[Federal Register Volume 80, Number 105 (Tuesday, June 2, 2015)]
[Notices]
[Pages 31426-31427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13381]
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SECURITIES AND EXCHANGE COMMISSION
[Extension: Rule 10f-3; OMB Control No. 3235-0226, SEC File No. 270-
237]
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.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501-3520), the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget a request for extension and approval of the collections of
information discussed below.
Section 10(f) of the Investment Company Act of 1940 (15 U.S.C. 80a)
(the ``Act'') prohibits a registered investment company (``fund'') from
purchasing any security during an underwriting or selling syndicate if
the fund has certain relationships with a principal underwriter for the
security. Congress enacted this provision in 1940 to protect funds and
their shareholders by preventing underwriters from ``dumping''
unmarketable securities on affiliated funds.
Rule 10f-3 (17 CFR 270.10f-3) permits a fund to engage in a
securities transaction that otherwise would violate section 10(f) if,
among other things: (i) Each transaction effected under the rule is
reported on Form N-SAR; (ii) the
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fund's directors have approved procedures for purchases made in
reliance on the rule, regularly review fund purchases to determine
whether they comply with these procedures, and approve necessary
changes to the procedures; and (iii) a written record of each
transaction effected under the rule is maintained for six years, the
first two of which in an easily accessible place. The written record
must state: (i) From whom the securities were acquired; (ii) the
identity of the underwriting syndicate's members; (iii) the terms of
the transactions; and (iv) the information or materials on which the
fund's board of directors has determined that the purchases were made
in compliance with procedures established by the board.
The rule also conditionally allows managed portions of fund
portfolios to purchase securities offered in otherwise off-limits
primary offerings. To qualify for this exemption, rule 10f-3 requires
that the subadviser that is advising the purchaser be contractually
prohibited from providing investment advice to any other portion of the
fund's portfolio and consulting with any other of the fund's advisers
that is a principal underwriter or affiliated person of a principal
underwriter concerning the fund's securities transactions.
These requirements provide a mechanism for fund boards to oversee
compliance with the rule. The required recordkeeping facilitates the
Commission staff's review of rule 10f-3 transactions during routine
fund inspections and, when necessary, in connection with enforcement
actions.
The staff estimates that approximately 270 funds engage in a total
of approximately 3,350 rule 10f-3 transactions each year.\1\ Rule 10f-3
requires that the purchasing fund create a written record of each
transaction that includes, among other things, from whom the securities
were purchased and the terms of the transaction. The staff estimates
\2\ that it takes an average fund approximately 30 minutes per
transaction and approximately 1,675 hours \3\ in the aggregate to
comply with this portion of the rule.
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\1\ These estimates are based on staff extrapolations from
filings with the Commission.
\2\ Unless stated otherwise, the information collection burden
estimates are based on conversations between the staff and
representatives of funds.
\3\ This estimate is based on the following calculation: (0.5
hours x 3,350 = 1,675 hours).
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The funds also must maintain and preserve these transactional
records in accordance with the rule's recordkeeping requirement, and
the staff estimates that it takes a fund approximately 20 minutes per
transaction and that annually, in the aggregate, funds spend
approximately 1,117 hours \4\ to comply with this portion of the rule.
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\4\ This estimate is based on the following calculations: (20
minutes x 3,350 transactions = 67,000 minutes; 67,000 minutes/60 =
1,117 hours).
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In addition, fund boards must, no less than quarterly, examine each
of these transactions to ensure that they comply with the fund's
policies and procedures. The information or materials upon which the
board relied to come to this determination also must be maintained and
the staff estimates that it takes a fund 1 hour per quarter and, in the
aggregate, approximately 1,080 hours \5\ annually to comply with this
rule requirement.
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\5\ This estimate is based on the following calculation: (1 hour
per quarter x 4 quarters x 270 funds = 1,080 hours).
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The staff estimates that reviewing and revising as needed written
procedures for rule 10f-3 transactions takes, on average for each fund,
two hours of a compliance attorney's time per year.\6\ Thus, annually,
in the aggregate, the staff estimates that funds spend a total of
approximately 540 hours \7\ on monitoring and revising rule 10f-3
procedures.
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\6\ These averages take into account the fact that in most
years, fund attorneys and boards spend little or no time modifying
procedures and in other years, they spend significant time doing so.
\7\ This estimate is based on the following calculation: (270
funds x 2 hours = 540 hours).
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Based on an analysis of fund filings, the staff estimates that
approximately 251 fund portfolios enter into subadvisory agreements
each year.\8\ 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 10f-3. Because these additional clauses are identical to the
clauses that a fund would need to insert in their subadvisory contracts
to rely on rules 12d3-1, 17a-10, 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 to all four rules. Therefore,
we estimate that the burden allocated to rule 10f-3 for this contract
change would be 0.75 hours.\9\ Assuming that all 251 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 188 burden hours annually.\10\
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\8\ Based on information in Commission filings, we estimate that
38 percent of funds are advised by subadvisers.
\9\ This estimate is based on the following calculation (3 hours
/ 4 rules = .75 hours).
\10\ These estimates are based on the following calculations:
(0.75 hours x 251 portfolios = 188 burden hours).
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The staff estimates, therefore, that rule 10f-3 imposes an
information collection burden of 4,060 hours.\11\ This estimate does
not include the time spent filing transaction reports on Form N-SAR,
which is encompassed in the information collection burden estimate for
that form.
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\11\ This estimate is based on the following calculation: (1,675
hours + 1,117 hours + 1,080 hours + 188 hours = 4,060 total burden
hours).
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The collection of information required by rule 10f-3 is necessary
to obtain the benefits of the rule. 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) Pamela Dyson, Director/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.
Dated: May 28, 2015.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13381 Filed 6-1-15; 8:45 am]
BILLING CODE 8011-01-P