[Federal Register Volume 89, Number 125 (Friday, June 28, 2024)]
[Notices]
[Pages 54099-54101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14223]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-541, OMB Control No. 3235-0620]


Proposed Collection; Comment Request; Extension: Rule 22c-2

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.) the Securities and Exchange Commission 
(the ``Commission'') is soliciting comments on the collection of 
information summarized below. The Commission plans to submit this 
existing collection of information to the Office of Management and 
Budget for extension and approval.
    Rule 22c-2 (17 CFR 270.22c-2) under the Investment Company Act of 
1940 (15 U.S.C. 80a) (the ``Investment Company 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, 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

[[Page 54100]]

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 3 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 average number of registrants 
filing initial Form N-1A or N-3 from 2020 to 2022; 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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    Commission staff estimates that it takes 2 hours of the board's 
time as a whole (at a rate of $4,770 per hour) 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 $84 per hour) to prepare 
trading, compliance, and other information regarding the fund's 
operations to enable the board to make its determination, and takes an 
internal compliance attorney of the fund 3 hours (at a rate of $440 per 
hour) 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 
\4\ at a cost of $11,532.\5\ As a result, Commission staff estimates 
that the total time spent for all funds on this process is 416 hours at 
a cost of $369,024.\6\
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    \4\ This calculation is based on the following estimates: 2 
hours of board time + 3 hours of internal compliance attorney time + 
8 hours of compliance clerk time = 13 hours.
    \5\ This calculation is based on the following estimates: 
($4,770 board time x 2 hours) + ($84 compliance time x 8 hours) + 
($440 attorney time x 3 hours) = $11,532.
    The hourly wages used are from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1800 hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead; the staff has estimated the average cost of 
board of director time as $4,770 per hour for the board as a whole, 
based on information received from funds and their counsel.
    \6\ This calculation is based on the following estimates: 13 
hours x 32 funds = 416 hours; $11,532x 32 funds = $369,024.
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    Rule 22c-2(a)(2) 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 797 currently active 
fund groups.\7\ 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 $500 
per hour) per intermediary. Accordingly, Commission staff estimates 
that it takes 12 hours at a cost of $6,000 annually for each fund group 
\8\ to enter into new information sharing agreements and, in the 
aggregate existing market participants incur a total of 9,564 hours at 
a cost of $4,782,000.\9\
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    \7\ ICI, 2024 Investment Company Fact Book at Fig 2.8 (2024) 
(https://www.icifactbook.org/pdf/2024-factbook.pdf).
    \8\ This estimate is based on the following calculations: 4 
hours x 3 new intermediaries = 12 hours; 12 hours x $500 = $6,000).
    \9\ This estimate is based on the following calculations: (12 
hours x 797 fund groups = 9,564 hours); 9,564 hours x $500 = 
$4,782,000).
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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 38 new fund groups that form each year that 
will have to enter into information sharing agreements with each of 
their intermediaries.\10\ 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.\11\ As 
discussed previously, Commission staff estimates that it takes 4 hours 
of attorney time (at a rate of $500 per hour) 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 $200,000 \12\ and that all newly formed fund 
groups will incur a total of 15,200 hours at a cost of $7,600,000 to 
enter into information sharing agreements with their 
intermediaries.\13\
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    \10\ ICI, 2024 Investment Company Fact Book at Fig 2.8 (2024) 
(https://www.icifactbook.org/pdf/2024-factbook.pdf).
    \11\ 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.
    \12\ This estimate is based on the following calculations: 4 
hours x 100 intermediaries = 400 hours; 400 hours x $500 = $200,000.
    \13\ This estimate is based on the following calculations: (38 
fund groups x 400 hours = 15,200 hours) ($500 x 15,200 = 7,600,000).
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    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 797 fund groups.\14\ 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 $75 per hour) per fund, each year. Accordingly, 
Commission staff estimates that all funds will incur 133 hours at a 
cost of $9,975 \15\ in complying with the recordkeeping requirement of 
rule 22c-2(a)(3). 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 24,897 hours at a cost of 
$12,391,975.\16\
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    \14\ ICI, 2024 Investment Company Fact Book at Fig 2.8 (2024) 
(https://www.icifactbook.org/pdf/2024-factbook.pdf).
    \15\ This estimate is based on the following calculations: (10 
minutes x 797 fund groups = 7,970 minutes); (7,970 minutes/60 = 133 
hours); (133 hours x $75 = $9,975).
    \16\ This estimate is based on the following calculations: 
(9,564 hours + 15,200 hours + 133 hours = 24,897 hours); ($4,782,000 
+ $7,600,000 + $9,975 = $12,391,975).
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    The Commission staff estimates that on average, each fund group 
requests

[[Page 54101]]

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 331,552 responses for all fund groups annually.\17\ 
In addition, as described above, the staff estimates that funds make 32 
responses related to board determinations, 2,391 responses related to 
new intermediaries of existing fund groups, 3,800 responses related to 
new fund group information sharing agreements, and 797 responses 
related to recordkeeping, for a total of 7,020 responses related to the 
other requirements of rule 22c-2. Therefore, the Commission staff 
estimates that the total number of responses is 338,572 (331,552 + 
7,020 = 338,572). The Commission staff estimates that the total hour 
burden for rule 22c-2 is 25,313 hours at a cost of $12,392,344.\18\
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    \17\ This estimate is based on the following calculations: (52 + 
365 = 417); (417 x 797 fund groups = 331,552).
    \18\ This estimate is based on the following calculations: 416 
hours (board determination) + 24,897 hours (information sharing 
agreements) = 25,313 total hours; $369,024 (board determination) + 
$12,391,975 (information sharing agreements) = $12,392,344.
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    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.
    Written comments are invited on: (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimate of the burden of the collection of information; (c) ways to 
enhance the quality, utility, and clarity of the information collected; 
and (d) ways to minimize the burden of the collection of information on 
respondents, including through the use of automated collection 
techniques or other forms of information technology. Consideration will 
be given to comments and suggestions submitted by August 27, 2024.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    Please direct your written comments to: David Bottom, Chief 
Information Officer, Securities and Exchange Commission, c/o John 
Pezzullo, 100 F Street, NE Washington, DC 20549 or send an email to: 
[email protected].

    Dated: June 24, 2024.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-14223 Filed 6-27-24; 8:45 am]
BILLING CODE 8011-01-P