Supporting Statement_Rule 17a-6 (2025)

OMB Control Number: 3235-0564
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17a-6
A.

JUSTIFICATION
1.

Necessity for the Information Collection

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 Rule 17a-6 permits a fund, or a company controlled by the
fund, and a “portfolio affiliate” (a company that is an affiliated person of the fund because the
fund controls the company, or holds five percent or more of the company’s outstanding voting
securities) of the fund to engage in principal transactions that would otherwise be prohibited
under section 17(a) of the Act under certain conditions. 2 A fund may not rely on the exemption
in the rule to enter into a principal transaction with a portfolio affiliate if certain prohibited
participants (e.g., directors, officers, employees, or investment advisers of the fund) have a
financial interest in a party to the transaction. Rule 17a-6 specifies certain interests that are not
“financial interests,” including any interest that the fund’s board of directors (including a
majority of the directors who are not interested persons of the fund) finds to be not material. A
board making this finding is required to record the basis for the finding in its meeting minutes.
This recordkeeping requirement is a collection of information under the Paperwork Reduction
Act of 1995 (“PRA”). 3

1

15 U.S.C. 80a-17(a).

2

17 CFR 270.17a-6.

3

44 U.S.C. 3501.

2.

Purpose and Use of the Information Collection

The rule is designed to permit transactions between funds and their portfolio affiliates in
circumstances in which it is unlikely that the affiliate would be in a position to take advantage of
the fund. In determining whether a financial interest is “material,” the board of the fund should
consider whether the nature and extent of the interest in the transaction is sufficiently small that a
reasonable person would not believe that the interest affected the determination of whether to
enter into the transaction or arrangement or the terms of the transaction or arrangement. The
information collection requirements in rule 17a-6 are intended to ensure that Commission staff
can review, in the course of its compliance and examination functions, the basis for a board of
director’s finding that the financial interest of an otherwise prohibited participant in a party to a
transaction with a portfolio affiliate is not material.
3.

Consideration Given to Information Technology

To the extent the rule includes recordkeeping requirements, the Electronic Signatures in
Global and National Commerce Act 4 and the conforming amendments to recordkeeping rules
under the Investment Company Act permit funds to maintain records electronically.
4.

Duplication

Rule 31a-1 under the Investment Company Act requires fund boards to maintain board
meeting minutes. 5 Rule 17a-6 requires a fund’s board to record the basis for its finding in its
meeting minutes. Funds, however, would not be required to retain duplicate records of the
meeting minutes.

4

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

5

17 CFR 270.31a-1.

2

5.

Effect on Small Entities

Rule 17a-6 is available for any transaction involving small entities, if the funds
participating in the transaction comply with the conditions set forth in the rule. These
requirements protect the interests of the funds and their shareholders from overreaching by fund
affiliates. The rule does not disproportionately burden small entities. The Commission believes
that it could not adjust the rule to lessen the burden on small entities of complying with the rule
without jeopardizing the interests of investors in small entities.
6.

Consequences of Not Conducting Collection

The information collection requirements in rule 17a-6 only arise when a prohibited
participant may have a direct or indirect financial interest in a party to a principal transaction
involving a fund, or a company controlled by a fund, and a portfolio affiliate of the fund. Less
frequent information collection would impede the Commission’s inspection staff’s ability to
monitor the board’s oversight of otherwise prohibited principal transactions and would not be
consistent with protecting fund shareholders from overreaching by fund affiliates.
7.

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

As noted above, the records required under rule 17a-6 also must be kept pursuant to rule
31a-1 of the Act. Rule 31a-2 addresses the record retention requirements for rule 31a-1 records,
and the PRA justification for that rule explains the need for record retention in excess of three
years.
8.

Consultations Outside the Agency

The Commission requested public comment on the collection of information
requirements in rule 17a-6 before it submitted this request for approval to the Office of
Management and Budget. The Commission received no comments in response to this request.

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More generally, the Commission and the staff at 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.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

Rule 17a-6 requires that certain information, potentially including name, occupation, and
job title, be provided to an investment company’s board of directors. No information of a
sensitive nature, including social security numbers, will be required under this collection of
information. The agency has determined that the information collection does not constitute a
system of record for purposes of the Privacy Act. Information is not retrieved by a personal
identifier. In accordance with section 208 of the E-Government Act of 2002, the agency has
determined that the information collection does not trigger the Privacy Impact Assessment (PIA)
requirement.
12.

Burden of Information Collection

The following estimates of average burden hours are made solely for the purposes of the
Paperwork Reduction Act. The estimates are not derived from a comprehensive or even a
representative survey or study of the costs of Commission rules.

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In our most recent PRA submission for rule 17a-6, we estimated a total hour burden of 67
hours, with an internal cost burden of $5,762, and with no annual external cost burden. Based on
staff analysis, however, we believe that these estimates do not reflect all of the information
collection costs associated with rule 17a-6. In addition to the current burden estimates for rule
17a-6, a determination by the board of directors may be required. Based on this analysis we
additionally believe that not all funds that report reliance on rule 17a-6 are required to make a
board finding of materiality. Therefore, we are revising the current PRA burdens associated with
relying on rule 17a-6.
Based on public filings made with the Commission, we estimate that annually 326 funds
and their series (collectively, “funds”) may rely on rule 17a-6 to engage in otherwise prohibited
transactions under section 17(a) of the 1940 Act. 6 This estimate is based on publicly available
Form N-CEN filings. 7 For the purposes of this PRA extension, we assume that each of these
funds has engaged in one transaction per reporting period and that in thirty percent of those
transactions a prohibited participant will have a financial interest in a party to the transaction that
the board of directors of the affected investment company will consider for purposes of
determining whether that financial interest is material. 8 We therefor estimate that annually 98
funds made a board determination that resulted in a paperwork burden pursuant to rule 17a-6. 9

6

We analyzed Form N-CEN filings for registrants as of December 2022, 2023, and 2024 (based
upon available Edgar filings through May 2025). Based on these filings, we calculated the
number of funds reporting reliance on rule 17a-6 for the most recent respective reporting period
as of December 2022, 2023, 2024 to be 314, 327, and 338, respectively. For the purposes of this
PRA extension, the staff estimated an average of 326 funds to rely on rule 17a-6 each reporting
period.

7

See Item C.7.d of Form N-CEN.

8

Transactions of Investment Companies with Portfolio and Subadviser Affiliates, Investment
Company Act Release No. 25888 (Jan. 14, 2003), at n.70.

9

326 funds x .3 = 98 funds

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We estimate that compliance with the recordkeeping requirement for rule 17a-6 will
impose a burden of .2 hours (12 minutes) in clerical and computer operator costs for each
transaction for which there is a paperwork burden. 10 Additionally, we are now estimating that
rule 17a-6 will impose a burden of .5 hours for the board of directors to determine and document
the basis of the materiality of a financial interest. Therefore, we estimate 69 burden hours to be
associated with rule 17a-6 requirements annually, with an associated internal cost of $282,681.
The table below summarizes the ongoing annual burden estimates associated with rule 17a-6.
Table 1: Annual burden of Rule 17a-6
Annual hours
Current annual
burden of rule
17a-6

.2 hours x
98 funds

Additional annual .5 hours x 98
burden of board funds
of directors
determination

Wage Rate1
x

x

$97 (blended wage rate
for general clerk and
senior computer
operator)2
$5,672 rate for board of
directors

Internal time
cost
$4,753

External time
Cost

$ 277,928

Total annual
69 hours
$ 282,681
burden of rule
17a-6
Notes:
1. Our estimates concerning wage rates (with the exception of the board of directors) are based on salary information
for the securities industry compiled by the Securities Industry and Financial Markets Association and modified by
Commission staff for 2024.
2. The estimated blended wage figure is based on published rates for general clerk and senior computer operator,
modified to account for a 1800-hour work-year and inflation, and multiplied by 2.93 to account for bonuses, firm
size, employee benefits and overhead, yielding an effective hourly rate of $97. The rates used to create the blended
rate are as follow: general clerk - $77; senior computer operator - $117. See Securities Industry and Financial
Markets Association, Report on Management & Professional Earnings in the Securities Industry 2013.

10

The burden hours estimate is based upon the estimates contained in rule 17a-6’s adopting release.
See Transactions of Investment Companies with Portfolio and Subadviser Affiliates, Investment
Company Act Release No. 25888 (Jan. 14, 2003) [68 FR 3153 (Jan. 22, 2003)].

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Table 2: Change in Burden Estimates for Rule 17a-6

Rule
17a6

Annual Number of Responses
Previously Proposed
Change
approved estimate
335
98
-237

13.

Annual Time Burden (hours)
Previously Proposed
Change
approved estimate
67
69
2

Cost Burden (dollars)
Previously Proposed
Change
approved estimate
0
0
0

Cost to Respondents

There is no annual cost burden associated with complying with the information collection
requirements in rule 17a-6, aside from the cost of the burden hours identified in Item 12 of this
Supporting Statement.
14.

Cost to the Federal Government

Rule 17a-6 does not require that anything be filed with the Commission. Commission
staff may, in the course of fund inspections, monitor compliance with the proposed amendments
and additions.
15.

Changes in Burden

Rule 17a-6 has a current annual burden of 1 hour. The hour burden associated with rule
17a-6 has increased 2 hours from 67 hours to 69 hours since our last burden analysis due to
changes in methodology. The number of respondents has decreased from 335 to 98. The
decrease is due to a change in methodology and a decrease in the number of funds relying on rule
17a-6 based upon our review of Form N-CEN filings.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.

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18.

Exceptions to Certification Requirement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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