83 FR 50720 - Submission for OMB Review; Comment Request

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 195 (October 9, 2018)

[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50720-50721]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-21832]


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SECURITIES AND EXCHANGE COMMISSION


Submission for OMB Review; 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 10f-3; SEC File No. 270-237, OMB Control No. 3235-0226

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501-3520), the Securities and Exchange 
Commission (``Commission'') has submitted to the Office of Management 
and Budget a request for extension and approval of the collections of 
information discussed below.
    Section 10(f) of the Investment Company Act of 1940 (15 U.S.C. 80a) 
(the ``Act'') prohibits a registered investment company (``fund'') from 
purchasing any security during an underwriting or selling syndicate if 
the fund has certain relationships with a principal underwriter for the 
security. Congress enacted this provision in 1940 to protect funds and 
their shareholders by preventing underwriters from ``dumping'' 
unmarketable securities on affiliated funds.
    Rule 10f-3 (17 CFR 270.10f-3) permits a fund to engage in a 
securities transaction that otherwise would violate section 10(f) if, 
among other things: (i) The fund's directors have approved procedures 
for purchases made in reliance on the rule, regularly review fund 
purchases to determine whether they comply with these procedures, and 
approve necessary changes to the procedures; and (ii) a written record 
of each transaction effected under the rule is maintained for six 
years, the first two of which in an easily accessible place. The 
written record must state: (i) From whom the securities were acquired; 
(ii) the identity of the underwriting syndicate's members; (iii) the 
terms of the transactions; and (iv) the information or materials on 
which the fund's board of directors has determined that the purchases 
were made in compliance with procedures established by the board.
    The rule also conditionally allows managed portions of fund 
portfolios to purchase securities offered in otherwise off-limits 
primary offerings. To qualify for this exemption, rule 10f-3 requires 
that the subadviser that is advising the purchaser be contractually 
prohibited from providing investment advice to any other portion of the 
fund's portfolio

[[Page 50721]]

and consulting with any other of the fund's advisers that is a 
principal underwriter or affiliated person of a principal underwriter 
concerning the fund's securities transactions.
    These requirements provide a mechanism for fund boards to oversee 
compliance with the rule. The required recordkeeping facilitates the 
Commission staff's review of rule 10f-3 transactions during routine 
fund inspections and, when necessary, in connection with enforcement 
actions.
    The staff estimates that approximately 236 funds engage in a total 
of approximately 2,928 rule 10f-3 transactions each year.\1\ Rule 10f-3 
requires that the purchasing fund create a written record of each 
transaction that includes, among other things, from whom the securities 
were purchased and the terms of the transaction. The staff estimates 
\2\ that it takes an average fund approximately 30 minutes per 
transaction and approximately 1,464 hours \3\ in the aggregate to 
comply with this portion of the rule.
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    \1\ These estimates are based on staff extrapolations from 
filings with the Commission.
    \2\ Unless stated otherwise, the information collection burden 
estimates are based on conversations between the staff and 
representatives of funds.
    \3\ This estimate is based on the following calculation: (0.5 
hours x 2,928 = 1,464 hours).
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    The funds also must maintain and preserve these transactional 
records in accordance with the rule's recordkeeping requirement, and 
the staff estimates that it takes a fund approximately 20 minutes per 
transaction and that annually, in the aggregate, funds spend 
approximately 976 hours \4\ to comply with this portion of the rule.
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    \4\ This estimate is based on the following calculations: (20 
minutes x 2,928 transactions = 58,560 minutes; 58,560 minutes/60 = 
976 hours).
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    In addition, fund boards must, no less than quarterly, examine each 
of these transactions to ensure that they comply with the fund's 
policies and procedures. The information or materials upon which the 
board relied to come to this determination also must be maintained and 
the staff estimates that it takes a fund 1 hour per quarter and, in the 
aggregate, approximately 944 hours \5\ annually to comply with this 
rule requirement.
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    \5\ This estimate is based on the following calculation: (1 hour 
per quarter x 4 quarters x 236 funds = 944 hours).
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    The staff estimates that reviewing and revising as needed written 
procedures for rule 10f-3 transactions takes, on average for each fund, 
two hours of a compliance attorney's time per year.\6\ Thus, annually, 
in the aggregate, the staff estimates that funds spend a total of 
approximately 472 hours \7\ on monitoring and revising rule 10f-3 
procedures.
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    \6\ These averages take into account the fact that in most 
years, fund attorneys and boards spend little or no time modifying 
procedures and in other years, they spend significant time doing so.
    \7\ This estimate is based on the following calculation: (236 
funds x 2 hours = 472 hours).
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    Based on an analysis of fund filings, the staff estimates that 
approximately 299 fund portfolios enter into subadvisory agreements 
each year.\8\ 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 10f-3. Because these additional clauses are identical to the 
clauses that a fund would need to insert in their subadvisory contracts 
to rely on rules 12d3-1, 17a-10, and 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 to all four rules. Therefore, 
we estimate that the burden allocated to rule 10f-3 for this contract 
change would be 0.75 hours.\9\ Assuming that all 299 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 224 burden hours annually.\10\
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    \8\ Based on information in Commission filings, we estimate that 
38 percent of funds are advised by subadvisers.
    \9\ This estimate is based on the following calculation (3 hours 
/ 4 rules = .75 hours).
    \10\ These estimates are based on the following calculations: 
(0.75 hours x 299 portfolios = 224 burden hours).
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    The staff estimates, therefore, that rule 10f-3 imposes an 
information collection burden of 4,080 hours.\11\
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    \11\ This estimate is based on the following calculation: (1,464 
hours + 976 hours + 944 hours + 472 + 244 hours = 4,080 total burden 
hours).
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    The collection of information required by rule 10f-3 is necessary 
to obtain the benefits of the rule. 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 OMB control number.
    The public may view the background documentation for this 
information collection at the following website, www.reginfo.gov. 
Comments should be directed to: (i) Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Office of Management and Budget, Room 10102, New Executive Office 
Building, Washington, DC 20503, or by sending an email to: 
[email protected]; and (ii) 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]. Comments must be submitted to OMB within 30 
days of this notice.

    Dated: October 3, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21832 Filed 10-5-18; 8:45 am]
 BILLING CODE 8011-01-P