[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