[Federal Register Volume 73, Number 22 (Friday, February 1, 2008)]
[Notices]
[Pages 6222-6224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1841]
-----------------------------------------------------------------------
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 17e-1; SEC File No. 270-224; OMB Control No. 3235-0217.
[[Page 6223]]
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501-3520), 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 described below.
Rule 17e-1 (17 CFR 270.17e-1) under the Investment Company Act of
1940 (15 U.S.C. 80a) (the ``Act'') is entitled ``Brokerage Transactions
on a Securities Exchange.'' The rule governs the remuneration that a
broker affiliated with a registered investment company (``fund'') may
receive in connection with securities transactions by the fund. The
rule requires a fund's board of directors to establish, and review as
necessary, procedures reasonably designed to provide that the
remuneration to an affiliated broker is a fair amount compared to that
received by other brokers in connection with transactions in similar
securities during a comparable period of time. Each quarter, the board
must determine that all transactions with affiliated brokers during the
preceding quarter complied with the procedures established under the
rule. Rule 17e-1 also requires the fund to (i) maintain permanently a
written copy of the procedures adopted by the board for complying with
the requirements of the rule; and (ii) maintain for a period of six
years a written record of each transaction subject to the rule, setting
forth: the amount and source of the commission; fee or other
remuneration received; the identity of the broker; the terms of the
transaction; and the materials used to determine that the transactions
were effected in compliance with the procedures adopted by the board.
The Commission's examination staff uses these records to evaluate
transactions between funds and their affiliated brokers for compliance
with the rule.
The Commission staff estimates that 3583 portfolios of
approximately 649 fund complexes use the services of one or more
subadvisers. Based on discussions with industry representatives, the
staff estimates that it will require approximately 6 hours to draft and
execute revised subadvisory contracts in order for funds and
subadvisers to be able to rely on the exemptions in rule 17e-1.\1\ The
staff assumes that all existing funds amended their advisory contracts
following amendments to rule 17e-1 in 2002 that conditioned certain
exemptions upon these contractual alterations, and therefore there is
no continuing burden for those funds.\2\
---------------------------------------------------------------------------
\1\ Rules 12d3-1, 10f-3, 17a-10, and 17e-1 require virtually
identical modifications to fund advisory contracts. The Commission
staff assumes that funds would rely equally on the exemptions in
these rules, and therefore the burden hours associated with the
required contract modifications should be apportioned equally among
the four rules.
\2\ We assume that funds formed after 2002 that intended to rely
on rule 17e-1 would have included the contract provision in their
initial subadvisory contracts.
---------------------------------------------------------------------------
Based on an analysis of fund filings, the staff estimates that
approximately 600 fund portfolios enter into subadvisory agreements
each year.\3\ Based on discussions with industry representatives, the
staff estimates that it will require approximately 3 attorney hours \4\
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 17e-1. 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, 10f-3, 17a-10, 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 17e-1 for this contract
change would be 0.75 hours.\5\ Assuming that all 600 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 450 burden hours annually, with
an associated cost of approximately $131,400.\6\
---------------------------------------------------------------------------
\3\ The use of subadvisers has grown rapidly over the last
several years, with approximately 600 portfolios that use
subadvisers registering between December 2005 and December 2006.
Based on information in Commission filings, we estimate that 31
percent of funds are advised by subadvisers.
\4\ The Commission staff's estimates concerning the wage rates
for attorney time are based on salary information for the securities
industry compiled by the Securities Industry Association. The $292
per hour figure for an attorney is from the SIA Report on Management
& Professional Earnings in the Securities Industry 2006, modified to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
\5\ This estimate is based on the following calculation (3 hours
4 rules = .75 hours).
\6\ These estimates are based on the following calculations:
(0.75 hours x 600 portfolios = 450 burden hours); ($292 per hour x
450 hours = $131,400 total cost).
---------------------------------------------------------------------------
Based on an analysis of fund filings, the staff estimates that
approximately 300 funds use at least one affiliated broker. Based on
conversations with fund representatives, the staff estimates that rule
17e-1's exemption would free approximately 40 percent of transactions
that occur under rule 17e-1 from the rule's recordkeeping and review
requirements. This would leave approximately 180 funds (300 funds x .6
= 180) still subject to the rule's recordkeeping and review
requirements. The staff estimates that each of these funds spends
approximately 60 hours per year (40 hours by accounting staff, 15 hours
by an attorney, and 5 director hours) \7\ at a cost of approximately
$10,495 per year to comply with rule 17e-1's requirements that (i) the
fund retain records of transactions entered into pursuant to the rule,
and (ii) the fund's directors review those transactions quarterly.\8\
We estimate, therefore, that the total yearly hourly burden for all
funds relying on this exemption is 10,800 hours,\9\ with yearly costs
of approximately $1,889,100.\10\ Therefore, the annual aggregate burden
hour associated with rule 17e-1 is 11,250,\11\ and the annual aggregate
cost associated with it is $2,020,500.\12\
---------------------------------------------------------------------------
\7\ The Commission staff's estimates concerning the wage rate
for professional time are based on salary information for the
securities industry compiled by the Securities Industry Association.
The $292 per hour estimate for an attorney, $116 per hour estimate
for accountant time, and $295 per hour estimate for directors (based
on comparable position) is from the SIA Report on Management &
Professional Earnings in the Securities Industry 2006, modified to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits and overhead.
\8\ This estimate is based on the following calculations: (40
hours accounting staff x $116 per hour = $4640) (15 hours by an
attorney x $292 per hour = $4380); (5 hours by directors x $295 =
$1475) ($4640 + $4380 + $1475 = $10,495 total cost).
\9\ This estimate is based on the following calculation: (180
funds x 60 hours = 10,800).
\10\ This estimate is based on the following calculation:
($10,495 x 180 funds = $1,889,100).
\11\ This estimate is based on the following calculation: (450
hours + 10,800 hours = 11,250 total hours).
\12\ This estimate is based on the following calculation:
($131,400 + $1,889,100= $2,020,500).
---------------------------------------------------------------------------
The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act, and is not derived from a
comprehensive or even a representative survey or study. 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.
Please direct general comments regarding the above information to
the following persons: (i) Desk Officer for the Securities and Exchange
Commission, Office of Management and Budget, Room 10102, New Executive
Office Building, Washington, DC 20503 or e-mail to: [email protected]; and (ii) R. Corey Booth, Director/Chief Information
Officer, Securities and Exchange Commission, C/O Shirley
[[Page 6224]]
Martinson, 6432 General Green Way, Alexandria, VA 22312; or send an e-
mail to: [email protected]. Comments must be submitted to OMB within
30 days of this notice.
Dated: January 28, 2008.
Nancy M. Morris,
Secretary.
[FR Doc. E8-1841 Filed 1-31-08; 8:45 am]
BILLING CODE 8011-01-P