[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