[Federal Register Volume 61, Number 224 (Tuesday, November 19, 1996)]
[Notices]
[Pages 58915-58917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29552]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22329; International Series Release No. 1026; File No.
812-10202]
ING Bank N.V. and ING Bank Eurasia ZAO; Notice of Application
November 13, 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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APPLICANTS: ING Bank N.V. (``ING Bank'') and ING Bank Eurasia ZAO
(``ING Bank Eurasia'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from section 17(f) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit any
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 any custodian for such U.S. Investment Company to
maintain securities and other assets in The Russian Federation
(``Russia'') in the custody of ING Bank Eurasia, a wholly-owned
subsidiary of ING Bank.
FILING DATES: The application was filed on June 13, 1996, and amended
on September 24, 1996.
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
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on December 9, 1996
and should be accompanied by proof of service on the applicants, 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 5th Street, N.W., Washington, D.C.
20549. Applicants: ING Bank N.V., Strawinskylaan 2631, 1077 ZZ
Amsterdam, The Netherlands; ING Bank Eurasia ZAO, Leningradskyi
Prospect 80, 125178 Moscow, The Russian Federation.
FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior
Counsel, at (202) 942-0581, or Elizabeth G. Osterman, Assistant
Director, 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.
Applicants' Representations
1. ING Bank is a Dutch banking institution that is part of ING
Groep N.V. (``ING Groep''), the largest financial services group in The
Netherlands and one of the major financial institutions in Europe. At
December 31, 1995, ING Groep had combined shareholders' equity in
excess of $14.5 billion. ING Bank is regulated in The Netherlands by
the Dutch Ministry of Finance and the Dutch Central Bank, each of which
is an agency of the Dutch Government within the meaning of rule 17f-
5(c)(2) of the Act. At December 31, 1995, ING Bank had shareholders'
equity in excess of $6.3 billion. As part of its services to
international investors and financial institutions, ING Bank provides a
range of custody and subcustody services through a network of
correspondent banks worldwide.
2. ING Bank Eurasia is a Russian banking organization that is
regulated by the Central Bank of Russia. ING Bank Eurasia is a wholly-
owned subsidiary of ING Bank. At December 31, 1995, ING Bank Eurasia
had shareholders' equity of $10 million. ING Bank Eurasia currently
provides a range of custody services in connection with the settlement
and safekeeping of debt and equity securities purchased in Russia.
[[Page 58916]]
3. Applicants request an order to permit ING Bank, any U.S.
Investment Company, and any custodian for such U.S. Investment Company
to maintain foreign securities,\1\ cash and cash equivalents
(collectively, ``Assets'') in the custody of ING Bank Eurasia.
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\1\ For purposes of the application, the term ``foreign
securities'' shall include: (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 thereof or any political subdivision thereof
or by any agency thereof or by any entity organized under the laws
of the United States or any State thereof which have been issued and
sold primarily outside the United States.
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Applicants' Legal Analysis
1. Section 17(f) of the Act provides that a registered investment
company may maintain securities and similar assets in the custody of a
bank, a member firm of a national securities exchange, the investment
company itself, or a system for the central handling of securities
established by a national securities exchange. Section 2(a)(5) of the
Act defines ``bank'' to include banking institutions organized under
the laws of the United States, member banks of the Federal Reserve
System, and certain banking institutions or trust companies doing
business under the laws of any state or of the United States. ING Bank
Eurasia does not fall within the definition of ``bank'' as defined in
the Act.
2. Rule 17f-5 under the Act permits certain entities located
outside the United States to serve as custodians for investment company
assets. Rule 17f-5 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 as such by that country's government or an agency
thereof, and that has shareholders' equity in excess of U.S. $200
million.
3. ING Bank Eurasia satisfies all of the requirements of rule 17f-5
insofar as it is a banking institution organized and regulated under
the laws of Russia, and is regulated as such by the Central Bank of
Russia, an agency of the government of Russia. ING Bank Eurasia,
however, does not meet the minimum shareholders' equity requirement of
rule 17f-5. Accordingly, ING Bank Eurasia does not qualify as an
eligible foreign custodian, and, absent exemptive relief, it may not
serve as custodian or subcustodian for the Assets of a U.S. Investment
Company.
4. Section 6(c) of the Act provides, in relevant part, that the SEC
may exempt any person or transaction from any provision of the Act or
from any rule thereunder, if such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
Act. Applicants request an order under section 6(c) for an exemption
from section 17(f) to the extent necessary to permit ING Bank Eurasia
to maintain Assets of U.S. Investment Companies.
5. Applicants believe that the requested order is necessary and
appropriate in the public interest because it would permit U.S.
Investment Companies and their custodians to have access to the custody
services of ING Bank Eurasia, as part of ING Bank's existing custody
network. ING Bank is experienced in providing custody services
worldwide, and ING Bank Eurasia is one of only a small number of banks
in Russia currently offering such custody services. ING Bank represents
that, under the proposed foreign custody and subcustody arrangements,
the protection afforded the Assets of U.S. Investment Companies held by
ING Bank Eurasia would not be diminished from the protection afforded
by rule 17f-5 if the Assets were held directly by ING Bank. ING Bank
will be liable for the performance of the custody services by ING Bank
Eurasia. ING Bank further represents that, prior to permitting ING Bank
Eurasia to act as custodian or subcustodian for the Assets of a U.S.
Investment Company, ING Bank will ensure that ING Bank Eurasia is
capable and well-qualified to provide such custody services.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. The foreign custody arrangements regarding ING Bank Eurasia will
satisfy the requirements of rule 17f-5 in all respects other than ING
Bank Eurasia's level of shareholders' equity.
2. A U.S. Investment Company or a custodian for a U.S. Investment
Company will deposit Assets directly with ING Bank Eurasia only in
accordance with a three-party contractual agreement (the ``Agreement'')
that will remain in effect at all times during which ING Bank Eurasia
fails to satisfy the requirement of rule 17f-5 relating to minimum
shareholders' equity. Each such Agreement will be a three-party
agreement among: (a) ING Bank, (b) ING Bank Eurasia, and (c) a U.S.
Investment Company or the custodian of the Assets of the U.S.
Investment Company. Under the Agreement, ING Bank Eurasia will
undertake to provide specified custodial or subcustodial services. The
Agreement will further provide that ING Bank will be liable for any
loss, damage, cost, expense, liability, or claim arising out of or in
connection with the performance by ING Bank Eurasia of its
responsibilities under the Agreement to the same extent as if ING Bank
had itself been required to provide custody services under the
Agreement, except for such losses as may result from political risk
(e.g., exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) and
other risk of loss (excluding bankruptcy or insolvency of ING Bank
Eurasia), for which neither ING Bank nor ING Bank Eurasia would be
liable under rule 17f-5 (e.g., despite the exercise of reasonable care,
loss due to Acts of God, nuclear incident and the like).
3. ING Bank, when providing custody services to a U.S. Investment
Company, will deposit Assets with ING Bank Eurasia only in accordance
with one of the two contractual arrangements described below, which
arrangement will remain in effect at all times during which ING Bank
Eurasia fails to satisfy the shareholders' equity requirement of rule
17f-5.
a. The Three-Party Agreement Arrangement. Under this arrangement,
each agreement will be a three-party agreement among ING Bank, ING Bank
Eurasia and the U.S. Investment Company or the custodian for a U.S.
Investment Company pursuant to which ING Bank will undertake to provide
specified custody or subcustody services, and will delegate to ING Bank
Eurasia such of the duties and obligations of ING Bank as will be
necessary to permit ING Bank Eurasia to hold in custody the U.S.
Investment Company's Assets (the ``Delegation Agreement''). The
Delegation Agreement will further provide that ING Bank will be liable
for any loss, damage, cost, expense, liability, or claim arising out of
or in connection with the performance by ING Bank Eurasia of its
responsibilities under the Delegation Agreement to the same extent as
if ING Bank had itself been required to provide custody services under
the Delegation Agreement, except for such losses as may result from
political risk (e.g., exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or armed
hostilities) and other risk of loss (excluding bankruptcy or insolvency
of ING Bank Eurasia), for
[[Page 58917]]
which neither ING Bank nor ING Bank Eurasia would be liable under rule
17f-5 (e.g., despite the exercise of reasonable care, loss due to Acts
of God, nuclear incident and the like).
b. The Custody Agreement/Subcustody Agreement Arrangement. Under
this arrangement, Assets will be deposited with ING Bank Eurasia in
accordance with the custody agreement and the subcustody agreement
described below.
(i) The custody agreement will be between ING Bank and the U.S.
Investment Company or any custodian for a U.S. Investment Company. In
that agreement, ING Bank will undertake to provide specified custody or
subcustody services, and the U.S. Investment Company (or its custodian)
will authorize ING Bank to delegate to ING Bank Eurasia such of ING
Bank's duties and obligations as will be necessary to permit ING Bank
Eurasia to hold in custody the U.S. Investment Company's Assets. The
custody agreement will further provide that ING Bank will be liable for
any loss, damage, cost, expense, liability, or claim arising out of or
in connection with the performance by ING Bank Eurasia of its
responsibilities to the same extent as if ING Bank had itself been
required to provide custody services under the custody agreement,
except for such losses as may result from political risk (e.g.,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) and
other risk of loss (excluding bankruptcy or insolvency of ING Bank
Eurasia), for which neither ING Bank nor ING Bank Eurasia would be
liable under rule 17f-5 (e.g., despite the exercise of reasonable care,
loss due to Acts of God, nuclear incident and the like).
(ii) A subcustody agreement will be executed by ING Bank and ING
Bank Eurasia. Pursuant to this agreement, ING Bank will delegate to ING
Bank Eurasia such of ING Bank's duties and obligations as will be
necessary to permit ING Bank Eurasia to hold Assets in custody in
Russia. The subcustody agreement will explicitly provide that: (x) ING
Bank Eurasia is acting as a foreign custodian for Assets that belong to
a U.S. Investment Company pursuant to the terms of an exemptive order
issued by the SEC; and (y) the U.S. Investment Company or its custodian
(as the case may be) that has entered into a custody agreement will be
entitled to enforce the terms of the subcustody agreement and can seek
relief directly against ING Bank Eurasia. Further, the subcustody
agreement will be governed either by the law of the State of New York
or by the law of The Netherlands. If the subcustody agreement is
governed by the laws of The Netherlands, ING Bank will obtain an
opinion of counsel opining that the rights of a third party beneficiary
under the laws of that country are enforceable.
4. ING Bank 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. 96-29552 Filed 11-18-96; 8:45 am]
BILLING CODE 8010-01-M
