[Federal Register Volume 79, Number 49 (Thursday, March 13, 2014)]
[Notices]
[Pages 14310-14312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05457]
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SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
[[Page 14311]]
Commission, Office of Investor Education and Advocacy, Washington, DC
20549-0213.
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 (44 U.S.C. 3501 et seq.) 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 (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\ Section 17(a) of the
Investment Company Act of 1940 (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. Section 2(a)(3) of the Act defines ``affiliated person'' of a
fund to include its investment advisers. Rule 17a-10 permits (i) a
subadviser 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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\4\ 17 CFR 270.17a-10(a)(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. This requirement
regarding the prohibitions and limitations in advisory contracts of
subadvisors relying on the rule constitutes a collection of information
under the Paperwork Reduction Act of 1995 (``PRA'').\5\
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\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 775 fund portfolios enter into new subadvisory agreements
each year. 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, 12d3-1, and 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.\7\ Assuming that all 775
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 581 burden
hours annually, with an associated cost of approximately $220,199.\8\
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\7\ This estimate is based on the following calculation: 3 hours
/ 4 rules = 0.75 hours.
\8\ These estimates are based on the following calculations:
(0.75 hours x 775 portfolios = 581 burden hours); ($379 per hour x
581 hours = $220,199 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 an 1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits, and overhead,
yielding an effective hourly rate of $379. See Securities Industry
and Financial Markets Association, Report on Management &
Professional Earnings in the Securities Industry 2012.
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The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act. 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 OMB
control number.
The public may view the background documentation for this
information collection at the following Web site, 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) Thomas Bayer, Chief Information Officer,
Securities and Exchange Commission, c/o Remi Pavlik-Simon, 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.
[[Page 14312]]
Dated: March 7, 2014.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05457 Filed 3-12-14; 8:45 am]
BILLING CODE 8011-01-P