The SEC wants to divide responsibility between mutual fund boards and custodians for oversight of the foreign companies which keep possession and records of the foreign stocks and bonds mutual funds own.

The SEC has proposed a new rule which would set minimum standards for so-called foreign sub-custodians and would give funds and custodians some flexibility as to how they oversee foreign sub-custodians. The arrangement calls for a fund's custodian to provide a fact-finding report and analysis to a fund's board of directors on the stability of foreign sub-custodians which funds use. Fund directors then must decide whether to hire the foreign sub-custodian.

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