SEC Division of Investment Management staff letter: Austraclear Limited

APR 6 199
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Our Ref. No. 93-76-CC

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Austraclear Limited

DIVISION OF INVESTMENT MANAGEMENT
File No. 132-3

Your letter of February 9, 1993 requests our assurance that

we would not recommend any enforcement action to the Commission

under section 17 (f) of the Investment Company Act (the "1940

Act") or Rule 17f-5 thereunder if Austraclear Limited

("Austraclear") 1/ continues to act as an eligible foreign custodian pursuant to subparagraph (c) (2) (iii) of Rule 17f-5 for all debt securities in Australia, other than securities issued by

the Commonwealth Government of Australia ("CGS"). 2./

Austraclear acts as a custodian of debt secur i ties in Australia (other than CGS) and provides the exclusive electronic

settlement and clearance system for transactions involving those

securities without the physical delivery of securities

certificates. The Austraclear system operates on a delivery

versus payment basis. The securities lodged, traded, cleared,

and settled through the Austraclear system include (1) bank

accepted bills, (2) commercial bills of exchange, (3) negotiable

certificates of deposit, (4) promissory notes/commercial paper,

(5) inscribed stock or bearer instruments providing for periodic

i/ Austraclear is a corporation organized under the Corporation

Law of the Commonwealth of Australia. It was incorporated

on January 16, 1981, and its shareholders ("Members")

currently include the four major Australian trading banks,

foreign banks, merchant banks, and life off ices.
2./ section 17 (f) provides that every registered management

investment company shall maintain its securities and similar

investments in the custody of (1) a bank meeting certain

requirements, (2) a member of a national securities

exchange, (3) the company itself, in accordance with

Commission rules, or (4) a system for the central handling

of securities pursuant to which all securities of any

particular class or series of any issuer deposited wi thin

the system are treated as fungible and may be transferred or

pledged by bookkeeping entry without physical delivery of

such securities, in accordance with Commission rules. Rule

17f-5 provides an exemption from section 17 (f) to allow a

registered management investment company to deposit foreign

securities in the custody of an "eligible foreign custodian." Rule 17f-5(c) (2) (iii) defines the term "eligible foreign custodian" to include "a securities

depository or clearing agency, incorporated or organized

under the laws of a country other than the United States,

which operates the central system for handling of securities

or equivalent book-entries in that country."

payment of interest and issued by Government corporations or

instrumentalities of the state of Australia, banks, and

corporations.
Austraclear provides a depository facility (security vaults)

at all of its mainland capital branches for both bearer and

inscribed debt securities. l/ In its custodian capacity,

Austraclear acts as bailee for bearer securities and "nominee"

for inscribed stock registered in the name of Austraclear.

Austraclear has no interest in or rights against the securities

it holds as bailee or nominee. You state that, by immobilizing

securities, Austraclear eliminates the risks associated with the

physical transfer of securities and greatly enhances the speed

and efficiency of settlement of money market dealings for its

Members. ~/
Austraclear has a contractual obligation, enforceable

through the courts, to all participants within the Austraclear

system to ensure the reliable operation of the system and the integri ty of any information provided through the operation of the system. To this end, Austraclear has implemented procedures

to ensure the accurate recording and daily reconciliation of all

securities and monetary movements within its system. Among the

safeguards employed by Austraclear is the use of external

audi tors. Austraclear' s Internal Audit Department reports

directly to its external auditors, KPMG Peat Marwick, who in turn

report to Austraclear' s Independent Audit Committee. The

external auditors also formally report to all Members (and their

auditors) on a quarterly basis. In addition, Austraclear

currently has an indemnity policy providing coverage to its

Members in the amount of A$50 million (US$35 million) for any

loss or damage.

In Austraclear Limited (pub. avail. Jan. 17, 1990), the

staff granted no-action relief to Austraclear under Rule 17f- ) 5(c) (2) (iii) on the basis that it operated the only clearing facility in Australia that did not require the physical delivery

of the underlying security. Since that letter was issued,

however, the Reserve Bank of Australia (the "Reserve Bank") has

established a book-entry clearing system and depository ("RITS")

~/ As of February 9, 1993, Austraclear had securities with a face value of A$126 billion (US$8S billion) under its

control.
~/ Transactions in debt securities (other than CGS) outside of the Austraclear system are undertaken on a physical deli very basis. We understand that, other than Austraclear, there is

no other depository for debt securities (other than CGS) in

Australia. Telephone conversation with Andrew Madry on

March 30, 1993.

• 2

,. exclusively for CGS. 2/ In addition, the Australian stock

Exchange ("ASX") is currently developing a new electronic

clearing system ("CHESS") for securities traded on the ASX that

will, among other things, effect transfers of equities by book

entry. consequently, you have requested no-action relief for

Austraclear under Rule 17f-S(c) (2) (iii) based on the changed

circumstances that now exist in Australia. ~/

On the basis of the facts and representations contained in

your letter, particularly your representations that (1)

Austraclear operates the central depository and clearing facility

in Australia for all debt securities (other than CGS), and (2)

since the implementation of the Austraclear system in 1984, no

loss of physical securities has occurred and no Member or market

participant has suffered any financial loss, we would not

recommend that the Commission take any enforcement action under
section 17 (f) of the 1940 Act, or Rule 17f-5 thereunder, if
Austraclear continues to act as an eligible foreign custodian, as

defined in Rule 17f-5(c) (2):(iii), for all debt securities (other

than CGS) in Australia.

'f:: u:~r~;~-If

Senior Counsel

~/ See Reserve Bank of Australia (pub. avail. Sep. 2, 1992).

In Reserve Bank of Australia, the staff stated that it would

not recommend that the Commission take any enforcement

action under section 17(f) of the 1940 Act, or Rule 17f-5

thereunder, if the Reserve Bank acts as an eligible foreign

custodian, as defined in Rule 17f-5(c) (2) (iii), for CGS.

~/ You represent that there is no overlap in the types of securi ties that the Austraclear system and RITS handle. You

further represent that , although CHESS may clear and settle

certain retail debt securities, you do not anticipate that

CHESS will provide any depository services for debt

securi ties. Telephone conversation with Andrew Madry on

March 30, 1993.

• 3

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&P~! i'f'ø' KEITH USSHER
é:¡/~i~ii;;" ",¡iØ/ilf!#h, MANAGING DIRECTOR 2 O'Connell St. Sydney NSW 2000. GPO Box 4606, Sydney NSW 2001. Tel:'(02) 235 0977 Fax: (02) 221 1945 Telex: 176885 9 Februar 1993 By International Courier T'~1 , ~ 'lÌ~t :: f1 óf (100 "1',,~'~. l Mr Thomas S Harman I'llsect1on i i Chief Counsel ¡Rule ~ f-l+-rç (CJ-_LX\J L .~ Division of Investment Management !?'Ub11 (' i United States Securities & Exchange Commi~nb111ty 1/ L /o¿3 .1' Il¥'"l ,-c. ~, "". - It 450 Fifth Street North West

WASHINGTON DC 20549

UNITED STATES OF AMERICA
Dea Mr Harman

In view of the changed circumstaces now existing in Australia, your Deparment has

requested that Austraclea re-apply for a no-action letter following the introduction of a

second cleang system and depository for Commonweath Government Securities. Following a number of discussions with Mr Robert B Caroll and Ms Julia Ulstrup from

your Deparment, we now submit our formal request for a no-action letter.

Please do not hesitate to contact us should you require any further detals. Yours sincerely , oßL~ K G USSHER MANAGING DIRECTOR

AUSTRACLEAR LIMITED, Incorprated in N.S.w.

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TO:
RE:
FROM:
DATE:
INESTM COMPAN ACT 1940
Section 17(5) - Rule 17(-5
THE DIVISION OF INESTM MAAGEM
UNTED STATE SECURIE & EXCHANGE COMMSION Washington DC United States of America AUSTRCLEAR LIMTED ACTING AS AN ELIGmLE FOREIGN CUSTODIAN UNER RULE 17(0 OF THE INESTMENT

COMPAN ACT OF 1940
AUSTRACLEAR LIMTED
Sydney NSW
Australia
February 1993

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AUSTRCLAR UMITED 1940 Åct/ule 17f-5

No-Act" Appli" to Secu1' Exc1uie Commii"

1.0 REUET FOR NO-ACTION LETTER

Austrclea limite (" Austrclea") operates the Centr Depository and Cleang facilty in Austra that doe not require the physica delivery of the underlying

seurity for al debt seurities excepting those issued by the Commonweath (Federa) Government of Austria ("CGS"). Austrclea seeks assurace from the

Division of Investment Management, United States Securities and Exchange Commission ("the Division") that should debt seurities, other than those issued by the Commonweath Government of Austria, beneficially held by United States registered management investment companies continue to be held within

Austrclea that the Division would not recmmend that the Securities Exchange Commission tae any enforcement action under Section 17(f) or Rule 17f-5 if Austrclea continues to act as an eligible foreign custodian pursuant to sub￾pargraph (c)(2)(ii) of Rule 17f-5 in respet of all debt securities other than those issued by the Commonweath Government of Australia.
2.0 EXISTING STATUS

• In response to a request from Austraclea for a "no-action" letter dated 23
  November 1989 and subsequent correspondence, the Offce of the Chief Counsel Division of Investment Management in its advice dated 17 Januar 1990, reference no. 89-784-CC Austrclea Limited File No. 132-3, stated :
  "on the basis of the facts and representations in your letter of 23

November 1989 and supporting documents and because your letter of 8 January 1990 stated that Austraclear operates the only clearing facilty in Australia that does not require the physical delivery of the

underlying security, we would not recommend that the Commission take any enforcement action under Section 17(f of the 1940 Act or

Rule 17l5 thereunder if Austraclear acts as an eligible foreign custodian undr sub-paragraph (c)(2)(ii) of Rule 17l5. Because this position is based on your facts and representations, you should note tha any diferent facts or representations might require a

diferent conclusion. Moreover, this response expresses the

Divisions' position on enforcement action only and does not purport to express any legal conclusions on the questions presented. Signed Carol A Peebles, Attorney." 0209SEC.USA February 1993 Page 1

t. '.

AUSTRCLAR UMrrED 1940 Actule 17/5
No-Action Applicaton to Sicur Exclungt Commission Since the issue of that lettr, a send cleang system and depository has been

established in Austria, to speificaly cater for Commonweath Government

Securities ("CGS"). This system, caled the Reserve Bank Information and

Trasfer System ("RITS"), operate by the Reserve Ba of Austria, was

recntly grate a limite "no-action" letter by the Commission covering their

segment of the market - CGS.
As the representations contaned in our original submission, and upon which the initial "no-action" letter to Austrclea was issued, have now changed, Austraclea now requests a letter of "no-action" based on the changed

circumstaces now existing in Austraia.
3.0 ELIGmLE FOREIGN CUSTODIA"

3.1 Ausraclear as a Securities Depository/Clearing Agency

Rule 17(t)-5(c)(2)(ii) of the US Investment Company Act, 1940 defines an eligible foreign custodian as :
"a securities depository or . clearing agenc

incorporated or organised under the law of the

country other than the United States which operates

the central system for handling of securities or equivalent book entries in that country" . No definition, however, of "Security Depository" or "Cleang Agency" is given in the US Investment Company Act. However, the Securities Exchange Act of 1934 in Section 3(a)(23)(A) defines cleang agency generaly as "an intermediar that makes payments or deliveries in connection with trasactions in securities". This would include an entity such as a security depository that :

1. acts as a custodian of securities in connection with a system for the
   central handling of securities whereby all seurities of a paricular

class or series of an issuer deposited within the system are treated as fungible and may be trsferred, loaned, pledged by ,book-keeping without physica delivery of securities certificates; or
ll. otherwise permits or faciltates the settlement of securities without
physical delivery or securities certificates.
0209SEC. USA
FebTUry 1993 Page 2

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AUSTRCLAR UMrrED 1940 ActRule 17f-5
No-Actn Applicn to Secur Excluge Commn Austrclea acts in Austra as the custodian of debt seurities (except CGS) and provides facilties (via the Austrc1ea system) for its Members to recrd and settle trsactions involving those seurities on a delivery

versus payment basis without physica delivery of securities certficates.
3.2 Incorporated under the laws of a Country other than the United States

Austrclea is incorprated as an unlisted public company pursuat to the

Corprations Law & Securities Legislation (an Austrian Act of Parliament regulating companies and seurities in Austria).,

3.3 Operating the central system for handlg securities in that Country

Austrclea provides the exclusive electronic settlement and cleace system for the Austrian money market for all debt securities (except CGS). There is no other formal settlement and cleang system for debt (except CGS) securities operating in Austria. Any deas completed outside the Austrac1ea system require settlement by physica delivery. The Company has its head offce in Sydney, New South Wales and operates braches and its computer network in all mainland capita cities of Austria. ,The Company holds all securities in its own custody vaults. In summar, Austrclea Limited is the eligible foreign custodian for debt securities (except those issued by the Commonweath Government of Austria) within Austria.
4.0 THE AUSTRCLEAR SYSTEM

4. i Background

Austrc1ea Limited is a corpration organised under the Corprations Law of the Commonweath of Austraia with the liability of its Members being limited to the amount subscribed by them as capita. The Company was incorprated on 16 Januar 1981 and its shareholders currently include the four major Austrian trading banks, foreign banks, merchant banks, and

life offices.
4.2 Austraclear's Role in the Money Market

Austraclea, in providing services to its Members, undertes four major functions : " 0209SEC. USA Februry 1993 Page 3

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AUSTRACLEAR UMrrED
1940 ActRule 17f-5
Nø-ain ApplkDon to S.curi ExcMng, Commission

i. Depository

Austrc1ea provides a depository facilty (seurity vaults) at all mainland capita Braches for both beaer and inscribed debt securities. In its custodian capacity it acts as bailee for beaer

seurities and "nominee" for inscribed stock registered in the name of Austrclea. Austrclea has no interest in or rights against the seurities it holds as bailee or nominee. As a supplement to depository services for inscribed seurities held within the system, Austrclea provides a full registr facilty to two of the major Austrian trding banks. Austrc1ea also acts as an agent for a number of issuers of inscribed stock seurities by on-forwarding marking and registrtion records to the prime registr on behalf of Members of the

Austrac1ea system.

ii. Recording

Austrac1ea performs the role of "score-keeper" for the forward

recording of money market transactions. In Austraia, the convention for setting fixed interest trasactions is T+3. m. Transfer and Settlement All security trasfers are provisional on the final cleaance of the cash element. The cah element of trsactions entered are trasmitted to the Members' bankers each evening. It is only after the bankers have agree to the irrevocble payment of all transactions that title to the securities passes. This ensures delivery versus payment and is the prime system safeguard. In addition, Members are required to check the cah element prior to final settlement, thus any irregularties ca be detected by Members/bankers prior to the exchange of cah and seurities. Where a Member has insufficient funds to meet the end-of-day cah obligations, provision exists for the trsaction to be unwound with the security reverting to the trsferor.

0209SEC. USA
Februry 1993 Page 4

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1940 Aclule 17f-5
AUSTRCLEAR UMrrED

No-Actn ApplÏCn to Secur Exchange Commn
iv. Settlement

Settlement of the banking system is external to the Austrclea

system and is faciltated via the Reserve Bank of Austraia.
4.3 Operating Hisory

Austrclea is the accpte meas of settlement for all high value trsactions in the Austrian professional money market involving debt

securities (except those issued by the Commonweath of Australia) and at the date of writing, the Company had seurities with a face value of A$126 bilion (US$85 bilion) under its control. These seurities are held on behalf of approximately 400 companies including all license banks, centr

bank accredited official deaers, large stockbrokers, merchant banks, major life offices, nominee and trstee companies and large trading corprations. Austrclea provides an invaluable service to the Austraian professional money market by immobilsing seurities thereby eliminating the risks associated with the physica trasfer of secunties and greatly enhances the

spe and efficiency of settlements of money market deaings. The Austraclea system, since implementation in 1984, has run

continuously without any major system malfunction. Current up-time of the system is 99.98% per annum. Since the inception of Austraclea, procures have been implemented to ensure the accurate recrding and daily reconcilation of all securities and moneta movements within the system. No loss of physica securities has occurred and no Member or market paricipant has suffered any financial loss. Only on two occasions have delays have ocurred in finalising trasactions but this did not result in a Member defaulting. On each occasion the Emergency Situations Committee of the Board of Directors met and a solution was arved at on the day settlement was due. The Committee consists of representatives of the four major trading banks and the International Banks & Securities Association. In cas where settlement delays ocur, the Reserve Bank of Austria and

all major cleang banks are advise and progress reported until resolution is reached. 0209SEC. USA
Page 5 Februry 1993

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1940 Act/Rule 11/-5 AUSTRACLAR UMrrED

No-Actn Applicn to Secur Exchage Commsin
5.0 MEERS' SAFEGUARS

The Members of the Austrclea system are protected by the following set of safeguards :
5.1 Contract with Members

Austrclea's relationship with Members and the banks within the system is

a contrctua one governed by the Austrclea system Regulations. In the event that a Member does not fulfi its obligations or violates the Regulations, Austrclea is empowered by the Regulations to tae action against the Member by terminating membership, suspending the Member, or imposing conditions on the Member (Regulation 5.4 and 5.5). Any such action does not prejudice the abilty of a Member or bank to tae legal action against another Member through the court for breach of any contract. Austrclea has a contrctual obligation, enforceble through the courts to all parcipants within the Austraclea system to ensure the reliable operation of the system and the integrity of any information provided

through the operation of the system.
5.2 Internal and Exernal Audit

The Company has an established Internal Audit Deparment reporting . directly to Company's auditors, KPMG Peat Marick who in turn report to an independent Audit Committee. The Audit Committee consists of four non-executive Directors of the Board. In addition to their statutory obligations under the Austraian Corprations Law the mandate of the auditors with regard to the system is outlined within the Austrac1ea System Regulation (Regulation 20). The mandate includes (but is not limited to) :
o reviewing the physica and environmenta seurity of Austraclea's premises and information procssing facilties and the integrity of the system including maintenance of securities and confidentiality over the data of individual Members, security over the physica operation of the System, back-up procedures, maintenance of

continuing processing capabilty, and the recvery data;

0209SEC.USA
Feb1'ry 1993

1940 Actule 11f-5
AUSTRCLAR UMrrED
Nø-Actn Applin to Securi Exc1uge Commn o testing the validity and sae custody of seurities held in the system;

and o assessing the integrity of system generate information including

controls over input, procssing and reportng of all trsaction data, the reportng of cleaces, the internal generation of accunting

entres.
The external auditors formally report to all Members (and their auditors) on a quarrly basis.
5.3 Insurance

The Company has a current Indemnity Policy with Lloyds of London providing cover of A$50 milion (US$35 milion) to Austrclea's Members "for any loss or damage to the Member from any cause whatsoever including any act, error or omission by Austraclea or any person acting in II . the capacity of an employee of the Company

5.4 Software

The Austrclea system software has been licensed to both the Reserve Bank of New Zeand ("RBNZ") and the Reserve Bank of Austria ("RBA "). Austrclea is contrcted to provide computer software

maintenance and systems enhancements to the systems licensed to the

banks. These centra banks exhaustively investigated the system prior to their acceptace and also examine. any subsequent enhancements prior to

implementation. The RBNZ operation utilises the Austrclea computer centre in Sydney to procss its trsactions in a trs-Tasman optica fibre

link which is backed up by a communication satellte link.
5.5 System Availabilty

Austraclea has multiple layers of fall-back in the event of a computer

contingency. These include in-house backup computer systems as well as reciproc argements for both hardware and communications networks

with the RBA. All trsactions are mirrored on a rea time basis to the RBA computers. Similarly, trasactions through the RBA RITS system are backed up on a rea-time basis onto the Austraclea computers. This ensures continuous system availabilty to Members. RBNZ transactions processed by Austraclea are also mirrored on the RBA computers. 0209SEC. USA Februry 1993

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AUSTRCLAR UMITED 1940 Act/Rile 17f-5

No-Adin ApplÏt.ann to Securi Exc1ue Commsin
6.0 AUSTRCLEAR'S SEGMET OF THE AUSTRLIA MONEY MAT
6. i Segment Secunties

Austrclea caters for a defined segment of the money market, speificaly debt seurities other than those issued by the Commonweath Government of Austria. The seurities which are lodged, trded, cleaed and settled on the system include :
o bank accpte bils

o commercial bils of exchange

o negotiable certficates of deposits

o promissory notes/commercial paper

o inscribed stock or beaer instrments providing for periodic payment

of interest and issued by Government corprations or

instrumentaities of the States of Austria, banks and corprations. (Austrclea caters for all Government issued debt securities except

those issued by the Commonweath of Austria.)
6.2 Market Penetration (latest figures available September 1992)
I........ ....Aue-ll.... 'Mal'ota dll ...t¡. I

Bank Bils $26. 1 bilion $63 . 1 bilion 41% I, Bank NCDs $14.1 bilion $27.4 bilion S2% I, Promissory Notes $20.1 bilion $22.0 billon 91% 2, Insribed Stock $67.8 bilion $73.9 bilion 92% s,

1. Reserve Bank of Australia "Monthly Bulletin" - September 1992
2. Austraclear Limited Market Research
3. Swiss Bank Corporation/SBC Dominguez Research Paper
   September 1992
   0209SEC. USA
   FebTUry 1993 Page 8

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AUSTRCLAR UMITED
1940 Actule 17f-5

No-Actn AnplkQn to Secur Exchage Commn Trasactions in debt seurities outside Austrclea (i.e. non-professional

parcipants) are underten on a physical delivery basis. There is no other formal settement and cleang system for debt seurities (except CGS

securities) operating in Austria.
Austrclea caters only for (with membership being restrcte to) the

professional money market which actively parcipates (trdes, pledges, etc) in these seurities. The market penetration exhibited in the table above

represents about 95 % of seurities trded in the professional market. The non-professional market consists mainly of individuals who buy seurities directly from the major banks which issue paper from their own portfolios and maintan the seurities in their own safe custody. These trsactions var in size between $25,00 to $100,00 and make up approximately 60%

of Bak Bils and 50% of Bank NCDs in the market-place. The average trasaction size within the Austraclea system is approximately A$8 milion (US$5.6 milion).
7.0 OTHER CLEARIG SYSTEM

7.1 The Reserve Bank of Australia - RITS

As noted in August 1991, a second cleang and settlement system was

established in Australia to cater for CGS. The system, the Reserve Bank Information and Trading System ("RITS") enables trasactions by active traders in CGS to be recrded and settled electronicaly. The RITS software was develope by Austrc1ea (base on Austrclea's

debt cleaance system) and has been licensed to the Reserve Bank of Austraia Limited. Both Austraclea and RITS systems share the same

communications network and via a reciproc arangement provide back-up

computing capacity in the event of hardware failure.
The two systems otherwise are totaly "independent" and there is no overlap whatsoever in the types of securities which each system caters for. Securities eligible to be lodged into RITS canot be lodged into Austrc1ea, and vice versa. 0209SEC. USA Februry 1993 Page 9

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AUSTRCLEAR UMITED 1940 Act/Rule 171-5 No-Action Applicatn to Secur Exchange Commission

7.2 Ausralian Stock Exchange - CHES

The Austrian Stock Exchange (" ASX") is a corpration owned by its Broker Members. It commence business ,on 1 April 1987 and was

incorprated by an act of the Commonweath Parliament entitled the Austran Stock Exchange and National Guarantee Fund Act 1987 (which

provided for the amalgamation of the then existing six State exchanges). The ASX gains its authority to operate the stock exchange in Australia under the Corprations Act 1989. This Act speifies that a securities exchange ca be established and operated in Australia only with the approval of the Commonweath Attorney-Genera. The ASX's powers and area of operations are set out in its business and listing rules. These are approved by the Australian Securities Commission (" ASC") - the equivalent of the SEC - and in turn the Attorney-Genera, and can be altered only with the approval of these paries. The business and listing rules speify the ASX ca provide a trading forum for the following securities only:
o Equity securities (to wholesae and retal paricipants) - shares

(including preference shares), stock, stock units, units, and rights to or options to subscribe to any of the foregoing;

o Loan Securities (to retal parcipants only) - unsecured notes, unsecured deposit notes, mortgage debentures or debenture stocks, debentures or debentures stock, and convertible notes. The ASX is the only authorised Exchange in Australia on which corprate securities as specified ca be traded. The ASX system does not currently provide a central depository for securities. At present most securities exist as paper certificates and are held by individual investors, their brokers or other nominee companies. Recrds of holdings are maintaned by individual company registries. A new electronic cleang system is being develope as par of a programme to improve cleaance and settlement procsses. This new

system wil be called The Cleang House Electronic ~ettlement System

CHESS (" ").
0209SEC. USA
Febriry 1993 Page 10

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AUSTCLAR UMITED 1940 ActRule 11f-5
No-Actn Applicn to Secur Exchage Commsion CHESS wil provide for the co-existence of uncertficate and certficated shareholdings. A new electronic centr cleang house wil maintan recrds of holdings of uncertficate scrip. Trasfers of scrip wil be

effected by book entr. Recrds of certficated scrip wil continue to be maintaned by individua company registres. The company registres wil retan full control of registr procssing and servicing of shareholders other

than for the maintenance of uncertficate holdings.
The functional speification of CHESS is still being develope. In parcular, the ownership detals have not been finalise although it may be

established as an unincorprated joint venture between the ASX and a number of Austrian banks.

It is not envisaged that there wil be additions to the rage of securities that ca be listed on the Exchange and settled through CHESS. Again there wil be no overlap in the debt securities currently cleaed and settled through the Austrclea and Reserve Bak systems and the proposed

settlement and cleace system for equities.
8.0 REGULATORY SAFEGUARDS

8.1 Australian Securities Commision and Trade Prctices Commion
As noted, Austraclea Limited is an unlisted liabilty company incorprated under the Corprations Law of the Commonweath of Australia and as such falls under the jurisdictional control of the Austraian Securities Commission. The ASC ensure that companies work within the regulatory framework stipulated by the Corprations Law of Austraia. The Trade Practices Commission ("TPC") ensures that companies comply with the provisions of the Trade Practices Act which endeavours to provide a level playing field and fair competition within the marketplace. In broad terms, the ASC could be sad to be watching the interests of investors and shareholders and the TPC protecting the consumers.

Austrclea would only come to the attention of these regulatory bodies if its activities were seen to be contr to the public goo. Neither body is directly involved in the operation or oversight of the Austraclea system, nor have they a paricular brief to do so. 0209SEC.USA Februry 1993 Page 11

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AUSTRCLAR UMITED 1940 Actule 17f-5

No-Actn Applicn to Secur Exc1uge CtnuUJn
8.2. Control by Reserve Bank of Ausralia

Final settlement between the varous banks is effecte at the end of the day

through the Reserve Bak of Austria (ttRBA tt). The RBA is responsible for the banking system and money market generaly including all payment systems, of which both the Reserve Bak and Austrclea systems

constitute an integra par. As a conseuence the Resrve Bak maintans an active prudential watch over Austrclea's operations. Should a settlement problem eventuate, the RBA, as both a parcipating bank withn the Austrc1ea system and also the ultimate settlement facility for all banks paricipating, within Austraclea, would be aware of the situation and would closely monitor the situation until resolution was reached.
8.3 Australian Payments Clearing Asociation Limted

The Australian Payments Cleang Association Limited (APCA) was incorprated in Februar i 992. The mandate of APCA is to reform the payments cleang system in Austria. The Board of APCA is made up of

senior executives representing each of the four major Austrian Trading Banks, State Banks, the Reserve Bank of Austria, Building Societies and

Credit Unions.
The Australian payment cleang system has been arged into four

streams :
o Paper (cheque and paper debits)

o Bulk electronic (direct entr) o Consumer (low value) electronic cleang

o High value electronic cleang

Each of the four cleang streams wil have separte rules and regulations on membership and operating procures put in place to limit and control risks in each of the payment systems. The Austrac1ea system as a major component of the High Value Electronic System wil parcipate in establishing these rules which wil formalise procures for the whole market. Austrclea believes these rules wil supplement existing default procures and formalise the procures in the unlikely event of a default by a bank (i.e. via the collapse of a paricipant bank). These rules are scheduled to be in place by late 1993. 0209SEC. USA February 1993 Page 12

t , l
A.USTCLAR UMrrED 1940 Act/Rule 17f-5
No-Actn Applin to Securi Excluge Commn
8.4 Board or Directors
Direct control over Austrclea Limited is in the hands of the Board of Directors drawn from the four major trding banks in Australia, Bankers' Trust, and two Electe Direètors, one of whom is Executive Director of the International Baks and Securities Assoiation and the other from Schroders Austria Limite (a major merchant bank in Austraia). * 0209SEC. USA Februry 1993