[Federal Register Volume 67, Number 215 (Wednesday, November 6, 2002)]
[Notices]
[Pages 67664-67665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28188]


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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, DC 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 et seq.), the Securities and Exchange Commission 
(the ``Commission'') is soliciting public comments on the collections 
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 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

[[Page 67665]]

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 891 money market 
funds are subject to the rule each year. The staff estimates that each 
of these funds spends an average of 539 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 
three money market funds each spends approximately one hour to record 
(in the board minutes) board determinations and actions in response to 
certain securities' failure to maintain eligibility standards, or 
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, counsel, and staff of an 
average of 15 new money market fund each spends 38.5 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 480,830 hours.\3\ This is an increase from the 
previous estimate of 319,211 hours. The increase is attributable to 
updated information from money market funds regarding hourly burdens, a 
more accurate calculation of the component parts of some information 
collection burdens, and the significant differences in burden hours 
reported by the funds selected at random to be surveyed in different 
submission years.
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    \1\ This average is based on discussions with individuals at 
money market funds and their advisers. The actual number of burden 
hours may vary significantly depending on the type and number of 
portfolio securities held by individual funds.
    \2\ This number may vary significantly from year to year.
    \3\ This estimate is based on the following calculation: ((891 x 
539) + (3 x 1) + (15 x 38.5) = 480,830.
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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 or 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 $300,000. Based 
on an average cost of $0.0000052 per dollar of assets under management 
for small and medium-sized funds to $0.0000024 per dollar of assets 
under management for large funds,\5\ the staff estimates compliance 
with rule 2a-7 costs the fund industry approximately $5 million per 
year.\6\ Based on 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 $0.0000097 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 $20 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 ($10 million) and for record preservation ($2.5 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 $191.3 
billion under management in small and medium funds, and $2,078 
billion under management in large funds, the total amount was 
estimated as follows: ($0.0000052 x $191.3 billion) + ($0.0000024 x 
$2,078 billion) = $5 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 Kenneth A. Fogash, Acting 
Associate Executive Director/CIO, Office of Information Technology, 
Securities and Exchange Commission, 450 5th Street, NW, Washington, DC 
20549.

    Dated: October 30, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-28188 Filed 11-5-02; 8:45 am]
BILLING CODE 8010-01-P[FEDREG][VOL]*[/VOL][NO]*[/NO][DATE]*[/
DATE][NOTICES]