Rule 17e-1 (2022) Supporting Statement

OMB CONTROL NUMBER 3235-0217
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17e-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Section 17(e)(2)(A) of the Investment Company Act of 1940 (the “Investment Company
Act”) 1 limits the remuneration a broker affiliated with a registered investment company (“fund”)
may receive in connection with the sale of securities to or by the fund or controlled company
thereof, to no more than “the usual and customary broker’s commission if the sale is effected on
a securities exchange.” 2 Rule 17e-1 under the Investment Company Act deems a remuneration
as “not exceeding the usual and customary broker’s commission” for purposes of Section
17(e)(2)(A) if, among other things, the fund’s board of directors has adopted procedures
reasonably designed to provide that the remuneration to the affiliated broker is reasonable and
fair compared to that received by other brokers in connection with comparable transactions
involving similar securities being purchased or sold on a securities exchange during a
comparable period of time and the board makes and approves such changes as it deems
necessary. 3 In addition, each quarter, the board must determine that all transactions effected
under the rule during the preceding quarter complied with the established procedures (“review
requirement”). Rule 17e-1(d) also requires the fund to (i) maintain permanently a written copy
of the procedures adopted by the board for complying with the requirements of the rule; and (ii)
maintain for a period of six years, the first two in an easily accessible place, a written record of
1

15 U.S.C. 80a-1 et seq.

2

15 U.S.C. 80a-17(e)(2)(A).

3

17 CFR 270.17e-1.

each transaction subject to the rule setting forth the amount and source of the commission, fee, or
other remuneration received; the identity of the broker; the terms of the transaction; and the
materials used to determine that the transactions were effected in compliance with the procedures
adopted by the board (“recordkeeping requirement”). Funds are not required to meet the
reporting and recordkeeping requirements for transactions in which the person acting as a broker
is a person permitted to enter into a transaction with the fund by 17 CFR 270.17a-10 (“rule 17a10”). 4
2.

Purpose and Use of the Information Collection

The review and recordkeeping requirements under rule 17e-1 enable the Commission to
ensure that affiliated brokers receive compensation that does not exceed the usual and customary
broker’s commission. Without the recordkeeping requirement, Commission inspectors would
have difficulty ascertaining whether funds were complying with rule 17e-1.
3.

Consideration Given to Information Technology

To the extent the rule includes recordkeeping requirements, the Electronic Signatures in
Global and National Commerce Act 5 and the conforming amendments to recordkeeping rules
under the Investment Company Act permit funds to maintain records electronically.

4

See 17 CFR 270.17e-1(b)(3) and (d)(2). Rule 17a-10 permits certain subadvisers and affiliated
persons of such subadvisers to enter into transactions with a fund if, among other things, the
advisory contracts of the subadviser that is (or whose affiliated person is) entering into the
transaction, and any subadviser that is advising the fund (or portion of the fund) entering into the
transaction, prohibit them from consulting with each other concerning transactions for the fund in
securities or other assets. See 17 CFR 270.17a-10(a)(2).

5

P.L. 106-229, 114 Stat. 464 (June 30, 2000).

2

4.

Duplication

Section 31(a) of the Investment Company Act and rules 31a-1 and 31a-2 thereunder,
require investment companies to maintain and preserve records similar to those required to be
kept under rule 17e-1. Rule 17e-1 does not require that duplicate records be kept, but reiterates
the requirement to maintain and preserve such records.
5.

Effect on Small Entities

The recordkeeping requirements of rule 17e-1 apply equally to all funds subject to the
rule, regardless of size. The burden on smaller investment companies may be greater than for
larger investment companies. This burden includes the cost of reviewing transactions and
maintaining records. The Commission believes, however, that imposing different requirements
on smaller investment companies would not be consistent with investor protection and the
purposes of the rule’s requirements. The Commission reviews all rules periodically, as required
by the Regulatory Flexibility Act, to identify methods to minimize recordkeeping or reporting
requirements affecting small businesses.

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6.

Consequences of Not Conducting Collection

Rule 17e-1(c) requires the investment company to (i) maintain permanently a written
copy of the procedures adopted by the board for complying with the requirements of the rule;
and (ii) maintain for a period of six years a written record of each transaction subject to the rule
setting forth the amount and source of the commission, fee, or other remuneration received; the
identity of the broker; the terms of the transaction; and the materials used to determine that the
transactions were effected in compliance with the procedures adopted by the board. Less
frequent recordkeeping requirements would impair the Commission's ability to ascertain
compliance with the rule.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Rule 17e-1 requires funds to preserve certain records for six years and other records
permanently. We believe that the long-term retention of records is necessary to carry out our
examination and enforcement responsibilities, and our mandate to ensure that the Investment
Company Act's provisions are legally enforceable. We periodically inspect the operations of
funds to ensure compliance with the rules and regulations under the Investment Company Act;
however, each fund may be inspected only at intervals of several years due to limits on our
resources. Furthermore, Congress has placed no time limit on the prosecution of persons
engaged in certain types of conduct that violate the securities laws. For these reasons, we often
need information relating to events or transactions that occurred years ago. In Section 31(a) of
the Investment Company Act, Congress specifically authorized the Commission to require funds
to maintain and preserve books and records for such periods as the Commission may prescribe

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by rules. 6 Computerized record storage has made long-term retention of records less
burdensome.
8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry through public
conferences, meetings, and informal exchanges. These various forums provide the Commission
and the staff with a means of ascertaining and acting upon paperwork burdens confronting the
industry. The Commission requested public comment on the collection of information
requirements in rule 17e-1 before it submitted this request for extension and approval to the
Office of Management and Budget. The Commission received no comments in response to this
request.
9.

Payment or Gift

No payment or gift to respondents was provided.
10.

Confidentiality

No assurance of confidentiality was provided.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection does not collect personally
identifiable information (PII). The agency has determined that a system of records notice
(SORN) and privacy impact assessment (PIA) are not required in connection with the collection
of information.

6

15 U.S.C. 80a-30(a).

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12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act of 1995 7 and are not derived from a comprehensive or even
representative survey or study of the costs of Commission rules and forms.
Based upon an analysis of fund filings on Form N-CEN, approximately 1,640 funds
report reliance on rule 17e-1. Based on staff experience and conversations with fund
representatives, we estimate that the burden of compliance with rule 17e-1 is approximately 50
hours per fund per year. This time is spent, for example, reviewing the applicable transactions
and maintaining records. Accordingly, we calculate the total estimated annual internal burden of
complying with the review and recordkeeping requirements of rule 17e-1 to be approximately
82,000 hours. 8 We further estimate that, of these:
•

60 percent (49,200 hours) are spent by senior accountants, at an estimated hourly
wage of $221, 9 for a total of approximately $10,873,200 per year; 10

•

30 percent (24,600 hours) are spent by in-house attorneys at an estimated hourly wage
of $425, for a total of approximately $10,455,000 per year; 11 and

7

4 U.S.C. 3501 et seq.

8

1,604 funds x 50 hours per fund = 82,000 hours.

9

The Commission’s estimates concerning the allocation of burden hours and the relevant wage
rates are based on consultations with industry representatives and on salary information for the
securities industry compiled by the Securities Industry and Financial Markets Association. The
estimated wage figures are also based on published rates for senior accountants and in-house
attorneys, modified to account for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead, yielding effective hourly rates of $221 and
$425, respectively. See Securities Industry and Financial Markets Association, Report on
Management & Professional Earnings in the Securities Industry 2013.

10

49,200 hours x $221 per hour = $10,873,200.

11

24,600 hours x $425 per hour = $10,455,000.

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•

10 percent (8,200) are spent by the funds’ board of directors at an hourly cost of
$4,770, for a total of approximately $39,114,000 per year. 12

Based on these estimated wage rates, the total cost to the industry of the hour burden for
complying with the review and recordkeeping requirements of rule 17e-1 is approximately
$60,442,200. 13
Table 1: Summary of Revised Annual Responses, Burden Hours, and Burden Hour
Costs Estimates for Each Information Collection
IC Title

Annual No. of Responses
Previously Requested
Change
approved

Annual Time Burden (Hrs.)
Previously
Requested Change
approved

Cost Burden ($)
Previously Requested Change
approved

IC1: Review and
Record-keeping

1,609

48,450

0

13.

1,640

31

82,000

33,550

0

0

Cost to Respondents

There is no annual cost burden associated with complying with the information collection
requirements in rule 17e-1. The cost burden does not include the cost of the hour burden
discussed in Item 12 above.
14.

Cost to the Federal Government

The rule does not require anything to be filed with the Commission. Commission staff
may, in the course of routine fund inspections, monitor compliance with the rule.
15.

Changes in Burden

The increase in the amount of annual responses and annual time burden is attributable to
two factors. First, we are using data provided on Form N-CEN for determining the number of
12

8,200 hours x $4,770 per hour = $39,114,000. The estimate for the cost of board time as a whole
is derived from estimates made by the staff regarding typical board size and compensation that is
based on information received from fund representatives and publicly available sources.

13

$10,873,200 + $10,455,000 + $39,114,000 = $60,442,200.

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respondents to the reporting and recordkeeping requirements, which we had not done in prior
submissions. This results in an increase of the number of respondents to those elements of the
collection from 965 respondents to 1,640. Secondly, prior submissions had included a third
element to the collection, one relating to the rule’s exception for subadvisory contracts that meet
the requirements of rule 17a-10. However, because rule 17e-1 does not contain any specific
subadvisory contract requirements and we have already accounted for the burdens and costs for
entering into these subadvisory contracts in the information collection relating to rule 17a-10, we
are not including those burdens and costs in the rule 17e-1 information collection. Nonetheless,
because the hour estimates are higher on a per-respondent basis for the reporting and
recordkeeping requirements, those estimates have increased in this submission compared to prior
years.
16.

Information Collection Planned for Statistical Purposes

The results of any information collected will not be published.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to not display the expiration date for OMB
approval.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
The Commission is not seeking an exception to the certification statement.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
The collection of information will not employ statistical methods.

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