Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549-0213.
Rule 17e-1; SEC File No. 270-224; OMB Control No. 3235-0217.
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), the Securities and Exchange Commission (the “Commission”) has submitted to the Office of Management and Budget (“OMB”) a request for extension of the previously approved collection of information described below.
Rule 17e-1 (17 CFR 270.17e-1) under the Investment Company Act of 1940 (15 U.S.C. 80a) (the “Act”) is entitled “Brokerage Transactions on a Securities Exchange.” The rule governs the remuneration that a broker affiliated with a registered investment company (“fund”) may receive in connection with securities transactions by the fund. The rule requires a fund's board of directors to establish, and review as necessary, procedures reasonably designed to provide that the remuneration to an affiliated broker is a fair amount compared to that received by other brokers in connection with transactions in similar securities during a comparable period of time. Each quarter, the board must determine that all transactions with affiliated brokers during the preceding quarter complied with the procedures established under the rule. Rule 17e-1 also requires the fund to (i) maintain permanently a written copy of the procedures adopted by the board for complying with the requirements of the rule; and (ii) maintain for a period of six years a written record of each transaction subject to the rule, setting forth: the amount and source of the commission, fee or other remuneration received; the identity of the broker; the terms of the transaction; and the materials used to determine that the transactions were effected in compliance with the procedures adopted by the board. The Commission's examination staff uses these records to evaluate transactions between funds and their affiliated brokers for compliance with the rule.
Based on an analysis of fund filings, the staff estimates that approximately 252 fund portfolios enter into subadvisory agreements each year.  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 17e-1. 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, 10f-3, 17a-10, 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 17e-1 for this contract change would be 0.75 hours.  Assuming that all 252 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 189 burden hours annually, with an associated cost of approximately $59,724. 
Based on an analysis of fund filings, the staff estimates that approximately 1935 funds use at least one affiliated broker. Based on conversations with fund representatives, the staff estimates that rule 17e-1's exemption would free approximately 40 percent of transactions that occur under rule 17e-1 from the rule's recordkeeping and review requirements. This would leave approximately 1161 funds (1935 funds x .6 = 1161) still subject to the rule's recordkeeping and review requirements. The staff estimates that each of these funds spends approximately 59 hours per year (40 hours by accounting staff, 15 hours by an attorney, and 4 director hours) at a cost of approximately $25,500 per year to comply with rule 17e-1's requirements that (i) the fund retain records of transactions entered into pursuant to the rule, and (ii) the fund's directors review those transactions quarterly.  We estimate, therefore, that the total yearly hourly burden for all funds relying on this exemption is 68,499 hours,  with yearly costs of approximately $29,605,500.  Therefore, the estimated annual aggregate burden hour associated with rule 17e-1 is 68,688,  and the estimated annual aggregate cost associated with it is $29,665,224. 
The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act, and is not derived from a comprehensive or even a representative survey or study. 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. These collection of information requirements are mandatory. Responses will not be kept confidential.
Please direct general comments regarding the above information to the following persons: (i) Desk Officer for the Securities and Exchange Commission, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or send an email to Shagufta Ahmed at Shagufta_Ahmed@omb.eop.gov; and (ii) Jeff Heslop, Acting Director/Chief Information Officer, Securities and Exchange Commission, C/O Remi Pavlik-Simon, 6432 General Green Way, Alexandria, VA, 22312; or send an e-mail to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice.
Dated: September 20, 2010.
Florence E. Harmon,
[FR Doc. 2010-24187 Filed 9-27-10; 8:45 am]
BILLING CODE 8010-01-P
Footnotes Back to Top
1. Based on information in Commission filings, we estimate that 42.5 percent of funds are advised by subadvisers.Back to Context
2. This estimate is based on the following calculation (3 hours ÷ 4 rules = .75 hours).Back to Context
3. These estimates are based on the following calculations: (0.75 hours × 252 portfolios = 189 burden hours); ($316 per hour × 189 hours = $59,724 total cost). The Commission staff's estimates concerning the wage rates for attorney time are based on salary information for the securities industry compiled by the Securities Industry Association. The $316 per hour figure for an attorney is from the SIFMA Report on Management & Professional Earnings in the Securities Industry 2009, modified to account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.Back to Context
4. This estimate is based on the following calculations: (40 hours accounting staff × $119 per hour = $4760) (15 hours by an attorney × $316 per hour = $4740); (4 hours by directors × $4000 = $16,000) ($4760 + $4740 + $16,000 = $25,500 total cost). The Commission staff's estimates concerning the wage rate for professional time are based on salary information for the securities industry compiled by the Securities Industry Association, except for the estimate of $4000 per hour for a board of directors. The $316 per hour estimate for an attorney and the $119 per hour estimate for accountant time is from the SIFMA Report on Management & Professional Earnings in the Securities Industry 2009, modified to account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.Back to Context
5. This estimate is based on the following calculation: (1161 funds × 59 hours = 68,499).Back to Context
6. This estimate is based on the following calculation: ($25,500 × 1161 funds = $29,605,500).Back to Context
7. This estimate is based on the following calculation: (189 hours + 68,499 hours = 68,688 total hours).Back to Context
8. This estimate is based on the following calculation: ($59,724 + $29,605,500 = $29,665,224).Back to Context