[Federal Register Volume 60, Number 63 (Monday, April 3, 1995)]
[Notices]
[Pages 16899-16901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8027]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20969; International Series Release
No. 798/812-9354]
The Chase Manhattan Bank, N.A.; Notice of Application
March 28, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANT: The Chase Manhattan Bank, N.A., (``Chase'').
[[Page 16900]] RELEVANT ACT SECTIONS: Exemptions requested under
section 6(c) from the provisions of section 17(f) of the Act.
SUMMARY OF APPLICATION: Chase seeks an order to enable it to maintain
foreign securities and other assets of United States registered
investment companies for which it serves as custodian or subcustodian
in the custody of Chase Manhattan Bank International (``Chase-
Russia'').
FILING DATE: The application was filed on December 9, 1994, and amended
on March 14, 1995.
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 April 24, 1995,
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 the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicant, c/o Daniel L. Goelzer, Esq., Baker & McKenzie, 815
Connecticut Avenue, NW., Washington, DC 20006.
FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Attorney,
at (202) 942-0583, or Barry D. Miller, Senior Special Counsel, 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 and Legal Analysis
1. Chase requests expemptive relief for itself, 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 any custodian for a U.S. Investment Company from section
17(f) of the Act to the extent necessary to permit Chase-Russia to
qualify as an ``Eligible Foreign Custodian'' under rule 17f-5. The
requested exemption would permit Chase, a U.S. Investment Company, and
any custodian for a U.S. Investment Company to maintain foreign
securities, cash, and cash equivalents (collectively, ``Assets'') in
the custody of Chase-Russia, a wholly-owned, indirect subsidiary of
Chase located in Russia.\1\ For purposes of the application, the term
``foreign securities'' includes (a) securities issued and sold
primarily outside the United States by a foreign government, a national
of any foreign country, or a corporation of other organization
incorporated or organized under the laws of any foreign country, and
(b) 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.
\1\Russian clearing and custody procedures differ substantially
from the procedures generally employed elsewhere. Other than the
exemption requested from section 17(f) to permit Chase-Russia to
qualify as an ``eligible foreign custodian'' under rule 17f-5,
applicant is not requesting (and any order would not grant) an
exemption from section 17(f) or rule 17f-5 for any aspect of the
custody or clearing procedures employed in Russia. Moreover,
applicant acknowledges that any order will not constitute a
determination by the Commission that the Russian clearing and
custody procedures comply with section 17(f) or the rules
thereunder.
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2. 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. Rule 17f-5
under the Act expands the group of entities located outside the United
States that are permitted to serve as custodians for the Assets of
registered management investment companies. Rule 17f-5 defines the term
``Eligible Foreign Custodian'' to include a majority-owned direct or
indirect subsidiary of qualified U.S. bank or bank-holding company that
is incorporated or organized under the laws of county other than the
United States and that has shareholders' equity in excess of
$100,000,000 (U.S. $ equivalent or U.S. $). as of the close of its most
recently completed fiscal year. The rule defines the term ``Qualified
U.S. Bank'' to include a banking institution organized under the laws
of the United States that has an aggregate capital, surplus, and
undivided profit of not less than $550,000.
3. Chase is a national banking association and is regulated as such
by the Comptroller of the Currency under the National Bank Act. At
December 31, 1993, Chase has shareholders' equity in excess of $6.4
billion. Thus, Chase is a ``Qualified U.S. Bank'' as defined in rule
17f-5, since it is a banking institution organized under the laws of
the United States, and has aggregate capital, surplus, and undivided
profit substantially in excess of the $500,000 minimum required by the
rule.
4. Chase is a subsidiary of The Chase Manhattan Corporation, a
Delaware corporation that is one of the leading financial services
providers in the world. Through its Global Securities Service division
(``GSS''), Chase provides custody and related services to global
institutional investors, including U.S. mutual funds. GSS currently has
over $1.3 trillion in assets under custody worldwide.
5. Chase-Russia, a wholly-owned indirect subsidiary of Chase, was
incorporated in Russia on October 26, 1993, under General License No.
2629. Chase-Russia is authorized to engage in the business of
commercial banking in Russia, and is supervised by the Central Bank of
the Russian Federation. Chase-Russia offers customers a wide range of
retail and wholesale banking services; it also operates a custody
department to support local and foreign investors.
6. Chase-Russia will satisfy the requirements of rule 17f-5 insofar
as it is an indirect, wholly-owned subsidiary of Chase, and is
incorporated and organized under the laws of Russia. Chase-Russia will
not, however, meet the $100 million minimum shareholders' equity
requirement of rule 17f-5. Accordingly, Chase-Russia will not qualify
as an Eligible Foreign Custodian under the rule and, absent exemptive
relief, could not serve as custodian for the Assets of U.S. Investment
Companies.
7. Where custody services are required in Russia, Chase will hold
the Assets of U.S. Investment Companies as custodian or subcustodian,
and will deposit, or cause or permit the deposit of, the Assets with
Chase-Russia in accordance with the arrngements described below. Before
permitting Chase-Russia to act as a custodian for the Assets of a U.S.
Investment Company, Chase will ensure that Chase-Russia is capable and
well-qualified to provide custody and subcustody services to Chase,
U.S. Investment Companies, and custodians for U.S. Investment
Companies. Under the proposed foreign custody arrangements, the
protection afforded the Assets of U.S. Investment Companies held by
Chase-Russia will not be diminished from the protection afforded by
rule 17f-5.\2\
\2\Applicant notes that there are special risks associated with
investing in securities in the Russian market including, among
others, risks relating to the settlement of trades and the
registration of securities in an environment characterized by
multiple, unaffiliated registrar companies and non-authoritative
paper share extract certificates. These risks, like other risks
associated with foreign investment, would remain with the U.S.
Investment Companies. Chase will be liable only to the same extent
as if it had held the assets itself in Russia (i.e., by opening a
branch in Moscow). However, Chase's liability with respect to assets
held in custody in Russia will not be reduced by Chase's causing
such assets to be held in a subsidiary rather than directly by
Chase. Chase's contracts with its customers will reflect this
liability. [[Page 16901]]
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Applicant's Conditions
Chase agrees that any order of the SEC granting the requested
relief may be conditioned upon the following:
1. The foreign custody arrangements proposed herein regarding
Chase-Russia will satisfy the requirments of rule 17f-5 in all respects
other than Chase-Russia's level of shareholders' equity.
2. Chase will deposit Assets with Chase-Russia only in accordance
with the custody agreement and the subcustody agreement described
below. The custody and subcustody agreements will remain in effect at
all times during which Chase-Russia fails to satisfy the requirements
of rule 17f-5.
a. The custody agreement will be between Chase and the U.S.
Investment Company (or its custodian). In that agreement, Chase will
undertake to provide custody or subcustody services, and the U.S.
Investment Company (or its custodian) will authorize Chase to delegate
to Chase-Russia such of Chase' duties and obligations as will be
necessary to permit Chase-Russia to hold in custody in Russia the
Assets of U.S. Investment Companies. The custody agreement will further
provide that the delegation by Chase to Chase-Russia will not relieve
Chase of any responsibility to the U.S. Investment Company or its
custodian for any loss due to such delegation, and that Chase will be
liable for any loss or claim arising out of or in connection with the
performance by Chase-Russia of the custody services to the same extent
as if Chase had itself provided the custody services under the custody
agreement.
b. A subcustody agreement will be executed between Chase and Chase-
Russia. Pursuant to this agreement, Chase will delegate to Chase-Russia
such of Chase's duties and obligations as would be necessary to permit
Chase-Russia to hold Assets in custody in Russia. The subcustody
agreement will provide that (i) Chase-Russia 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 (ii) 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
Chase-Russia. The subcustody agreement will provide that it will be
governed by New York law.
3. Chase currently satisfies and will continue to satisfy the
Qualified U.S. Bank requirement set forth in rule 17f-5(c)(3).
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8027 Filed 3-31-95; 8:45 am]
BILLING CODE 8010-01-M
