Supporting Statement (Rule 17f-6) (2018)

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17f-6
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Rule 17f-6 (17 CFR 270.17f-6) under the Investment Company Act of 1940 (15 U.S.C.
80a) 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. Before the rule was adopted, funds generally were
required to maintain those assets in special accounts with a custodian bank. The rule was
designed to eliminate unnecessary regulatory burdens, and to enable funds to effect their
commodity trades in the same manner as other market participants.
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 a written contract containing the following provisions govern the manner in which the FCM
maintains a fund’s assets:
•

The FCM must comply with the segregation requirements of section 4d(2)
of the CEA (7 U.S.C. 6d(2)) and the rules under that statute (17 CFR
Chapter I) or, if applicable, the secured amount requirements of rule 30.7
under the CEA (17 CFR 30.7);

•

If the FCM places the fund’s margin with another entity for clearing
purposes, the FCM must obtain an acknowledgment from the clearing
organization that the fund’s assets are held on behalf of the FCM’s
customers in accordance with provisions under the CEA; and

•

Upon request the FCM must furnish records about the fund’s assets to the
Commission or its staff.

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2.

Purpose and Use of the Information Collection

The rule requires a fund and an FCM to enter into a written contract that contains three
safeguards relating to the custody of fund assets by the FCM. First, the requirement that FCMs
comply with segregation or secured amount requirements is designed to protect fund assets held
by FCMs. Second, the requirement that an FCM obtain an acknowledgement from any entity
upon which it relies to clear fund transactions accommodates the legitimate needs of the
participants in the commodity settlement process, while ensuring that fund assets are protected.
The requirement that FCMs must furnish to the Commission or its staff upon request information
concerning the fund’s assets does not constitute a collection of information.
3.

Consideration Given to Information Technology

The Commission’s Electronic Data Gathering, Analysis, and Retrieval System
(“EDGAR”) provides for the automated collection, processing, and dissemination of full
disclosure filings. The automation provides for speed, accuracy, and public availability of
information, generating benefits to investors and financial markets. While EDGAR currently is
limited to disclosure and fund deregistration filings, EDGAR may be used in the future to obtain
other types of information from sources outside the Commission, such as information requested
by the Commission or its staff in connection with an inspection of fund margin in an FCM’s
custody. The Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7001) and
the conforming amendments to recordkeeping rules under the Investment Company Act permit
funds to maintain records electronically.

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4.

Duplication

The Commission sought to avoid duplication of requirements imposed under the CEA
and Commodity Futures Trading Commission (“CFTC”) rules that more generally govern
custody of customer margins by FCMs and clearinghouses. Thus, for example, rule 17f-6 does
not require FCMs to maintain daily financial ledger records of fund margin deposits or to supply
funds with monthly account statements. FCMs and their customers typically enter into a contract
when an FCM is retained to effect commodities transactions, and the rule requires certain terms
for contracts with an FCM’s fund clients, some of which incorporate requirements under the
CEA.
5.

Effect on Small Entities

The information collection requirements of rule 17f-6 apply to all funds, including those
that are small entities. The Commission believes that the costs of complying with the rule are
minimal and do not impose a significant burden on small entities.
6.

Consequences of Not Conducting Collection

The contract requirements of rule 17f-6 do not recur periodically, but rather have to be
followed only when a fund enters into a contract with an FCM. Less frequent collection would
not be consistent with the Commission’s investor protection objectives.
7.

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

None.
8.

Consultation Outside the Agency

The Commission requested public comment on the collection of information
requirements of rule 17f-6 before it submitted this request for extension and approval to the

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Office of Management and Budget. The Commission received no comments in response to its
request.
In addition, the Commission and its staff participate in an ongoing dialogue with
representatives of the fund 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

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.
12.

Burden of Information Collection

As discussed above, the only collection of information requirements of rule 17f-6 are the
rule’s requirements that contracts between funds and FCMs must contain certain provisions
requiring the FCM to engage in certain activities to safeguard the custody of fund assets by the
FCM.

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Because rule 17f-6 does not impose any ongoing obligations on funds or FCMs,
Commission staff estimates there are no costs related to existing contracts between funds and
FCMs. This estimate does not include the time required by an FCM to comply with the rule’s
contract requirements because, to the extent that complying with the contract provisions could be
considered “collections of information,” the burden hours for compliance are already included in
other PRA submissions. 1
Thus, Commission staff estimates that any burden of the rule would be borne by funds
and FCMs entering into new contracts pursuant to the rule. Commission staff estimates that
approximately 214 fund complexes and 2,825 funds currently effect commodities transactions
and could deposit margin with FCMs in connection with those transactions pursuant to rule
17f-6. 2 Staff further estimates that of this number, 21 fund complexes and 283 funds enter into
new contracts with FCMs each year. 3
Based on conversations with fund representatives, Commission staff understands that
fund complexes typically enter into contracts with FCMs on behalf of all funds in the fund

1

The rule requires a contract with the FCM to contain two provisions requiring the FCM to
comply with existing requirements under the CEA and rules adopted thereunder. Thus, to
the extent these provisions could be considered collections of information, the hours
required for compliance would be included in the collection of information burden hours
submitted by the CFTC for its rules.

2

This estimate is based on the number of funds that reported on Form N-SAR from June 1,
2017 – November 30, 2017, in response to sub-items E through I of item 70, that they
engaged in futures and commodity options transactions.

3

These estimates are based on the assumption that 10% of fund complexes and funds enter
into new FCM contracts each year. This assumption encompasses fund complexes and
funds that enter into FCM contracts for the first time, as well as fund complexes and fund

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complex that engage in commodities transactions. Funds covered by the contract are typically
listed in an attachment, which may be amended to encompass new funds. Commission staff
estimates that the burden for a fund complex to enter into a contract with an FCM that contains
the contract requirements of rule 17f-6 is one hour, and further estimates that the burden to add a
fund to an existing contract between a fund complex and an FCM is 6 minutes.
Accordingly, Commission staff estimates that funds and FCMs spend 49 burden hours
annually complying with the information collection requirements of rule 17f-6. 4 At $401 per
hour of professional (attorney) time, Commission staff estimates that the annual dollar cost for
the 49 hours is $19,649. 5
13.

Cost to Respondents

The rule is not estimated to impose any burdens other than those discussed in item 12
above.
14.

Cost to the Federal Government

The rule does not impose any additional costs on the federal government.

that change the FCM with whom they maintain margin accounts for commodities
transactions.
4

This estimate is based upon the following calculation: (21 fund complexes x 1 hour) +
(283 funds x 0.1 hours) = 49 hours.

5

The $401 per hour figure for an attorney is from SIFMA’s Management & Professional
Earnings in the Securities Industry 2013, modified by Commission staff to account for an
1,800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.

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15.

Changes in Burden

The estimated total annual burden for rule 17f-6 has increased by 10 hours from the
previous submission under the Paperwork Reduction Act (from 39 hours to 49 hours). The
change in estimated burden hours is based on an increase in the number of funds that currently
effect futures and commodity options transactions, but this increase is partially offset by a
decrease in the number of fund complexes that currently effect futures and commodity option
transactions.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.