[Federal Register Volume 61, Number 98 (Monday, May 20, 1996)]
[Notices]
[Pages 25248-25250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12595]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21959; International Series Release No. 980; File No. 812-
10090]
The Chase Manhattan Bank, N.A. and Chemical Bank; Notice of
Application
May 14, 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: The Chase Manhattan Bank, N.A. (``Chase'') and Chemical
Bank (``Chemical'').
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 that would amend
three prior orders granted to Chase that permit Chase subsidiaries in
Malaysia, Mexico, and Russia to maintain in those countries certain
assets of U.S. registered investment companies. The requested order
would substitute the entity surviving the anticipated merger of Chase
and Chemical as the party to which relief is granted. Chemical will
survive the merger and change its name to ``The Chase Manhattan Bank.''
filing date: The application was filed on April 18, 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 June 10, 1996 by
proof of service on 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 who wish to be notified of a hearing may
request notification by writing to the SEC's Secretary.
addresses: Secretary, SEC, 450 Fifth Street NW., Washington, D.C.
20549. Applicants, c/o Daniel L. Goelzer, Esq., Baker & McKenzie, 815
Connecticut Avenue NW., Washington, D.C. 20006.
for further information contact: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or David M. Goldenberg, 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 at the
SEC's Public Reference Branch.
Applicants' Representations
1. Chase is a national banking association, regulated by the
Comptroller of the Currency under the National Bank Act. At December
31, 1995, Chase had shareholders' equity in excess of $8.065 billion.
Through its Global Securities Services division, Chase provides custody
and related services to global institutional investors, including U.S.
registered investment companies.
2. Chemical Bank is a banking institution, organized under the laws
of the State of New York. It is regulated as a bank by the
Superintendent of Banks of New York, and is a member bank of
[[Page 25249]]
the Federal Reserve System. At December 31, 1995, Chemical had
shareholders' equity in excess of $8.18 billion. Through its Geoserve
Securities Services division, Chemical provides custody and related
services to global institutional investors, including U.S. registered
investment companies.
3. On March 31, 1996, Chase's parent holding company, The Chase
Manhattan Corporation, and Chemical's parent holding company, Chemical
Banking Corporation, merged. Chemical Banking Corporation was the
surviving entity in the merger, and it has changed its name to ``The
Chase Manhattan Corporation.'' During July 1996, it is anticipated that
Chase will be merged into Chemical (the ``Merger''). Chemical will
survive the Merger, and will change its name to ``The Chase Manhattan
Bank'' (New Chase'').
4. Chase-Malaysia, Chase-Mexico, and Chase-Russia (the ``Foreign
Subsidiaries'') each are indirect subsidiaries of Chase and, after the
Merger, each will become an indirect subsidiary of New Chase.
Applicants state that, upon the Merger, New Chase will succeed by
operation of law to the rights and obligations of Chase, including
Chase's obligations under various custody agreements with certain U.S.
registered investment companies and under subcustody agreements with
each of the three Foreign Subsidiaries.
5. Applicants request an order under section 6(c) for an exemption
from section 17(f) that would amend three orders previously granted to
Chase (the ``Prior Orders'') \1\ that permit Chase, and Chase's
subsidiaries in Malaysia, Mexico, and Russia to provide certain foreign
custody arrangements in those countries for the assets of investment
companies registered under the Act, other than investment companies
registered under section 7(d) of the Act (``U.S. Investment
Companies'').\2\ Applicants request that New chase be substituted for
Chase under the Prior Orders. The amendment will permit New Chase and
its subsidiaries in Malaysia, Mexico,and Russia to continue to provide
custody services in those jurisdictions to U.S. Investment Companies
under the same terms and conditions as are set forth in the Prior
Orders.
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\1\ Chase Manhattan Bank, N.A., (``Chase-Malaysia''), Investment
Company Act Release Nos. 20647 (Oct. 21, 1994) (notice) and 20706
(Nov. 15, 1994) (order); Chase Manhattan Bank, N.A., (``Chase-
Mexico''), Investment Company Act Release Nos. 20694 (Nov. 9, 1994)
(notice) and 20753 (Dec. 5, 1994) (order); and Chase Manhattan Bank,
N.A., (``Chase-Russia''), Investment Company Act Release Nos. 20969
(Mar. 28, 1995) (notice) and 21101 (May 31, 1995) (order).
\2\ The Prior Orders define ``assets'' to include foreign
securities, cash, and cash equivalents. ``Foreign securities''
include securities issued and sold primarily outside the U.S. 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 securities issued or guaranteed
by the government of the U.S. or by any state or any political
subdivision thereof or by any agency thereof or by any entity
organized under the laws of the U.S. or of any state thereof which
have been issued and sold primarily outside the U.S.
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6. Each Prior Order requires, among other conditions, that Chase
have in place two bilateral contractual arrangements, consisting of a
Custody Agreement between Chase and the U.S. Investment Company (or its
custodian), and a Subcustody Agreement between Chase and the applicable
Foreign Subsidiary. Under the Custody Agreement, Chase undertakes to
provide custody or subcustody services, and agrees to delegate certain
of its duties and obligations as custodian to the Foreign Subsidiary.
The Custody Agreement further provides that the delegation by Chase to
the Foreign Subsidiary does 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 the Foreign Subsidiary
of the custody services to the same extent as if Chase had itself
provided the custody services under the Custody Agreement.
7. Under each Subcustody Agreement, Chase delegates to Chase-
Malaysia, Chase-Mexico, and Chase-Russia, respectively, such of Chase's
duties and obligations as would be necessary to permit the Foreign
Subsidiary to hold assets in custody in Malaysia, Mexico, and Russia,
respectively. Each Subcustody Agreement explicitly provides that (a)
the Foreign Subsidiary 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 (b) the U.S. Investment Company
or its custodian (as the case may be) that has entered into a Custody
Agreement is entitled to enforce the terms of the Subcustody Agreement
and can seek relief directly against the Foreign Subsidiary. Finally,
each Subcustody Agreement provides that it is governed by New York law.
Applicants' Legal Conclusions
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 entities, including ``banks''
having aggregate capital, surplus, and undivided profits of at least
$500,000. A ``bank,'' as 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 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, and meeting certain
requirements. Therefore, the only entities located outside the United
States which section 17(f) authorizes to serve as custodians for
registered management investment companies are the overseas branches of
U.S. banks.
2. Rule 17f-5 under the Act expands the group of entities that are
permitted to serve as foreign custodians. Rule 17f-5(c)(2)(ii) defines
the term ``Eligible Foreign Custodian'' to include a majority-owned
direct or indirect subsidiary of a qualified U.S. bank or bank holding
company that is incorporated or organized under the laws of a country
other than the United States and that has shareholders' equity in
excess of $100 million. Rule 17f-5(c)(3) defines the term ``Qualified
U.S. Bank'' to include a banking institution organized under the laws
of the United States or a member bank of the Federal Reserve System
that has an aggregate capital, surplus, and undivided profit of not
less than $500,000.
3. Chase is a Qualified U.S. Bank as defined in rule 17f-5, since
it is a national bank and has aggregate capital, surplus, and undivided
profits substantially in excess of the $500,000 minimum required by the
rule. Chemical is a Qualified U.S. Bank under rule 17f-5, since it is a
member of the Federal Reserve System and has capital substantially in
excess of the $500,000 minimum. New Chase will also be a Qualified U.S.
Bank after the Merger. The Foreign Subsidiaries are not U.S. banks and
are not eligible foreign custodians, because each lacks the required
$100 million in shareholders' equity, although each satisfies the other
requirements for eligibility under rule 17f-5.
4. Section 6(c) of the Act provides, in relevant part, that the SEC
may 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.
5. Applicants believe that the requested amendment is necessary and
appropriate in the public interest to permit U.S. Investment Companies
for which Chase serves as custodian or
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subcustodian to continue to use the arrangements currently in place
under the Prior Orders after the Merger, and to permit new U.S.
Investment Company customers for which New Chase may serve in such
capacities to have access to such arrangements. Applicants contend that
requiring current U.S. Investment Company customers of Chase to bear
the substantial expense and effort of implementing alternative
arrangements merely because of the Merger would be contrary to the best
interests of investors and public policy. Absent an amendment, New
Chase would be unable to offer these services in Malaysia, Mexico, and
Russia to such U.S. Investment Companies under the Prior Orders.
6. Applicants believe that the assets to which the Prior Orders
relate will be as effectively protected by New Chase as they have been
by Chase. Following the Merger, New Chase will be required to assume
liability under the Chase-Malaysia, Chase-Mexico, and Chase-Russia
orders, to the same extent that Chase is required to do so under these
orders. Applicants state that this application does not seek to change
in any manner the terms and protections applicable to U.S. Investment
Company assets held in custody by the Foreign Subsidiaries.
7. Applicants state that the purpose of section 17(f) is to ensure
that U.S. Investment Companies hold securities in a safe manner that
protects the interests of their shareholders. The purpose of rule 17f-5
is to relieve U.S. Investment Companies of the expense and
inconvenience of transferring assets to the custody of a U.S. bank or
other qualified custodian outside the jurisdiction in which the primary
trading market for those assets is located and to reduce the risks
inherent in maintaining assets outside the United States. Applicants
state that the requested amendment would permit New Chase to continue
offering custody services in Malaysia, Mexico, and Russia under the
same terms and conditions as set forth in the Prior Orders and is,
therefore, consistent with these purposes.
8. Applicants state that in granting the Prior Orders, the SEC
determined that the arrangements which those orders permit satisfy the
standards of section 6(c). Applicants believe that the substitution of
New Chase for Chase as the party to which the terms and conditions of
those orders apply in no way detracts from the continuing validity of
the SEC's determinations. Therefore, applicants believe the requested
order satisfies these standards.
Condition
Applicants agree that the order granting the requested relief shall
be subject to the condition that, following the merger of Chase and
Chemical, New Chase will comply with all of the terms and conditions
set forth in the existing orders as if such orders had been granted to
New Chase.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12595 Filed 5-17-96; 8:45 am]
BILLING CODE 8010-01-M
