[Federal Register Volume 59, Number 223 (Monday, November 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28679]
[[Page Unknown]]
[Federal Register: November 21, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20699; International Series Release
No. 750; 812-9150]
The Hongkong and Shanghai Banking Corporation Limited; Notice of
Application
November 15, 1994.
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: The Hongkong and Shanghai Banking Corporation Limited
(``HSBC'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the
provisions of section 17(f).
SUMMARY OF APPLICATION: HSBC seeks an order to permit registered
investment companies (other than investment companies registered under
section 7(d)) (``Investment Companies'') and any custodians of such
Investment Companies to maintain their foreign securities and other
assets in the custody of The British Bank of the Middle East (``BBME'')
and Hongkong Bank of Australia Limited (``HKBA'').
FILING DATES: The application was filed on August 8, 1994 and amended
on November 8, 1994.
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 December 12,
1994, and should be accompanied by proof of service on 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 who wish to
be notified of a hearing may request such notification by writing to
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicant, c/o David R. Sahr, Esq., Shaw, Pittman, Potts &
Trowbridge, 2300 N Street, N.W., Washington, D.C. 20037.
FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, Senior Attorney, at
(202) 942-0579, or C. David Messman, 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. HSBC is a bank organized and existing under the laws of Hong
Kong. HSBC is a wholly-owned subsidiary of HSBC Holdings BV (``HHBV''),
a holding company organized in the Netherlands. HHBV is a wholly-owned
subsidiary of HSBC Holdings plc, a holding company incorporated in
Great Britain and registered in England and Wales. HSBC is supervised
and regulated by the Hong Kong Monetary Authority under the Banking
Ordinance. In the United States, HSBC, through its branches and agency
in New York, California, Illinois, Washington, Oregon, and Texas, is
licensed and supervised by the respective banking authorities in those
states and supervised by the Board of Governors of the Federal Reserve
System under the International Banking Act of 1978, as amended. As of
December 31, 1993, HSBC had total consolidated assets of $146.5
billion, and consolidated shareholders' equity of approximately $4.7
billion.
2. BBME, a wholly-owned subsidiary of HHBV, is a bank organized and
existing under the laws of Great Britain. In March 1994, BBME's head
office moved to Jersey, and BBME currently is supervised and regulated
by the Financial Services Department of the States of Jersey. BBME,
through its branch network of 25 offices, provides a full range of
banking services for both corporate and individual customers in the
Middle East, the Bahamas, India, Switzerland, and the United Kingdom,
and has significant involvement in trade finance. As of December 31,
1993, BBME had total assets of approximately $4.9 billion, and total
consolidated shareholders' equity of approximately $193 million. BBME
intends to establish custodial services in selected offices during
1994.
3. HKBA, a wholly-owned subsidiary of HSBC, is organized and
existing under the laws of Australia. HKBA is regulated and supervised
by the Reserve Bank of Australia, which exercises supervisory authority
over the ownership, investments, activities, and capital levels of
banks incorporated in Australia. HKBA, operating through six branches
across Australia, provides a full range of banking services, including
trade finance, retail and corporate banking, and securities services.
Together with its subsidiary, HKBA Nominees Limited, HKBA also provides
custodian services. As of December 31, 1993, HKBA had total assets of
approximately $2.8 billion, and shareholders equity of approximately
$154 million. Assets under custody as of May 30, 1994, were
approximately $1.3 billion.
4. Applicant seeks an order under section 6(c) exempting HSBC,
BBME, HKBA, and Investment Companies and their custodians from section
17(f). The order would let HSBC, Investment Companies and their
custodians maintain ``foreign securities,'' as defined in rule 17f-5,
cash, and cash equivalents (collectively, ``Assets'') in the custody of
BBME or HKBA. If the relief is granted, HSBC intends to maintain such
Assets with BBME in any of the locations in which BBME has a branch and
with HKBA in Australia.
Applicant's Legal Analysis
1. Section 17(f) 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 an aggregate capital, surplus, and undivided profits of at
least $500,000. As defined in section 2(a)(5), ``bank'' 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 doing business under the laws of any state
or of the United States, (i) a substantial portion of the business of
which consists of receiving deposits or exercising fiduciary powers
similar to those permitted to national banks, (ii) which is supervised
and examined by state or federal authorities having supervision over
banks, and (iii) which is not operated for the purpose of evading the
Act. Therefore, the only foreign entities that may serve as custodians
for registered management investment companies are the overseas
branches of U.S. banks.
2. Rule 17f-5 expands the group of entities that are permitted to
serve as foreign custodians. The rule 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.
$200,000,000.
3. HSBC satisfies the requirements of rule 17f-5 because it is
organized under the laws of Hong Kong, regulated there as a bank by the
Hong Kong Monetary Authority, and has shareholders' equity well in
excess of the Hong Kong dollar equivalent of $200,000,000.
4. BBME and HKBA each satisfy the requirements of rule 17f-5 except
the shareholders' equity requirement. Absent exemptive relief,
therefore, BBME and HKBA may not serve as a custodian for Investment
Company Assets.
5. Applicant asserts that each of BBME and HKBA is or will be
capable and well-qualified to provide custodial and sub-custodial
services for Investment Company Assets. HSBC represents that the
proposed foreign custody arrangements will afford the Assets of
Investment Companies held by BBME or HKBA the same protection afforded
by rule 17f-5 as if the assets were held in the direct custody of HSBC.
HSBC will co-sign the agreement described in condition 2 below and will
assume liability for BBME's and HKBA's performance. Thus, under the
agreement, the delegation to BBME and HKBA of the duties and
obligations of HSBC will not result in any reduction in the level of
protection afforded the Assets of the Investment Companies.
6. Section 6(c) in relevant part permits the SEC to exempt any
person or class of persons from any provision of the Act, or from any
rule or regulation thereunder, if and to the extent that 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. 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 regarding BBME and
HKBA satisfy the requirements of rule 17f-5 in all respects other than
with regard to BBME and KHBA's level of shareholders' equity.
2. Applicant will deposit Assets with BBME and HKBA only in
accordance with an agreement (the ``Agreement'') required to remain in
effect at all times during which any of BBME or HKBA fail to satisfy
all the requirements of rule 17f-5. Each Agreement will be a three-
party agreement among HSBC and BBME or HKBA, as appropriate, and the
Investment Company or the custodian for an Investment Company pursuant
to which HSBC will undertake to provide specified custodial or sub-
custodial services and will delegate to BBME or HKBA such of the duties
and obligations of HSBC as will be necessary to permit BBME or HKBA to
hold in custody Assets of the Investment Company or custodian. The
Agreement will further provide that the delegation by HSBC to BBME or
HKBA will not relieve HSBC of any responsibility to the Investment
Company or custodian for an Investment Company for any loss due to such
delegation, and that HSBC will be liable for any loss or claim arising
out of or in connection with the performance by BBME or HKBA of their
responsibilities under the Agreement to the same extent as if HSBC had
itself been required to provide custody services under the Agreement.
3. HSBC currently satisfies and will continue to satisfy the
minimum shareholders' equity requirement set forth in rule 17f-5.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
FR Doc. 94-28679 Filed 11-18-94; 8:45 am]
BILLING CODE 8010-01-M
