[Federal Register Volume 82, Number 220 (Thursday, November 16, 2017)]
[Notices]
[Pages 53538-53539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24755]
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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 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 (44 U.S.C. 3501 et. seq.), the Securities and Exchange
Commission (``Commission'') has submitted 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 3,108 funds rely on at
least one of the exemptive rules annually.\7\ We further
[[Page 53539]]
assume that the independent directors of approximately one-third
(1,036) 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 1,036 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 777 hours. Based on this estimate,
the total annual cost for all funds' compliance with this rule is
approximately $168,350. To calculate this total annual cost, the
Commission staff assumed that approximately two-thirds of the total
annual hour burden (518 hours) would be incurred by a compliance
manager with an average hourly wage rate of $292 per hour,\9\ and one-
third of the annual hour burden (259 hours) would be incurred by
compliance clerk with an average hourly wage rate of $66 per hour.\10\
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\7\ Based on statistics compiled by Commission staff, we
estimate that there are approximately 3,453 funds that could rely on
one or more of the exemptive rules (this figure reflects the three-
year average of open-end and closed-end funds (3,349) and business
development companies (104)). Of those funds, we assume that
approximately 90 percent (3,108) 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 the Securities Industry and Financial Markets
Association Reports on Management and Professional Earnings in the
Securities Industry (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) (adjusted for inflation), and Office
Salaries in the Securities Industry (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) (adjusted for
inflation).
\10\ (518 x $292/hour) + (259 x $66/hour) = $168,350.
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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.
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 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 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: November 9, 2017.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24755 Filed 11-15-17; 8:45 am]
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