UBSFS") and UBS Securities LLC ("UBSS") in connection with the

underwriting, marketing and sale of auction rate securities. This matter

alleged that UBSS and UBSFS misled investors into believing that auction

rate securities were safe, highly liquid investments that were equivalent to

cash or money-market funds.

•

SEC v. UBS Financial Services Inc. (P-01118) (May 6, 2011) related to the

activity of former employees ofUBSFS with respect to the temporary

investment of proceeds of municipal securities in reinvestment products such

as guaranteed investment contracts, repurchase agreements, and forward

purchase agreements. The otherwise disqualifying order alleged that former

employees of UBSFS engaged in bidding practices that affected the prices for

certain of the reinvestment products at issue and the certifications required

under applicable regulations. The employees ofUBSS involved in the activity

described in the order did not have any role with respect to the UBS ATS.

•

In the Matter ofUBS Financial Services Inc. of Puerto Rico (FL-3491) (May

10, 20 12) related to conduct by UBS Financial Services Inc. of Puerto Rico

("UBSPR") in connection with secondary market sales of mutual funds to

residents of Puerto Rico. The order alleged that UBSPR made

misrepresentations and omissions concerning market prices and liquidity of

certain non-exchange traded closed-end mutual funds.

•

In the Matter ofUBS Securities LLC (NY-8353) (Aug. 6, 2013) related to the

alleged failure to disclose retention of certain upfront premiums in connection

with credit default swaps referenced as collateral in a collateralized debt

offering that was sold to accredited investors. The employees ofUBSS

involved in the activity described in the order did not have any role with

respect to the UBS ATS.

•

United States of America v. UBS Securities Japan Co. Ltd. (Sep. 13, 2013)

involved the manipulation of benchmark interest rates by UBS Securities

Japan Co. Ltd. ("UBSJC"). The conduct was limited to approximately

fourteen employees, none of whom was responsible for preparing the UBS

AG Disclosures and all of whom resigned or had their employment

terminated. UBSJC implemented extensive remedial measures to enhance its

compliance environment and risk monitoring, including a comprehensive

micro level review of its business divisions and processes, installation of a

UBS WKSI

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Mary Kosterlitz, Esq.

May 20,2015

dedicated communications monitoring team, adoption of amended

employment rules and supervisory procedures, and enhanced training

regarding, among other things, full compliance with UBSJC's Code of

Conduct and obligation to report inappropriate activities. As a result of an

order entered by the U.S. Commodity Futures Trading Commission in

December 2012, the Settling Firm also agreed to comply with significant audit

and monitoring conditions of its interest-rate benchmark submissions.

•

In the Matter ofUBS (NY-8692) (January 15, 2015) related to the failure by

an affiliate of the Settling Firm to timely disclose to all subscribers of an

automated trading system (the "ATS") two new features of the ATS.

As demonstrated above, none of the conduct alleged in the six otherwise

disqualifying orders related to the Settling Firm's conduct or the conduct of its affiliates

as an issuer of securities and does not call into question the Settling Firm's ability to

make accurate disclosures about its future offerings. Accordingly, the conduct alleged in

the Information does not call into question the effectiveness of the Settling Firm's prior

remedial measures.

4.

Impact on the Settling Firm if the Waiver Request is Denied.

The loss of the Settling Firm's status as an eligible issuer could, as described in

more detail below, affect the Settling Firm's ability to conduct its structured products

businesses, which could potentially harm investors and the market as a whole. This

would be an unduly severe consequence, particularly in light of the fact that the conduct

charged in the Information does not involve the issuance ofUBS securities.

The Settling Firm is a global financial institution that relies on the benefits

afforded to well-known seasoned issuers in its day-to-day operations. Being a wellknown seasoned issuer provides two primary benefits: (1) additional flexibility over a

Form F-3 when issuing from a shelf registration; and (2) the ability to communicate more

freely with investors using free-writing prospectuses ("FWPs").

The Settling Firm regularly relies on its eligible issuer status to offer securities

using its shelf registration. Losing its status as a well-known seasoned issuer would

impose additional restrictions on the Settling Firm's use of a shelf registration statement.

Among other things, the Settling Firm would be required to pay all fees upfront at the

time of registration and include additional information in its registration statements.

Further, the Settling Firm's registration statements would be subject to a review period.

All of these consequences would impose additional administrative burdens on the

Settling Firm.

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Mary Kosterlitz, Esq.

May 20,2015

Another impact of being considered an ineligible issuer, however, would be the

limitations on the Settling Firm's ability to communicate with investors using freewriting prospectuses ("FWPs"), which convey targeted and relevant information to

customers in a user-friendly format that is often easier to understand than the typically

dense statutory prospectus. The SEC has recognized that investors and the securities

markets benefit from the use of FWPs, which among other things facilitate greater

transparency to investors. 5

The Settling Firm currently employs user-friendly FWPs to offer securities on an

almost daily basis. In 2014, the Settling Firm issued securities in 2,986 offerings, only 31

of which did not use an FWP. The aggregate principal amount ofthe 2,955 offerings in

which the Settling Firm used some form ofFWP was approximately $2.865 billion. In

each of these offerings, UBS used at least one document that was filed as an FWP. While

some of these documents could be reformatted to comply with the requirement of Section

10(b), the loss of its eligible issuer status would limit the Settling Firm's ability to market

the products offered by its exchange-traded note ("ETN") and structured product

businesses.

(a)

Exchange-Traded Notes.

The Settling Firm is an active issuer ofETNs, which are fixed term debt securities

indexed to the performance of a reference index. The Settling Firm currently offers 33

ETNs and regularly produces written materials in FWP format to provide investors with

summary information regarding those ETNs. The Settling Firm relies on its ability to

post fact sheets, press releases and email distributions on its website to provide

transparency to ETN investors regarding performance and income payments. Each of

these forms of communication is a permitted form of FWP that is filed with the SEC.

These documents are primarily communicated to investors through the Settling Firm's ETRACS website. Other than the fact sheets, these FWPs would no longer be eligible to

use as FWPs if the Settling Firm is deemed an ineligible issuer, requiring the Settling

Firm to implement changes to its communications and E-TRACS systems. Among other

things, the Settling Firm anticipates that ineligible issuer status would require it to modify

its informational E-TRACS website. Inability to use FWPs also could result in

redemptions of the Settling Firm's ETNs by investors who prefer to invest in ETNs

issued by companies that can provide user-friendly, summary information in FWP

format.

Securities Offering Reform, Securities Act Release No. 8501 (Nov. 3, 2004)

UBS WKSI

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Mary Kosterlitz, Esq.

(b)

May 20,2015

UBS Equity Investor System.

Loss of WKSI status would also require the Settling Firm to modify the FWPs

used in its structured products business to either cause such documents to conform to the

requirements of Section 10, or to otherwise cause them not to be FWPs. Most of the

FWPs for the Settling Firm's structured products are generated by its Equity Investor

System ("EQI"), which is an automated system used to price and issue multiple

structured product offerings daily based on input from investors. EQI uses embedded

risk management parameters and documentation templates to automatically generate

pricing terms and preliminary and final offering documentation. FWPs and prospectus

supplements generated by EQI are automatically filed with EDGAR upon use. The

Settling Firm would have to modify and recode certain FWP templates to enable it to

make such documents into Section 10-compliant prospectuses. In the case of educational

materials such as product guides, these modifications would result in a less user-friendly

format than is currently available as FWPs.

EQI-generated offerings represent a majority of the Settling Firm's structured

product business by number of offerings. Of the 2,986 offerings by the Settling Firm in

2014, 2,425, or approximately 81 percent, were generated using EQI. EQI allows the

Settling Firm to meet investor demand by creating offerings smaller than $1 million,

allowing greater, customized investor access to structured notes. The average EQI

offering has a principal amount of around $250,000. These small-denomination offerings

provide investors with customized investment opportunities.

(c)

Other Structured Products.

The Settling Firm also utilizes FWPs to market structured products outside of the

EQI system. In 2014, the Settling Firm offered 561 structured products with an aggregate

principal amount of approximately $2.492 billion in registered non-EQI offerings, and

utilized FWPs in approximately 94% of these offerings. All ofthese offerings use,

among other things, a preliminary prospectus filed as an FWP, which would require

reformatting to conform to statutory prospectus requirements.

The Settling Firm believes that an inability to utilize most documents as FWPs

could trigger its removal from the competitive bidding process for certain third-party

distributors due to its inability to produce FWPs. Third-party distributors frequently

request that the Settling Firm provide a one-to-two-page FWP as part of the investor

package. As an ineligible issuer, the Settling Firm could be unable to participate in the

bidding for these offerings to the extent any such FWP cannot be reformatted to comply

with the requirements of Rule 164(e).

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Mary Kosterlitz, Esq.

May 20,2015

Accordingly, for the Settling Firm, the shelf registration process and the ability to

utilize FWP's provides an important means of access to the U.S. capital markets.

Consequently, the ability to avail itself of automatic shelf registration and the other

benefits available to a WKSI is extremely important to the Settling Firm's ability to raise

capital and conduct its operations. In this regard, denying this waiver request would be

unduly and disproportionately severe given that if the requested relief is not granted, the

Settling Firm would incur substantial additional regulatory burdens and costs for conduct

that has been discontinued and remedied.

In light of the foregoing, subjecting the Settling Firm to ineligible issuer status is

not necessary under the circumstances, either in the public interest or for the protection of

investors, and good cause exists for the grant of the requested relief. Accordingly, we

respectfully request that the Commission, or the Division of Corporation Finance, acting

pursuant to authority duly delegated by the Commission and pursuant to paragraph (2) of

the definition of "ineligible issuer" in Rule 405, determine that under the circumstances

the Settling Firm will not be considered an "ineligible issuer" within the meaning of Rule

405 as a result of the Guilty Plea and the entry of the Judgment. 6 We further request that

this determination be made (i) as of the date of the Guilty Plea and (ii) for all purposes of

the definition of "ineligible issuer," however it may now or hereafter be used under the

federal securities laws and the rules thereunder.

6

We note in support ofthis request that the Division of Corporation Finance, acting pursuant to

authority duly delegated by the Commission, has in other instances granted relief under Rule 405 for

similar reasons. See, e.g., Waiver Requests oflneligible Issuer Status under Rule 405 of the

Securities Act were granted for: Deutsche Bank AG (May 1, 2015); Deutsche Bank AG (April23,

2015); UBS AG (January 15, 2015); Citigroup Inc. (September 26, 2014); Barclays PLC (September

23, 2014); Morgan Stanley (July 24, 2014); AEGON N.V. (June 24, 2014); The Royal Bank of

Scotland Group pic (April25, 2014); Nomura Holdings Inc. (January 2, 2014); Bank of America

Corporation (December 12, 2013); Fifth Third Bankcorp (December 4, 2013); The Royal Bank of

Scotland Group pic (November 26, 2013); UBS AG (September 19, 2013); UBS AG (August 6,

2013); Oppenheimer Holdings, Inc. (March 26, 2013); JPMorgan Chase & Co. (January 8, 2013);

Credit Suisse AG (November 16, 2012); Wells Fargo & Company (August 14, 2012); UBS AG (May

10, 2012); JPMorgan Chase & Co. (July 11, 2011); UBS AG (May 6, 2011); Wells Fargo Securities,

LLC (April 7, 2011); Goldman Sachs Group, Inc. (July 23, 2010); Deutsche Bank Securities, Inc.

(June 16, 2009); Royal Bank of Canada (June 11, 2009); UBS Financial Services Inc. (December 23,

2008); Bank of America (May 1, 2008); Morgan Stanley (May 11, 2007); Bane of America Securities

LLC (March 14, 2007); Bank ofNew York (January 9, 2007); and Deutsche Bank, AG (January 9,

2007).

UBS WKSI

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May 20,2015

Mary Kosterlitz, Esq.

If you have any questions regarding this request, please contact me at (212) 9096036.

A e r e l y yours,

Q~e~y

UBS WKSI

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