[Federal Register Volume 60, Number 45 (Wednesday, March 8, 1995)]
[Notices]
[Pages 12811-12812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5581]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20934; International Series Release
No. 789; 812-9262]
Mellon Bank, N.A.; Notice of Application
March 1, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: Mellon Bank, N.A. (``MBNA'').
RELEVANT ACT SECTIONS: Sections 6(c) and 17(f).
SUMMARY OF APPLICATION: MBNA seeks an order under section 6(c) of the
Act granting an exemption from section 17(f). The order would allow
United States registered investment companies other than investment
companies registered under section 7(d) (a ``U.S. Investment
Company''), for which MBNA serves as custodian or subcustodian, to
maintain foreign securities and assets in the United Kingdom with
Mellon Europe Limited (``MEL''), a wholly-owned subsidiary of MBNA.
FILING DATES: The application was filed on September 29, 1994 and
amended on February 23, 1995.
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 March 27, 1995,
and should be accompanied by proof of service on the 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258-0001.
FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or C. David
Messman, Branch Chief, at (202) 942-0564 (Division of Investment
Mranagement, 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. MBNA requests an order to allow MBNA, any U.S. Investment
Company, and any custodian for a U.S. Investment Company to maintain
foreign securities, cash, and cash equivalents (collectively,
``assets'') in the custody of MEL. For the purposes of this
application, ``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 of 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 the United States.
2. MBNA is a national banking association organized and existing
under the laws of the United States. MBNA is regulated by the Office of
the Comptroller of the Currency and is subject to the National Bank
Act. As of December 31, 1993, MBNA had aggregate capital, surplus, and
undivided profits in excess of $2,460,000,000. MBNA is a wholly-owned
direct subsidiary of Mellon Bank Corporation (``Mellon''), a
Pennsylvania corporation qualified as a bank holding company under the
Bank Holding Company Act of 1956.
3. MEL is a wholly-owned subsidiary of MBNA and is regulated by the
Bank of England under the Banking Act of 1987. As of December 31, 1993,
MEL had shareholders' equity slightly in excess of $10,000,000.
4. Boston Safe Deposit and Trust Company (``Boston Safe'') is a
subsidiary of The Boston Company, Inc. Boston Safe is organized as a
trust company under Massachusetts law and is regulated by the
Massachusetts Commissioner of Banks. In May 1993, Mellon acquired The
Boston Company, Inc. and its subsidiaries, including Boston Safe. A
major business unit of Boston Safe is Global Securities Services, which
provides international financial and securities processing services,
including global custody, and is qualified to hold U.S. Investment
Company assets under section 17(f) of the Act.
5. Mellon proposes to transfer the custody activities of the London
branch of Boston Safe to MEL by transferring to MEL the operations and
assets of the Global Custody Department of Boston Safe. Assets of U.S.
Investment Companies held by the London branch of Boston Safe will not
be transferred to MEL prior to the issuance of the requested order.\1\
Thereafter, MBNA, as custodian or sub-custodian for a U.S. Investment
Company, will deposit, or cause or permit a U.S. Investment Company to
deposit, its assets with MEL. In the alternative, MEL, as custodian or
subcustodian will receive and hold the assets of a U.S. Investment
Company directly from such U.S. Investment Company, its custodian or
subcustodian, other than MBNA but including Boston Safe.
\1\Until the requested order is issued, U.S. Investment Company
assets will continue to be held by the London branch of Boston Safe
or another custodian that qualifies under section 17(f) of the Act.
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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
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 which
section 17(f) authorizes to serve as custodians for registered
management investment companies are the overseas branches of qualified
U.S. banks. Rule 17f-5 expands [[Page 12812]] the group of entities
that are permitted to serve as foreign custodians. Rule 17f-5(c)(2)(ii)
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
country other than the United States and that has shareholders' equity
in excess of $100,000,000. MBNA is a qualified U.S. bank since it is a
bank as defined in rule 17f-5(c)(3) and it has aggregate capital,
surplus, and undivided profits of at least $500,000.
3. MEL satisfies the requirements of rule 17f-5 insofar as it is a
majority-owned direct or indirect foreign subsidiary of a qualified
U.S. bank or bank holding company. MEL does not, however, meet the
minimum shareholders' equity requirement of rule 17f-5. Accordingly,
MEL is not an Eligible Foreign Custodian under rule 17f-5 and, absent
exemptive relief, could not serve as a custodian for the assets of U.S.
Investment Companies.
4. Section 6(c) provides, in relevant part, that the SEC may,
conditionally or unconditionally, by other, exempt any person or class
of persons from any provision of the Act or from any rule thereunder,
if such exemption is necessary or appropriate in the public interest,
consistent with the protection of investors, and consistent with the
purposes fairly intended by the policy and provisions of the Act. MBNA
submits that its request satisfies this standard.
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 MEL satisfy
the requirements of rule 17f-5 in all respects other than MEL's level
of shareholder equity.
2. MBNA, any U.S. Investment Company, and any custodian for a U.S.
Investment Company, will deposit assets with MEL only in accordance
with an agreement (the ``Agreement'') required to remain in effect at
all times during which MEL fails to satisfy the requirements of rule
17f-5 (and during which such assets remain deposited with MEL). Each
Agreement will be three party agreement among (a) MBNA, (b) MEL, and
(c) the U.S. Investment Company or any custodian for a U.S. Investment
Company (including Boston Safe) pursuant to which MBNA or MEL, as the
case may be, will undertake to provide specified custody services. If
MBNA is to provide such services, the Agreement will authorize MBNA to
delegate to MEL such of the duties and obligations of MBNA as will be
necessary to permit MEL to hold in custody the U.S. Investment
Company's assets. If MEL is to provide service directly, no such
delegation will be necessary. However, in either case, the Agreement
will provide that MBNA will be liable for any loss, damage, cost,
expense, liability, or claim arising out of or in connection with the
performance by MEL of its responsibilities under the Agreement to the
same extent as if MBNA had itself been required to provide custody
services under the Agreement. Further, the Agreement will provide that,
in the event of loss, the U.S. Investment Company or its custodian may
pursue a claim for recovery against MBNA, regardless of whether MEL
acted as MBNA's delegate or as direct custodian or subcustodian.
3. MBNA currently satisfies and will continue to satisfy the
minimum requirements for a qualified U.S. bank set forth in sections
2(a)(5) and 17(f) of the Act.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5581 Filed 3-7-95; 8:45 am]
BILLING CODE 8010-01-M