[Federal Register Volume 89, Number 172 (Thursday, September 5, 2024)]
[Notices]
[Pages 72445-72454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19960]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-526, OMB Control No. 3235-0584]


Submission for OMB Review; Comment Request; Extension: Rule 12d1-
1

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.
    An investment company (``fund'') is generally limited in the amount 
of securities the fund (``acquiring fund'') can acquire from another 
fund (``acquired fund''). Section 12(d) of the Investment Company Act 
of 1940 (the ``Investment Company Act'' or ``Act'') \1\ provides that a 
registered fund (and companies it controls) cannot:
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    \1\ See 15 U.S.C. 80a.
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     acquire more than three percent of another fund's 
securities;
     invest more than five percent of its own assets in another 
fund; or
     invest more than ten percent of its own assets in other 
funds in the aggregate.\2\
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    \2\ See 15 U.S.C. 80a-12(d)(1)(A). If an acquiring fund is not 
registered, these limitations apply only with respect to the 
acquiring fund's acquisition of registered funds.
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    In addition, a registered open-end fund, its principal underwriter, 
and any registered broker or dealer cannot sell that fund's shares to 
another fund if, as a result:
     the acquiring fund (and any companies it controls) owns 
more than three percent of the acquired fund's stock; or
     all acquiring funds (and companies they control) in the 
aggregate own more than ten percent of the acquired fund's stock.\3\
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    \3\ See 15 U.S.C. 80a-12(d)(1)(B).
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    Rule 12d1-1 under the Act provides an exemption from these 
limitations for ``cash sweep'' arrangements in which a fund invests all 
or a portion of its available cash in a money market fund rather than 
directly in short-term instruments.\4\ An acquiring fund relying on the 
exemption may not pay a sales load, distribution fee, or service fee on 
acquired fund shares, or if it does, the acquiring fund's investment 
adviser must waive a sufficient amount of its advisory fee to offset 
the cost of the loads or distribution fees.\5\ The acquired fund may be 
a fund in the same fund complex or in a different fund complex. In 
addition to providing an exemption from section 12(d)(1) of the Act, 
the rule provides exemptions from section 17(a) of the Act and rule 
17d-1 thereunder, which restrict a fund's ability to enter into 
transactions and joint arrangements with affiliated persons.\6\ These 
provisions would otherwise prohibit an acquiring fund from investing in 
a money market fund in the same fund complex,\7\ and prohibit a fund 
that acquires five percent or more of the securities of a money market 
fund in another fund complex from making any additional investments in 
the money market fund.\8\
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    \4\ See 17 CFR 270.12d1-1.
    \5\ See rule 12d1-1(b)(1).
    \6\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d); 17 CFR 
270.17d-1.
    \7\ An affiliated person of a fund includes any person directly 
or indirectly controlling, controlled by, or under common control 
with such other person; see 15 U.S.C. 80a-2(a)(3) (definition of 
``affiliated person''); most funds today are organized by an 
investment adviser that advises or provides administrative services 
to other funds in the same complex; funds in a fund complex are 
generally under common control of an investment adviser or other 
person exercising a controlling influence over the management or 
policies of the funds; see 15 U.S.C. 80a-2(a)(9) (definition of 
``control''); not all advisers control funds they advise; the 
determination of whether a fund is under the control of its adviser, 
officers, or directors depends on all the relevant facts and 
circumstances; see Investment Company Mergers, Investment Company 
Act Release No. 25259 (Nov. 8, 2001) [66 FR 57602 (Nov. 15, 2001)], 
at n.11; to the extent that an acquiring fund in a fund complex is 
under common control with a money market fund in the same complex, 
the funds would rely on the rule's exemptions from section 17(a) and 
rule 17d-1.
    \8\ See 15 U.S.C. 80a-2(a)(3)(A), (B).
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    The rule also permits a registered fund to rely on the exemption to 
invest in an unregistered money market fund that limits its investments 
to those in which a registered money market fund may invest under rule 
2a-7 under the Act, and undertakes to comply with all the other 
provisions of rule 2a-7.\9\ In addition, the acquiring fund must 
reasonably believe that the unregistered money market fund (i) operates 
in compliance with rule 2a-7, (ii) complies with sections 17(a), (d), 
(e), 18, and 22(e) of the Act \10\ as if it were a registered open-end 
fund, (iii) has adopted procedures designed to ensure that it complies 
with these statutory provisions, (iv) maintains the records required by 
rules 31a-1(b)(1), 31a-1(b)(2)(ii), 31a-1(b)(2)(iv), and 31a-1(b)(9); 
\11\ and (v) preserves permanently, the first two years in an easily 
accessible place, all books and records required to be made under these 
rules.
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    \9\ See 17 CFR 270.2a-7.
    \10\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d), 15 U.S.C. 
80a-17(e), 15 U.S.C. 80a-18, 15 U.S.C. 80a-22(e).
    \11\ See 17 CFR 270.31a-1(b)(1), 17 CFR 270.31a-1(b)(2)(ii), 17 
CFR 270.31a-1(b)(2) (iv), 17 CFR 270.31a-1(b)(9).
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    Rule 2a-7 contains certain collection of information requirements. 
An unregistered money market fund that complies with rule 2a-7 would be 
subject to these collection of information requirements. In addition, 
the recordkeeping requirements under rule 31a-1 with which the 
acquiring

[[Page 72446]]

fund reasonably believes the unregistered money market fund complies 
are collections of information for the unregistered money market fund. 
The adoption of procedures by unregistered money market funds to ensure 
that they comply with sections 17(a), (d), (e), 18, and 22(e) of the 
Act also constitute collections of information. By allowing funds to 
invest in registered and unregistered money market funds, rule 12d1-1 
is intended to provide funds greater options for cash management. In 
order for a registered fund to rely on the exemption to invest in an 
unregistered money market fund, the unregistered money market fund must 
comply with certain collection of information requirements for 
registered money market funds. These requirements are intended to 
ensure that the unregistered money market fund has established 
procedures for collecting the information necessary to make adequate 
credit reviews of securities in its portfolio, as well as other 
recordkeeping requirements that will assist the acquiring fund in 
overseeing the unregistered money market fund (and Commission staff in 
its examination of the unregistered money market fund's adviser).
    The number of unregistered money market funds that are affected by 
rule 12d1-1 is an estimate based on the number of private liquidity 
funds reported on Form PF as of the third calendar quarter 2023.\12\ We 
use the estimated burdens for registered money market funds to 
extrapolate the information collection burdens for unregistered money 
market funds under rule 12d1-1.\13\ The estimated average burden hours 
in this collection of information are made solely for purposes of the 
Paperwork Reduction Act and are not derived from a quantitative, 
comprehensive or even representative survey or study of the burdens 
associated with Commission rules and forms. Based on the estimated 
burden of information collection for rule 2a-7 and Form PF filings, the 
estimated burden of information collection for rule 12d1-1 is set forth 
in Table 2 below.
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    \12\ See the U.S. Securities and Exchange Commission's Division 
of Investment Management--Analytics Office Private Funds Statistics, 
Third Calendar Quarter (March 31, 2024) available at https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf.
    \13\ See Securities and Exchange Commission, Request for OMB 
Approval of Extension for Approved Collection for Rule 2a-7 under 
the Investment Company Act of 1940 (OMB Control No. 3235-0268) 
(approved May 28, 2019, August 3, 2022) (the ``2022 rule 2a-7 PRA 
extension''), available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202109-3235-024; the 2022 rule 2a-7 PRA extension 
is the most recent rule 2a-7 submission that includes certain 
estimates with respect to aggregate annual hour and cost burdens for 
collections of information for registered money market funds.
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    \14\ The cost burdens shown in this chart for professional 
personnel are based on SIFMA's Management & Professional Earnings in 
the Securities Industry 2013, modified for 2024 by the 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 and the cost burdens for clerical personnel 
are based on SIFMA's Office Salaries in the Securities Industry 
2013, modified for 2024 by Commission staff 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; however, SIFMA 
data does not include a board of directors; for board time, 
Commission staff currently uses a cost of $5672 per hour, which was 
last adjusted for inflation in December 2024; this estimate assumes 
an average of nine board members per year.
    \15\ The number of liquidity funds is based on the following: 68 
x the percentage of liquidity funds that are at least partially in 
compliance with the risk-limiting provisions of rule 2a-7, or 100-
52) = 48%; the result (rounded up to a whole number) is 33 liquidity 
funds (68 * 0.48 = 33); the number of liquidity funds and percentage 
of funds that are at least partially compliant with the risk-
limiting provisions of rule 2a-7 is based on the U.S. Securities and 
Exchange Commission's Division of Investment Management--Analytics 
Office Private Funds Statistics, Third Calendar Quarter 2023 (March 
31, 2024) available at https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf.
    \16\ The number of new unregistered money market funds is 
estimated from 2021-2023 historical Form PF filings by liquidity 
fund advisers; see Securities and Exchange Commission's Division of 
Investment Management--Analytics Office Private Funds Statistics, 
Third Calendar Quarter 2023 (March 31, 2024) available at https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf.
    \17\ We recognize that in many cases the adviser to an 
unregistered money market fund typically performs the function of 
the fund's board; Money Market Fund Reform; Amendments to Form PF 
Investment Company Act Rel. No. 31166 (Jul. 23, 2014), 79 FR 47735, 
47809 (Aug. 14, 2014).
    \18\ For purposes of this PRA extension, we assumed that on 
average 25% (33 funds x .25 = approximately 8 funds) of liquidity 
funds would review and update their procedures on annual basis.
    \19\ This number has been derived from the number of advisers to 
liquidity funds; see U.S. Securities and Exchange Commission, 
Division of Investment Management, Analytics Office, Private Fund 
Statistics, Third Quarter 2023 (March 31, 2024), Table 2.
    \20\ See supra note 25.
    \21\ There are no liquidity funds of this type; liquidity funds 
only are offered to qualified investors.
    \22\ See supra note 25.
    \23\ Id.
    \24\ Id.
    \25\ In the context of registered money market funds, we have 
previously estimated an average of approximately 2 occurrences for 
20 funds each year; however, this number may vary significantly in 
any particular year; for purposes of this PRA extension, we assumed 
there would be same proportion of unregistered money market funds 
experiencing events of default or solvency each year. (20/320 
registered money market funds = approximately 5%. 5% x 33 liquidity 
funds = approximately 2 liquidity funds).
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    Commission staff estimates that in addition to the internal costs 
described

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in the table above, unregistered money market funds also will incur 
external costs to preserve records, as required under rule 2a-7. These 
costs will vary significantly for individual funds, depending on the 
amount of assets under fund management and whether the fund preserves 
its records in a storage facility in hard copy or has developed and 
maintains a computer system to create and preserve compliance records. 
In the 2022 rule 2a-7 PRA extension, Commission staff estimated that 
the amount an individual money market fund may spend ranges from $100 
per year to $300,000. We have no reason to believe the range is 
different for unregistered money market funds. Based on Form PF data as 
of the third calendar quarter 2023, liquidity funds have $361 billion 
in gross asset value.\26\ The Commission does not have specific 
information about the proportion of assets held in small, medium-sized, 
or large unregistered money market funds. Because liquidity funds are 
often used as cash management vehicles, the staff estimates that each 
private liquidity fund is a ``large'' fund (i.e., more than $1 billion 
in assets under management). Based on a cost of $0.0000009 per dollar 
of assets under management (for large funds),\27\ the staff estimates 
compliance with the record storage requirements of rule 2a-7 for these 
unregistered money market funds costs approximately $324,900 
annually.\28\
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    \26\ See U.S Securities and Exchange Commission, Division of 
Investment Management, Analytics Office, Private Fund Statistics, 
Fourth Quarter 2019 (Oct. 2, 2020), Table 3.
    \27\ The recordkeeping cost estimates are $0.0051295 per dollar 
of assets under management for small funds, and $0.0005041 per 
dollar of assets under management for medium-sized funds; the cost 
estimates are the same as those used in the most recently approved 
rule 2a-7 submission.
    \28\ This estimate is based on the following calculation: ($294 
billion x $0.0000009) = $264,600 for large funds.
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    Consistent with estimates made in the rule 2a-7 submission, 
Commission staff estimates that unregistered money market funds also 
incur capital costs to create computer programs for maintaining and 
preserving compliance records for rule 2a-7 of $0.0000132 per dollar of 
assets under management. Based on the assets under management figures 
described above, staff estimates annual capital costs for all 
unregistered money market funds of $4.76 million.\29\
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    \29\ This estimate is based on the following calculation: ($294 
billion x 0.0000132) = $3.88 million.
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    Commission staff further estimates that, even absent the 
requirements of rule 2a-7, money market funds would spend at least half 
of the amounts described above for record preservation ($162,450) and 
for capital costs ($2.38 million). Commission staff concludes that the 
aggregate annual costs of compliance with the rule are $162,450 for 
record preservation and $2.38 million for capital costs, or a total of 
$2.54 million.
    The collections of information required for unregistered money 
market funds by rule 12d1-1 are necessary in order for acquiring funds 
to able to obtain the benefits described above. Notices to the 
Commission will not be kept confidential. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid control OMB 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. 2024-19960 Filed 9-4-24; 8:45 am]
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