42398 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Rules and Regulations

1See 62 FR 13564 (March 21, 1997).

2 JAC is comprised of representatives from each

commodity exchange and National Futures

Association which coordinate the industry’s audit

and ongoing surveillance activities to promote a

uniform framework of self-regulation.

(44 U.S.C. 3506(c)(1); 5 U.S.C. 553)

Dated: August 1, 1997.

Sadye E. Dunn,

Secretary, Consumer Product Safety

Commission.

[FR Doc. 97–20725 Filed 8–6–97; 8:45 am]

BILLING CODE 6355–01–P

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Part 1

Securities Representing Investment of

Customer Funds Held in Segregated

Accounts by Futures Commission

Merchants

AGENCY: Commodity Futures Trading

Commission.

ACTION: Final Rules.

SUMMARY: The Commodity Futures

Trading Commission (’’Commission’’) is

amending Rules 1.23 and 1.25 to allow

futures commission merchants

(‘‘FCMs’’) to make direct transfers into

segregated accounts of permissible,

unencumbered securities of the types

set forth in Section 4d(2) of the

Commodity Exchange Act (‘‘Act’’) and

Rule 1.25 promulgated thereunder. This

will provide FCMs a more efficient

means to increase or decrease their

residual interest in funds segregated for

the benefit of commodity customers

than heretofore permitted. In addition,

the revised rules will permit FCMs to

deposit the proceeds from the sale or

maturity of any such investments

directly into a nonsegregated bank

account, provided that the FCM

maintains a sufficient residual financial

interest in the funds segregated for

commodity customers to assure that all

of an FCM’s obligations to its customers

are covered. The Commission’s

expectation is that these rule changes

will reduce the number of transactions

required to manage an FCM’s segregated

cash and securities balances, thus

reducing operating costs for the

industry. To assure that there will be a

clear audit trail for the increased types

of permitted transactions, Rule 1.27 also

is being amended to require that the

description of the investment securities,

required by the rule, includes the

security identification number

developed by the Committee on

Uniform Security Identification

Procedures (‘‘CUSIP Number’’). Also,

Rule 1.25 is being amended to require

identification, in the record of

investments required to be maintained

by Rule 1.27, of the manner in which

the proceeds from the sale or maturity

of any segregated securities are disposed

of.

EFFECTIVE DATE: September 8, 1997.

FOR FURTHER INFORMATION CONTACT: Paul

H. Bjarnason, Jr., Chief Accountant, or

Lawrence B. Patent, Associate Chief

Counsel, Division of Trading and

Markets (‘‘Division’’), Commodity

Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street, N.W.,

Washington, D.C. 20581. Telephone

(202) 418–5430.

SUPPLEMENTARY INFORMATION:

I. Investment of Customers’ Segregated

Funds

At all times, an FCM is required to

have sufficient funds in segregation to

meet its obligations to customers. As a

consequence, to protect against a

customer account going into deficit, an

FCM must deposit funds of its own to

cover any customer account deficits,

and such funds must remain in

segregation until more funds are

remitted to the FCM by the customers

who hold such deficit accounts. Thus,

maintaining an adequate cushion of its

own in segregation is a part of routine

FCM funds management operations.

FCM operational funding needs often

dictate that any unneeded excess funds

in segregation be moved so that they can

be used in other aspects of the firm’s

operations. Therefore, prudent and

efficient funds management typically

requires an FCM to make frequent

transfers of funds into and out of

segregation.

Prior to these rule changes, FCMs

were only allowed to increase or

decrease their interest in customers’

segregated funds by direct transfers of

cash. That is, securities owned by the

FCM and held in a non-segregated

account could not be transferred to a

segregated account. Moreover, to assure

an audit trail, if an FCM wished to move

funds represented by securities into

segregation, the securities had to be sold

and the cash proceeds transferred into a

segregated account. The FCM could,

then, use the segregated cash to

purchase more securities that would be

held in segregation. The effect of these

requirements was that any segregated

securities, except for securities

purchased and specifically owned and

deposited by individual customers,

always had to be purchased with cash

from a segregated cash account.

Likewise, the proceeds from any sale of

segregated securities always had to be

deposited into a segregated account,

even if there was no longer a need for

the funds to be in segregation. That is,

such funds could only be moved to a

non-segregated account after the

securities were converted to cash and

the cash had been deposited into a

segregated account.

On March 21, 1997, the Commission

published for comment proposed

amendments to Rules 1.23, 1.25, and

1.27.1 The proposed changes would

permit FCMs to transfer their own

unencumbered securities from a nonsegregated account directly into a

customer segregated safekeeping

account. This would enable an FCM to

increase the amount of funds segregated

for the benefit of commodity customers

more quickly and economically. To be

eligible for direct transfer, such

securities were required to be

unencumbered and to qualify as

permitted investments of customer

funds under Rule 1.25. The proposed

rule amendments also would permit an

FCM to transfer such securities from a

segregated customer safekeeping

account directly to the FCM’s own nonsegregated account, to the extent the

FCM had excess funds available in

segregation. The 30-day public comment

period on the proposed rule changes

expired on April 21, 1997. The

Commission received one written

comment letter on this proposal from

the Joint Audit Committee (‘‘JAC’’).2

The JAC raised two issues.

First, JAC suggested that Rule 1.25 be

amended by removing the requirement

contained in the rule that the proceeds

from any sale of segregated securities be

redeposited into a segregated account.

JAC indicated that by eliminating this

restriction, FCMs would be able to sell

segregated securities directly out of the

segregated account and deposit the

funds to a non-segregated account.

Since it was the Commission’s aim to

permit cash and securities to be treated

the same way, thus reducing the number

of transactions required to administer

segregated funds and reduce transaction

costs, the Commission agrees with this

suggestion. Therefore, to adopt the JAC’s

suggestion, Rule 1.25 is further

amended in two respects: 1) the

requirement to deposit the proceeds

from the sale of segregated securities to

a segregated account is eliminated; and

2) a requirement to identify, in the

record of investments required to be

maintained by Rule 1.27, the manner in

which the proceeds from the sale or

maturity of any segregated securities are

disposed of, is added to the rule. That

is, if proceeds are not redeposited in a

segregated account, the record must
Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Rules and Regulations 42399

3 In proposing these rule amendments, the

Commission noted that their adoption would also

require the Division to revise Financial and

Segregation Interpretation No. 7, which includes

the following statement:

Under Regulations 1.23 and 1.25 such obligations

must be: (1) purchased with money deposited in an

account used for the deposit of customers’ funds;

(2) made through such an account; and (3) the

proceeds from any sale of such obligations must be

redeposited in such an account. Thus, all additions

to and withdrawals from customer segregated funds

which represent topping up by the FCM to cover

actual or expected customer deficits must be in the

form of cash.

1 Comm. Fut. L. Rep. (CCH) ¶ 7117, at 7124 (July

23, 1980).

The Division will delete this text from the

interpretation shortly and will publish an amended

interpretation on its Internet web site (http://

www.cftc.gov) and request Commerce Clearing

Housng to publish the revised interpretation in the

Commodity Futures Law Reporter.

4Pub. L. No. 90–258, § 6, 82 Stat. 26, 28 (1968),

now codified as the concluding paragraph of § 4d(2)

of the Act, 7 U.S.C. 6d(2) (1994).

reflect that the proceeds were deposited

to an identified non-segregated account.

These changes to the rules are

achieved without any sacrifice of the

audit trail related to segregated funds

transfers. Also, the rules do not impose

any significant costs or other undue

burdens upon FCMs, because the

additional information required to be

maintained by the rule should be

available to FCMs in the internal

records they already maintain.

The Commission’s proposed

amendment to Rule 1.23 would have

modified the restrictions to allow the

transfer of the types of securities set

forth in Rule 1.25 between segregated

and nonsegregated accounts. These

proposed changes would permit

transfers between segregated and nonsegregated accounts, whether made in

cash or securities, to be treated the same

way. Therefore, the Commission has

determined to adopt the amendment to

Rule 1.23 as originally proposed, but to

add the amendment to Rule 1.25 to

assure that the Rule 1.23 rule changes

achieve the desired result.

In its second comment, JAC pointed

out that the proposed amendments to

Rules 1.23 and 1.25 would restrict the

transfer of securities to those held in a

segregated safekeeping account with a

bank or trust company. JAC’s original

request for the proposed rule change

was to allow FCMs the ability to transfer

segregated securities held by any

permitted segregation depository,

including contract market clearing

organizations and other FCMs. The

Commission agrees. Therefore, the final

amendments to Rules 1.23 and 1.25, as

adopted, refer to securities held in

segregated safekeeping at any permitted

custodian of segregated funds, that is a

bank, trust company, contract market

clearing organization, or another FCM. It

should be noted that clearing

organizations and FCMs ultimately

deposit customer funds in a segregated

safekeeping account with a bank or trust

company.3 In this connection the

Commission notes that to be considered

properly segregated, pursuant to the Act

and the rules promulgated thereunder,

securities must be held in safekeeping.

For purposes of Rules 1.26, 1.27, 1.28

and 1.29, all permissible investments,

when deposited into segregated

accounts, will be deemed to be

securities and obligations which

represent investments of customers’

funds until such time as the FCM

withdraws or otherwise disposes of

such investments.

Also, the Commission is adopting as

proposed amendments to Rule 1.27,

which require FCMs to maintain records

of permissible investments held in

segregated accounts. Rule 1.27 now will

require the record to include the CUSIP

number of such securities as a part of

the description of such investments, and

Rule 1.25 will require the FCM’s record

to indicate if securities were liquidated

and the non-segregated account where

the proceeds were transferred. The

Commission is not adopting any other

changes to Rule 1.27, but wants to

remind FCMs that Rule 1.27 requires

them to include in the investments

record, among other information, the

name of the person through whom such

investments were made and the name of

the person to or through whom such

investments were disposed of.

Therefore, this record should identify

permissible investments owned by the

FCM which were deposited into

segregation and any investments

withdrawn from segregation and

deposited in the FCM’s own account.

Securities owned by the FCM, used to

meet its segregation requirements, must

be identified as customer securities and

properly segregated, whether physically

deposited or deposited by book entry.

The Commission also invited

comments on whether custodians for

these purposes should be limited to

banks and trust companies not affiliated

with the FCM. The Commission asked

this question, in part, as a follow-up to

issues raised during the Barings crisis.

Many firms had deposited their cash

with affiliates of the Barings bank,

which in turn used the Barings bank as

a depository for those assets. During the

Barings crisis, these firms found that

their assets, notwithstanding some

interpretations that the segregation laws

in the United Kingdom impose a

complete trust on customer funds,

would not necessarily be considered

segregated for their benefit in any

impending liquidation in bankruptcy of

the Barings group. In this connection,

the Commission notes that the

International Organisation of Securities

Commissions issued guidance on client

asset protection, which is contained in

a report published in August 1996, that

recommends to regulatory authorities

that they should: ‘‘. . . carefully

consider the circumstances in which

authorised firms may be permitted to

meet the requirements of a client asset

protection regime by holding client

assets with a related custodian.’’

In this connection, the only

commenter, the JAC, stated that such a

limitation on affiliated depositories

would not seem warranted. In most

jurisdictions, funds in securities held in

safekeeping can be separated from funds

amenable to the claims of a creditor of

the custodian, as well as a creditor of

the FCM. Amendments added to the Act

in 1968, to impose the requirement to

segregate directly on the custodian, are

intended to achieve that effect.4 The

adoption of the rules in this release is

intended to facilitate maintaining

segregated funds in the form of

securities. The Commission, therefore,

believes that there is no compelling

reason to impose a condition, at this

time, that such funds be held at nonaffiliated custodians. The Commission

notes that it intends to keep this

conclusion under review. This is

because legislative and regulatory

changes in the U.S. or in other

countries, developments in risk

assessment systems or cooperative

arrangements with domestic and/or

international regulators and

encountering new types of

custodianship problems in connection

with a failed firm could at some future

time suggest that the Commission

consider a change in its current rules

and policies in this connection.

Under the Act, an FCM may segregate

commodity customers’ funds at a bank

or trust company, another registered

FCM, or a clearing organization of a

contract market. Each of these

depositories is, itself, required by the

Act to treat and deal with such funds as

belonging to the FCM’s customers and

not as the FCM’s own funds. Each of

these persons is also liable under the

Act for any misuse of, or failure to

segregate, such funds. Such liability

accrues whether or not the depository is

related to the FCM. When customer

funds are deposited with another FCM

or contract market clearing organization,

the funds, ultimately, are deposited
42400 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Rules and Regulations

5 47 FR 18618–18621 (April 30, 1982).

6 47 FR 18619–18620.

with a bank or trust company by such

FCM or clearing organization.

With respect to net capital

compliance issues, the Commission’s

staff has previously informally advised

the Joint Audit Committee and

individual registrants that deposits of

funds with affiliates would be deemed

by staff to be returns of capital by an

FCM and, therefore, such deposits could

not be treated as regulatory capital by an

FCM, unless such funds represented

either: (1) Funds segregated or set aside

in safekeeping under the Commission’s

rules for commodity or foreign futures

or foreign options customers; (2) funds

held pursuant to the Securities and

Exchange Commission’s customer

protection rules (17 CFR 240.15c3–3); or

(3) amounts to be used for normal

operating expenses. The Commission is

in agreement with that policy and does

not believe any additional limitation

needs to be imposed at this time.

Unusually large amounts of cash held in

segregation will be reviewed as part of

Commission and SRO audit programs.

II. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act

(‘‘RFA’’), 5 U.S.C. 601–611 (1988),

requires that agencies, in proposing

rules, consider the impact of those rules

on small businesses. The rule

amendments discussed herein would

affect registered FCMs. The Commission

has previously established certain

definitions of ‘‘small entities’’ to be used

by the Commission in evaluating the

impact of its rules on such entities in

accordance with RFA.5 The Commission

previously determined that registered

FCMs are not small entities for the

purpose of the RFA.6

Further, the amendments discussed

herein do not impose any significant

new burdens upon FCMs. These

amendments facilitate the use of firmowned obligations to enhance funds

segregated for commodity customers by

allowing the direct transfer of said

obligations into and out of segregated

accounts. As a result, the Commission

anticipates that adoption of the

amendments will reduce the burden of

compliance with segregation

requirements by FCMs. Accordingly,

when these rule amendments were

proposed, the Chairperson, on behalf of

the Commission, certified, pursuant to 5

U.S.C. 605(b), that the rule amendments

would not have a significant economic

impact on a substantial number of small

entities. The Commission, nonetheless,

invited comment from any registered

FCM that believed these rules would

have a significant impact on its

operations, but none was received.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(Pub. L. No. 104–13, May 13, 1995)

(‘‘PRAct’’) imposes certain requirements

on federal agencies (including the

Commission) in connection with their

conducting or sponsoring any collection

of information, as defined by the PRAct.

While these rule amendments have no

burden, the group of rules (3038–0024)

of which the rules proposed to be

amended are a part has the following

burden:

Average burden hours per response........18.00

Number of Respondents .....................1,662.00

Frequency of response.............................19.00

Copies of the OMB approved

information collection package

associated with these rules may be

obtained from the Desk Officer, CFTC,

Office of Management and Budget,

Room 10202, NEOB, Washington, DC

20503, (202) 395–7340.

List of Subjects in 17 CFR Part 1

Brokers, Commodity futures,

Consumer protection, Reporting and

Recordkeeping requirements,

Segregation requirements.

In consideration of the foregoing and

pursuant to the authority contained in

the Act and, in particular, Sections 4d,

4g and 8a (5) thereof, 7 U.S.C. 6d, 6g

and 12a(5), the Commission hereby

amends Chapter I of Title 17 of the Code

of Federal Regulations as follows:

PART 1—GENERAL REGULATIONS

UNDER THE COMMODITY EXCHANGE

ACT

1. The authority citation for Part 1

continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a,

6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m,

6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a,

13a–1, 16, 16a, 19, 21, 23, and 24.

2. Section 1.23 is revised to read as

follows:

§ 1.23 Interest of futures commission

merchant in segregated funds; additions

and withdrawals.

The provision in section 4d(2) of the

Act and the provision in § 1.20(c),

which prohibit the commingling of

customer funds with the funds of a

futures commission merchant, shall not

be construed to prevent a futures

commission merchant from having a

residual financial interest in the

customer funds, segregated as required

by the Act and the rules in this part and

set apart for the benefit of commodity or

option customers; nor shall such

provisions be construed to prevent a

futures commission merchant from

adding to such segregated customer

funds such amount or amounts of

money, from its own funds or

unencumbered securities from its own

inventory, of the type set forth in § 1.25,

as it may deem necessary to ensure any

and all commodity or option customers’

accounts from becoming

undersegregated at any time. The books

and records of a futures commission

merchant shall at all times accurately

reflect its interest in the segregated

funds. A futures commission merchant

may draw upon such segregated funds

to its own order, to the extent of its

actual interest therein, including the

withdrawal of securities held in

segregated safekeeping accounts held by

a bank, trust company, contract market

clearing organization or other futures

commission merchant. Such withdrawal

shall not result in the funds of one

commodity and/or option customer

being used to purchase, margin or carry

the trades, contracts or commodity

options, or extend the credit of any

other commodity customer, option

customer or other person.

3. Section 1.25 is revised to read as

follows:

§ 1.25 Investment of customer funds.

No futures commission merchant and

no clearing organization shall invest

customer funds, except in obligations of

the United States, in general obligations

of any State or of any political

subdivision thereof, or in obligations

fully guaranteed as to principal and

interest by the United States. This shall

not prohibit a futures commission

merchant from directly depositing

unencumbered securities, of the type

specified in this section, which it owns

for its own account, into a segregated

safekeeping account or from transferring

any such securities from a segregated

account to its own account, up to the

extent of its residual financial interest in

customers’ segregated funds; provided,

however, that such investments,

transfers of securities, and disposition of

proceeds from the sale or maturity of

such securities are recorded in the

record of investments, required to be

maintained by § 1.27. All such securities

may be segregated in safekeeping only

with a bank, trust company, clearing

organization of a contract market, or

other registered futures commission

merchant. Furthermore, for purposes of

§§ 1.25, 1.26, 1.27, 1.28 and 1.29,

investments permitted by § 1.25 that are

owned by the futures commission

merchant and deposited into such a

segregated account shall be considered
Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Rules and Regulations 42401

1See Investment Trusts and Investment

Companies: Hearings on S. 3580 Before a

Subcomm. of the Senate Comm. on Banking and

Currency, 76th Cong., 3d Sess. 35 (1940) (statement

of Commissioner Healy).

2 ‘‘Principal underwriter’’ is defined in section

2(a)(29) of the Investment Company Act [15 U.S.C.

80a–2(a)(29)] to mean (in relevant part) an

underwriter who, in connection with a primary

distribution of securities, (A) is in privity of

contract with the issuer or an affiliated person of

the issuer, (B) acting alone or in concert with one

or more other persons, initiates or directs the

formation of an underwriting syndicate, or (C) is

allowed a rate of gross commission, spread, or other

profit greater than the rate allowed another

underwriter participating in the distribution.

3Section 10(f) [15 U.S.C. 80a–10(f)] prohibits a

fund from purchasing a security during the

Continued

customer funds until such investments

are withdrawn from segregation.

4. Section 1.27 is amended by revising

paragraphs (a)(4) and (b)(2) to read as

follows:

§ 1.27 Record of investments.

(a) * * *

(4) A description of the obligations in

which such investments were made,

including the CUSIP numbers;

* * * * *

(b) * * *

(2) A description of such documents,

including the CUSIP numbers; and

* * * * *

Issued in Washington D.C. on July 28,

1997, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97–20766 Filed 8–6–97; 8:45 am]

BILLING CODE 6351–01–P

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 270

[Release Nos. IC–22775, IS–1095; File No.

S7–7–96]

RIN 3235–AG61

Exemption for the Acquisition of

Securities During the Existence of An

Underwriting or Selling Syndicate

AGENCY: Securities and Exchange

Commission.

ACTION: Final rule.

SUMMARY: The Commission is adopting

amendments to the rule under the

Investment Company Act of 1940 that

permits an investment company that is

related to certain participants in an

underwriting to purchase securities

during an offering, if certain conditions

are met. The amendments increase the

percentage of an underwriting that

investment companies having the same

investment adviser may purchase in

reliance on the rule, and expand the

scope of the rule to include securities of

certain foreign and domestic issuers that

are not registered with the Commission

under the Securities Act of 1933. The

amendments respond to changes in the

investment company and underwriting

industries that have occurred since the

rule last was substantively amended in

1979.

EFFECTIVE DATE: The rule amendments

will become effective October 6, 1997.

FOR FURTHER INFORMATION CONTACT: C.

Hunter Jones, Special Counsel, Office of

Regulatory Policy, or Nadya B. Roytblat,

Assistant Director, Office of Investment

Company Regulation, Division of

Investment Management, at (202) 942–

0690, U.S. Securities and Exchange

Commission, 450 5th Street, N.W., Mail

Stop 10–2, Washington, D.C. 20549.

Requests for formal interpretive

advice should be directed to the Office

of Chief Counsel at (202) 942–0659,

Division of Investment Management,

U.S. Securities and Exchange

Commission, 450 5th Street, N.W., Mail

Stop 10–6, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The

Commission today is adopting

amendments to rule 10f–3 (17 CFR

270.10f–3) under the Investment

Company Act of 1940 (15 U.S.C. 80a)

(the ‘‘Investment Company Act’’).

Table of Contents

Executive Summary

I. Background

A. Introduction

B. Proposed Amendments to Rule 10f–3

II. Discussion

A. Quantity Limitations

1. Percentage of Offering Purchased

2. Percentage of Fund Assets

B. Foreign Offerings and Rule 144A

Securities

1. Eligible Foreign Offerings

2. Rule 144A Offerings

3. Calculation of Percentage Limit in

Global Offerings

C. Price and Timing of the Purchase

D. Group Sales

E. Role of Fund Board of Directors

F. Reporting and Recordkeeping

G. U.S. Government Securities

III. Cost–Benefit Analysis

IV. Paperwork Reduction Act

V. Summary of Regulatory Flexibility

Analysis

VI. Statutory Authority

Text of Rule

Executive Summary

The Commission is adopting

amendments to rule 10f–3 under the

Investment Company Act. Rule 10f–3

provides an exemption from section

10(f), which prohibits any registered

investment company (‘‘fund’’) from

purchasing securities for which an

underwriter having certain relationships

with the fund (‘‘affiliated underwriter’’)

is acting as a principal underwriter

during the existence of an underwriting

or selling syndicate for the securities.

The amendments are intended to

provide funds with additional

flexibility, consistent with the

protection of investors, to make

investments that may be in the best

interests of investors.

The amendments will permit a fund

subject to the rule, together with other

funds that have the same investment

adviser, to purchase, during the

existence of an underwriting or selling

syndicate:

• Up to 25% of the principal amount

of an offering;

• Securities of foreign issuers or of

domestic reporting issuers in an

‘‘Eligible Foreign Offering’’; and

• Certain securities that are exempt

from registration and are eligible for

resale pursuant to rule 144A under the

Securities Act of 1933 (‘‘Securities

Act’’).

The Commission is not adopting the

amendment that would have permitted

a fund subject to the rule to purchase

municipal securities in a group sale (i.e.,

a purchase for which all members of an

underwriting syndicate, including the

affiliated underwriter, receive credit).

Rather, in light of the comments, the

Commission has concluded that there is

insufficient justification at this time to

alter the treatment of group sales of

municipal securities under rule 10f–3.

I. Background

A. Introduction

Section 10(f) of the Investment

Company Act was designed to address

one of the major abuses noted in the

period before enactment of the

Investment Company Act—the use of

funds by underwriters that controlled

these funds as a ‘‘dumping ground’’ for

unmarketable securities.1 An

underwriter could, for example,

‘‘dump’’ unmarketable securities on its

controlled fund, either by causing the

fund to purchase the securities from the

underwriter itself, or by encouraging the

fund to purchase securities from another

member of the underwriting syndicate.

Fund assets also could be used to absorb

the risks of an underwriting in more

subtle ways, such as by facilitating price

stabilization in connection with an

underwriting.

Section 10(f) prohibits any fund from

purchasing any security for which an

affiliated underwriter is acting as a

principal underwriter,2 during the

existence of an underwriting or selling

syndicate for that security.3 Congress