80 FR 69254 - Proposed Collection; Comment Request

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 216 (November 9, 2015)

Page Range		69254-69255
FR Document		2015-28399
Federal Register, Volume 80 Issue 216 (Monday, November 9, 2015)
[Federal Register Volume 80, Number 216 (Monday, November 9, 2015)]
[Notices]
[Pages 69254-69255]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-28399]


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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. 3501-3520) (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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[[Page 69255]]

    The Commission staff estimates that 152 respondents (including an 
estimated 81 active funds that may deal directly with a securities 
depository, an estimated 50 custodians, and 21 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 9 
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 97 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, \7\ 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.\8\
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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\ Rule 17f-4(b)(1)(i).
    \8\ 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.\9\ 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,\10\ 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.\11\ The Commission staff estimates that 50 custodians spend 
approximately 926 hours (by support staff) annually in transmitting 
such reports to funds.\12\ In addition, approximately 81 funds (i.e., 
two 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 19 hours (by 
support staff) annually transmitting reports to the 81 funds.\13\ The 
total annual burden estimate for compliance with rule 17f-4's reporting 
requirement is therefore 945 hours.\14\
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    \9\ Rule 17f-4(a)(2).
    \10\ Rule 17f-4(b)(1)(ii).
    \11\ The estimated 50 custodians would handle requests for 
reports from an estimated 3,968 fund clients (approximately 80 fund 
clients per custodian) and the depositories from the remaining 81 
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.
    \12\ (3,968 fund clients x 2 reports) = 7,936 transmissions. The 
staff estimates that each transmission would take approximately 7 
minutes for a total of approximately 926 hours (7 minutes x 7,936 
transmissions).
    \13\ (81 fund clients who may deal directly with a securities 
depository x 2 reports) = 162 transmissions. The staff estimates 
that each transmission would take approximately 7 minutes for a 
total of approximately 19 hours (7 minutes x 162 transmissions).
    \14\ 926 hours for custodians and 19 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).\15\ 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.\16\
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    \15\ Rule 17f-4(b)(2).
    \16\ 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 945 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 collection 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 Pamela Dyson, Director/Chief 
Information Officer, Securities and Exchange Commission, C/O Remi 
Pavlik-Simon, 100 F Street NE., Washington, DC 20549; or send an email 
to: [email protected].

    Dated: November 3, 2015.
 Brent J. Fields,
Secretary.
[FR Doc. 2015-28399 Filed 11-6-15; 8:45 am]
BILLING CODE 8011-01-P
Federal Register / Vol. 80, No. 216 / Monday, November 9, 2015 / Notices 69255

The Commission staff estimates that associated with this collection of giving, recording, and reviewing all
152 respondents (including an information.8 officers’ instructions).15 All funds that
estimated 81 active funds that may deal Second, the custodian must provide, seek to rely on rule 17f–4 should have
directly with a securities depository, an promptly upon request by the fund, already implemented these internal
estimated 50 custodians, and 21 such reports as are available about the control systems when the rule was
possible securities depositories) 3 are internal accounting controls and amended. Therefore, there is no ongoing
subject to the requirements in rule 17f– financial strength of the custodian.9 If a burden associated with this collection of
4. The rule is elective, but most, if not fund deals directly with a depository, information requirement.16
the depository’s contract with or written
all, funds use depository custody Based on the foregoing, the
rules for its participants must provide
arrangements.4 Commission staff estimates that the total
that the depository will provide similar
Rule 17f–4 contains two general financial reports,10 which is a collection annual hour burden of the rule’s
conditions. First, a fund’s custodian of information for purposes of the collection of information requirement is
must be obligated, at a minimum, to Paperwork Reduction Act. Custodians 945 hours.
exercise due care in accordance with and depositories usually transmit The estimate of average burden hours
reasonable commercial standards in financial reports to funds twice each is made solely for the purposes of the
discharging its duty as a securities year.11 The Commission staff estimates Paperwork Reduction Act. This estimate
intermediary to obtain and thereafter that 50 custodians spend approximately is not derived from a comprehensive or
maintain financial assets.5 This 926 hours (by support staff) annually in
even representative survey or study of
obligation does not contain a collection transmitting such reports to funds.12 In
addition, approximately 81 funds (i.e., the costs of Commission rules.
of information because it does not
two percent of all funds) deal directly An agency may not conduct or
impose identical reporting,
with a securities depository and may sponsor, and a person is not required to
recordkeeping or disclosure
request periodic reports from their respond to a collection of information
requirements. Funds and custodians
depository. Commission staff estimates unless it displays a currently valid
may determine the specific measures
that depositories spend approximately control number.
the custodian will take to comply with
19 hours (by support staff) annually Written comments are invited on : (a)
this obligation.6 If the fund deals transmitting reports to the 81 funds.13
directly with a depository, the Whether the collection of information is
The total annual burden estimate for necessary for the proper performance of
depository’s contract or written rules for compliance with rule 17f–4’s reporting
its participants must provide that the the functions of the Commission,
requirement is therefore 945 hours.14
depository will meet similar obligations, If a fund deals directly with a including whether the information will
7 which is a collection of information
securities depository, rule 17f–4 have practical utility; (b) the accuracy of
for purposes of the Paperwork requires that the fund implement the Commission’s estimate of the
Reduction Act. All funds that deal internal control systems reasonably burden of the collection of information;
directly with securities depositories in designed to prevent an unauthorized (c) ways to enhance the quality, utility,
reliance on rule 17f–4 should have officer’s instructions (by providing at and clarity of the information collected;
either modified their contracts with the least for the form, content, and means of and (d) ways to minimize the burdens
relevant securities depository, or of the collection of information on
negotiated a modification in the 8 The Commission staff assumes that new funds respondents, including through the use
relying on 17f–4 would choose to use a custodian of automated collection techniques or
securities depository’s written rules instead of directly dealing with a securities
when the rule was amended. Therefore, depository because of the high costs associated with other forms of information technology.
we estimate there is no ongoing burden maintaining an account with a securities Consideration will be given to
depository. Thus new funds would not be subject comments and suggestions submitted in
to this condition.
3 The Commission staff estimates that, as
9 Rule 17f–4(a)(2).
writing within 60 days of this
permitted by the rule, an estimated 2% of all active 10 Rule 17f–4(b)(1)(ii). publication.
funds may deal directly with a securities depository
instead of using an intermediary. The number of
11 The estimated 50 custodians would handle Please direct your written comments
requests for reports from an estimated 3,968 fund to Pamela Dyson, Director/Chief
custodians is estimated based on information from
clients (approximately 80 fund clients per
Morningstar DirectSM. The Commission staff
custodian) and the depositories from the remaining Information Officer, Securities and
estimates the number of possible securities
81 funds that choose to deal directly with a Exchange Commission, C/O Remi
depositories by adding the 12 Federal Reserve
depository. It is our understanding based on staff Pavlik-Simon, 100 F Street NE.,
Banks and 9 active registered clearing agencies. The
conversations with industry representatives that
Commission staff recognizes that not all of these custodians and depositories transmit these reports
Washington, DC 20549; or send an email
entities may currently be acting as a securities to clients in the normal course of their activities as to: PRA_Mailbox@sec.gov.
depository for fund securities. a good business practice regardless of whether they
4 Based on responses to Item 18 of Form N–SAR
are requested. Therefore, for purposes of this
Dated: November 3, 2015.
(17 CFR 274.101), approximately 97 percent of Paperwork Reduction Act estimate, the Commission Brent J. Fields,
funds’ custodians maintain some or all fund staff assumes that custodians transmit the reports to
securities in a securities depository pursuant to rule all fund clients.
Secretary.
17f–4. 12 (3,968 fund clients × 2 reports) = 7,936 [FR Doc. 2015–28399 Filed 11–6–15; 8:45 am]
5 Rule 17f–4(a)(1). This provision incorporates
transmissions. The staff estimates that each BILLING CODE 8011–01–P
into the rule the standard of care provided by transmission would take approximately 7 minutes
section 504(c) of Article 8 of the Uniform for a total of approximately 926 hours (7 minutes
srobinson on DSK5SPTVN1PROD with NOTICES

Commercial Code when the parties have not agreed × 7,936 transmissions). 15 Rule 17f–4(b)(2).
to a standard. Rule 17f–4 does not impose any 13 (81 fund clients who may deal directly with a
16 The Commission staff assumes that new funds
substantive obligations beyond those contained in securities depository × 2 reports) = 162
Article 8. Uniform Commercial Code, Revised transmissions. The staff estimates that each relying on 17f–4 would choose to use a custodian
Article 8—Investment Securities (1994 Official Text transmission would take approximately 7 minutes instead of directly dealing with a securities
with Comments) (‘‘Revised Article 8’’). for a total of approximately 19 hours (7 minutes × depository because of the high costs associated with
6 Moreover, the rule does not impose any 162 transmissions). maintaining an account with a securities
requirement regarding evidence of the obligation. 14 926 hours for custodians and 19 hours for depository. Thus new funds would not be subject
7 Rule 17f–4(b)(1)(i). securities depositories. to this condition.

VerDate Sep<11>2014 19:52 Nov 06, 2015 Jkt 238001 PO 00000 Frm 00068 Fmt 4703 Sfmt 9990 E:\FR\FM\09NON1.SGM 09NON1
Document Created: 2015-12-14 15:05:48
Document Modified: 2015-12-14 15:05:48
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 69254