SEC Proposed Rule 17f-4 Amendments

SEC Proposes Rule 17f-4 Amendments

Amendments to Reflect Changes in Custody Practice and Commercial Law

By John M. Baker, Esq.

[Ed. This article was originally posted in December 2001]

The Securities and Exchange Commission recently proposed amendments to Rule 17f-4 under the Investment Company Act of 1940, the rule governing investment companies’ use of domestic securities depositories. Release No. IC-25266, 66 Fed. Reg. 58412 (Nov. 15, 2001).

Rule 17f-4 was adopted in 1978, and the amendments are intended to reflect changes in custody practice and commercial law since then, particularly the changes in Article 8 of the Uniform Commercial Code, the article governing investment securities.

According to the SEC release, approximately 97% of registered investment companies maintain assets in securities depositories, most frequently the Depository Trust Company. The proposed amendments would eliminate the existing segregation, earmarking, and confirmation requirements. Instead, the proposed amendments would substitute more general contractual requirements for custodians and depositories – a change that would require amendments to existing contracts with custodians and depositories.

The proposed amendments would also eliminate the requirement that directors approve all custody arrangements and changes to those arrangements.

Comments on the proposed amendments are due January 31, 2002. The SEC release is available online at

It can also be accessed from the Federal Register, which can be searched online at


Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  

Mark J. Astarita is a veteran securities attorney representing investors and financial professionals nationwide in securities investigations and arbitrations. Have a question? Email him at, call his office at 212-509-6544, or visit The Securities Lawyer

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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.