[Federal Register Volume 62, Number 185 (Wednesday, September 24, 1997)]
[Notices]
[Pages 50034-50035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25320]
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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 Filings and Information Services,
Washington, DC 20549.
Extension: Rule 17f-6, SEC File No. 270-392, OMB Control No.
3235-0447. Rule 2a19-1, SEC File No. 270-294, OMB Control No. 3235-
0332. Rule 17f-2, SEC File No. 270-233, OMB Control No. 3235-0223.
Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget requests for extension of the previously approved
collections of information discussed below.
Rule 17f-6 under the Investment Company Act of 1940 (``Act'')
permits registered investment companies (``funds'') to maintain assets
(i.e., margin) with futures commission merchants (``FCMs'') in
connection with commodity transactions effected on both domestic and
foreign exchanges.\1\ Prior to the adoption of the rule, funds
generally were required to maintain such assets in special accounts
with a custodian bank.
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\1\ Custody of Investment Company Assets With Futures Commission
Merchants and Commodity Clearing Organizations, Investment Company
Act Release No. 22389 (Dec. 11, 1996) (61 FR 66207 (Dec. 17, 1996)).
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Rule 17f-6 permits funds to maintain their assets with FCMs that
are registered under the Commodity Exchange Act (``CEA'') and that are
not affiliated with the fund. The rule requires that the manner in
which the FCM maintains a fund's assets be governed by a written
contract, which must contain certain provisions. First, the contract
must provide that the FCM must comply with the segregation requirements
of section 4d(2) of the CEA [7 U.S.C. 6d(2)] and the rules thereunder
[17 CFR Chapter I] or, if applicable, the secured amount requirements
of rule 30.7 under the CEA [17 CFR 30.7]. Second, the contract must
provide that when placing the fund's margin with another entity for
clearing purposes, the FCM must obtain an acknowledgment that the
fund's assets are held on behalf of the FCM's customers in accordance
with provisions under the CEA. Lastly, the contract must require the
FCM, upon request, to furnish records on the fund's assets to the
Commission or its staff.
The requirement of a written contract that contains certain
provisions ensure important safeguards and other benefits relative to
the custody of investment company assets by FCMs. For example,
requiring FCMs upon request to furnish to the Commission or its staff
information concerning the investment company's assets facilitates
Commission inspections of investment companies. The contract
requirement governing transfers of investment company margin seeks to
accommodate the legitimate needs of the participants in the commodity
settlement process, consistent with the safekeeping of investment
company assets. The contract requirement requiring FCMs to comply with
the segregation or secured amount requirements of the CEA and the rules
thereunder is designed to safeguard fund assets held by FCMs.
The Commission estimates that approximately 2,000 investment
companies could deposit margin with FCMs under rule 17f-6 in connection
with their investments in futures contracts and commodity options. It
is estimated that each investment company uses and deposits margin with
3 different FCMs in connection with its commodity transactions.
Approximately 241 FCMs are eligible to hold investment company margin
under the rule.\2\
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\2\ Commodity Futures Trading Commission, Annual Report (1996).
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The only paperwork burden of the rule consists of meeting the
rule's contract requirements. The Commission estimates that after the
first year, 2,000 investment companies will spend an average of 1 hour
complying with the contract requirements of the rule (e.g., signing
contracts with additional FCMs), for a total of 2,000 burden hours. The
Commission estimates that each of the 241 FCMs eligible to hold
investment company margin under the rule will spend 2 hours complying
with the rule's contract requirements, for a total of 482 burden hours.
The total annual burden for the rule are estimated to be 2,482 hours.
Rule 2a19-1 under the Act provides that investment company
directors will not be considered interested persons, as defined by
section 2(a) (19) of the Act, solely because they are registered
broker-dealers or affiliated persons of registered broker-dealers,
provided that the broker-dealer does not execute any portfolio
transactions for the company's complex, engage in any principal
transactions with the complex or distribute shares for the complex for
at least six months prior to the time that the director is to be
considered not to be an interested person and for the period during
which the director continues to be considered not to be an interested
person. The rule also requires the investment company's board of
directors to determine that the company would not be adversely affected
by refraining from business with the broker-dealer. In addition, the
rule provides that no more than a minority of the disinterested
directors of the company may be registered broker-dealers or their
affiliates.
Before the adoption of rule 2a19-1, many investment companies found
it necessary to file with the Commission applications for orders
exempting directors from section 2(a)(19) of the Act. Rule 2a19-1 is
intended to alleviate the burdens on the investment company industry of
filing for such orders in circumstances where there is no potential
conflict of interest. The conditions of the rule are designed to
indicate whether the director has a stake in the broker-dealer's
business with the company such that he or she might not be able to act
independently of the company's management.
It is estimated that approximately 3,200 investment companies may
choose to rely on the rule, and each investment company may spend one
hour annually compiling and keeping records related to the requirements
of the rule. The total annual burden associated with the rule is
estimated to be 3,200 hours.
Rule 17f-2, under the Act, establishes safeguards for arrangements
in which a registered management investment company is deemed to
maintain custody of its own assets, such as when the fund maintains its
assets in a facility that provides safekeeping but not custodial
services. The rule includes several recordkeeping or reporting
requirements. The funds directors must prepare a resolution designating
not more than five fund officers or responsible employees who may have
access to the fund's assets. The designated access persons (two or more
of whom must act jointly when handling fund assets) must prepare a
written notation providing certain information about each deposit or
withdrawal of fund assets, and must transmit the notation to another
officer or director designated by the directors. Independent public
accountants must verify the fund's assets without prior notice to the
fund twice each year.
[[Page 50035]]
The requirement that directors designate access persons is intended
to ensure that directors evaluate the trustworthiness of insiders who
handle fund assets. The requirements that access persons act jointly in
handling fund assets, prepare a written notation of each transaction,
and transmit the notation to another designated person are intended to
reduce the risk of misappropriation of the fund assets by access
persons, and to ensure that adequate records are prepared, reviewed by
a responsible third person, and available for examination by the
Commission.
The Commission estimates that approximately 110 funds rely upon the
rule (and that each fund offers an average of two separate series or
portfolios subject to the rule). It is estimated that each fund spends
approximately 2 hours annually in drafting pertinent resolutions by
directors, 24 hours annually in preparing transaction notations, and
100 hours annually in performing unscheduled verifications of assets.
Therefore, the total annual burden associated with this rule is
estimated to be 13,860 hours.
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 regarding the above information should be directed
to the following persons: (i) Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 3208, New Executive Office
Building, Washington, D.C. 20503; and (ii) Michael E. Bartell,
Associate Executive Director, Office of Information Technology,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. Comments must be submitted to OMB on or before October 24,
1997.
Dated: September 17, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25320 Filed 9-23-97; 8:45 am]
BILLING CODE 8010-01-M
