[Federal Register Volume 59, Number 142 (Tuesday, July 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18136]


[[Page Unknown]]

[Federal Register: July 26, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20419; 812-9004; International Series 
Release No. 690]

 

Berliner Handels--und Frankfurter Bank; Notice of Application

July 20, 1994.

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: Berliner Handels--und Frankfurter Bank (``BHF-Bank'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from the 
provisions of section 17(f).

SUMMARY OF APPLICATION: BHF-Bank seeks an order to permit registered 
management investment companies for which BHF-Bank or Zivnostenska 
Banka acts as foreign custodian or subcustodian (other than investment 
companies registered under section 7(d)) (``Investment Company'') 
maintain their foreign securities and other assets in the custody of 
Zivnostenska Banka in the Czech Republic.

FILING DATE: The application was filed in May 13, 1994 and amended on 
July 15, 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 August 15, 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 the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicant, Bockenheimer Landstrasse 10, 60323 Frankfurt, Germany.

FOR FURTHER INFORMATION CONTACT:
James E. Anderson, Staff Attorney, at (202) 942-0573, 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

    1. BHF-Bank is a commercial bank organized under the laws of the 
Federal Republic of Germany (``Germany''). BHF-Bank is engaged in a 
broad range of banking, financial, corporate, and investment services. 
As a part of its services to international investors and financial 
institutions including Investment Companies and their custodians, BHF-
Bank offers custody and subcustody services through a network of 
correspondent banks worldwide.
    2. Zivnostenska Banka, a 40 percent-owned direct affiliate of BHF-
Bank, is engaged in the business of commercial banking.
    It currently offers all services connected with the settlement and 
safekeeping of securities purchased in the Czech Republic, including 
all recordkeeping and registration operations, the preparation of 
securities transaction reports and account statements, and the 
transmittal to its customers of any notices of corporate actions in 
accordance with the standard practice prevailing in the Czech 
Republic.\1\
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    \1\For purposes of this application, foreign securities are 
defined as: (a) securities issued and sold primarily outside the 
United States 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; or (b) securities 
issued or guaranteed by the government of the United States or by 
any state or political subdivision thereof or by any agency thereof 
or by any entity organized under the laws of the United States or 
any state thereof which have been issued and sold primarily outside 
the United States.
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    3. BHF-Bank seeks an order under section 6(c) exempting BHF-Bank, 
Zivnostenska Banka, and Investment Companies and their custodians from 
section 17(f). The order would let BHF-Bank, as custodian or 
subcustodian for Investment Companies, and Investment Companies and 
their custodians, maintain foreign securities, cash, and cash 
equivalents of such Investment Companies in the custody of Zivnostenska 
Banka in the Czech Republic.

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 an 
aggregate capital, surplus, and undivided profits of as 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 are permitted by section 
17(f) to 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. Rule 17f-5(c)(2)(i) 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. Applicant is an eligible foreign custodian in Germany under the 
requirements of rule 17f-5, since it has shareholders' equity well in 
excess of $1.5 billion, is organized and existing under the laws of 
Germany, and is authorized and regulated in Germany as a bank by the 
federal banking supervisory authority (Bundesaufsichtsamt fuer das 
Kreditwesen) and Germany's central bank (Deutsche Bundesbank).
    4. Zivnostenska Banka satisfies all of the requirements of rule 
17f-5 except the shareholders' equity requirement. It is organized and 
existing under the laws of the Czech Republic and is authorized and 
regulated in the Czech Republic as a bank by the Czech national bank 
(Ceska Narodni Banka). Absent exemptive relief, Zivnostenska Banka 
cannot serve as a custodian for Investment Company assets.

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 Zivnostenska 
Banka will satisfy the requirements of rule 17f-5 in all respects other 
than Zivnostenska Banka's level of shareholders' equity.
    2. BHF-Bank, any Investment Company, and any custodian for an 
Investment Company will deposit assets with Zivnostenska Banka only in 
accordance with an agreement (the ``Agreement'') required to remain in 
effect at all times during which Zivnostenska Banka fails to satisfy 
the requirements of rule 17f-5 (and during which such assets remain 
deposited with Zivnostenska Banka). Each Agreement will be a three-
party agreement among BHF-Bank, Zivnostenska Banka, and the Investment 
Company or the custodian for an Investment Company pursuant to which 
BHF-Bank or Zivnostenska Banka, as the case may be, will undertake to 
provide specified custody services. If BHF-Bank is to provide such 
services, the Agreement will authorize BHF-Bank to delegate to 
Zivnostenska Banka such of the duties and obligations of BHF-Bank as 
will be necessary to permit Zivnostenska Banka to hold in custody the 
Investment Company's assets. If Zivnostenska Banka is to provide 
services directly, no such delegation will be necessary. However, in 
either case, the Agreement will provide that BHF-Bank will be liable 
for any loss, damage, cost, expense, liability, or claim arising out of 
or in connection with the performance by Zivnostenska Banka of its 
responsibilities under the Agreement to the same extent as if BHF-Bank 
had itself been required to provide custody services under the 
Agreement. Further, the Agreement will provide that, in the event of a 
loss, an Investment Company may pursue a claim for recovery against 
BHF-Bank, regardless of whether Zivnostenska Banka acted as BHF-Bank's 
delegate or as direct custodian or subcustodian.
    3. BHF-Bank currently satisfies and will continue to satisfy the 
minimum shareholders' equity requirement set forth in rule 17f-
5(c)(2)(i).

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18136 Filed 7-25-94; 8:45 am]
BILLING CODE 8010-01-M