[Federal Register Volume 84, Number 210 (Wednesday, October 30, 2019)]
[Proposed Rules]
[Pages 58075-58090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23082]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 202 and 270

[Release No. IC-33658; File No. S7-19-19]
RIN 3235-AM51


Amendments to Procedures With Respect to Applications Under the 
Investment Company Act of 1940

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule amendment.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is 
proposing amending rule 0-5 under the Investment Company Act of 1940 
(``Act'') to establish an expedited review procedure for applications 
that are substantially identical to recent precedent as well as a new 
rule to establish an internal timeframe for review of applications 
outside of such expedited procedure. In addition, the Commission is 
proposing amending rule 0-5 under the Act to deem an application 
outside of expedited review withdrawn when the applicant does not 
respond in writing to comments within 120 days.

DATES: Comments should be submitted on or before November 29, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to [email protected]. Please include 
File No. S7-19-19 on the subject line.

[[Page 58076]]

Paper Comments

     Send paper comments to Secretary, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-19-19. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's website (http://www.sec.gov/rules/proposed.shtml). 
Comments are also available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Room 1580, 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. All comments received will be posted without 
change. Persons submitting comments are cautioned that we do not redact 
or edit personal identifying information from comment submissions. You 
should submit only information you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the Commission's website. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Steven Amchan and Hae-Sung Lee, Senior 
Counsels; Daniele Marchesani, Assistant Chief Counsel; Chief Counsel's 
Office, at (202) 551-6825; or Keith Carpenter, Senior Special Counsel; 
Disclosure Review and Accounting Office, at (202) 551-6921, Division of 
Investment Management, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') is proposing an amendment to 17 CFR 270.05 (rule 0-5) 
under the Investment Company Act of 1940 [15 U.S.C. 80a et seq.] 
(``Act'') and new rule 17 CFR 202.13.

Table of Contents

I. Background
    A. Overview of Applications for Relief under the Act
    B. Efforts To Improve the Application Process
    C. Factors Affecting the Application Process
II. Discussion of Proposed Commission Action
    A. Expedited Review Procedure
    1. Eligibility for Expedited Review
    2. Additional Information Required for Expedited Review
    3. Expedited Review Timeframe
    B. Timeframe for ``Standard Review'' of Applications
    C. Applications Deemed Withdrawn Under the Standard Review 
Process
    D. Release of Comments on Applications and Responses
III. Economic Analysis
    A. Introduction
    B. Economic Baseline
    1. Applications for Relief
    2. Review Process
    C. Benefits and Costs of the Proposed Amendment to Rule 0-5
    1. Benefits
    2. Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives
    1. Different Precedent or Timeframe Requirements
    F. Request for Comment
IV. Paperwork Reduction Act
    A. Rule 0-5(e)
    B. Rule 0-5(g)
V. Initial Regulatory Flexibility Analysis
    A. Reasons for and Objectives of the Proposed Actions
    B. Legal Basis
    C. Small Entities Subject to the Proposed Amendment
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Significant Alternatives
    G. Request for Comment
VI. Consideration of the Impact on the Economy
VII. Statutory Authority and Text of Proposed Amendments

I. Background

A. Overview of Applications for Relief Under the Act

    In 1940, Congress passed the Act in response to numerous abuses 
that existed in the investment company industry prior to that time.\1\ 
As a result, the Act imposes significant substantive restrictions on 
the operation of investment companies that it regulates (``funds''). 
Congress, however, also recognized the need for flexibility to address 
unforeseen or changed circumstances, consistent with the protection of 
investors, in the administration of the Act.\2\
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    \1\ See generally Investment Trusts and Investment Companies, 
Report of the Securities and Exchange Commission, pt. 3, ch. 7, H.R. 
Doc. No. 136, 77th Cong., 1st Sess. (1941); 15 U.S.C. 80a-1.
    \2\ See, e.g., Investment Trusts and Investment Companies: 
Hearings on S. 3580 Before a Subcomm. of the Senate Comm. on Banking 
and Currency, 76th Cong., 3d Sess. 872 (1940) (hereinafter 1940 
Senate Hearings) (Commissioner Healy, a principal drafter of the 
Act, stated that ``it seemed possible and even quite probable that 
there might be companies--which none of us have been able to think 
of--that ought to be exempted.''); id. at 197 (David Schenker, Chief 
Counsel of the Investment Trust Study, and also a principal drafter 
of the Act, stated that ``the difficulty of making provision for 
regulating an industry which has so many variants and so many 
different types of activities . . . is precisely [the reason that 
section 6(c)] is inserted.'').
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    The Act, therefore, contains provisions that empower the Commission 
to issue orders granting exemptions from provisions of the Act, 
authorizing transactions, or providing other relief.\3\ Most 
significantly, section 6(c) gives the Commission the broad power to 
exempt conditionally or unconditionally any person, security, or 
transaction from any provisions of the Act or any rule thereunder, 
provided that the exemption is ``necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of (the Act).'' 
\4\
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    \3\ As the orders are subject to the terms and conditions set 
forth in the applications requesting relief, references in this 
release to ``relief'' or ``orders'' include the terms and conditions 
described in the related application.
    \4\ 15 U.S.C. 80a-6(c). Other sections of the Act provide the 
Commission with additional or specific exemptive authority. See, 
e.g.: Section 3(b)(2) (Commission may find that an issuer is 
``primarily engaged'' in a non-investment company business even 
though the issuer may technically meet the definition of investment 
company); section 12(d)(1)(J) (Commission may exempt any person, 
security, or transaction, or any class or classes of transactions, 
from section 12(d)(1) if the exemption is consistent with the public 
interest and the protection of investors); and section 17(b) 
(Commission may exempt proposed transactions from the Act's 
affiliated transaction prohibitions) (codified at 15 U.S.C. 80a-
3(b)(2), -(12)(d)(1)(J), and -17(b)).
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    The Commission regularly receives applications seeking orders for 
exemptions or other relief under the Act.\5\ If the request meets the 
applicable standards, the Commission publishes a notice of the 
application in the Federal Register and on its public website, stating 
its intent to grant the requested relief.\6\ The notice gives 
interested persons an opportunity to request a hearing on the 
application. If the Commission does not receive a hearing request 
during the notice period, and does not otherwise order a hearing on an 
application, the Commission subsequently issues an order granting the 
requested relief.\7\
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    \5\ In fiscal year 2018, approximately 134 initial applications 
were filed under the Act on EDGAR Form Type 40-APP.
    \6\ Notices of the Commission's intent to deny the requested 
relief, and the related orders, are rare because applicants 
typically withdraw or abandon their application in anticipation of 
such actions.
    \7\ 15 U.S.C. 80a-39; 17 CFR 270.0-5. In fiscal year 2018, the 
Commission issued 110 exemptive orders under the Act.
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    The staff of the Division of Investment Management (``Staff'' or 
``Division'') reviews the applications that the

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Commission receives under the Act.\8\ During the review process, the 
Division may issue comments to the applicant, asking for clarification 
of, or modification to, an application to determine whether, or ensure 
that, the relief meets the Act's standards.\9\ In addition, the 
Commission has granted the Director of the Division of Investment 
Management (``Director'') delegated authority to issue notices of 
applications and orders generally where the matter does not appear to 
the Director to present significant issues that have not been 
previously settled by the Commission or to raise questions of fact or 
policy indicating that the public interest or the interest of investors 
warrants that the Commission consider the matter.\10\ The vast majority 
of notices of applications and orders are issued by the Commission via 
the Staff under delegated authority. For those applications for which 
the Director does not have delegated authority, after the Division's 
review is completed, the Division presents them to the Commission.
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    \8\ Applications under the Act are filed on EDGAR. See Mandatory 
Electronic Submission of Applications for Orders under the 
Investment Company Act and Filings Made Pursuant to Regulation E, 
Investment Company Act Release No. 28476 (Oct. 29, 2008). The 
Commission has stated that the Staff will not, except in the most 
extraordinary situations, review draft applications. See Commission 
Policy and Guidelines for Filing of Applications for Exemption, 
Investment Company Act Release No. 14492 (Apr. 30, 1985) (specifying 
certain procedures that applicants should follow in order to 
facilitate the review of applications). Consistent with the 
Commission's statement, the Staff currently only reviews draft 
applications in very limited circumstances.
    \9\ The Staff may place an application on inactive status when 
an applicant does not respond to comments within 60 days. Such 
inactive status is for internal tracking purposes only and has no 
effects on the application process. An applicant may ``reactivate'' 
an application at any time by filing an amended application or 
otherwise responding to the comments.
    \10\ 17 CFR 200.30-5(a)(1) generally delegates the power to 
issue notices with respect to applications under the Act where the 
matter does not appear to the Director to present significant issues 
that have not been previously settled by the Commission or to raise 
questions of fact or policy indicating that the public interest or 
the interest of investors warrants that the Commission consider the 
matter. 17 CFR 200.30-5(a)(2) generally delegates the power to 
authorize the issuance of orders where a notice has been issued and 
no request for a hearing has been received from any interested 
person within the period specified in the notice and the Director 
believes that the matter presents no significant issues that have 
not been previously settled by the Commission and it does not appear 
to the Director to be necessary in the public interest or the 
interest of investors that the Commission consider the matter.
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    The applications process under the Act has been a significant and 
valuable tool in the evolution of the investment management industry, 
and sometimes is the origin of new rules under the Act.\11\ Some 
applications, for example, have requested relief from provisions of the 
Act to permit funds to operate in a more efficient and less costly 
manner.\12\ Applicants have also sought relief to implement innovative 
features or create new types of funds that do not fit within the 
regulatory confines of the Act.\13\ For example, over the past 27 years 
exchange-traded funds (``ETFs'') have originated and developed through 
the applications process.\14\ Because the drafters of the Act in 1940 
did not contemplate the ETF structure, ETFs need exemptions from 
certain provisions of the Act to operate.\15\ ETFs registered under the 
Act now have approximately $3.32 trillion in total net assets, and 
account for approximately 16% of total net assets managed by investment 
companies.\16\
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    \11\ See infra note 23.
    \12\ See, e.g., Franklin Alternative Strategies Funds, et al., 
Investment Company Act Release Nos. 33095 (May 10, 2018) (Notice of 
Application) and 33117 (Jun. 5, 2018) (Order) (permitting applicants 
to operate a joint lending and borrowing facility).
    \13\ For example, money market funds needed exemptive relief 
from section 2(a)(41) (which requires registered investment 
companies to value their securities based on market values, if 
available, or if not, as determined in good faith by the board of 
directors) in order to operate. In a series of orders beginning in 
the 1970s, the Commission permitted money market funds to use 
alternative valuation methods, such as amortized cost or penny 
rounding. The Commission later adopted rule 2a-7 under the Act to 
allow money market funds to operate without individual exemptive 
orders. 17 CFR 270.2a-7.
    \14\ See Exchange-Traded Funds, Investment Company Act Release 
No. 33646 (Sep. 25, 2019).
    \15\ See id.
    \16\ See id. at 6.
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B. Efforts To Improve the Application Process

    As discussed in the previous section, granting appropriate 
exemptions from the Act can provide important economic benefits to 
funds and their shareholders, foster financial innovation, and increase 
the diversity of opportunities for investors. We thus recognize the 
importance of considering and, where appropriate, granting relief as 
efficiently and quickly as possible. However, in light of our statutory 
mission of investor protection and the substantive concerns underlying 
the Act, we also recognize the critical importance of analyzing 
applications carefully to determine whether the relief requested, 
together with any terms and conditions of the relief, meets the 
relevant statutory standards.
    Over time, some applicants have expressed concern regarding the 
length of time required to obtain an order on both routine and novel 
applications. In 1990, the Commission requested comments on, among 
other things, whether it should adopt different procedures for 
applications.\17\ In response, commenters argued that lengthy review 
procedures delay the commencement of transactions, prevent applicants 
from responding quickly to changing market conditions, and slow the 
entry of new products to the market, all to the detriment of 
investors.\18\ In response, in 1993, the Commission proposed amendments 
to rule 0-5 under the Act to establish an expedited review procedure 
for certain routine applications.\19\ The Commission, however, did not 
adopt these proposed amendments.
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    \17\ Request for Comments on Reform of the Regulation of 
Investment Companies, Investment Company Act Release No. 17534 (June 
15, 1990), 55 FR 25322 (the ``Study Release'').
    \18\ See, e.g., Letter from the Subcomm. on Investment Companies 
and Investment Advisers of the Committee on Federal Regulation of 
Securities, Section of Business Law, American Bar Association, to 
Jonathan G. Katz, Secretary, SEC, 7-9 (Oct. 18, 1990), File No. S7-
11-90.
    \19\ See Expedited Procedure for Exemptive Orders and Expanded 
Delegated Authority, Investment Company Act Release No. 19362 (March 
26, 1993). The proposal sought to implement the Staff's 
recommendations from the Protecting Investors report by proposing 
amending rule 0-5 under the Act to establish an expedited review 
procedure for certain routine applications. See Division of 
Investment Management, SEC, Protecting Investors: A Half Century of 
Investment Company Regulation, Procedures for Exemptive Orders, 503-
522 (1992) (considering comments received in response to the Study 
Release.)
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    In subsequent years, initiatives aimed at improving the application 
process have continued. For example, in 2008, the Staff implemented an 
internal performance target of providing initial comments on at least 
80% of applications within 120 days after their receipt.\20\ We believe 
this performance measure has helped make the application process more 
efficient. In 2008, the first year with this performance target, the 
Division provided initial comments within 120 days on 81% of exemptive 
applications.\21\ By 2010, the Division met this target on 100% of 
exemptive applications, and has not dropped

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below 99% each year since.\22\ For filings made on or after June 1, 
2019, the Division has now implemented a new internal target of 
providing comments on both initial applications and amendments within 
90 days. Notwithstanding the recent improvements, we have continued to 
consider ways to improve the applications process as we recognize the 
importance of completing the review of an application in a timely 
manner. This proposal is intended to improve the efficiency and speed 
of the application process while preserving the ability to assess the 
appropriateness of the requested relief. In addition, the Commission 
has made it a priority to propose and adopt exemptive rules that would 
replace lines of routine applications.\23\ These rules would benefit 
the application process by making the corresponding applications no 
longer necessary, which, in turn, would allow the Staff to devote 
additional resources to other, more novel types of applications that 
can promote further industry innovation and expand investment choices 
for investors.
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    \20\ Unlike the 1993 proposal to amend rule 0-5 under the Act, 
this performance target was an internal measure and did not involve 
the amendment of any rule. See U.S. Securities and Exchange 
Commission 2008 Performance and Accountability Report, at 40. See 
also, Remarks Before the ICI 2007 Securities Law Developments 
Conference by Andrew J. Donohue, Director, Division of Investment 
Management, https://www.sec.gov/news/speech/2007/spch120607ajd.htm. 
In 2006, the Commission's Inspector General found that the exemptive 
application process was not always timely and provided 
recommendations for improving the process. See SEC Inspector General 
Report, IM Exemptive Application Processing (Audit No. 408), 
September 29, 2006.
    \21\ Id.
    \22\ See Fiscal Year 2019, Congressional Budget Justification 
Annual Performance Plan, Fiscal Year 2017, Annual Performance 
Report, at 99. https://www.sec.gov/files/secfy19congbudgjust.pdf. In 
addition to the Division's performance target for comments on 
initial filings, the Staff also began tracking and seeking the same 
target for comments on amendments. In fiscal year 2018, the Division 
provided comments within 120 days on 100% of exemptive application 
amendments.
    \23\ See Exchange-Traded Funds, Investment Company Act Release 
No. 33646 (Sep. 25, 2019) and Fund of Funds Arrangements, Investment 
Company Act Release No. 33329 (Dec. 19, 2018) (proposed rule). Prior 
examples of the Commission's adopting rules replacing lines of 
routine applications, among others, include: in 1992, adopting rule 
3a-7 excluding certain structured financings from the definition of 
``investment company''(Exclusion from the Definition of Investment 
Company for Structured Financings, Investment Company Act Release 
No. 19105 (Nov. 19, 1992) [57 FR 56248 (Nov. 27, 1992)]); in 1999, 
amending rule 15a-4 addressing changes in control and acquisitions 
of investment advisers (Temporary Exemption for Certain Investment 
Advisers, Investment Company Act Release No. 24177 (Nov. 29, 1999) 
[64 FR 68019 (Dec. 6, 1999)]); and in 2002, adopting rule 17a-8 
addressing mergers of affiliated investment companies (Investment 
Company Mergers, Investment Company Act Release No. 25666 (Jul. 18, 
2002) [67 FR 48511 (Jul. 24, 2002)]). See also note 13 above and SEC 
Inspector General Report IM Exemptive Application Processing (Audit 
No. 408), September 29, 2006, at 4.
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C. Factors Affecting the Application Process

    The amount of time necessary for the Staff to review an application 
depends in large part on the nature of the application. The Staff 
generally characterizes applications as falling into two general 
categories: (1) Applications that seek novel, largely unprecedented 
relief or relief for which some Commission precedent exists but that 
raises additional questions of fact, law, or policy, and (2) 
applications that seek relief substantively identical to relief that 
the Commission has recently granted (``routine applications'').
    Applications in the first category may involve financial 
innovations or transactions on the forefront of the investment 
management industry. In those instances, substantial time and resources 
are needed to analyze thoroughly the legal and policy issues raised, 
and the recommendations the Staff must make to the Commission often 
include significant policy considerations. As part of this process, the 
Staff generally works with the applicant to refine the proposal and to 
develop appropriate terms and conditions for the relief that address 
the applicable standards under the Act. This process can be time 
consuming.
    With respect to routine applications, because the Staff has already 
performed the overall legal and policy analysis underlying the 
requested relief, the Staff generally should be able to review these 
applications much more quickly. Sometimes, however, that is not the 
case. In particular, routine applications for which there is clear 
precedent nonetheless often contain significantly different versions of 
the terms or representations compared to the relevant precedent. These 
applications require extra time to review because the Staff must 
analyze the changes to determine whether they alter the scope or nature 
of the requested relief. On more rare occasions, the Staff may re-
evaluate the appropriateness of the relief or the terms and conditions 
associated with the relief, or consider whether the relief can 
appropriately be granted to a specific applicant.\24\
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    \24\ Several additional factors may affect the timing of the 
review including, for example, applicants' responsiveness to Staff 
comments, the number of pending applications, and market or other 
developments that affect the applicants' business plans.
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    For all applications, the Commission must consider the applicants' 
desire to obtain prompt relief while ensuring it has sufficient time to 
meet its overarching responsibility to consider whether an application 
meets the standard for the requested relief.

II. Discussion of Proposed Commission Action

    Our proposal seeks to make the application process more 
efficient.\25\ In addition, we also are proposing actions to provide 
additional certainty and transparency in the application process. 
Specifically, we are proposing an expedited review process for routine 
applications, a new informal internal procedure for applications that 
would not qualify for the new expedited process, and a new rule to deem 
an application withdrawn when an applicant does not respond in writing 
to Staff comments within 120 days. In addition, we are announcing plans 
to begin to disseminate Staff comments publicly on applications as well 
as responses to those comments.
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    \25\ Our proposed actions do not concern applications under the 
Investment Advisers Act of 1940 (``Advisers Act''). The Commission 
receives only a few applications under the Advisers Act each year, 
and these applications are filed on paper rather than electronically 
via the EDGAR system. See www.sec.gov/rules/iareleases.shtml. These 
applications are generally fact intensive, so that they are less 
likely to qualify for an expedited review process like the one we 
are proposing here. See, e.g., The Jeffrey Company, Investment 
Advisers Act Release Nos. 4659 (Mar. 7, 2017), (Notice of 
Application) and 4681 (Apr. 4, 2017) (Order) (family office 
application). Cf. infra note 31 and accompanying text.
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A. Expedited Review Procedure

    In order to expedite the review of routine applications, the 
Commission is proposing amendments to rule 0-5 under the Act, which 
sets forth the procedure for applications under the Act. These 
amendments would establish an expedited review procedure for 
applications that are substantially identical to recent precedent. We 
believe that the proposed approach balances applicants' desire for a 
prompt decision on their application with the Commission's need for 
adequate time to consider requests for relief.
    We believe that the new procedure should encourage applicants for 
expedited review to submit applications substantially identical to 
precedent, which would then help facilitate Staff review. Accordingly, 
we should be able to grant relief that meets the applicable standards 
more quickly, and, in turn, devote additional resources to the review 
of more novel requests.\26\ A more efficient application process would 
allow applicants to realize the benefits of relief more quickly than 
otherwise would be the case; and fund shareholders would generally 
share in these benefits.\27\ Further, we believe that the proposed 
expedited review procedure would make the applications process less 
expensive for applicants, because we anticipate that it would reduce 
the number of Staff comments that would require a response and enable 
applicants to have more certainty

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regarding the timing of application processing.
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    \26\ The Staff would issue notices under delegated authority for 
applications reviewed under the expedited procedure.
    \27\ See infra, discussion in Section III.C.1.
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1. Eligibility for Expedited Review
    Proposed new rule 0-5(d)(1) provides that an applicant may request 
expedited review if the application is substantially identical to two 
other applications for which an order granting the requested relief has 
been issued within two years of the date of the application's initial 
filing. Rule 0-5(d)(2) defines ``substantially identical'' applications 
as those requesting relief from the same sections of the Act and rules 
thereunder, containing identical terms and conditions, and differing 
only with respect to factual differences that are not material to the 
relief requested.\28\ We intend for applicants only to use the 
expedited procedure for routine applications that are substantially 
identical to precedent and seek the same relief that others have 
already received, so that additional consideration generally is 
unnecessary.\29\ The ``substantially identical'' requirement would help 
to ensure that applicants use the procedure only when they do not need 
to modify the terms and conditions of the precedent applications and 
are not raising new issues for the Commission to consider.\30\ In 
addition, the requirement would help to ensure that applicants submit 
applications that include language that is substantially identical to 
the language of the precedent applications, which would facilitate 
Staff review. The two-year requirement is designed to help ensure that 
the precedent is relatively recent, so that in most cases, it is less 
likely that there would be questions as to whether the terms and 
conditions of the precedent application are still appropriate.
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    \28\ Factual differences not material to the relief requested 
might include, depending on the facts and circumstances, the 
applicants' identities, the state of incorporation of a fund, or the 
constitution of the fund's board of directors.
    \29\ Because applications must be substantially identical, 
applicants would not be able to ``mix and match'' relief under the 
proposed rule. In other words, applications for expedited review 
would not be able to combine portions or sections of different prior 
applications.
    \30\ Even small changes to the terms and conditions of an 
application, compared to a precedent application, may either raise a 
novel issue, or require a significant amount of time for the Staff 
to consider whether it raises such an issue. See supra Section I.C.
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    Certain kinds of applications appear highly unlikely to be suitable 
for expedited review. These would include, for example, applications 
filed under sections 2(a)(9), 3(b)(2), 6(b), 9(c), and 26(c) of the 
Act.\31\ These types of applications are generally too fact-specific 
for applicants to be able to meet the substantially identical 
standard.\32\
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    \31\ See, e.g., Bridgeway Capital Management, Inc., Investment 
Company Act Release Nos. 28685 (Apr. 1, 2009) (Notice of 
Application) and 28716 (Apr. 28, 2009) (Order) (declaration 
regarding control, section 2(a)(9) application); Exact Sciences 
Corporation, Investment Company Act Release Nos. 33228 (Sep. 14, 
2018) (Notice of Application) and 33267 (Oct. 11, 2018) (Order) 
(inadvertent investment companies, section 3(b)(2) application); 
Hudson Advisors L.P., et al. Investment Company Act Release Nos. 
32804 (Aug. 31, 2017) (Notice of Application) and 32834 (Sep. 26, 
2017) (Order) (employees securities company, section 6(b) 
application); Charles Schwab & Co. Inc. and Charles Schwab 
Investment Management, Inc., Investment Company Act Release Nos. 
33157 (July 10, 2018) (Notice of Application) and 33195 (Aug. 7, 
2018) (Order) (ineligible--disqualified firm, section 9(c) 
application); AXA Equitable Life Insurance Company, et al., 
Investment Company Act Release Nos. 33201 (Aug. 15, 2018) (Notice of 
Application) and 33224 (Sep. 11, 2018) (Order) (fund substitution, 
section 26(c) application).
    \32\ Other lines of applications, such as co-investment 
applications, would also usually not meet the standard for expedited 
review. Co-investment applications generally seek relief to permit a 
business development company and certain closed-end management 
investment companies to co-invest in portfolio companies with each 
other and with other affiliated funds. See www.sec.gov/rules/icreleases.shtml#coinvestment. Co-investment applications typically 
include different terms and conditions than those of precedent 
applications.
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    We request comment generally on these proposed eligibility 
provisions and specifically on the following issues:
     Do these requirements strike the appropriate balance 
between permitting applicants to seek the relief they need and 
facilitating the Staff's prompt review of routine applications?
     Is the ``substantially identical'' standard appropriate? 
Does it effectively limit the applications eligible for expedited 
review to routine applications that the Staff can review in an 
expedited manner?
     Is the two-year standard appropriate? Does it effectively 
limit precedents to recent applications where it is unlikely that the 
Staff's review of whether the terms and conditions of an application 
are still appropriate would take a significant amount of time? Should 
the two-year period be longer? There are lines of applications that may 
be routine, but may not have as frequent filings currently as other 
lines (e.g., applications permitting the allocation of certain expenses 
of a fund of funds to affiliated underlying funds),\33\ and therefore 
may not meet the two-year requirement. Would the two-year requirement 
inappropriately exclude such applications from the proposed expedited 
review process?
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    \33\ See https://www.sec.gov/rules/icreleases.shtml#jointtrans.
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     Is the view that applications under sections 2(a)(9), 
3(b)(2), 6(b), 9(c), and 26(c) of the Act appear unlikely to be 
suitable for the expedited review procedure appropriate? Should rule 0-
5 explicitly exclude such applications from expedited review? Are there 
other applications that would be unsuitable for the expedited review 
process?
     Are there applications filed under provisions other than 
rule 0-5 that should be included in the expedited review process?
2. Additional Information Required for Expedited Review
    Applicants seeking expedited review will need to include certain 
information with the application under proposed rule 0-5(e). Proposed 
rule 0-5(e)(1) requires that the cover page of the application include 
a notation prominently stating ``EXPEDITED REVIEW REQUESTED UNDER 17 
CFR 270.0-5(d).'' This proposed requirement would assist the Staff in 
clearly identifying and effectively processing the request for 
expedited review. Proposed rule 0-5(e)(2) requires applicants to submit 
exhibits with marked copies of the application showing changes from the 
final versions of the two precedent applications. These exhibits would 
help the Staff to readily discern any variations between the 
application seeking expedited review and the precedential applications. 
Proposed rule 0-5(e)(3) requires an accompanying cover letter, signed, 
on behalf of the applicant, by the person executing the application, 
(i) identifying the two substantially identical applications that serve 
as precedent; and (ii) certifying that the applicant believes the 
application meets the requirements of rule 0-5(d) and that the marked 
copies required by rule 0-5(e)(2) are complete and accurate.\34\ We 
seek comment generally on this proposal regarding additional 
information required for expedited review and specifically on the 
following issues:
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    \34\ Section 34(b) of the Act makes it unlawful for any person 
to make any untrue or misleading statement of material fact in any 
registration statement, application, report, account, record, or 
other document filed or transmitted under the Act, or to omit from 
any such document any fact necessary in order to prevent the 
statements made therein from being materially misleading. We 
recognize that in certain cases an applicant and its counsel may 
view an application to be ``substantially identical'' under rule 0-
5(d)(2), even if the application is ultimately found not to meet 
such requirement under rule 0-5(f)(1)(ii). For a marked copy to be 
accurate, it would need to, among other things, reflect the 
applications used to make the comparison as filed on EDGAR.
---------------------------------------------------------------------------

     Is the requirement that the application include marked 
copies showing changes from final versions of the precedent 
applications appropriate? Would this requirement be

[[Page 58080]]

unnecessarily burdensome for applicants?
     Is the requirement that the applicant include a cover 
letter identifying precedent and certifying that the requirements of 
rule 0-5(d) are met appropriate? In particular, is it appropriate to 
require a ``certification'' for the substantially identical standard, 
considering that some discretion may be involved in the determination 
of whether two applications are substantially identical? Should we 
modify the certification requirement accordingly? Is the requirement of 
a certification as to the completeness and accuracy of the marked 
copies of precedent appropriate? How might the certification 
requirement add to the cost of an application? Is there an alternative 
mechanism that could help ensure that applicants make correct use of 
the expedited review process?
3. Expedited Review Timeframe
    Under proposed rule 0-5(f), a notice for an application submitted 
for expedited review would be issued no later than 45 days from the 
date of filing \35\ unless the applicant is notified that (i) the 
application is not eligible for expedited review because it does not 
meet the criteria in rule 0-5(d), or (ii) further consideration of the 
application is necessary for appropriate consideration of the 
application. We are proposing 45 days as the timeframe for expedited 
review, based on the Division's experience considering and acting on 
routine applications.
---------------------------------------------------------------------------

    \35\ Notice of the application, followed by an order disposing 
of the matter, would be issued under current rule 0-5(a) and (b).
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    While we anticipate that the notice for an application meeting 
proposed rule 0-5(d)'s criteria would typically be issued within the 
45-day timeline, there may be situations where further consideration is 
necessary for appropriate consideration of the application. These may 
include, for example, cases where the Commission is considering a 
change in policy that would make the requested relief, or its terms and 
conditions, no longer appropriate. There also may be cases where the 
Staff is investigating potential violations of Federal securities laws 
that may be relevant to the request for relief.\36\ In such cases, the 
Staff might not be in a position to make a determination on the 
application at the end of the 45-day period.
---------------------------------------------------------------------------

    \36\ To the extent such circumstances are nonpublic and are not 
known to the applicant, the Staff may not be able to inform the 
applicant of the reason for the delay.
---------------------------------------------------------------------------

    If the Staff notifies the applicant under rule 0-5(f)(1)(ii) that 
an application is not eligible for expedited review, it would ask the 
applicant to either withdraw the application or amend it to make 
changes so that the application could proceed outside of the expedited 
review process.
    We request comment generally on this proposed timeframe for 
expedited review and specifically on the following issues:
     Does the proposed 45-day time period strike the right 
balance between facilitating a prompt review and allowing Staff to 
appropriately review an application? Should the time period be shorter? 
Should the time period be longer?
     Are the grounds for ineligibility for expedited review 
appropriate? Should there be additional, or different, grounds for 
ineligibility? Is the ``necessary for appropriate consideration of the 
application'' standard for ineligibility appropriate? Should we 
replace, delete, or modify it?
    Certain conditions would govern the operation of the 45-day time 
period. In particular, the 45-day period would restart upon the filing 
of any amendment that the Commission or Staff did not solicit. The 
Staff would need additional time to review the change or changes made 
in such an amendment. Notwithstanding this provision, however, the 
Staff may act before the end of the additional 45-day period, if the 
unsolicited amendment relates only to factual differences not material 
to the relief requested or to some other minor change.
    In addition, any comment on the application by the Staff would 
pause the 45-day period. Although the Commission anticipates that the 
Staff would issue few comments on an application that qualifies for 
expedited review, there may be times when a comment is necessary, for 
example, to either reflect an event that occurred after the application 
was filed, or to resolve technical matters.\37\ There may also be times 
when a non-material revised term or condition is being added in a line 
of routine applications and the Staff may ask applicants to make 
corresponding changes to their application.
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    \37\ In cases where an application is not substantially 
identical to precedent, the Staff would notify the applicant under 
rule 0-5(f)(1)(ii) that the application is not eligible for 
expedited review. Using the comment process to ensure that an 
application is substantially identical to precedent would require 
Staff time and defeat the purpose of the expedited review process. 
See supra Section II.A.1. We believe that, as applicants gain 
familiarity with the ``substantially identical'' standard in 
practice, the application process would run smoothly over time.
---------------------------------------------------------------------------

    The proposal provides that the 45-day period would pause upon such 
a request by the Staff and would resume 14 days after the filing of an 
amended application that is responsive to such request. The Staff would 
need the additional time to review the amended application and 
determine whether a notice can be issued under rule 0-5(f)(1)(i). Based 
on the Division's experience regarding amendments to routine 
applications, we propose 14 days as the appropriate amount of time for 
the Staff to make this determination.
    Additionally, the proposed rule provides that the 45-day period 
will pause upon any irregular closure of the Commission's Washington, 
DC office to the public for normal business, including, but not limited 
to, closure due to a lapse in federal appropriations, national 
emergency, inclement weather, or ad hoc federal holiday. The 45-day 
period will resume upon the reopening of the Commission's Washington, 
DC office to the public for normal business.
    The proposed rule would further provide that, if applicants do not 
file an amendment responsive to the Staff's requests for modification 
within 30 days of receiving such requests, including a marked copy 
showing any changes made and a certification that such marked copy is 
complete and accurate, the application will be deemed withdrawn. This 
withdrawal would be without prejudice. In the rule we are proposing 
here, we would be committing to processing routine applications 
promptly. We believe that for applicants to benefit from the expedited 
processing, they should also act expeditiously.\38\
---------------------------------------------------------------------------

    \38\ An applicant taking longer than 30 days to respond to Staff 
comments may suggest that the application is not appropriate for 
expedited review.
---------------------------------------------------------------------------

     We request comment generally on the proposed amendment 
procedure for applications requesting expedited review and specifically 
on the following issues: Is it appropriate to restart the 45-day time 
period upon filing of an unsolicited amendment? Should the 45-day 
period pause for a shorter number of days instead? Would the provision 
for restarting the 45-day period have a chilling effect on applicants 
wishing to submit unsolicited amendments?
     Is the pause mechanism appropriate for processing 
amendments submitted in response to comments? Is the 14 days allowed 
for resuming the 45-day period following submission of a responsive 
amendment appropriate? Is 14 days too long? Too short?
     Is it appropriate to deem withdrawn any application 
submitted for expedited review for which applicants have not

[[Page 58081]]

filed an amendment responsive to the Staff comments within 30 days?

B. Timeframe for ``Standard Review'' of Applications

    In addition to a new expedited review process, the Commission is 
also proposing a new rule to provide a timeframe for all other 
applications filed under rule 0-5. We believe that the proposed rule 17 
CFR 202.13 would provide applicants with added transparency regarding 
the timing of the review of applications. Currently, the Division uses 
an internal performance timeline to govern the timing of Staff 
responses to applications and amendments. While the Staff in recent 
years has been successful in meeting the applicable timeline, and has 
recently moved to the same 90-day timeline set forth by the proposed 
rule,\39\ the rule should result in a more transparent timeline, 
including the time at which the Staff would forward an application to 
the Commission.
---------------------------------------------------------------------------

    \39\ See supra Section II.B.
---------------------------------------------------------------------------

    Under the proposed rule, the Staff should take action on the 
application within 90 days of the initial filing and amendments 
thereto.\40\ In addition, the Staff may grant 90-day extensions, and 
applicants should be notified of any such extension.\41\
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    \40\ As with the expedited review process, the 90 day period 
would also pause upon any irregular closure of the Commission's 
Washington, DC office to the public for normal business.
    \41\ The provisions of this rule, including the time frames 
provided for, are not intended to create enforceable rights by any 
interested parties and shall not be deemed to do so. Rather, this 
rule provides informal non-binding guidelines and procedures that 
the Commission anticipates the Division following.
---------------------------------------------------------------------------

    For the purposes of the proposed rule, action on an application or 
amendment would consist of (i) issuing a notice of application; (ii) 
providing the applicants with comments; or (iii) informing the 
applicants that the application will be forwarded to the Commission, in 
which case the application is no longer subject to paragraph (a) of the 
rule. If the Staff does not support the requested relief, the Staff 
typically notifies applicants that it would recommend that the 
Commission deny the application and give applicants the opportunity to 
withdraw the application before such recommendation is made.\42\
---------------------------------------------------------------------------

    \42\ See supra note 6.
---------------------------------------------------------------------------

    We request comment generally on the procedures for ``standard 
review'' of applications and specifically on the following issues:
     Is the 90-day period for taking action on applications 
appropriate? Is this period too long? Too short?
     Are 90-day extension periods appropriate? Are they too 
long? Too short?
     Is the Commission's specification of potential actions on 
an application appropriate? Does the proposal adequately cover actions 
on applications that may be taken?

C. Applications Deemed Withdrawn Under the Standard Review Process

    The Commission is also proposing to amend rule 0-5 to deem an 
application withdrawn if the applicant does not respond in writing to 
Staff comments. Deeming inactive applications withdrawn will both 
assist us in maintaining a clear record of pending applications, as 
well as provide the public, including potential new applicants, with a 
better sense of the applications that the Commission is actively 
considering at any given time.
    Proposed rule 0-5(g) would provide that, if an applicant has not 
responded in writing to a request for clarification or modification of 
an application filed under this section within 120 days after the 
request, the application will be deemed withdrawn.\43\ The withdrawal 
would be without prejudice and the applicant would be free to refile.
---------------------------------------------------------------------------

    \43\ An application requesting expedited review would not be 
subject to this withdrawal provision because under proposed rule 0-
5(f)(2)(iii), it would be deemed withdrawn if the applicant has not 
filed an amendment responsive to a Staff request for modifications 
within 30 days.
     An applicant can request to withdraw an application with a 
letter filed as form APP-WD on EDGAR, with the corresponding 
permission being filed as form APP-WDG on EDGAR. The Staff would 
reflect that an application is deemed withdrawn under proposed rule 
0-5(g) by uploading a form APP-WDG on EDGAR, without need for any 
action by the applicant.
---------------------------------------------------------------------------

    We request comment generally on our proposal regarding deeming 
applications withdrawn and specifically on the following issues:
     Is the 120-day period appropriate for deeming an 
application withdrawn? Should it be longer? Shorter?

D. Release of Comments on Applications and Responses

    Finally, to improve the transparency of the applications process, 
we intend to begin to publicly disseminate Staff comments on 
applications, and responses to those comments, no later than 120 days 
after the final disposition of an application.\44\ These procedures 
would be the same for both standard and expedited review of 
applications.
---------------------------------------------------------------------------

    \44\ ``Final disposition'' means that the Commission has issued 
an order granting or denying the requested relief or that the 
application has been withdrawn.
---------------------------------------------------------------------------

    The Staff provides applicants with comments on an application, for 
example, where it believes that the current application does not meet 
the standard for granting an exemption.\45\ Currently, the Staff 
releases comments on applications, and responses to those comments only 
in response to Freedom of Information Act (``FOIA'') requests. We 
believe it is appropriate to expand the transparency of the 
applications process, so that the public can benefit from greater 
transparency into the applications process without the delay or burden 
of submitting FOIA requests. We intend to do this through the 
Commission's EDGAR Public Dissemination Service and on our website at 
www.sec.gov following a process similar to the process that the 
Division of Investment Management and the Division of Corporation 
Finance use to publicly disseminate comment letters and responses on 
disclosure filings.\46\ Applicants and the Staff would file comments 
and responses to comments on a non-public basis on EDGAR during the 
review process.\47\ Upon final disposition of an application, the Staff 
would disseminate such filings through EDGAR to make them publicly 
available, except for materials (or portions thereof) covered by 
confidential treatment requests.\48\ We anticipate that we would make 
these materials publicly available no later than 120 days after final 
disposition of the application.
---------------------------------------------------------------------------

    \45\ See supra Section I.A. These comments set forth Staff views 
on a particular filing only and do not constitute an official 
expression of the Commission's views.
    \46\ The announcement regarding public release of comment 
letters and responses may be found at https://www.sec.gov/news/press/2004-89.htm.
    \47\ Applicants have to file the response to comment letters and 
any other correspondences on EDGAR using the CORRESP file type to 
conform to EDGAR requirements in making the materials publicly 
available.
    \48\ See Commission rule 83 (17 CFR 200.83).
---------------------------------------------------------------------------

    We plan to announce in any subsequent adopting release a specific 
date for effectiveness of this new approach; that date will depend on 
completion of necessary technical modifications.
    We invite comments on the approach we intend to take, and 
specifically on the following issues:
     Is the public dissemination of Staff comments to 
applications, and responses thereto (subject to confidentiality 
requests) in the public interest? Would this dissemination potentially 
lead to competitive harm affecting applicants? Would it create 
undesirable incentives regarding the use of the process for making 
confidential treatment requests?
     What types of information that applicants currently 
disclose in

[[Page 58082]]

comments, if any, would applicants potentially request be kept 
confidential? How common is such information included in written 
comments? Do applicants anticipate they would request confidential 
treatment frequently?

III. Economic Analysis

A. Introduction

    We are mindful of the costs imposed by, and the benefits obtained 
from, our rules. Section 2(c) of the Act states that when the 
Commission is engaging in rulemaking under the Act and is required to 
consider or determine whether the action is necessary or appropriate in 
(or, with respect to the Act, consistent with) the public interest, the 
Commission shall consider whether the action will promote efficiency, 
competition, and capital formation, in addition to the protection of 
investors. The following analysis considers the potential economic 
effects that may result from the proposed amendment to rule 0-5, 
including the benefits and costs to applicants and other market 
participants as well as the broader implications of the proposal for 
efficiency, competition, and capital formation.
    The scope of the benefits and costs of the proposed amendment to 
rule 0-5 depends on the expected volume of applications generally as 
well as the expected volume of applications for expedited review in 
particular. Those benefits and costs also depend on the extent to which 
applicant experience under the proposed amendment to rule 0-5 is 
expected to differ from current experience. Below, we describe the 
number of applications as well as the time the Commission takes in 
responding to such applications.

B. Economic Baseline

1. Applications for Relief
    The table below reports the number of initial applications by 
category and calendar year for 2016, 2017, and 2018.\49\
---------------------------------------------------------------------------

    \49\ We use a combination of EDGAR and internal data for this 
baseline analysis. The table includes initial applications that were 
initially filed from 2016 to 2018.

----------------------------------------------------------------------------------------------------------------
               Exemption Type \50\                     2016            2017            2018            Total
----------------------------------------------------------------------------------------------------------------
12(d)(3)........................................               1               0               1               2
Affiliated Sales................................               4               2               2               8
Business Development Companies..................               1               1               1               3
Co-Investment...................................              11              20               9              40
Distributions...................................               1               1               1               3
Employees Securities Company....................               2               4               0               6
Exchange Traded Funds...........................              40              41              31             112
Family Office...................................               2               1               2               5
Fund of Funds--Multi-Group......................               9               9               5              23
Inadvertent Investment Companies................               0               1               2               3
Ineligible--Disqualified Firm...................               1               2               0               3
Insurance Products..............................               7               4               2              13
Inter-fund Lending..............................              12               5               1              18
Interval Funds..................................               1               2               0               3
Joint Transaction...............................               1               0               3               4
Multi-Class.....................................              13              11               7              31
Multi-Manager...................................              13              15              10              38
Other...........................................              18               9              15              42
Unit Investment Trusts--Other...................               0               1               0               1
                                                 ---------------------------------------------------------------
    Total.......................................             137             129              92             358
----------------------------------------------------------------------------------------------------------------

    Among the 358 applications shown in the above table, the largest 
broad categories of applications are applications related to exchange 
traded funds (112 or 31% of applications), applications related to co-
investment (40, or 11% of applications), applications related to multi-
managers (38, or 11% of applications), applications related to funds of 
funds (23, or 7% of applications), and applications related to inter-
fund lending (18, or 5% of applications). Together, these broad 
categories of applications comprise 231, or 66% of applications from 
2016 to 2018.
---------------------------------------------------------------------------

    \50\ See https://www.sec.gov/rules/icreleases.shtml.
---------------------------------------------------------------------------

    The table below reports the number of amended filings associated 
with initial applications from 2016 to 2018, for those applications 
that resulted in notices from 2016 to 2018.

                                            Number of Amended Filings
----------------------------------------------------------------------------------------------------------------
       0                1                2               3               4               5             Total
----------------------------------------------------------------------------------------------------------------
           42              103              35              21               8               4             213
----------------------------------------------------------------------------------------------------------------

    Of the 213 applications from 2016 to 2018, 42 (20%) initial 
applications resulted in a notice without any amendment. 103 (48%) 
applications resulted in a notice after one amendment to the initial 
application. Overall, 68 (32%) of initial applications required two, or 
more, amended applications prior to receiving a notice.
2. Review Process
    The current rules governing applications for exemption serve as a 
baseline against which we assess the economic impacts of the proposed 
amendment to rule 0-5. At present, there are no rules under the Act or 
other rules governing timeframes for Commission consideration of 
applications for exemption. While rules governing timeframes for the 
consideration of applications for exemption have not been formalized, 
in

[[Page 58083]]

2008 the Staff adopted the performance target of providing comments on 
at least 80% of initial applications within 120 days after their 
receipt.\51\ For filings made on or after June 1, 2019, the Division 
has now implemented a new internal target of providing comments on both 
initial applications and amendments within 90 days.
---------------------------------------------------------------------------

    \51\ See supra note 20.
---------------------------------------------------------------------------

    The table below summarizes the number of days between an 
applicant's initial filing and a response from the Commission from 2016 
to 2018.

----------------------------------------------------------------------------------------------------------------
                      Year                             Mean         % <=45 days     % <=90 days    % <=120 days
----------------------------------------------------------------------------------------------------------------
2016............................................              76              21              66             100
2017............................................              85              24              56              96
2018............................................              86              25              54             100
Overall.........................................              82              24              59              99
----------------------------------------------------------------------------------------------------------------

    Overall, from 2016 through 2018, 24% of applicants experienced 
times between initial filing and a response from the Commission of 45 
days, or less. 59% of applicants experienced times of 90 days, or less, 
and 99% of applicants experienced times of 120 days, or less.

C. Benefits and Costs of the Proposed Amendment to Rule 0-5

    We are proposing an expedited review process for routine 
applications and a new rule to deem an application for expedited 
exemptive relief withdrawn when an applicant fails to respond to Staff 
comments. These proposed actions could have both direct as well as 
indirect effects. Because the proposed actions affect the application 
process, the proposed actions could affect both applicants and the 
Commission. Further, to the extent the proposed actions have a direct 
effect on the Commission, there could arise an indirect effect on 
applicants as well as investors. These potential direct and indirect 
effects are discussed in the context of benefits and costs of the 
proposal described below.
    The magnitude of these estimated expected effects will depend, at 
least in part, on the extent to which anticipated outcomes differ from 
the baseline. For example, as noted above, we calculate that in recent 
years 24% of initial applications have received Commission response 
within 45 days.\52\ The expected benefits and costs will depend on the 
extent to which the proposed actions result in outcomes that differ 
from recent experience.\53\
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    \52\ As discussed above, 59% of amended filings have received 
Commission action within 90 days.
    \53\ The expected benefits and costs will also depend on the 
amount of application activity. Recent rulemaking proposals, if 
adopted, could result in a reduction in the number of future 
applications. See supra note 23.
---------------------------------------------------------------------------

1. Benefits
    We expect the proposed expedited review process will have the 
direct effect of allowing the benefits of relief to be realized by 
applicants more quickly than otherwise would be the case. Further, we 
expect that the proposed expedited review procedure would make the 
application process less expensive. For example, we believe that the 
new procedure would encourage applicants for expedited review to submit 
applications that are substantially similar to precedent. Submitting 
applications that are substantially similar to precedent should reduce 
the cost of drafting applications as well as reduce costs associated 
with needing to file multiple amendments.
    We estimate that the expedited review process would significantly 
reduce costs for applicants compared to applicants receiving orders 
under standard review. We believe the estimated total cost burden per 
application for applicants to receive an order for an average exemptive 
application under standard review utilizing outside counsel is 
approximately $74,550 \54\ and the estimated hour or cost burden per 
application for applicants utilizing in-house counsel would be 
approximately 150 hours or $58,800.\55\ The Staff estimates that the 
total cost burden per application for applicants to receive an order 
for an exemptive application under the proposed expedited review 
utilizing outside counsel is approximately $14,910 \56\ and the 
estimated hour or cost burden per application for applicants utilizing 
in-house counsel would be approximately 30 hours or $11,760.\57\
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    \54\ This estimate is based on the following calculations: $497 
(hourly rate for outside counsel) x 150 (estimated hours to receive 
an order for an application under standard review) = $74,550.
    \55\ This estimate is based on the following calculations: $392 
(hourly rate for in-house counsel) x 150 (estimated hours to receive 
an order for an application under standard review) = $58,800.
    \56\ This estimate is based on the following calculations: $497 
(hourly rate for outside counsel) x 30 (estimated hours to receive 
an order for an application under expedited review) = $14,910.
    \57\ This estimate is based on the following calculations: $392 
(hourly rate for in-house counsel) x 30 (estimated hours to receive 
an order for an application under expedited review) = $11,760.
---------------------------------------------------------------------------

    The estimated savings for an application under expedited review 
compared to an average application under the standard review process 
would be approximately $59,640 \58\ per application utilizing outside 
counsel or 120 hours \59\ or $47,040 \60\ per application utilizing in-
house counsel. Accordingly, the expedited review process would decrease 
the total estimated annual cost burden by approximately $2,385,600 
utilizing outside counsel and total estimated annual hour burden by 
approximately 1,200 hours utilizing in-house counsel.\61\ The total 
estimated annual savings for the expedited review process for both 
outside and in-house counsel would be $2,856,000.\62\ Investors would 
benefit to the extent those reduced costs were passed along.
---------------------------------------------------------------------------

    \58\ This estimate is based on the following calculations: 
$74,550 (estimated total cost under standard review utilizing 
outside counsel)-$14,910 (estimated total cost under expedited 
review utilizing outside counsel) = $59,640.
    \59\ This estimate is based on the following calculations: 150 
(estimated total hours under standard review utilizing in-house 
counsel)-30 (estimated total hours under expedited review utilizing 
in-house counsel) = 120.
    \60\ This estimate is based on the following calculations: 
$58,800 (estimated total cost under standard review utilizing in-
house counsel)-$11,760 (estimated total cost under expedited review 
utilizing in-house counsel) = $47,040.
    \61\ This estimate is based on the following calculations:
    $59,640 (estimated savings per application under expedited 
review) x 50 (estimated number of applications under expedited 
review) x 0.80 (approximate percentage of applications prepared by 
outside counsel) = $2,385,600.
    120 (estimated hours saved per application under expedited 
review) x 50 (estimated number of applications under expedited 
review) x 0.20 (approximate percentage of applications prepared by 
in-house counsel) = 1,200.
    \62\ This estimate is based on the following calculations: 
$2,385,600 (estimated total cost savings utilizing outside counsel) 
+ [1,200 (estimated total hours saved utilizing in-house counsel) x 
$392 (hourly rate for in-house counsel)] = $2,856,000. This estimate 
take into account the incremental costs of the expedited review 
requirements.
---------------------------------------------------------------------------

    We expect that the proposed actions will also have a direct effect 
on the Commission. As noted previously, often the most significant 
factor affecting the

[[Page 58084]]

time to review an application is how the application has been drafted. 
Applications for which there is clear precedent often omit standard 
terms or conditions, or contain significantly different versions of the 
standard terms or representations, from the relevant precedent. These 
variances increase the time required for the Staff's review because the 
Staff must analyze the changes to determine whether they alter the 
scope or nature or appropriateness of the requested relief. To the 
extent the new procedure would encourage applicants for expedited 
review to submit applications that are substantially similar to 
precedent, we expect the new procedure to reduce the amount of Staff 
resources required to review such applications.
    The anticipated reduction in Staff resources required to review 
applications could result in indirect effects associated with the 
proposed actions. In particular, to the extent Staff is able to devote 
greater resources to more novel applications, the benefits realized by 
applicants with more novel applications may be realized more quickly 
than otherwise would be the case. To the extent those benefits are 
passed along to investors, investors would experience indirect benefits 
as well. Additionally, to the extent these indirect benefits accrue to 
applicants with more novel applications, the proposed actions could 
foster the submission of a greater number of novel applications which 
could lead to greater innovation in investment products. Further, the 
proposed actions could benefit investors by enhancing competition among 
market participants, which we discuss in more detail below.
2. Costs
    With respect to applications for expedited review, proposed rule 0-
5(e)(1) requires that the cover page of the application include a 
notation prominently stating ``EXPEDITED REVIEW REQUESTED UNDER 17 CFR 
270.0-5(d).'' Based on conversations with applicants and Staff 
experience, we expect the cost of the notation to be $248.50 per 
application utilizing outside counsel and $196 per application 
utilizing in-house counsel.\63\
---------------------------------------------------------------------------

    \63\ See infra PRA Table 1.
---------------------------------------------------------------------------

    Proposed rule 0-5(e)(2) also requires applicants to submit exhibits 
with marked copies of the application showing changes from the final 
versions of the two precedent applications. Based on conversations with 
applicants and Staff experience, for those applicants relying on 
outside counsel to prepare two marked copies against two recent 
precedents, the estimated cost is $2,485 per application.\64\ 
Applicants utilizing in-house counsel to provide two marked copies 
against two recent precedents would spend 5 hours or $1,960 per 
application.\65\
---------------------------------------------------------------------------

    \64\ See infra PRA Table 1.
    \65\ See infra discussion in Section IV.A.
---------------------------------------------------------------------------

    We estimate to receive approximately 50 applications \66\ per year 
seeking expedited review under the Act. Therefore, the new mandatory 
requirements would impose a total estimated annual cost burden by 
approximately $109,340 utilizing outside counsel and total estimated 
annual hour burden by approximately 55 hours utilizing in-house 
counsel.\67\ The total estimated annual cost burden for both outside 
and in-house counsel would be $130,900.\68\
---------------------------------------------------------------------------

    \66\ See infra note 80.
    \67\ See infra note 86.
    \68\ See infra note 87.
---------------------------------------------------------------------------

    Proposed rule 0-5(e)(3) also requires the accompanying cover letter 
to certify on behalf of the applicant that applicant believes the 
application meets the requirements of rule 0-5(d) and that the marked 
copies required by rule 0-5(e)(2) are complete and accurate. The 
written certification is similar to the representation required from 
counsel under rule 485 for post-effective amendments filed by certain 
registered investment companies. Such a representation would be subject 
to section 34(b) of the Act.\69\ We believe the costs associated with 
providing this certification for expedited review would be minimal.
---------------------------------------------------------------------------

    \69\ See supra note 34.
---------------------------------------------------------------------------

    The proposed amendment to rule 0-5 would also provide that with 
respect to expedited reviews, if applicants do not file an amendment 
responsive to Staff's requests for modification within 30 days of 
receiving such requests, including a marked PDF copy showing any 
changes made and a certification that such marked copy is accurate and 
complete, the application will be deemed withdrawn. We believe the cost 
of complying with the 30-day requirement would be the same as complying 
with the current 60-day requirement.\70\ We assume that those 
applicants requesting expedited review would likely bear an opportunity 
cost the longer the application process is delayed. Applicants for 
expedited review, then, will benefit from responding to Staff requests 
for modification in a timely manner.
---------------------------------------------------------------------------

    \70\ Currently, Staff may place an application on inactive 
status when an applicant does not respond to comments within 60 
days. See supra footnote 9.
---------------------------------------------------------------------------

    Finally, proposed rule 0-5(e) creates the opportunity for 
applicants whose applications meet certain requirements to request 
expedited review. The proposed amendment to rule 0-5 does not require 
potential applicants to request expedited review. Potential applicants 
for expedited review, then, would only bear the costs of requesting 
expedited review in those circumstances where the applicant believes 
the benefits justify the costs.
    Proposed rule 0-5(g) would provide that, if an applicant has not 
responded in writing to a request for clarification or modification of 
an application filed under standard review within 120 days after the 
request, the application will be deemed withdrawn. As an oral response 
would not stop an application from being deemed withdrawn, proposed 
rule 0-5(g), would require applicants to respond ``in writing'' and 
therefore create an additional cost. We believe the ``in writing'' 
requirement would increase the burden by 2 hours or $994 per 
application for applicants relying on outside counsel.\71\ Applicants 
utilizing in-house counsel would spend 2 hours or $784 per 
application.\72\ We estimate to receive approximately 90 applications 
\73\ seeking standard review under the Act and of the 90 applications, 
we estimate that in approximately 10 percent of those, the applicants 
would respond ``in writing'' to avoid that the application be deemed 
withdrawn pursuant to rule 0-5(g). Therefore, the ``in writing'' 
requirement under rule 0-5(g) would increase the total estimated annual 
cost burden by approximately $7,157 utilizing outside counsel and total 
estimated annual hour burden by approximately 3.6 hours utilizing in-
house counsel.\74\ The total estimated annual cost burden for both 
outside and in-house counsel would be $8,568.\75\
---------------------------------------------------------------------------

    \71\ See infra note 88.
    \72\ See infra note 89.
    \73\ See infra note 90.
    \74\ See infra note 91.
    \75\ See infra note 92.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

    This section evaluates the impact of proposed rule 0-5(e) on 
efficiency, competition, and capital formation.
    Efficiency. We expect the expedited review process to benefit 
potential applicants directly by providing them an incentive to seek 
requested relief more quickly than under the existing process. Further, 
to the extent the proposed rule encourages applications that are 
substantially similar to precedent, we expect the proposed rule should 
reduce the likelihood of applicants needing to file amendments.

[[Page 58085]]

To the extent the expedited review process encourages applicants to 
realize the benefits of relief more quickly and with fewer filings, we 
would expect the operating efficiency of applicants to increase more 
quickly and to do so with a greater net benefit than under the existing 
application process.
    As discussed above, applications for which there is clear precedent 
often omit standard terms or conditions, or contain significantly 
different versions of the standard terms or representations, from the 
relevant precedent. As a result, increased time and resources are 
required for the Staff to review the changes to determine whether they 
alter the scope or nature of the requested relief. To the extent the 
new procedures would encourage applicants for expedited review to 
submit applications that are substantially similar to precedent, we 
expect the new procedures to reduce the amount of Staff resources 
required to review such applications and increase Staff resources 
available to review more novel applications.
    Competition. The proposed rule would likely increase competition in 
those situations where applicants would meet the requirement for 
expedited review. The effect on competition would operate through two 
channels. The first channel would be the speed with which potential 
competitors could realize the benefits of relief. The expedited review 
process would allow applicants to compete more quickly with prior 
applicants who already realized those benefits.\76\ Second, to the 
extent the proposed expedited review process reduces the cost of 
applying for exemptive relief, the cost reduction would lower barriers 
to competing with those applicants who have already been granted 
relief.
---------------------------------------------------------------------------

    \76\ To the extent the proposed expedited review process would 
allow subsequent applicants to compete more quickly, ``first-
movers'' (i.e., the two initial applicants relied on as precedent) 
may realize some reduction in benefits from innovation. We would 
expect any resulting effect on innovation to be minimal. In general, 
we anticipate that the expected loss in benefits associated with 
earlier competition from subsequent applicants would be limited, and 
would be justified by the expected gains from innovation. As a 
result, we believe the proposed rule would not measurably affect 
innovation.
---------------------------------------------------------------------------

    Capital Formation. The proposed rule may lead to increased capital 
formation. As discussed above, to the extent the expedited review 
process allows applicants to realize the benefits of relief both more 
quickly and at a lower cost, we would expect the efficiency of 
application process to increase, allowing more investor money to be 
used productively. The increased efficiency could also lead to more 
applications. To the extent investors do not simply substitute one 
applicant's product for another, an increase in the number of 
applications could increase demand for intermediated assets as a whole 
and as a result, facilitate capital formation.
    Also, to the extent the new procedures would encourage applicants 
for expedited review to submit applications that are substantially 
similar to precedent, we expect the new procedures to reduce the amount 
of Staff resources required to review such applications and increase 
Staff resources available to review more novel applications. An 
increase in Staff resources available to review more novel applications 
could, in turn, lead to more applicants who would implement innovative 
features or create new types of products. To the extent investors do 
not substitute one type of product or feature for another and find new 
products and features valuable, an increase in the number of 
applications involving innovative features or new types of products, 
could increase the overall amount of resources investors are willing to 
invest and, as a result, facilitate capital formation.

E. Reasonable Alternatives

1. Different Precedent or Timeframe Requirements
    Proposed new rule 0-5(d)(1) provides that an applicant may request 
expedited review if the application is substantially identical to two 
other applications for which an order granting the requested relief was 
issued. As alternatives, the proposed rule could require a single 
precedent or more than two precedents. Our decision to require two 
precedent applications reflects a balancing of the accessibility to the 
expedited review process and the likely need for additional 
consideration by the Staff. Increasing the number of required 
precedents would decrease the likelihood of additional Staff 
consideration, but it would likely reduce the number of potential 
applicants qualifying for expedited review. For example, if we were to 
require three precedent applications rather than two, the third 
application, which would qualify for expedited review under the 
proposed amendment to rule 0-5, would no longer be eligible for 
expedited review. Increasing the number of required precedents would 
also likely lengthen the amount of time before applicants could request 
expedited exemptive relief. For example, if we were to require three 
precedent applications rather than two, to the extent precedent 
applications do not occur at the same time, applicants would have to 
wait for a third precedent application rather than being able to apply 
for expedited review after the second substantially similar 
application. Conversely, decreasing the number of required precedents 
would likely increase the number of potential applicants qualifying for 
expedited review, but it would increase the likelihood for additional 
Staff consideration. We believe the requirement of two precedent 
applications strikes an appropriate balance between those two competing 
considerations.
    Further, the proposed rule requires the two precedent applications 
to have been filed within the past two years. Our decision to require 
precedents that have been filed over the past two years reflects a 
balancing of the accessibility to the expedited review process and the 
Staff resources required to review whether the terms and conditions of 
an application are still appropriate. Increasing the timeframe to 
greater than two years could increase the number applicants qualifying 
for expedited review, but also increase Staff resources required to 
review whether the terms and conditions of an application are still 
appropriate. Conversely, shortening the timeframe to less than two 
years would reduce the amount of Staff resources required to review 
whether the terms and conditions of an application are still 
appropriate, but likely reduce the number of potential applicants who 
could qualify for expedited review. We believe the two year requirement 
strikes an appropriate balance between those two competing 
considerations.

F. Request for Comment

    Throughout this release, we have discussed the anticipated benefits 
and costs of the proposed amendment to rule 0-5 and its potential 
effect on efficiency, competition, and capital formation. While we do 
not have comprehensive information on all aspects of the application 
process, we are using the data currently available in considering the 
effects of the proposed rule. We request comment on all aspects of this 
initial economic analysis, including on whether the analysis has (1) 
identified all benefits and costs, including all effects on efficiency, 
competition, and capital formation; (2) given due consideration to each 
benefit and cost, including each effect on efficiency, competition, and 
capital formation; and (3) identified and considered reasonable 
alternatives to the proposed new rule. We request and encourage any 
interested person to

[[Page 58086]]

submit comments regarding the proposed rule, our analysis of the 
potential effects of the rules and other matters that may have an 
effect on the proposed rules. We request that commenters identify 
sources of data and information with respect to applications in 
general, but also with respect to routine applications in particular, 
as well as provide data and information to assist us in analyzing the 
economic consequences of the proposed rules. We are also interested in 
comments on the qualitative benefits and costs we have identified and 
any benefits and costs we may have overlooked. We urge commenters to be 
as specific as possible.
    Comments on the following questions are of particular interest.
     We have characterized the costs of certain requirements of 
the proposal as minimal. Have we correctly characterized the cost of 
those requirements?
     We have characterized the cost of the requirement that the 
accompanying cover letter certifying that the applicant believes the 
application meets the requirements of rule 0-5(d) and that the marked 
copies required by rule 0-5(e)(2) are complete and accurate as minimal. 
Are these costs minimal? If these costs are not minimal, what would be 
a more accurate characterization of these costs?

IV. Paperwork Reduction Act

    The proposed rule amendments under the Act contain ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\77\ The title for the new collection of information is 
``Rule 0-5 under the Investment Company Act, Procedure with Respect to 
Applications and Other Matters.'' \78\ The Commission is submitting 
these collections of information to the OMB for review in accordance 
with 44 U.S.C. 3507(d) and 5 CFR 1320.11. 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. The 
proposed rules are designed to expedite the review process of routine 
applications. We discuss below the mandatory collection of information 
burdens associated with the proposed amendments to rules 0-5(e) and 0-
5(g).\79\
---------------------------------------------------------------------------

    \77\ 44 U.S.C. 3501 through 3521.
    \78\ The collection of information burden within the meaning of 
the PRA for the general requirements of applications is under rule 
0-2.
    \79\ Responses to this collection of information will not be 
kept confidential.
---------------------------------------------------------------------------

A. Rule 0-5(e)

    Proposed rule 0-5(e) requires applicants seeking expedited review 
to include certain information with the application. Proposed rule 0-
5(e)(1) requires that the cover page of the application include a 
notation prominently stating ``EXPEDITED REVIEW REQUESTED UNDER 17 CFR 
270.0-5(d).'' Proposed rule 0-5(e)(2) requires applicants to submit 
exhibits with marked copies of the application showing changes from the 
final versions of two precedent applications identified as 
substantially identical. Proposed rule 0-5(e)(3) requires an 
accompanying cover letter, signed, on behalf of the applicant, by the 
person executing the application (i) identifying two substantially 
identical applications; and (ii) certifying that that the applicant 
believes the application meets the requirements of rule 0-5(d) and that 
the marked copies required by rule 0-5(e)(2) are complete and accurate.
    The Commission receives approximately 140 applications per year 
under the Act, and of the 140 applications, we estimate to receive 
approximately 50 applications \80\ seeking expedited review under the 
Act.\81\ Although each application is typically submitted on behalf of 
multiple entities, the entities in the vast majority of cases are 
related companies and are treated as a single applicant for purposes of 
this analysis.
---------------------------------------------------------------------------

    \80\ This estimate takes into account the recent codification of 
certain ETF Exemptive Orders. See supra note 23.
    \81\ Like Section III above, this section only relates to 
applications seeking expedited review.
---------------------------------------------------------------------------

    The following table summarizes the estimated effects of the 
proposed amendments on the paperwork burden associated with the 
amendments to rule 0-5(e).

    PRA Table 1--Estimated Paperwork Burden Increase of the Proposed
                               Amendments
------------------------------------------------------------------------
   Proposed amendments to rule 0-5(e)       Estimated burden increase
------------------------------------------------------------------------
 Utilize outside counsel to       0.5 hour (0.25 hour to
 notate on the cover page stating         notate the required statement
 ``EXPEDITED REVIEW REQUESTED UNDER 17    and 0.25 hour to certify).
 CFR 270.0-5(d)'' and certify that the    The estimated
 application meets the requirements.      additional cost per
                                          application would be
                                          $248.50.\1\
 Utilize in-house counsel to      0.5 hour (0.25 hour to
 notate on the cover page stating         notate the required statement
 ``EXPEDITED REVIEW REQUESTED UNDER 17    and 0.25 hour to certify).
 CFR 270.0-5(d)'' and certify that the    The estimated
 application meets the requirements.      additional cost per
                                          application would be $196.\2\
 Utilize outside counsel to       5 hours (4 hours to
 prepare two marked copies against two    search for applicable
 recent precedents.                       precedents and 1 hour to
                                          prepare the marked copies) per
                                          application.
                                          The estimated
                                          additional cost per
                                          application would be
                                          $2,485.\3\
 Utilize in-house counsel to      5 hours (4 hours to
 prepare two marked copies against two    search for applicable
 recent precedents.                       precedents and 1 hour to
                                          prepare the marked copies) per
                                          application.
                                          The estimated
                                          additional cost per
                                          application would be
                                          $1,960.\4\
------------------------------------------------------------------------
Notes:
\1\ This estimate is based on the following calculation: 0.5 (estimated
  hour per application to notate and to certify) x $497 (hourly rate for
  an attorney) = $248.50. The hourly wages data is from the Securities
  Industry Financial Markets Association's Management & Professional
  Earnings in the Securities Industry 2013, modified by Commission Staff
  to account for an 1,800-hour work-year and inflation, and multiplied
  by 5.35 (professionals) to account for bonuses, firm size, employee
  benefits, and overhead, suggests that the cost for outside counsel is
  $497 per hour.
\2\ This estimate is based on the following calculation: 0.5 (estimated
  hour per application to notate and to certify) x $392 (hourly rate for
  an in-house counsel) = $196. The hourly wages data is from the
  Securities Industry Financial Markets Association's Management &
  Professional Earnings in the Securities Industry 2013, modified by
  Commission Staff to account for an 1,800-hour work-year and inflation,
  and multiplied by 5.35 (professionals) to account for bonuses, firm
  size, employee benefits, and overhead, suggests that the cost for in-
  house counsel is $392 per hour.
\3\ This estimate is based on the following calculation: 5 (estimated
  hours to prepare the marked copies) x $497 (hourly rate for an
  attorney) = $2,485. The hourly wages data is from the Securities
  Industry Financial Markets Association's Management & Professional
  Earnings in the Securities Industry 2013, modified by Commission Staff
  to account for an 1,800-hour work-year and inflation, and multiplied
  by 5.35 (professionals) to account for bonuses, firm size, employee
  benefits, and overhead, suggests that the cost for outside counsel is
  $497 per hour.

[[Page 58087]]

 
\4\ This estimate is based on the following calculation: 5 (estimated
  hours per application to prepare the marked copies) x $392 (hourly
  rate for an in-house counsel) = $1,960. The hourly wages data is from
  the Securities Industry Financial Markets Association's Management &
  Professional Earnings in the Securities Industry 2013, modified by
  Commission Staff to account for an 1,800-hour work-year and inflation,
  and multiplied by 5.35 (professionals) to account for bonuses, firm
  size, employee benefits, and overhead, suggests that the cost for in-
  house counsel is $392 per hour.

    Much of the work of preparing an application is performed by 
outside counsel. Based on conversations with applicants and Staff 
experience, approximately 80 percent of applications are prepared by 
outside counsel and approximately 20 percent of applications are 
prepared by in-house counsel. Therefore, the new mandatory requirements 
would increase the total estimated annual cost burden by approximately 
$109,340 utilizing outside counsel and total estimated annual hour 
burden by approximately 55 hours utilizing in-house counsel.\82\ The 
total estimated annual cost burden for both outside and in-house 
counsel would be $130,900.\83\
---------------------------------------------------------------------------

    \82\ This estimate is based on the following calculations:
    [$2,485 (estimated cost per application to prepare the marked 
copies) + $248.50 (estimated cost per application to notate and 
certify] x 50 (estimated number of applications under expedited 
review) x 0.80 (approximate percentage of applications prepared by 
outside counsel) = $109,340.
    [5 (estimated hours per application to prepare the marked 
copies) + 0.5 (estimated hour per application to notate and 
certify)] x 50 (estimated number of applications under expedited 
review) x 0.20 (approximate percentage of applications prepared by 
in-house counsel) = 55.
    \83\ This estimate is based on the following calculation: 
$109,340 (estimated total cost utilizing outside counsel) + [55 
(estimated total hours utilizing in-house counsel) x $392 (hourly 
rate for an in-house counsel)] = $130,900.
---------------------------------------------------------------------------

B. Rule 0-5(g)

    Proposed rule 0-5(g) would provide that, if an applicant has not 
responded in writing to a request for clarification or modification of 
an application filed under standard review within 120 days after the 
request, the application will be deemed withdrawn. Proposed rule 0-5(g) 
would provide that, if an applicant has not responded in writing to a 
request for clarification or modification of an application filed under 
standard review within 120 days after the request, the application will 
be deemed withdrawn. As an oral response would not stop an application 
from being deemed withdrawn, proposed rule 0-5(g), would require 
applicants to respond ``in writing'' and therefore create an additional 
cost within the meaning of the PRA.
    Applicants would be required to submit a letter or an email in 
response to a request for clarification or modification of an 
application from the Staff. We believe the ``in writing'' requirement 
would increase the burden by 2 hours or $994 per application for 
applicants relying on outside counsel.\84\ Applicants utilizing in-
house counsel would spend 2 hours or $784 per application.\85\ We 
estimate to receive approximately 90 applications \86\ per year seeking 
standard review under the Act and of the 90 applications, we estimate 
that in approximately 10 percent of those, the applicants would respond 
``in writing'' to avoid that the application be deemed withdrawn 
pursuant to rule 0-5(g). Therefore, the ``in writing'' requirement 
under rule 0-5(g) would increase the total estimated annual cost burden 
by approximately $7,157 utilizing outside counsel and total estimated 
annual hour burden by approximately 3.6 hours utilizing in-house 
counsel.\87\ The total estimated annual cost burden for both outside 
and in-house counsel would be $8,568.\88\
---------------------------------------------------------------------------

    \84\ This estimate is based on the following calculation: 2 
(estimated hours to prepare ``in writing'' response) x $497 (hourly 
rate for outside counsel) = $994.
    \85\ This estimate is based on the following calculation: 2 
(estimated hours to prepare ``in writing'' response) x $392 (hourly 
rate for an in-house counsel) = $784.
    \86\ This estimate is based on the following calculation: 140 
(estimated number of all applications)-50 (estimated number of 
applications under expedited review) = 90.
    \87\ This estimate is based on the following calculations:
    $994 (estimated hours to prepare ``in writing'' response) x 90 
(estimated number of applications under standard review) x 0.10 
(approximate percentage of application required to respond ``in 
writing'') x 0.80 (approximate percentage of applications prepared 
by outside counsel) = $7,157.
    2 (estimated hours to prepare ``in writing'' response) x 90 
(estimated number of applications under standard review) x 0.10 
(approximate percentage of application required to respond ``in 
writing'') x 0.20 (approximate percentage of applications prepared 
by in-house counsel) = 3.6.
    \88\ This estimate is based on the following calculation: $7,157 
(estimated total cost utilizing outside counsel) + [3.6 (estimated 
total hours utilizing in-house counsel) x $392 (hourly rate for an 
in-house counsel)] = $8,568.
---------------------------------------------------------------------------

    We request comment on whether our estimates for burden hours and 
any external costs as described above are reasonable. Pursuant to 44 
U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (i) 
Evaluate whether the proposed collections of information are necessary 
for the proper performance of the function of the Commission, including 
whether the information will have practical utility; (ii) evaluate the 
accuracy of the Commission's estimate of the burden of the proposed 
collections of information; (iii) determine whether there are ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (iv) determine whether there are ways to minimize the 
burden of the collections of information on those who are to respond, 
including through the use of automated collection techniques or other 
forms of information technology.
    The Commission has submitted the proposed collection of information 
to OMB for approval. Persons wishing to submit comments on the 
collection of information requirements of the proposed amendments 
should direct them to the Office of Management and Budget, Attention 
Desk Officer for the Securities and Exchange Commission, Office of 
Information and Regulatory Affairs, Washington, DC 20503, and should 
send a copy to Secretary, Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090, with reference to File No. S7-19-
19. OMB is required to make a decision concerning the collections of 
information between 30 and 60 days after publication of this release; 
therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days after publication of this release. 
Requests for materials submitted to OMB by the Commission with regard 
to these collections of information should be in writing, refer to File 
No. S7-19-19, and be submitted to the Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street 85 NE, Washington, DC 
20549-2736.

V. Initial Regulatory Flexibility Analysis

    The Commission has prepared the following Initial Regulatory 
Flexibility Analysis (``IRFA'') in accordance with section 3 of the 
Regulatory Flexibility Act (``RFA'') \89\ regarding our proposed 
amendments to rule 0-5 and new rule 17 CFR 202.13.
---------------------------------------------------------------------------

    \89\ See 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Reasons for and Objectives of the Proposed Actions

    The application process under the Act has become more important as 
the industry has grown and diversified. Granting appropriate exemptions 
from the Act can provide important economic benefits to funds and their 
shareholders, and foster financial innovation. Thus,

[[Page 58088]]

we have continued to consider ways to improve the applications process 
as we recognize the importance of obtaining an order in a timely 
manner. The proposed amendments and new rule reflect our efforts to 
improve the process and would establish an expedited review procedure 
for applications that are substantially identical to recent precedent. 
We believe that the proposed approach balances applicants' desire for a 
prompt decision on their application with the Commission's need for 
adequate time to consider requests for relief.
    We believe that the new procedure would encourage applicants for 
expedited review to submit applications that are substantially 
identical to precedent, which we expect would facilitate Staff review. 
Accordingly, we should be able to grant relief that meets the 
applicable standards more quickly, and, in turn, devote additional 
resources to the review of more novel requests. A faster application 
process would allow the benefits of relief to be realized by 
applicants, and ultimately by fund shareholders, more quickly than 
otherwise would be the case. Further, we expect that the proposed 
expedited review procedure would make the applications process less 
expensive for applicants, because we believe that it would reduce the 
numbers of Staff comments.

B. Legal Basis

    The Commission is proposing the rules contained in this document 
under the authority set forth in sections 6(c) and 38(a) of the Act [15 
U.S.C. 80a-6(c) and 80a-37(a)].

C. Small Entities Subject to the Proposed Amendment

    Any registered investment company is a small entity if, together 
with other investment companies in the same group of related investment 
companies, it has net assets of $50 million or less as of the end of 
its most recent fiscal year.\90\ Staff estimates that, as of December 
2018, there were 59 open-end funds (including 9 ETFs), 31 closed-end 
funds, and 16 BDCs that would be considered small entities that may be 
subject to proposed amendments to rule 0-5.\91\
---------------------------------------------------------------------------

    \90\ See rule 0-10(a).
    \91\ This estimate is derived from an analysis of data obtained 
from Morningstar Direct as well as data reported on Form N-SAR filed 
with the Commission for the period ending December 2018.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    Proposed new rule 0-5(e) will require applicants seeking expedited 
review of an application to file with the Commission: (1) A cover page 
of the application that states prominently, ``EXPEDITED REVIEW 
REQUESTED UNDER 17 CFR 270.0-5(d)''; (2) exhibits with marked copies of 
the application showing changes from the final versions of two 
precedent applications identified as substantially identical; and (3) 
requires an accompanying cover letter, signed, on behalf of the 
applicant, by the person executing the application (i) identifying two 
substantially identical applications; and (ii) certifying that that the 
applicant believes the application meets the requirements of rule 0-
5(d) and that the marked copies required by rule 0-5(e)(2) are complete 
and accurate.\92\ As discussed in section IV, the estimated cost and 
administrative burdens for small entities associated with these 
activities for applicants utilizing outside counsel would be $2,733.50 
\93\ per application and the estimated hour or cost burden for 
applicants utilizing in-house counsel would be 5.5 hours \94\ or $2,156 
\95\ per application.
---------------------------------------------------------------------------

    \92\ The amendments are discussed in detail in section II.A 
above. We discuss the economic impact, including the estimated 
compliance costs and burdens, of the amendments in section III and 
section IV.
    \93\ This estimate is based on the following calculation: $2,485 
(estimated cost per application to prepare the marked copies) + 
$248.50 (estimated cost per application to notate and certify) = 
$2,733.50.
    \94\ This estimate is based on the following calculation: 5 
hours (estimated hours per application to prepare the marked copies) 
+ 0.5 hour (estimated hour per application to notate and certify) = 
5.5 hours.
    \95\ This estimate is based on the following calculation: $1,960 
(estimated cost per application to prepare the marked copies) + $196 
(estimated cost per application to notate and certify) = $2,156.
---------------------------------------------------------------------------

    As discussed in section III, we believe the additional costs and 
administrative burdens of providing the required statements and 
certifications on the included cover page and submitting two marked 
copies against two precedents would not have a substantial impact on 
the total cost for applications that qualify for the expedited review 
procedure. Small entities will considerably benefit from the expedited 
review procedure as the total estimated savings significantly justify 
the estimated added burden under proposed rule 0-5(e). The estimated 
savings for an application under expedited review compared to an 
average application under the standard review process would be 
approximately $59,640 \96\ per application utilizing outside counsel or 
120 hours \97\ or $47,040 \98\ per application utilizing in-house 
counsel.
---------------------------------------------------------------------------

    \96\ See supra note 58.
    \97\ See supra note 59.
    \98\ See supra note 60.
---------------------------------------------------------------------------

    Proposed new rule 0-5(g) will require applicants to respond ``in 
writing'' to a request for clarification or modification of an 
application filed under standard review within 120 days after the 
request from the Staff or the application will be deemed withdrawn. As 
discussed in section IV, the estimated cost and administrative burdens 
for small entities associated with these activities for applicants 
utilizing outside counsel would be $994 \99\ per application and the 
estimated hour or cost burden for applicants utilizing in-house counsel 
would be 2 hours or $784 \100\ per application. Proposed rule 0-5(g) 
imposes additional costs and administrative burdens on small entities 
for standard review applications, but the estimated savings from the 
expedited review process would justify the added burden of rule 0-5(g).
---------------------------------------------------------------------------

    \99\ See supra note 84.
    \100\ See supra note 85.
---------------------------------------------------------------------------

    In addition, compliance with the proposed amendments would require 
the use of professional legal skills necessary for research and 
preparation of required documents. We discuss the economic impact, 
including the estimated costs and burdens, of the proposed amendments 
to all registrants, including small entities, in sections III and IV 
above.
    We believe there are no reporting, recordkeeping and other 
compliance requirements for small entities with respect to the proposed 
new rule 17 CFR 202.13. The rule we propose here is an internal set of 
deadlines with no costs and administrative burdens incurred by the 
applicants.

E. Duplicative, Overlapping or Conflicting Federal Rules

    The Commission believes that there are no duplicative, overlapping 
or conflicting federal rules to the proposed amendments to rule 0-5 and 
the new rule 17 CFR 202.13.

F. Significant Alternatives

    The RFA directs the Commission to consider significant alternatives 
that would accomplish the stated objectives, while minimizing any 
significant adverse impact on small entities. In connection with the 
proposals, we considered the following alternatives: (i) Establishing 
differing compliance or reporting requirements or timetables that take 
into account the resources available to small entities; (ii) 
clarification, consolidation, or

[[Page 58089]]

simplification of compliance and reporting requirements under the rule 
for small entities; (iii) the use of performance rather than design 
standards; and (iv) an exemption from coverage of the rule, or any part 
thereof, for such small entities.
    We do not believe that establishing a different compliance or 
reporting requirements for small entities would permit us to achieve 
our stated goals. We believe that the new approach is expected to 
reduce costs by shortening the time it takes for applicants to obtain 
orders on certain routine applications. Further clarification, 
consolidation, or simplification of the compliance and reporting 
requirements is not necessary to achieve the goals of the proposal and 
would not be appropriate in the public interest and consistent with the 
protection of investors. The use of performance rather than design 
standards is not appropriate, as the new approach is intended to 
expedite the applications process and the use of a single design 
standard would make the procedure more efficient. Exemption from 
coverage of the rule would not be necessary, as the new expedited 
process would further benefit small entities by making the applications 
process more cost efficient.

G. Request for Comment

    The Commission requests comments regarding this analysis. We 
request comment on the number of small entities that would be subject 
to the proposed amendments and whether the proposed amendments would 
have any effects on small entities that have not been discussed. We 
request that commenters describe the nature of any effects on small 
entities subject to the proposed amendments and provide empirical data 
to support the nature and extent of such effects. We also request 
comment on the estimated compliance burdens of the proposed amendments 
and how they would affect small entities.

VI. Consideration of the Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\101\ the Commission must advise OMB whether a 
proposed regulation constitutes a ``major'' rule. Under SBREFA, a rule 
is considered ``major'' where, if adopted, it results in or is likely 
to result in:
---------------------------------------------------------------------------

    \101\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C., and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    We request comment on whether our proposal would be a ``major 
rule'' for purposes of SBREFA. We solicit comment and empirical data 
on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.
    Commenters are requested to provide empirical data and other 
factual support for their views to the extent possible.

VII. Statutory Authority

    The Commission is proposing the rules contained in this document 
under the authority set forth in sections 6(c) and 38(a) of the Act [15 
U.S.C. 80a-6(c) and 80a-37(a)].

List of Subjects

17 CFR Parts 202

    Administrative practice and procedure, Securities.

17 CFR Parts 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

Text of the Proposed Amendments

    For the reasons set forth in the preamble, title 17, chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 202--INFORMAL AND OTHER PROCEDURES.

0
1. The authority citation for part 202 continues to read as follows:

    Authority:  15 U.S.C. 77s, 77t, 77sss, 77uuu, 78d-1, 78u, 78w, 
78ll(d), 80a-37, 80a-41, 80b-9, 80b-11, 7201 et seq., unless 
otherwise noted.
* * * * *
0
2. Add Sec.  202.13 to read as follows:


Sec.  202.13   Informal procedure with respect to applications under 
the Investment Company Act of 1940.

    (a) On any application subject to 17 CFR 270.0-5, other than an 
application eligible for and proceeding under expedited review as 
provided for by 17 CFR 270.0-5(d), (e), and (f), the Division should 
take action within 90 days of the initial filing or any amendment 
thereto. Such 90 day period will stop running upon any irregular 
closure of the Commission's Washington, DC office to the public for 
normal business, including, but not limited to, closure due to a lapse 
in federal appropriations, national emergency, inclement weather, or ad 
hoc federal holiday, and will resume upon the reopening of the 
Commission's Washington, DC office to the public for normal business. 
The Division may grant 90-day extensions and the applicant should be 
notified of any such extension.
    (b) Action on the application or any amendment thereto shall 
consist of:
    (1) Issuing a notice,
    (2) Providing the applicant with requests for clarification or 
modification of the application, or
    (3) Informing applicant that the application will be forwarded to 
the Commission, in which case the application is no longer subject to 
the provisions set forth in paragraph (a) of this section.
    (c) The provisions of this rule, including the time frames provided 
for herein, are not intended to create enforceable rights by any 
interested parties and shall not be deemed to do so. Rather, this rule 
provides informal non-binding guidelines and procedures that the 
Commission anticipates the Division following.

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
3. The authority citation for part 270 continues to read as follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless 
otherwise noted.
* * * * *
0
4. Section 270.0-5 is amended by adding new paragraphs (d), (e), (f), 
and (g) to read as follows:


Sec.  270.0-5  Procedure with respect to applications and other 
matters.

* * * * *
    (d)(1) An applicant may request expedited review of an application 
if such application is substantially identical to two other 
applications for which an order granting the requested relief has been 
issued within two years of the date of the application's initial 
filing.
    (2) For purposes of this section, ``substantially identical'' 
applications are applications requesting relief from the same sections 
of the Act and rules thereunder, containing identical terms and 
conditions, and differing only with respect to factual differences that 
are not material to the relief requested.
    (e) An application submitted for expedited review must include:
    (1) A notation on the cover page of the application that states 
prominently,

[[Page 58090]]

``EXPEDITED REVIEW REQUESTED UNDER 17 CFR 270.0-5(d)'',
    (2) Exhibits with marked copies of the application showing changes 
from the final versions of the two applications identified as 
substantially identical under paragraph (e)(3) of this section, and
    (3) An accompanying cover letter, signed, on behalf of the 
applicant, by the person executing the application,
    (i) Identifying two substantially identical applications; and
    (ii) Certifying that that the applicant believes the application 
meets the requirements of paragraph (d) of this section and that the 
marked copies required by paragraph (e)(2) of this section are complete 
and accurate.
    (f)(1) No later than 45 days from the date of filing of an 
application for which expedited review is requested:
    (i) Notice of an application will be issued in accordance with 
paragraph (a) of this section, or
    (ii) The applicant will be notified that the application is not 
eligible for expedited review because it does not meet the criteria set 
forth in paragraph (d) of this section or because additional time is 
necessary for appropriate consideration of the application;
    (2) For purposes of paragraph (f)(1) of this section:
    (i) The 45 day period will restart upon the filing of any 
unsolicited amendment.
    (ii) The 45 day period will stop running upon:
    (A) Any request for modification of an application and will resume 
running on the 14th day after the applicant has filed an amended 
application responsive to such request, including a marked copy showing 
any changes made and a certification signed by the person executing the 
application that such marked copy is complete and accurate; and
    (B) Any irregular closure of the Commission's Washington, DC office 
to the public for normal business, including, but not limited to, 
closure due to a lapse in federal appropriations, national emergency, 
inclement weather, or ad hoc federal holiday, and will resume upon the 
reopening of the Commission's Washington, DC office to the public for 
normal business.
    (iii) If the applicant does not file an amendment responsive to any 
request for modification within 30 days of receiving such request, 
including a marked copy showing any changes made and a certification 
signed by the person executing the application that such marked copy is 
complete and accurate, the application will be deemed withdrawn.
    (g) If an applicant has not responded in writing to any request for 
clarification or modification of an application filed under this 
section, other than an application that is under expedited review under 
paragraphs (d) through (e) of this section, within 120 days after the 
request, the application will be deemed withdrawn.

    By the Commission.

    Dated: October 18, 2019.
 Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-23082 Filed 10-29-19; 8:45 am]
 BILLING CODE 8011-01-P