83 FR 4523 - BNP Paribas USA, Inc., et al.; Notice of Application and Temporary Order

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 21 (January 31, 2018)

[Federal Register Volume 83, Number 21 (Wednesday, January 31, 2018)]
[Notices]
[Pages 4523-4526]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-01905]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-32995; File No. 812-14874]


BNP Paribas USA, Inc., et al.; Notice of Application and 
Temporary Order

January 26, 2018.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Temporary order and notice of application for a permanent 
order under section 9(c) of the Investment Company Act of 1940 
(``Act'').

-----------------------------------------------------------------------

Summary of Application:  Applicants have received a temporary order 
(``Temporary Order'') exempting them from section 9(a) of the Act, with 
respect to a guilty plea entered on January 25, 2018 (``Guilty Plea''), 
by BNP Paribas USA, Inc. (the ``Pleading Entity'') in the United States 
District Court for the Southern District of New York (the ``District 
Court'') in connection with a plea agreement (``Plea Agreement'') 
between the Pleading Entity and the United States Department of Justice 
(``DOJ''), until the Commission takes final action on an application 
for a permanent order (the ``Permanent

[[Page 4524]]

Order,'' and with the Temporary Order, the ``Orders''). Applicants also 
have applied for a Permanent Order.

Applicants:  BNP Paribas USA, Inc., BNP Paribas Asset Management USA, 
Inc. (``BNPP AM USA''), Bishop Street Capital Management Corp. 
(``BSCM''), and BNP Paribas Asset Management UK Limited (``BNPP AM 
UK'') (each, an ``Applicant'' and collectively, ``Applicants'').

Filing Date:  The application was filed on January 25, 2018.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on February 20, 2018 and should be accompanied by proof of service 
on Applicants, in the form of an affidavit, or for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090; Applicants: BNP Paribas USA, 
Inc., 787 Seventh Avenue, New York, NY 10019; BNPP AM USA: 200 Park 
Avenue, 11th Floor, New York, NY 10166; BSCM: First Hawaiian Center, 
999 Bishop Street, Suite 2806, Honolulu, HI 96813; BNPP AM UK: 5 
Aldermanbury Square, London EC2V 7BP, United Kingdom.

FOR FURTHER INFORMATION CONTACT:  Jessica Shin, Attorney-Adviser, or 
Robert H. Shapiro, Branch Chief, at (202) 551-6821 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a temporary order and a 
summary of the application. The complete application may be obtained 
via the Commission's website by searching for the file number, or an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. The Pleading Entity is a corporation organized under the laws of 
Delaware and wholly owned subsidiary of BNP Paribas S.A. (``BNPP'').\1\ 
The Pleading Entity serves as BNPP's U.S. intermediate holding company.
---------------------------------------------------------------------------

    \1\ BNPP, the parent of the Pleading Entity, does not and will 
not serve as an investment adviser, depositor or principal 
underwriter to any registered investment company as it is not a 
Covered Person (as defined below).
---------------------------------------------------------------------------

    2. BNPP AM USA, a corporation formed under the laws of New York, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act'') and is an indirect wholly owned 
subsidiary of BNPP and of the Pleading Entity. BNPP AM USA serves as 
sub-adviser to the investment companies registered under the Act or 
series of such companies listed in Part 1 of Appendix A to the 
application (each a ``Fund'' and, collectively, ``Funds''). Until late 
April 2017, BNPP AM USA was named ``Fischer Francis Trees & Watts, 
Inc.''
    3. BSCM, a corporation formed under the laws of Hawaii in 1999, is 
registered as an investment adviser under the Advisers Act. BSCM is an 
indirect wholly owned subsidiary of First Hawaiian, Inc., which is an 
approximately 62% owned indirect subsidiary of BNPP. BSCM serves as 
investment adviser to each Fund listed in Part 2 of Appendix A to the 
application.
    4. BNPP AM UK, a corporation formed under the laws of the United 
Kingdom, is registered as an investment adviser under the Advisers Act. 
BNPP AM UK is an indirect wholly owned subsidiary of BNPP. BNPP AM UK 
does not currently advise any Fund, but expects to be sub-adviser to 
the newly-organized Fund listed in Part 1B of Appendix A to the 
application.
    5. While no existing company of which the Pleading Entity is an 
``affiliated person'' within the meaning of section 2(a)(3) of the Act 
(``Affiliated Person''), other than BNPP AM USA, BSCM and BNPP AM UK 
(together, the ``Fund Servicing Applicants''), currently serves as an 
investment adviser or depositor of any Fund, employees' securities 
company (``ESC'') or investment company that has elected to be treated 
as a business development company under the Act (``BDC''), or principal 
underwriter (as defined in section 2(a)(29) of the Act) for any open-
end management investment company registered under the Act (``Open-End 
Fund''), unit investment trust registered under the Act (``UIT''), or 
face-amount certificate company registered under the Act (``FACC''), 
Applicants request that any relief granted by the Commission pursuant 
to the application also apply to any current or future Affiliated 
person of the Pleading Entity other than BNPP (together with the Fund 
Servicing Applicants, the ``Covered Persons'') with respect to any 
activity contemplated by section 9(a) of the Act.\2\
---------------------------------------------------------------------------

    \2\ Covered Persons may, if the Order is granted, in the future 
act in any of the capacities contemplated by Section 9(a) of the Act 
subject to the applicable terms and conditions of the Orders.
---------------------------------------------------------------------------

    6. On January 25, 2018, the United States Department of Justice 
(the ``Department of Justice'') filed a one-count criminal information 
(the ``Information'') in the District Court. The Information charges 
that from as early as September 2011 until at least July 2013, the 
Pleading Entity, through a single Central and Eastern European, Middle 
Eastern and African Emerging Markets currencies (``CEEMEA'' currencies) 
trader employed by BNP Paribas Securities Corp. (``Sec Corp''), 
participated in a conspiracy to suppress and eliminate competition in 
CEEMEA currencies by various methods (the ``Conduct''), as further 
described in the application, in violation of the Sherman Antitrust Act 
(Title 15, United States Code, section 1).
    7. Pursuant to the Plea Agreement, the Pleading Entity entered the 
Guilty Plea on January 25, 2018 in the District Court to the charge set 
out in the Information. According to the Plea Agreement, the Pleading 
Entity, among other things, agreed to a fine of $90 million. The 
Applicants expect that the District Court will enter a judgment against 
the Pleading Entity (the ``Judgment'') that will require remedies that 
are materially the same as set forth in the Plea Agreement. The 
individual referenced in the Information as responsible for the Conduct 
is no longer employed by BNPP or any of its affiliates.
    8. BNPP and its affiliates have entered into settlement agreements 
with other U.S. regulatory or enforcement agencies related to the 
Conduct. The Board of Governors of the Federal Reserve System (``FRB'') 
entered a cease and desist order (the ``FRB Order'') on July 17, 2017 
against BNPP, the Pleading Entity and Sec Corp concerning unsafe and 
unsound banking practices relating to BNPP's foreign exchange (``FX'') 
business. The New York State Department of Financial Services (``DFS'') 
entered into a consent order (the ``DFS Order'') on May 24, 2017 with 
BNPP and its New York branch (the ``DFS Order Parties'') to settle DFS' 
investigations into alleged violations of the New York laws and 
regulations arising out of conduct in the DFS Order Parties' FX 
business during the period between 2007 and 2013.

[[Page 4525]]

Applicants' Legal Analysis

    1. Section 9(a)(1) of the Act provides, in pertinent part, that a 
person may not serve or act as an investment adviser or depositor of 
any registered investment company or as principal underwriter for any 
registered open-end investment company, UIT, or FACC, if such person 
within ten years has been convicted of any felony or misdemeanor, 
including those arising out of such person's conduct as a bank. Section 
2(a)(10) of the Act defines the term ``convicted'' to include a plea of 
guilty. Section 9(a)(3) of the Act extends the prohibitions of section 
9(a)(1) to a company, any affiliated person of which has been 
disqualified under the provisions of section 9(a)(1). Section 2(a)(3) 
of the Act defines ``affiliated person'' to include, among others, any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person. The Pleading Entity is an 
Affiliated Person of each of the other Applicants within the meaning of 
section 2(a)(3) of the Act. Therefore, the Applicants state that the 
Plea Agreement would result in a disqualification of the Applicants for 
ten years under section 9(a)(3) were they to act in any of the 
capacities listed in section 9(a), by effect of a conviction described 
in section 9(a)(1).
    2. Section 9(c) of the Act provides that, upon application, the 
Commission shall by order grant an exemption from the disqualification 
provisions of section 9(a) of the Act, either unconditionally or on an 
appropriate temporary or other conditional basis, to any person if that 
person establishes that: (a) The prohibitions of section 9(a), as 
applied to the person, are unduly or disproportionately severe or (b) 
the conduct of the person has been such as not to make it against the 
public interest or the protection of investors to grant the exemption. 
Applicants have filed an application pursuant to section 9(c) seeking a 
Temporary Order and a Permanent Order exempting the Fund Servicing 
Applicants and other Covered Persons from the disqualification 
provisions of section 9(a) of the Act. The Covered Persons may, if the 
Orders are granted, in the future act in any of the capacities 
contemplated by section 9(a) of the Act subject to the applicable terms 
and conditions of the Orders.
    3. Applicants believe they meet the standards for exemption 
specified in section 9(c). Applicants assert that (i) the scope of the 
misconduct was limited and did not involve any of the Fund Servicing 
Applicants acting as an ``investment adviser'' (as defined in section 
2(a)(20) of the Act) to Funds (such activities, ``Fund Service 
Activities''), or any Fund with respect to which the Applicants engage 
in Fund Service Activities, (ii) application of the statutory bar would 
impose significant hardships on the Funds and their shareholders, (iii) 
the prohibitions of section 9(a), if applied to the BNPP and other 
Covered Persons, would be unduly or disproportionately severe and (iv) 
the Conduct did not constitute conduct that would make it against the 
public interest or protection of investors to grant the exemption from 
section 9(a).
    4. Applicants represent that the Conduct did not involve any of 
Applicants acting in the capacity as an investment adviser or depositor 
of any Fund, ESC or BDC or as principal underwriter for any Open-End 
Fund, UIT or FACC. Applicants represent that the Conduct similarly did 
not involve any Fund with respect to which the Applicants engage in 
Fund Service Activities.\3\ Instead, the Applicants state that the 
Conduct occurred as a result of the actions of a single employee. The 
employee is no longer employed and will not be employed in the future, 
by BNPP, the Applicants or any of the other Covered Persons. Applicants 
assert that, in light of the limited scope of the Conduct, it would be 
unduly and disproportionately severe to impose a section 9(a) 
disqualification on the Applicants. Applicants assert that the conduct 
of the Applicants has not been such to make it against the public 
interest or the protection of investors to grant the exemption from 
section 9(a).
---------------------------------------------------------------------------

    \3\ The Pleading Entity does not engage, has not engaged, and 
will not engage in in any of the capacities contemplated by Section 
9(a) of the Act.
---------------------------------------------------------------------------

    5. Applicants assert that neither the protection of investors nor 
the public interest would be served by permitting the section 9(a) 
disqualifications to apply to the Fund Servicing Applicants because 
those disqualifications would deprive the Fund of the advisory or sub-
advisory services that shareholders expected the Funds would receive 
when they decided to invest in the Funds. Applicants also assert that 
the prohibitions of section 9(a) could operate to the financial 
detriment of the Funds and their shareholders, which would be an unduly 
and disproportionately severe consequence given that the Conduct did 
not involve any of the Fund Service Activities.
    6. Applicants further represent that the inability of the Fund 
Servicing Applicants to continue providing investment advisory services 
to Funds would result in the Funds and their shareholders facing 
potential hardship, as described in the application. Applicants assert 
that if the Fund Servicing Applicants were barred under section 9(a) 
from providing investment advisory services to the Funds and were 
unable to obtain the requested exemption, the effect on their 
businesses and employees would be severe. Applicants state that the 
Fund Servicing Applicants have committed substantial capital and other 
resources to establishing expertise in advising and sub-advising Funds 
with a view to continuing and expanding this business, which Applicants 
consider strategically important. Applicants further state that 
prohibiting the Fund Servicing Applicants from engaging in Fund Service 
Activities would not only adversely affect their business, but would 
also adversely affect their employees who are involved in these 
activities. In addition, Applicants assert that if the Fund Servicing 
Applicants or Covered Persons are unable to expand their businesses in 
the future because of the imposition of the section 9(a) 
disqualification, it could also have an adverse impact on their 
businesses.
    7. Applicants represent that: (1) None of the current or former 
directors, officers or employees of Applicants had any involvement in 
the Conduct; (2) no current or former employee of the Pleading Entity 
or of any other Covered Person who previously has been or who 
subsequently may be identified by the Pleading Entity or any U.S. or 
non-U.S. regulatory or enforcement agencies as having been responsible 
for the Conduct will be an officer, director, or employee of any 
Covered Person; (3) the identified employee has had no, and will not 
have any future, involvement in the Covered Persons' activities in any 
capacity described in section 9(a) of the Act; and (4) because the 
personnel of Applicants did not have any involvement in the Conduct, 
shareholders of the Fund were not affected any differently than if the 
Fund had received services from any other non-affiliated investment 
adviser.
    8. Applicants have agreed that none of BNPP, the Applicants or any 
of the other Covered Persons will employ the former employee of an 
affiliate of the Pleading Entity or any other person who subsequently 
may be identified by the Pleading Entity or any U.S. or non-U.S. 
regulatory or enforcement agencies as having been responsible for the 
Conduct in any capacity without first making a further application to 
the Commission pursuant to section 9(c).
    9. Applicants have also agreed that BNPP and each Applicant and 
Covered Person will adopt and implement policies and procedures 
reasonably designed to ensure compliance with the

[[Page 4526]]

terms and conditions of the Orders granted under section 9(c).
    10. In addition, BNPP and each Applicant and Covered Person will 
comply in all material respects with the material terms and conditions 
of the Plea Agreement and with the materials terms of the FRB Order, 
the DFS Order any other orders issued by regulatory or enforcement 
agencies addressing the Conduct. Applicants further state that BNPP and 
its affiliates have undertaken certain remedial measures, as described 
in greater detail in the application. These include certain remedial 
measures as required by the Plea Agreement, the FRB Order, and the DFS 
Order, including improvements to the oversight, internal controls and 
compliance program, compliance risk management program, and internal 
audit program for FX trading. Applicants state that BNPP and its 
affiliates have taken a number of steps to enhance its internal 
controls, policies and procedures relating to its FX activities. 
Specifically, Applicants represent BNPP has devised and implemented new 
global detailed FX-specific policies and procedures and a comprehensive 
program to change the culture of the business with the aim that each 
individual within the business understands their responsibility for 
proper conduct and compliance. Applicants also represent that BNPP has 
globally rolled out culture and conduct workshops and training on 
BNPP's Foreign Exchange Local Markets remediation program. 
Additionally, Applicants represent that supervisors have been given 
increased tools to directly oversee their staff and identify conduct 
issues more effectively, permanent cross-bank chat rooms have been 
prohibited, and reverse trades are monitored through software designed 
to detect transactions (proprietary and customer) that were not exposed 
to the risk of the market and did not result in a change of beneficial 
ownership.
    11. As a result of the foregoing, the Applicants submit that 
granting the exemption as requested in the application is consistent 
with the public interest and the protection of investors.
    12. To provide further assurance that the exemptive relief being 
requested herein would be consistent with the public interest and the 
protection of the investors, the Applicants agree that they will, as 
soon as reasonably practical, distribute to the boards of directors or 
trustees of the Funds (``Board'') written materials describing the 
circumstances that led to the Plea Agreement, as well as any effects on 
the Funds and the application. The written materials will include an 
offer to discuss the materials at an in-person meeting with the Board, 
including the directors who are not ``interested persons'' of the Funds 
as defined in section 2(a)(19) of the Act and their ``independent legal 
counsel'' as defined in rule 0-1(a)(6) under the Act, if any. The 
Applicants undertake to provide the Boards with all information 
concerning the Plea Agreement and the application as necessary for 
those Funds to fulfill their disclosure and other obligations under the 
U.S. federal securities laws and will provide them a copy of the 
Judgment as entered by the District Court.
    13. Applicants state that certain of the Applicants and their 
affiliates have previously received an order under section 9(c) of the 
Act, as the result of conduct that triggered section 9(a), as described 
in greater detail in the application.

Applicants' Conditions

    Applicants agree that any order granted by the Commission pursuant 
to the application will be subject to the following conditions:
    1. Any temporary exemption granted pursuant to the application will 
be without prejudice to, and will not limit the Commission's rights in 
any manner with respect to, any Commission investigation of, or 
administrative proceedings involving or against, Covered Persons, 
including, without limitation, the consideration by the Commission of a 
permanent exemption from section 9(a) of the Act requested pursuant to 
the application or the revocation or removal of any temporary 
exemptions granted under the Act in connection with the application.
    2. None of BNPP, the Applicants or any of the other Covered Persons 
will employ the former employee of an affiliate of the Pleading Entity 
or any other person who subsequently may be identified by the Pleading 
Entity or any U.S. or non-U.S. regulatory or enforcement agencies as 
having been responsible for the Conduct in any capacity without first 
making a further application to the Commission pursuant to section 
9(c).
    3. BNPP and each Applicant and Covered Person will adopt and 
implement policies and procedures reasonably designed to ensure that it 
will comply with the terms and conditions of the Orders within 60 days 
of the date of the Permanent Order or, with respect to condition four, 
such later date or dates as may be contemplated by the FRB Order, the 
DFS Order or any other orders issued by regulatory or enforcement 
agencies addressing the Conduct.
    4. BNPP and each Applicant and Covered Person will comply in all 
material respects with the material terms and conditions of the Plea 
Agreement and with the material terms of the FRB Order, the DFS Order 
and any other orders issued by regulatory or enforcement agencies 
addressing the Conduct.
    5. Applicants will provide written notification to the Chief 
Counsel of the Commission's Division of Investment Management with a 
copy to the Chief Counsel of the Commission's Division of Enforcement 
of a material violation of the terms and conditions of any of the 
Orders within 30 days of discovery of the material violation.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants and any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), effective as the date of 
the Guilty Plea, solely with respect to the Guilty Plea entered into 
pursuant to the Plea Agreement, subject to the representations and 
conditions in the application, until the Commission takes final action 
on their application for a permanent order.

    By the Commission.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-01905 Filed 1-30-18; 8:45 am]
 BILLING CODE 8011-01-P