[Federal Register Volume 63, Number 14 (Thursday, January 22, 1998)]
[Notices]
[Pages 3363-3364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1491]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IA-1694/803-128]


Nikko Research Center (America), Inc.; Notice of Application

January 15, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'').

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APPLICANT: Nikko Research Center (America), Inc.

relevant advisers act sections: Exemption requested under section 
203A(c) from section 203A(a).

SUMMARY OF APPLICATION: Applicant requests an order to permit it to 
register with the SEC as an investment adviser.

FILING DATES: The application was filed on December 3, 1997.

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 9, 
1998, 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 
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 5th Street, N.W., Washington, D.C. 
20549. Applicant, Nikko Research Center (America), Inc., One World 
Financial Center, Tower A, 200 Liberty Street, New York, New York 
10281.

FOR FURTHER INFORMATION CONTACT: Kathy D. Ireland, Attorney, at (202) 
942-0530, or Jennifer S. Choi, Special Counsel, at (202) 942-0716 
(Division of Investment Management, Task Force on Investment Adviser 
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.

Applicant's Representations

    1. Applicant is a corporation organized under the laws of New York 
and a wholly-owned subsidiary of the Nikko Research Center, Ltd. 
(``NRC''), an unregistered investment adviser located in Japan, which 
is affiliated with the Nikko Securities Co., Ltd. (``NST''), an 
integrated financial services company also located in Japan.
    2. Applicant maintains its principal place of business in New York 
and is currently registered as an investment adviser in New York. 
Applicant was registered with the SEC as an investment adviser until 
July 8, 1997.
    3. Pursuant to separate service agreements between applicant and 
NRC, NST, and Nikko Securities Co. International, Inc. (``NSI''), a 
registered broker-dealer located in the United States and an indirect 
wholly-owned subsidiary of NST, applicant provides NRC, NST, and NSI 
with reports concerning national and international political, economic, 
financial, and investment matters to assist them with the services that 
they provide to their clients. Some of these reports may be distributed 
directly by NSI and NST to their institutional clients, and NST may 
distribute such reports to certain retail clients, all of whom are in 
Japan. NSI does not have retail clients.
    4. Applicant's analysts, strategists, and economists speak at 
seminars for clients of NSI, all of which are U.S. affiliates of 
Japanese-based banking institutions. NSI mails seminar materials 
directly to other institutional clients.
    5. Applicant's analysts and economists also periodically meet 
directly with certain institutional clients of NSI and NST, including 
U.S. subsidiaries of Japanese regional banks, insurance companies, and 
Japanese banks and trust companies.\1\ The foregoing are the only 
direct contacts applicant has with clients of NSI and NST. Applicant 
does not and will not have any direct contacts with any clients of NRC.
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    \1\ Although NST has retail as well as institutional clients, 
applicant only has direct contact with certain of NST's 
institutional clients.
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    6. Applicant receives compensation solely from NRC, NSI and NST in 
an amount equivalent to its total annual operational cost plus 3%.

Applicant's Legal Analysis

    1. On October 11, 1996, the National Securities Markets Improvement 
Act of 1996 was enacted. Title III of the Act, the Investment Advisers 
Supervision Coordination Act, added new section 203A to the Advisers 
Act. Under section 203A(a)(1),\2\ an investment adviser that is 
regulated or required to be regulated as an investment adviser in the 
state in which it maintains its principal office and place of business 
is prohibited from registering with the SEC unless the investment 
adviser (i) has assets under management of not less than $25 million or 
(ii) is an adviser to an investment company registered under the 
Investment Company Act of 1940 (``Investment Company Act''). Section 
203A(a)(2) defines the phrase ``assets under management'' as the 
``securities portfolios with respect to which an investment adviser 
provides continuous and regular supervisory or management 
services.''\3\
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    \2\ 15 U.S.C. 80b-3a(a)(1).
    \3\ 15 U.S.C. 80b-3a(a)(2).
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    2. Applicant submits that section 203A of the Advisers Act is 
intended to streamline the registration and oversight of investment 
advisers by reallocating responsibilities between the SEC and the 
states. Applicant notes that Congress determined that the states should 
be responsible for regulating investment advisers ``whose activities 
are likely to

[[Page 3364]]

be concentrated in their home state,'' but ``[l]arger advisers, with 
national businesses,'' should be regulated by the SEC and be ``subject 
to national rules.''\4\
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    \4\ S. Rep. No. 293, 104th Cong., 2d Sess. 4 (1996).
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    3. Section 203A(c) of the Advisers Act authorizes the SEC to permit 
an investment adviser to register with the SEC if prohibiting 
registration would be ``unfair, a burden on interstate commerce, or 
otherwise inconsistent with the purpose of [section 203A].''\5\
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    \5\ 15 U.S.C. 80b-3a(c).
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    4. Applicant states that it does not qualify for SEC registration 
under section 203A. Applicant submits that it does not have assets 
under management or act as an investment adviser to an investment 
company registered as such under the Investment Company Act. Applicant 
also states that it does not satisfy any of the exemptions from the 
prohibition on registration provided in rule 203A-2 under the Advisers 
Act.
    5. Applicant asserts that it would be inconsistent with the 
purposes of section 203A if it were prohibited from registering with 
the SEC. Applicant submits that its activities, like those of the 
nationally recognized statistical rating organizations (``NRSROs'') and 
pension consultants, affect the national and international securities 
markets.
    6. Applicant states that its research reports focus primarily on 
issues of national and international scope and significance. Applicant 
states that its advisory services are provided to only three clients 
for compensation, and that those entities utilize applicant's services 
in connection with the delivery of services to their own clients, many 
of which are substantial institutional investors, such as banks, 
insurance companies, and trust companies located throughout the world, 
that collectively manage and/or invest billions of dollars in both 
foreign and domestic securities. Applicant asserts that, the 
significant resources of these institutional investors, which may 
utilize its research and analyses in connection with their own 
investment management activities, substantially affect both national 
and international securities markets.\6\
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    \6\ Applicant also notes that its services reach certain 
institutional investors even more directly. As described above, 
applicant gives seminar presentations for certain of NSI's clients, 
and holds individual meetings directly with certain clients of NSI 
and NST, all which are institutional investors with a national or 
international presence.
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    7. Applicant states that the SEC exempted NRSROs from the 
prohibition on SEC registration although they typically do not have 
assets under management or act as investment advisers to registered 
investment companies because their activities have a significant effect 
on the national securities markets and the operation of federal 
securities laws.\7\
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    \7\ Rules Implementing Amendments to the Investment Advisers Act 
of 1940, Investment Advisers Act Release No. 1633 at Section II.D.1. 
(May 15, 1997) [62 FR 28112 (May 22, 1997)].
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    8. Applicant also states that the SEC exempted certain pension 
consultants from the prohibition on SEC registration even though they 
may not have assets under management or act as investment advisers to 
registered investment companies because they have a direct effect on 
the management of billions of dollars of plan assets, which in turn 
affects the national markets.\8\
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    \8\ Id. at Section II.D.2.
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    9. Applicant also submits that it would be inconsistent with the 
purposes of section 203A(b)(1)(A) if it were subject to state 
regulation. Applicant states that, pursuant to this section, Congress 
preserved the states' ability to regulate certain investment adviser 
representatives of investment advisers registered with the SEC if those 
representatives provide services to retail clients. Applicant submits 
that Congress determined that the primary interest of the states is to 
maintain oversight of representatives with retail, and not 
institutional, clientele because the activities of these 
representatives predominately affect local markets. Applicant states 
that in defining the term ``investment adviser representative'' for 
purposes of section 203A(b), the SEC noted its belief that it is 
consistent with the intent of Congress to distinguish between retail 
and other clients.\9\
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    \9\ Id. at Section II.F.1.
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    10. Applicant states that it does not provide investment advisory 
services directly to retail clients. Applicant submits that its three 
clients are institutions whose activities are national and 
international in scope. Further, applicant states that the advisory 
services that it provides to its clients are primarily used by such 
clients in connection with the services that they provide to their own 
clients, which are almost exclusively institutional.\10\ Applicant 
states that, because its services are provided primarily to 
institutions, it is not the sort of investment adviser that Congress 
intended to be subject to regulation by and registration with the 
states.
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    \10\ Of applicant's three clients, only NST has retail clients, 
all of whom are outside the United States. Applicant has no direct 
contacts with any of NST's retail clients.
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    11. Applicant believes that Congress intended that national 
investment advisers remain subject to SEC oversight, in part to focus 
SEC supervision and examination resources on investment advisers 
involved in interstate commerce. Applicant contends that the national 
and international nature of its activities lends itself to supervision 
and examination by one regulatory body.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-1491 Filed 1-21-98; 8:45 am]
BILLING CODE 8010-01-M