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Institute Comments on SEC Proposal Re Foreign Custody of Fund Assets
Washington, DC, July 16, 1999 - The Institute submitted a comment letter to the Securities and Exchange Commission responding to the Commission’s proposed amendments to rule 17f-5 under the Investment Company Act of 1940 and proposed new rule 17f-7 under the act. Together, the Commission’s proposals would address the custody of investment company assets outside the U.S. More specifically, proposed rule 17f-7 would establish standards governing the maintenance of an investment company’s assets with a foreign securities depository.
In its letter, the Institute supported significant aspects of the Commission’s proposal, such as the use of objective criteria to determine the eligibility of a depository and the elimination of the reasonable care standard with respect to securities depositories. However, the letter expressed the Institute’s continued belief that the proposal jointly submitted by the Institute and the Association of Global Custodians in June 1998 (and amended in February 1999) is preferable to proposed rule 17f-7. The letter also expressed the general concern that the "risk-limiting conditions" included in proposed rule 17f-7 would inappropriately seek to regulate an investment company’s investment decisionmaking process.