[Federal Register Volume 62, Number 185 (Wednesday, September 24, 1997)]
[Notices]
[Pages 50034-50035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25320]


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SECURITIES AND EXCHANGE COMMISSION


Submission for OMB Review; Comment Request

    Upon Written Request, Copies Available From: Securities and 
Exchange Commission, Office of Filings and Information Services, 
Washington, DC 20549.
    Extension: Rule 17f-6, SEC File No. 270-392, OMB Control No. 
3235-0447. Rule 2a19-1, SEC File No. 270-294, OMB Control No. 3235-
0332. Rule 17f-2, SEC File No. 270-233, OMB Control No. 3235-0223.

    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 requests for extension of the previously approved 
collections of information discussed below.
    Rule 17f-6 under the Investment Company Act of 1940 (``Act'') 
permits registered investment companies (``funds'') to maintain assets 
(i.e., margin) with futures commission merchants (``FCMs'') in 
connection with commodity transactions effected on both domestic and 
foreign exchanges.\1\ Prior to the adoption of the rule, funds 
generally were required to maintain such assets in special accounts 
with a custodian bank.
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    \1\ Custody of Investment Company Assets With Futures Commission 
Merchants and Commodity Clearing Organizations, Investment Company 
Act Release No. 22389 (Dec. 11, 1996) (61 FR 66207 (Dec. 17, 1996)).
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    Rule 17f-6 permits funds to maintain their assets with FCMs that 
are registered under the Commodity Exchange Act (``CEA'') and that are 
not affiliated with the fund. The rule requires that the manner in 
which the FCM maintains a fund's assets be governed by a written 
contract, which must contain certain provisions. First, the contract 
must provide that the FCM must comply with the segregation requirements 
of section 4d(2) of the CEA [7 U.S.C. 6d(2)] and the rules thereunder 
[17 CFR Chapter I] or, if applicable, the secured amount requirements 
of rule 30.7 under the CEA [17 CFR 30.7]. Second, the contract must 
provide that when placing the fund's margin with another entity for 
clearing purposes, the FCM must obtain an acknowledgment that the 
fund's assets are held on behalf of the FCM's customers in accordance 
with provisions under the CEA. Lastly, the contract must require the 
FCM, upon request, to furnish records on the fund's assets to the 
Commission or its staff.
    The requirement of a written contract that contains certain 
provisions ensure important safeguards and other benefits relative to 
the custody of investment company assets by FCMs. For example, 
requiring FCMs upon request to furnish to the Commission or its staff 
information concerning the investment company's assets facilitates 
Commission inspections of investment companies. The contract 
requirement governing transfers of investment company margin seeks to 
accommodate the legitimate needs of the participants in the commodity 
settlement process, consistent with the safekeeping of investment 
company assets. The contract requirement requiring FCMs to comply with 
the segregation or secured amount requirements of the CEA and the rules 
thereunder is designed to safeguard fund assets held by FCMs.
    The Commission estimates that approximately 2,000 investment 
companies could deposit margin with FCMs under rule 17f-6 in connection 
with their investments in futures contracts and commodity options. It 
is estimated that each investment company uses and deposits margin with 
3 different FCMs in connection with its commodity transactions. 
Approximately 241 FCMs are eligible to hold investment company margin 
under the rule.\2\
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    \2\ Commodity Futures Trading Commission, Annual Report (1996).
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    The only paperwork burden of the rule consists of meeting the 
rule's contract requirements. The Commission estimates that after the 
first year, 2,000 investment companies will spend an average of 1 hour 
complying with the contract requirements of the rule (e.g., signing 
contracts with additional FCMs), for a total of 2,000 burden hours. The 
Commission estimates that each of the 241 FCMs eligible to hold 
investment company margin under the rule will spend 2 hours complying 
with the rule's contract requirements, for a total of 482 burden hours. 
The total annual burden for the rule are estimated to be 2,482 hours.
    Rule 2a19-1 under the Act provides that investment company 
directors will not be considered interested persons, as defined by 
section 2(a) (19) of the Act, solely because they are registered 
broker-dealers or affiliated persons of registered broker-dealers, 
provided that the broker-dealer does not execute any portfolio 
transactions for the company's complex, engage in any principal 
transactions with the complex or distribute shares for the complex for 
at least six months prior to the time that the director is to be 
considered not to be an interested person and for the period during 
which the director continues to be considered not to be an interested 
person. The rule also requires the investment company's board of 
directors to determine that the company would not be adversely affected 
by refraining from business with the broker-dealer. In addition, the 
rule provides that no more than a minority of the disinterested 
directors of the company may be registered broker-dealers or their 
affiliates.
    Before the adoption of rule 2a19-1, many investment companies found 
it necessary to file with the Commission applications for orders 
exempting directors from section 2(a)(19) of the Act. Rule 2a19-1 is 
intended to alleviate the burdens on the investment company industry of 
filing for such orders in circumstances where there is no potential 
conflict of interest. The conditions of the rule are designed to 
indicate whether the director has a stake in the broker-dealer's 
business with the company such that he or she might not be able to act 
independently of the company's management.
    It is estimated that approximately 3,200 investment companies may 
choose to rely on the rule, and each investment company may spend one 
hour annually compiling and keeping records related to the requirements 
of the rule. The total annual burden associated with the rule is 
estimated to be 3,200 hours.
    Rule 17f-2, under the Act, establishes safeguards for arrangements 
in which a registered management investment company is deemed to 
maintain custody of its own assets, such as when the fund maintains its 
assets in a facility that provides safekeeping but not custodial 
services. The rule includes several recordkeeping or reporting 
requirements. The funds directors must prepare a resolution designating 
not more than five fund officers or responsible employees who may have 
access to the fund's assets. The designated access persons (two or more 
of whom must act jointly when handling fund assets) must prepare a 
written notation providing certain information about each deposit or 
withdrawal of fund assets, and must transmit the notation to another 
officer or director designated by the directors. Independent public 
accountants must verify the fund's assets without prior notice to the 
fund twice each year.

[[Page 50035]]

    The requirement that directors designate access persons is intended 
to ensure that directors evaluate the trustworthiness of insiders who 
handle fund assets. The requirements that access persons act jointly in 
handling fund assets, prepare a written notation of each transaction, 
and transmit the notation to another designated person are intended to 
reduce the risk of misappropriation of the fund assets by access 
persons, and to ensure that adequate records are prepared, reviewed by 
a responsible third person, and available for examination by the 
Commission.
    The Commission estimates that approximately 110 funds rely upon the 
rule (and that each fund offers an average of two separate series or 
portfolios subject to the rule). It is estimated that each fund spends 
approximately 2 hours annually in drafting pertinent resolutions by 
directors, 24 hours annually in preparing transaction notations, and 
100 hours annually in performing unscheduled verifications of assets. 
Therefore, the total annual burden associated with this rule is 
estimated to be 13,860 hours.
    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.
    Written comments regarding the above information should be directed 
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 3208, New Executive Office 
Building, Washington, D.C. 20503; and (ii) Michael E. Bartell, 
Associate Executive Director, Office of Information Technology, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Comments must be submitted to OMB on or before October 24, 
1997.

    Dated: September 17, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25320 Filed 9-23-97; 8:45 am]
BILLING CODE 8010-01-M