[Federal Register Volume 68, Number 10 (Wednesday, January 15, 2003)]
[Notices]
[Pages 2086-2087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-789]


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SECURITIES AND EXCHANGE COMMISSION


Requests Under Review by Office of Management and Budget

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'') has submitted to the Office of Management and 
Budget, a request for extension of approval for rule 2a-7 (17 CFR 
270.2a-7) under the Investment Company Act of 1940 (15 U.S.C. 80a) (the 
``Act'').
    Rule 2a-7 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 adviser. These procedures 
and guidelines typically address various aspects of the fund's 
operations. The fund must maintain and preserve for six years a written 
copy of both 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 891 money market funds are subject 
to rule

[[Page 2087]]

2a-7 each year.\1\ 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.\2\ 
In addition, each year an estimated average of three money market funds 
each spends approximately one-half hour 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.\3\ 
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 funds 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.\4\ 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 estimate is based on information in the Money Fund 
Vision database, compiled by iMoneyNet (Sept. 6, 1999).
    \2\ 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.
    \3\ This number may vary significantly from year to year.
    \4\ 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, as 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.\5\ Commission staff estimates that the 
amount an individual fund may spend ranges from $100 per year to $1 
million. 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,\6\ the staff 
estimates compliance with rule 2a-7 costs the fund industry 
approximately $5 million.\7\ 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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    \5\ The amount of assets under management in money market funds 
ranges from approximately $100,000 to $70.6 billion.
    \6\ 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.
    \7\ 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.
    Please direct general comments regarding the information above to: 
(i) Desk Officer for the Securities and Exchange Commission, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
New Executive Office Building, Washington, DC 20503; and (ii) Kenneth 
A. Fogash, Acting Associate Executive Director/CIO, Office of 
Information Technology, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549. Comments must be submitted to OMB 
within 30 days of this notice.

    Dated: January 7, 2003.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-789 Filed 1-14-03; 8:45 am]
BILLING CODE 8010-01-P