[Federal Register Volume 86, Number 5 (Friday, January 8, 2021)]
[Notices]
[Pages 1550-1551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00144]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-472, OMB Control No. 3235-0531]


Proposed Collection; Comment Request, Upon Written Request Copies 
Available From: Securities and Exchange Commission, Office of FOIA 
Services, 100 F Street NE, Washington, DC 20549-2736

Extension:
    Rule 0-1

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 350l et seq.), the Securities and Exchange 
Commission (``Commission'') plans to submit to the Office of Management 
and Budget a request for extension of the previous approved collection 
of information discussed below.
    The Investment Company Act of 1940 (the ``Act'') \1\ establishes a 
comprehensive framework for regulating the organization and operation 
of investment companies (``funds''). A principal objective of the Act 
is to protect fund investors by addressing the conflicts of interest 
that exist between funds and their investment advisers and other 
affiliated persons. The Act places significant responsibility on the 
fund board of directors in overseeing the operations of the fund and 
policing the relevant conflicts of interest.\2\
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    \1\ 15 U.S.C. 80a.
    \2\ For example, fund directors must approve investment advisory 
and distribution contracts. See 15 U.S.C. 80a-15(a), (b), and (c).
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    In one of its first releases, the Commission exercised its 
rulemaking authority pursuant to sections 38(a) and 40(b) of the Act by 
adopting rule 0-1 (17 CFR 270.0-1).\3\ Rule 0-1, as subsequently 
amended on numerous occasions, provides definitions for the terms used 
by the Commission in the rules and regulations it has adopted pursuant 
to the Act. The rule also contains a number of rules of construction 
for terms that are defined either in the Act itself or elsewhere in the 
Commission's rules and regulations. Finally, rule 0-1 defines terms 
that serve as conditions to the availability of certain of the 
Commission's exemptive rules. More specifically, the term ``independent 
legal counsel,'' as defined in rule 0-1, sets out conditions that funds 
must meet in order to rely on any of ten exemptive rules (``exemptive 
rules'') under the Act.\4\
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    \3\ Investment Company Act Release No. 4 (Oct. 29, 1940) (5 FR 
4316 (Oct. 31, 1940)). Note that rule 0-1 was originally adopted as 
rule N-1.
    \4\ The relevant exemptive rules are: Rule 10f-3 (17 CFR 
270.10f-3), rule 12b-1 (17 CFR 270.12b-1), rule 15a-4(b)(2) (17 CFR 
270.15a-4(b)(2)), rule 17a-7 (17 CFR 270.17a-7), rule 17a-8 (17 CFR 
270.17a--8), rule 17d-1(d)(7) (17 CFR 270.17d-1(d)(7)), rule 17e-
1(c) (17 CFR 270.17e-1(c)), rule 17g-1 (17 CFR 270.17g-1), rule 18f-
-3 (17 CFR 270.18f-3), and rule 23c-3 (17 CFR 270.23c-3).
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    The Commission amended rule 0-1 to include the definition of the 
term ``independent legal counsel'' in 2001.\5\ This amendment was 
designed to enhance the effectiveness of fund boards of directors and 
to better enable investors to assess the independence of those 
directors. The Commission also amended the exemptive rules to require 
that any person who serves as legal counsel to the independent 
directors of any fund that relies on any of the exemptive rules must be 
an ``independent legal counsel.'' This requirement was added because 
independent directors can better perform the responsibilities assigned 
to them under the Act and the rules if they have the assistance of 
truly independent legal counsel.
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    \5\ See Role of Independent Directors of Investment Companies, 
Investment Company Act Release No. 24816 (Jan. 2, 2001) (66 FR 3735 
(Jan. 16, 2001)).
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    If the board's counsel has represented the fund's investment 
adviser, principal underwriter, administrator (collectively, 
``management organizations'') or their ``control persons'' \6\ during 
the past two years, rule 0-1 requires that the board's independent 
directors make a determination about the adequacy of the counsel's 
independence. A majority of the board's independent directors are 
required to reasonably determine, in the exercise of their judgment, 
that the counsel's prior or current representation of the management 
organizations or their control persons was sufficiently limited to 
conclude that it is unlikely to adversely affect the counsel's 
professional judgment and legal representation. Rule 0-1 also requires 
that a record for the basis of this determination is made in the 
minutes of the directors' meeting. In addition, the independent 
directors must have obtained an undertaking from the counsel to provide 
them with the information necessary to make their determination and to 
update promptly that information when the person begins to represent a 
management organization or control person, or when he or she materially 
increases his or her representation. Generally, the independent 
directors must re-evaluate their determination no less frequently than 
annually.
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    \6\ A ``control person'' is any person--other than a fund--
directly or indirectly controlling, controlled by, or under common 
control, with any of the fund's management organizations. See 17 CFR 
270.01(a)(6)(iv)(B).
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    Any fund that relies on one of the exemptive rules must comply with 
the requirements in the definition of ``independent legal counsel'' 
under rule 0-1. We assume that approximately 3035 funds rely on at 
least one of the exemptive rules annually.\7\ We further assume that 
the independent directors of approximately one-third (1,010) of those 
funds would need to make the required determination in order for their 
counsel to meet the definition of independent legal counsel.\8\ We 
estimate that each of these 1,010 funds would be required to spend, on 
average, 0.75 hours annually to comply with the recordkeeping 
requirement associated with this determination, for a total annual 
burden of approximately 758 hours. Based on this estimate, the total 
annual cost for all funds' compliance with this rule is approximately 
$175,523. To calculate this total annual cost, the Commission staff 
assumed that approximately two-thirds of the total annual hour burden 
(505 hours) would be incurred by a compliance manager with an average 
hourly wage rate of $312 per hour,\9\ and one-third of the annual hour 
burden (253 hours) would be incurred by compliance clerk with an 
average hourly wage rate of $71 per hour.\10\
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    \7\ Based on statistics compiled by Commission staff, we 
estimate that there are approximately 3373 funds that could rely on 
one or more of the exemptive rules (this figure reflects the three-
year average of open-end and closed-end funds (3,329) and business 
development companies (104)). Of those funds, we assume that 
approximately 90 percent (3,035) actually rely on at least one 
exemptive rules annually.
    \8\ We assume that the independent directors of the remaining 
two-thirds of those funds will choose not to have counsel, or will 
rely on counsel who has not recently represented the fund's 
management organizations or control persons. In both circumstances, 
it would not be necessary for the fund's independent directors to 
make a determination about their counsel's independence.
    \9\ The estimated hourly wages used in this PRA analysis were 
derived from the Securities Industry and Financial Markets 
Association's Reports on Management and Professional Earnings in the 
Securities Industry (2013) (modified to account for an 1800-hour 
work year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead) (adjusted for inflation), and Office 
Salaries in the Securities Industry (2013) (modified to account for 
an 1800-hour work year and multiplied by 2.93 to account for 
bonuses, firm size, employee benefits and overhead) (adjusted for 
inflation).
    \10\ (505 x $312/hour) + (253 x $71hour) = $175,523.
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    These burden hour estimates are based upon the Commission staff's 
experience and discussions with the fund industry. The estimates of 
average burden hours are made solely for the purposes of the Paperwork 
Reduction

[[Page 1551]]

Act. These estimates are not derived from a comprehensive or even a 
representative survey or study of the costs of Commission rules.
    Written comments are invited on: (a) Whether the collection of 
information is 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 collection of information; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burdens of the collection 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: 
PRA_Mailbox@sec.gov.

    Dated: January 5, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-00144 Filed 1-7-21; 8:45 am]
BILLING CODE 8011-01-P


