[Federal Register Volume 59, Number 221 (Thursday, November 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28362]


[[Page Unknown]]

[Federal Register: November 17, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20694; International Series Release 
No. 749/812-9292]

 

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

November 9, 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 Mexico, S.A. 
(``Chase-Mexico, S.A. (``Chase-Mexico'').

Filing Date: The application was filed on October 14, 1994. Counsel for 
Chase has undertaken to file an amendment during the notice period, the 
substance of which is incorporated herein.

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 December 2, 
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 maintain foreign securities, 
cash, and cash equivalents (collectively, ``Assets'') in the custody of 
Chase-Mexico, an indirect subsidiary of Chase located in Mexico. 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 or by any entity organized 
under the laws of the United States or of any state thereof which have 
been issued and sold primarily outside of 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. Rule 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-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 currently operates a representative office in Mexico and 
has custodian accounts at a Mexican bank and Meixco's central 
securities depositary. As a result of the implementation of the North 
American Free Trade Agreement, Chase wishes to consolidate its 
activities in Mexico with the establishment of Chase-Mexico, which it 
anticipates will be incorporated in Mexico on or around November 1, 
1994. Chase-Meixco will be a wholly-owned indirect subsidiary of Chase 
engaged in the business of commercial banking in Mexico, and will be 
supervised by the National Banking Commission under the Banking Law. 
Chase intends to transfer its current custody operations in Mexico to 
Chase-Mexico upon receipt of the requested exemptive order.
    6. Chase-Mexico will satisfy the requirements of rule 17f-5 insofar 
as it will be a majority-owned indirect subsidiary of a Qualifying U.S. 
Bank and will be incorporated and organized under the laws of Mexico. 
Chase-Mexico will not, however, meet the $100 million minimum 
shareholders' equity requirement of rule 17f-5. Accordingly, Chase-
Mexico 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.
    7. Where custody services are required in Mexico, 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-Mexico in accordance with the arrangements described in the 
conditions below. Before permitting Chase-Mexico to act as a custodian 
for U.S. Investment Company Assets, Chase will assure that Chase-Mexico 
is capable and well-qualified to provide custody and subcustody 
services to Chase, U.S. Investment Companies, and custodians for U.S. 
Investment Companies. Under the proposed foreign custody arrangements, 
the protection afforded the Assets of U.S. Investment Companies held by 
Chase-Mexico 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 my be conditioned upon the following:
    1. The foreign custody arrangements proposed regarding Chase-Mexico 
will satisfy the requirements of rule 17f-5 in all respects other than 
Chase-Mexico's level of shareholders' equity.
    2. Chase will deposit Assets with Chase-Mexico 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-Mexico 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-Mexico such of Chase's duties and obligations as will be 
necessary to permit Chase-Mexico to hold in custody the Mexican Assets 
of U.S. Investment Companies. The Custody Agreement will further 
provide that the delegation by Chase to Chase-Mexico 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-Mexico 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-
Mexico. Pursuant to this agreement, Chase will delegate to Chase-Mexico 
such of Chase's duties and obligations as would be necessary to permit 
Chase-Mexico to hold Assets in custody in Mexico. The Subcustody 
Agreement will explicitly provide that (i) Chase-Mexico 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-Mexico. 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28362 Filed 11-16-94; 8:45 am]
BILLING CODE 8010-01-M