SEC Keeps Securities Storage Rules on Auto-Pilot
Published Date: 2/28/2025
Notice
Summary
The SEC is asking to keep Rule 17f-4, which helps investment funds safely store their securities with special depositories. Around 639 groups like funds, custodians, and depositories follow this rule, which mostly stays the same and doesn’t add new costs or deadlines. This extension keeps things running smoothly without extra paperwork or fees for these financial players.
Analyzed Economic Effects
3 provisions identified: 2 benefits, 1 costs, 0 mixed.
Twice-Yearly Reporting Burden Quantified
Rule 17f-4 requires custodians and depositories to provide funds, upon request, reports about internal accounting controls and financial strength, and those reports are usually transmitted twice each year. The SEC staff estimates custodians spend about 3,005 hours annually transmitting reports, depositories about 179 hours, for a total annual burden of 3,148 hours.
Rule 17f-4 Extended Without Changes
The SEC has asked OMB to extend Rule 17f-4, which governs funds' use of securities depositories. The rule is being kept mostly the same and the SEC says it does not add new costs or deadlines for the roughly 639 respondents (about 611 funds, 15 custodians/sub-custodians, and 13 possible securities depositories).
Custody Due Care and Internal Controls Required
Rule 17f-4 requires a fund's custodian (or a depository if the fund deals directly with one) to exercise due care under reasonable commercial standards and, if a fund deals directly with a depository, to implement internal control systems to prevent unauthorized officers' instructions. The SEC staff states funds should already have modified contracts and implemented these internal controls when the rule was amended, so the staff estimates no ongoing burden from these requirements.
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Key Dates
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