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CORRESP
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correspondence

  AB

  UBS AG

  Postfach

  8098 Zürich

  Tel. +41-44-234 11 11

  Corporate Center

  Group CFO Management

  Kirt Gardner

  Tel. +41-44-237-3791

  kirt.gardner@ubs.com

  www.ubs.com

October
14, 2016

Mr.
Christian N. Windsor

Special
Counsel

Office
of Financial Services

Securities
and Exchange Commission

100
F Street, NE

Washington
DC 20549-1090

Re:
      UBS Group AG

UBS
AG

Form
20-F for Fiscal Year Ended December 31, 2015

Filed
March 18, 2016

Form
6-K dated July 29, 2016

File
Nos. 1-36764 and 1-15060

UBS AG
HAS CLAIMED CONFIDENTIAL TREATMENT OF PORTIONS OF THIS LETTER IN ACCORDANCE
WITH 17 C.F.R. §200.83

Dear Mr.
Windsor:

We
respectfully submit a response to your letter dated September 29, 2016 from the
staff of the Securities and Exchange Commission relating to Form 20-F for the
Fiscal Year Ended December 31, 2015, filed March 18, 2016, and Form 6-K dated
July 29, 2016.

1.    "In
your letter to us dated September 30, 2013, you described contacts with Syria
and Sudan. As you are aware, Syria and Sudan are designated by the U.S.
Department of State as state sponsors of terrorism and are subject to U.S.
economic sanctions and export controls. Your Form 20-F does not include
information about those countries. Please describe to us the nature and extent
of your past, current, and anticipated contacts with Syria and Sudan since your
2013 letter, whether through subsidiaries, affiliates, customers or other
direct or indirect arrangements. You should describe any products, services, or
technology you have provided to Syria and Sudan, directly or indirectly, and
any agreements, commercial arrangements, or other contacts with the governments
of those countries or entities they control."

***
CONFIDENTIAL TREATMENT REQUESTED UNDER RULE 83 ***

  AB

  CONFIDENTIAL TREATMENT REQUESTED BY UBS AG

  UBS
  Group AG

  UBS AG

  Form
  20-F for Fiscal Year Ended December 31, 2015

  Filed
  March 18, 2016

  Form 6-K
  dated July 29, 2016

  File
  Nos. 1-36764 and 1-15060

  Page 2 of 6

2.    "Please
discuss the materiality of any contacts with Syria and Sudan you describe in
response to the comment above, and whether those contacts constitute a material
investment risk for your security holders. You should address materiality in
quantitative terms, including the approximate dollar amounts of any associated
revenues, assets, and liabilities for the last three fiscal years and the
subsequent interim period. Also, address materiality in terms of qualitative
factors that a reasonable investor would deem important in making an investment
decision, including the potential impact of corporate activities upon a
company’s reputation and share value. As you know, various state and municipal
governments, universities, and other investors have proposed or adopted
divestment or similar initiatives regarding investment in companies that do
business with U.S.-designated state sponsors of terrorism. You should address
the potential impact of the investor sentiment evidenced by such actions
directed toward companies that have operations associated with Syria and
Sudan."

***
CONFIDENTIAL TREATMENT REQUESTED UNDER RULE 83 ***

  AB

  CONFIDENTIAL TREATMENT REQUESTED BY UBS AG

  UBS
  Group AG

  UBS AG

  Form
  20-F for Fiscal Year Ended December 31, 2015

  Filed
  March 18, 2016

  Form 6-K
  dated July 29, 2016

  File
  Nos. 1-36764 and 1-15060

  Page 3 of 6

3.    "Please
address the following regarding your disclosure that you have changed your
definition of cash and cash equivalents to exclude cash collateral receivables
on derivative instruments with bank counterparties".

3.1  "Please
describe the drivers for this change in classification. As part of your
response, tell us how you considered paragraph 7 of IAS 7 in determining your
treatment of these receivables before and after the change."

IAS 7,
paragraph 6, defines cash equivalents as short-term, highly liquid investments
that are readily convertible to known amounts of cash and which are subject to
an insignificant risk of change in value. IAS 7 also refers to activities that
form an integral part of an "entity's cash management" and are
included as a component of cash and cash equivalents, as they are held for the
purpose of meeting ‘’short term cash commitments rather than for investment or
other purposes"(IAS 7 paragraph 7).

Prior
to applying the change, UBS had taken the view that cash collateral receivables
on derivatives with bank counterparties meet the definition of cash equivalents
as (i) the cash receivable represents cash delivered to satisfy short term cash
commitments arising from derivative trading activity; and (ii) a significant
portion of the Group's over-the-counter, or OTC, derivative agreements
permitted either party to post either cash or eligible securities to meet
margin requirements.

Further,
since January 2015, UBS is subject to the Liquidity Coverage Ratio
("LCR") requirements of the Basel III framework, as adopted by
Switzerland and its banking regulator FINMA, on a consolidated basis as well as
for its Swiss Systemically Relevant Banks, UBS AG and UBS Switzerland AG, each
on a standalone basis. Please refer to page 235 in our Annual Report 2015. The
objective of the LCR is to promote the short-term resilience of the liquidity
risk profile of banks by ensuring that banks have an adequate stock of
unencumbered high-quality liquid assets, or HQLA, which can be easily converted
in private markets to cash in order to meet their liquidity needs for a 30
calendar day liquidity stress scenario.  We have reviewed the determination of
cash equivalents in light of (i) the Basel III LCR framework, which does not
include cash collateral on derivative instruments in the definition of HQLA;
and (ii) the change in standard terms of new collateral agreements for OTC
derivatives that generally no longer permit cash collateral to be replaced by
securities collateral, and, based on such review, voluntarily refined our
definition of cash equivalents accordingly. This in our view enhances the
relevance and consistency of information provided in the statement of cash
flows.

This
change in our statement of cash flows had no impact on other primary financial
statements or any other Group regulatory measure, including Capital, Capital
ratios, Leverage Ratio and Liquidity Coverage Ratio.

3.2  "Tell
us the duration terms of the derivative contracts which are collateralized by
the cash receivables formerly treated as cash equivalents."

The cash
collateral receivables on derivative instruments with banks represent cash that
has been transferred under an ISDA Credit Support Annex ("CSA") to
margin bilateral OTC derivatives. The individual derivatives have varying
contractual maturities as detailed below.  The credit risk associated with
these contracts is managed on a daily basis by counterparty across the various
derivative products, maturities and currencies subject to the same CSA
agreement. UBS

  AB

  CONFIDENTIAL TREATMENT REQUESTED BY UBS AG

  UBS
  Group AG

  UBS AG

  Form
  20-F for Fiscal Year Ended December 31, 2015

  Filed
  March 18, 2016

  Form 6-K
  dated July 29, 2016

  File
  Nos. 1-36764 and 1-15060

  Page 4 of 6

treats
and discloses these derivatives as "on demand" instruments. Please
refer to our Annual Report 2015 Note 27b Maturity analysis of financial
liabilities.

The
contractual maturities of derivative instruments with bank counterparties as of
31 December 2015 were as follows: Positive Replacement Values: 21% up to 3
months; 15% 3-12 months; 31% 1-5 years; and 33% over 5 years. For Negative
Replacement Values: 22% up to 3 months; 16% 3-12 months; 32% 1-5 years; and 31%
over 5 years.

3.3  "Clarify
whether all cash collateral receivables from banks for your derivative
contracts were formerly included in cash equivalents or only a subset of your
cash collateral receivables meeting certain parameters. Please identify any
such parameters in your response."

We
can confirm that all cash collateral receivables on derivative instruments with
bank counterparties were formerly included in cash equivalents. Please refer to
our Annual Report 2014 statement of cash flows (footnote 2 page 404) and Note
11 for a breakdown of our cash collateral receivables on derivative instruments
(page 440).

4.    "We
note your disclosure that effective June 30, 2016 you elected to convert your interest
rate swaps transacted with the London Clearing House ("LCH") from the
previous collateral model to a settlement model. Your disclosure goes on to
state that the interest rate swaps are now legally settled on a daily basis
resulting in the derecognition of the associated assets and liabilities, and
the effect of this change as of June 30, 2016 is a CHF 93 billion reduction in
gross cash collateral receivables and payables on derivative instruments and
corresponding netting presented in Note 12. Please address the following:

4.1  "Tell
us in more detail the specific terms that changed as a result of the conversion
that resulted in the interest rate swaps now being considered legally settled
on a daily basis. As part of your response, please tell us whether the timing
or amount of cash flows related to the interest rate swaps has changed."

LCH made
significant amendments to its rules that became effective on December 17, 2015.
These amendments were approved by the Bank of England and Commodity Futures Trading
Commission and have resulted in two models for interest rate swaps cleared
through LCH for clearing members' house accounts. The traditional
collateral-to-market ("CTM") model has been supplemented by a
settlement-to-market (“STM”) model. The difference between the two models is a
legal re-characterization of the variation margin. This legal
re-characterization under the STM model was based on amendments that redefined
the nature of the variation margin from a contractual payment of collateral to
a contractual settlement payment. Under the CTM model, variation margin is
legally considered to be collateral related to the derivative instrument, while
under the STM model, variation margin legally settles the net present value of
the derivative instrument on a daily basis without terminating or extinguishing
the contract. The conversion from CTM to STM has no impact on the timing or
amount of cash flows or risks inherent in the contract. Under the revised
rules, clearing members can choose, but are under no obligation, to convert all
trades within their house accounts from the CTM model to the STM model with
clearing members being required to provide LCH with 5 workings days' notice of
their intention to convert. UBS provided the required notification to allow it
to convert on 30

  AB

  CONFIDENTIAL TREATMENT REQUESTED BY UBS AG

  UBS
  Group AG

  UBS AG

  Form
  20-F for Fiscal Year Ended December 31, 2015

  Filed
  March 18, 2016

  Form 6-K
  dated July 29, 2016

  File
  Nos. 1-36764 and 1-15060

  Page 5 of 6

June
2016. This change had no impact on UBS’s net balance sheet position as UBS
applies IAS 32 netting principles in order to net the gross derivative balances
against cash collateral payables / receivables on derivative instruments for
balance sheet presentation purposes.

Given
that under the STM construct, payment or receipt of variation margin represents
legal settlement of the derivative instrument, we consider the legal
re-characterization of the variation margin to be dispositive from an
accounting perspective.  Specifically, given the legal conclusion that payments
of variation margin under an STM model do not give rise to additional payables
or receivables between the payer or payee, and are instead a legal settlement
of amounts due under the contractual terms of the derivative instruments, it
would not be appropriate to reflect variation margin amounts as separate units
of account (cash collateral payables / receivables on derivative instruments)
arising from said instruments. Consequently, it was concluded that under the
STM model the derivative instrument is the relevant unit of account. Such
derivative instrument also includes any price alignment interest that is paid
to eliminate a basis difference in the pricing of central clearing counterparty
cleared contracts as compared to collateralized bilateral OTC contracts.

4.2  "Tell
us whether any of the interest rate swaps that were affected by the conversion
were included in hedge accounting relationships at the time of conversion. If
so, please tell us your consideration of the guidance in paragraphs 91 and 101
of IAS 39."

The above
changes affected interest rate swaps that are included in all categories of
UBS's designated hedge accounting relationships except for its net investment
hedges. In light of various factors, we de- and re-designated all affected
hedge accounting relationships at the point of conversion based on IAS 39.91c)
and IAS 39.101d), which allow for a voluntary revocation of hedge accounting
relationships. No additional disclosures were provided given there is no
requirement under IFRS 7 to disclose a de- and re-designation of a hedge
accounting relationship.  In addition, the change had no material impact on the
nature of our designated hedges, the items included within those hedges, the
hedge effectiveness testing methodologies used or the results of those tests.

  AB

  CONFIDENTIAL TREATMENT REQUESTED BY UBS AG

  UBS
  Group AG

  UBS AG

  Form
  20-F for Fiscal Year Ended December 31, 2015

  Filed
  March 18, 2016

  Form 6-K
  dated July 29, 2016

  File
  Nos. 1-36764 and 1-15060

  Page 6 of 6

We
appreciate the opportunity to provide you with this additional information. If
you wish to discuss any of our responses or require further information, please
do not hesitate to contact Todd Tuckner at +1 203-719-0381
(todd.tuckner@ubs.com).

Very
truly yours,

UBS
AG

/s/
Kirt Gardner                                                  /s/ Todd Tuckner

Kirt Gardner                                                    Todd
Tuckner

Group Chief Financial
Officer                           Group Controller and Chief Accounting Officer