SEC Division of Investment Management staff letter: Interbolsa

UNITED STATES 81.0LI

SECURITIES AND EXCHANGE COMMISSION . . Q C

WASHINGTON. D.C. 20549
DIVISION OF

~ENT MANAGEMENT
August 5, 1996

VIA FACSIMILE AN AIRMIL
ACT l1() .ìt~1 Mr. Jyrki Leppanen
SECTION ____
Managing Director

Interbolsa RULl /lF-ç Rua do Pinheiro Manso PUBLIC it Î J 471-4100 Porto AVAILAIT (J1 S'i 11 (0 PORTUGAL Dear Mr. Leppanen:

I am writing in response to your letter of July 10, 1996. In

your letter, you request information on Rule 17f-5 under the

Investment Company Act of 1940 ("1940 Act"), concerning the

requirements to become an eligible foreign custodian for U. S . investment companies. Specifically, you ask whether Interbolsa￾Associacao para a Prestacao de Servicos as Bolsas de Valores

("Interbolsa") is required to seek the approval of the Securities

and Exchange Commission ("Commission") before acting as an eligible

foreign custodian for U. S. -registered investment companies.

Section 17 (f) of the 1940 Act sets forth the custodial

requirements for U. S. -registered management investment companies

("funds"). Rule 17f-5 thereunder permits funds to maintain their

assets with certain categories of "eligible foreign custodians."

These include foreign banks that have more than $200 million

shareholders equity ¡ maj ori ty-owned subsidiaries of U. S. banks that

have more than $100 million shareholders' equity¡ transnational

foreign securities depositories and clearing agencies¡ and certain

centralized securities depositories and clearing agencies.

Based on the nature of the activities of Interbolsa,

subparagraph (c) (2) (iii) of Rule 17f-5 seems most relevant to your inquiry. Rule 1 7f -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 h~ndling

of securities or equivalent book-entries in that country."

i Your letter states that Interbolsa was formed under the

securities laws of Portugal with the purpose of acting as the

central securities depository, running the clearing and

settlement system and maintaining Portugal i s continuous trading system.
Section 3 (a) (23) (A) of the Securities Exchange Act of 1934
defines "clearing agency" generally as an intermediary that makes payments or deliveries in connection with transactions in 2

Mr. Jyrki Leppanen

August 5, 1996

Rule 17f-5 is self-operative and does not require a foreign

institution that satisfies the definition of "eligible foreign

custodian" to obtain the approval of the Commission to serve as an

eligible foreign custodian for U.S. -registered investment

companies. Where an institution clearly meets the definition, and

no legal issue is presented, the staff, as a matter of policy, will

not issue an approval letter. Custody arrangements with foreign

institutions that do not meet the fequirements of Rule 17f-5 are

evaluated on a case-by-case basis. We suggest that you consult an

attorney familiar with the U. S. federal securities laws to confirm

that Interbolsa satisfies the definition of "eligible foreign

custodian" under Rule 1 7f-5.
On July 27, 1995, the Commission proposed for public comment

amendments to Rule 17f-5 that would, among other things, amend the

definition of "eligible foreign custodian." I have enclosed with

this letter a copy of the release proposing these amendments. Also

enclosed is a copy of Section 17 (f) and the current Rule 1 7f-5. securities. The term includes any entity, such as a securities

depository, that (1) acts as a custodian of securities in

connection with a system for the central handling of securities

whereby all securities of a particular class or series of an

issuer deposited within the system are treated as fungible and

may be transferred, loaned, or pledged by bookkeeping entry

without physical delivery of securities certificates, or (2)

otherwise permits or facilitates the settlement of securities

transactions without physical delivery of securities certificates. Rule 17f-4 (a) defines a "securities depository" as a "system for

the central handling of securities where all securities of any

particular class or series of any issuer deposited within the

system are treated as fungible and may be transferred or pledged

by bookkeeping entry without physical delivery of the

securities. "

Rule 1 7f-5 (c) (2) (iii) refers to both securities depositories and

clearing agencies because a foreign securities depository may be

known as a "clearing agency" in certain countries. See

Investment Company Act Rel. No. 13724 at n. 31 (Jan. 17,

1984) (reproposing Rule 17f-5) .
See, ~, Jardine Fleming China Region Fund, Inc. And Custody

of B Shares Trading on the Shenzhen and Shanghai Securities

Exchanges (both pub. Avail. Apr. 26, 1993) ¡ Camara de Liquidacao

e Custodia S/A and Bolsa de Valores de Sao Paulo (both pub. Avail. Oct. 28,1992). 3

Mr. Jyrki Leppanen

August 5, 1996

I hope that you find this information helpful. If you have

any further questions, please contact me at (202) 942-0660 or (FAX)

(202) 942-9659.

Sincerely, nb1~ol~
'(John O'Hanlon
Assistant Chief Counsel

Attachments (w/ airmail copy)

3 JUL ' 36 15: 33 PRG.001

c- ~

INTERBOLSA

Data / Date
FAX - Transmissao I Transmission
July 9, 1996 Nos rdcrnci lOur reference Pa I To CE.J-/040 u.s. SECURS AND EXCHANGE COMMISSION N" de folhas incluíndo a prtd Ao cuidado de / For the attention of No. of pages including this one .3 Mr. .John O'Hanlon Emitido po I Issued hy FaxnO I Fax no. Jync l.plneD +1 202-942-965'q Assuto f Message; Exemption to the Rule 17f-5 Dea Mr. Q'Hanon, Pleae find attached a copy ofthe leter I am sending you by mai later today_ If there are any chages you 'Would like to suggest, pleae send them to my attention by fax +351-2-610-3031. Thank you for your help_ Bes regards, Jyrki Leppanen ;~ ~ Managig Direcor INRBOLSA - Asa~o pi a Prção de Serços ås Bolsas de Valor Rua do Pinheiro Manso, 471 - 4100 Poro - Portgal

TeL. 351.2.610303 I Fa.~ 351.2.610 30 29

Contrbuntc N" 502 962 275

3 JUL '36 15: 33 PRG.002

INTERBOLSA

AD""1",I.sT~AÇ.AO
Mr John O'Hanlon
Assistant Chief Council
DivísIon of Investment Management
U. S. Securities and Exchane Commssion
450 Fifh Street, N.W. Mai Stop 11-4
Washion, D.C. 20549

Porto, July 9, 1996
Ref CEXlJU-/041

Dear Sir,
We have bee reeiving quesionnaies from several foreign Banks about the sectes. maket in Portga.l, focusing maiy on the risk aspects of saekeeping and settlement of stock exchange tranctions. One of the questions tht is always present is:
Doe.., the Central Depository ha Rule /7f-5 approval or exemption? As this Rule is par of U.S. SeèUties and Exchage Commission Reguations, I am wrting to you asking if we are exempt of any approval or do we have tQ apply for an approva ofS.E.C.? Interbolsa - Associaço para a Prestação de Servços às Bolsas de Valores, (Association for the Rendering of Services /0 the Stock Exhaes) has been set up with the puose of actin as a central securties depository for Portgal, runn the cleang and setlement system for stock exchange trasactions and maaing and ruing the nationwide contiuous trading system - TRIS. The legal constitution of Interbolsa was on Ap 2, 1993. Oi.r shareholders are the AssQciação da Bolsa de

Val ores de Lisboa. (Lisbon stock e~chane) and the Associação da Bolsa de Dervados do Porto (derivatives exchange), fifty percent each. The setting up ofInterbolsa Was possible afer the publication. ofthe new Securties Act, which opened the doors for the rnodemisation ofthe seurities market in Portugal on April 10. 1991. INTERBOLSA - Assosçao para a Preslaçao de Seriços ås Bolsas de Valores . Rua do Pinheiro M'Inso, 471 .4100 Porto - Portugal

TeL. 351.2. 610 30 31 . Fax 351.2. 61030 29

CllrM'''1 $rKñI: 1.00.000.00$0 . CoiiibunlA Na SO.? ~~ ,.75

:3 JUL '36 15:40 PAC:. øø:èJ

INTERBOLSA

ADMINISTRAC.&O
Toda we hold more that 100 issues in our system from which 66% are in dematerialed form and about 600 are traded in the Balsa de Valores de Lisboa. The deposit of the secnties is mandatoI) for issues traded in the offcial maket and also for those tht are demateralzed. All Finamial Intermedares that are alowed to trade in the serities makets, must be afliated of Interbolsa in order to have their global seurties acunts ín our system.

I am happy to include copies of our Anual Reports for 1993, 1994 and 1995 in hope that the inormation wi complement this leter and be of some use to you. If you nee any furter inormtion about Interbolsa plea don't hesitate to contact me. In the hope that you will answer promptly to my question, I reai

Sincerely yours,
Jyrki Leppãnen
Maagng Direor

INTERBOLSA - Associeçao pare a Pre~teção de SerÇ05 ¡,,, Bolsas de Valores . Rua do Pinheiro Ma.nso, 471 .4100 POliO - Portugal

Tel. 351.2. 610 30 31 . Fax 351.2. 6103029

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