Notice2021-12104
Submission for OMB Review; Comment Request
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 9, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 109 (Wednesday, June 9, 2021)</title>
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[Federal Register Volume 86, Number 109 (Wednesday, June 9, 2021)]
[Notices]
[Pages 30644-30661]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-12104]
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SECURITIES AND EXCHANGE COMMISSION
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 12d1-1, SEC File No. 270-526, OMB Control No. 3235-0584
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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<bullet> Acquire more than three percent of another fund's
securities;
<bullet> invest more than five percent of its own assets in another
fund; or
<bullet> 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:
<bullet> The acquiring fund (and any companies it controls) owns
more than three percent of the acquired fund's stock; or
<bullet> 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 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 fourth calendar quarter 2019.\12\
The hour burden estimates for the condition that an unregistered money
market fund comply with rule 2a-7 are based on the burden hours
included in the Commission's 2019 PRA extension regarding rule 2a-
7.\13\ However, we
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have updated the estimated costs associated using the following
methodology:
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\12\ See the U.S. Securities and Exchange Commission's Division
of Investment Management--Analytics Office Private Funds Statistics,
Fourth Calendar Quarter (Oct. 2, 2020) available at <a href="https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf">https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf</a>.
\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) (the ``2019 rule 2a-7 PRA extension''). The
2019 rule 2a-7 PRA extension was 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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<bullet> For professional personnel: SIFMA's Management &
Professional Earnings in the Securities Industry 2013, modified for
2020 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;
<bullet> For a fund board of directors: SIFMA data does not include
a board of directors. For board time, Commission staff currently uses a
cost of $4,770 per hour, which was last adjusted for inflation in 2019.
This estimate assumes an average of nine board members per year; and
<bullet> For clerical personnel: SIFMA's Office Salaries in the
Securities Industry 2013, modified for 2020 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.
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.
The estimated burden of information collection for rule 2a-7 is set
forth in Table 1 below. We use these estimated burdens for registered
money market funds to extrapolate the information collection burdens
for unregistered money market funds under rule 12d1-1 in Table 2 below.
BILLING CODE 8011-01-P
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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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BILLING CODE 8011-01-C
Commission staff estimates that in addition to the costs described
in Table
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2 above, unregistered money market funds will incur 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 2019 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 fourth calendar quarter
2019, liquidity funds have $294 billion in gross asset value.\32\ 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),\33\ the staff estimates compliance with rule 2a-7
for these unregistered money market funds totals $264,600 annually.\34\
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\14\ The estimated responses and hour burdens shown in this
chart were included in the 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) (the ``2019 rule 2a-7 PRA
extension''). The 2019 rule 2a-7 PRA extension was 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.
However, the cost burdens shown in this chart have been updated.
The cost burdens for professional personnel are based on SIFMA's
Management & Professional Earnings in the Securities Industry 2013,
modified for 2020 by the 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 and the cost
burdens for clerical personnel are based on SIFMA's Office Salaries
in the Securities Industry 2013, modified for 2020 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. However, SIFMA data does not include a board
of directors. For board time, Commission staff currently uses a cost
of $4,770 per hour, which was last adjusted for inflation in 2019.
This estimate assumes an average of nine board members per year.
\15\ The number of funds based on Form N-MFP filings for the
month ended September 30, 2018 and used in the 2019 rule 2a-7 PRA
extension.
\16\ For purposes of the 2019 rule 2a-7 PRA extension, we
assumed that on average 25% (433 funds x .25 = 108 funds) of money
market funds would review and update their procedures on annual
basis).
\17\ We have not amortized the one-time hour and cost burdens
figures associated with new funds, because we estimated there would
be 10 new funds each year. Therefore, the burden would occur each
year instead of occurring over a three-year period. We have done
this throughout this PRA.
\18\ Commission staff estimates that there are 91 fund complexes
subject to rule 2a-7. This estimate is based on Form N-MEP filings
with the Commission for the month ended September 30, 2018.
\19\ We estimated that approximately two new money market funds
would seek to qualify as retail money market funds under rule 2a-7
and therefore be required to adopt written policies and procedures
reasonably designed to limit beneficial owners to natural persons.
For purposes of the 2019 rule 2a-7 PRA extension, Form N-MFP
data reflects that of the 30 new money market funds created between
April of 2015 through September 2018, only six new money market
funds elected to be retail funds--or approximately two per year ((6
funds/42 months) x 12 months). Based on these figures, we estimated
that two new money market fund per year would elect to be a retail
fund.
\20\ 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 2020 by the 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 and the cost burdens for clerical personnel
are based on SIFMA's Office Salaries in the Securities Industry
2013, modified for 2020 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 $4,770 per hour, which was
last adjusted for inflation in 2019. This estimate assumes an
average of nine board members per year.
We use these estimated burdens for registered money market funds
to extrapolate the information collection burdens for unregistered
money market funds under rule 12d1-1 in this Table 2.
\21\ The number of liquidity funds is based on the following: 65
x the percentage of liquidity funds that are at least partially in
compliance with the risk-limiting provisions of rule 2a-7 and used
in the most recent supporting statement for rule 2a-7 100-37.2) =
62.8%. The result (rounded up to a whole number) is 41 liquidity
funds. The number of liquidity funds is based on the U.S. Securities
and Exchange Commission's Division of Investment Management--
Analytics Office Private Funds Statistics, Fourth Calendar Quarter
(Oct. 2, 2020) available at <a href="https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf">https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf</a>.
\22\ The number of new unregistered money market funds is
estimated from 2018-2019 historical Form PF filings by liquidity
fund advisers. See Securities and Exchange Commission's Division of
Investment Management--Analytics Office Private Funds Statistics,
Fourth Calendar Quarter (Oct. 2, 2020) available at <a href="https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf">https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf</a>.
\23\ 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).
\24\ For purposes of this PRA extension, we assumed that on
average 25% (41 funds x .25 = approximately 10 funds) of liquidity
funds would review and update their procedures on annual basis.
\25\ 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, Fourth Quarter 2019 (Oct. 2, 2020), Table 2.
\26\ See supra note 23.
\27\ There are no liquidity funds of this type; liquidity funds
only are offered to qualified investors.
\28\ See supra note 23.
\29\ Id.
\30\ Id.
\31\ 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. (20/433
registered money market funds = approximately 5%. 5% x 41 liquidity
funds = approximately 2 liquidity funds.)
\32\ See U.S Securities and Exchange Commission, Division of
Investment Management, Analytics Office, Private Fund Statistics,
Fourth Quarter 2019 (Oct. 2, 2020), Table 3.
\33\ 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.
\34\ 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 $3.88 million.\35\
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\35\ 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 ($132,300) and
for capital costs ($1.94 million). Commission staff concludes that the
aggregate annual costs of compliance with the rule are $132,300 for
record preservation and $1.94 million for capital costs.
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: <a href="http://www.reginfo.gov">www.reginfo.gov</a>. 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) ><a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>< 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: <a href="/cdn-cgi/l/email-protection#1d4d4f5c42507c74717f72655d6e787e337a726b"><span class="__cf_email__" data-cfemail="356567746a78545c59575a4d754650561b525a43">[email protected]</span></a>.
Dated: June 4, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-12104 Filed 6-8-21; 8:45 am]
BILLING CODE 8011-01-P
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