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SEC Proposes Amendments to Rules Governing Funds’ Use of Securities Depositories
Washington, DC, November 26, 2001 - The Securities and Exchange Commission recently proposed amendments to Rule 17f-4 of the Investment Company Act of 1940, the rule that governs investment companies’ use of securities depositories. According to the proposing release, the amendments would update and simplify the rule to reflect the developments in securities depository practices and commercial law that have occurred over the years. Specifically, they would expand the types of investment companies that can maintain assets with a depository, expand the types of depositories they can use, and update the conditions they must follow to use a depository. The amendments also would eliminate unnecessary custodial compliance requirements, including the requirements that fund directors approve the fund’s custody arrangements and fund approval of its custodian’s depository arrangements. Comments are due to the Commission by January 31, 2002.
The Commission seeks comment on certain provisions, including:
- the expansion of Rule 17f-4 to include transfer agents;
- the expansion of Rule 17f-4 to include non-management companies;
- proposed amendments to the compliance requirements;
- proposed elimination of board approval requirements; and
- proposed inclusion of note on applicability of Rule 17f-4 to foreign custodial arrangements.
In addition to comments on the rule amendments in the proposing release, the Commission requests suggestions for additional changes to existing rules or forms and comments on other matters that may impact these proposals. The Commission specifically requests comment on whether the failure to apply Rules 17f-5 and 17f-7 to domestic depositories would create an unfair burden on competition between domestic depositories and global custodians of funds.