[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32862-32864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16169]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22029; International Series Release No. 995; File No. 812-
10176]
The Chase Manhattan Bank, N.A. and Chemical Bank; Notice of
Application
June 19, 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 a
[[Page 32863]]
prior order that permits Chase, as custodian or subcustodian of
registered U.S. investment company assets, to deposit such assets in
foreign banks and foreign securities depositories. 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 June 3, 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 a 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 July 11, 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, N.W., Washington, D.C.
20549. Applicants, c/o Daniel L. Goelzer, Esq., Baker & McKenzie, 815
Connecticut Avenue, N.W., Washington, D.C. 20006.
For Further Information Contact: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Robert A. Robertson, 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 has 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.
Investment Companies.\1\
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\1\ As used herein, ``U.S. Investment Company'' means any
management investment company registered under the Act, other than
an investment company registered under section 7(d) of the Act.
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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 the
Federal Reserve System. At December 31, 1995, Chemical had
shareholders' equity in excess of $8.18 billion.
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''). New Chase will succeed by operation of law to
the rights and obligations of Chase, including Chase's obligations
under the various custody agreements with U.S. Investment Companies or
their custodians.
4. Applicants request an order under section 6(c) for an exemption
from section 17(f) that would amend a prior order (the ``Prior
Order'').\2\ The Prior Order granted an exemption to Chase to permit
it, as custodian or subcustodian of such U.S. Investment Company
assets, to deposit such assets in foreign banks and foreign securities
depositories. Applicants request that New Chase be substituted for
Chase as the party to which relief is granted. The amendment will
permit New Chase to place U.S. Investment Company assets in the custody
of foreign subcustodians under the same terms and conditions as Chase
under the Prior Order.
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\2\ Investment Company Act Release Nos. 12002 (Oct. 23, 1981)
(notice) and 12053 (Nov. 20, 1981) (order). The order was granted
before the adoption of rule 17f-5 under the Act. Following the
adoption of rule 17f-5, the order was amended to conform it to
certain conditions in the rule. Investment Company Act Release Nos.
14133 (Sept. 7, 1984) (notice) and 14184 (Oct. 9, 1984) (order).
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5. The Prior order permits Chase to place U.S. Investment Company
assets in the custody of foreign subcustodians under terms which
include, among other things: (a) A subcustodian must be an ``eligible
foreign custodian,'' as defined in rule 17f-5(c)(2); \3\ (b) Chase must
maintain a Bankers Blanket Bond for assets held outside the U.S. if
such coverage is available at reasonable cost or, if such coverage is
discontinued, must advise its U.S. Investment Company customers; and
(c) the custody agreement must contain specific provisions including,
among other things: (i) Assets will be identified on Chase's books as
belonging to the U.S. Investment Company, and on the foreign bank's
books and records as belonging to Chase, as agent for the U.S.
Investment Company--Chase and its subcustodians must allow access to
their books and records to the U.S. Investment Company; (ii) Chase will
furnish auditor's reports (and similar reports concerning each foreign
bank and foreign securities depository) to its U.S. Investment Company
customers; (iii) securities will be held in an account containing only
assets held by Chase for its customers, subject to the instructions of
Chase or its agents; (iv) securities will not be subject to any right
or other claim in favor of the foreign entity, except for charges for
safe custody or administration; (v) Chase will exercise reasonable care
in the performance of its duties; (vi) the law of New York will be the
governing law of the contract; and (vii) Chase will indemnify and hold
its U.S. Investment Company customer harmless from and against any loss
that may occur as the result of the failure of a foreign bank or
securities depository to the same extent as if Chase itself were
holding such securities in New York.
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\3\ The rule defines the term ``Eligible Foreign Custodian'' to
include (i) a banking institution or trust company, organized under
the laws of a country other than the U.S., that is regulated by that
country's government or an agency thereof, and that has
shareholders; equity in excess of $200,000,000, or (ii) a majority-
owned direct or indirect subsidiary of a qualified U.S. bank or
bank-holding company that is organized under the laws of a country
other than the U.S. and that has shareholders' equity in excess of
$100 million.
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Applicants' 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 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
U.S.; (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 U.S., and meeting certain requirements. Therefore,
the only entities located outside the U.S. 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-4 under the Act, at the time of the Prior Order,
permitted U.S. Investment Company assets to be deposited with
securities depositories registered with the SEC under section 17A of
the Securities Exchange Act of 1934. However, no foreign depository was
registered under section 17A, and therefore rule 17f-4 did not
authorize
[[Page 32864]]
the use of securities depositories outside the U.S.\4\ Because of the
limitations imposed by section 17(f) and rule 17f-4, Chase was required
to obtain exemptive relief in order to utilize foreign banks and
foreign securities depositories as subcustodians for the assets of U.S.
Investment Companies.
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\4\ Rule 17f-4 was amended in 1984 (after the adoption of rule
17f-5) to permit the use of certain foreign securities depositories
in accordance with rule 17f-5. Investment Company Act Release No.
14132 (Sept. 7, 1984).
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3. 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.
4. 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 subcustodian to continue relying
on the Prior Order after the Merger. Applicants state that the Merger,
a transaction undertaken for reasons unrelated to the terms of Chase's
foreign custody arrangements, should not have the unintended effect of
terminating the ability of New Chase and its U.S. Investment Company
customers to rely on the Prior Order. Chase has numerous longstanding
contractual relationships with its U.S. Investment Company customers,
and with numerous foreign subcustodians, predicated on the Prior Order.
Applicants believe that, while the terms of these contracts do not
differ materially from the requirements of rule 17f-5 (except in ways
that are more favorable to U.S. Investment Companies), it would be
administratively burdensome and expensive to amend these contracts to
delete references to the Prior Order and to conform the contracts to
rule 17f-5.
5. Applicants believe that the assets to which the Prior Order
relates will be as effectively protected by New Chase as they have been
by Chase. Following the Merger, New Chase will be required to indemnify
U.S. Investment Companies for losses to the same extent that Chase is
currently required to do so under the Prior Order. Applicants believe
that, in certain respects, the Prior Order imposes more stringent
requirements, and therefore provides a higher level of protection for
U.S. Investment Company assets, than does rule 17f-5. 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 under the Prior Order.
6. Applicants state that the Prior Order is consistent with the
purposes of section 17(f) and of rule 17f-5. The purpose of the section
is to ensure that U.S. Investment Companies hold securities in a safe
manner that protects the interests of their shareholders. The purpose
of the rule 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 U.S. Applicants state that
the requested amendment would permit New Chase and the U.S. Investment
Companies for which it acts as custodian or subcustodian to continue
relying on the Prior Order under the same terms and conditions of the
Prior Order and is therefore consistent with these purposes.
7. Applicants state that in granting the Prior Order, the SEC
determined that the arrangements which that order permits 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
the Prior Order applies in no way detracts from the continuing validity
of the SEC's determination. 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 of
the Prior Order as if such order 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. 96-16169 Filed 6-24-96; 8:45 am]
BILLING CODE 8010-01-M
