
[Federal Register Volume 78, Number 20 (Wednesday, January 30, 2013)]
[Notices]
[Pages 6362-6364]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01935]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION


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.

Extension:
    Rule 17j-1; OMB Control No. 3235-0224, SEC File No. 270-239.

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 350l-3520), 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.
    Conflicts of interest between investment company personnel (such 
as portfolio managers) and their funds can arise when these persons 
buy and sell securities for their own accounts (``personal 
investment activities''). These conflicts arise because fund 
personnel have the opportunity to profit from information about fund 
transactions, often to the detriment of fund investors. Beginning in 
the early 1960s, Congress and the Securities and Exchange Commission 
(``Commission'') sought to devise a regulatory scheme to effectively 
address these potential conflicts. These efforts culminated in the 
addition of section 17(j) to the Investment Company Act of 1940 (the 
``Investment Company Act'') (15 U.S.C. 80a-17(j)) in 1970 and the 
adoption by the Commission of rule 17j-1 (17 CFR 270.17j-1) in 
1980.\1\ The

[[Page 6363]]

Commission proposed amendments to rule 17j-1 in 1995 in response to 
recommendations made in the first detailed study of fund policies 
concerning personal investment activities by the Commission's 
Division of Investment Management since rule 17j-1 was adopted. 
Amendments to rule 17j-1, which were adopted in 1999, enhanced fund 
oversight of personal investment activities and the board's role in 
carrying out that oversight.\2\ Additional amendments to rule 17j-1 
were made in 2004, conforming rule 17j-1 to rule 204A-1 under the 
Investment Advisers Act of 1940 (15 U.S.C. 80b), avoiding 
duplicative reporting, and modifying certain definitions and time 
restrictions.\3\
---------------------------------------------------------------------------

    \1\ Prevention of Certain Unlawful Activities with Respect to 
Registered Investment Companies, Investment Company Act Release No. 
11421 (Oct. 31, 1980) (45 FR 73915 (Nov. 7, 1980)).
    \2\ Personal Investment Activities of Investment Company 
Personnel, Investment Company Act Release No. 23958 (Aug. 20, 1999) 
(64 FR 46821 (Aug. 27, 1999)).
    \3\ Investment Adviser Codes of Ethics, Investment Advisers Act 
Release No. 2256 (Jul. 2, 2004) (69 FR 41696 (Jul. 9, 2004)).
---------------------------------------------------------------------------

    Section 17(j) makes it unlawful for persons affiliated with a 
registered investment company (``fund'') or with the fund's 
investment adviser or principal underwriter (each a ``17j-1 
organization''), in connection with the purchase or sale of 
securities held or to be acquired by the investment company, to 
engage in any fraudulent, deceptive, or manipulative act or practice 
in contravention of the Commission's rules and regulations. Section 
17(j) also authorizes the Commission to promulgate rules requiring 
17j-1 organizations to adopt codes of ethics.
    In order to implement section 17(j), rule 17j-1 imposes certain 
requirements on 17j-1 organizations and ``Access Persons'' \4\ of 
those organizations. The rule prohibits fraudulent, deceptive or 
manipulative acts by persons affiliated with a 17j-1 organization in 
connection with their personal securities transactions in securities 
held or to be acquired by the fund. The rule requires each 17j-1 
organization, unless it is a money market fund or a fund that does 
not invest in Covered Securities,\5\ to: (i) Adopt a written codes 
of ethics, (ii) submit the code and any material changes to the 
code, along with a certification that it has adopted procedures 
reasonably necessary to prevent Access Persons from violating the 
code of ethics, to the fund board for approval, (iii) use reasonable 
diligence and institute procedures reasonably necessary to prevent 
violations of the code, (iv) submit a written report to the fund 
describing any issues arising under the code and procedures and 
certifying that the 17j-1 entity has adopted procedures reasonably 
necessary to prevent Access Persons from violating the code, (v) 
identify Access Persons and notify them of their reporting 
obligations, and (vi) maintain and make available to the Commission 
for review certain records related to the code of ethics and 
transaction reporting by Access Persons.
---------------------------------------------------------------------------

    \4\ Rule 17j-1(a)(1) defines an ``access person'' as ``Any 
Advisory Person of a Fund or of a Fund's investment adviser. If an 
investment adviser's primary business is advising Funds or other 
advisory clients, all of the investment adviser's directors, 
officers, and general partners are presumed to be Access Persons of 
any Fund advised by the investment adviser. All of a Fund's 
directors, officers, and general partners are presumed to be Access 
Persons of the Fund.'' The definition of Access Person also includes 
``Any director, officer or general partner of a principal 
underwriter who, in the ordinary course of business, makes, 
participates in or obtains information regarding, the purchase or 
sale of Covered Securities by the Fund for which the principal 
underwriter acts, or whose functions or duties in the ordinary 
course of business relate to the making of any recommendation to the 
Fund regarding the purchase or sale of Covered Securities.'' Rule 
17j-1(a)(1).
    \5\ A ``Covered Security'' is any security that falls within the 
definition in section 2(a)(36) of the Act, except for direct 
obligations of the U.S. Government, bankers' acceptances, bank 
certificates of deposit, commercial paper and high quality short-
term debt instruments, including repurchase agreements, and shares 
issued by open-end funds. Rule 17j-1(a)(4).
---------------------------------------------------------------------------

    The rule requires each Access Person of a fund (other than a 
money market fund or a fund that does not invest in Covered 
Securities) and of an investment adviser or principal underwriter of 
the fund, who is not subject to an exception,\6\ to file: (i) Within 
10 days of becoming an Access Person, a dated initial holdings 
report that sets forth certain information with respect to the 
Access Person's securities and accounts; (ii) dated quarterly 
transaction reports within 30 days of the end of each calendar 
quarter providing certain information with respect to any securities 
transactions during the quarter and any account established by the 
Access Person in which any securities were held during the quarter; 
and (iii) dated annual holding reports providing information with 
respect to each Covered Security the Access Person beneficially owns 
and accounts in which securities are held for his or her benefit. In 
addition, rule 17j-1 requires investment personnel of a fund or its 
investment adviser, before acquiring beneficial ownership in 
securities through an initial public offering (IPO) or in a private 
placement, to obtain approval from the fund or the fund's investment 
adviser.
---------------------------------------------------------------------------

    \6\ Rule 17j-1(d)(2) contains the following exceptions: (i) An 
Access Person need not file a report for transactions effected for, 
and securities held in, any account over which the Access Person 
does not have control; (ii) an independent director of the fund, who 
would otherwise be required to report solely by reason of being a 
fund director and who does not have information with respect to the 
fund's transactions in a particular security, does not have to file 
an initial holdings report or a quarterly transaction report,; (iii) 
an Access Person of a principal underwriter of the fund does not 
have to file reports if the principal underwriter is not affiliated 
with the fund (unless the fund is a unit investment trust) or any 
investment adviser of the fund and the principal underwriter of the 
fund does not have any officer, director, or general partner who 
serves in one of those capacities for the fund or any investment 
adviser of the fund; (iv) an Access Person to an investment adviser 
need not make quarterly reports if the report would duplicate 
information provided under the reporting provisions of the 
Investment Adviser's Act of 1940; (v) an Access Person need not make 
quarterly transaction reports if the information provided in the 
report would duplicate information received by the 17j-1 
organization in the form of broker trade confirmations or account 
statements or information otherwise in the records of the 17j-1 
organization; and (vi) an Access Person need not make quarterly 
transaction reports with respect to transactions effected pursuant 
to an Automatic Investment Plan.
---------------------------------------------------------------------------

    The requirements that the management of a rule 17j-1 
organization provide the fund's board with new and amended codes of 
ethics and an annual issues and certification report are intended to 
enhance board oversight of personal investment policies applicable 
to the fund and the personal investment activities of Access 
Persons. The requirements that Access Persons provide initial 
holdings reports, quarterly transaction reports, and annual holdings 
reports and request approval for purchases of securities through 
IPOs and private placements are intended to help fund compliance 
personnel and the Commission's examinations staff monitor potential 
conflicts of interest and detect potentially abusive activities. The 
requirement that each rule 17j-1 organization maintain certain 
records is intended to assist the organization and the Commission's 
examinations staff in determining if there have been violations of 
rule 17j-1.
    We estimate that annually there are approximately 75,496 
respondents under rule 17j-1, of which 5,496 are rule 17j-1 
organizations and 70,000 are Access Persons. In the aggregate, these 
respondents make approximately 107,780 responses annually. We 
estimate that the total annual burden of complying with the 
information collection requirements in rule 17j-1 is approximately 
387,599 hours. This hour burden represents time spent by Access 
Persons that must file initial and annual holdings reports and 
quarterly transaction reports, investment personnel that must obtain 
approval before acquiring beneficial ownership in any securities 
through an IPO or private placement, and the responsibilities of 
Rule 17j-1 organizations arising from information collection 
requirements under rule 17j-1. These include notifying Access 
Persons of their reporting obligations, preparing an annual rule 
17j-1 report and certification for the board, documenting their 
approval or rejection of IPO and private placement requests, 
maintaining annual rule 17j-1 records, maintaining electronic 
reporting and recordkeeping systems, amending their codes of ethics 
as necessary, and, for new fund complexes, adopting a code of 
ethics.
    We estimate that there is an annual cost burden of approximately 
$5,000 per fund complex, for a total of $4,160,000, associated with 
complying with the information collection requirements in rule 17j-
1. This represents the costs of purchasing and maintaining computers 
and software to assist funds in carrying out rule 17j-1 
recordkeeping.
    These burden hour and cost estimates are based upon the 
Commission staff's experience and discussions with the fund 
industry. The estimates of average burden hours and costs are made 
solely for the purposes of the Paperwork Reduction Act. These 
estimates are not derived from a comprehensive or even a 
representative survey or study of the costs of Commission rules.
    Compliance with the collection of information requirements of 
the rule is mandatory and is necessary to comply with the 
requirements of the rule in general. An

[[Page 6364]]

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. Rule 17j-1 requires that records be 
maintained for at least five years in an easily accessible place.\7\
---------------------------------------------------------------------------

    \7\ If information collected pursuant to the rule is reviewed by 
the Commission's examination staff, it will be accorded the same 
level of confidentiality accorded to other responses provided to the 
Commission in the context of its examination and oversight program. 
See section 31(c) of the Investment Company Act (15 U.S.C. 80a-
30(c)).
---------------------------------------------------------------------------

    Please direct general comments regarding the above information 
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 10102, New Executive Office 
Building, Washington, DC 20503 or by sending an email to Shagufta_Ahmed@omb.eop.gov; and (ii) Thomas Bayer, Chief Information Officer, 
Securities and Exchange Commission, c/o Remi Pavlik-Simon, 6432 
General Green Way, Alexandria, VA 22312; or send an email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of 
this notice.

    Dated: January 24, 2013.
Kevin M. O'Neill,
Deputy Secretary.

[FR Doc. 2013-01935 Filed 1-29-13; 8:45 am]
BILLING CODE 8011-01-P


