October 4, 1994
TO: ACCOUNTING/TREASURERS COMMITTEE NO. 49-94
SEC RULES COMMITTEE NO. 106-94
RE: INSTITUTE LETTER ON PROPOSED RULE 17f-6
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As we previously informed you, the Securities and Exchange
Commission has proposed Rule 17f-6 under the Investment Company
Act of 1940, to permit futures commission merchants ("FCMs") and
commodity clearing organizations to hold custody of margin in
connection with certain futures and options transactions by
investment companies. (See Memorandum to Accounting/Treasurers
Committee No. 27-94 and SEC Rules Committee No. 59-94, dated May
31, 1994.) Attached is a copy of the Institute's comment letter
on the proposed rule.
The letter states that the Institute does not oppose
adoption of a rule that would permit, but not require, investment
companies to deposit initial margin with an FCM. In this regard,
the letter notes that third party custodial accounts, currently
used by funds that engage in futures and options transactions,
provide significant benefits and investor protections to
investment companies and their shareholders.
The Institute recommends that the proposal be modified in
certain significant respects to ensure that it will in fact offer
a feasible alternative to third party custodial accounts. Among
other things, the letter suggests that the proposed
responsibilities of a fund's board of directors (or its delegate)
to select and monitor FCM arrangements be modified to alleviate
the board from having to make detailed findings about an FCM's
financial strength and internal procedures and safeguards.
Amy B.R. Lancellotta
Associate Counsel
Attachment