[Federal Register Volume 77, Number 30 (Tuesday, February 14, 2012)]
[Notices]
[Pages 8298-8302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-3340]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Investor

[[Page 8299]]

Education and Advocacy, Washington, DC 20549-0213.

Extension:
    Rule 12d1-1; SEC File No. 270-526; OMB Control No. 3235-0584.

    Notice is hereby given that, pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (the ``Commission'') is soliciting 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 for extension and approval.
    An investment company (``fund'') is generally limited in the amount 
of securities the fund (``acquiring fund'') can acquire from another 
fund (``acquired fund''). Section 12(d) of the Investment Company Act 
of 1940 (the ``Investment Company Act'' or ``Act'') \1\ provides that a 
registered fund (and companies it controls) cannot:
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    \1\ See 15 U.S.C. 80a.
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     Acquire more than three percent of another fund's 
securities;
     Invest more than five percent of its own assets in another 
fund; or
     Invest more than ten percent of its own assets in other 
funds in the aggregate.\2\
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    \2\ See 15 U.S.C. 80a-12(d)(1)(A). If an acquiring fund is not 
registered, these limitations apply only with respect to the 
acquiring fund's acquisition of registered funds.
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    In addition, a registered open-end fund, its principal underwriter, 
and any registered broker or dealer cannot sell that fund's shares to 
another fund if, as a result:
     The acquiring fund (and any companies it controls) owns 
more than three percent of the acquired fund's stock; or
     All acquiring funds (and companies they control) in the 
aggregate own more than ten percent of the acquired fund's stock.\3\
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    \3\ See 15 U.S.C. 80a-12(d)(1)(B).
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    Rule 12d1-1 under the Act provides an exemption from these 
limitations for ``cash sweep'' arrangements in which a fund invests all 
or a portion of its available cash in a money market fund rather than 
directly in short-term instruments.\4\ An acquiring fund relying on the 
exemption may not pay a sales load, distribution fee, or service fee on 
acquired fund shares, or if it does, the acquiring fund's investment 
adviser must waive a sufficient amount of its advisory fee to offset 
the cost of the loads or distribution fees.\5\ The acquired fund may be 
a fund in the same fund complex or in a different fund complex. In 
addition to providing an exemption from section 12(d)(1) of the Act, 
the rule provides exemptions from section 17(a) of the Act and rule 
17d-1 thereunder, which restrict a fund's ability to enter into 
transactions and joint arrangements with affiliated persons.\6\ These 
provisions would otherwise prohibit an acquiring fund from investing in 
a money market fund in the same fund complex,\7\ and prohibit a fund 
that acquires five percent or more of the securities of a money market 
fund in another fund complex from making any additional investments in 
the money market fund.\8\
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    \4\ See 17 CFR 270.12d1-1.
    \5\ See rule 12d1-1(b)(1).
    \6\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d); 17 CFR 
270.17d-1.
    \7\ An affiliated person of a fund includes any person directly 
or indirectly controlling, controlled by, or under common control 
with such other person. See 15 U.S.C. 80a-2(a)(3) (definition of 
``affiliated person''). Most funds today are organized by an 
investment adviser that advises or provides administrative services 
to other funds in the same complex. Funds in a fund complex are 
generally under common control of an investment adviser or other 
person exercising a controlling influence over the management or 
policies of the funds. See 15 U.S.C. 80a-2(a)(9) (definition of 
``control''). Not all advisers control funds they advise. The 
determination of whether a fund is under the control of its adviser, 
officers, or directors depends on all the relevant facts and 
circumstances. See Investment Company Mergers, Investment Company 
Act Release No. 25259 (Nov. 8, 2001) [66 FR 57602 (Nov. 15, 2001)], 
at n. 11. To the extent that an acquiring fund in a fund complex is 
under common control with a money market fund in the same complex, 
the funds would rely on the rule's exemptions from section 17(a) and 
rule 17d-1.
    \8\ See 15 U.S.C. 80a-2(a)(3)(A), (B).
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    The rule also permits a registered fund to rely on the exemption to 
invest in an unregistered money market fund that limits its investments 
to those in which a registered money market fund may invest under rule 
2a-7 under the Act, and undertakes to comply with all the other 
provisions of rule 2a-7.\9\ In addition, the acquiring fund must 
reasonably believe that the unregistered money market fund (i) operates 
in compliance with rule 2a-7, (ii) complies with sections 17(a), (d), 
(e), 18, and 22(e) of the Act \10\ as if it were a registered open-end 
fund, (iii) has adopted procedures designed to ensure that it complies 
with these statutory provisions, (iv) maintains the records required by 
rules 31a-1(b)(1), 31a-1(b)(2)(ii), 31a-1(b)(2)(iv), and 31a-1(b)(9); 
\11\ and (v) preserves permanently, the first two years in an easily 
accessible place, all books and records required to be made under these 
rules.
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    \9\ See 17 CFR 270.2a-7.
    \10\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d), 15 U.S.C. 
80a-17(e), 15 U.S.C. 80a-18, 15 U.S.C. 80a-22(e).
    \11\ See 17 CFR 270.31a-1(b)(1), 17 CFR 270.31a-1(b)(2)(ii), 17 
CFR 270.31a-1(b)(2)(iv), 17 CFR 270.31a-1(b)(9).
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    Rule 2a-7 contains certain collection of information requirements. 
An unregistered money market fund that complies with rule 2a-7 would be 
subject to these collection of information requirements. In addition, 
the recordkeeping requirements under rule 31a-1 with which the 
acquiring fund reasonably believes the unregistered money market fund 
complies are collections of information for the unregistered money 
market fund. The adoption of procedures by unregistered money market 
funds to ensure that they comply with sections 17(a), (d), (e), 18, and 
22(e) of the Act also constitute collections of information. By 
allowing funds to invest in registered and unregistered money market 
funds, rule 12d1-1 is intended to provide funds greater options for 
cash management. In order for a registered fund to rely on the 
exemption to invest in an unregistered money market fund, the 
unregistered money market fund must comply with certain collection of 
information requirements for registered money market funds. These 
requirements are intended to ensure that the unregistered money market 
fund has established procedures for collecting the information 
necessary to make adequate credit reviews of securities in its 
portfolio, as well as other recordkeeping requirements that will assist 
the acquiring fund in overseeing the unregistered money market fund 
(and Commission staff in its examination of the unregistered money 
market fund's adviser).
    The number of unregistered money market funds that would be 
affected by the proposal is an estimate based on the number of 
Commission exemptive applications that the Commission received in the 
past that sought relief for registered funds to purchase shares in an 
unregistered money market fund in excess of the section 12(d)(1) 
limits. The hour burden estimates for the condition that an 
unregistered money market fund comply with rule 2a-7 are based on the 
burden hours included in the Commission's 2009 and 2010 PRA submissions 
regarding rule 2a-7 (``rule 2a-7 submissions'').\12\ The estimated 
average burden hours in this collection of information are made solely 
for

[[Page 8300]]

purposes of the Paperwork Reduction Act and are not derived from a 
quantitative, comprehensive or even representative survey or study of 
the burdens associated with Commission rules and forms.
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    \12\ Securities and Exchange Commission, Request for OMB 
Approval of Extension for Approved Collection for Rule 2a-7 under 
the Investment Company Act of 1940 (OMB Control No. 3235-0268) 
(approved October 13, 2009); Securities and Exchange Commission, 
Request for OMB Approval of Revision for Approved Collection for 
Rule 2a-7 under the Investment Company Act of 1940 (OMB Control No. 
3235-0268) (approved April 18, 2010).
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    In the rule 2a-7 submissions, Commission staff made the following 
estimates with respect to aggregate annual hour and cost burdens for 
collections of information for each existing registered money market 
fund:

    Documentation of credit risk analyses, and determinations 
regarding adjustable rate securities, asset backed securities, and 
securities subject to a demand feature or guarantee:

    81 responses
    410 hours of professional time
    Cost: $79,130

    Public Web site posting of monthly portfolio information:

    12 responses
    4.4 burden hours of professional time
    Cost: $12,584

    The staff estimates that registered funds currently invest in 30 
unregistered money market funds in excess of the statutory limits under 
rule 12d1-1.\13\ Each of these unregistered money market funds engages 
in the collections of information described above. Accordingly, the 
staff estimates that unregistered money market funds complying with the 
collections of information described above engage in a total of 2790 
annual responses under rule 12d1-1,\14\ the aggregate annual burden 
hours associated with these responses is 12,432,\15\ and the aggregate 
annual cost to funds is $2.75 million.\16\
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    \13\ This estimate is based on the number of applications 
seeking exemptions to invest in unregistered money market funds 
filed with the Commission in 2005 (40), adjusted by the percentage 
change in registered money market funds from 2005 to November 2011 
(870 to 641, according to the Investment Company Institute). This 
estimate may be understated because applicants generally did not 
identify the name or number of unregistered money market funds in 
which registered funds intended to invest, and each application also 
applies to unregistered money market funds to be organized in the 
future. Because the Commission adopted rule 12d1-1 in June 2006, 
2005 is the last full year in which the Commission received 
applications seeking an exemption to invest in unregistered money 
market funds.
    \14\ The estimate is based on the following calculations: (30 
funds x 81 responses for documentation of credit analyses and other 
determinations) = 2340 responses. (30 funds x 12 responses for 
public Web site posting) = 360 responses. 2340 responses + 360 
responses = 2790 responses.
    \15\ This estimate is based on the following calculations: (30 
funds x 410 hours for documentation of credit analyses and other 
determinations) = 12,300 hours. (30 funds x 4.4 hours for public Web 
site posting) = 132 hours. 12,300 hours + 132 hours = 12,432 hours.
    \16\ This estimate is based on the following calculations: (30 
funds x $79,130) = $2,373,900. (30 funds x $12,584) = $377,520. 
$2,373,900 + $377,520 = $2,751,420.
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    In the rule 2a-7 submissions, Commission staff further estimated 
the aggregate annual hour and cost burdens for collections of 
information for fund complexes with registered money market funds as 
follows:

    Review and revise procedures concerning stress testing:
    1 response
    7 burden hours of professional and director time
    Cost: $5650
    Draft, compile, and provide stress testing reports to board of 
directors:
    10 responses
    27 burden hours of director, professional, and support staff 
time
    Cost: $69,990
    Maintain records of stress testing reports to board of 
directors:
    10 responses
    0.2 burden hours of support staff time
    Cost: $103
    Maintain records of creditworthiness evaluations of repurchase 
counterparties:
    1 response
    2 burden hours of support staff time
    Cost: $124
    Reporting of rule 17a-9 transactions:\17\
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    \17\ See 17 CFR 270.17a-9.
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    1 response
    1 burden hour of legal time
    Cost: $305

    In the rule 2a-7 submissions, Commission staff estimated that there 
are 163 fund complexes with 719 registered money market funds subject 
to rule 2a-7. The staff estimates that there are 30 fund complexes with 
unregistered money market funds invested in by mutual funds in excess 
of the statutory limits under rule 12d1-1.\18\ Each of these fund 
complexes engages in the collections of information described above. 
Accordingly, the staff estimates that these fund complexes complying 
with the collections of information described above engage in a total 
of 690 annual responses under rule 12d1-1,\19\ the aggregate annual 
burden hours associated with these responses is 1116,\20\ and the 
aggregate annual cost to funds is $2,285,160.\21\
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    \18\ Given the fact that exemptive applications are generally 
filed on behalf of fund complexes rather than individual funds, the 
staff estimates that each of the exemptive applications upon which 
its estimates of the number of unregistered money market funds is 
based represents a separate fund complex. See supra note 13.
    \19\ The estimate is based on the following calculations: (30 
fund complexes x 1 response for revision of procedures concerning 
stress testing) = 30 responses. (30 fund complexes x 10 responses to 
provide stress testing reports) = 300 responses. (30 fund complexes 
x 10 responses to maintain stress testing reports) = 300 responses. 
(30 fund complexes x 1 response to maintain records of 
creditworthiness) = 30 responses. (30 fund complexes x 1 response 
for reporting of rule 17a-9 transactions) = 30 responses. 30 
responses + 300 responses + 300 responses + 30 responses + 30 
responses = 690 responses.
    \20\ This estimate is based on the following calculations: (30 
fund complexes x 7 hours for revision of procedures concerning 
stress testing) = 210 hours. (30 fund complexes x 27 hours to 
provide stress testing reports) = 810 hours. (30 fund complexes x 
0.2 hours to maintain stress testing reports) = 6 hours. (30 fund 
complexes x 2 hours to maintain records of creditworthiness) = 60 
hours. (30 fund complexes x 1 hour for reporting of rule 17a-9 
transactions) = 30 hours. 210 hours + 810 hours + 6 hours + 60 hours 
+ 30 hours = 1116 hours.
    \21\ This estimate is based on the following calculations: (30 
fund complexes x $5650 for revision of procedures concerning stress 
testing) = $169,500. (30 fund complexes x $69,990 to provide stress 
testing reports) = $2,099,700. (30 fund complexes x $103 to maintain 
stress testing reports) = $3090. (30 fund complexes x $124 to 
maintain records of creditworthiness) = $3720. (30 fund complexes x 
$305 for reporting of rule 17a-9 transactions) = $9150. $169,500 + 
$2,099,700 + $3090 + $3720 + $9150 = $2,285,160.
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    In the rule 2a-7 submissions, the staff further estimated the 
aggregate annual burdens for registered money market funds that amend 
their board procedures as follows:

    Amendment of procedures designed to stabilize the fund's net 
asset value:
    1 response
    2.4 burden hours of director time
    Cost: $2340

    Consistent with the estimate in the rule 2a-7 submissions, 
Commission staff estimates that approximately \1/4\, or 8, unregistered 
money market funds review and amend their board procedures each year. 
Accordingly, the staff estimates that unregistered money market funds 
complying with this collection of information requirement engage in a 
total of 8 annual responses under rule 12d1-1,\22\ the aggregate annual 
burden hours associated with these responses is 19,\23\ and the 
aggregate annual cost to funds to comply with this collection of 
information is $18,720.\24\
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    \22\ The estimate is based on the following calculation: (8 
funds x 1 response for board review and amendment of procedures) = 8 
responses.
    \23\ This estimate is based on the following calculation: (8 
funds x 2.4 hours for review and amendment of procedures) = 19.2 
hours.
    \24\ This estimate is based on the following calculation: (8 
funds x $2340) = $18,720.
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    In the rule 2a-7 submissions, Commission staff further estimated 
the aggregate annual burdens for registered money market funds that 
experience an event of default or insolvency as follows:

    Written record of board determinations and actions related to 
failure of a security to meet certain eligibility standards or an 
event of default of default or insolvency:

    2 responses
    1 burden hour of legal time
    Cost: $270

    Notice to Commission of an event of default or insolvency:


[[Page 8301]]


    1 response
    1.5 burden hours of legal time
    Cost: $405


    Consistent with the estimate in the rule 2a-7 submissions, 
Commission staff estimates that approximately 2 percent, or 1, 
unregistered money market fund experiences an event of default or 
insolvency each year. Accordingly, the staff estimates that one 
unregistered money market fund will comply with these collection of 
information requirements and engage in 3 annual responses under rule 
12d1-1,\25\ the aggregate annual burden hours associated with these 
responses is 2.5,\26\ and the aggregate annual cost to funds is 
$675.\27\
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    \25\ The estimate is based on the following calculations: (1 
fund x 2 responses) + (1 fund x 1 response) = 3 responses.
    \26\ This estimate is based on the following calculations: (1 
fund x 1 hour) + (1 fund x 1.5 hours) = 2.5 hours.
    \27\ This estimate is based on the following calculations: (1 
fund x $270) + (1 fund x $405) = $675.
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    In the rule 2a-7 submissions, Commission staff further estimated 
the aggregate annual burdens for newly registered money market funds as 
follows:

    Establishment of written procedures designed to stabilize the 
fund's net asset value and guidelines for delegating board authority 
for determinations under the rule:

    1 response
    15.5 hours of director, legal, and support staff time
    Cost: $5610

    Adopt procedures concerning stress testing:

    1 response per fund complex
    8.33 burden hours of professional and director time per fund 
complex
    Cost: $6017 per fund complex

    Commission staff estimates that the proportion of unregistered 
money market funds that intend to newly undertake the collection of 
information burdens of rule 2a-7 will be similar to the proportion of 
money market funds that are newly registered. Because of the recent 
decrease in registered money market funds and the lack of newly 
registered money market funds, the staff believes that there will be no 
unregistered money market funds that will undertake the collections of 
information required for newly registered money market funds.\28\ As a 
result, the staff estimates that there will be no burdens associated 
with these collection of information requirements.
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    \28\ See supra note 13.
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    Accordingly, the estimated total number of annual responses under 
rule 12d1-1 for the collections of information described in the rule 
2a-7 submissions is 3491, the aggregate annual burden hours associated 
with these responses is 13,570, and the aggregate cost to funds is $5.1 
million.\29\
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    \29\ These estimates are based upon the following calculations: 
2790 + 690 + 8+ 3 = 3491 annual responses; 12,432 + 1116 + 19 + 2.5 
= 13,569.5 burden hours; and $2,751,420 + $2,285,160 + $18,720 + 675 
= $5,055,975.
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    Rules 31a-1(b)(1), 31a-1(b)(2)(ii), 31a-1(b)(2)(iv), and 31a-
1(b)(9) require registered funds to keep certain records, which include 
journals and general and auxiliary ledgers, including ledgers for each 
portfolio security and each shareholder of record of the fund. Most of 
the records required to be maintained by the rule are the type that 
generally would be maintained as a matter of good business practice and 
to prepare the unregistered money market fund's financial statements. 
Accordingly, Commission staff estimates that the requirements under 
rules 31a-1(b)(1), 31a-1(b)(2)(ii), 31a-1(b)(2)(iv), and 31a-1(b)(9) 
would not impose any additional burden because the costs of maintaining 
these records would be incurred by unregistered money market funds in 
any case to keep books and records that are necessary to prepare 
financial statements for shareholders, to prepare the fund's annual 
income tax returns, and as a normal business custom.
    Rule 12d1-1 also requires unregistered money market funds in which 
registered funds invest to adopt procedures designed to ensure that the 
unregistered money market funds comply with sections 17(a), (d), (e), 
and 22(e) of the Act. This is a one-time collection of information 
requirement that applies to unregistered money market funds that intend 
to comply with the requirements of rule 12d1-1. As discussed above, 
Commission staff estimates that because of the recent decrease in 
registered money market funds and the lack of newly registered money 
market funds there will be no unregistered money market funds that will 
undertake the collections of information required for newly registered 
money market funds.\30\ For similar reasons, the Commission staff 
estimates that there will be no registered money market funds that will 
adopt procedures designed to ensure that the unregistered money market 
funds comply with sections 17(a), (d), (e), and 22(e) of the Act. The 
staff concludes that there will be no burdens associated with these 
collection of information requirements.
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    \30\ See supra text accompanying note 28.
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    Commission staff further estimates that unregistered 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. In the rule 2a-7 submissions, Commission staff 
estimated that the amount an individual money market fund may spend 
ranges from $100 per year to $300,000. We have no reason to believe the 
range is different for unregistered money market funds. The Commission 
does not have specific information on the amount of assets managed by 
unregistered money market funds or the proportion of those assets held 
in small, medium-sized, or large unregistered money market funds. 
Accordingly, Commission staff estimates that unregistered money market 
funds in which registered funds invest in reliance on rule 12d1-1 are 
similar to registered money market funds in terms of amount and 
distribution of assets under management.\31\ Based on a cost of 
$0.0051295 per dollar of assets under management for small funds, 
$0.0005041 per dollar of assets under management for medium-sized funds 
and $0.0000009 per dollar of assets under management for large funds, 
the staff estimates compliance with rule 2-7 for these unregistered 
money market funds totals $3.9 million annually.\32\
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    \31\ In the rule 2a-7 submissions, the staff estimated that 757 
registered money market funds have $3.8 trillion in assets under 
management, or $5 billion in assets under management per registered 
money market fund. The staff further estimated that 0.2% of those 
assets are held in small money market funds (funds with less than 
$50 million in assets under management), 3% are held in medium-sized 
money market funds (funds with $50 million to $1 billion in assets 
under management), and the remaining assets are held in large money 
market funds (funds with more than $1 billion in assets under 
management).
    \32\ This estimate is based on the following calculations: 30 
unregistered money market funds x $5 billion = $150 billion. ($150 
billion x 0.2% x $0.0051295) = $1.5 million for small funds. ($150 
billion x 3% x 0.0005041) = $2.3 million for medium-sized funds. 
($150 billion x 96.8% x 0.0000009) = $0.1 million for large funds. 
$1.5 million + $2.3 million + $0.1 million = $3.9 million. The 
estimate of cost per dollar of assets is the same as that used in 
the rule 2a-7 submissions. See supra note 12.
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    Consistent with estimates made in the rule 2a-7 submissions, 
Commission staff estimates that unregistered money market funds also 
incur capital costs to create computer programs for maintaining and 
preserving compliance records for rule 2a-7 of $0.0000132 per dollar of 
assets under management. Based on the assets under management figures 
described above, staff estimates

[[Page 8302]]

annual capital costs for all unregistered money market funds of $1.98 
million.\33\
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    \33\ This estimate is based on the following calculation: $150 
billion x 0.0000132 = $1.98 million.
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    Commission staff further estimates that, even absent the 
requirements of rule 2a-7, money market funds would spend at least half 
of the amounts described above for record preservation ($2.0 million) 
and for capital costs ($0.99 million). Commission staff concludes that 
the aggregate annual costs of compliance with the rule are $2.0 million 
for record preservation and $0.99 million for capital costs.
    The collections of information required for unregistered money 
market funds by rule 12d1-1 are necessary in order for acquiring funds 
to be able 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 invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information will 
have practical utility; (b) the accuracy of the agency's estimate of 
the burden 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 Thomas Bayer, Director/Chief 
Information Officer, Securities and Exchange Commission, C/O Remi 
Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312; or send an 
email to: [email protected].

     February 8, 2012.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3340 Filed 2-13-12; 8:45 am]
BILLING CODE 8011-01-P