[Federal Register Volume 59, Number 207 (Thursday, October 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26640]


[[Page Unknown]]

[Federal Register: October 27, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20647; International Series Release 
No. 734/812-9242]

 

The Chase Manhattan Bank, N.A.; Notice of Application

October 21, 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: The Chase Manhattan Bank, N.A. (``Chase'').

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

SUMMARY OF APPLICATION. Chase seeks an order to enable it to maintain 
foreign securities and other assets of United States registered 
investment companies for which Chase serves as custodian or 
subcustodian in the custody of The Chase Manhattan Bank (M) Berhad 
(``Chase-Malaysia'').

FILING DATE: The application was filed on September 22, 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 November 14, 
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 
reasons 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, c/o Daniel L. Goelzer, Esq., Baker & McKenzie, 815 
Connecticut Avenue, NW., Washington, DC 20006.

FOR FURTHER INFORMATION CONTACT: H.R. Hallock, Jr., at (202) 942-0564 
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 and Legal Analysis

    1. Chase requests exemptive relief for itself, any management 
investment company registered under the Act, other than an investment 
company registered under section 7(d) of the Act (a ``U.S. Investment 
Company''), and any custodian for a U.S. Investment Company from 
section 17(f) of the Act. The requested exemption would let Chase, such 
U.S. Investment Company and such custodian to maintain foreign 
securities, cash, and cash equivalents (collectively, ``Assets'') in 
the custody of Chase-Malaysia, an indirect subsidiary of Chase located 
in Malaysia. For purposes of the application, the term ``foreign 
securities'' includes (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, and (b) securities 
issued or guaranteed by the Government of the United States or by any 
state or any political subdivision thereof or by any agency thereof by 
any entity organized under the laws of the United States or of any 
state thereof which have been issued and sold primarily outside the 
United States.
    2. 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. Rules 17f-5 
under the Act expands the group of entities located outside the United 
States that are permitted to serve as custodians for the Assets of 
registered management investment companies. Rule 17f-5 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 
$100,000,000 (U.S. $ equivalent or U.S. $) as of the close of its most 
recently completed fiscal year. The rule defines the term ``Qualified 
U.S. Bank'' to include a banking institution organized under the laws 
of the United States that has an aggregate capital, surplus and 
undivided profit of not less than $500,000.
    3. Chase is a national banking association and is regulated as such 
by the Comptroller of the Currency under the National Bank Act. At 
December 31, 1993, Chase had shareholders' equity in excess of $6.4 
billion. Thus, Chase is a ``Qualified U.S. Bank'' under the 
requirements of Rule 17f-5, since it is a banking institution organized 
under the laws of the United States, and it has aggregate capital, 
surplus and undivided profit substantially in excess of the $500,000 
minimum required by the rule.
    4. Chase is a subsidiary of The Chase Manhattan Corporation, a 
Delaware company that provides financial services throughout the world. 
Through its Global Securities Services division (``GSS''), Chase 
provides custody and related services to global institutional 
investors, including U.S. mutual funds. GSS currently has over $1,300 
trillion in assets under custody at various locations throughout the 
world, including its branches and subsidiaries in approximately 50 
countries.
    5. Chase established a branch in Kuala Lumpur, Malaysia in 1964, 
and currently offers custody services in Malaysia through that branch. 
However, under the Malaysian Banking and Financial Institutions Act 
1989, Chase must now convert its branch to a locally incorporated 
entity. To comply with Malaysian law, Chase proposes to transfer all 
the activities of the branch, as well as its personnel, to Chase-
Malaysia.
    6. Chase-Malaysia will be wholly-owned by Chase Manhattan Overseas 
Banking Corporation, a wholly-owned direct subsidiary of Chase. Chase-
Malaysia will assume the assets, liabilities, and business of the Chase 
Kuala Lumpur branch and will be subject to the supervision of Bank 
Negara Malayasia (the central bank of Malaysia). Chase-Malaysia will 
offer the same services as the former Chase Kuala Lumpur branch, and 
will become subject to the same capital and reporting requirements as 
other domestic banks in Malaysia.
    7. Chase-Malaysia will satisfy the requirements of rule 17f-5 
insofar as it will be a majority-owned indirect subsidiary of Chase and 
will be incorporated and organized under the laws of Malaysia. Chase-
Malaysia will not, however, meet the $100 million minimum shareholder's 
equity requirement of rule 17f-5. Accordingly, Chase-Malaysia will not 
qualify as an ``Eligible Foreign Custodian'' under the rule and, absent 
exemptive relief, could not serve as custodian for the Assets of U.S. 
Investment Companies.
    8. Where custody services are required in Malaysia, Chase will hold 
the Assets of U.S. Investment Companies as custodian or subcustodian, 
and will deposit (or cause or permit the deposit of) the Assets with 
Chase-Malaysia in accordance with the arrangement described in the 
conditions below. Chase-Malaysia will be well-qualified to provide 
custody and subcustody services to Chase, U.S. Investment Companies, 
and custodians for U.S. Investment Companies, since Chase-Malaysia will 
be the successor to the business of Chase's Kuala Lumpur branch, which 
is experienced in providing custody services. Under the proposed 
foreign custody arrangements, the protection affforded the Assets of 
U.S. Investment Companies held by Chase-Malaysia would not be 
diminished from the protection afforded by rule 17f-5.

Applicant's Conditions

    Chase agrees that any order of the SEC granting the requested 
relief may be conditioned upon the following:
    1. The foreign custody arrangements proposed regarding Chase-
Malaysia will satisfy the requirements of rule 17f-5 in all respects 
other than Chase-Malaysia's level of shareholders' equity.
    2. Chase will deposit Assets with Chase-Malaysia only in accordance 
with the Custody Agreement and the Subcustody Agreement described in 
(a) and (b) below. The Custody and Subcustody Agreements will remain in 
effect at all times during which Chase-Malaysia fails to satisfy all 
the requirements of the rule.
    (a) The Custody Agreement will be between Chase and the U.S. 
Investment Company (or its custodian). In that agreement, Chase will 
undertake to provide custody or subcustody services, and the U.S. 
Investment Company (or its custodian) will authorize Chase to delegate 
to Chase-Malaysia such of Chase's duties and obligations as will be 
necessary to permit Chase-Malaysia to hold the Assets of U.S. 
Investment Companies in custody in Malaysia. The Custody Agreement will 
further provide that the delegation by Chase to Chase-Malaysia will 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 Chase-Malaysia of the custody services to the same 
extent as if Chase had itself provided the custody services under the 
Custody Agreement.
    (b) A Subcustody Agreement will be executed by Chase and Chase-
Malaysia. Pursuant to this agreement, Chase will delegate to Chase-
Malaysia such of Chase's duties and obligations as would be necessary 
to permit Chase-Malaysia to hold Assets in custody in Malaysia. The 
Subcustody Agreement will explicitly provide that (i) Chase-Malaysia 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 (ii) the U.S. Investment Company or its custodian (as 
the case may be) that has entered into a Custody Agreement will be 
entitled to enforce the terms of the Subcustody Agreement and can seek 
relief directly against Chase-Malaysia. The Subcustody Agreement will 
provide that it will be governed by New York law.
    3. Chase currently satisfies and will continue to satisfy the 
Qualified U.S. Bank requirement set forth in rule 17f-5(c)(3).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 94-26640 Filed 10-26-94; 8:45 am]
BILLING CODE 8010-01-M