Ohio Credit Union League

September 25, 2002

VIA E-MAIL
rule-comments@sec.gov

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5^th Street, N.W.
Washington, D.C. 20549-0609

Re: File Number: S7-28-02
Custody Of Funds Or Securities Of Clients By Investment Advisers

Dear Mr. Katz:

The Ohio Credit Union League appreciates the opportunity to file comments on the Security and Exchange Commission's ("Commission") proposed rule regarding the custody of funds or securities of clients by investment advisers. The Ohio Credit Union League ("OCUL") is the trade association for credit unions in the State of Ohio representing approximately 500 credit unions, both federal and state chartered.

Credit unions are member-owned non-profit cooperative financial institutions governed by unpaid volunteers that predominately engage and provide various financial services to their members. Moreover, as financial institutions, credit unions are subject to numerous regulatory requirements. Federally chartered credit unions are regulated by the National Credit Union Administration ("NCUA") and the Ohio Division of Financial Institutions ("ODFI") regulates state chartered credit unions.

Under the proposal, the Commission is proposing amendments to the custody rule under the Investment Advisers Act of 1940. The proposed amendments would modernize the rule by, among other things, requiring advisers that have custody of client assets to maintain those assets with broker-dealers, banks, or other qualified custodians. The amendments also would clarify circumstances under which an adviser has custody of client assets. The amendments are designed to conform the rule to modern custodial practices and enhance protections for client assets while reducing burdens on advisers that have custody of client assets.

Moreover, the Commission is proposing to amend the rule to require that advisers maintain both client funds and securities with a qualified custodian in an account either under the client's name or under the adviser's name as agent or trustee for its clients. As a result, "qualified custodians" under the proposed rule 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. More importantly, the Commission has requested comment as to whether there are other financial institutions that should be included as a qualified custodian.

In reviewing this proposal, OCUL respectfully requests that the Commission consider the inclusion of credit unions as "qualified custodians" provided that they customarily provide custodial services and are regulated and examined by the respective regulators with respect to these services.

Specifically, the commission should consider including corporate credit unions as a "qualified custodian" under Section 275.206(4)-2 (c)(3) of the proposed rule. This is based on the fact that all federally insured corporate credit unions are regulated by the National Credit Union Administration (NCUA) and regularly examined by the NCUA with respect to the services the credit union offers which would include custodial services. Moreover, the NCUA has recently promulgated amendments to its regulations pertaining to corporate credit unions 12 CFR Part 704. In particular, NCUA has included Trustee or Custodial Services as a pre-approved service in Section 704.12 (8) which states as follows:

(8) Trustee or Custodial Services. Trustee services are services in which the corporate credit union is authorized to act under a written trust agreement to the extent permitted under part 724 of this chapter. Custodial and safekeeping services are services a corporate credit union performs on behalf of its member to act as custodian or safekeeper of investments.

In that OCUL anticipates adoption of this proposed regulation by NCUA in the latter half of 2002, OCUL suggests that the Commission include corporate credit unions within the definition of "Qualified Custodian" in that corporate credit unions would qualify as a financial institution that customarily provides custodial services and are regulated and examined by their regulators with respect to those services.

In addition, OCUL also respectfully requests that Commission also include natural person credit unions within its definition of a "qualified custodian". Federal credit unions are regulated by the NCUA and are permitted under 12 CFR Part 727 of the Incidental Powers Regulation to offer specific types of trustee or custodial services. Specifically, Section 721.3 (l) of NCUA regulations states:

(l) Trustee or custodial services. Trustee or custodial services are services which you are authorized to act under any written trust instrument or custodial agreement created or organized in the United States and forming part of a pension or profit-sharing plan, as authorized under the Internal Revenue Code. These services may include acting as a trustee or custodian for member retirement and education accounts.

Furthermore, a number of states permit or are considering permitting the state chartered credit unions in their respective states to engage in custodial or relevant trust services. These credit unions are regulated and are regularly examined by their respective state credit union regulators with respect to the services the credit unions offer which would include custodial or trust services, where applicable. As such, OCUL respectfully requests that insured natural person credit unions, both federal and state chartered, also be included with the Commission's definition of "Qualified Custodian."

The Ohio Credit Union League appreciates the opportunity to comment on the proposed rule on the custody of funds or securities of clients by investment advisers. Furthermore, OCUL would also be willing to provide additional comments, if requested.

If you have any questions, comments or if I can be of further assistance please do not hesitate to contact me.

Sincerely,

John F. Kozlowski, General Counsel
Ohio Credit Union System

cc: Kathleen Kanipe
Paul L. Mercer
OCUL Advocacy Committee
Mary Dunn
Jeffrey Bloch