January 22, 1993
TO: BOARD OF GOVERNORS NO. 5-93
SEC RULES COMMITTEE NO. 9-93
INTERNATIONAL COMMITTEE NO. 3-93
RE: INSTITUTE SUBMITS PROPOSAL TO SEC STAFF ON RULE 17f-5
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On January 19, 1993, the Institute submitted the attached
proposal to the SEC's Division of Investment Management,
recommending amendments to Rule 17f-5, the rule under the
Investment Company Act of 1940 that governs foreign custody of
mutual fund assets. In the May, 1992 Report Protecting
Investors: A Half Century of Investment Company Regulation , the
staff states that Rule 17f-5 should be revised to eliminate
unnecessary and burdensome obligations placed on fund boards of
directors. The Institute's proposal, which was developed by a
subcommittee of interested members of the SEC Rules Committee and
the International Committee, is intended to implement this
recommendation.
Under the Institute's proposal, the board of directors
would be able to delegate the selection of foreign custodians and
management of the arrangements to a qualified U.S. custodian or
the fund's adviser. Delegation would be subject to a number of
conditions, including a) board approval of the procedures to be
used to select foreign custodians, b) representations from the
board's delegate regarding the foreign custody contract, the
safekeeping procedures to be used by the foreign custodian, and
the existence of insurance or indemnification provisions, and c)
periodic reports to the board regarding the foreign custody
arrangements.
The Institute's proposal addresses only the role of the
board of directors under the rule. Other issues, such as the
rule's definition of "eligible foreign custodian" will be
addressed in future submissions to the SEC staff.
We will keep you informed of developments.
Matthew P. Fink
President
Attachment