[Federal Register Volume 61, Number 98 (Monday, May 20, 1996)]
[Notices]
[Pages 25248-25250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12595]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21959; International Series Release No. 980; File No. 812-
10090]


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

May 14, 1996.
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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applicants: The Chase Manhattan Bank, N.A. (``Chase'') and Chemical 
Bank (``Chemical'').

relevant act sections: Order requested under section 6(c) of the Act 
for an exemption from section 17(f) of the Act.

summary of application: Applicants request an order that would amend 
three prior orders granted to Chase that permit Chase subsidiaries in 
Malaysia, Mexico, and Russia to maintain in those countries certain 
assets of U.S. registered investment companies. The requested order 
would substitute the entity surviving the anticipated merger of Chase 
and Chemical as the party to which relief is granted. Chemical will 
survive the merger and change its name to ``The Chase Manhattan Bank.''

filing date: The application was filed on April 18, 1996.

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 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 10, 1996 by 
proof of service on applicants, 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 who wish to be notified of a hearing may 
request notification by writing to the SEC's Secretary.

addresses: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants, c/o Daniel L. Goelzer, Esq., Baker & McKenzie, 815 
Connecticut Avenue NW., Washington, D.C. 20006.

for further information contact: Deepak T. Pai, Staff Attorney, at 
(202) 942-0574, or David M. Goldenberg, Branch Chief, 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 at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Chase is a national banking association, regulated by the 
Comptroller of the Currency under the National Bank Act. At December 
31, 1995, Chase had shareholders' equity in excess of $8.065 billion. 
Through its Global Securities Services division, Chase provides custody 
and related services to global institutional investors, including U.S. 
registered investment companies.
    2. Chemical Bank is a banking institution, organized under the laws 
of the State of New York. It is regulated as a bank by the 
Superintendent of Banks of New York, and is a member bank of

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the Federal Reserve System. At December 31, 1995, Chemical had 
shareholders' equity in excess of $8.18 billion. Through its Geoserve 
Securities Services division, Chemical provides custody and related 
services to global institutional investors, including U.S. registered 
investment companies.
    3. On March 31, 1996, Chase's parent holding company, The Chase 
Manhattan Corporation, and Chemical's parent holding company, Chemical 
Banking Corporation, merged. Chemical Banking Corporation was the 
surviving entity in the merger, and it has changed its name to ``The 
Chase Manhattan Corporation.'' During July 1996, it is anticipated that 
Chase will be merged into Chemical (the ``Merger''). Chemical will 
survive the Merger, and will change its name to ``The Chase Manhattan 
Bank'' (New Chase'').
    4. Chase-Malaysia, Chase-Mexico, and Chase-Russia (the ``Foreign 
Subsidiaries'') each are indirect subsidiaries of Chase and, after the 
Merger, each will become an indirect subsidiary of New Chase. 
Applicants state that, upon the Merger, New Chase will succeed by 
operation of law to the rights and obligations of Chase, including 
Chase's obligations under various custody agreements with certain U.S. 
registered investment companies and under subcustody agreements with 
each of the three Foreign Subsidiaries.
    5. Applicants request an order under section 6(c) for an exemption 
from section 17(f) that would amend three orders previously granted to 
Chase (the ``Prior Orders'') \1\ that permit Chase, and Chase's 
subsidiaries in Malaysia, Mexico, and Russia to provide certain foreign 
custody arrangements in those countries for the assets of investment 
companies registered under the Act, other than investment companies 
registered under section 7(d) of the Act (``U.S. Investment 
Companies'').\2\ Applicants request that New chase be substituted for 
Chase under the Prior Orders. The amendment will permit New Chase and 
its subsidiaries in Malaysia, Mexico,and Russia to continue to provide 
custody services in those jurisdictions to U.S. Investment Companies 
under the same terms and conditions as are set forth in the Prior 
Orders.
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    \1\ Chase Manhattan Bank, N.A., (``Chase-Malaysia''), Investment 
Company Act Release Nos. 20647 (Oct. 21, 1994) (notice) and 20706 
(Nov. 15, 1994) (order); Chase Manhattan Bank, N.A., (``Chase-
Mexico''), Investment Company Act Release Nos. 20694 (Nov. 9, 1994) 
(notice) and 20753 (Dec. 5, 1994) (order); and Chase Manhattan Bank, 
N.A., (``Chase-Russia''), Investment Company Act Release Nos. 20969 
(Mar. 28, 1995) (notice) and 21101 (May 31, 1995) (order).
    \2\ The Prior Orders define ``assets'' to include foreign 
securities, cash, and cash equivalents. ``Foreign securities'' 
include securities issued and sold primarily outside the U.S. 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 securities issued or guaranteed 
by the government of the U.S. or by any state or any political 
subdivision thereof or by any agency thereof or by any entity 
organized under the laws of the U.S. or of any state thereof which 
have been issued and sold primarily outside the U.S.
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    6. Each Prior Order requires, among other conditions, that Chase 
have in place two bilateral contractual arrangements, consisting of a 
Custody Agreement between Chase and the U.S. Investment Company (or its 
custodian), and a Subcustody Agreement between Chase and the applicable 
Foreign Subsidiary. Under the Custody Agreement, Chase undertakes to 
provide custody or subcustody services, and agrees to delegate certain 
of its duties and obligations as custodian to the Foreign Subsidiary. 
The Custody Agreement further provides that the delegation by Chase to 
the Foreign Subsidiary does 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 the Foreign Subsidiary 
of the custody services to the same extent as if Chase had itself 
provided the custody services under the Custody Agreement.
    7. Under each Subcustody Agreement, Chase delegates to Chase-
Malaysia, Chase-Mexico, and Chase-Russia, respectively, such of Chase's 
duties and obligations as would be necessary to permit the Foreign 
Subsidiary to hold assets in custody in Malaysia, Mexico, and Russia, 
respectively. Each Subcustody Agreement explicitly provides that (a) 
the Foreign Subsidiary 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 (b) the U.S. Investment Company 
or its custodian (as the case may be) that has entered into a Custody 
Agreement is entitled to enforce the terms of the Subcustody Agreement 
and can seek relief directly against the Foreign Subsidiary. Finally, 
each Subcustody Agreement provides that it is governed by New York law.

Applicants' Legal Conclusions

    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 entities, including ``banks'' 
having aggregate capital, surplus, and undivided profits of at least 
$500,000. A ``bank,'' as 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 of the Federal Reserve System; and (c) any 
other banking institution or trust company doing business under the 
laws of any State or of the United States, and meeting certain 
requirements. Therefore, 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 
U.S. banks.
    2. Rule 17f-5 under the Act expands 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 a country 
other than the United States and that has shareholders' equity in 
excess of $100 million. Rule 17f-5(c)(3) defines the term ``Qualified 
U.S. Bank'' to include a banking institution organized under the laws 
of the United States or a member bank of the Federal Reserve System 
that has an aggregate capital, surplus, and undivided profit of not 
less than $500,000.
    3. Chase is a Qualified U.S. Bank as defined in rule 17f-5, since 
it is a national bank and has aggregate capital, surplus, and undivided 
profits substantially in excess of the $500,000 minimum required by the 
rule. Chemical is a Qualified U.S. Bank under rule 17f-5, since it is a 
member of the Federal Reserve System and has capital substantially in 
excess of the $500,000 minimum. New Chase will also be a Qualified U.S. 
Bank after the Merger. The Foreign Subsidiaries are not U.S. banks and 
are not eligible foreign custodians, because each lacks the required 
$100 million in shareholders' equity, although each satisfies the other 
requirements for eligibility under rule 17f-5.
    4. Section 6(c) of the Act provides, in relevant part, that the SEC 
may 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.
    5. Applicants believe that the requested amendment is necessary and 
appropriate in the public interest to permit U.S. Investment Companies 
for which Chase serves as custodian or

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subcustodian to continue to use the arrangements currently in place 
under the Prior Orders after the Merger, and to permit new U.S. 
Investment Company customers for which New Chase may serve in such 
capacities to have access to such arrangements. Applicants contend that 
requiring current U.S. Investment Company customers of Chase to bear 
the substantial expense and effort of implementing alternative 
arrangements merely because of the Merger would be contrary to the best 
interests of investors and public policy. Absent an amendment, New 
Chase would be unable to offer these services in Malaysia, Mexico, and 
Russia to such U.S. Investment Companies under the Prior Orders.
    6. Applicants believe that the assets to which the Prior Orders 
relate will be as effectively protected by New Chase as they have been 
by Chase. Following the Merger, New Chase will be required to assume 
liability under the Chase-Malaysia, Chase-Mexico, and Chase-Russia 
orders, to the same extent that Chase is required to do so under these 
orders. Applicants state that this application does not seek to change 
in any manner the terms and protections applicable to U.S. Investment 
Company assets held in custody by the Foreign Subsidiaries.
    7. Applicants state that the purpose of section 17(f) is to ensure 
that U.S. Investment Companies hold securities in a safe manner that 
protects the interests of their shareholders. The purpose of rule 17f-5 
is to relieve U.S. Investment Companies of the expense and 
inconvenience of transferring assets to the custody of a U.S. bank or 
other qualified custodian outside the jurisdiction in which the primary 
trading market for those assets is located and to reduce the risks 
inherent in maintaining assets outside the United States. Applicants 
state that the requested amendment would permit New Chase to continue 
offering custody services in Malaysia, Mexico, and Russia under the 
same terms and conditions as set forth in the Prior Orders and is, 
therefore, consistent with these purposes.
    8. Applicants state that in granting the Prior Orders, the SEC 
determined that the arrangements which those orders permit satisfy the 
standards of section 6(c). Applicants believe that the substitution of 
New Chase for Chase as the party to which the terms and conditions of 
those orders apply in no way detracts from the continuing validity of 
the SEC's determinations. Therefore, applicants believe the requested 
order satisfies these standards.

Condition

    Applicants agree that the order granting the requested relief shall 
be subject to the condition that, following the merger of Chase and 
Chemical, New Chase will comply with all of the terms and conditions 
set forth in the existing orders as if such orders had been granted to 
New Chase.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12595 Filed 5-17-96; 8:45 am]
BILLING CODE 8010-01-M