[Federal Register Volume 86, Number 241 (Monday, December 20, 2021)]
[Notices]
[Pages 72024-72025]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27500]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[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 FOIA Services, 100 F Street NE, Washington, DC 
20549-2736.

Extension:
    Rule 17f-4

    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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 80a.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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 terms ``fund'' or ``fund series'' are used in 
this Notice to mean a registered investment company.
---------------------------------------------------------------------------

    The Commission staff estimates that 794 respondents (including an 
estimated 768 funds that may deal directly with a securities 
depository, an estimated 13 custodians, including 7 sub-custodians and 
13 possible securities depositories) \3\ are subject to the 
requirements in rule 17f-4. To the extent that Rule 17f-4(c)(4) 
provides that a sub-custodian can be qualified as a custodian for 
purposes of Rule 17f-4, sub-custodians are included as ``custodians'' 
in the estimates of burden hours and costs. While the rule is elective, 
most, if not all, funds use depository custody arrangements.\4\
---------------------------------------------------------------------------

    \3\ The Commission estimates that, as permitted by the rule, an 
estimated 4% of all funds may deal directly with a securities 
depository. The Commission estimates that, as permitted by the rule, 
an estimated 4% of all funds may deal directly with a securities 
depository. The number of custodians, including the number of sub-
custodians is estimated from information collected from Form N-CENs 
filed with the Commission as of October 15, 2021. In addition, the 
Commission staff estimates the number of possible securities 
depositories by adding the 12 Federal Reserve Banks and one active 
registered clearing agency. 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 C.12 of Form N-CEN (17 CFR 
274.101), approximately 96 percent of funds' custodians maintain 
some or all fund securities in a securities depository pursuant to 
rule 17f-4.
---------------------------------------------------------------------------

    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. 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. 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.\5\
---------------------------------------------------------------------------

    \5\ 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.
---------------------------------------------------------------------------

    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. 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. Custodians and depositories usually 
transmit financial reports to funds twice each year.\6\ The

[[Page 72025]]

Commission staff estimates that 13 custodians, including 7 sub-
custodians, spend approximately 2,330 hours (by support staff) annually 
in transmitting such reports to funds.\7\ In addition, approximately 
768 funds (i.e., four percent of all funds) deal directly with a 
securities depository and may request periodic reports from their 
depository. Commission staff estimates that depositories spend 
approximately 179 hours (by support staff) annually transmitting 
reports to the 768 funds.\8\ The total annual burden estimate for 
compliance with rule 17f-4's reporting requirement is therefore 2,509 
hours.\9\
---------------------------------------------------------------------------

    \6\ The estimated 13 custodians would handle requests for 
reports from 9,984 fund clients (approximately 768 fund clients per 
custodian) and the depositories from the remaining 768 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 PRA estimate, the Commission staff assumes that custodians 
transmit the reports to all fund clients.
    \7\ (9.984 fund clients x 2 reports) = 19,968 transmissions. The 
staff estimates that each transmission would take approximately 7 
minutes for a total of approximately 2,330 hours (7 minutes x 19,968 
transmissions).
    \8\ (768 fund clients who may deal directly with a securities 
depository x 2 reports) = 1,536 transmissions. The staff estimates 
that each transmission would take approximately 7 minutes for a 
total of approximately 179 hours (7 minutes x 1,536 transmissions).
    \9\ 2,330 hours for custodians and 179 hours for securities 
depositories.
---------------------------------------------------------------------------

    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). 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.\10\
---------------------------------------------------------------------------

    \10\ 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.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission staff estimates that the 
total annual hour burden of the rule's collection of information 
requirements is 2,509 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 David Bottom, Director/Chief 
Information Officer, Securities and Exchange Commission, C/O John R. 
Pezzullo, 100 F Street NE, Washington, DC 20549; or send an email to: 
[email protected].

    Dated: December 15, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27500 Filed 12-17-21; 8:45 am]
BILLING CODE 8011-01-P