[Federal Register Volume 78, Number 20 (Wednesday, January 30, 2013)]
[Notices]
[Pages 6362-6364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01935]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request Copies Available From: Securities and Exchange
Commission, Office of Investor Education and Advocacy, Washington, DC
20549-0213.
Extension:
Rule 17j-1; OMB Control No. 3235-0224, SEC File No. 270-239.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange
Commission (the ``Commission'') has submitted to the Office of
Management and Budget a request for extension of the previously
approved collection of information discussed below.
Conflicts of interest between investment company personnel (such
as portfolio managers) and their funds can arise when these persons
buy and sell securities for their own accounts (``personal
investment activities''). These conflicts arise because fund
personnel have the opportunity to profit from information about fund
transactions, often to the detriment of fund investors. Beginning in
the early 1960s, Congress and the Securities and Exchange Commission
(``Commission'') sought to devise a regulatory scheme to effectively
address these potential conflicts. These efforts culminated in the
addition of section 17(j) to the Investment Company Act of 1940 (the
``Investment Company Act'') (15 U.S.C. 80a-17(j)) in 1970 and the
adoption by the Commission of rule 17j-1 (17 CFR 270.17j-1) in
1980.\1\ The
[[Page 6363]]
Commission proposed amendments to rule 17j-1 in 1995 in response to
recommendations made in the first detailed study of fund policies
concerning personal investment activities by the Commission's
Division of Investment Management since rule 17j-1 was adopted.
Amendments to rule 17j-1, which were adopted in 1999, enhanced fund
oversight of personal investment activities and the board's role in
carrying out that oversight.\2\ Additional amendments to rule 17j-1
were made in 2004, conforming rule 17j-1 to rule 204A-1 under the
Investment Advisers Act of 1940 (15 U.S.C. 80b), avoiding
duplicative reporting, and modifying certain definitions and time
restrictions.\3\
---------------------------------------------------------------------------
\1\ Prevention of Certain Unlawful Activities with Respect to
Registered Investment Companies, Investment Company Act Release No.
11421 (Oct. 31, 1980) (45 FR 73915 (Nov. 7, 1980)).
\2\ Personal Investment Activities of Investment Company
Personnel, Investment Company Act Release No. 23958 (Aug. 20, 1999)
(64 FR 46821 (Aug. 27, 1999)).
\3\ Investment Adviser Codes of Ethics, Investment Advisers Act
Release No. 2256 (Jul. 2, 2004) (69 FR 41696 (Jul. 9, 2004)).
---------------------------------------------------------------------------
Section 17(j) makes it unlawful for persons affiliated with a
registered investment company (``fund'') or with the fund's
investment adviser or principal underwriter (each a ``17j-1
organization''), in connection with the purchase or sale of
securities held or to be acquired by the investment company, to
engage in any fraudulent, deceptive, or manipulative act or practice
in contravention of the Commission's rules and regulations. Section
17(j) also authorizes the Commission to promulgate rules requiring
17j-1 organizations to adopt codes of ethics.
In order to implement section 17(j), rule 17j-1 imposes certain
requirements on 17j-1 organizations and ``Access Persons'' \4\ of
those organizations. The rule prohibits fraudulent, deceptive or
manipulative acts by persons affiliated with a 17j-1 organization in
connection with their personal securities transactions in securities
held or to be acquired by the fund. The rule requires each 17j-1
organization, unless it is a money market fund or a fund that does
not invest in Covered Securities,\5\ to: (i) Adopt a written codes
of ethics, (ii) submit the code and any material changes to the
code, along with a certification that it has adopted procedures
reasonably necessary to prevent Access Persons from violating the
code of ethics, to the fund board for approval, (iii) use reasonable
diligence and institute procedures reasonably necessary to prevent
violations of the code, (iv) submit a written report to the fund
describing any issues arising under the code and procedures and
certifying that the 17j-1 entity has adopted procedures reasonably
necessary to prevent Access Persons from violating the code, (v)
identify Access Persons and notify them of their reporting
obligations, and (vi) maintain and make available to the Commission
for review certain records related to the code of ethics and
transaction reporting by Access Persons.
---------------------------------------------------------------------------
\4\ Rule 17j-1(a)(1) defines an ``access person'' as ``Any
Advisory Person of a Fund or of a Fund's investment adviser. If an
investment adviser's primary business is advising Funds or other
advisory clients, all of the investment adviser's directors,
officers, and general partners are presumed to be Access Persons of
any Fund advised by the investment adviser. All of a Fund's
directors, officers, and general partners are presumed to be Access
Persons of the Fund.'' The definition of Access Person also includes
``Any director, officer or general partner of a principal
underwriter who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or
sale of Covered Securities by the Fund for which the principal
underwriter acts, or whose functions or duties in the ordinary
course of business relate to the making of any recommendation to the
Fund regarding the purchase or sale of Covered Securities.'' Rule
17j-1(a)(1).
\5\ A ``Covered Security'' is any security that falls within the
definition in section 2(a)(36) of the Act, except for direct
obligations of the U.S. Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-
term debt instruments, including repurchase agreements, and shares
issued by open-end funds. Rule 17j-1(a)(4).
---------------------------------------------------------------------------
The rule requires each Access Person of a fund (other than a
money market fund or a fund that does not invest in Covered
Securities) and of an investment adviser or principal underwriter of
the fund, who is not subject to an exception,\6\ to file: (i) Within
10 days of becoming an Access Person, a dated initial holdings
report that sets forth certain information with respect to the
Access Person's securities and accounts; (ii) dated quarterly
transaction reports within 30 days of the end of each calendar
quarter providing certain information with respect to any securities
transactions during the quarter and any account established by the
Access Person in which any securities were held during the quarter;
and (iii) dated annual holding reports providing information with
respect to each Covered Security the Access Person beneficially owns
and accounts in which securities are held for his or her benefit. In
addition, rule 17j-1 requires investment personnel of a fund or its
investment adviser, before acquiring beneficial ownership in
securities through an initial public offering (IPO) or in a private
placement, to obtain approval from the fund or the fund's investment
adviser.
---------------------------------------------------------------------------
\6\ Rule 17j-1(d)(2) contains the following exceptions: (i) An
Access Person need not file a report for transactions effected for,
and securities held in, any account over which the Access Person
does not have control; (ii) an independent director of the fund, who
would otherwise be required to report solely by reason of being a
fund director and who does not have information with respect to the
fund's transactions in a particular security, does not have to file
an initial holdings report or a quarterly transaction report,; (iii)
an Access Person of a principal underwriter of the fund does not
have to file reports if the principal underwriter is not affiliated
with the fund (unless the fund is a unit investment trust) or any
investment adviser of the fund and the principal underwriter of the
fund does not have any officer, director, or general partner who
serves in one of those capacities for the fund or any investment
adviser of the fund; (iv) an Access Person to an investment adviser
need not make quarterly reports if the report would duplicate
information provided under the reporting provisions of the
Investment Adviser's Act of 1940; (v) an Access Person need not make
quarterly transaction reports if the information provided in the
report would duplicate information received by the 17j-1
organization in the form of broker trade confirmations or account
statements or information otherwise in the records of the 17j-1
organization; and (vi) an Access Person need not make quarterly
transaction reports with respect to transactions effected pursuant
to an Automatic Investment Plan.
---------------------------------------------------------------------------
The requirements that the management of a rule 17j-1
organization provide the fund's board with new and amended codes of
ethics and an annual issues and certification report are intended to
enhance board oversight of personal investment policies applicable
to the fund and the personal investment activities of Access
Persons. The requirements that Access Persons provide initial
holdings reports, quarterly transaction reports, and annual holdings
reports and request approval for purchases of securities through
IPOs and private placements are intended to help fund compliance
personnel and the Commission's examinations staff monitor potential
conflicts of interest and detect potentially abusive activities. The
requirement that each rule 17j-1 organization maintain certain
records is intended to assist the organization and the Commission's
examinations staff in determining if there have been violations of
rule 17j-1.
We estimate that annually there are approximately 75,496
respondents under rule 17j-1, of which 5,496 are rule 17j-1
organizations and 70,000 are Access Persons. In the aggregate, these
respondents make approximately 107,780 responses annually. We
estimate that the total annual burden of complying with the
information collection requirements in rule 17j-1 is approximately
387,599 hours. This hour burden represents time spent by Access
Persons that must file initial and annual holdings reports and
quarterly transaction reports, investment personnel that must obtain
approval before acquiring beneficial ownership in any securities
through an IPO or private placement, and the responsibilities of
Rule 17j-1 organizations arising from information collection
requirements under rule 17j-1. These include notifying Access
Persons of their reporting obligations, preparing an annual rule
17j-1 report and certification for the board, documenting their
approval or rejection of IPO and private placement requests,
maintaining annual rule 17j-1 records, maintaining electronic
reporting and recordkeeping systems, amending their codes of ethics
as necessary, and, for new fund complexes, adopting a code of
ethics.
We estimate that there is an annual cost burden of approximately
$5,000 per fund complex, for a total of $4,160,000, associated with
complying with the information collection requirements in rule 17j-
1. This represents the costs of purchasing and maintaining computers
and software to assist funds in carrying out rule 17j-1
recordkeeping.
These burden hour and cost estimates are based upon the
Commission staff's experience and discussions with the fund
industry. The estimates of average burden hours and costs are made
solely for the purposes of the Paperwork Reduction Act. These
estimates are not derived from a comprehensive or even a
representative survey or study of the costs of Commission rules.
Compliance with the collection of information requirements of
the rule is mandatory and is necessary to comply with the
requirements of the rule in general. An
[[Page 6364]]
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. Rule 17j-1 requires that records be
maintained for at least five years in an easily accessible place.\7\
---------------------------------------------------------------------------
\7\ If information collected pursuant to the rule is reviewed by
the Commission's examination staff, it will be accorded the same
level of confidentiality accorded to other responses provided to the
Commission in the context of its examination and oversight program.
See section 31(c) of the Investment Company Act (15 U.S.C. 80a-
30(c)).
---------------------------------------------------------------------------
Please direct general comments regarding the above information
to the following persons: (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) Thomas Bayer, Chief Information Officer,
Securities and Exchange Commission, c/o Remi Pavlik-Simon, 6432
General Green Way, Alexandria, VA 22312; or send an email to: [email protected]. Comments must be submitted to OMB within 30 days of
this notice.
Dated: January 24, 2013.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01935 Filed 1-29-13; 8:45 am]
BILLING CODE 8011-01-P