[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Notices]
[Pages 41980-41981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19720]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23922; International Series Rel. No. 1201; 812-11038]
Caisse des Depots et Consignations; Notice of Application
July 27, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 17(f)
of the Act.
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SUMMARY OF APPLICATION: The order would permit any registered
investment company other than an investment company registered under
section 7(d) of the Act (``U.S. Investment Company''), and its
custodians or subcustodians to maintain foreign securities and other
assets in France in the custody of applicant Caisse des Depots et
Consignations (``CDC''), consistent with the requirements of rule 17f-5
under the Act.
FILING DATES: The application was filed on February 26, 1998.
Applicants have agreed to file an amendment during the notice period,
the substance of which is reflected in this notice.
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 on August 23, 1999, and
should be accompanied 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicant, c/o Leonard B. Mackey, Jr. Esq., Rogers & Wells LLP,
200 Park Avenue, New York, New York 10166.
FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at
(202) 942-7120, or Nadya B. Roytblat, 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 at the
SEC's Public Reference Branch, 450 fifth Street, NW., Washington, DC
20549-0102 (tel. 202-942-8090).
Applicant's Representations
1. CDC is a quasi-governmental, public-sector financial institution
created in 1816 under French law to safeguard deposits requiring a high
degree of safety. CDC specifically is not designated as a bank,
although CDC is permitted to conduct banking activities. CDC's
traditional activities involve safeguarding and managing financial
assets, particularly pension plan assets and assets collected by the
French savings bank network. In addition, CDC is involved, directly and
indirectly, in a broad range of financial activities, including life
insurance, local development, banking, capital market activities, and
third-party asset management. CDC is the leading securities custodian
in France, with assets held in custody at 1998 year-end of
approximately US$726.2 billion.
2. CDC's total assets as of December 31, 1998 were approximately
US$171 billion, with reserves and retained earnings (the excess of
CDC's assets over its liabilities) of approximately US$13 billion.
CDC's debt securities are rated AAA by Standard & Poor's Ratings Group
and Aaa by Moody's Investors Service, Inc. Although CDC is not subject
to any net capital or compulsory reserve regulations, CDC complies on a
voluntary basis with the solvency ratio regulations that apply to banks
in France. CDC's financial statements are prepared in accordance with
the French generally accepted accounting principles applicable to
banking and financial institutions and they are audited by two
independent accounting firms using the same accounting standards
applicable to French banks.
3. Under French law, only specified institutions, including banks
and CDC,
[[Page 41981]]
are permitted to provide custodial services. CDC is subject to the same
laws and regulatory authorities governing its custodial activities as
govern the custodial activities of banks in France. CDC's custodial
services are overseen and inspected by the Financial Market Commission
and the Commission des Operations de Bourse, the same agencies that
oversee and inspect custodial services provided by French banks.
4. Applicant states that CDC is not immune from suit by its
creditors, including customers of CDC's custodial services. While CDC
as a public entity under French law is immune from forced execution (or
attachment), CDC is not restricted in its ability to pay claims or
judgments out of its assets. Applicant states that under French law,
CDC must pay a money judgment rendered by any French court of law and,
if CDC fails to pay the judgment within four months of being notified
of the court decision, CDC must pay a penalty.
5. CDC requests an order to permit any U.S. Investment Company and
any custodian or subcustodian for a U.S. Investment Company to maintain
assets in the custody of CDC consistent with the requirements of rule
17f-5 under the Act discussed below.
Applicant's 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 enumerated entities, including a
bank having at all times aggregate capital, surplus, and undivided
profits of at least $500,000. A ``bank,'' as that term is 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 bank of the
Federal Reserve System; and (c) any other banking institution or trust
company, whether incorporated or not, doing business under the laws of
any state or of the United States, a substantial portion of which
consists of receiving deposits or exercising fiduciary powers similar
to those permitted to national banks, which is supervised or examined
by state or federal authority having supervision over banks, and which
is not operated for the purposes of evading the Act.
2. The only entities located outside the United States that section
17(f) authorizes to serve as custodians for U.S. Investment Companies
are the overseas branches of qualified U.S. banks. Rule 17f-5 under the
Act, however, expands the group of entities that are permitted to serve
as foreign custodians. The rule defines the term ``Eligible Foreign
Custodian'' to include, among others, an entity incorporated or
organized under the laws of a foreign country that is a banking
institution or trust company regulated as such by the foreign country's
government or government agency. CDC states that it is not an Eligible
Foreign Custodian under rule 17f-5 of the Act because it is a special
entity under French law and is not regulated as a banking institution
or trust company, nor is it a securities depository or clearing agency
under rule 17f-5.
3. Section 6(c) of the Act provides that the SEC may, conditionally
or unconditionally, exempt any person or class of persons from any
provisions of the Act or from any rule under the Act if, and to the
extent that, the 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. CDC
requests relief from section 17(f) to permit U.S. Investment Companies
to treat CDC as an Eligible Foreign Custodian for purposes of rule 17f-
5. In selecting CDC as a foreign custodian, a U.S. Investment Company
would be required to comply with all of the requirements of rule 17f-5,
as now in effect or as it may be amended.\1\
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\1\ Those requirements include, among others, procedures for
selecting, contracting with, and monitoring a foreign custodian.
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4. CDC states that it is the largest custodian of securities in
France. CDC further states that it voluntarily complies with the
regulations, such as the solvency ratio regulations, risk control, and
accounting rules, that are applicable to French banks. CDC also states
that its custodial services are subject to the same regulatory
oversight as the custodial services provided by French banks. CDC thus
asserts that assets of U.S. Investment Companies in the custody of CDC
will have the same or greater protection as in the custody of a French
bank. CDC states that it would be consistent with the protection of
investors and the policies underlying the Act to treat CDC as a bank
for purposes of rule 17f-5.
Applicant's Conditions
Applicant agrees that any order granting the requested relief will
be subject to the following conditions:
1. The foreign custody arrangements that involve CDC will comply
with all provisions of rule 17f-5, as now in effect or as it may be
amended, except paragraph (a)(1) to the extent CDC does not meet the
definition of Eligible Foreign Custodian.
2. CDC will continue to comply voluntarily with French banking
regulations concerning risk controls, solvency ratios, and accounting
standards.
3. CDC's custodial activities will be subject to regulation by the
same agencies that regulate the custodial activities of French banks.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19720 Filed 7-30-99; 8:45 am]
BILLING CODE 8010-01-M
