[Federal Register Volume 65, Number 15 (Monday, January 24, 2000)]
[Notices]
[Pages 3748-3750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1634]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IA-1851/803-140]


Ibbotson Associates, Inc.; Notice of Application

January 18, 2000.
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: Ibbotson Associates, 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 August 2, 1999, and amended 
on December 8, 1999.

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 14, 
2000, 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

[[Page 3749]]

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. 
20549-0609. Applicant, Ibbotson Associates, Inc., 225 North Michigan 
Avenue, Suite 700, Chicago, Illinois 60601-7676.

FOR FURTHER INFORMATION CONTACT:  Karen L. Goldstein, Attorney, at 
(202) 942-0646 or Jennifer L. Sawin, 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 an Illinois corporation with its principal place of 
business in Chicago, Illinois. Until July 8, 1997, Applicant was 
registered as an investment adviser with the SEC. Applicant is 
currently registered as an investment adviser in California, Illinois 
and New York.
    2. Applicant provides services predominantly to institutional 
clients such as pension plans, pension consultants, investment 
advisers, broker-dealers, insurance companies and banks. None of 
Applicant's current clients are natural persons.
    3. Applicant provides a wide range of services to its clients; 
these services include portfolio strategy design, asset allocation, 
assessment of investor risk tolerance and financial engineering, 
corporate finance, client specific research and educational programs. 
Applicant also assists institutional clients by designing model asset 
allocation portfolios or by designing a questionnaire for institutions 
to use in determining model portfolio allocations for their individual 
investor clients. Applicant's institutional clients, however, are 
responsible for their individual investor clients.

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 (``Coordination Act''), added new section 
203A to the Advisers Act. Under section 203A(a)(1),\1\ 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 investment 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.'' \2\
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    \1\ 15 U.S.C. 80b-3a(a)(1).
    \2\ 15 U.S.C. 80b-3a(a)(2).
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    2. Applicant states that it does not qualify for registration as an 
investment adviser with the SEC. Applicant states that it does not have 
$25 million or more in assets under management, does not serve as an 
investment adviser to an investment company registered under the 
Investment Company Act, and does not qualify for an exemption from the 
prohibition on SEC registration as provided in rule 203A-2 under the 
Advisers Act.
    3. Applicant notes that 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 purposes of 
[section 203A].'' \3\
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    \3\ 15 U.S.C. 80b-3a(c).
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    4. Applicant argues that prohibiting it from registering as an 
investment adviser with the SEC would be inconsistent with the purposes 
of section 203A. Applicant submits that Congress intended section 203A 
to divide responsibility for regulating investment advisers between the 
SEC and the states; the states should be responsible for regulating 
advisers ``whose activities are likely to be concentrated in their home 
state,'' and ``larger advisers, with national businesses'' should be 
regulated by the Commission and ``be subject to national rules.'' \4\ 
Applicant asserts that Congress chose the ``assets under management'' 
requirement as a rough guide for this division, on the theory that 
investment advisers with $25 million or more of assets under management 
are likely to be national investment advisers that should be regulated 
by the SEC, while investment advisers managing less than $25 million in 
assets are likely to be smaller advisers that should be subject to the 
local rules of the states.
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    \4\ S. Rep. No. 293, 104th Cong. 2d Sess. (1996) at 4.
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    5. Applicant submits that Congress recognized that the ``assets 
under management'' requirement does not precisely differentiate 
national investment advisers from local investment advisers, and that 
some national investment advisers may not qualify for SEC registration 
under the test formulated by Congress. Applicant states that Congress 
acknowledged that ``the definition of `assets under management' * * * 
may, in some cases, exclude firms with a national or multistate 
practice from being able to register with the SEC.'' \5\ Applicant 
further states that Congress intended the SEC to use its exemptive 
authority under section 203A(c) to remedy any unfairness, burdens or 
inconsistencies caused by the assets under management requirement by 
permitting, ``where appropriate, the registration of such firms with 
the [SEC].'' \6\
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    \5\ Id.
    \6\ Id. at 5.
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    6. Applicant argues that it engages in a large, national investment 
advisory business of the type Congress contemplated when it provided 
the SEC exemptive authority under section 203A(c). Applicant asserts 
that by providing services to institutional clients across the country, 
its activities, like those of pension consultants exempted by SEC rule 
from the prohibition on SEC registration,\7\ have a direct effect on 
billions of dollars of assets under management at the nation's 
investment companies, investment advisers, broker-dealers, insurance 
companies, banks, and other institutional investors.
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    \7\ See 17 CFR 275.203A-2(b).
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    7. Applicant submits further that it is inconsistent with the 
purposes of section 203A for a state to regulate investment advisers 
whose activities involve little or no traditional state interest. 
Applicant notes that, in section 203A, Congress preserved the states' 
ability to regulate certain investment adviser representatives of 
advisers registered with the SEC. Applicant further notes that under 
the SEC's definition of investment adviser representative,\8\ only 
personnel who work principally with individual, rather than 
institutional, clients are subject to state regulation. Applicant 
argues that this definition recognizes that, consistent with Congress' 
intent in the Coordination Act, the states' primary interest is in 
oversight of representatives who have an individual, not an 
institutional, clientele. Applicant submits that in fashioning this 
definition, the SEC noted its belief that distinguishing between retail 
and other clients was consistent with the intent of

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Congress as reflected in the Coordination Act.
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    \8\ See 17 CFR 275.203A-3(a)(1).
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    8. Applicant argues that it is the type of investment adviser that 
Congress intended the Commission to consider exempting under section 
203A(c). Applicant states that it provides services predominantly to 
institutions and that it believes that its business will remain 
predominantly institutional. Applicant will not market its services to 
individual investors, and in no case will it have (i) more than five 
clients who are natural persons (other than certain ``excepted 
persons,'' as that term is defined in rule 203A-3, paragraph (a)(3)(i) 
under the Advisers Act \9\) or (ii) more than ten percent of its 
clients who are natural persons (other than certain excepted persons).
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    \9\ See 17 CFR 275.203A-3(a)(3)(i)

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-1634 Filed 1-21-00; 8:45 am]
BILLING CODE 8010-01-M