[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10216-10217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03273]


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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 17f-4; OMB Control No. 3235-0225, SEC File No. 270-232.

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 350l-3520) (the ``Paperwork Reduction Act''), 
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 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 
their custodians.
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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.
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    The Commission staff estimates that 140 respondents (including an 
estimated 79 active funds that may deal directly with a securities 
depository, an estimated 42 custodians, and 19 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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    \3\ The Commission staff estimates that, as permitted by the 
rule, an estimated 2% of all active funds may deal directly with a 
securities depository instead of using an intermediary. The number 
of custodians is estimated based on information from Morningstar 
Direct\SM\. The Commission staff estimates the number of possible 
securities depositories by adding the 12 Federal Reserve Banks and 7 
active registered clearing agencies. The Commission staff recognizes 
that not all of these entities may currently be acting as a 
securities depository for fund securities.
    \4\ Based on responses to Item 18 of Form N-SAR (17 CFR 
274.101), approximately 98 percent of funds' custodians maintain 
some or all fund securities in a securities depository pursuant to 
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. 
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. Custodians and 
depositories usually transmit financial reports to funds twice each 
year.\10\ The Commission staff estimates that 42 custodians spend 
approximately 787 hours (by support staff) annually in transmitting 
such reports to funds.\11\ In addition, approximately 79 funds (i.e., 
two percent of all funds) deal directly with a securities depository 
and may

[[Page 10217]]

request periodic reports from their depository. Commission staff 
estimates that depositories spend approximately 18 hours (by support 
staff) annually transmitting reports to the 79 funds.\12\ The total 
annual burden estimate for compliance with rule 17f-4's reporting 
requirement is therefore 805 hours.\13\
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    \8\ Rule 17f-4(a)(2).
    \9\ Rule 17f-4(b)(1)(ii).
    \10\ The estimated 42 custodians would handle requests for 
reports from an estimated 3,371 fund clients (approximately 80 fund 
clients per custodian) and the depositories from the remaining 79 
funds that choose to deal directly with a depository. It is our 
understanding based on staff conversations with industry 
representatives 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 Paperwork Reduction Act estimate, 
the Commission staff assumes that custodians transmit the reports to 
all fund clients.
    \11\ (3,371 fund clients x 2 reports) = 6,742 transmissions. The 
staff estimates that each transmission would take approximately 7 
minutes for a total of approximately 787 hours (7 minutes x 6,742 
transmissions).
    \12\ (79 fund clients who may deal directly with a securities 
depository x 2 reports) = 158 transmissions. The staff estimates 
that each transmission would take approximately 7 minutes for a 
total of approximately 18 hours (7 minutes x 158 transmissions).
    \13\ 787 hours for custodians and 18 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 805 hours.
    The estimate of average burden hours is made solely for the 
purposes of the Paperwork Reduction Act. This estimate is not derived 
from a comprehensive or even 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 writing within 60 days of this 
publication.
    Please direct your written comments to Thomas Bayer, Director/Chief 
Information Officer, Securities and Exchange Commission, c/o Remi 
Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312; or send an 
email to: [email protected].

    Dated: February 7, 2013.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03273 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P