[Federal Register Volume 84, Number 209 (Tuesday, October 29, 2019)]
[Notices]
[Pages 57925-57926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23599]
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SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Extension:
Rule 17a-10, OMB Control No. 3235-0563, SEC File No. 270-507
Notice is hereby given that pursuant to the Paperwork Reduction Act
of 1995
[[Page 57926]]
(44 U.S.C. 3501 et seq.) (``PRA'') the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget (``OMB'') a request for extension of the previously approved
collection of information discussed below.
Section 17(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
1 et seq.) (the ``Act''), generally prohibits affiliated persons of a
registered investment company (``fund'') from borrowing money or other
property from, or selling or buying securities or other property to or
from, the fund or any company that the fund controls.\1\ Section
2(a)(3) of the Act defines ``affiliated person'' of a fund to include
its investment advisers.\2\ Rule 17a-10 (17 CFR 270.17a-10) permits (i)
a subadviser \3\ of a fund to enter into transactions with funds the
subadviser does not advise but that are affiliated persons of a fund
that it does advise (e.g., other funds in the fund complex), and (ii) a
subadviser (and its affiliated persons) to enter into transactions and
arrangements with funds the subadviser does advise, but only with
respect to discrete portions of the subadvised fund for which the
subadviser does not provide investment advice.
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\1\ 15 U.S.C. 80a-17(a).
\2\ 15 U.S.C. 80a-2(a)(3)(E).
\3\ As defined in rule 17a-10(b)(2). 17 CFR 270.17a-10(b)(2).
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To qualify for the exemptions in rule 17a-10, the subadvisory
relationship must be the sole reason why section 17(a) prohibits the
transaction. In addition, the advisory contracts of the subadviser
entering into the transaction, and any subadviser that is advising the
purchasing portion of the fund, must prohibit the subadvisers from
consulting with each other concerning securities transactions of the
fund, and limit their responsibility to providing advice with respect
to discrete portions of the fund's portfolio.\4\ This requirement
regarding the prohibitions and limitations in advisory contracts of
subadvisors relying on the rule constitutes a collection of information
under the PRA.\5\
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\4\ 17 CFR 270.17a-10(a)(2).
\5\ 44 U.S.C. 3501.
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The staff assumes that all existing funds with subadvisory
contracts amended those contracts to comply with the adoption of rule
17a-10 in 2003, which conditioned certain exemptions upon these
contractual alterations, and therefore there is no continuing burden
for those funds.\6\ However, the staff assumes that all newly formed
subadvised funds, and funds that enter into new contracts with
subadvisers, will incur the one-time burden by amending their contracts
to add the terms required by the rule.
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\6\ Transactions of Investment Companies With Portfolio and
Subadviser Affiliates, Investment Company Act Release No. 25888
(Jan. 14, 2003) [68 FR 3153 (Jan. 22, 2003)]. We assume that funds
formed after 2003 that intended to rely on rule 17a-10 would have
included the required provision as a standard element in their
initial subadvisory contracts.
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Based on an analysis of fund filings, the staff estimates that
approximately 221 funds enter into new subadvisory agreements each
year.\7\ Based on discussions with industry representatives, the staff
estimates that it will require approximately 3 attorney hours to draft
and execute additional clauses in new subadvisory contracts in order
for funds and subadvisers to be able to rely on the exemptions in rule
17a-10. Because these additional clauses are identical to the clauses
that a fund would need to insert in their subadvisory contracts to rely
on rules 10f-3 (17 CFR 270.10f-3), 12d3-1 (17 CFR 270.12d3-1), and 17e-
1 (17 CFR 270.17e-1), and because we believe that funds that use one
such rule generally use all of these rules, we apportion this 3 hour
time burden equally among all four rules. Therefore, we estimate that
the burden allocated to rule 17a-10 for this contract change would be
0.75 hours.\8\ Assuming that all 221 funds that enter into new
subadvisory contracts each year make the modification to their contract
required by the rule, we estimate that the rule's contract modification
requirement will result in 166 burden hours annually, with an
associated cost of approximately $68,890.\9\
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\7\ Based on data from Morningstar, as of March 2019, there are
12,407 registered funds (open-end funds, closed-end funds (including
interval funds), and exchange-traded funds), 4,609 funds of which
have subadvisory relationships (approximately 37%). Based on data
from the 2019 ICI publications, 597 new funds were established in
2018 (582 open-end funds and exchange-traded funds (from the 2019
ICI Fact Book) + 15 closed-end funds (from the ICI Research
Perspective, April 2019)). 597 new funds x 37% = 221 funds.
\8\ This estimate is based on the following calculation: 3 hours
/ 4 rules = 0.75 hours.
\9\ These estimates are based on the following calculations:
(0.75 hours x 221 portfolios = 166 burden hours); ($415 per hour x
166 hours = $68,890 total cost). The Commission's estimates
concerning the wage rates for attorney time are based on salary
information for the securities industry compiled by the Securities
Industry and Financial Markets Association. The estimated wage
figure is based on published rates for in-house attorneys, modified
to account for a 1,800-hour work-year and inflation, and multiplied
by 5.35 to account for bonuses, firm size, employee benefits, and
overhead, yielding an effective hourly rate of $415. See Securities
Industry and Financial Markets Association, Report on Management &
Professional Earnings in the Securities Industry 2013.
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The estimate of average burden hours is made solely for the
purposes of the PRA. The estimate is not derived from a comprehensive
or even a representative survey or study of the costs of Commission
rules. Complying with this collection of information requirement is
necessary to obtain the benefit of relying on rule 17a-10. Responses
will not be kept confidential. An agency may not conduct or sponsor,
and a person is not required to respond to, a collection of information
unless it displays a currently valid control number.
The public may view the background documentation for this
information collection at the following website, www.reginfo.gov.
Comments should be directed to: (i) Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 10102, New Executive Office
Building, Washington, DC 20503, or by sending an email to:
[email protected]; and (ii) Charles Riddle, Acting Director/
Chief Information Officer, Securities and Exchange Commission, c/o
Candace Kenner, 100 F Street NE, Washington, DC 20549 or send an email
to: [email protected]. Comments must be submitted to OMB within 30
days of this notice.
Dated: October 24, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23599 Filed 10-28-19; 8:45 am]
BILLING CODE 8011-01-P