[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Notices]
[Pages 41980-41981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19720]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23922; International Series Rel. No. 1201; 812-11038]


Caisse des Depots et Consignations; Notice of Application

July 27, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(f) 
of the Act.

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SUMMARY OF APPLICATION: The order would permit any registered 
investment company other than an investment company registered under 
section 7(d) of the Act (``U.S. Investment Company''), and its 
custodians or subcustodians to maintain foreign securities and other 
assets in France in the custody of applicant Caisse des Depots et 
Consignations (``CDC''), consistent with the requirements of rule 17f-5 
under the Act.

FILING DATES: The application was filed on February 26, 1998. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.

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 on August 23, 1999, and 
should be accompanied 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicant, c/o Leonard B. Mackey, Jr. Esq., Rogers & Wells LLP, 
200 Park Avenue, New York, New York 10166.
FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at 
(202) 942-7120, or Nadya B. Roytblat, Assistant Director 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, 450 fifth Street, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. CDC is a quasi-governmental, public-sector financial institution 
created in 1816 under French law to safeguard deposits requiring a high 
degree of safety. CDC specifically is not designated as a bank, 
although CDC is permitted to conduct banking activities. CDC's 
traditional activities involve safeguarding and managing financial 
assets, particularly pension plan assets and assets collected by the 
French savings bank network. In addition, CDC is involved, directly and 
indirectly, in a broad range of financial activities, including life 
insurance, local development, banking, capital market activities, and 
third-party asset management. CDC is the leading securities custodian 
in France, with assets held in custody at 1998 year-end of 
approximately US$726.2 billion.
    2. CDC's total assets as of December 31, 1998 were approximately 
US$171 billion, with reserves and retained earnings (the excess of 
CDC's assets over its liabilities) of approximately US$13 billion. 
CDC's debt securities are rated AAA by Standard & Poor's Ratings Group 
and Aaa by Moody's Investors Service, Inc. Although CDC is not subject 
to any net capital or compulsory reserve regulations, CDC complies on a 
voluntary basis with the solvency ratio regulations that apply to banks 
in France. CDC's financial statements are prepared in accordance with 
the French generally accepted accounting principles applicable to 
banking and financial institutions and they are audited by two 
independent accounting firms using the same accounting standards 
applicable to French banks.
    3. Under French law, only specified institutions, including banks 
and CDC,

[[Page 41981]]

are permitted to provide custodial services. CDC is subject to the same 
laws and regulatory authorities governing its custodial activities as 
govern the custodial activities of banks in France. CDC's custodial 
services are overseen and inspected by the Financial Market Commission 
and the Commission des Operations de Bourse, the same agencies that 
oversee and inspect custodial services provided by French banks.
    4. Applicant states that CDC is not immune from suit by its 
creditors, including customers of CDC's custodial services. While CDC 
as a public entity under French law is immune from forced execution (or 
attachment), CDC is not restricted in its ability to pay claims or 
judgments out of its assets. Applicant states that under French law, 
CDC must pay a money judgment rendered by any French court of law and, 
if CDC fails to pay the judgment within four months of being notified 
of the court decision, CDC must pay a penalty.
    5. CDC requests an order to permit any U.S. Investment Company and 
any custodian or subcustodian for a U.S. Investment Company to maintain 
assets in the custody of CDC consistent with the requirements of rule 
17f-5 under the Act discussed below.

Applicant's Legal Analysis

    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 enumerated entities, including a 
bank having at all times aggregate capital, surplus, and undivided 
profits of at least $500,000. A ``bank,'' as that term is 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 bank of the 
Federal Reserve System; and (c) any other banking institution or trust 
company, whether incorporated or not, doing business under the laws of 
any state or of the United States, a substantial portion of which 
consists of receiving deposits or exercising fiduciary powers similar 
to those permitted to national banks, which is supervised or examined 
by state or federal authority having supervision over banks, and which 
is not operated for the purposes of evading the Act.
    2. The only entities located outside the United States that section 
17(f) authorizes to serve as custodians for U.S. Investment Companies 
are the overseas branches of qualified U.S. banks. Rule 17f-5 under the 
Act, however, expands the group of entities that are permitted to serve 
as foreign custodians. The rule defines the term ``Eligible Foreign 
Custodian'' to include, among others, an entity incorporated or 
organized under the laws of a foreign country that is a banking 
institution or trust company regulated as such by the foreign country's 
government or government agency. CDC states that it is not an Eligible 
Foreign Custodian under rule 17f-5 of the Act because it is a special 
entity under French law and is not regulated as a banking institution 
or trust company, nor is it a securities depository or clearing agency 
under rule 17f-5.
    3. Section 6(c) of the Act provides that the SEC may, conditionally 
or unconditionally, exempt any person or class of persons from any 
provisions of the Act or from any rule under the Act if, and to the 
extent that, the 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. CDC 
requests relief from section 17(f) to permit U.S. Investment Companies 
to treat CDC as an Eligible Foreign Custodian for purposes of rule 17f-
5. In selecting CDC as a foreign custodian, a U.S. Investment Company 
would be required to comply with all of the requirements of rule 17f-5, 
as now in effect or as it may be amended.\1\
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    \1\ Those requirements include, among others, procedures for 
selecting, contracting with, and monitoring a foreign custodian.
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    4. CDC states that it is the largest custodian of securities in 
France. CDC further states that it voluntarily complies with the 
regulations, such as the solvency ratio regulations, risk control, and 
accounting rules, that are applicable to French banks. CDC also states 
that its custodial services are subject to the same regulatory 
oversight as the custodial services provided by French banks. CDC thus 
asserts that assets of U.S. Investment Companies in the custody of CDC 
will have the same or greater protection as in the custody of a French 
bank. CDC states that it would be consistent with the protection of 
investors and the policies underlying the Act to treat CDC as a bank 
for purposes of rule 17f-5.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. The foreign custody arrangements that involve CDC will comply 
with all provisions of rule 17f-5, as now in effect or as it may be 
amended, except paragraph (a)(1) to the extent CDC does not meet the 
definition of Eligible Foreign Custodian.
    2. CDC will continue to comply voluntarily with French banking 
regulations concerning risk controls, solvency ratios, and accounting 
standards.
    3. CDC's custodial activities will be subject to regulation by the 
same agencies that regulate the custodial activities of French banks.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19720 Filed 7-30-99; 8:45 am]
BILLING CODE 8010-01-M