[Federal Register Volume 64, Number 62 (Thursday, April 1, 1999)]
[Rules and Regulations]
[Pages 15680-15683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7955]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 275 and 279
[Release No. IA-1794; File No. S7-2-99]
RIN 3235-AH60
Transition Rule for Ohio Investment Advisers
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting a new rule and form amendments under the Investment Advisers
Act of 1940 for investment advisers that will be subject to a new Ohio
investment adviser statute. The new rule provides a transition process
for these investment advisers to switch from Commission to state
registration.
EFFECTIVE DATES: Rule 203A-6 (17 CFR 275. 203A-6) will become effective
May 3, 1999. Amendments to Schedule I to Form ADV (279.1) will become
effective on December 31, 1999.
FOR FURTHER INFORMATION CONTACT: Jeffrey O. Himstreet, Attorney, at
(202) 942-0716, Task Force on Investment Adviser Regulation, Division
of Investment Management, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0506.
SUPPLEMENTARY INFORMATION: The Commission is adopting rule 203A-6 (17
CFR 275.203A-6) and technical amendments to Schedule I of Form ADV (17
CFR 279.1 W), both under the Investment Advisers Act of 1940 (15 U.S.C.
80b)(``Advisers Act'' or ``Act''.
I. Background
Under the Advisers Act, as amended by the Investment Advisers
Supervision Coordination Act (``Coordination Act''),\1\ the Commission
has regulatory responsibility for investment advisers that have at
least $25 million of assets under management or advise a registered
investment company.\2\ The Commission also has regulatory
responsibility for advisers that have their principal place of business
in a state that has not enacted an investment adviser statute,
regardless of their assets under management.\3\ At the time the
Coordination Act was adopted, Ohio was one of four states that did not
have an investment adviser statute.\4\ Recently, Ohio enacted
investment adviser legislation that will become effective on March 18,
1999.\5\
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\1\ Title III of the National Securities Markets Improvement Act
of 1996, Pub. L. No. 104-290, 110 Stat. 3416 (1996) (codified in
scattered sections of the United States Code).
\2\ 15 U.S.C. 80b-3A(a).
\3\ See Rules implementing Amendments to the Investment Advisers
Act of 1940, Investment Advisers Act Release No. 1633 (May 15, 1997)
[64 FR 28112 (May 22, 1997)] at II.E.1.
\4\ Colorado, Iowa and Wyoming also did not have investment
adviser statutes at the time Congress enacted the Coordination Act.
Since that time, Colorado and Iowa have enacted investment adviser
legislation, and we recently amended Schedule I to Form ADV to
reflect these developments. Technical Changes to Schedule I to Form
ADV, Investment Advisers Act Release No. 1733A (Jan. 7, 1999) [64 FR
2120 (Jan. 13, 1999)].
\5\ H.B. 695, 122d Gen. Ass., Reg. Sess. (Ohio 1997-1998).
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On January 29, 1999, we issued a release proposing rule 203A-6
(``Proposing Release'') to assist the Ohio Division of Securities and
to facilitate the transition of regulatory responsibilities for smaller
Ohio advisers.\6\ We also proposed technical, corresponding changes to
Schedule I to Form ADV. We received two comment letters in response to
the proposal, both of which supported the new rule and form
amendments.\7\ The Commission is adopting rule 203A-6 and technical
revisions to Schedule I to Form ADV as proposed.
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\6\ Transition Rule for Ohio Investment Advisers, Investment
Advisers Act Release No. 1787 (Jan. 29, 1999) [64 FR 5722 (Feb. 5,
1999)].
\7\ Letter from Thomas Geyer, Commissioner, Ohio Securities
Division to Jonathan G. Katz, Secretary, SEC (Feb. 17, 1999), File
No. S7-2-99; Letter from Peter C. Hildreth, President, North
American Securities Administrators Association, Inc. to Johathan G.
Katz, Secretary, SEC (Mar. 8, 1999), File No. S7-2-99.
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II. Discussion
Under new rule 203A-6, new Ohio advisers (i.e., those advisers that
are not currently registered with the Commission) that would not be
eligible for Commission registration would
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register with the Ohio Division of Securities on or after the effective
date of Ohio's implementing rules.\8\ Smaller Ohio advisers (i.e. those
that have less than $25 million in assets under management) that are
currently registered with the Commission will switch over to
registration with the Ohio Division of Securities between March 18,1999
and December 31, 1999.\9\ These advisers may withdraw their Commission
registration after they register with the Ohio Division of Securities,
but not later than March 30, 2000.\10\
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\8\ The Ohio Division of Securities estimates that its
implementing rules would be effective by March 24, 1999.
\9\ Ohio Legislation, supra note 5 (to be codified at section
1707.161(E) of the Ohio Revised Code). In addition, advisers
ineligible for Commission registration may be required to register
with other state securities authorities, subject to the Advisers
Act. The Coordination Act amended the Advisers Act to add Section
222(d) [15 U.S.C. 80b-22(d)], which makes state investment adviser
statues inapplicable to advisers that do not have a place of
business in the state and have fewer than six clients who are
residents of that state.
\10\ New rule 203A-6(b). We recognize that Ohio investment
advisers may be registered with, and regulated by, both the Ohio
Divison of Securities and the Commission until the advisers withdraw
from Commission registration. During this time, Ohio investment
advisers may be subject to both federal and state regulatory
requirements. Ohio investment advisers no longer eligible for
Commission registration may avoid this ``duplicate regulation'' by
withdrawing from Commission registration at any time after they
registered with the State of Ohio.
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With the enactment of the Ohio law, smaller Ohio advisers may no
longer rely on the location of their principal office and place of
business as a basis for Commission registration. The Commission
therefore is amending Schedule I by deleting the references to Ohio
from both Schedule I and the Instructions to Schedule I. The amendments
to Schedule I will become effective on December 31, 1999. As a result
of the amendments to Schedule I, advisers will no longer be able to
claim eligibility for Commission registration based on the location of
their principal office and place of business in Ohio and must withdraw
from Commission registration, unless otherwise eligible.
III. Cost/Benefit Analysis
New rule 203A-6 and the technical amendments to Schedule I to Form
ADV are designed to facilitate the transition of certain advisers from
Commission to state registration. This transition further implements
congressional intent to reallocate regulatory responsibilities for
investment advisers between the Commission and state securities
authorities.
New rule 203A-6 will not have a significant effect on the
regulatory burden borne by investment advisers. The Coordination Act
imposes certain costs on advisers as a consequence of no longer being
registered with the Commission, and, at the same time, confers benefits
on these advisers, such as no longer requiring them to file amendments
to Form ADV with the Commission. The costs the Advisers Act imposes on
advisers withdrawing from Commission registration is estimated to be
$10 per adviser (or, $5,400 in the aggregate).\11\ The new rule does
not alter these burdens and benefits, but merely establishes a time by
which advisers are required to switch their registration from the
Commission to the Ohio Division of Securities.\12\ Therefore, the net
costs imposed by the new rule and form amendments are negligible.
Smaller Ohio advisers may withdraw from Commission registration at any
time and avoid any potential burdens associated with new rule 203A-6.
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\11\ The Office of Management and Budget has approved a
collection of information for Form ADV-W (OMB Control No. 3235-
0313). The estimated burden is 1.0 hours, per response. Based on an
average salary of $10 per hour, including benefits, the total costs
imposed by the Advisers Act on Ohio advisers required to withdraw
from Commission registration is approximately $5,400.
\12\ Under current rules, advisers that are no longer eligible
for Commission registration under section 203A(a) of the Act [15
U.S.C. 80b-3a(a)] must withdraw from registration within 90 days
after the date the adviser is required by rule 204-1(a)[17 CFR
275.204-1(a)]. See 17 CFR 279.1 (Schedule I, instruction 6).
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In the Proposing Release, we requested comment on the cost/benefit
analysis. No comments on the cost/benefit analysis were provided. The
Commission believes that the costs imposed by the new rule are
insignificant.
IV. Paperwork Reduction Act
As discussed in the Proposing Release, the amendments to Schedule I
to Form ADV contain a ``collection of information within the meaning of
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 to 3520). The
amendments to Schedule I to Form ADV are necessary to implement the
Coordination Act with respect to advisers with their principal office
in Ohio. The Commission received no public comment in response to its
request for comments on the Paperwork Reduction Act analysis.
Under Office of Management and Budget rules, an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless the agency displays a valid OMB
control number.\13\ Therefore, we have submitted the collection of
information requirements to the Office of Management and Budget for
review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The
title for the collection of information is ``Schedule I to Form ADV,''
under the Advisers Act. Schedule I to Form ADV contains a currently
approved collection of information under OMB control number 3235-0490.
OMB has approved the PRA request in accordance with 44 U.S.C. 3507(d),
and has assigned control number 3235-0490 to Schedule I to Form ADV
with an expiration date of March 31, 2002.
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\13\ 13 44 U.S.C. 3506(c)(1)(B)(v).
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The Commission is adopting amendments to Schedule I to Form ADV
that will delete references to Ohio contained in Schedule I and the
Instructions to Schedule I. Each investment adviser must declare on
Schedule I to Form ADV whether it is eligible for Commission
registration. The rules imposing this collection of information are
found at 17 CFR 275.203-1 and 17 CFR 279.1. Rule 204-1 (17 CFR 275.204-
1) requires an investment adviser registered with the Commission to
file an amended Schedule I to From ADV annually within 90 days after
the end of the investment adviser's fiscal year. The Commission is
amending Schedule I only, and not Form ADV.
There are no additional burdens associated with this filing that
are not already imposed by the statutory requirement that advisers
withdraw from Commission registration if no longer eligible for
Commission registration. The withdrawal procedures impose no additional
paperwork burdens on advisers. The new rule creates a March 30, 2000
deadline by which smaller Ohio advisers must withdraw from Commission
registration. Additionally, smaller Ohio advisers may withdraw from
Commission registration at any time prior to March 30, 2000 and not be
subject to the new rule.
The Commission estimates that there are approximately 8,200
investment advisers registered with the Commission. Approximately 899
investment advisers with their principal office in Ohio that are
registered with the Commission would respond annually to the
information requirements of Schedule I. In addition, an estimated 760
new advisers will file Schedule I to Form ADV annually, approximately
83 of which are estimated to have their principal office in Ohio. Of
these 83 advisers, an estimated 72 will file Schedule I to Form ADV an
average of once a year, and the remaining 11 that rely on the exemption
provided by rule 203A-2(d) (17 CFR 275.203A-d) will file Schedule I to
Form ADV an average of twice each
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year. It is estimated that the Commission will receive approximately
993 total responses from investment advisers with their principal
office in Ohio.
The form amendments will affect only investment advisers with their
principal office in Ohio, and will not materially alter the number of
burden hours for those advisers. It is estimated that the amendments to
Schedule I to Form ADV imposes on Ohio investment advisers 852.75 total
burden hours. This estimate would likely remain constant absent the new
rule and form amendments. The collection of information required by
Schedule I is mandatory, and responses are not kept confidential. The
form amendments, as adopted, do not impose a greater paperwork burden
upon respondents than that estimated and described in the Proposing
Release.
V. Summary of Final Regulatory Flexibility Analysis
The Commission has prepared a Final Regulatory Flexibility Analysis
(``FRFA'') in accordance with the Regulatory Flexibility Act (``Reg.
Flex. Act'') (5 U.S.C. 604) in connection with the adoption of the rule
described in this Release. An Initial Regulatory Flexibility Analysis
(``IRFA'') was prepared in accordance with 5 U.S.C. 603 in conjunction
with the Proposing Release and was made available to the public. A
summary of the IRFA was published in the Proposing Release. We received
no comments on the IRFA.
The FRFA discusses both the need for, and objectives of, the rule
and form amendments adopted by the Commission. The new rule and form
amendments, as adopted, create a transition process for smaller Ohio
advisers. The new rule (a) provides a one-year transition period for
advisers to switch from Commission registration to state registration,
and (b) requires smaller Ohio advisers to withdraw from Commission
registration by March 30, 2000. The amendments to Schedule I delete
references to Ohio to reflect that Ohio has recently enacted an
investment adviser statute.
The FRFA also provides a description and an estimate of the number
of small entities to which the rule amendments will apply. For the
purposes of the Advisers Act and the Reg. Flex. Act, an investment
adviser, under Commission rules, generally is a small entity if (i) it
has assets under management of less than $25 million reported on its
most recent Schedule I to Form ADV (17 CFR 279.1); (ii) it does not
have total assets of $5 million or more on the last day of the most
recent fiscal year; and (iii) it is not in a control relationship with
another investment adviser that is not a small entity.\14\
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\14\ Rule 0-7 [17 CFR 275.0-7].
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It is estimated that approximately 1,000 Commission-registered
advisers are small entities. It is estimated that approximately 540 of
these small-entity advisers have their principal office in Ohio.
Relatively few small entities thus will be affected by the new rule and
form amendments. As explained in the FRFA, the majority of these
advisers are smaller Ohio advisers that will be required by the
Coordination Act to withdraw from Commission registration and register
with the various state securities authorities. Absent Commission
rulemaking, the Coordination Act requires smaller Ohio advisers to
withdraw from Commission registration after the Ohio law is effective.
It takes, on average, one hour to complete form ADV-W.\15\ The costs
associated with withdrawing from Commission registration would exist
absent the new rule and form amendments. Therefore, the net costs
imposed by the new rule and form amendments are negligible.
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\15\ The Office of Management and Budget has approved a
collection of information for Form ADV-W (OMB Control No. 3235-
0313). The estimated average burden is 1.0 hours, per response.
Based on an average salary of $10 per hour, including benefits, the
total costs imposed by the Advisers Act on Ohio advisers required to
withdraw from Commission registration is approximately $5,400.
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The FRFA states that the rule amendments will impose no new
reporting or recordkeeping requirements and will eliminate certain
other requirements. The new rule does, however, create a deadline for
complying with an existing requirement. Smaller Ohio advisers no longer
eligible for Commission registration will be required to withdraw from
Commission registration by March 30, 2000. These advisers will no
longer be required to file an amended Schedule I with the Commission
each year, or the other annual updates to Form ADV.
The new rule and form amendments will not materially alter the time
required for investment advisers to comply with these rules.\16\ The
new rule and form amendments also are necessary to implement the
Coordination Act with respect to smaller Ohio advisers. The FRFA states
that the burden to investment advisers subject to the rule should be
outweighed by the benefits to the investment advisers subject to the
new rule and form amendments. There are no rules that duplicate,
overlap, or conflict with, the new rule and form amendments.
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\16\ Currently, investment advisers that are required to
withdraw from Commission registration because they are no longer
eligible under section 203A(a) of the Act [15 U.S.C. 80b-3a(a)] are
required to withdraw from registration within 90 days after the date
the adviser's Schedule I was required by rule 204-1(a) [17 CFR
275.204-1(a)] to have been filed with the Commission. See Schedule
I, instruction 6 [17 CFR 279.1]
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Finally, the FRFA states that, in adopting the new rule and form
amendments, we considered (a) the establishment of differing compliance
or reporting requirements or timetables that take into account
resources available to small entities; (b) the clarification,
consolidation, or simplification of compliance and reporting
requirements under the new rule for small entities; (c) the use of
performance rather than design standards; and (d) an exemption from
coverage of the new rule, or any part of the new rule, for small
entities. The FRFA explains that the Commission concluded that
establishing different standards for small entities is unnecessary and
inappropriate.
The FRFA is available for public inspection in File No. S7-2-99,
and a copy may be obtained by contacting Jeffrey O. Himstreet,
Attorney, Securities and Exchange Commission, 450 5th Street, NW,
Washington, DC 20549-0506.
VI. Statutory Authority
The Commission is adopting new rule 203A-6 pursuant to the
authority set forth in section 203(h) (15 U.S.C. 80b-3(h)); section
203A(c) (15 U.S.C. 80b-3a(c)); and section 211(a) (15 U.S.C. 80b-11(a))
of the Investment Advisers Act of 1940.
The Commission is adopting amendments to Form ADV pursuant to the
authority set forth in section 203(c)(1) (15 U.S.C. 80b-3(c)(1)); and
section 204 (15 U.S.C. 80b-4) of the Investment Advisers Act of 1940.
List of Subjects in 17 CFR Parts 275 and 279
Reporting and recordkeeping requirements, Securities.
Text of Rule and Form Amendments
For the reasons set out in the preamble, Title 17, Chapter II of
the Code of Federal Regulations is amended as follows:
PART 275--RULES AND REGULATIONS, INVESTMENT ADVISERS ACT OF 1940
1. The authority citation for Part 275 continues to read in part as
follows:
Authority: 15 U.S.C. 80b-2(a)(17), 80b-3, 80b-4, 80b-6(4), 80b-
6a, 80b-11, unless otherwise noted.
* * * * *
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2. Section 275.203A-6 is added to read as follows:
Sec. 275.203A-6 Transition period for Ohio investment advisers.
(a) Ohio Authority. Notwithstanding section 203A(b) of the Act (15
U.S.C. 80b-3a(b)), the Ohio Revised Code, sections 1707.01 to 1707.99,
is effective with respect to an investment adviser registered with the
Commission that, but for having its principal office and place of
business in Ohio, would be prohibited from registering with the
Commission under section 203A of the Act (15 U.S.C. 80b-3a).
(b) Withdrawal Required. Every investment adviser that is
registered with the Commission solely because its principal office and
place of business is located in Ohio must withdraw from Commission
registration by March 30, 2000.
PART 279--FORMS PRESCRIBED UNDER THE INVESTMENT ADVISERS ACT OF
1940
3. The authority citation for part 279 continues to read as
follows:
Authority: The Investment Advisers Act of 1940, 15 U.S.C. 80b-1,
et seq.
4. By amending Schedule I to Form ADV (referenced in Sec. 279.1) to
remove all references to ``Ohio'' and by amending the Instructions to
Schedule I to Form ADV (referenced in Sec. 279.1) to remove all
references to ``Ohio''.
Sec. 279.1 [Amended]
Note: The text of Schedule I to Form ADV (Sec. 279.1) does not
and the amendments will not appear in the Code of Federal
Regulations.
Dated: March 25, 1999.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-7955 Filed 3-31-99; 8:45 am]
BILLING CODE 8010-01-P