[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Notices]
[Pages 57993-57995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-22914]
[[Page 57993]]
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SECURITIES AND EXCHANGE COMMISSION
Proposed Collection; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, Washington, DC 20549-0213.
Extension:
Rule 22c-2. SEC File No. 270-541, OMB Control No. 3235-0620.
Notice is hereby given that pursuant to the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501 et seq.) the Securities and Exchange Commission
(the ``Commission'') is soliciting comments on the collection of
information summarized below. The Commission plans to submit this
existing collection of information to the Office of Management and
Budget for extension and approval.
Rule 22c-2 (17 CFR 270.22c-2) under the Investment Company Act of
1940 (15 U.S.C. 80a) (the ``Investment Company Act'' or ``Act'')
requires the board of directors (including a majority of independent
directors) of most registered open-end investment companies (``funds'')
to either approve a redemption fee of up to two percent or determine
that imposition of a redemption fee is not necessary or appropriate for
the fund. Rule 22c-2 also requires a fund to enter into written
agreements with their financial intermediaries (such as broker-dealers
and retirement plan administrators) under which the fund, upon request,
can obtain certain shareholder identity and trading information from
the intermediaries. The written agreement must also allow the fund to
direct the intermediary to prohibit further purchases or exchanges by
specific shareholders that the fund has identified as being engaged in
transactions that violate the fund's market timing policies. These
requirements enable funds to obtain the information that they need to
monitor the frequency of short-term trading in omnibus accounts and
enforce their market timing policies.
The rule includes three ``collections of information'' within the
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\1\ First, the
rule requires boards to either approve a redemption fee of up to two
percent or determine that imposition of a redemption fee is not
necessary or appropriate for the fund. Second, funds must enter into
information sharing agreements with all of their ``financial
intermediaries'' \2\ and maintain a copy of the written information
sharing agreement with each intermediary in an easily accessible place
for six years. Third, pursuant to the information sharing agreements,
funds must have systems that enable them to request frequent trading
information upon demand from their intermediaries, and to enforce any
restrictions on trading required by funds under the rule.
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\1\ 44 U.S.C. 3501-3520.
\2\ The rule defines a Financial Intermediary as: (i) Any
broker, dealer, bank, or other person that holds securities issued
by the fund in nominee name; (ii) a unit investment trust or fund
that invests in the fund in reliance on section 12(d)(i)(E) of the
Act; and (iii) in the case of a participant directed employee
benefit plan that owns the securities issued by the fund, a
retirement plan's administrator under section 316(A) of the Employee
Retirement Security Act of 1974 (29 U.S.C. 1002(16)(A) or any person
that maintains the plans' participant records. Financial
Intermediary does not include any person that the fund treats as an
individual investor with respect to the fund's policies established
for the purpose of eliminating or reducing any dilution of the value
of the outstanding securities issued by the fund. Rule 22c-2(c)(1).
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The collections of information created by rule 22c-2 are necessary
for funds to effectively assess redemption fees, enforce their policies
in frequent trading, and monitor short-term trading, including market
timing, in omnibus accounts. These collections of information are
mandatory for funds that redeem shares within seven days of purchase.
The collections of information also are necessary to allow Commission
staff to fulfill its examination and oversight responsibilities.
Rule 22c-2(a)(1) requires the board of directors of all registered
investment companies and series thereof (except for money market funds,
ETFs, or funds that affirmatively permit short-term trading of its
securities) to approve a redemption fee for the fund, or instead make a
determination that a redemption fee is either not necessary or
appropriate for the fund. Commission staff understands that the boards
of all funds currently in operation have undertaken this process for
the funds they currently oversee, and the rule does not require boards
to review this determination periodically once it has been made.
Accordingly, we expect that only boards of newly registered funds or
newly created series thereof would undertake this determination.
Commission staff estimates that approximately 117 funds or series
thereof (excluding money market funds and ETFs) are newly formed each
year and would need to make this determination.
Based on conversations with fund representatives,\3\ Commission
staff estimates that it takes 2 hours of the board's time, as a whole,
(at a rate of $4000 per hour) \4\ to approve a redemption fee or make
the required determination on behalf of all series of the fund. In
addition, Commission staff estimates that it takes compliance personnel
of the fund (at a rate of $64 per hour) \5\ 8 hours to prepare trading,
compliance, and other information regarding the fund's operations to
enable the board to make its determination, and takes internal
compliance counsel of the fund (at a rate of $334 per hour) 3 hours to
review this information and present its recommendations to the board.
Therefore, for each fund board that undertakes this determination
process, Commission staff estimates it expends 13 hours \6\ at a cost
of $9514.\7\ As a result, Commission staff estimates that the total
time spent for all funds on this process is 884 hours at a cost of
$646,952.\8\
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\3\ Unless otherwise stated, estimates throughout this analysis
are derived from a survey of funds and conversations with fund
representatives.
\4\ The estimate of $4000 per hour for the board's time as a
whole is based on conversations with representatives of funds and
their legal counsel.
\5\ Unless otherwise stated, all cost estimates for personnel
time are derived from SIFMA's Management & Professional Earnings in
the Securities Industry 2013, modified to account for an 1800-hour
work-year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead.
\6\ This calculation is based on the following estimates: (2
hours of board time + 3 hours of internal compliance counsel time +
8 hours of compliance clerk time = 13 hours).
\7\ This calculation is based on the following estimates: ($8000
($4000 board time x 2 hours = $8000) + $512 ($64 compliance time x 8
hours = $512) + $1002 ($334 x 3 hours attorney time = $1002) =
$9514).
\8\ This calculation is based on the following estimates: (13
hours x 68 funds = 884 hours); ($9514 x 68 funds = $646,952).
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B. Information Sharing Agreements
Rule 22c-2(a)(2) requires a fund to enter into information-sharing
agreements with each of its financial intermediaries. Commission staff
understands that all currently registered funds have already entered
into such agreements with their intermediaries. Funds enter into new
relationships with intermediaries from time to time, however, which
requires them to enter into new information sharing agreements.
Commission staff understands that, in general, funds enter into
information-sharing agreement when they initially establish a
relationship with an intermediary, which is typically executed as an
addendum to the distribution
[[Page 57994]]
agreement. The Commission staff understands that most shareholder
information agreements are entered into by the fund group (a group of
funds with a common investment adviser), and estimates that there are
currently 801 currently active fund groups.\9\ Commission staff
estimates that, on average, each active fund group enters into
relationships with 3 new intermediaries each year. Commission staff
understands that funds generally use a standard information sharing
agreement, drafted by the fund or an outside entity, and modifies that
agreement according to the requirements of each intermediary.
Commission staff estimates that negotiating the terms and entering into
an information sharing agreement takes a total of 4 hours of attorney
time (at a rate of $380) per intermediary (representing 2.5 hours of
fund attorney time and 1.5 hours of intermediary attorney time).
Accordingly, Commission staff estimates that it takes 12 hours at a
cost of $4560 each year \10\ to enter into new information sharing
agreements, and all existing market participants incur a total of 9612
hours at a cost of $3,652,560.\11\
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\9\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014)
(http://www.ici.org/pdf/2014_factbook.pdf).
\10\ This estimate is based on the following calculations: (4
hours x 3 new intermediaries = 12 hours); (12 hours x $380 = $4560).
\11\ This estimate is based on the following calculations: (12
hours x 801 fund groups = 9612 hours); (9612 hours x $380 =
$3,652,560).
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In addition, newly created funds advised by new entrants
(effectively new fund groups) must enter into information sharing
agreements with all of their financial intermediaries. Commission staff
estimates that there are 58 new fund groups that form each year that
will have to enter into information sharing agreements with each of
their intermediaries.\12\ Commission staff estimates that fund groups
formed by new advisers typically have relationships with significantly
fewer intermediaries than existing fund groups, and estimates that new
fund groups will typically enter into 100 information sharing
agreements with their intermediaries when they begin operations.\13\ As
discussed previously, Commission staff estimates that it takes 4 hours
of attorney time (at a rate of $380) per intermediary to enter into
information sharing agreements. Therefore, Commission staff estimates
that each newly formed fund group will incur 400 hours of attorney time
at a cost of $152,000,\14\ and all newly formed fund groups will incur
a total of 23,200 hours at a cost of $8,816,000 to enter into
information sharing agreements with their intermediaries.\15\
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\12\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014)
(http://www.ici.org/pdf/2014_factbook.pdf).
\13\ Commission staff understands that funds generally use a
standard information sharing agreement, drafted by the fund or an
outside entity, and then modifies that agreement according to the
requirements of each intermediary.
\14\ This estimate is based on the following calculations: (4
hours x 100 intermediaries = 400 hours); (400 hours x $380 =
$152,000).
\15\ This estimate is based on the following calculations: (58
fund groups x 400 hours = 23,200 hours) ($380 x 23,200 =
$8,816,000).
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Rule 22c-2(a)(3) requires funds to maintain records of all
information-sharing agreements for 6 years in an easily accessible
place. Commission staff understands that most shareholder information
agreements are stored at the fund group level and estimates that there
are currently 801 fund groups.\16\ Commission staff understands that
information-sharing agreements are generally included as addendums to
distribution agreements between funds and their intermediaries, and
that these agreements would be stored as required by the rule as a
matter of ordinary business practice. Therefore, Commission staff
estimates that maintaining records of information-sharing agreements
requires 10 minutes of time spent by a general clerk (at a rate of $57)
\17\ per fund, each year. Accordingly, Commission staff estimates that
all funds will incur 133.50 hours at a cost of $7609.50 \18\ in
complying with the recordkeeping requirement of rule 22c-2(a)(3).
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\16\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014)
(http://www.ici.org/pdf/2014_factbook.pdf).
\17\ $57 hour figure for a general clerk is derived from SIFMA's
Office Salaries in the Securities Industry 2013 modified to account
for an 1800-hour work-year and multiplied by 2.93 to account for
bonuses, firm size, employee benefits, and overhead.
\18\ This estimate is based on the following calculations: (10
minutes x 801 fund groups = 8010 minutes); (8010 minutes/60 = 133.5
hours); (133.5 hours x $57 = $7609.50).
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Therefore, Commission staff estimates that to comply with the
information sharing agreement requirements of rule 22c-2(a)(2) and (3),
it requires a total of 32,945.5 hours at a cost of $12,476,169.50.\19\
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\19\ This estimate is based on the following calculations: (9612
hours + 23,200 hours + 133.5 hours = 32,945.5 hours); ($3,652,560 +
$8,816,000 + $7609.50 = $12,476,169.50).
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The Commission staff estimates that on average, each fund group
requests shareholder information once a week, and gives instructions
regarding the restriction of shareholder trades every day, for a total
of 417 responses related to information sharing systems per fund group
each year, and a total 334,017 responses for all fund groups
annually.\20\ In addition, as described above, the staff estimates that
funds make 68 responses related to board determinations, 2403 responses
related to new intermediaries of existing fund groups, 5800 responses
related to new fund group information sharing agreements, and 801
responses related to recordkeeping, for a total of 9072 responses
related to the other requirements of rule 22c-2. Therefore, the
Commission staff estimates that the total number of responses is
343,164 (334,017 + 9147 = 343,164).
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\20\ This estimate is based on the following calculations: (52 +
365 = 417); (417 x 801 fund groups = 334,017).
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The Commission staff estimates that the total hour burden for rule
22c-2 is 33,829.5 hours at a cost of $13,123,121.50.\21\
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\21\ This estimate is based on the following calculations: (884
hours (board determination) + 32,945.5 hours (information sharing
agreements) = 33,829.5 total hours); ($12,476,169.50 + $646,952 =
$13,123,121.50).
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Responses provided to the Commission will be accorded the same
level of confidentiality accorded to other responses provided to the
Commission in the context of its examination and oversight program.
Responses provided in the context of the Commission's examination and
oversight program are generally kept confidential. Complying with the
information collections of rule 22c-2 is mandatory for funds that
redeem their shares within 7 days of purchase. An agency may not
conduct or sponsor, and a person is not required to respond to a
collection of information unless it displays a currently valid control
number.
Written comments are invited on: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information will
have practical utility; (b) the accuracy of the agency's estimate of
the burden of the collection of information; (c) ways to enhance the
quality, utility, and clarity of the information collected; and (d)
ways to minimize the burden of the collection of information on
respondents, including through the use of automated collection
techniques or other forms of information technology. Consideration will
be given to comments and suggestions submitted in writing within 60
days of this publication.
Please direct your written comments to Thomas Bayer, Chief
Information Officer, Securities and Exchange Commission, C/O Remi
Pavlik-Simon, 100 F Street NE., Washington, DC
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20549; or send an email to: [email protected].
Dated: September 22, 2014.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22914 Filed 9-25-14; 8:45 am]
BILLING CODE 8011-01-P