[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Notices]
[Pages 14346-14349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7841]
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[[Page 14347]]
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21857; International Series Release No. 958; File No. 812-
9702]
ABN AMRO Bank N.V., et al.; Notice of Application
March 26, 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: ABN AMRO Bank N.V. (``ABN AMRO''), ABN AMRO
Effectenbewaarbedrijf N.V. (``AAEB''), and ABN AMRO Global Custody N.V.
(``AAGC'') (collectively, the ``ABN AMRO Applicants''); and MeesPierson
N.V. (``MeesPierson''), MeesPierson Effectenbewaarbedrijf N.V.
(``MPEB''), and MeesPierson Global Custody Services N.V. (``MPGCS'')
(collectively, the ``MeesPierson Applicants''). (ABN AMRO and
MeesPierson are collectively referred to as the ``Banks''). (AAEB,
AAGC, MPEB, and MPGCS are collectively referred to as the ``Special
Purpose Corporations'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
that would exempt applicants from section 17(f) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit U.S.
investment companies and their custodians or subcustodians to maintain
securities and other assets in the custody of AAEB and AAGC, through
ABN AMRO, and MPEB and MPGCS, through MeesPierson, in The Netherlands.
FILING DATE: The Application was filed on August 3, 1995 and amended on
March 20, 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 April 22, 1996
and should be accompanied by proof of service on the 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.
ADDRESS: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 20549.
Applicants: the ABN AMRO Applicants, Foppingadreef 22, 1102 BS
Amsterdam, The Netherlands; the MeesPierson Applicants, Rokin 55, 1012
KK Amsterdam, the Netherlands, c/o Edward G. Eisert, Schulte Roth &
Zabel, 900 Third Avenue, New York, New York 10022.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Alison E. Baur, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. ABN AMRO is a Netherlands banking organization. ABN AMRO Holding
N.V. (``Holding'') is the parent company of ABN AMRO, and together with
other domestic and international subsidiaries and affiliates,
constitute the ``ABN AMRO Group.'' Holding and ABN AMRO are regulated
in The Netherlands by De Nederlandsche Bank N.V., the Dutch Central
Bank (``DNB''). As of December 31, 1994, Holding held approximately
100% of the share capital of ABN AMRO, and ABN AMRO accounted for
approximately 100% of the total assets of Holding. ABN AMRO provides a
variety of commercial banking and securities services on an
international basis. At December 31, 1994, Holding had total assets of
approximately U.S. $291 billion and shareholders' equity of
approximately U.S. $11.9 billion.
2. AAEB and AAGC are public limited liability companies organized
under the laws of The Netherlands. AAEB is a Special Purpose
Corporation incorporated by ABN AMRO pursuant to a uniform system for
the administration and safekeeping of bearer securities held in The
Netherlands known as the ``Vabef System.'' AAGC is a Special Purpose
Corporation incorporated by ABN AMRO pursuant to a system for the
administration and safekeeping of bearer securities held outside The
Netherlands and all registered securities referred to as ``Vabef II.''
Neither AAEB nor AAGC engages in any activity other than the
safekeeping of securities for the benefit of ABN AMRO's clients and for
ABN AMRO itself, effectively serving only as a ``vault'' for the
safekeeping of such securities. ABN AMRO provides its clients with all
custody-related services with respect to these securities.
3. MeesPierson is a banking organization regulated in The
Netherlands by DNB. MeesPierson, a wholly owned subsidiary of ABN AMRO,
is a global merchant bank that provides a variety of specialized
financial services. At December 31, 1994, MeesPierson had total assets
of approximately $22 billion and approximately $1.2 billion in
shareholders equity.
4. MPEB and MPGCS are public limited liability companies organized
under the laws of The Netherlands. MPEB is a Special Purpose
Corporation incorporated by MeesPierson pursuant to the Vabef System.
MPGCS is a Special Purpose Corporation incorporated by MeesPierson in
connection with Vabef II. MPEB and MPGCS do not engage in any activity
other than the safekeeping of securities for the benefit of
MeesPierson's clients and for MeesPierson itself, effectively serving
only as vaults for the safekeeping of such securities. MeesPierson
provides its clients with all other custody-related services with
respect to these securities.
5. Applicants request an order exempting (a) The ABN AMRO
Applicants and the MeesPierson Applicants, (b) any investment companies
registered under the Act other than those registered under section 7(d)
of the Act (``U.S. Investment Companies''), and (c) any custodian or
subcustodian for a U.S. Investment Company, from the provisions of
section 17(f) of the Act to the extent necessary to permit such U.S.
Investment Companies and such custodians or subcustodians to maintain
securities and other assets (``Securities'') in the custody of the ABN
AMRO Applicants and the MeesPierson Applicants.\1\ None of the Special
Purpose Corporations is a ``bank'' within the meaning of the Act and
each may not technically be a ``banking institution or trust company''
regulated as such by the Government of The Netherlands in accordance
with the requirements of rule 17f-5. Moreover, none of the Special
Purpose Corporations meets the minimum shareholder's equity requirement
of the rule.
\1\ As used herein, the term ``Securities'' does not include
securities issued or guaranteed by the U.S. Government or by any
state or any political subdivision thereof, or any agency thereof,
or by an entity organized under the laws of the U.S. or any state
thereof (other than certificates of deposit, evidences of
indebtedness and other securities, issued or guaranteed by an entity
so organized which have been issued and sold outside the U.S.).
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6. Applicants state that under the laws of The Netherlands, unless
special measures are taken, bearer securities
[[Page 14348]]
which a bank holds as custodian for its clients and registered
securities registered in the name of a bank as custodian for its
clients, will form part of the assets of that bank. Applicants contend
that if the bank becomes insolvent, these securities will fall within
the bankruptcy estate. Although the likelihood of a bank supervised by
the DNB becoming insolvent is negligible, applicants assert that it is
nevertheless considered desirable to segregate a Dutch bank's assets
from those of its clients.
7. Applicants represent that the sole purpose for the establishment
of the Special Purpose Corporations by the Banks and their use for the
safekeeping of Securities is to provide the highest level of protection
to the Banks' clients and to ensure that clients' assets could not fall
within the bankruptcy estate of the Banks. Under the Vabef System and
Vabef II, the client has a direct right against the relevant Special
Purpose Corporation with respect to the Securities deposited. The
obligations of each Special Purpose Corporation with respect to such
Securities are solely towards its clients. Consequently, the clients'
rights with respect to these Securities are separated from the Bank's
own assets and, therefore, are protected under the laws of The
Netherlands from any risk of the Bank becoming insolvent and from
recourse by the Bank's creditors.
8. Applicants state that a Special Purpose Corporation is expressly
prohibited by its Articles of Association from engaging in any activity
which could involve a commercial risk, and does not engage in any
activity other than the safekeeping of securities for the benefit of
the incorporating bank's clients or the bank itself. The Special
Purpose Corporations will have no creditors other than those who have
entrusted securities to them and those whose claims would arise in the
ordinary course of business.
9. The personnel of each Bank manages and operates its respective
Special Purpose Corporation. Each Bank is the managing director of its
respective Special Purpose Corporation and acts to the fullest extent
on its behalf and in its name, both towards clients and third parties.
The activities of the Banks in their capacity as the managing directors
of their respective Special Purpose Corporations are governed by rules
jointly adopted by the Banks and their respective Special Purpose
Corporations. The rules, which include a guarantee by the Banks of the
obligations of their respective Special Purpose Corporations, are
incorporated into each custody agreement entered into between the Banks
and a U.S. Investment Company.
10. Pursuant to contracts between each Bank and the Special Purpose
Corporation, the Banks are obligated to reimburse the Special Purpose
Corporations for losses that may be incurred in any year. Applicants
assert that, to the extent that claims of creditors cannot be paid by
fees charged by the Special Purpose Corporations, they will be paid by
the appropriate Bank. Therefore, in practice, the claims against a
Special Purpose Corporation will never exceed the total of the
securities which its clients have entrusted to it.
Applicants' Legal Analysis
1. Section 17(f) of the Act provides that a registered investment
company may maintain securities and similar assets in the custody of a
bank meeting the requirements of section 26(a) of the Act, a member
firm of a national securities exchange, the investment company itself,
or a system for the central handling of securities established by a
national securities exchange. Section 2(a)(5) of the Act defines
``bank'' to include banking institutions organized under the laws of
the United States, member banks of the Federal Reserve System, and
certain banking institutions or trust companies doing business under
the laws of any state or of the United States.
2. Rule 17f-5 under the Act permits certain entities located
outside the U.S . to serve as custodians for investment company assets.
Rule 17f-5 defines the term ``Eligible Foreign Custodian'' to include a
banking institution or trust company, incorporated or organized under
the laws of a country other than the United States, that is regulated
as such by that country's government or an agency thereof, and that has
shareholders' equity in excess of U.S. $200 million.
3. Each of the Banks qualifies as an ``Eligible Foreign Custodian''
and each provides all the services of a custodian, other than the
safekeeping of securities. The Banks utilize their respective Special
Purpose Corporations only to provide for the safekeeping of certain
securities. The Special Purpose Corporations, however, do not qualify
as ``Eligible Foreign Custodians,'' because technically they may not be
regulated as ``banking institutions or trust companies'' by the
Government of The Netherlands and because they do not have
shareholders' equity in excess of $200 million.
4. Applicants contend that the purpose of section 17(f) of the Act
is to ensure that U.S. Investment Companies hold securities in a safe
manner that protects the interests of their shareholders. Applicants
assert that the requested exemptions are consistent with these purposes
because they would provide adequate protection for the custody of the
Securities of the U.S. Investment Companies through either ABN AMRO or
MeesPierson in reliance on their affiliated, bankruptcy-remote, Special
Purpose Corporations.
5. Applicants represent that under the Vabef System and Vabef II,
the two components of the custodial function, safekeeping and the
provision of administrative custodial services, have formally been
segregated, but that in daily practice the Banks and their respective
Special Purpose Corporations operate as one entity. While the
Securities are held by the Special Purpose Corporations, applicants
assert that the Banks remain charged with, and responsible for,
virtually all of the acts implementing the custody of the Securities.
Applicants assert that, although each of the Special Purpose
Corporations may not be technically regulated as a ``banking
institution or trust company'' by DNB, as a practical matter, their
management and operation are subject to the supervision of DNB through
the supervision DNB exercises over ABN AMRO and MeesPierson.
6. Applicants believe that the requested order is necessary and
appropriate in the public interest because it would permit U.S.
Investment Companies and their custodians and subcustodians to have
access to the custody services of ABN AMRO and MeesPierson in the
Netherlands. Based upon (a) the legal framework and market practices in
The Netherlands, (b) the size and strength of ABN AMRO and MeesPierson,
and (c) the guarantee to be given by ABN AMRO with respect to AAEB and
AAGC, and MeesPierson with respect to MPEB and MPGCS, applicants assert
that U.S. Investment Companies and their custodians and subcustodians
will have an equal or greater degree of protection when their
Securities are held in custody by the Banks in reliance upon the
services provided by the Special Purpose Corporations than when their
Securities are held with other entities which strictly comply with all
of the requirements for an ``Eligible Foreign Custodian.''
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
[[Page 14349]]
The ABN AMRO Applicants
1. The foreign custody arrangements which involve or rely upon AAEB
and AAGC will comply with the provisions of rule 17f-5 in all respects
except those provisions relating to (a) the fact that each of AAEB and
AAGC may not be technically a ``banking institution or trust company''
incorporated or organized under the laws of The Netherlands, and (b)
the minimum shareholders' equity requirements for ``Eligible Foreign
Custodians'' under rule 17f-5.
2. A U.S. Investment Company or a custodian or subcustodian for a
U.S. Investment Company will deposit Securities with AAEB and AAGC
through ABN AMRO only in accordance with a three-party contractual
agreement (a ``Three Party Agreement'') that will remain in effect at
all times during which AAEB and AAGC fail to meet all of the
requirements of Rule 17f-5 (and during which such Securities remain
deposited with AAEB and AAGC). Each Three Party Agreement will be a
three-party agreement among (a) ABN AMRO, (b) AAEB or AAGC, and (c) the
U.S. Investment Company or custodian or subcustodian of the Securities
of the U.S. Investment Company. Under the Three Party Agreement, AAEB
or AAGC will undertake to provide only specified custodial or
subcustodial services. The Three Party Agreement will further provide
that ABN AMRO will be liable for any loss, damage, cost, expense,
liability, or claim arising out of or in connection with the
performance by AAEB and AAGC of their respective responsibilities under
the Three Party Agreement to the same extent as if ABN AMRO had been
required to provide all custody services under such Three Party
Agreement.
3. ABN AMRO currently satisfies and will continue to satisfy the
minimum shareholders' equity requirement set forth in subsection
(c)(2)(i) of rule 17f-5.
4. ABN AMRO will be regulated by DNB as a banking institution under
the laws of The Netherlands.
The MeesPierson Applicants
1. The foreign custody arrangements which involve or rely upon MPEB
and MPGCS will comply with the provisions of rule 17f-5 in all respects
except those provisions relating to (a) the fact that each of MPEB and
MPGCS may not be technically a ``banking institution or trust company''
incorporated or organized under the laws of The Netherlands, and (b)
the minimum shareholders' equity requirement for ``Eligible Foreign
Custodians'' under rule 17f-5.
2. A U.S. Investment Company or a custodian or subcustodian for a
U.S. Investment Company will deposit Securities with MPEB and MPGCS
through MeesPierson only in accordance with a three-party contractual
agreement (a ``Three Party Agreement'') that will remain in effect at
all times during which MPEB and MPGCS fail to meet all of the
requirements of rule 17f-5 (and during which such Securities remain
deposited with MPEB and MPGCS). Each Three Party Agreement will be a
three-party agreement among (a) MeesPierson, (b) MPEB or MPGCS, and (c)
the U.S. Investment Company or custodian or subcustodian of the
Securities of the U.S. Investment Company. Under the Three Party
Agreement, MPEB of MPGCS will undertake to provide only specified
custodial or subcustodial services. The Three Party Agreement will
further provide that MeesPierson will be liable for any loss, damage,
cost, expense, liability, or claim arising out of or in connection with
the performance by MPEB and MPGCS, of their respective responsibilities
under the Three Party Agreement to the same extent as if MeesPierson
had been required to provide all custody services under such Three
Party Agreement.
3. MeesPierson currently satisfies and will continue to satisfy the
minimum shareholders' equity requirement set forth in subsection
(c)(2)(i) of rule 17f-5.
4. MeesPierson will be regulated by DNB as a banking institution
under the laws of The Netherlands.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-7841 Filed 3-29-96; 8:45 am]
BILLING CODE 8010-01-M