[Federal Register Volume 86, Number 190 (Tuesday, October 5, 2021)]
[Notices]
[Pages 55035-55037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21583]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-541, OMB Control No. 3235-0620]
Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Extension:
Rule 22c-2
Notice is hereby given that pursuant to the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501 et seq.) the Securities and Exchange Commission
(the ``Commission'') has submitted to the Office of Management and
Budget a request for extension of the previously approved collection of
information discussed below.
Rule 22c-2 (17 CFR 270.22c-2) under the Investment Company Act of
1940 (15 U.S.C. 80a) (the ``Investment Company Act'' or ``Act'')
requires the board of directors (including a majority of independent
directors) of most registered open-end investment companies (``funds'')
to either approve a redemption fee of up to two percent or determine
that imposition of a redemption fee is not necessary or appropriate for
the fund. Rule 22c-2 also requires a fund to enter into written
agreements with their financial intermediaries (such as broker-dealers
and retirement plan administrators) under which the fund, upon request,
can obtain certain shareholder identity and trading information from
the intermediaries. The written agreement must also allow the fund to
direct the intermediary to prohibit further purchases or exchanges by
specific shareholders that the fund has identified as being engaged in
transactions that violate the fund's market timing policies. These
requirements enable funds to obtain the information that they need to
monitor the frequency of short-term trading in omnibus accounts and
enforce their market timing policies.
The rule includes three ``collections of information'' within the
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\1\ First, the
rule requires boards to either approve a redemption fee of up to two
percent or determine that imposition of a redemption fee is not
necessary or appropriate for the fund. Second, funds must enter into
information sharing agreements with all of their ``financial
intermediaries'' \2\ and maintain a copy of the written information
sharing agreement with each intermediary in an easily accessible place
for six years. Third, pursuant to the information sharing agreements,
funds must have systems that enable them to request frequent trading
information upon demand from their intermediaries, and to enforce any
restrictions on trading required by funds under the rule.
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\1\ 44 U.S.C. 3501-3520.
\2\ The rule defines a Financial Intermediary as: (i) Any
broker, dealer, bank, or other person that holds securities issued
by the fund in nominee name; (ii) a unit investment trust or fund
that invests in the fund in reliance on section 12(d)(i)(E) of the
Act; and (iii) in the case of a participant directed employee
benefit plan that owns the securities issued by the fund, a
retirement plan's administrator under section 316(A) of the Employee
Retirement Security Act of 1974 (29 U.S.C. 1002(16)(A) or any person
that maintains the plans' participant records. Financial
Intermediary does not include any person that the fund treats as an
individual investor with respect to the fund's policies established
for the purpose of eliminating or reducing any dilution of the value
of the outstanding securities issued by the fund. Rule 22c-2(c)(1).
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The collections of information created by rule 22c-2 are necessary
for funds to effectively assess redemption fees, enforce their policies
in frequent trading, and monitor short-term trading,
[[Page 55036]]
including market timing, in omnibus accounts. These collections of
information are mandatory for funds that redeem shares within seven
days of purchase. The collections of information also are necessary to
allow Commission staff to fulfill its examination and oversight
responsibilities.
Rule 22c-2(a)(1) requires the board of directors of all registered
open-end management investment companies and series thereof (except for
money market funds, ETFs, or funds that affirmatively permit short-term
trading of its securities) to approve a redemption fee for the fund, or
instead make a determination that a redemption fee is either not
necessary or appropriate for the fund. Commission staff understands
that the boards of all funds currently in operation have undertaken
this process for the funds they currently oversee, and the rule does
not require boards to review this determination periodically once it
has been made. Accordingly, we expect that only boards of newly
registered funds or newly created series thereof would undertake this
determination. Commission staff estimates that 36 funds (excluding
money market funds and ETFs) are newly formed each year and would need
to make this determination.\3\
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\3\ This estimate is based on the number of registrants filing
initial Form N-1A or N-3 from 2017 to 2019. This estimate does not
carve out money market funds, ETFs, or funds that affirmatively
permit short-term trading of their securities, so this estimate
corresponds to the outer limit of the number of registrants that
would have to make this determination.
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Based on conversations with fund representatives,\4\ Commission
staff estimates that it takes 2 hours of the board's time as a whole
(at a rate of $4,465 per hour) \5\ to approve a redemption fee or make
the required determination on behalf of all series of the fund. In
addition, Commission staff estimates that it takes compliance personnel
of the fund 8 hours (at a rate of $72 per hour) \6\ to prepare trading,
compliance, and other information regarding the fund's operations to
enable the board to make its determination, and takes internal
compliance counsel of the fund 3 hours (at a rate of $373 per hour) \7\
to review this information and present its recommendations to the
board. Therefore, for each fund board that undertakes this
determination process, Commission staff estimates it expends 13 hours
\8\ at a cost of $10,625.\9\ As a result, Commission staff estimates
that the total time spent for all funds on this process is 468 hours at
a cost of $382,500.\10\
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\4\ Unless otherwise stated, estimates throughout this analysis
are derived from a survey of funds and conversations with fund
representatives.
\5\ The estimate of $4,465 per hour for the board's time as a
whole is based on conversations with representatives of funds and
their legal counsel.
\6\ The $72 per hour figure for a compliance clerk is from
SIFMA's Office Salaries in the Securities Industry 2013, modified by
Commission staff to account for an 1,800-hour work-year and
inflation, and multiplied by 2.93 to account for bonuses, firm size,
employee benefits and overhead.
\7\ The $373 per hour figure for internal compliance counsel is
from SIFMA'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 to account for
bonuses, firm size, employee benefits and overhead.
\8\ This calculation is based on the following estimates: (2
hours of board time + 3 hours of internal compliance counsel time +
8 hours of compliance clerk time = 13 hours).
\9\ This calculation is based on the following estimates:
($8,930 ($4,465 board time x 2 hours = $8,930) + $576 ($72
compliance time x 8 hours = $576) + $1,119 ($373 attorney time x 3
hours = $1,119) = $10,625).
\10\ This calculation is based on the following estimates: (13
hours x 36 funds = 468 hours); ($10,625 x 36 funds = $382,500).
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Rule 22c-2(a)(2) also requires a fund to enter into information-
sharing agreements with each of its financial intermediaries.
Commission staff understands that all currently registered funds have
already entered into such agreements with their intermediaries. Funds
enter into new relationships with intermediaries from time to time,
however, which requires them to enter into new information sharing
agreements. Commission staff understands that, in general, funds enter
into information-sharing agreement when they initially establish a
relationship with an intermediary, which is typically executed as an
addendum to the distribution agreement. The Commission staff
understands that most shareholder information agreements are entered
into by the fund group (a group of funds with a common investment
adviser), and estimates that there are currently 840 currently active
fund groups.\11\ Commission staff estimates that, on average, each
active fund group enters into relationships with 3 new intermediaries
each year. Commission staff understands that funds generally use a
standard information sharing agreement, drafted by the fund or an
outside entity, and modifies that agreement according to the
requirements of each intermediary. Commission staff estimates that
negotiating the terms and entering into an information sharing
agreement takes a total of 4 hours of attorney time (at a rate of $425
per hour) \12\ per intermediary (representing 2.5 hours of fund
attorney time and 1.5 hours of intermediary attorney time).
Accordingly, Commission staff estimates that it takes 12 hours at a
cost of $5,100 each year \13\ to enter into new information sharing
agreements, and all existing market participants incur a total of
10,080 hours at a cost of $4,284,000.\14\
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\11\ ICI, 2020 Investment Company Fact Book at Fig 2.12 (2020)
(https://www.ici.org/research/stats/factbook).
\12\ The $425 per hour figure for attorneys is from SIFMA'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 to account for bonuses, firm
size, employee benefits and overhead.
\13\ This estimate is based on the following calculations: (4
hours x 3 new intermediaries = 12 hours); (12 hours x $425 =
$5,100).
\14\ This estimate is based on the following calculations: (12
hours x 840 fund groups = 10,080 hours); (10,080 hours x $425 =
$4,284,000).
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In addition, newly created funds advised by new entrants
(effectively new fund groups) must enter into information sharing
agreements with all of their financial intermediaries. Commission staff
estimates that there are 41 new fund groups that form each year that
will have to enter into information sharing agreements with each of
their intermediaries.\15\ Commission staff estimates that fund groups
formed by new advisers typically have relationships with significantly
fewer intermediaries than existing fund groups, and estimates that new
fund groups will typically enter into 100 information sharing
agreements with their intermediaries when they begin operations.\16\ As
discussed previously, Commission staff estimates that it takes 4 hours
of attorney time (at a rate of $425 per hour) \17\ per intermediary to
enter into information sharing agreements. Therefore, Commission staff
estimates that each newly formed fund group will incur 400 hours of
attorney time at a cost of $170,000 \18\ and that all newly formed fund
groups will incur a total of 16,400 hours at a cost of $6,970,000 to
enter into information sharing agreements with their
intermediaries.\19\
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\15\ ICI, 2020 Investment Company Fact Book at Fig 2.12 (2020)
(https://www.ici.org/research/stats/factbook).
\16\ Commission staff understands that funds generally use a
standard information sharing agreement, drafted by the fund or an
outside entity, and then modifies that agreement according to the
requirements of each intermediary.
\17\ The $425 per hour figure for an attorney is from SIFMA'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 to account for bonuses, firm
size, employee benefits and overhead.
\18\ This estimate is based on the following calculations: (4
hours x 100 intermediaries = 400 hours); (400 hours x $425 =
$170,000).
\19\ This estimate is based on the following calculations: (41
fund groups x 400 hours = 16,400 hours); ($425 x 16,400 =
$6,970,000).
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[[Page 55037]]
Rule 22c-2(a)(3) requires funds to maintain records of all
information-sharing agreements for 6 years in an easily accessible
place. Commission staff understands that most shareholder information
agreements are stored at the fund group level and estimates that there
are currently approximately 840 fund groups.\20\ Commission staff
understands that information-sharing agreements are generally included
as addendums to distribution agreements between funds and their
intermediaries, and that these agreements would be stored as required
by the rule as a matter of ordinary business practice. Therefore,
Commission staff estimates that maintaining records of information-
sharing agreements requires 10 minutes of time spent by a general clerk
(at a rate of $64 per hour) \21\ per fund, each year. Accordingly,
Commission staff estimates that all funds will incur 140 hours at a
cost of $8,960 \22\ in complying with the recordkeeping requirement of
rule 22c-2(a)(3).
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\20\ ICI, 2020 Investment Company Fact Book at Fig 2.12 (2020)
(https://www.ici.org/research/stats/factbook).
\21\ The $64 per hour figure for a general clerk is derived from
SIFMA's Office Salaries in the Securities Industry 2013 modified to
account for an 1800-hour work-year and inflation, and multiplied by
2.93 to account for bonuses, firm size, employee benefits, and
overhead.
\22\ This estimate is based on the following calculations: (10
minutes x 840 fund groups = 8,400 minutes); (8,400 minutes/60 = 140
hours); (140 hours x $64 = $8,960).
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Therefore, Commission staff estimates that to comply with the
information sharing agreement requirements of rule 22c-2(a)(2) and (3),
it requires a total of 26,620 hours at a cost of $11,262,960.\23\
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\23\ This estimate is based on the following calculations:
(10,080 hours + 16,400 hours + 140 hours = 26,620 hours);
($4,284,000 + $6,970,000 + $8,960 = $11,262,960).
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The Commission staff estimates that on average, each fund group
requests shareholder information once a week, and gives instructions
regarding the restriction of shareholder trades every day, for a total
of 417 responses related to information sharing systems per fund group
each year, and a total 350,280 responses for all fund groups
annually.\24\ In addition, as described above, the staff estimates that
funds make 36 responses related to board determinations, 2,520
responses related to new intermediaries of existing fund groups, 4,100
responses related to new fund group information sharing agreements, and
840 responses related to recordkeeping, for a total of 7,496 responses
related to the other requirements of rule 22c-2. Therefore, the
Commission staff estimates that the total number of responses is
357,776 (350,280 + 7,496 = 357,776).
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\24\ This estimate is based on the following calculations: (52 +
365 = 417); (417 x 840 fund groups = 350,280).
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The Commission staff estimates that the total hour burden for rule
22c-2 is 27,088 hours at a cost of $11,645,460.\25\ Responses provided
to the Commission will be accorded the same level of confidentiality
accorded to other responses provided to the Commission in the context
of its examination and oversight program. Responses provided in the
context of the Commission's examination and oversight program are
generally kept confidential. Complying with the information collections
of rule 22c-2 is mandatory for funds that redeem their shares within 7
days of purchase. 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.
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\25\ This estimate is based on the following calculations: (468
hours (board determination) + 26,620 hours (information sharing
agreements) = 27,088 total hours); ($382,500 (board determination) +
$11,262,960 (information sharing agreements) = $11,645,460).
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The public may view background documentation for this information
collection at the following website: www.reginfo.gov. Find this
particular information collection by selecting ``Currently under 30-day
Review--Open for Public Comments'' or by using the search function.
Written comments and recommendations for the proposed information
collection should be sent within 30 days of publication of this notice
to (i) www.reginfo.gov/public/do/PRAMain and (ii) David Bottom,
Director/Chief Information Officer, Securities and Exchange Commission,
c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549, or by
sending an email to: [email protected].
Dated: September 29, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21583 Filed 10-4-21; 8:45 am]
BILLING CODE 8011-01-P