[Federal Register Volume 90, Number 44 (Friday, March 7, 2025)]
[Notices]
[Pages 11560-11562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-03649]
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SECURITIES AND EXCHANGE COMMISSION
[OMB Control No. 3235-0224]
Proposed Collection; 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. Section 17(j) of the Investment
Company Act of 1940 (the ``Investment Company Act'') (15 U.S.C. 80a-
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'' \1\ of those
organizations. The
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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,\2\
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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\1\ 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).
\2\ 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,\3\ to file: (i) 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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\3\ 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 84,567
respondents under rule 17j-1, of which 14,567 are rule 17j-1
organizations and 70,000 are Access Persons. In the aggregate, these
respondents make approximately 109,344 responses annually. We estimate
that the total annual burden of complying with the information
collection requirements in rule 17j-1 is approximately 428,708 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 $4,675,000 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 necessary to obtain the benefit of relying on the rule.
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 OMB Control Number.
Written comments are invited on: (a) whether this 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
imposed by 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
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comments and suggestions submitted in writing within 60 days of this
publication by May 6, 2025.
Please direct your written comment to Austin Gerig, Director/Chief
Data Officer, Securities and Exchange Commission, c/o Tanya Ruttenberg,
100 F Street NE, Washington, DC 20549 or send an email to:
[email protected].
Dated: March 3, 2025.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03649 Filed 3-6-25; 8:45 am]
BILLING CODE 8011-01-P