[Federal Register Volume 61, Number 15 (Tuesday, January 23, 1996)]
[Notices]
[Pages 1810-1812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-840]



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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21673; International Series Release 
No. 916; 812-9598]


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

January 16, 1996.
AGENCY: Securities and Exchange Commission (the ``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
from section 26(a)(2)(D) of the Act.

SUMMARY OF APPLICATION: Applicants request an order to permit Chase, as 
trustee for certain unit investment trusts (``UITs''), to deposit trust 
assets in the custody of the Euroclear System (``Euroclear'') and Cedel 
Bank S.A. (``Cedel'').

FILING DATE: The application was filed on May 10, 1995 and amended on 
November 6, 1995 and December 7, 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 February 12, 
1996, 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 
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, 1 Chase Manhattan Plaza, New York, New York 10081.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582 (Office of Regulatory Policy, Division of Investment 
Management), or Robert A. Robertson, Branch Chief, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 

[[Page 1811]]
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicant's Representations

    1. Chase, a national banking association, is a wholly-owned 
subsidiary of The Chase Manhattan Corporation (``CMC''), a Delaware 
corporation. Through its Global Securities Services division, Chase 
provides custody and related services to global institutional 
investors, and currently has over $1.3 trillion in assets under custody 
worldwide. Chase serves as trustee for a number of UITs.\1\

    \1\ Chase currently serves as trustees to UITs sponsored by the 
following:
    American Municipal Securities
    B.C. Ziegler & Co.
    BEA Associates
    Bear Stearns & Co., Inc.
    Concord Financial Group, Inc.
    Craige Inc.
    Dean Witter Reynolds
    Fidelity Capital Markets
    First Charlotte Corp.
    First of Michigan
    Herbert J. Sims
    Manley Bennett McDonald & Co.
    Merrill Lynch, Pierce, Fenner & Smith, Inc.
    Nike Securities L.P.
    John Nuveen & Co.
    Oppenheimer Capital
    Oppenheimer Manag. Corp.
    Paine Webber
    Prescott Ball & Turben Inc.
    Prudential Securities Inc.
    Raffensberger, Hughes & Co.
    Rickel & Associates
    Rotan, Mosle
    Salomon Bros. Inc.
    Smith Barney
    Sterne Ages Leach
    The Ohio Company
    Tucker Anthony
    Underwood Neuhaus & Co., Inc.
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    2. On September 2, 1995, Chase succeeded to certain of the trust 
and custodial functions of United States Trust Company of New York 
(``U.S. Trust''). Chase's succession to these functions resulted from 
the merger of U.S. Trust into Chase, immediately following the merger 
of U.S. Trust's parent, U.S. Trust Corporation, into CMC. Following the 
merger, Chase succeeded to the responsibilities of trustee under the 
various trust indentures executed by sponsors of UITs for which U.S. 
Trust acted as trustee. Under these indentures, and as required by the 
Act, Chase also assumed responsibility for the custody of the 
securities held in these UITs.
    3. On October 7, 1992, the SEC issued an exemptive order permitting 
U.S. Trust to maintain UIT assets in the custody of Euroclear and Cedel 
(the ``U.S. Trust Order'').\2\ Chase now seeks to ensure that: (a) The 
UITs to which Chase has succeeded as trustee as a result of the merger 
may continue to maintain assets with Euroclear and Cedel;\3\ and (2) 
Chase's other UIT customers \4\ may benefit from the same exemption, 
under substantially the same terms and conditions as are set forth in 
the U.S. Trust Order.

    \2\ United States Trust Company of New York, Investment Company 
Act Release Nos. 18946 (notice) (Sept. 11, 1992) and 19006 (order) 
(Oct. 7, 1992).
    \3\ To insure that the UITs to which Chase was to succeed as 
trustee could continue without interruption to maintain assets with 
Euroclear and Cedel after the merger and pending SEC action on the 
application, Chase sought and obtained interim no-action relief from 
the SEC staff. In The Chase Manhattan Bank, N.A., (pub. avail. July 
25, 1995), the staff authorized Chase to continue to maintain these 
assets with Euroclear and CEDEL until the earlier of the date on 
which the SEC takes final action on this application or July 25, 
1996.
    \4\ The assets of UITs sponsored by Merrill Lynch may already be 
held in the custody of Euroclear and Cedel pursuant to an exemptive 
order issued to Merrill Lynch. Merrill Lynch, Pierce, Fenner & Smith 
Incorporated, Investment Company Act Release Nos. 15739 (notice) 
(May 14, 1987) and 15813 (June 16, 1987).
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    4. Euroclear was organized by Morgan Guaranty in 1968, principally 
to provide a simple, economic, and automated means of settling 
secondary market transactions in internationally-traded securities, 
regardless of the geographical location of the parties to the 
transaction. Morgan Guaranty, which is subject to regulation by the 
State of New York and U.S. federal banking authorities, has operated 
Euroclear since its inception. In Belgium, Euroclear is subject to 
supervision by the Belgian Banking Commission. One of the main services 
of Euroclear is to hold securities in custody for participants and thus 
eliminate the need for physical movement of securities. Securities 
deposited by participants in Euroclear are held in segregated accounts 
in the name of the Brussels branch of Morgan Guaranty (as the operator 
of Euroclear) by various local financial institutions throughout the 
world, including branch offices of Morgan Guaranty and other major 
banks, as well as certain central banks and national clearing systems.
    5. Centrale de Livraison de Valeurs Mobilieres S.A (``CEDEL S.A.'') 
was formed in 1970 to provide a simple, economic, and automated means 
of settling primary and secondary transactions in international 
securities. On January 1, 1995, CEDEL S.A. became a fully licensed 
Luxembourg bank and changed its name to Cedel Bank S.A. Cedel is 
headquartered in Luxembourg and has representative offices in London, 
Tokyo, New York, and Hong Kong. Cedel operates under the supervision of 
the Luxembourg Monetary Authority, the bank regulatory authority in 
Luxembourg. Like Euroclear, Cedel provides custody services for its 
participants' securities through a network of local financial 
institutions.

Applicant's Legal Analysis

    1. Under sections 2(a)(5) and 26(a)(1) of the Act, the trustee of a 
unit investment trust must be a bank that is subject to regulation by 
the U.S. government or one of the states. Section 26(a)(2)(D) requires 
that the trust indenture provide that the trustee ``shall have 
possession of all securities and other property in which the funds of 
the trust are invested * * * and shall segregate and hold the same in 
trust * * * until distribution thereof to the security holders of the 
trust.'' Under these sections, the only foreign entity that qualifies 
as a unit investment trust custodian is an overseas branch of a U.S. 
bank.\5\

    \5\ See Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. 21259 (July 27, 1995).
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    2. Section 6(c) provides that the SEC may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities or transactions, from any 
provision of the Act or any rule or regulation thereunder, if and to 
the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    3. Chase requests an order pursuant to section 6(c) of the Act 
exempting (i) Chase, (ii) any UIT registered pursuant to the Act for 
which Chase serves, or may in the future serve, as trustee, (iii) any 
co-trustee or subcustodian thereof, and (iv) any sponsor of such UIT, 
from the provisions of section 26(a)(2)(D) to the extent necessary to 
permit Chase to maintain securities and other assets of such UITs in 
the custody of Euroclear and Cedel, in the manner and subject to the 
conditions described below.
    4. No SEC rule presently addresses the custody of the foreign 
assets of a UIT. Rule 17f-5, however, permits an investment company 
that is a management company to hold its foreign securities in certain 
specified foreign entities, including foreign security depositories or 
clearing agencies such as Euroclear or Cedel, subject to certain 
provisions designed to safeguard assets held overseas. Since UITs are 
not management companies, however, they may not rely on rule 17f-5.

[[Page 1812]]

    5. Chase proposes to provide foreign custody services to UITs 
through the facilities of Euroclear and Cedel (the ``Transnational 
Depositories'') pursuant to arrangements that will mirror the 
requirements applicable to registered management investment companies 
under rule 17f-5, with the specific modifications set forth below.
    6. A significant difference between the operation of a management 
investment company and a UIT is that the former is governed by a board 
of directors, while the latter is not. Rule 17f-5 imposes certain 
responsibilities on the board with respect to foreign custody 
arrangements. Accordingly, Chase will utilize the services of the 
Transnational Depositories to hold the assets of UITs for which Chase 
acts as trustee only where the duties assigned by rule 17f-5 (as now in 
effect or as it may be amended in the future) to the board of directors 
of management companies are performed in the manner set forth below.
    7. Prior to placing or holding foreign securities of a UIT in a 
Transnational Depository, Chase will:
    (a) Make such determinations with respect to (i) the particular 
country or countries in which the UIT's assets will be held, and (ii) 
the Transnational Depository in which the UIT's assets will be held;
    (b) Enter into such written contract to govern the manner in which 
the Transnational Depository will maintain the UIT's assets; and
    (c) Establish such system to monitor the foreign custody 
arrangements to ensure compliance with the proposed provisions of the 
order requested herein;

as rule 17f-5, as now in effect or as it may be amended in the future, 
requires of the board of a management investment company before it may 
place the assets of such company in the custody of a foreign custodian. 
Chase will memorialize in writing its determinations referred to in (a) 
above, and the reasons therefor. Chase will exercise reasonable care in 
the performance of the above-mentioned duties.
    8. The trust indenture will contain a provision under which Chase 
agrees to indemnify any UIT relying on the relief requested herein 
against any loss that occurs as the result of a Transnational 
Depository's willful misfeasance, reckless disregard, bad faith, or 
gross negligence in performing its custodial duties.
    9. Applicants believe that the requested order satisfies the 
section 6(c) standard. The requested exemptive order is necessary and 
appropriate in the public interest to permit UITs for which Chase 
serves as trustee to have access to the custody services of the 
Transnational Depositories. Absent an exemptive order, Chase will be 
unable to offer these services to such UITs. Chase believes that 
encouraging the growth of responsible book-entry systems for the 
clearance, settlement, and safeguarding of securities is in the public 
interest. In addition, Chase believes that requiring unitholders to 
bear the substantial additional expense of holding UIT securities 
outside of the Transnational Depositories would be contrary to the best 
interests of unitholders and to the public policy positions cited 
above. Chase, moreover, believes that securities deposited in the 
Transnational Depositories are at least as effectively protected as the 
same securities would be if directly deposited with a foreign branch of 
a U.S. bank, or shipped to the U.S. for custody.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief shall 
be subject to the following conditions:
    1. The trust indenture will contain provisions under which Chase 
agrees to indemnify any UIT relying on the relief requested herein 
against any loss occurring as a result of a Transnational Depository's 
willful misfeasance, reckless disregard, bad faith, or gross negligence 
in performing custodial duties.
    2. The trust indenture will contain provisions under which Chase 
agrees to perform all the duties assigned by rule 17f-5, as now in 
effect or as it may be amended in the future, to the boards of 
directors of management investment companies. Chase's duties under this 
condition will not be delegated.
    3. The prospectus of any UIT relying on the relief requested herein 
will contain such disclosure regarding foreign securities and foreign 
custody as is required for management investment companies by Forms N-
1A and N-2.
    4. Chase will maintain and keep current written records regarding 
the basis for the choice or continued use of a particular Transnational 
Depository. These records will be preserved for a period of not less 
than six years from the end of the fiscal year in which the UIT was 
terminated, the first two years in an easily accessible place. Such 
records will be available for inspection at Chase's main offices during 
Chase's usual business hours, by unitholders and by the SEC or its 
staff.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-840 Filed 1-22-96; 8:45 am]
BILLING CODE 8010-01-M