Association of Corporate Credit Unions


September 24, 2002

Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
RE: File No. S7-28-02; Custody of Funds or Securities of Clients by Investment Advisers

Dear Mr. Katz:

The Association of Corporate Credit Unions (ACCU) appreciates the opportunity to comment on proposed revisions to Rule 206(4)-2 concerning custody of funds or securities of clients by investment advisers promulgated under the Investment Advisers Act of 1940 as published in the Federal Register on July 25, 2002 (the "Proposed Rule").

By way of background, ACCU serves as the primary trade association for the thirty-three corporate credit unions (corporates) located around the country. Corporates are wholesale credit unions that provide liquidity, investment products, securities custody and safekeeping, payments settlement and other financial services to their members, the nation's 10,300 federal and state-chartered credit unions.

Corporate credit unions serve as securities intermediaries for 1500 of their natural person credit union members within the context of Article 8 of the Uniform Commercial Code. In turn, U.S. Central Credit Union is a securities intermediary for 32 of its corporate credit union members. Currently, U.S. Central, as custodian, has possession of approximately $60 billion of securities owned by corporate and natural person credit unions.

Under the proposed rule, the term "qualified custodians" would include the types of financial institutions that customarily provide custodial services and are regulated and examined by their regulators with respect to those services.  These would include banks, savings associations, registered broker-dealers, and registered futures commission merchants.  The proposed rule continues by stating that many registered advisors would also be qualified custodians.  The Commission requests comment as to whether there are other financial institutions that should be included as qualified custodians.

ACCU believes that the definition of "qualified custodian" should be modified to add a corporate credit union subject to regulation by the National Credit Union Administration ("NCUA") as an acceptable "qualified custodian." Corporates are member-owned, not-for-profit cooperatives. Although this operational structure differs from the for-profit structure of banks and thrift institutions, corporates, like their member credit unions, are subject to a regulatory framework and examination standards that are similar to those that apply to both banks and thrifts. For example, corporates, like banks and thrifts, are subject to periodic examinations of their safekeeping, custody, and other operations, stringent capital requirements, and regulations governing the respective insurance funds.

Modifying the definition of "qualified custodian" to include corporate credit unions would permit those credit unions using an investment adviser to manage part of their investments to continue to maintain the safekeeping of their securities within the corporate credit union network. ACCU maintains that this requested change is consistent with the rationale of the proposal and would not result in any increased risk for credit union clients of registered investment advisers.

ACCU again thanks the Commission for the opportunity to comment on this issue. If you or your staff has any questions about ACCU's comments, please do not hesitate to call me at 202/508-6731.


            Christiane G. Hyland

            Christiane G. Hyland, Esq.
            ACCU Executive Director

cc: Corporate Credit Union CEOs