[Federal Register Volume 84, Number 156 (Tuesday, August 13, 2019)]
[Notices]
[Pages 40117-40118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17237]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-507, OMB Control No. 3235-0563]


Proposed Collection; 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 17a-10

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.) (``PRA'') the Securities and Exchange 
Commission (the ``Commission'') is soliciting comments on the 
collections of information summarized below. The Commission plans to 
submit these existing collections of information to the Office of 
Management and Budget (``OMB'') for extension and approval.
    Section 17(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
1 et seq.) (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.\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 \3\ 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).
    \3\ As defined in rule 17a-10(b)(2). 17 CFR 270.17a-10(b)(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.\4\ This requirement 
regarding the prohibitions and limitations in advisory contracts of 
subadvisers relying on the rule constitutes a collection of information 
under the PRA.\5\
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    \4\ 17 CFR 270.17a-10(a)(2).
    \5\ 44 U.S.C. 3501.
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    The staff assumes that all existing funds with subadvisory 
contracts amended those contracts to comply with the adoption of rule 
17a-10 in 2003, which conditioned certain exemptions upon these 
contractual alterations, and therefore there is no continuing burden 
for those funds.\6\ However, the staff assumes that all newly formed 
subadvised funds, and funds that enter into new contracts with 
subadvisers, will incur the one-time burden by amending their contracts 
to add the terms required by the rule.
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    \6\ Transactions of Investment Companies With Portfolio and 
Subadviser Affiliates, Investment Company Act Release No. 25888 
(Jan. 14, 2003) [68 FR 3153, (Jan. 22, 2003)]. 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 221 funds enter into new subadvisory agreements each 
year.\7\ 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 (17 CFR 270.10f-3), 12d3-1 (17 CFR 270.12d3-1), and 17e-
1 (17 CFR 270.17e-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.\8\ Assuming that all 221 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 166 burden hours annually, with an 
associated cost of approximately $68,890.\9\
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    \7\ Based on data from Morningstar, as of March 2019, there are 
12,407 registered funds (open-end funds, closed-end funds (including 
interval funds), and exchange-traded funds), 4,609 funds of which 
have subadvisory relationships (approximately 37%). Based on data 
from the 2019 ICI publications, 597 new funds were established in 
2018 (582 open-end funds and exchange-traded funds (from the 2019 
ICI Fact Book) + 15 closed-end funds (from the ICI Research 
Perspective, April 2019)). 597 new funds x 37% = 221 funds.
    \8\ This estimate is based on the following calculation: 3 hours 
/ 4 rules = 0.75 hours.
    \9\ These estimates are based on the following calculations: 
(0.75 hours x 221 portfolios = 166 burden hours); ($415 per hour x 
166 hours = $68,890 total cost). The Commission'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 estimated wage 
figure is based on published rates for in-house attorneys, modified 
to account for a 1,800-hour work-year and inflation, and multiplied 
by 5.35 to account for bonuses, firm size, employee benefits, and 
overhead, yielding an effective hourly rate of $415. See Securities 
Industry and Financial Markets Association, Report on Management & 
Professional Earnings in the Securities Industry 2013.
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    The estimate of average burden hours is made solely for the 
purposes of the PRA. 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.
    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information will 
have practical utility; (b) the accuracy of the agency's estimate of 
the burden of the collection of information; (c) ways to enhance the 
quality, utility, and clarity of the information collected; and (d) 
ways to minimize the burden 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.

[[Page 40118]]

    Please direct your written comments to Charles Riddle, Acting 
Director/Chief Information Officer, Securities and Exchange Commission, 
C/O Candace Kenner, 100 F Street NE, Washington, DC 20549; or send an 
email to: [email protected].

    Dated: August 7, 2019.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17237 Filed 8-12-19; 8:45 am]
 BILLING CODE 8011-01-P