[Federal Register Volume 75, Number 84 (Monday, May 3, 2010)]
[Notices]
[Pages 23311-23313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10214]
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SECURITIES AND EXCHANGE COMMISSION
[Rule 17f-4; SEC File No. 270-232; OMB Control No. 3235-0225]
Proposed Collection; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of Investor Education and Advocacy, Washington, DC
20549-0213.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 350l-3520), the Securities and Exchange
Commission (the ``Commission'') is soliciting comments on the
collection of information summarized below. The Commission plans to
submit this existing collection of information to the Office of
Management and Budget for extension and approval.
Section 17(f) (15 U.S.C. 80a-17(f)) under the Investment Company
Act of
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1940 (the ``Act'') \1\ permits registered management investment
companies and their custodians to deposit the securities they own in a
system for the central handling of securities (``securities
depositories''), subject to rules adopted by the Commission.
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\1\ 15 U.S.C. 80a.
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Rule 17f-4 (17 CFR 270.17f-4) under the Act specifies the
conditions for the use of securities depositories by funds\2\ and
custodians. The Commission staff estimates that 138 respondents
(including 74 active funds, 48 custodians, and 16 possible securities
depositories)\3\ are subject to the requirements in rule 17f-4. The
rule is elective, but most, if not all, funds use depository custody
arrangements.\4\
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\2\ As amended in 2003, rule 17f-4 permits any registered
investment company, including a unit investment trust or a face-
amount certificate company, to use a security depository. See
Custody of Investment Company Assets With a Securities Depository,
Investment Company Act Release No. 25934 (Feb. 13, 2003) (68 FR 8438
(Feb. 20, 2003)). The term ``fund'' is used in this Notice to mean a
registered investment company.
\3\ The Commission staff estimates that, as permitted by the
rule, 2% of all active funds deal directly with a securities
depository instead of using an intermediary. The number of
custodians is from Lipper Inc.'s Lana Database. Securities
depositories include the 12 Federal Reserve Banks and 4 registered
depositories.
\4\ Based on responses to Item 18 of Form N-SAR (17 CFR
274.101), approximately 98 percent of all funds now use depository
custody arrangements. As of November 30, 2009, approximately 3770
funds out of the 3844 active funds relied on rule 17f-4.
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Rule 17f-4 contains two general conditions. First, a fund's
custodian must be obligated, at a minimum, to exercise due care in
accordance with reasonable commercial standards in discharging its duty
as a securities intermediary to obtain and thereafter maintain
financial assets.\5\ This obligation does not contain a collection of
information because it does not impose identical reporting,
recordkeeping or disclosure requirements. Funds and custodians may
determine the specific measures the custodian will take to comply with
this obligation.\6\ If the fund deals directly with a depository, the
depository's contract or written rules for its participants must
provide that the depository will meet similar obligations, which is a
collection of information for purposes of the Paperwork Reduction Act
of 1995. All funds that deal directly with securities depositories in
reliance on rule 17f-4 should have either modified their contracts with
the relevant securities depository, or negotiated a modification in the
securities depository's written rules when the rule was amended.
Therefore, we estimate there is no ongoing burden associated with this
collection of information.\7\
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\5\ Rule 17f-4(a)(1). This provision incorporates into the rule
the standard of care provided by section 504(c) of Article 8 of the
Uniform Commercial Code when the parties have not agreed to a
standard. Rule 17f-4 does not impose any substantive obligations
beyond those contained in Article 8. Uniform Commercial Code,
Revised Article 8--Investment Securities (1994 Official Text with
Comments) (``Revised Article 8'').
\6\ Moreover, the rule does not impose any requirement regarding
evidence of the obligation.
\7\ The Commission staff assumes that new funds relying on 17f-4
would choose to use a custodian instead of directly dealing with a
securities depository because of the high costs associated with
maintaining an account with a securities depository. Thus new funds
would not be subject to this condition.
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Second, the custodian must provide, promptly upon request by the
fund, such reports as are available about the internal accounting
controls and financial strength of the custodian.\8\ If a fund deals
directly with a depository, the depository's contract with or written
rules for its participants must provide that the depository will
provide similar financial reports,\9\ which is a collection of
information for purposes of the Paperwork Reduction Act of 1995.
Custodians and depositories usually transmit financial reports to funds
twice each year.\10\ The Commission staff estimates that 48 custodians
spend approximately 885 hours (by support staff) annually in
transmitting such reports to funds.\11\ In addition, approximately 74
funds (i.e., two percent of all funds) deal directly with a securities
depository and may request periodic reports from their depository.
Commission staff estimates that, for each of the 74 funds, depositories
spend approximately 17 hours (by support staff) annually transmitting
reports to the funds.\12\ The total annual burden estimate for
compliance with rule 17f-4's reporting requirement is therefore 902
hours.\13\
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\8\ Rule 17f-4(a)(2).
\9\ Rule 17f-4(b)(1)(ii).
\10\ The 48 custodians would handle requests for reports from
3770 fund clients (approximately 79 fund clients per custodian) and
the depositories from the remaining 74 funds that choose to deal
directly with a depository. It is our understanding based on staff
conversations with representatives of custodians that custodians and
depositories transmit these reports to clients in the normal course
of their activities as a good business practice regardless of
whether they are requested. Therefore, for purposes of this PRA
estimate, the Commission staff assumes that custodians transmit the
reports to all fund clients. If all custodians and depositories
transmit these reports to funds in the normal course of their
activities, there would be no burden associated with this collection
of information. See 5 CFR 1320.3(b)(2) (``The time, effort, and
financial resources necessary to comply with a collection of
information that would be incurred by persons in the normal course
of their activities * * * will be excluded if the agency
demonstrates that the reporting, recordkeeping, or disclosure
activities needed to comply are usual and customary.'').
\11\ (48 custodians x 2 reports) = 96 reports x 79 fund clients
per custodian = 7584 transmissions. The staff estimates that each
transmission would take approximately 7 minutes for a total of 885
hours (7 minutes x 7584 transmissions). The estimate of time to
transmit reports is based on staff conversations with
representatives of custodians.
\12\ (16 depositories x 2 reports) = 32 reports x 4.6 fund
clients per depository = 147 transmissions. The staff estimates that
each transmission would take approximately 7 minutes for a total of
approximately 17 hours (7 minutes x 147 transmissions).
\13\ 885 hours for custodians and 17 hours for securities
depositories.
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If a fund deals directly with a securities depository, rule 17f-4
requires that the fund implement internal control systems reasonably
designed to prevent an unauthorized officer's instructions (by
providing at least for the form, content, and means of giving,
recording, and reviewing all officers' instructions).\14\ All funds
that seek to rely on rule 17f-4 should have already implemented these
internal control systems when the rule was amended. Therefore, there is
no ongoing burden associated with this collection of information
requirement.\15\
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\14\ Rule 17f-4(b)(2).
\15\ The Commission staff assumes that new funds relying on 17f-
4 would choose to use a custodian instead of directly dealing with a
securities depository because of the high costs associated with
maintaining an account with a securities depository. Thus new funds
would not be subject to this condition.
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Based on the foregoing, the Commission staff estimates that the
total annual hour burden of the rule's collection of information
requirement is 902 hours.
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.
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.
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 will have practical
utility; (b) the accuracy of the Commission's estimate of the burden of
the collections 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
comments and suggestions submitted in
[[Page 23313]]
writing within 60 days of this publication.
Please direct your written comments to Charles Boucher, Director/
CIO, Securities and Exchange Commission, C/O Shirley Martinson, 6432
General Green Way, Alexandria, VA 22312; or send an e-mail to: [email protected].
Dated: April 26, 2010.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10214 Filed 4-30-10; 8:45 am]
BILLING CODE 8010-01-P