[Federal Register Volume 87, Number 61 (Wednesday, March 30, 2022)]
[Notices]
[Pages 18404-18405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06706]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-239, OMB Control No. 3235-0224]
Submission for OMB Review; Comment Request; Extension: Rule 17j-1
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
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.
Conflicts of interest between investment company personnel (such as
portfolio managers) and their funds can arise when these persons buy
and sell securities for their own accounts (``personal investment
activities''). These conflicts arise because fund personnel have the
opportunity to profit from information about fund transactions, often
to the detriment of fund investors. Beginning in the early 1960s,
Congress and the Securities and Exchange Commission (``Commission'')
sought to devise a regulatory scheme to effectively address these
potential conflicts. These efforts culminated in the addition of
section 17(j) to the Investment Company Act of 1940 (the ``Investment
Company Act'') (15 U.S.C. 80a-17(j)) in 1970 and the adoption by the
Commission of rule 17j-1 (17 CFR 270.17j-1) in 1980.\1\ The Commission
proposed amendments to rule 17j-1 in 1995 in response to
recommendations made in the first detailed study of fund policies
concerning personal investment activities by the Commission's Division
of Investment Management since rule 17j-1 was adopted. Amendments to
rule 17j-1, which were adopted in 1999, enhanced fund oversight of
personal investment activities and the board's role in carrying out
that oversight.\2\ Additional amendments to rule 17j-1 were made in
2004, conforming rule 17j-1 to rule 204A-1 under the Investment
Advisers Act of 1940 (15 U.S.C. 80b), avoiding duplicative reporting,
and modifying certain definitions and time restrictions.\3\
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\1\ Prevention of Certain Unlawful Activities with Respect to
Registered Investment Companies, Investment Company Act Release No.
11421 (Oct. 31, 1980) (45 FR 73915 (Nov. 7, 1980)).
\2\ Personal Investment Activities of Investment Company
Personnel, Investment Company Act Release No. 23958 (Aug. 20, 1999)
(64 FR 46821 (Aug. 27, 1999)).
\3\ Investment Adviser Codes of Ethics, Investment Advisers Act
Release No. 2256 (Jul. 2, 2004) (69 FR 41696 (Jul. 9, 2004)).
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Section 17(j) makes it unlawful for persons affiliated with a
registered investment company (``fund'') or with the fund's investment
adviser or principal underwriter (each a ``17j-1 organization''), in
connection with the purchase or sale of securities held or to be
acquired by the investment company, to engage in any fraudulent,
deceptive, or manipulative act or practice in contravention of the
Commission's rules and regulations. Section 17(j) also authorizes the
Commission to promulgate rules requiring 17j-1 organizations to adopt
codes of ethics.
In order to implement section 17(j), rule 17j-1 imposes certain
requirements on 17j-1 organizations and ``Access Persons'' \4\ of those
organizations. The rule prohibits fraudulent, deceptive or manipulative
acts by persons affiliated with a 17j-1 organization in connection with
their personal securities transactions in securities held or to be
acquired by the fund. The rule requires each 17j-1 organization, unless
it is a money market fund or a fund that does not invest in Covered
Securities,\5\ to: (i) Adopt a written codes of ethics, (ii) submit the
code and any material changes to the code, along with a certification
that it has adopted procedures reasonably necessary to prevent Access
Persons from violating the code of ethics, to the fund board for
approval, (iii) use reasonable diligence and institute procedures
reasonably necessary to prevent violations of the code, (iv) submit a
written report to the fund describing any issues arising under the code
and procedures and certifying that the 17j-1 entity has adopted
procedures reasonably necessary to prevent Access Persons form
violating the code, (v) identify Access Persons and notify them of
their reporting obligations, and (vi) maintain and make available to
the Commission for review certain records related to the code of ethics
and transaction reporting by Access Persons.
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\4\ Rule 17j-1(a)(1) defines an ``access person'' as ``Any
Advisory Person of a Fund or of a Fund's investment adviser. If an
investment adviser's primary business is advising Funds or other
advisory clients, all of the investment adviser's directors,
officers, and general partners are presumed to be Access Persons of
any Fund advised by the investment adviser. All of a Fund's
directors, officers, and general partners are presumed to be Access
Persons of the Fund.'' The definition of Access Person also includes
``Any director, officer or general partner of a principal
underwriter who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or
sale of Covered Securities by the Fund for which the principal
underwriter acts, or whose functions or duties in the ordinary
course of business relate to the making of any recommendation to the
Fund regarding the purchase or sale of Covered Securities.'' Rule
17j-1(a)(1).
\5\ A ``Covered Security'' is any security that falls within the
definition in section 2(a)(36) of the Act, except for direct
obligations of the U.S. Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-
term debt instruments, including repurchase agreements, and shares
issued by open-end funds. Rule 17j-1(a)(4).
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The rule requires each Access Person of a fund (other than a money
market fund or a fund that does not invest in Covered Securities) and
of an investment adviser or principal underwriter of the fund, who is
not subject to an exception,\6\ to file: (i)
[[Page 18405]]
Within 10 days of becoming an Access Person, a dated initial holdings
report that sets forth certain information with respect to the Access
Person's securities and accounts; (ii) dated quarterly transaction
reports within 30 days of the end of each calendar quarter providing
certain information with respect to any securities transactions during
the quarter and any account established by the Access Person in which
any securities were held during the quarter; and (iii) dated annual
holding reports providing information with respect to each Covered
Security the Access Person beneficially owns and accounts in which
securities are held for his or her benefit. In addition, rule 17j-1
requires investment personnel of a fund or its investment adviser,
before acquiring beneficial ownership in securities through an initial
public offering (IPO) or in a private placement, to obtain approval
from the fund or the fund's investment adviser.
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\6\ Rule 17j-1(d)(2) contains the following exceptions: (i) An
Access Person need not file a report for transactions effected for,
and securities held in, any account over which the Access Person
does not have control; (ii) an independent director of the fund, who
would otherwise be required to report solely by reason of being a
fund director and who does not have information with respect to the
fund's transactions in a particular security, does not have to file
an initial holdings report or a quarterly transaction report; (iii)
an Access Person of a principal underwriter of the fund does not
have to file reports if the principal underwriter is not affiliated
with the fund (unless the fund is a unit investment trust) or any
investment adviser of the fund and the principal underwriter of the
fund does not have any officer, director, or general partner who
serves in one of those capacities for the fund or any investment
adviser of the fund; (iv) an Access Person to an investment adviser
need not make quarterly reports if the report would duplicate
information provided under the reporting provisions of the
Investment Adviser's Act of 1940; (v) an Access Person need not make
quarterly transaction reports if the information provided in the
report would duplicate information received by the 17j-1
organization in the form of broker trade confirmations or account
statements or information otherwise in the records of the 17j-1
organization; and (vi) an Access Person need not make quarterly
transaction reports with respect to transactions effected pursuant
to an Automatic Investment Plan.
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The requirements that the management of a rule 17j-1 organization
provide the fund's board with new and amended codes of ethics and an
annual issues and certification report are intended to enhance board
oversight of personal investment policies applicable to the fund and
the personal investment activities of Access Persons. The requirements
that Access Persons provide initial holdings reports, quarterly
transaction reports, and annual holdings reports and request approval
for purchases of securities through IPOs and private placements are
intended to help fund compliance personnel and the Commission's
examinations staff monitor potential conflicts of interest and detect
potentially abusive activities. The requirement that each rule 17j-1
organization maintain certain records is intended to assist the
organization and the Commission's examinations staff in determining if
there have been violations of rule 17j-1.
We estimate that annually there are approximately 85,297
respondents under rule 17j-1, of which 15,297 are rule 17j-1
organizations and 70,000 are Access Persons. In the aggregate, these
respondents make approximately 107,363 responses annually. We estimate
that the total annual burden of complying with the information
collection requirements in rule 17j-1 is approximately 376,628 hours.
This hour burden represents time spent by Access Persons that must file
initial and annual holdings reports and quarterly transaction reports,
investment personnel that must obtain approval before acquiring
beneficial ownership in any securities through an IPO or private
placement, and the responsibilities of Rule 17j-1 organizations arising
from information collection requirements under rule 17j-1. These
include notifying Access Persons of their reporting obligations,
preparing an annual rule 17j-1 report and certification for the board,
documenting their approval or rejection of IPO and private placement
requests, maintaining annual rule 17j-1 records, maintaining electronic
reporting and recordkeeping systems, amending their codes of ethics as
necessary, and, for new fund complexes, adopting a code of ethics.
We estimate that there is an annual cost burden of approximately
$5,000 per fund complex, for a total of $4,020,000 associated with
complying with the information collection requirements in rule 17j-1.
This represents the costs of purchasing and maintaining computers and
software to assist funds in carrying out rule 17j-1 recordkeeping.
These burden hour and cost estimates are based upon the Commission
staff's experience and discussions with the fund industry. The
estimates of average burden hours and costs 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.
Compliance with the collection of information requirements of the
rule is mandatory and is necessary to comply with the requirements of
the rule in general. 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. Rule 17j-1 requires that
records be maintained for at least five years in an easily accessible
place.\7\
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\7\ If information collected pursuant to the rule is reviewed by
the Commission's examination staff, it will be accorded the same
level of confidentiality accorded to other responses provided to the
Commission in the context of its examination and oversight program.
See section 31(c) of the Investment Company Act (15 U.S.C. 80a-
30(c)).
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Written comments are invited on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information
shall have practical utility; (b) the accuracy of the Commission's
estimates of the burden of the proposed 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 by May 31, 2022.
Please direct your written comments to David Bottom, Director/Chief
Information Officer, Securities and Exchange Commission, C/O John
Pezzullo, 100 F Street NE, Washington, DC 20549; or send an email to:
PR[email protected].
Dated: March 25, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-06706 Filed 3-29-22; 8:45 am]
BILLING CODE 8011-01-P