Rule 17j-1 (2022) Supporting Statement

OMB CONTROL NUMBER: 3235-0224
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17j-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Conflicts of interest between investment company personnel (such as portfolio managers)
and their funds can arise when these persons buy and sell securities for their own accounts
(“personal investment activities”). These conflicts arise because fund personnel have the
opportunity to profit from information about fund transactions, often to the detriment of fund
investors. Section 17(j) of the Investment Company Act of 1940 (the “Investment Company
Act”) (15 U.S.C. 80a-17(j)) makes it unlawful for persons affiliated with a registered investment
company (“fund”) or with the fund’s investment adviser or principal underwriter (each a “17j-1
organization”), in connection with the purchase or sale of securities held or to be acquired by the
investment company, to engage in any fraudulent, deceptive, or manipulative act or practice in
contravention of the Commission’s rules and regulations. Section 17(j) also authorizes the
Commission to promulgate rules requiring 17j-1 organizations to adopt codes of ethics.
In order to implement section 17(j), rule 17j-1 imposes certain requirements on 17j-1
organizations and “Access Persons” 1 of those organizations. The rule prohibits fraudulent,
deceptive or manipulative acts by persons affiliated with a 17j-1 organization in connection with
their personal securities transactions in securities held or to be acquired by the fund. The rule
requires each 17j-1 organization, unless it is a money market fund or a fund that does not invest
in Covered Securities, 2 to: (i) adopt a written codes of ethics; (ii) submit the code and any
material changes to the code, along with a certification that it has adopted procedures reasonably
necessary to prevent Access Persons from violating the code of ethics, to the fund board for
approval; (iii) use reasonable diligence and institute procedures reasonably necessary to prevent
violations of the code; (iv) submit a written report to the fund describing any issues arising under
the code and procedures and certifying that the 17j-1 entity has adopted procedures reasonably
necessary to prevent Access Persons form violating the code; (v) identify Access Persons and
1

Rule 17j-1(a)(1) defines an “access person” (i) as “any Advisory Person of a Fund or of a Fund's
investment adviser. If an investment adviser's primary business is advising Funds or other advisory clients,
all of the investment adviser's directors, officers, and general partners are presumed to be Access Persons of
any Fund advised by the investment adviser. All of a Fund's directors, officers, and general partners are
presumed to be Access Persons of the Fund.” The definition of Access Person also includes “Any director,
officer or general partner of a principal underwriter who, in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or sale of Covered Securities by the Fund for
which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate
to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities.”

2

A “Covered Security” is any security that falls within the definition in section 2(a)(36) of the Act, except
for direct obligations of the U.S. Government, bankers’ acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt instruments, including repurchase agreements, and
shares issued by open-end funds. Rule 17j-1(a)(4).

notify them of their reporting obligations; and (vi) maintain and make available to the
Commission for review certain records related to the code of ethics and transaction reporting by
Access Persons.
The rule requires each Access Person of a fund (other than a money market fund or a
fund that does not invest in Covered Securities) and of an investment adviser or principal
underwriter of the fund, who is not subject to an exception, 3 to file: (i) within 10 days of
becoming an Access Person, a dated initial holdings report that sets forth certain information
with respect to the Access Person’s securities and accounts; (ii) dated quarterly transaction
reports within 30 days of the end of each calendar quarter providing certain information with
respect to any securities transactions during the quarter and any account established by the
Access Person in which any securities were held during the quarter; and (iii) dated annual
holding reports providing information with respect to each Covered Security the Access Person
beneficially owns and accounts in which securities are held for his or her benefit. In addition,
rule 17j-1 requires investment personnel of a fund or its investment adviser, before acquiring
beneficial ownership in securities through an initial public offering (IPO) or in a private
placement, to obtain approval from the fund or the fund’s investment adviser.
2.

Purpose and Use of the Information Collection

Rule 17j-1 provides for oversight by a fund’s board of directors of the codes of ethics and
procedures employed by the fund, its investment advisers and underwriters to prevent fraudulent,
deceptive, or manipulative acts in connection with the purchase or sale by persons associated
with those entities of securities held or to be acquired by the fund. Without the rule fund boards
and the Commission would be hampered in their ability to monitor fully the conduct of such
persons for activities that are fraudulent, deceptive or manipulative.
3.

Consideration Given to Information Technology

Some 17j-1 entities employ computerized transaction reporting and recordkeeping
systems to reduce the burden in connection with rule 17j-1. Although these systems can impose
3

Rule 17j-1(d)(2) contains the following exceptions: (i) an Access Person need not file a report for
transactions effected for, and securities held in, any account over which the Access Person does not have
control; (ii) an independent director of the fund, who would otherwise be required to report solely by
reason of being a fund director and who does not have information with respect to the fund’s transactions in
a particular security, does not have to file an initial holdings report or a quarterly transaction report; (iii) an
Access Person of a principal underwriter of the fund does not have to file reports if the principal
underwriter is not affiliated with the fund (unless the fund is a unit investment trust) or any investment
adviser of the fund and the principal underwriter of the fund does not have any officer, director, or general
partner who serves in one of those capacities for the fund or any investment adviser of the fund; (iv) an
Access Person to an investment adviser need not make quarterly reports if the report would duplicate
information provided under the reporting provisions of the Investment Adviser’s Act of 1940; (v) an
Access Person need not make quarterly transaction reports if the information provided in the report would
duplicate information received by the 17j-1 organization in the form of broker trade confirmations or
account statements or information otherwise in the records of the 17j-1 organization; and (vi) an Access
Person need not make quarterly transaction reports with respect to transactions effected pursuant to an
Automatic Investment Plan.

-2-

substantial start-up and maintenance costs, they can help to reduce the information collection
burdens arising under rule 17j-1. The Commission permits the use of such technologies to
comply with rule 17j-1.
4.

Duplication

The Commission is not aware of any duplicate reporting or recordkeeping requirements.
Rule 17j-1(d)(2)(iv) under the Investment Company Act relieves an Access Person of the duty to
file reports if those reports would duplicate reports required by rules under the Investment
Advisers Act of 1940. 4 Rule 17j-1(d)(2)(v) exempts an Access Person from filing the quarterly
transaction report if it would duplicate information already received by the 17j-1 organization in
the form of broker trade confirmations or account statements or information otherwise in the
records of the 17j-1 organization. Information collected under the rule is intended to improve
board oversight of personal investment activities of fund personnel. Similar information would
not achieve that goal.
5.

Effect on Small Entities

All rule 17j-1 organizations, regardless of size, must adopt a code of ethics and keep
records of reports submitted by Access Persons. The reporting and recordkeeping requirements
for small entities could not be reduced without risking harm to investors’ interests.
6.

Consequences of Not Conducting Collection

In order for fund boards to play a meaningful oversight role, it is necessary for them to
receive no less frequently than annually reports from the fund, its investment advisers and
underwriters regarding issues arising under the code of ethics. Rule 17j-1, by requiring Access
Persons to provide initial holdings reports, quarterly transactions reports, and annual holdings
reports, enables rule 17j-1 organizations to monitor the securities transactions of Access Persons
to ensure compliance with their codes of ethics. Less frequent collection of such reports would
hinder these organizations from enforcing their codes.
7.

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

Not applicable.
8.

Consultation Outside the Agency

The Commission requested public comment on the collection of information
requirements in rule 17j-1 before it submitted this request for approval to the Office of
Management and Budget. The Commission received no comments in response to this request.
More generally, the Commission and the staff 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
4

Investment Adviser Codes of Ethics, Investment Advisers Act Release No. 2256 (Jul. 2, 2004) [(69 FR
41696 (Jul. 9, 2004)], available at https://www.sec.gov/rules/final/ia-2256.pdf.

-3-

ascertaining and acting upon the 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.
12.

Burden of Information Collection

As noted above, Access Persons must file initial and annual holdings reports and
quarterly transaction reports. Investment personnel must obtain approval before acquiring
beneficial ownership in any securities through an IPO or private placement.
In addition, rule 17j-1 organizations have a number of responsibilities, most of which are
carried out at the fund complex level, 5 arising from information collection requirements under
rule 17j-1. The organizations must notify Access Persons of their reporting obligations, prepare
an annual rule 17j-1 report and certification for the board, document their approval or rejection
of IPO and private placement requests, maintain annual rule 17j-1 records, maintain electronic
reporting and recordkeeping systems, amend their codes of ethics as necessary, and, for new
fund complexes, adopt a code of ethics.
Estimates concerning the burdens associated with these information collections are set
forth in the tables below. The estimate of average burden hours is made solely for the purposes
of the Paperwork Reduction Act. The estimate is not derived from a comprehensive or even a
representative survey or study of Commission rules. Reporting burdens may differ substantially
across respondents.
As reflected below in Table 1, we estimate that the total annual burden of complying with
the information collection requirements associated with rule 17j-1 is approximately 376,628
burden hours, the internal cost of which is approximately $69,272,613.

5

The staff estimates that there are 804 fund complexes currently operating.

-4-

Table 1: Updated Annual Burden Hours and Associated Internal Cost Estimates

Initial Holdings Report

Annual Hours
Per Person or
Complex
2

2553

6,2505

New Access
Person
Access Person

Annual
Aggregate
Internal Cost ($)
3,280,3204

Quarterly Transaction Report

.25

255

1,593,7506

Annual Holdings Report

.75

52,5007

Access Person

255

13,387,5008

IPO/Private Placement Preapproval Request

1

4,8249

255

1,230,12010

Informing Access Persons of Reporting
Obligation

3

2,412

Investment
Personnel
Compliance
Manager

339

817,66811

Preparation of Annual Report to Board and
Certification

8.5

6,834

Chief
Compliance
Officer (50%)

580

3,536,59512

580

1,398,96013

580

22,576,32014

Information Collection

Documentation of IPO/Private Placement
Approval/Rejection

3 (.5 hours per
request)

Rule 17j-1 Recordkeeping, Review and Analysis

300

Annual
Aggregate
HOURS
12,8642

2,412
241,200

Maintenance of Computer Systems for Use in
17j-1 Reporting and Recordkeeping

50

40,200

Preparation and Board Approval of New Code
of Ethics for New Fund Complex

28

70016

Person
Responsible

Attorney for
Fund Complex
(50%)
Chief
Compliance
Officer
Chief
Compliance
Officer (5%)
Compliance
Clerk (95%)
Programmer
Analyst

Chief
Compliance
Officer (40%)
Attorney for
Fund Complex
(40%)

Preparation and Board approval of Material
Amendments to Existing Codes of Ethics,
Implementing Policies and Procedures, and
Board Review and Certification

8

6,432

Board of
Directors (20%)
Chief
Compliance
Officer (25%)
Attorney for
Fund Complex
(50%)

Hourly
Rate ($)1

68
263

10,572,60015

580

812,70018

455

477017
580

10,066,08019

455
4770

Board of
Directors (25%)

TOTAL

376,628
hours

-5-

$69,272,613
Internal costs

Notes to Table 1:
1

2

3

4
5

6

7

8
9

10

11

12

13

14

15

16
17
18

19

All hourly rates used in this analysis are derived from SIFMA’s Management and Professional Earnings in the Securities
Industry (2013), modified by Commission staff to account for an 1800-hour work-year and inflation, and multiplied by 2.93
or 5.35 to account for bonuses, firm size, employee benefits and overhead.
Based on the following calculation: 6,432 Access Persons × 2 hours = 12,864 hours. We estimate that there are
approximately 8 new Access Persons per fund complex each year and 6,432 total new Access Persons each year (8 new
Access Persons × 804 fund complexes = 6,432 new Access Persons). In addition, we estimate that the total number of
Access Persons remains approximately steady due to attrition.
We estimate that, on average, the time for Access Persons required to complete initial holdings reports and other transaction
reports costs $255 per hour. Although the hourly rates for Access Persons (typically, portfolio managers, directors and other
officers of the fund) differ, we use $255, the rate of a typical mid-level portfolio manager.
Based on the following calculation: 12,864 hours × $255 rate = $3,280,320 in internal costs.
We estimate that annually 25,000 quarterly transactions reports are filed. Access Persons do not have to file such reports in
certain instances including, for example, when they have not engaged in any securities transactions during a particular
quarter, or when the relevant information is contained in duplicate broker trade confirmations or account statements received
by the firm. This is based on the following calculation: (25,000 quarterly reports × .25 hour) = 6,250 hours.
Based on the following calculations: 25,000 quarterly reports × .25 hour = 6,250 hours; 6,250 hours × $255 rate =
$1,593,750.
Each of the approximately 70,000 Access Persons must file an annual holdings report. This is based on the following
calculation: (70,000 Access Persons × .75 hour = 52,500 hours).
Based on the following calculation: 52,500 hours × $255 rate = $13,387,500.
We estimate that each of the 804 fund complexes receives approximately 6 IPO/Placement Preapproval such requests each
year, for a total of approximately 4,824 such requests filed each year (804 x 6 requests = 4,824 requests annually).
Based on the following calculations: 4,824 IPO requests × 1 hour = 4,824 hours; 4,824 hours × $255 rate (for intermediate
portfolio manager) = $1,230,120.
Based on the following calculations: 804 fund complexes × 3 hours = 2,412 hours; 2,412 hours × $339 rate (for compliance
manager) = $817,668.
This is based on the following calculations: 804 fund complexes × 8.5 hours = 6,834 hours (rounded to nearest hour); 6,834
÷ 2 = 3,417 hours (50% division between CCO and attorney); 3,417 hours × $580 rate = $1,981,860 CCO costs; 3,417 hours
× $455 rate = $1,554,735 attorney costs; $1,981,860 CCO costs + $1,554,735 attorney costs = $3,536,595.
This is based on the following calculations: (4,824 IPO requests × .5 hour for processing each request = 2,412; 2412 hours x
$580 rate = $1,398,960.
This is based on the following calculations: 804 fund complexes × 300 hours = 241,200 hours; 241,200 x .95 = 229,140
hours of clerk time; 241,200 x .05 = 12,060 CCO hours; 12,060 × $580 (CCO rate) = $6,994,800; 229,140 hours × $68
(clerk rate) = $15,581,520; $6,994,800 (CCO costs) + $15,581,520 (clerk costs) = $22,576,320 total costs).
This is based on the following calculations (804 funds complexes x 50 hours = 40,200 hours; 40,200 hours x $263rate =
$10,572,600.
We estimate that 28 new fund complexes are formed each year. 28 x 25 hours = 700 hours.
We estimate that a fund board’s hourly rate is $4,770 per hour (based on 2019 data adjusted for inflation).
Based on the following calculations: 28 new fund complexes × 25 hours = 700 hours; 700 hours x .40 = 280 hours (40%
each for CCO and attorney); 700 hours x .20 =140 hours (20% board time); 140 hours × $580 (CCO rate) = $81,200; 140
hours × $455 (attorney rate) = $63,700; 140 hours × $4,770 (board rate) = $667,800; $81,200 (CCO costs) + $$63,700
(attorney costs) + $667,800 (board costs) = $812,700.
Based on the following calculations: 804 fund complexes × 8 hours = 6,432 hours; 6,432 hours x .25 = 1,608 hours (25%
division each for CCO and Board); 6,432 hours x .50 = 3,216 hours (attorney time); 1,608 hours × $580 (CCO rate) =
$932,640; 3,216 hours × $455 (attorney rate) = $1,463.280; 1,608 hours × $4,770 (board rate) = $7,670,160; $932,640
(CCO costs) + $1,463,280 (attorney costs) + $7,670,160 (board costs) = $ 10,066,080.

-6-

We further estimate that annually there are approximately 85,927 respondents under rule
17j-1, of which 15,927 are rule 17j-1 organizations 6 and 70,000 are Access Persons. In the
aggregate, these respondents make approximately 107,363 responses annually. 7
Table 2: Summary of Revisions to Annual Responses, Burden Hours, and External Costs Estimates
Information Collection

Annual No. of Responses
Previously
approved

Requested

Annual Time Burden (Hrs.)
Previously
approved

Change

Requested

External Cost Burden ($)
Previously
Requested
approved

Change

Initial Holdings Report

6, 264

6,432

168

12,528

12,864

336

Quarterly Transaction Report

25,000

25,000

0

6,250

6,250

0

Annual Holdings Report

70,000

70,000

0

52,500

52,500

0

4,698

4,968

504

4,968

4698

504

n/a

n/a

n/a

2,349

2,412

63

783

804

21

6,656

6,834

178

n/a

n/a

n/a

2,349

2,412

63

n/a

n/a

n/a

234,900

241,200

6,300

n/a

n/a

n/a

39,150

40,200

1,050

18

28

10

450

700

250

275

275

0

6,264

6,432

168

IPO/Private Placement
Preapproval Request
Informing Access Persons of
Reporting Obligation
Preparation of Annual Report to
Board and Certification
Documentation of IPO/Private
Placement Approval/Rejection
Rule 17j-1 Recordkeeping,
Review and Analysis
Maintenance of Computer
Systems for Use in 17j-1
Reporting and Recordkeeping
Preparation and Board Approval
of New Code of Ethics for New
Fund Complex
Preparation and Board approval
of Material Amendments to
Existing Codes of Ethics,
Implementing Policies and
Procedures, and Board Review
and Certification
TOTAL

107,038

107,363

+325

368,094

376,628

+8,534

Change

$3,915,000 $4,020,000 +$105,000

Note to Table 2:
1

Table 1 includes several collections of information that arise from the same annual response. Here, the number of responses
for those collections are delineated with “n/a” because they are already accounted for under other items in Table 2.

6

As of October 2021, there were approximately 14,570 funds series (excluding money market funds), 1,039
investment advisers to funds (excluding sub-advisors), and 318 principal underwriters to funds, for a total
of 15,927 rule 17j-1 organizations (14,570 + 1,039 + 308 = 15,927).

7

Based on the following calculation: (6,432 initial holdings reports by Access Persons + 25,000 quarterly
transaction reports by Access Persons + 70,000 annual holdings reports by Access Persons + 4,824
preapproval requests by Access Persons for purchases of initial public offerings and private placements +
804 annual certifications by fund boards + 275 annual material amendments + 28 new codes of ethics for
new fund complexes = 107,363 annual responses).

-7-

13.

Cost to Respondents

We estimate that there is an annual external cost burden approximately $5,000 per fund
complex, for a total of $4,020,000 8 associated with complying with the information collection
requirements in rule 17j-1. 9 This represents the costs of purchasing and maintaining computers
and software to assist funds in carrying out rule 17j-1 recordkeeping. These external cost
estimates are separate from the internal burden hour cost estimates. The estimate of the average
cost burden is made solely for the purposes of the Paperwork Reduction Act. The estimate is not
derived from a comprehensive or even a representative survey or study of Commission rules.
Reporting burdens may differ substantially across respondents.
14.

Cost to the Federal Government

There is no cost to the federal government of administering the information collection
requirements in rule 17j-1 under the Investment Company Act.
15.

Changes in Burden

The increase in burden hours from 368,094 to 376,628 (or 8,534 hours) to comply with
the requirements of rule 17j-1 is due to an increase in the number of fund complexes. Likewise,
the increase in external costs from $3,915,000 to $4,020,000 (or $105,000) to comply is also due
to the increased number of fund complexes.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exception to Certification Statement for Paperwork Reduction Act
Submissions

Not applicable.

8

This estimate is based on the following calculation: $5,000 external costs × 804 fund complexes =
$4,020,000.

9

The cost burden associated with filing of new and amended codes of ethics on the Commission’s Electronic
Data Gathering, Analysis, and Retrieval system (EDGAR) is included in the Paperwork Reduction Act
estimates for the relevant forms to which these codes must be appended.

-8-

B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS

Not applicable.
.

-9-