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5. AS INDICATION OF WHAT WE REGARD AS FAIR AND REASONABLE, WE HAVE STATED IN PARA 2 OF OUR TEL NO 357 OF 10 APRIL THAT A PURELY ACCIDENTAL BREACH IS ONE WHICH COULD NOT REASONABLY HAVE BEEN FORESEEN OR PRUDENTLY PROVIDED AGAINST. THIS IS IN NO SENCE A RESTRICTION OF THE NOVEMBER FORMULA SINCE IT WOULD PLAINLY BE A DISTORTION OF THE LANGUAGE OF THAT FORMULA TO TREAT AS PURELY ACCIDENTAL A BREACH THAT COULD REASONABLY HAVE BEEN FORESEEN OR PRUDENTLY PROVIDED AGAINST. WE INSTANCED AS AN EXAMPLE OF A PPURELY ACCIDENTAL BREACH ONE RESULTING FROM A SUBSTANTIOAL FALL IN THE PRICE OF GILTS IN, SAY, THE LAST TWO OR THREE DAYS OF THE MONTH: BUT THIS IS CERTAINLY NOT INTENDED TO INDICATE THE ONLY CIRCUMSTANCE IN WHICH A PURELY ACCIDENTAL
BREACH MIGHT ARISE.
6.
AS TO FORESIGHT AND TO PRUDENCE IN RELATION TO THE WORKING OF THE PRESENT GUARANTEE, THE MAINTENANCE OF A MINIMUM PRUDENTIAL MARGIN WOULD OBVIOUSLY REDUCE THE RISK OF FUTURE BREACHES AND, AS A RESULT OF THE REDUCTION IN MSP, WOULD PRESUMABLY INVOLVE LESS DIFFICULTY FOR YOU THAN PREVIOUSLY. PLAINLY THE ADEQUACY OF ANY PARTICULAR MARGIN IN THIS RESPECT WILL VARY INVERSELY WITH THE DEGREE OF SURVEILLANCE THAT IT IS FOUND ON OTHER GROUNDS APPROPRIATE TO EXERCISE COVER THE RESERVE PORTFOLIO. THE BANK CONSIDER THAT IT SHOULD BE POSSIBLE FOR YOU TO HAVE A BETTER SERVICE THAN IS DESCRIBED IN PARA 6 OF YOUR TELNO 594 AND WOULD BE WEILLING TO LOOK INTO THIS IF YOU WISH.
7. YOU QUESTION WHETHER IT IS NECESSARY THAT THE TERMS OF THE GUARANTEE BE SO FRAMED AS TO REQUIRE PURCHASES OF STERLING IN CERTAIN CIRCUMSTANCES. THE ANSWER IS THAT THE GUARANTEE CONTINUES TO BE SPECIFIED FOR ALL PARTICIPANTS ON THE BASIS OF MSPS FIXED IN ADVANCE, AND PROVISION IS ACCORDINGLY NEEDED FOR THEIR MAINTENANCE. OTHER GUARANTEE ARRANGEMENTS MIGHT BE CONCEIVED, NOT INVOLVING MSPS, WHICH MIGHT BETTER SUIT THE CIRCUMSTANCES OF INDIVIDUAL HOLDERS IN PARTICULAR RESPECTS,
BUT WE JUDGED AND CONTINUE TO THINK THAT THE PRESENT ARRANGEMENT (INCORPORATING A SUBSTANTIAL CUT IN MSPS) IS THE MOST APPROPRIATE IN ALL THE CIRCUMSTANCES.
CALLAGHAN
ORWELL DISTRIBUTION
FRD HKIOD
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