[Federal Register Volume 61, Number 211 (Wednesday, October 30, 1996)]
[Notices]
[Pages 56069-56072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27807]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22296; International Series Release
No. 1023; 812-10170]
Deutsche Bank AG; Notice of Application
October 24, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: Deutsche Bank AG.
RELEVANT ACT SECTIONS: Order under section 6(c) of the Act for an
exemption from section 17(f).
SUMMARY OF APPLICATION: Applicant seeks an order that would supersede
an existing order granting conditional exemptive relief from section
17(f) of the Act. The requested order would allow certain foreign
subsidiaries of applicant to maintain assets of registered investment
companies in custody, in accordance with an agreement among applicant,
the investment company (or its custodian), and the foreign subsidiary.
The requested order would also allow these foreign subsidiaries to
maintain such assets pursuant to a custody agreement between applicant
and the investment company (or its custodian) and a separate
subcustodian agreement between applicant and the foreign subsidiary.
FILING DATE: The application was filed on May 24, 1996 and amended on
September 11, 1996.
[[Page 56070]]
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 18,
1996 and should be accompanied by proof of service on the applicant, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicant: Post Box D, 60262 Frankfurt-am-Main, Germany; cc: J. Eugene
Marans, Esq., Cleary, Gottlieb, Steen & Hamilton, 1752 N Street, NW.,
Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT:
Harry Eisenstein, Staff Attorney, at (202) 942-0552, or Alison E. Baur,
Branch Chief, at (202) 942-0564 (Division of Investment Management,
Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicant's Representations
1. Applicant is a bank organized and existing under the laws of
Germany. Applicant is regulated in Germany by the Federal Bank
Supervisory Office (Bundesaufsichtamt fur Kreditwesen). Applicant is
the largest banking institution in Germany and currently provides
worldwide financial services to foreign governments, central banks,
financial institutions, and corporate and retail customers. Applicant
has shareholders' equity in excess of $200 million and, as of December
31, 1995, had consolidated worldwide assets of $491 billion.
2. In 1995, the SEC exempted applicant (the ``Existing Order'') \1\
from section 17(f) of the Act to permit applicant to serve as custodian
or sub-custodian of the securities and other assets of any management
investment company registered under the Act other than an investment
company registered under section 7(d) of the Act (a ``U.S. Investment
Company''), and to maintain foreign securities and other assets in
Malaysia with applicant (Malaysia) Berhad (``DBM'').
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\1\ See Deutsche Bank AG, Investment Company Act Release No.
21278 (Aug. 11, 1995).
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3. Applicant requests an order superseding the Existing Order and
granting several requests for exemptive relief. First, under the relief
requested, Assets (as defined below) could be maintained in the custody
of an Exemptive Order Network Subsidiary (as defined below) in
accordance with an agreement (``Delegation Agreement'') among
applicant, the Exemptive Order Network Subsidiary, and a U.S.
Investment Company or its custodian (Custodial arrangements under a
Delegation Agreement are referred to as ``Tri-Party Arrangements'').
4. Second, as an alternative to Tri-Party Arrangements, Assets
could be maintained in custody in accordance with an agreement (the
``Custody Agreement'') between (i) applicant and (ii) a U.S. Investment
Company or its custodian, whereby applicant would act as the custodian
or subcustodian of the Assets of the U.S. Investment Company and would
delegate its responsibilities to its foreign subsidiaries under an
agreement with such subsidiaries (``Subcustodian Agreement,'' and
custodial arrangements under Custody and Subcustodian Agreements,
``Agency Custody Arrangements'').
5. Third, applicant seeks relief so that Assets could be maintained
in custody with DBM, Deutsche Bank Argentina, S.A. (``DBA''), Deutsche
Bank S.A.--Banco Alemao (Brazil) (``DBBA'', and together with DBA and
DBM, the ``Foreign Subsidiaries'') and all additional foreign
subsidiaries of applicant that do not meet the minimum shareholder
equity requirement of rule 17f-5 (``Additional Foreign Subsidiaries,''
and together with the Foreign Subsidiaries, ``Exemptive Order Network
Subsidiaries'') at such time as such Exemptive Order Network
Subsidiaries meet the terms and conditions applicable to the provision
of the custodial services under the Tri-Party Arrangements and Agency
Custody Arrangements.
6. DBM, DBA and DBBA each is a subsidiary of applicant. DBM, DBA
and DBBA are regulated as banking institutions by the central banks of
Malaysia, Argentina, and Brazil, respectively. Each of the Foreign
Subsidiaries offers custody services to support local and foreign
investors. Each Exemptive Order Network Subsidiary satisfies the
standards of rule 17f-5, except with respect to the minimum shareholder
equity requirement.
7. For purposes of this application, the term ``Foreign
Securities'' includes: (i) securities issued and sold primarily outside
the United States by a foreign government, a national of any foreign
country, or a corporation or other organization incorporated or
organized under the laws of any foreign country; and (ii) securities
issued or guaranteed by the Government of the United States or by any
state or any political subdivision thereof or by any agency thereof or
by any entity organized under the laws of the United States or of any
state thereof which have been issued and sold primarily outside the
United States. Foreign Securities, cash and cash equivalents are
referred to collectively as ``Assets.''
Tri-Party and Agency Custody Arrangements
8. Pursuant to Tri-Party Custody Arrangements, Assets would be
maintained in custody pursuant to a Delegation Agreement that would be
required to remain in effect at all times during which the Exemptive
Order Network Subsidiary fails to meet the minimum shareholders' equity
requirements of rule 17f-5. Pursuant to such Delegation Agreement,
applicant would undertake to perform specified custodial or
subcustodial services and would delegate to the Exemptive Order Network
Subsidiary such of the duties and obligations of applicant as would be
necessary to permit the Exemptive Order Network Subsidiary to hold in
custody in the country in which it operates Assets of U.S. Investment
Companies.
9. Pursuant to the Agency Custody Arrangements, Assets would be
maintained in the custody of an Exemptive Order Network Subsidiary only
in accordance with a Custody Agreement that is required to remain in
effect at all times during which such Exemptive Order Network
Subsidiary fails to meet the minimum shareholders' equity requirements
of rule 17f-5. Pursuant to the Custody Agreement, which would be
between applicant and a U.S. Investment Company or its custodian,
applicant would act as custodian or subcustodian of Assets. Under the
terms of a Subcustodian Agreement with the Exemptive Order Network
Subsidiary, applicant would additionally delegate such of its duties
and obligations as would be necessary to permit the Exemptive Order
Network Subsidiary to hold in custody in the country in which it
operates Assets of U.S. Investment Companies or their custodians. Each
Subcustodian Agreement would also explicitly provide that U.S.
Investment Companies or their custodian, as the case may be, that have
entered into a Custody Agreement with applicant are third
[[Page 56071]]
party beneficiaries of such Subcustodian Agreement, are entitled to
enforce the terms of such Subcustodian Agreement, and are entitled to
seek relief directly against the applicable Exemptive Order Network
Subsidiary or against applicant.
10. Applicant contends that Agency Custody Arrangements would be a
more efficient arrangement for certain U.S. Investment Companies, since
the protection afforded to such companies by applicant would be
confirmed immediately upon execution of the Custody Agreement, rather
than piecemeal through the time-consuming and more onerous process of
entering into separate Delegation Agreements with the various Exemptive
Order Network Subsidiaries. Applicant states that it would continue to
offer the traditional Tri-Party Custody Arrangements for clients not
desiring Agency Custody Arrangements.
Applicant's Legal Analysis
1. Section 17(f) of the Act requires every registered management
investment company to place and maintain its securities and similar
investments in the custody of certain enumerated entities, including
``banks'' having at all times aggregate capital, surplus, and undivided
profits of at least $500,000. A ``bank'', as that term is defined in
section 2(a)(5) of the Act, includes: (a) a banking institution
organized under the laws of the United States; (b) a member bank of the
Federal Reserve System; and (c) any other banking institution or trust
company, whether incorporated or not, doing business under the laws of
any state or of the United States, a substantial portion of which
consists of receiving deposits or exercising fiduciary powers similar
to those permitted to national banks under the authority of the
Comptroller of the Currency, and which is supervised or examined by
state or federal authority having supervision over banks, and which is
not operated for the purposes of evading the Act.
2. The only entities located outside the United States that section
17(f) authorizes to serve as custodians for registered management
investment companies are the overseas branches of qualified U.S. banks.
Rule 17f-5 expands the group of entities that are permitted to serve as
foreign custodians. Rule 17f-5(c)(2)(i) defines the term ``Eligible
Foreign Custodian'' to include a banking institution or trust company,
incorporated or organized under the laws of a country other than the
United States, that is regulated by that company's government or an
agency thereof and that has shareholders' equity in excess of
$200,000,000.
3. Applicant meets the requirements for an Eligible Foreign
Custodian under the rule since it has shareholders' equity well in
excess of the equivalent of $200,000,000, is organized and existing
under the laws of a country other than the United States, and is
regulated as a bank under the laws of Germany.
4. Each of the Foreign Subsidiaries also satisfies, and each of the
Additional Foreign Subsidiaries will satisfy, the requirements of rule
17f-5 insofar as it is a banking institution incorporated or organized
under the laws of a country other than the United States and is or will
be regulated as such by that country's government or an agency thereof.
However, none of the Foreign Subsidiaries meets, and none of the
Additional Foreign Subsidiaries will meet, the minimum shareholders'
equity requirement of rule 17f-5. Accordingly, none of the Foreign
Subsidiaries is, and none of the Additional Foreign Subsidiaries will
be, an Eligible Foreign Custodian under the rule, and, absent exemptive
relief, they could not perform custodial or subcustodial services for
U.S. Investment Companies.
5. Section 6(c) provides, in relevant part, that the SEC may,
conditionally or unconditionally, by order, exempt any person or class
of persons from any provision of the Act or from any rule thereunder,
if such exemption is necessary or appropriate in the public interest,
consistent with the protection of investors, and consistent with the
purposes fairly intended by the policy and provisions of the Act.
Applicant submits that its request satisfies this standard.
Applicant's Conditions
Applicant agrees that any order of the SEC granting the requested
relief shall be subject to the following conditions:
1. The foreign custody arrangements proposed with respect to the
Exemptive Order Network Subsidiaries will satisfy the requirements of
rule 17f-5 in all respects other than with regard to the shareholders'
equity of the Exemptive Order Network Subsidiaries.
2. Assets held in custody for U.S. Investment Companies or their
custodians pursuant to Tri-Party Custody Arrangements will be
maintained with an Exemptive Order Network Subsidiary only in
accordance with a Delegation Agreement required to remain in effect at
all times during which such Exemptive Order Network Subsidiary fails to
satisfy all the requirements of rule 17f-5. Pursuant to such Delegation
Agreement, applicant would undertake to provide specified custodial or
subcustodial services and would delegate to such Exemptive Order
Network Subsidiary such of applicant's duties and obligations as would
be necessary to permit such Exemptive Order Network Subsidiary to hold
in custody in the country in which it operates Assets of U.S.
Investment Companies. The Delegation Agreement among applicant, such
Exemptive Order Network Subsidiary and a U.S. Investment Company or its
custodian would further provide that applicant's delegation of duties
to such Exemptive Order Network Subsidiary would not relieve applicant
of any responsibility to the U.S. Investment Company or its custodian
for any loss due to such delegation, except such loss as may result
from political risk (e.g., exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) or other risks of loss (excluding bankruptcy or insolvency
of the Exemptive Order Network Subsidiaries) for which neither
applicant nor the Exemptive Order Network Subsidiary would be liable
under rule 17f-5 (e.g., despite the exercise of reasonable care, Acts
of God and the like).
3. Assets held in custody for U.S. Investment Companies or their
custodians pursuant to Agency Custody Arrangements will be maintained
with an Exemptive Order Network Subsidiary only in accordance with a
Custody Agreement required to remain in effect at all times during
which such Exemptive Order Subsidiary fails to satisfy all the
requirements of rule 17f-5. The Custody Agreement would be between
applicant and a U.S. Investment Company or its custodian and would
provide that applicant would act as the custodian or the subcustodian,
as the case may be, of the Assets of the U.S. Investment Company and
would be able to delegate its responsibilities to the Exemptive Order
Network Subsidiaries. The Custody Agreement would further provide that
applicant's delegation of duties to the Exemptive Order Network
Subsidiaries would not relieve applicant of any responsibility to a
U.S. Investment Company or its custodian for any loss due to such
delegation, except such loss as may result from political risk (e.g.,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
other risks of loss (excluding bankruptcy or insolvency of the
Exemptive Order Network Subsidiaries) for which neither applicant nor
the Exemptive Order
[[Page 56072]]
Network Subsidiaries would be liable under rule 17f-5 (e.g., despite
the exercise of reasonable care, Acts of God and the like).
4. With respect to the Agency Custody Arrangements, applicant will
enter into a Subcustodian Agreement with each Exemptive Order Network
Subsidiary pursuant to which applicant will delegate to the Exemptive
Order Network Subsidiary such of applicant's duties and obligations as
would be necessary to permit the Exemptive Order Network Subsidiary to
hold in custody in the country in which it operates Assets of U.S.
Investment Companies or their custodians. Each Subcustodian Agreement
will provide an acknowledgement by the applicable Exemptive Order
Network Subsidiary that it is acting as a foreign custodian for U.S.
Investment Companies pursuant to the terms of the order requested
hereby. Each Subcustodian Agreement will also explicitly provide that
U.S. Investment Companies or their custodians, as the case may be, that
have entered into a Custody Agreement with applicant will be third
party beneficiaries of such Subcustodian Agreement, will be entitled to
enforce the term thereof and will be entitled to seek relief directly
against the applicable Exemptive Order Network Subsidiary so acting as
foreign custodian or against applicant.
5. Applicant will attempt to have such Subcustodian Agreement
governed by New York law. However, if any Subcustodian Agreement is
governed by the local law of the foreign jurisdiction in which the
applicable Exemptive Order Network Subsidiary is located, applicant
shall obtain an opinion of counsel from such foreign jurisdiction
opining as to the enforceability of the rights of a third party
beneficiary under the laws of such foreign jurisdiction. Applicant will
not utilize Agency Custody Arrangements involving a Subcustodian
Agreement governed by the law of a foreign jurisdiction that does not
provide for the enforceability of third party beneficiary rights.
6. Applicant currently satisfies and will continue to satisfy the
minimum shareholders' equity requirement set forth in rule 17f-
5(c)(2)(i).
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27807 Filed 10-29-96; 8:45 am]
BILLING CODE 8010-01-M
