[Federal Register Volume 76, Number 42 (Thursday, March 3, 2011)]
[Notices]
[Pages 11827-11828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4730]
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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 Investor Education and Advocacy, Washington, DC
20549-0213.
Extension:
Rule 17a-10, SEC File No. 270-507, OMB Control No. 3235-0563.
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
(``OMB'') a request for extension of the previously approved collection
of information discussed below.
Section 17(a) of the Investment Company Act of 1940 (the ``Act''),
generally prohibits affiliated persons of a registered investment
company
[[Page 11828]]
(``fund'') from borrowing money or other property from, or selling or
buying securities or other property to or from, the fund or any company
that the fund controls.\1\ Section 2(a)(3) of the Act defines
``affiliated person'' of a fund to include its investment advisers.\2\
Rule 17a-10 (17 CFR 270.17a-10) permits (i) a subadviser of a fund to
enter into transactions with funds the subadviser does not advise but
that are affiliated persons of a fund that it does advise (e.g., other
funds in the fund complex), and (ii) a subadviser (and its affiliated
persons) to enter into transactions and arrangements with funds the
subadviser does advise, but only with respect to discrete portions of
the subadvised fund for which the subadviser does not provide
investment advice.
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\1\ 15 U.S.C. 80a-17(a).
\2\ 15 U.S.C. 80a-2(a)(3)(E).
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To qualify for the exemptions in rule 17a-10, the subadvisory
relationship must be the sole reason why section 17(a) prohibits the
transaction. In addition, the advisory contracts of the subadviser
entering into the transaction, and any subadviser that is advising the
purchasing portion of the fund, must prohibit the subadvisers from
consulting with each other concerning securities transactions of the
fund, and limit their responsibility to providing advice with respect
to discrete portions of the fund's portfolio.\3\ Section 17(a) of the
Investment Company Act of 1940 (the ``Act''), generally prohibits
affiliated persons of a registered investment company (``fund'') from
borrowing money or other property from, or selling or buying securities
or other property to or from, the fund or any company that the fund
controls. Section 2(a)(3) of the Act defines ``affiliated person'' of a
fund to include its investment advisers. Rule 17a-10 permits (i) a
subadviser of a fund to enter into transactions with funds the
subadviser does not advise but that are affiliated persons of a fund
that it does advise (e.g., other funds in the fund complex), and (ii) a
subadviser (and its affiliated persons) to enter into transactions and
arrangements with funds the subadviser does advise, but only with
respect to discrete portions of the subadvised fund for which the
subadviser does not provide investment advice.
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\3\ 17 CFR 270.17a-10(a)(2).
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To qualify for the exemptions in rule 17a-10, the subadvisory
relationship must be the sole reason why section 17(a) prohibits the
transaction. In addition, the advisory contracts of the subadviser
entering into the transaction, and any subadviser that is advising the
purchasing portion of the fund, must prohibit the subadvisers from
consulting with each other concerning securities transactions of the
fund, and limit their responsibility to providing advice with respect
to discrete portions of the fund's portfolio. This requirement
regarding the prohibitions and limitations in advisory contracts of
subadvisors relying on the rule constitutes a collection of information
under the Paperwork Reduction Act of 1995 (``PRA'').\4\
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\4\ 44 U.S.C. 3501.
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The staff assumes that all funds existing in 2003 amended their
advisory contracts following the amendments to rule 17a-10 that year
that conditioned certain exemptions upon these contractual alterations,
and therefore there is no continuing burden for those funds.\5\ Staff
also assumes that funds that came into existence after 2003 included
the contractual requirements in rule 17a-10 in their subadvisory
agreements and therefore there is no continuing burden for those funds.
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\5\ We assume that funds formed after 2003 that intended to rely
on rule 17a-10 would have included the required provision as a
standard element in their initial subadvisory contracts.
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Based on an analysis of fund filings, the staff estimates that
approximately 252 fund portfolios enter into new subadvisory agreements
each year.\6\ 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 17a-10. Because these additional clauses are identical to the
clauses that a fund would need to insert in their subadvisory contracts
to rely on rules 10f-3, 12d3-1, 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 among all four rules.
Therefore, we estimate that the burden allocated to rule 17a-10 for
this contract change would be 0.75 hours.\7\ Assuming that all 252
funds that enter into new subadvisory contracts each year include in
their contract the provisions required by the rule, we estimate that
the rule's contract requirement will result in 189 burden hours
annually, with an associated cost of approximately $59,724.\8\
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\6\ Based on information in Commission filings, we estimate that
42.5 percent of funds are advised by subadvisers.
\7\ This estimate is based on the following calculation: 3 hours
/ 4 rules = 0.75 hours.
\8\ These estimates are based on the following calculations:
0.75 hours x 252 portfolios = 189 burden hours; $316 per hour x 189
hours = $59,724 total cost. 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 and Financial Markets Association. The $316 per hour figure
for an attorney is from the Securities Industry and Financial
Markets Association's Management & Professional Earnings in the
Securities Industry 2009, modified by Commission staff to account
for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead.
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The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act. The estimate is not derived
from a comprehensive or even a representative survey or study of the
costs of Commission rules. Complying with this collection of
information requirement is necessary to obtain the benefit of relying
on rule 17a-10. 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 control
number.
The public may view the background documentation for this
information collection at the following Web site, http://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 e-
mail to: [email protected]; and (ii) Thomas Bayer, Chief
Information Officer, Securities and Exchange Commission, c/o Remi
Pavlik-Simon, 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: February 25, 2011.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4730 Filed 3-2-11; 8:45 am]
BILLING CODE 8011-01-P