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October 12, 1989
TO: SEC RULES COMMITTEE NO. 63-89
CLOSED-END FUND COMMITTEE NO. 44-89
UNIT INVESTMENT TRUST COMMITTEE NO. 69-89
INTERNATIONAL FUNDS TASK FORCE NO. 18-89
RE: INSTITUTE COMMENT LETTER ON PROPOSED AMENDMENTS TO
RULE 12d3-1
__________________________________________________________
As we previously informed you, the SEC has proposed
amendments to Rule 12d3-1 under the Investment Company Act that
would facilitate the acquisition by a registered investment
company of equity securities of foreign securities firms. (See
Memorandum to SEC Rules Committee No. 48-89, Closed-End Fund
Committee No. 33-89, Unit Investment Trust Committee No. 49-89
and International Funds Task Force No. 9-89, dated August 9,
1989.) Rule 12d3-1 currently requires that any equity securities
of securities firms must be "margin securities" in order to be
acquired by registered investment companies. The proposed
amendments would establish alternative standards for equity
securities of foreign issuers.
Attached is a copy of the Institute's comment letter on the
proposal. In the letter, the Institute argues that there should
be no quality standards under the Rule imposed on securities
issued by securities firms (domestic and foreign), as such a
limitation is not supported by the policies underlying Section
12(d)(3). The letter states that if the SEC is, however,
unwilling to remove quality standards from the rule, certain of
the conditions should be relaxed. One such condition is the
requirement that foreign equity securities be listed on a
"qualified foreign exchange" (as defined in the rule) and satisfy
other conditions specific to the issuer and the security itself.
The Institute stated that these should instead be alternative
standards, which would be more comparable to the conditions for
domestic securities.
The letter also requested that the SEC consider adopting
less stringent standards for turnover ratio and annual trading
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volume in order for a foreign exchange to qualify under the Rule.
With respect to conditions applicable to the security and issuer,
the Institute opposed the condition that the security be part of
a class of at least 400,000 shares, excluding shares held by
certain insiders. The Institute argued that this would be
difficult to ascertain and proposed instead a minimum market
capitalization standard. The Institute's letter also opposed the
condition that would require that the issuer have complied with
all filing requirements for the previous fiscal year. In
addition, the letter requested that certain determinations be
able to be made as of the most recent publicly available report
of the issuer, rather than on the date of acquisition. Finally,
the Institute requested that the Rule explicitly cover ADRs
convertible into foreign securities that themselves meet the
Rule's conditions.
We will keep you informed of developments.
Craig S. Tyle
Associate General Counsel
Attachment