[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