[Federal Register Volume 62, Number 240 (Monday, December 15, 1997)]
[Notices]
[Pages 65719-65721]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32652]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IA-1685/803-112]


Interactive Data Corporation; Notice of Application

December 9, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'').

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APPLICANT: Interactive Data Corporation (``Interactive Data'').

RELEVANT ADVISERS ACT SECTIONS: Exemption requested under section 
203A(c) from section 203A(a).

SUMMARY OF APPLICATION: Applicant requests an order to permit it to 
register with the SEC as an investment adviser.
    Filing Dates: The application was filed on May 20, 1997, and 
amended on September 22, 1997 and October 7, 1997.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicant with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on January 
5, 1998, and should be accompanied by proof of service on applicant, in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549. Applicant, Interactive Data 
Corporation, 22 Crosby Drive, Bedford, Massachusetts 01730.

FOR FURTHER INFORMATION CONTACT:
Lori Price, Senior Counsel, at (202) 942-0531, or Jennifer S. Choi, 
Special Counsel, at (202) 942-0716 (Division of Investment Management, 
Task Force on Investment Adviser Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. Applicant is a Delaware corporation and a wholly-owned 
subsidiary of Pearson Longman Inc., a Delaware corporation, the sole 
shareholder of which is Pearson Inc., a Delaware corporation. The 
shareholders of Pearson Inc. are Pearson Overseas Holdings Limited, a 
United Kingdom company, and Pearson Capital Company LLC, a Delaware 
limited liability company. The ultimate parent of Pearson Overseas 
Holding Limited and Pearson Capital Company LLC is Pearson plc, a 
publicly-traded United Kingdom company.
    2. Applicant maintains its principal office and place of business 
in Massachusetts where applicant's corporate headquarters and its 
president and financial and legal officers are located. Applicant, 
however, only conducts its domestic securities pricing business in New 
York. Applicant is currently registered as an investment adviser in New 
York. Applicant was registered with the SEC as an investment adviser 
until July 8, 1997.
    3. Applicant provides global securities pricing and related 
financial data in computer-readable form. Applicant's data covers over 
3.1 million individual issues of debt and equity securities and 
includes (i) daily closing prices (including end-of-day quotes and 
evaluations), market data, money market and foreign exchange rates, 
index values and related data, available after the markets close around 
the world; (ii) most recent descriptive data and terms and conditions 
data; (iii) most recent announcements (including capitalization 
changes, dividends, reorganization information, and called bonds); and 
(iv) historical price, announcement, descriptive, fundamental, earnings 
estimates, and economic and related data.
    4. With regard to certain fixed income issues for which no 
continuous trading market exists, applicant creates prices using 
sophisticated proprietary models and methodologies, descriptive terms 
and conditions databases, broker quotes and quality control programs to 
generate evaluations that are independent (``Fixed Income Pricing 
Service''). These prices are provided in computer-

[[Page 65720]]

 readable form to applicant's clients throughout the country.
    5. The clients for applicant's Fixed Income Pricing Service include 
over 3,300 separate organizations, located throughout the country and 
abroad, including major banks, mutual funds, fund custodians, unit 
investment trusts, brokerage firms and investment management firms. In 
North America, applicant's clients include forty-seven of the largest 
fifty banks, forty-three of the largest fifty brokerage firms, forty of 
the largest fifty mutual fund sponsors, thirty-four of the largest 
fifty insurance companies and forty-nine of the largest fifty money 
management firms. Applicant has a small number of natural person 
clients who receive its prices. Applicant believes these clients 
account for less than 10% of applicant's total number of clients 
receiving the Fixed Income Pricing Service, and only .0559% of 
applicant's revenue for the Fixed Income Pricing Service is 
attributable to fees paid by clients who are natural persons.
    6. Applicant submits that it provides security-level data to 
institutional clients who service customers on a national level. 
Applicant states that its clients use the data for purposes as varied 
as brokerage and trust accounting, trust operations, net asset value 
calculations, portfolio management and accounting, regulatory 
requirements, and investment analysis and research.
    7. Applicant has approximately 470 employees, all of whom are 
involved in collecting, reviewing, evaluating, and overseeing delivery 
of the financial data that applicant delivers to its clients.

Applicant's Legal Analysis

    1. On October 11, 1996, the National Securities Markets Improvement 
Act of 1996 was enacted. Title III of the Act, the Investment Advisers 
Supervision Coordination Act (``Coordination Act''), added new section 
203A to the Advisers Act. Under section 203A(a)(1),\1\ an investment 
adviser that is regulated or required to be regulated as an investment 
adviser in the state in which it maintains its principal office and 
place of business is prohibited from registering with the SEC unless 
the investment adviser (i) has assets under management of not less than 
$25 million or (ii) is an adviser to an investment company registered 
under the Investment Company Act of 1940 (``Investment Company Act''). 
Section 203A(a)(2) defines the phrase ``assets under management'' as 
the ``securities portfolios with respect to which an investment adviser 
provides continuous and regular supervisory or management services.'' 
\2\
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    \1\ 15 U.S.C. 80b-3a(a)(1).
    \2\ 15 U.S.C. 80b-3a(a)(2).
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    2. Applicant submits that Congress determined that the states 
should be responsible for regulating investment advisers ``whose 
activities are likely to be concentrated in their home state,'' and 
``[l]arger advisers, with national businesses'' should be regulated by 
the SEC and ``be subject to national rules.'' \3\ Applicant notes that 
Congress chose an assets under management requirement as a rough proxy 
that would divide responsibilities between the SEC and the states on 
the theory that investment advisers managing $25 million or more in 
assets are likely to be national investment advisers that should be 
subject to the national rules of the SEC, while investment advisers 
managing less than $25 million in assets are likely to be smaller 
investment advisers that should be subject to the local rules of the 
various states.\4\
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    \3\ S. Rep. No. 293, 104th Cong. 2d Sess. 4 (1996) [hereinafter 
Senate Report].
    \4\ Id.
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    3. Section 203A(c) of the Advisers Act authorizes the SEC to permit 
an investment adviser to register with the SEC if prohibiting 
registration would be ``unfair, a burden on interstate commerce, or 
otherwise inconsistent with the purposes of [section 203A].'' \5\
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    \5\ 15 U.S.C. 80b-3a(c).
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    4. Applicant states that Congress recognized that the assets under 
management requirement does not precisely differentiate national 
investment advisers from local investment advisers, and that some 
national investment advisers may not qualify for registration with the 
SEC under the test formulated by Congress. Applicant states that 
Congress noted that ``the definition of `assets under management' . . . 
may, in some cases, exclude firms with a national or multistate 
practice from being able to register with the SEC.'' \6\
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    \6\ Senate Report, supra note 3, at 5.
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    5. Applicant states that Congress directed the SEC to use its 
exemptive authority to remedy any unfairness, burdens or 
inconsistencies caused by the assets under management requirement and 
to address situations where investment advisers with a ``national or 
multistate practice'' are otherwise prohibited from registering with 
the SEC.\7\
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    \7\ Id.
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    6. Applicant states that it does not have $25 million or more in 
assets under management. Applicant submits that it does not actively 
manage any client securities portfolios, either on a discretionary or 
non-discretionary basis, or provide ``continuous and regular 
supervisory or management services'' with respect to client accounts. 
Applicants also states that it does not act as an investment adviser to 
an investment company registered as such under the Investment Company 
Act. Applicant further states that it does not qualify for exemption 
from the prohibition on SEC registration as provided in rule 203A-2 
under the Advisers Act.
    7. Applicant submits that, for the reasons discussed below, it 
engages in a large, national investment advisory business of the type 
contemplated by Congress when it directed the SEC to use its exemptive 
authority under section 203A(c). Applicant asserts that, because of the 
wide variety of overwhelmingly institutional clients to which applicant 
provides its Fixed Income Pricing Service, applicant believes its 
services are the type of activities Congress contemplated in enacting 
section 203A. Applicant argues that it would be inconsistent with the 
purposes of section 203A to prohibit applicant from registering with 
the SEC because more than 90% of applicant's clients are institutions 
whose securities transactions affect the national securities markets.
    8. Applicant states that, like the investment advisers to 
registered investment companies, the nationally recognized statistical 
rating organizations (``NRSROs''), and the pension consultants exempted 
from the prohibition on SEC registration, applicant performs services 
that significantly affect the national securities markets and billions 
of dollars in assets under management. Applicant states that its 
providing of the Fixed Income Pricing Service has a direct effect on 
billions of dollars of assets under management at the nation's 
investment companies, investment advises, broker-dealers, insurance 
companies, banks, trust companies, and other institutional investors. 
For example, open end investment companies use applicant's fixed income 
securities prices to compute net asset value on a daily basis, broker-
dealers use applicant's prices to value securities pledged in margin 
accounts, and private money managers use prices supplied by applicant 
for portfolio valuation statements.
    9. Applicant states that Congress exempted investment advisers to 
investment companies (regardless of assets under management) from the 
prohibition on SEC registration because Congress recognized these 
entities had

[[Page 65721]]

significant effects on the national securities markets.
    10. Applicant submits that the SEC also has exempted NRSROs because 
the SEC determined that their activities have a significant effect on 
the national securities markets and the operations of the federal 
securities laws.\8\ Applicant also notes that certain pension 
consultants are exempt from the prohibition on SEC registration because 
the SEC determined that their activities have a direct effect on the 
management of billions of dollars of pension plan assets and thereby 
substantially affect national securities markets.\9\ Applicant states 
that the SEC determined to exempt these advisers because of its belief 
that it would be inconsistent with the purposes of the Coordination Act 
for these advisers to be regulated by the states rather than by the 
SEC.
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    \8\ Rules Implementing Amendments to the Investment Advisers Act 
of 1940, Investment Advisers Act Release No. 1601 (Dec. 20, 1996), 
61 FR 68480 at Section II.D.1 (release proposing rules to implement 
amendments to the Advisers Act).
    \9\ The exempted pension consultants are those that provide 
investment advice to employee benefit plans with respect to assets 
having an aggregate value of at least $50 million during the pension 
consultant's last fiscal year. See id. at Section II.D.2.
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    11. Applicant believes that New York should have little or no 
interest in regulating applicant because the majority of its clients 
for the Fixed Income Pricing Service are institutional clients. 
Applicant asserts that its client base for the Fixed Income Pricing 
Service is overwhelmingly institutional; less than 10% of applicant's 
total number of clients for the Fixed Income Pricing Service are 
natural persons. Applicant states that it would be inconsistent with 
the purposes of section 203A for a state to regulate investment 
advisers whose activities involve little or no traditional state 
interest. Applicant submit that there is no strong state interest in 
regulating investment advises with a predominately national, 
institutional client base.
    12. Applicant states that, although the Coordination Act generally 
preempted state law with respect to SEC-registered advisers, Congress 
preserved state law with respect to certain of their supervised persons 
referred to as ``investment adviser representatives.'' Applicant notes 
that under the SEC definition, only investment adviser representatives 
who work principally with natural person clients rather than 
institutional clients are subject to state regulation. Applicant states 
that this definition recognizes that, consistent with the Coordination 
Act, the primary interest of the states is not in institutional clients 
but in maintaining oversight of representatives with a retail 
clientele.
    13. Applicant states that if it were to be regulated by New York, 
rather than by the SEC, it would mean that a single state would be 
charged with protecting the interests of applicants's clients and of 
the clients' customers located in all fifty states. Applicant further 
maintains that regulation by New York could result in regulation with 
an eye primarily to the interests of the state rather than the 
interests of applicant's clients and such clients' customers throughout 
the country. Applicant asserts that the nature of its activities in 
valuing securities lends itself to supervision and examination by one 
regulatory body whose focus is national rather than local.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32652 Filed 12-12-97; 8:45 am]
BILLING CODE 8010-01-M