[Federal Register Volume 64, Number 226 (Wednesday, November 24, 1999)]
[Notices]
[Pages 66216-66217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30651]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Request for Public Comment
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of Filings and Information Services, Washington,
D.C. 20549.
Extension:
Rule 2a-7, SEC File No. 270-258; OMB Control No. 3235-0268
Notice is hereby given that under the Paperwork Reduction Act of
1995 [44 U.S.C. 3501], the Securities and Exchange Commission (the
``Commission'') is soliciting public 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.
Rule 2a-7 [17 CFR 270.2a-7] under the Investment Company Act of
1940 [15 U.S.C. 80a] (the ``Act'') governs money market funds. Money
market funds are open-end management investment companies that differ
from other open-end management investment companies in that they seek
to maintain a stable price per share, usually $1.00. The rule exempts
money market funds from the valuation requirements of the Act, and,
subject to certain risk-limiting conditions, permits money market funds
to use the ``amortized cost method'' of asset valuation or the ``penny-
rounding method'' of share pricing.
Rule 2a-7 imposes certain recordkeeping and reporting obligations
on money market funds. The board of directors of a money market fund,
in supervising the fund's operations, must establish written procedures
designed to stabilize the fund's net asset value (``NAV''). The board
also must adopt guidelines and procedures relating to certain
responsibilities it delegates to the fund's investment adviser. These
procedures typically address various aspects of the fund's operations.
The fund must maintain and preserve for six years a written copy of
both these procedures and guidelines. The fund also must maintain and
preserve for six years a written record of the board's considerations
and actions taken in connection with the discharge of its
responsibilities, to be included in the board's minutes. In addition,
the fund must maintain and preserve for three years written records of
certain credit risk analyses, evaluations with respect to securities
subject to demand features or guarantees, and determinations with
respect to adjustable rate securities and asset backed securities. If
the board takes action with respect to defaulted securities, events of
insolvency, or deviations in share price, the fund must file with the
Commission an exhibit to Form N-SAR describing the nature and
circumstances of the action. If any portfolio security fails to meet
certain eligibility standards under the rule, the fund also must
identify those securities in an exhibit to Form N-SAR. After certain
events of default or insolvency relating to a portfolio security, the
fund must notify the Commission of the event and the actions the fund
intends to take in response to the situation.
The recordkeeping requirements in rule 2a-7 are designed to enable
Commission staff in its examinations of money market funds to determine
compliance with the rule, as well as to ensure that money market funds
have established procedures for collecting the information necessary to
make adequate credit reviews of securities in their portfolios. The
reporting requirements of rule 2a-7 are intended to assist Commission
staff in overseeing money market funds.
Commission staff estimates that approximately 949 money market
funds are subject to the rule each year. The staff estimates that each
of these funds spends an average of 336 hours each year to document
credit risk analyses, and determinations regarding adjustable rate
securities, asset backed securities, and securities subject to a demand
feature or guarantee.\1\ In addition, each year an estimated average of
10 money market funds each spends approximately 2.5 hours to record (in
the board minutes) board determinations and actions in response to
certain events of default or insolvency, and to notify the Commission
of the event.\2\ Finally, Commission staff estimates that in the first
year of operation, the board of directors of an average of 46 new money
market fund each spends 7 hours to formulate and establish written
procedures for stabilizing the fund's NAV and guidelines for delegating
certain of the board's responsibilities to the fund's adviser. Based on
these estimates, Commission staff estimates the total burden of the
rule's paperwork requirements for money market funds to be 319,211
hours.\3\ This is an increase from the previous estimate of 196,371
hours. The increase is attributable to updated information from money
market funds regarding hourly burdens, and to a more accurate
calculation of the component parts of some information collection
burdens.
---------------------------------------------------------------------------
\1\ This average is based on discussions with individuals at
money market funds and their advisers. The amount of time may vary
significantly for individual money market funds.
\2\ This number may vary significantly from year to year.
\3\ This estimate is based on the following calculation: ((949
x 336) + (10 x 2.5) + (46 x 7) = 319,211.
---------------------------------------------------------------------------
These estimates of burden hours are made solely for the purposes of
the Paperwork Reduction Act. The estimates are not derived from a
comprehensive or even a representative survey or study of Commission
rules.
In addition to the burden hours, Commission staff estimates that
money market funds will incur costs to preserve records required under
rule 2a-7. These costs will vary significantly for individual funds,
depending on the amount of assets under fund management and whether the
fund preserves its records in a storage facility in hard copy of has
developed and maintains a computer system to create and preserve
compliance records.\4\ Commission staff estimates that the amount an
individual fund may spend ranges from $100 per year to $2 million.
Based on an average cost of $.0000052 per dollar of assets under
management for small and medium-sized funds to $0.000039 per dollar of
assets under management for large funds,\5\ the staff estimates
compliance with rule 2a-7 costs the fund industry approximately $51.6
million per year.\6\ Based on
[[Page 66217]]
responses from individuals in the money market fund industry, the staff
estimates that some of the largest fund complexes have created computer
programs for maintaining and preserving compliance records for rule 2a-
7. Based on a cost of $0.000068 per dollar of assets under management
for large funds, the staff estimates that the total annualized capital/
startup costs range from $0 for small funds to $88.4 million for all
large funds. Commission staff further estimates, however, that even
absent the requirements of rule 2a-7, money market funds would spend at
least half of the amount for capital costs ($44.2 million) and for
record preservation ($25.8 million) to establish and maintain these
records and the systems for preserving them as a part of sound business
practices to ensure diversification and minimal credit risk in a
portfolio for a fund that seeks to maintain a stable price per share.
---------------------------------------------------------------------------
\4\ The amount of assets under management in money market funds
ranges from approximately $100,000 to $60.9 billion.
\5\ For purpose of this PRA submission, Commission staff used
the following categories for fund sizes: (i) small--money market
funds with $50 million or less in assets under management, (ii)
medium--money market funds with more than $50 million up to and
including $1 billion in assets under management, and (iii) large--
money market funds with more than $1 billion in assets under
management.
\6\ The staff estimated the annual cost of preserving the
required books and records by identifying the annual costs incurred
by several funds and then relating this total cost to the average
net assets of these funds during the year. With a total of $204
billion under management in small and medium funds, and $1,292.6
billion under management in large funds, the total amount was
estimated as follows: ($0.0000052 x $204 billion) + ($0.000039 x
$1,292.6 billion) = $51.6 million.
---------------------------------------------------------------------------
The collections of information required by rule 2a-7 are necessary
to obtain the benefits described above. Notices to the Commission will
not be kept confidential. 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 requested on: (a) whether the collections of
information are necessary for the proper performance of the functions
of the Commission, including whether the information has practical
utility; (b) the accuracy of the Commission's estimate of the burdens
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 Michael E. Bartell,
Associate Executive Director, Office of Information Technology,
Securities and Exchange Commission, 450 5th Street, NW, Washington, DC
20549.
Dated: November 17, 1999.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30651 Filed 11-23-99; 8:45 am]
BILLING CODE 8010-01-M