[Federal Register Volume 89, Number 172 (Thursday, September 5, 2024)]
[Notices]
[Pages 72535-72537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19902]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-541, OMB Control No. 3235-0620]
Submission for OMB Review; 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'') 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
[[Page 72536]]
(``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 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 1,800 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; $11,532 x 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
[[Page 72537]]
$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 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.
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
by October 7, 2024 to (i) [email protected] and
(ii) Austin Gerig, Director/Chief Data Officer, Securities and Exchange
Commission, c/o Oluwaseun Ajayi, 100 F Street NE, Washington, DC 20549,
or by sending an email to: [email protected].
Dated: August 30, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19902 Filed 9-4-24; 8:45 am]
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