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[Federal Register Volume 89, Number 241 (Monday, December 16, 2024)]
[Notices]
[Pages 101664-101665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29578]

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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-232, OMB Control No. 3235-0225]

Proposed Collection; 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. 350l-3520) (the ``Paperwork Reduction Act''), the 
Securities and Exchange Commission (the ``Commission'') is soliciting 
comments on the collection of information summarized below. The 
Commission plans to submit this existing collection of information to 
the Office of Management and Budget for extension and approval.
    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

[[Page 101665]]

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 terms ``fund'' or ``fund series'' are 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 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) = 222 transmissions. The staff estimates that each 
transmission would take approximately 7 minutes for a total of 
approximately 143 hours (7 minutes x 222 transmissions).
    \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 control number.
    Written comments are invited on: (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimate of the burden of 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. Consideration will 
be given to comments and suggestions submitted by February 14, 2025.
    Please direct your written comments to: Austin Gerig, Director/
Chief Data Officer, Securities and Exchange Commission, c/o Tanya 
Ruttenberg, 100 F Street NE, Washington, DC 20549 or send an email to: 
[email protected].

    Dated: December 11, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-29578 Filed 12-13-24; 8:45 am]
BILLING CODE 8011-01-P
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