Submission for OMB Review; Comment Request, 10842-10844 [2017-02974]
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Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
error positions.81 Also, the Exchange
and NES will be required to make and
keep records to document all
determinations to treat positions as error
positions; all determinations to assign
error positions to Members or to
liquidate error positions; and the
liquidation of error positions through
the third-party broker-dealer.82
The Commission recognizes that
technical or systems issues may occur,
and believes that proposed ISE Rule
1904, in allowing the Exchange or NES
to cancel orders affected by technical or
systems issues, should provide a
reasonably efficient means for the
Exchange to handle such orders, and
appears reasonably designed to permit
the Exchange to maintain fair and
orderly markets.83 The Commission also
believes that allowing the Exchange to
resolve error positions through the use
of an error account maintained by NES
pursuant to the procedures set forth in
the rule, and as described above, is
consistent with the Act. The
Commission notes that the rule
establishes criteria for determining
which positions are error positions,84
and that the Exchange or NES, in
connection with a particular technical
or systems issue, will be required to
either assign or liquidate all resulting
error positions.85 Also, the Exchange or
NES will assign error positions that
result from a particular technical or
systems issue to Members only if all
such error positions can be assigned to
all of the Members affected by that
technical or systems issue.86 If the
Exchange or NES cannot assign all error
positions to all Members, NES will
liquidate all of those error positions.87
In this regard, the Commission believes
that the new rule appears reasonably
designed to further just and equitable
principles of trade and the protection of
investors and the public interest, and to
help prevent unfair discrimination, in
that it should help assure the handling
of error positions will be based on clear
and objective criteria, and that the
mstockstill on DSK3G9T082PROD with NOTICES
81 See
proposed ISE Rule 1904(c)(B)(ii).
82 See proposed ISE Rule 1904(d).
83 The Commission notes that ISE stated that the
proposed amendments to ISE Rule 1904 are
designed to maintain fair and orderly markets,
ensure full trade certainty for market participants,
and avoid disrupting the clearance and settlement
process. See ISE Notice, supra note 4, at 96099. The
Commission also notes that ISE stated that a
decision to cancel orders due to a technical or
systems issue is not equivalent to the Exchange
declaring self-help against a routing destination
pursuant to ISE Rule 1901(b)(1)(i). See id. at 96097
n.29.
84 See proposed ISE Rule 1904(b).
85 See proposed ISE Rule 1904(c).
86 See proposed ISE Rule 1904(c)(A).
87 See proposed ISE Rule 1904(c)(B).
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resolution of those positions will occur
promptly through a transparent process.
In addition, the Commission notes
that it has previously expressed concern
about the potential for unfair
competition and conflicts of interest
between an exchange’s self-regulatory
obligations and its commercial interest
when the exchange is affiliated with one
of its members.88 The Commission has
also previously expressed its concern
about the potential for misuse of
confidential and proprietary
information.89 The Commission believes
that the requirement that NES provide
complete time and price discretion for
the liquidation of error positions to a
third-party broker-dealer, including that
NES not attempt to exercise any
influence or control over the timing or
methods of such trading, combined with
the requirement that the Exchange
establish and enforce policies and
procedures that are reasonably designed
to restrict the flow of confidential and
proprietary information to the thirdparty broker-dealer liquidating such
positions, should help mitigate the
Commission’s concerns. In particular,
the Commission believes that these
requirements should help assure that
none of the Exchange, NES, or the thirdparty broker-dealer is able to misuse
confidential or proprietary information
obtained in connection with the
liquidation of error positions for its own
benefit. The Commission also notes that
the Exchange and NES would be
required to make and keep records to
document all determinations concerning
error positions and resulting
assignments or liquidations.90 In
addition, the Commission notes that the
proposed procedures for cancelling
orders and the handling of error
positions are consistent with procedures
the Commission has approved for other
exchanges.91
IV. Implementation of Proposed Rule
Change
ISE stated that it intends to begin
implementation of the proposed rule
change in the second quarter of 2017, in
tandem with a technology migration to
88 See
supra notes 21 and 57 and accompanying
text.
89 See, e.g., Securities Exchange Act Release No.
67280, supra note 23, at 39554.
90 See proposed ISE Rule 1904(d).
91 See, e.g., Securities Exchange Act Release Nos.
66963 (May 10, 2012), 77 FR 28919 (May 16, 2012)
(SR–NYSEArca–2012–22); 67010 (May 17, 2012), 77
FR 30564 (May 23, 2012) (SR–EDGX–2012–08);
67011 (May 17, 2012), 77 FR 30562 (May 23, 2012)
(SR–EDGA–2012–09); and 67280, supra note 23.
The Commission also notes that ISE’s proposed rule
is consistent with the corresponding rules of the
Nasdaq Exchanges. See Phlx Rule 1080(m)(v);
Nasdaq Options Rules, Chapter VI, Section 11(g);
BX Options Rules, Chapter VI, Section 11(g).
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Frm 00109
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Sfmt 4703
Nasdaq INET architecture, and that the
migration will be on a symbol-bysymbol basis. ISE has represented that it
will issue an alert to Members to
announce the relevant migration date
for specific symbols.92 ISE explained
that the rules in ISE Chapter 19,
including ISE Rules 1901, 1903, 1904,
and 1905, are incorporated by reference
into the rulebooks of ISE Gemini and
ISE Mercury.93 ISE Gemini and ISE
Mercury submitted proposed rule
changes that, among other things, would
permit ISE Gemini and ISE Mercury to
each use NES to route options orders
outbound to away markets, route
options orders inbound from the
Affiliated Exchanges, and utilize the
same procedures for cancellation of
orders and handling of error accounts
described herein.94 ISE stated that it
intends to begin implementation of the
proposed rule changes for ISE Gemini
and ISE Mercury in the first quarter and
third quarter of 2017, respectively, on a
symbol-by-symbol basis. ISE further
represented that it will add notations in
each rulebook to cross-reference the
amended rule text and clarify the
respective implementation dates.95
III. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,96 that the
proposed rule change (SR–ISE–2016–
27), as modified by Amendment No. 1,
be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.97
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–02991 Filed 2–14–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
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:
92 See
ISE Notice, supra note 4, at 96098.
id.
94 See Securities Exchange Act Release Nos.
79664, supra note 49; and 79663, supra note 49.
The Commission is also today approving these
proposed rule changes. See ISE Gemini and ISE
Mercury Exchange Routing Order, supra note 49.
95 See ISE Notice, supra note 4, at 96098.
96 15 U.S.C. 78s(b)(2).
97 17 CFR 200.30–3(a)(12).
93 See
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Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
Rule 17a–10; SEC File No. 270–507, OMB
Control No. 3235–0563.
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
(‘‘OMB’’) a request for extension of the
previously approved collection of
information discussed below.
Section 17(a) of the Investment
Company Act of 1940 (the ‘‘Act’’),
generally prohibits affiliated persons of
a registered investment company
(‘‘fund’’) from borrowing money or other
property from, or selling or buying
securities or other property to or from,
the fund or any company that the fund
controls.1 Section 2(a)(3) of the Act
defines ‘‘affiliated person’’ of a fund to
include its investment advisers.2 Rule
17a–10 (17 CFR 270.17a–10) permits (i)
a subadviser 3 of a fund to enter into
transactions with funds the subadviser
does not advise but that are affiliated
persons of a fund that it does advise
(e.g., other funds in the fund complex),
and (ii) a subadviser (and its affiliated
persons) to enter into transactions and
arrangements with funds the subadviser
does advise, but only with respect to
discrete portions of the subadvised fund
for which the subadviser does not
provide investment advice.
To qualify for the exemptions in rule
17a–10, the subadvisory relationship
must be the sole reason why section
17(a) prohibits the transaction. In
addition, the advisory contracts of the
subadviser entering into the transaction,
and any subadviser that is advising the
purchasing portion of the fund, must
prohibit the subadvisers from consulting
with each other concerning securities
transactions of the fund, and limit their
responsibility to providing advice with
respect to discrete portions of the fund’s
portfolio.4 Section 17(a) of the
Investment Company Act of 1940 (the
‘‘Act’’), generally prohibits affiliated
persons of a registered investment
company (‘‘fund’’) from borrowing
money or other property from, or selling
or buying securities or other property to
or from, the fund or any company that
the fund controls. Section 2(a)(3) of the
Act defines ‘‘affiliated person’’ of a fund
to include its investment advisers. Rule
17a–10 permits (i) a subadviser of a
fund to enter into transactions with
funds the subadviser does not advise
but that are affiliated persons of a fund
1 15
U.S.C. 80a–17(a).
U.S.C. 80a–2(a)(3)(E).
3 As defined in rule 17a–10(b)(2). 17 CFR
270.17a–10(b)(2).
4 17 CFR 270.17a–10(a)(2).
2 15
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that it does advise (e.g., other funds in
the fund complex), and (ii) a subadviser
(and its affiliated persons) to enter into
transactions and arrangements with
funds the subadviser does advise, but
only with respect to discrete portions of
the subadvised fund for which the
subadviser does not provide investment
advice.
To qualify for the exemptions in rule
17a–10, the subadvisory relationship
must be the sole reason why section
17(a) prohibits the transaction. In
addition, the advisory contracts of the
subadviser entering into the transaction,
and any subadviser that is advising the
purchasing portion of the fund, must
prohibit the subadvisers from consulting
with each other concerning securities
transactions of the fund, and limit their
responsibility to providing advice with
respect to discrete portions of the fund’s
portfolio. This requirement regarding
the prohibitions and limitations in
advisory contracts of subadvisors
relying on the rule constitutes a
collection of information under the
Paperwork Reduction Act of 1995
(‘‘PRA’’).5
The staff assumes that all existing
funds with subadvisory contracts
amended those contracts to comply with
the adoption of rule 17a–10 in 2003,
which conditioned certain exemptions
upon these contractual alterations, and
therefore there is no continuing burden
for those funds.6 However, the staff
assumes that all newly formed
subadvised funds, and funds that enter
into new contracts with subadvisers,
will incur the one-time burden by
amending their contracts to add the
terms required by the rule.
Based on an analysis of fund filings,
the staff estimates that approximately
319 funds enter into new subadvisory
agreements each year.7 Based on
discussions with industry
representatives, the staff estimates that
it will require approximately 3 attorney
hours to draft and execute additional
clauses in new subadvisory contracts in
U.S.C. 3501.
of Investment Companies With
Portfolio and Subadviser Affiliates, Investment
Company Act Release No. 25888 (Jan. 14, 2003) [68
FR 3153, (Jan. 22, 2003)]. We assume that funds
formed after 2003 that intended to rely on rule 17a–
10 would have included the required provision as
a standard element in their initial subadvisory
contracts.
7 Based on data from Morningstar, as of June
2016, there are 12,485 registered funds (open-end
funds, closed-end funds, and exchange-traded
funds), 4,629 funds of which have subadvisory
relationships (approximately 37%). Based on data
from the 2016 ICI Factbook, 862 new funds were
established in 2015 (594 open-end funds + 258
exchange-traded funds + 10 closed-end funds (from
the ICI Research Perspective, April 2016)). 862 new
funds × 37% = 319 funds.
10843
order for funds and subadvisers to be
able to rely on the exemptions in rule
17a–10. Because these additional
clauses are identical to the clauses that
a fund would need to insert in their
subadvisory contracts to rely on rules
10f–3, 12d3–1, 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 among all four rules. Therefore,
we estimate that the burden allocated to
rule 17a–10 for this contract change
would be 0.75 hours.8 Assuming that all
319 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 239 burden
hours annually, with an associated cost
of approximately $90,820.9
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act. The estimate
is not derived from a comprehensive or
even a representative survey or study of
the costs of Commission rules.
Complying with this collection of
information requirement is necessary to
obtain the benefit of relying on rule
17a–10. Responses will not be kept
confidential. 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.
The public may view the background
documentation for this information
collection at the following Web site,
www.reginfo.gov. Comments should be
directed to: (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) Pamela
Dyson, Director/Chief Information
Officer, Securities and Exchange
Commission, c/o Remi Pavlik-Simon,
100 F Street NE., Washington, DC 20549
5 44
6 Transactions
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Frm 00110
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8 This estimate is based on the following
calculation: 3 hours ÷ 4 rules = 0.75 hours.
9 These estimates are based on the following
calculations: (0.75 hours × 319 portfolios = 239
burden hours); ($380 per hour × 239 hours =
$90,820 total cost). The Commission’s estimates
concerning the wage rates for attorney time are
based on salary information for the securities
industry compiled by the Securities Industry and
Financial Markets Association. The estimated wage
figure is based on published rates for in-house
attorneys, modified to account for a 1,800-hour
work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and
overhead, yielding an effective hourly rate of $380.
See Securities Industry and Financial Markets
Association, Report on Management & Professional
Earnings in the Securities Industry 2013.
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10844
Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Notices
or send an email to: PRA_Mailbox@
sec.gov. Comments must be submitted to
OMB within 30 days of this notice.
Dated: February 8, 2017.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–02974 Filed 2–14–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79996; File Nos. SR–BX–
2016–068; SR–NASDAQ–2016–169; SR–
Phlx–2016–120]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; The Nasdaq Stock
Market LLC; NASDAQ PHLX LLC;
Order Granting Approval of Proposed
Rule Changes, as Modified by
Amendment No. 1s, To Accept Orders
Routed Inbound From the International
Stock Exchange, LLC, ISE Gemini,
LLC, and ISE Mercury, LLC, by Nasdaq
Execution Services, LLC
February 9, 2017.
I. Introduction
On December 9, 2016, NASDAQ BX,
Inc. (‘‘BX’’), The NASDAQ Stock Market
LLC (‘‘Nasdaq’’), and NASDAQ PHLX
LLC (‘‘Phlx’’ and, each of BX, Nasdaq,
and Phlx a ‘‘NASDAQ Exchange’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 proposed rule changes to
permit BX, Phlx, and The NASDAQ
Options Market LLC (‘‘NOM’’) 3 to
accept options orders routed inbound
from the International Stock Exchange,
LLC (‘‘ISE’’), ISE Gemini, LLC (‘‘ISE
Gemini’’), and ISE Mercury, LLC (‘‘ISE
Mercury’’ and, together with ISE and
ISE Gemini, the ‘‘ISE Exchanges’’) by
Nasdaq Execution Services, LLC
(‘‘NES’’), an affiliate of both the
NASDAQ Exchanges and the ISE
Exchanges (the NASDAQ Exchanges,
together with the ISE Exchanges, the
‘‘Affiliated Exchanges’’).4 On December
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 NOM is a facility of Nasdaq. See Nasdaq
Options Rules, Chapter I, Section 1(a)(28).
4 The ISE Exchanges submitted related proposed
rule changes that, among other things, would
permit each ISE Exchange to use NES to route
options orders outbound to away markets. See
Securities Exchange Act Release Nos. 79665
(December 22, 2016), 81 FR 96092 (December 29,
2016) (SR–ISE–2016–27); 79664 (December 22,
2016), 81 FR 96136 (December 29, 2016) (SR–
ISEGemini–2016–16); and 79663 (December 22,
2016), 81 FR 96089 (December 29, 2016) (SR–
ISEMercury–2016–22). The Commission is also
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2 17
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20, 2016, each of the NASDAQ
Exchanges filed an Amendment No. 1 to
its respective proposed rule change. The
proposed rule changes, each as modified
by Amendment No. 1 thereto, were
published for comment in the Federal
Register on December 29, 2016.5 The
Commission received no comments on
the proposals. This order approves the
proposed rule changes, as modified by
their respective Amendment No. 1s.
II. Background
Phlx Rule 985(b)(i)(A) prohibits Phlx
or any entity with which it is affiliated
from, directly or indirectly, acquiring or
maintaining an ownership interest in, or
engaging in a business venture with, an
Exchange member or an affiliate of an
Exchange member in the absence of an
effective filing under Section 19(b) of
the Act.6 Nasdaq’s and BX’s rules
include similar prohibitions.7 NES is a
registered broker-dealer that is a
member of NOM,8 BX,9 and Phlx,10 and
currently provides to members of each,
optional routing services to other
markets.11 NES is owned by Nasdaq,
Inc.,12 which also owns all of the
today approving these proposed rules changes. See
Securities Exchange Act Release Nos. 79994
(February 9, 2017); and 79995 (February 9, 2017)
(‘‘ISE Exchange Routing Orders’’).
5 See Securities Exchange Act Release Nos. 79661
(December 22, 2016), 81 FR 96100 (SR–BX–2016–
068) (‘‘BX Notice’’); 79662 (December 22, 2016), 81
FR 96087 (SR–NASDAQ–2016–169) (‘‘Nasdaq
Notice’’); and 79660 (December 22, 2016), 81 FR
96060 (SR–Phlx–2016–120) (‘‘Phlx Notice’’).
6 15 U.S.C. 78s(b). Phlx Rule 985 also prohibits a
Phlx member from being or becoming an affiliate of
Phlx, or an affiliate of an entity affiliated with Phlx,
in the absence of an effective filing under Section
19(b) of the Act. See Phlx Rule 958(b)(i)(B).
7 Pursuant to Nasdaq Rule 2160(a): ‘‘(1) Nasdaq or
any entity with which it is affiliated shall not,
directly or indirectly, acquire or maintain an
ownership interest in, or engage in a business
venture with, a Nasdaq member or an affiliate of a
Nasdaq member in the absence of an effective filing
under Section 19(b) of the Act; and (2) a Nasdaq
member shall not be or become an affiliate of
Nasdaq, or an affiliate of an entity affiliated with
Nasdaq, in the absence of an effective filing under
Section 19(b) of the Act.’’
Pursuant to BX Rule 2140(a): ‘‘(1) [BX] or any
entity with which it is affiliated shall not, directly
or indirectly, acquire or maintain an ownership
interest in, or engage in a business venture with, [a
BX] member or an affiliate of [a BX] member in the
absence of an effective filing under Section 19(b) of
the Act; and (2) [a BX] member shall not be or
become an affiliate of [BX], or an affiliate of an
entity affiliated with [BX], in the absence of an
effective filing under Section 19(b) of the Act.’’
8 See Nasdaq Notice, supra note 5, at 96087.
9 See BX Notice, supra note 5, at 96100.
10 See Phlx Notice, supra note 5, at 96061.
11 See Phlx Rule 1080(m)(iii); Nasdaq Options
Rules, Chapter VI, Section 11(e); and BX Options
Rules, Chapter VI, Section 11(e). See also Phlx
Notice, supra note 5, at 96061; Nasdaq Notice,
supra note 5, at 96087; and BX Notice, supra note
5, at 96100.
12 See Securities Exchange Act Release No. 69233
(March 25, 2013), 78 FR 19352 (March 29, 2013)
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Fmt 4703
Sfmt 4703
Affiliated Exchanges.13 Thus, NES is an
affiliate of the NASDAQ Exchanges, as
well as an affiliate of the ISE Exchanges.
Absent an effective filing, the rules of
Nasdaq, BX, and Phlx would prohibit
NES from being a member of each of
those Exchanges. Today, NES is a
member of each of the NASDAQ
Exchanges and performs certain limited
activities for each, pursuant to effective
filings pursuant to Section 19(b).14
Among other activities, each of the
NASDAQ Exchanges accepts options
orders routed inbound from each of the
other NASDAQ Exchanges pursuant to
certain limitations and conditions.15
With the current proposed rule changes,
the NASDAQ Exchanges seek approval
to permit NES to also route options
orders inbound from the ISE Exchanges
pursuant to those same limitations and
conditions.16
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule changes,
each as modified by Amendment No. 1,
(SR–NASDAQ–2013–028) (order approving a
proposed rule change to make permanent a pilot
program to permit NASDAQ to accept inbound
orders routed by NES from the BX Equities market
and PSX) at 19352 n.6 and accompanying text.
13 See Securities Exchange Act Release No. 78119
(June 21, 2016), 81 FR 41611 (June 27, 2016) (SR–
ISE–2016–11; SR–ISE Gemini–2016–05; SR–ISE
Mercury–2016–10) (order approving a proposed
rule change relating to Nasdaq, Inc.’s acquisition of
ISE, ISE Gemini, and ISE Mercury).
14 See, e.g., supra note 11; and Securities
Exchange Act Release Nos. 69233, supra note 12;
69232 (March 25, 2013), 78 FR 19342 (March 29,
2013) (SR–BX–2013–013) (order approving a
proposed rule change to make permanent a pilot
program to permit BX to accept inbound orders
routed by NES from PSX); 69229 (March 25, 2013),
78 FR 19337 (March 29, 2013) (SR–Phlx–2013–15)
(order approving a proposed rule change to make
permanent a pilot program to permit PSX to accept
inbound orders routed by NES from BX); 71416
(January 28, 2014), 79 FR 6244 (February 3, 2014)
(SR–Phlx–2014–05) (notice of filing and immediate
effectiveness of proposed rule change to permit
Phlx to receive inbound orders in options routed
through NES from NOM and BX); 71420 (January
28, 2014), 79 FR 6256 (February 3, 2014)(SR–BX–
2014–004) (notice of filing and immediate
effectiveness of proposed rule change to permit BX
to receive inbound orders in options routed through
NES from NOM and Phlx); and 71418 (January 28,
2014), 79 FR 6262 (February 3, 2014) (SR–
NASDAQ–2014–008) (notice of filing and
immediate effectiveness of proposed rule change to
permit NOM to receive inbound orders in options
routed through NES from BX and Phlx).
15 See Securities Exchange Act Release Nos.
71416, supra note 14; 71420, supra note 14; and
71418, supra note 14. With respect to Nasdaq,
routing of options orders is permitted into NOM
from BX and Phlx, into Phlx from NOM and BX,
and into BX from NOM and Phlx. See id.
16 See Phlx Notice, supra note 5, at 96062; Nasdaq
Notice, supra note 5, at 96088; and BX Notice,
supra note 5, at 96101. In the case of Nasdaq,
Nasdaq proposes to permit NES to route options
orders into NOM. See Nasdaq Notice, supra note 5,
at 96087.
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]]>Agencies
[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)]
[Notices]
[Pages 10842-10844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02974]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; 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:
[[Page 10843]]
Rule 17a-10; SEC File No. 270-507, OMB Control No. 3235-0563.
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
(``OMB'') a request for extension of the previously approved collection
of information discussed below.
Section 17(a) of the Investment Company Act of 1940 (the ``Act''),
generally prohibits affiliated persons of a registered investment
company (``fund'') from borrowing money or other property from, or
selling or buying securities or other property to or from, the fund or
any company that the fund controls.\1\ Section 2(a)(3) of the Act
defines ``affiliated person'' of a fund to include its investment
advisers.\2\ Rule 17a-10 (17 CFR 270.17a-10) permits (i) a subadviser
\3\ of a fund to enter into transactions with funds the subadviser does
not advise but that are affiliated persons of a fund that it does
advise (e.g., other funds in the fund complex), and (ii) a subadviser
(and its affiliated persons) to enter into transactions and
arrangements with funds the subadviser does advise, but only with
respect to discrete portions of the subadvised fund for which the
subadviser does not provide investment advice.
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\1\ 15 U.S.C. 80a-17(a).
\2\ 15 U.S.C. 80a-2(a)(3)(E).
\3\ As defined in rule 17a-10(b)(2). 17 CFR 270.17a-10(b)(2).
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To qualify for the exemptions in rule 17a-10, the subadvisory
relationship must be the sole reason why section 17(a) prohibits the
transaction. In addition, the advisory contracts of the subadviser
entering into the transaction, and any subadviser that is advising the
purchasing portion of the fund, must prohibit the subadvisers from
consulting with each other concerning securities transactions of the
fund, and limit their responsibility to providing advice with respect
to discrete portions of the fund's portfolio.\4\ Section 17(a) of the
Investment Company Act of 1940 (the ``Act''), generally prohibits
affiliated persons of a registered investment company (``fund'') from
borrowing money or other property from, or selling or buying securities
or other property to or from, the fund or any company that the fund
controls. Section 2(a)(3) of the Act defines ``affiliated person'' of a
fund to include its investment advisers. Rule 17a-10 permits (i) a
subadviser of a fund to enter into transactions with funds the
subadviser does not advise but that are affiliated persons of a fund
that it does advise (e.g., other funds in the fund complex), and (ii) a
subadviser (and its affiliated persons) to enter into transactions and
arrangements with funds the subadviser does advise, but only with
respect to discrete portions of the subadvised fund for which the
subadviser does not provide investment advice.
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\4\ 17 CFR 270.17a-10(a)(2).
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To qualify for the exemptions in rule 17a-10, the subadvisory
relationship must be the sole reason why section 17(a) prohibits the
transaction. In addition, the advisory contracts of the subadviser
entering into the transaction, and any subadviser that is advising the
purchasing portion of the fund, must prohibit the subadvisers from
consulting with each other concerning securities transactions of the
fund, and limit their responsibility to providing advice with respect
to discrete portions of the fund's portfolio. This requirement
regarding the prohibitions and limitations in advisory contracts of
subadvisors relying on the rule constitutes a collection of information
under the Paperwork Reduction Act of 1995 (``PRA'').\5\
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\5\ 44 U.S.C. 3501.
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The staff assumes that all existing funds with subadvisory
contracts amended those contracts to comply with the adoption of rule
17a-10 in 2003, which conditioned certain exemptions upon these
contractual alterations, and therefore there is no continuing burden
for those funds.\6\ However, the staff assumes that all newly formed
subadvised funds, and funds that enter into new contracts with
subadvisers, will incur the one-time burden by amending their contracts
to add the terms required by the rule.
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\6\ Transactions of Investment Companies With Portfolio and
Subadviser Affiliates, Investment Company Act Release No. 25888
(Jan. 14, 2003) [68 FR 3153, (Jan. 22, 2003)]. We assume that funds
formed after 2003 that intended to rely on rule 17a-10 would have
included the required provision as a standard element in their
initial subadvisory contracts.
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Based on an analysis of fund filings, the staff estimates that
approximately 319 funds enter into new subadvisory agreements each
year.\7\ Based on discussions with industry representatives, the staff
estimates that it will require approximately 3 attorney hours to draft
and execute additional clauses in new subadvisory contracts in order
for funds and subadvisers to be able to rely on the exemptions in rule
17a-10. Because these additional clauses are identical to the clauses
that a fund would need to insert in their subadvisory contracts to rely
on rules 10f-3, 12d3-1, 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 among all four rules. Therefore, we
estimate that the burden allocated to rule 17a-10 for this contract
change would be 0.75 hours.\8\ Assuming that all 319 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 239 burden hours annually, with
an associated cost of approximately $90,820.\9\
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\7\ Based on data from Morningstar, as of June 2016, there are
12,485 registered funds (open-end funds, closed-end funds, and
exchange-traded funds), 4,629 funds of which have subadvisory
relationships (approximately 37%). Based on data from the 2016 ICI
Factbook, 862 new funds were established in 2015 (594 open-end funds
+ 258 exchange-traded funds + 10 closed-end funds (from the ICI
Research Perspective, April 2016)). 862 new funds x 37% = 319 funds.
\8\ This estimate is based on the following calculation: 3 hours
/ 4 rules = 0.75 hours.
\9\ These estimates are based on the following calculations:
(0.75 hours x 319 portfolios = 239 burden hours); ($380 per hour x
239 hours = $90,820 total cost). The Commission's estimates
concerning the wage rates for attorney time are based on salary
information for the securities industry compiled by the Securities
Industry and Financial Markets Association. The estimated wage
figure is based on published rates for in-house attorneys, modified
to account for a 1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits, and overhead,
yielding an effective hourly rate of $380. See Securities Industry
and Financial Markets Association, Report on Management &
Professional Earnings in the Securities Industry 2013.
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The estimate of average burden hours is made solely for the
purposes of the Paperwork Reduction Act. The estimate is not derived
from a comprehensive or even a representative survey or study of the
costs of Commission rules. Complying with this collection of
information requirement is necessary to obtain the benefit of relying
on rule 17a-10. Responses will not be kept confidential. 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.
The public may view the background documentation for this
information collection at the following Web site, www.reginfo.gov.
Comments should be directed to: (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) Pamela Dyson, Director/Chief
Information Officer, Securities and Exchange Commission, c/o Remi
Pavlik-Simon, 100 F Street NE., Washington, DC 20549
[[Page 10844]]
or send an email to: PRA_Mailbox@sec.gov. Comments must be submitted to
OMB within 30 days of this notice.
Dated: February 8, 2017.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02974 Filed 2-14-17; 8:45 am]
BILLING CODE 8011-01-P
