[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]


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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.
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    \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.
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    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.
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    \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.
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    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