Notice2021-15437
Proposed Collection; Comment Request
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 21, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 137 (Wednesday, July 21, 2021)</title>
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[Federal Register Volume 86, Number 137 (Wednesday, July 21, 2021)]
[Notices]
[Pages 38522-38523]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15437]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-237, OMB Control No. 3235-0226]
Proposed Collection; Comment Request
Extension:
Rule 10f-3
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'') is soliciting comments on the collections
of information discussed below. The Commission plans to submit these
existing collections of information to the Office of Management and
Budget (``OMB'') for extension and approval.
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 affiliated relationships with a principal
underwriter for the security.\1\ Congress enacted this provision in
1940 to protect funds and their shareholders by preventing underwriters
from ``dumping'' unmarketable securities on affiliated funds.
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\1\ 15 U.S.C. 80a-10(f).
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Rule 10f-3 under the Act 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.\2\ 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.
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\2\ 17 CFR 270.10f-3.
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Rule 10f-3 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 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
[[Page 38523]]
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 953 funds engage in at least
one Rule 10f-3 transaction each year, for a total of 953 such
transactions.\3\ 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 that it takes an average fund
approximately 30 minutes per transaction and, and, in the aggregate,
approximately 477 hours \4\ for funds to comply with this portion of
the rule.
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\3\ These estimates are based on data from Form N-CEN filings
with the Commission.
\4\ This estimate is based on the following calculation: (0.5
hours x 953 = 477 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, in the aggregate, approximately 318 hours \5\
annually for funds to comply with this portion of the rule.
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\5\ This estimate is based on the following calculations: (20
minutes x 953 transactions = 19,060 minutes; 19,060 minutes/60 = 318
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 3,812 hours \6\ annually for funds to comply
with this rule requirement.
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\6\ This estimate is based on the following calculation: (1 hour
per quarter x 4 quarters x 953 funds = 3,812 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.\7\ Thus, annually,
in the aggregate, the staff estimates that funds spend a total of
approximately 1,906 hours \8\ on monitoring and revising Rule 10f-3
procedures.
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\7\ 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.
\8\ This estimate is based on the following calculation: (953
funds x 2 hours = 1,906 hours).
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Based on an analysis of Form N-CEN filings, the staff estimates
that approximately 146 new funds enter into subadvisory agreements each
year.\9\ The staff estimates that it will require approximately 0.75
hours to draft and execute additional clauses in subadvisory contracts
in order for new funds and subadvisers to be able to rely on the
exemptions in Rule 10f-3.\10\ Assuming that all 146 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 110 burden hours annually for
new funds.\11\
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\9\ Based on information in Form N-CEN filings, we estimate that
approximately 139 new open-end funds and 7 new closed-end funds, or
a total of 146 new funds enter into new subadvisory agreements each
year (139 + 7 = 146 new funds). We understand that existing funds
may also enter into new subadvisory agreements, but in many cases
would benefit from having previously drafted Rule 10f-3 clauses in
prior or existing subadvisory contracts.
\10\ Because such 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 (3 hours / 4 rules = 0.75
hours).
\11\ These estimates are based on the following calculations:
(0.75 hours x 146 portfolios = 110 burden hours).
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The staff estimates, therefore, that Rule 10f-3 imposes an
information collection burden of 6,623 hours.\12\
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\12\ This estimate is based on the following calculation: (477
hours + 318 hours + 3,812 hours + 1,906 hours + 110 hours = 6,623
total burden hours).
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Written comments are invited on: (a) Whether the collections of
information are necessary for the proper performance of the functions
of the Commission, including whether the information has practical
utility; (b) the accuracy of the Commission's estimate of the burdens
of the collections of information; (c) ways to enhance the quality,
utility, and clarity of the information collected; and (d) ways to
minimize the burdens of the collections 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 David Bottom, Director/Chief
Information Officer, Securities and Exchange Commission, C/O Cynthia
Roscoe, 100 F Street NE, Washington, DC 20549; or send an email to:
<a href="/cdn-cgi/l/email-protection#bceceefde3f1ddd5d0ded3c4fccfd9df92dbd3ca"><span class="__cf_email__" data-cfemail="732321322c3e121a1f111c0b330016105d141c05">[email protected]</span></a>.
Dated: July 15, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15437 Filed 7-20-21; 8:45 am]
BILLING CODE 8011-01-P
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