[Federal Register Volume 79, Number 111 (Tuesday, June 10, 2014)]
[Notices]
[Pages 33225-33227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-13460]
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SECURITIES AND EXCHANGE COMMISSION
Proposed Collection; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of Investor Education and Advocacy, Washington, DC
20549-0213.
Extension:
Rule 0-1;
SEC File No. 270-472, OMB Control No. 3235-0531.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995
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(44 U.S.C. 350l et seq.), the Securities and Exchange Commission
(``Commission'') plans to submit to the Office of Management and Budget
a request for extension of the previous approved collection of
information discussed below.
The Investment Company Act of 1940 (the ``Act'') \1\ establishes a
comprehensive framework for regulating the organization and operation
of investment companies (``funds''). A principal objective of the Act
is to protect fund investors by addressing the conflicts of interest
that exist between funds and their investment advisers and other
affiliated persons. The Act places significant responsibility on the
fund board of directors in overseeing the operations of the fund and
policing the relevant conflicts of interest.\2\
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\1\ 15 U.S.C. 80a.
\2\ For example, fund directors must approve investment advisory
and distribution contracts. See 15 U.S.C. 80a-15(a), (b), and (c).
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In one of its first releases, the Commission exercised its
rulemaking authority pursuant to sections 38(a) and 40(b) of the Act by
adopting rule 0-1 (17 CFR 270.0-1).\3\ Rule 0-1, as subsequently
amended on numerous occasions, provides definitions for the terms used
by the Commission in the rules and regulations it has adopted pursuant
to the Act. The rule also contains a number of rules of construction
for terms that are defined either in the Act itself or elsewhere in the
Commission's rules and regulations. Finally, rule 0-1 defines terms
that serve as conditions to the availability of certain of the
Commission's exemptive rules. More specifically, the term ``independent
legal counsel,'' as defined in rule 0-1, sets out conditions that funds
must meet in order to rely on any of ten exemptive rules (``exemptive
rules'') under the Act.\4\
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\3\ Investment Company Act Release No. 4 (Oct. 29, 1940) (5 FR
4316 (Oct. 31, 1940)). Note that rule 0-1 was originally adopted as
rule N-1.
\4\ The relevant exemptive rules are: rule 10f-3 (17 CFR
270.10f-3), rule 12b-1 (17 CFR 270.12b-1), rule 15a-4(b)(2) (17 CFR
270.15a-4(b)(2)), rule 17a-7 (17 CFR 270.17a-7), rule 17a-8 (17 CFR
270.17a-8), rule 17d-1(d)(7) (17 CFR 270.17d-1(d)(7)), rule 17e-1(c)
(17 CFR 270.17e-1(c)), rule 17g-1 (17 CFR 270.17g-1), rule 18f-3 (17
CFR 270.18f-3), and rule 23c-3 (17 CFR 270.23c-3).
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The Commission amended rule 0-1 to include the definition of the
term ``independent legal counsel'' in 2001.\5\ This amendment was
designed to enhance the effectiveness of fund boards of directors and
to better enable investors to assess the independence of those
directors. The Commission also amended the exemptive rules to require
that any person who serves as legal counsel to the independent
directors of any fund that relies on any of the exemptive rules must be
an ``independent legal counsel.'' This requirement was added because
independent directors can better perform the responsibilities assigned
to them under the Act and the rules if they have the assistance of
truly independent legal counsel.
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\5\ See Role of Independent Directors of Investment Companies,
Investment Company Act Release No. 24816 (Jan. 2, 2001) (66 FR 3735
(Jan. 16, 2001)).
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If the board's counsel has represented the fund's investment
adviser, principal underwriter, administrator (collectively,
``management organizations'') or their ``control persons'' \6\ during
the past two years, rule 0-1 requires that the board's independent
directors make a determination about the adequacy of the counsel's
independence. A majority of the board's independent directors are
required to reasonably determine, in the exercise of their judgment,
that the counsel's prior or current representation of the management
organizations or their control persons was sufficiently limited to
conclude that it is unlikely to adversely affect the counsel's
professional judgment and legal representation. Rule 0-1 also requires
that a record for the basis of this determination is made in the
minutes of the directors' meeting. In addition, the independent
directors must have obtained an undertaking from the counsel to provide
them with the information necessary to make their determination and to
update promptly that information when the person begins to represent a
management organization or control person, or when he or she materially
increases his or her representation. Generally, the independent
directors must re-evaluate their determination no less frequently than
annually.
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\6\ A ``control person'' is any person--other than a fund--
directly or indirectly controlling, controlled by, or under common
control, with any of the fund's management organizations. See 17 CFR
270.01(a)(6)(iv)(B).
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Any fund that relies on one of the exemptive rules must comply with
the requirements in the definition of ``independent legal counsel''
under rule 0-1. We assume that approximately 3751 funds rely on at
least one of the exemptive rules annually.\7\ We further assume that
the independent directors of approximately one-third (1250) of those
funds would need to make the required determination in order for their
counsel to meet the definition of independent legal counsel.\8\ We
estimate that each of these 1250 funds would be required to spend, on
average, 0.75 hours annually to comply with the recordkeeping
requirement associated with this determination, for a total annual
burden of approximately 938 hours. Based on this estimate, the total
annual cost for all funds' compliance with this rule is approximately
$196,907. To calculate this total annual cost, the Commission staff
assumed that approximately two-thirds of the total annual hour burden
(625 hours) would be incurred by a compliance manager with an average
hourly wage rate of $283 per hour,\9\ and one-third of the annual hour
burden (313 hours) would be incurred by compliance clerk with an
average hourly wage rate of $64 per hour.\10\
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\7\ Based on statistics compiled by Commission staff, we
estimate that there are approximately 4168 funds that could rely on
one or more of the exemptive rules. Of those funds, we assume that
approximately 90 percent (3751) actually rely on at least one
exemptive rules annually.
\8\ We assume that the independent directors of the remaining
two-thirds of those funds will choose not to have counsel, or will
rely on counsel who has not recently represented the fund's
management organizations or control persons. In both circumstances,
it would not be necessary for the fund's independent directors to
make a determination about their counsel's independence.
\9\ The estimated hourly wages used in this PRA analysis were
derived from reports prepared by the Securities Industry and
Financial Markets Association. See Securities Industry and Financial
Markets Association, Report on Management and Professional Earnings
in the Securities Industry--2013 (2013), modified to account for an
1800-hour work year and multiplied by 5.35 to account for bonuses,
firm size, employee benefits and overhead; and Securities Industry
and Financial Markets Association, Office Salaries in the Securities
Industry--2013 (2013), modified to account for an 1800-hour work
year and multiplied by 2.93 to account for bonuses, firm size,
employee benefits and overhead.
\10\ (625 x $283/hour) + (313 x $64/hour) = $196,907.
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These burden hour estimates are based upon the Commission staff's
experience and discussions with the fund industry. The estimates of
average burden hours 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.
Written comments are invited on: (a) Whether the collection of
information is necessary for the proper performance of the functions of
the Commission, including whether the information has practical
utility; (b) the accuracy of the Commission's estimate of the burdens
of the collection of information; (c) ways to enhance the quality,
utility, and clarity of the information collected; and (d) ways to
minimize the burdens of the collection of information on respondents,
including through the use of automated collection techniques or other
forms of information technology. Consideration will be given to
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comments and suggestions submitted in writing within 60 days of this
publication.
Please direct your written comments to 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].
Dated: June 4, 2014.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13460 Filed 6-9-14; 8:45 am]
BILLING CODE 8011-01-P