Notice2025-03226
Submission for OMB Review; Comment Request; Extension: Rule 17f-4
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
February 28, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 39 (Friday, February 28, 2025)</title>
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[Federal Register Volume 90, Number 39 (Friday, February 28, 2025)]
[Notices]
[Pages 10960-10961]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-03226]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-232, OMB Control No. 3235-0225]
Submission for OMB Review; Comment Request; Extension: Rule 17f-4
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
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'') has
submitted to the Office of Management and Budget a request for
extension of the previously approved collection of information
discussed below.
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'' or ``fund series'' is used in
this Notice to mean a registered investment company.
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The Commission staff estimates that 639 respondents (including an
estimated 611 active funds that may deal directly with a securities
depository, an estimated 15 custodians and sub-custodians (comprising 7
custodians and 8 sub-custodians), and 13 possible securities
depositories) \3\ are
[[Page 10961]]
subject to the requirements in rule 17f-4. To the extent that Rule 17f-
4(c)(4) provides that a sub-custodian can be qualified as a custodian
for purposes of Rule 17f-4, sub-custodians are included as
``custodians'' in the estimates of burden hours and costs. While the
rule is elective, most, if not all, funds use depository custody
arrangements.\4\
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\3\ The estimates regarding the number of funds that deal
directly with a securities depository, and the number of custodians
and sub-custodians, are derived from Form N-CEN filings received
through September 30, 2024. In addition, the Commission staff
estimates the number of possible securities depositories by adding
the 12 Federal Reserve Banks and one active registered clearing
agency. The Commission staff recognizes that not all these entities
may currently be acting as a securities depository for fund
securities.
\4\ Based on the Commission staff's historical experience, most,
if not all funds use depository custody arrangements. For purposes
of estimating the burden of the rule, we assume a fund's custodian
or sub-custodian will deal with a securities depository in those
cases where a fund does not deal directly with a securities
depository itself.
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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. 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. 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.\5\
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\5\ 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. 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. Custodians and depositories usually
transmit financial reports to funds twice each year.\6\ The Commission
staff estimates that 15 custodians spend approximately 3,005 hours (by
support staff) annually in transmitting such reports to funds.\7\ In
addition, approximately 611 funds deal directly with a securities
depository and may request periodic reports from their depository.
Commission staff estimates that depositories spend approximately 179
hours (by support staff) annually transmitting reports to the 611
funds.\8\ The total annual burden estimate for compliance with rule
17f-4's reporting requirement is therefore 3,148 hours.\9\
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\6\ Based on Form N-CEN data received as of September 30, 2024,
the Commission staff estimates that there are 13,498 funds, 611 of
which deal directly with a securities depository. Accordingly, the
estimated 15 custodians would handle requests for reports from
12,887 funds (approximately 859 fund clients per custodian) and the
depositories from the remaining 611 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 PRA
estimate, the Commission staff assumes that custodians transmit the
reports to all fund clients.
\7\ (12,887 fund clients x 2 reports/year) = 25,754
transmissions per year. The staff estimates that each transmission
would take approximately 7 minutes for a total of approximately
3,005 hours (7 minutes x 25,754 transmissions/60 minutes/hour).
\8\ (611 funds who may deal directly with a securities
depository x 2 reports/year) = 1,222 transmissions per year. The
staff estimates that each transmission would take approximately 7
minutes for a total of approximately 143 hours (7 minutes x 1,222
transmissions/60 minutes/hour).
\9\ 3,005 hours for custodians and 143 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). 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.\10\
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\10\ 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
requirements is 3,148 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 OMB Control Number.
Written comments are invited on: (a) whether this collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden
imposed by the collection of information; (c) ways to enhance the
quality, utility, and clarity of the information collected; and (d)
ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection
techniques or other forms of information technology.
The public may view and comment on this information collection
request at: <a href="https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202412-3235-009">https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202412-3235-009</a> or send an email comment to
<a href="/cdn-cgi/l/email-protection#561b140e78191b1478191f041778051315093233253d093930303f35332416393b347833392678313920"><span class="__cf_email__" data-cfemail="85c8c7ddabcac8c7abcaccd7c4abd6c0c6dae1e0f6eedaeae3e3ece6e0f7c5eae8e7abe0eaf5abe2eaf3">[email protected]</span></a> within 30 days of the day
after publication of this notice by March 31, 2025.
Dated: February 24, 2025.
Sherry Haywood,
Assistant Secretary.
[FR Doc. 2025-03226 Filed 2-27-25; 8:45 am]
BILLING CODE 8011-01-P
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