Notice2024-01100
Submission for OMB Review; Comment Request; Extension: Rule 12d1-4
Primary source
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Published
January 22, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 14 (Monday, January 22, 2024)</title>
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[Federal Register Volume 89, Number 14 (Monday, January 22, 2024)]
[Notices]
[Pages 3961-3963]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-01100]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-578, OMB Control No. 3235-0639]
Submission for OMB Review; Comment Request; Extension: Rule 12d1-
4
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 (``OMB'') a request for extension of the
previously approved collection of information discussed below.
Rule 12d1-4 (17 CFR 270.12d1-4)under the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) (``Investment Company Act'') permits
certain registered funds and business development companies (``BDC'')
(``acquiring fund') that satisfy certain conditions to acquire shares
of other certain registered funds and BDCs (``acquired fund'') in
excess of the limits of section 12(d)(1) of the Act without obtaining
an exemptive order from the Commission.\1\ This collection of
information is voluntary because rule 12d1-4 is an exemptive rule and,
therefore, funds may choose not to rely on the proposed rule. 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 OMB
control number. The purpose of the information collection requirement
in rule 12d1-4 is to ensure both that the concerns that led Congress to
adopt section 12(d)(1) are mitigated and that funds relying upon the
rule as an exemption from that section comply with the rule's
requirements. The following estimates of average internal burden hours
are made solely for purposes of the Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.) and are not derived from a comprehensive or even
representative survey or study of the cost of Commission rules and
forms.
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\1\ See 17 CFR 270.12d1-4.
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Voting Provisions. With respect to voting provisions, Commission
staff estimates that 446 acquiring funds will be subject to the
requirements in rule 12d1-4(b)(ii), 436 of which will be utilizing
mirror voting and 10 of which will be utilizing pass-through voting.\2\
With respect to mirror voting, Commission staff estimates that, on
average, internal counsel for such funds will spend 3 hours updating
proxy voting policies and disclosures for such funds and 3 hours
conducting voting procedures. Thus, the staff estimates that the annual
hour burden of the collection of information imposed by the mirror
voting provisions to be 6 hours per fund, resulting in a total burden
of 2,616 hours.\3\
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\2\ 446 acquiring funds that will invest in open-end funds or
UITs in reliance on rule 12d1-4 and beyond the 25% voting threshold
= 4,061 series of management companies relying upon rule 12d1-4 or
statutory exemption per Form N-CEN items C.7.l and C.7.m (based on
data as of December 2022, as derived from N-CEN filings through July
14, 2023) plus 37 acquiring BDCs (consistent with the prior renewal)
and multiplied by 11% of acquiring funds that invest in at least one
open-end fund or UIT beyond the 25% voting threshold of the rule (as
estimated in the prior renewal); this estimate assumes that
acquiring funds with current investments in other funds beyond the
limits of section 12(d)(1) are subject to rule 12d1-4 at the same
rate as the acquiring funds with current investments in other funds
within the limits of section 12(d)(1); we lack structured data that
would allow us to estimate the percentage of acquiring funds that
are within the same group of investment companies as the acquired
fund or the acquiring fund's investment sub-adviser or any person
controlling, controlled by, or under common control with such
investment sub-adviser acts as the acquired fund's investment
adviser or depositor, and thus will be subject to the rule's voting
condition; to avoid underestimating the costs associated with this
aspect of rule 12d1-4, we assume that all the 446 acquiring funds
will be subject to the rule's conditions; we estimate that of 10
funds will utilize pass-through voting in limited circumstances; in
circumstances where all holders of the outstanding voting securities
of the acquired fund are required by rule 12d1-4 or otherwise under
section 12(d)(1) to mirror vote the securities of the acquired fund,
the acquiring fund may use pass-through instead of mirror voting; it
is estimated that (consistent with the prior renewal) 2.2% of
acquiring funds that will invest in open-end funds or UITs in
reliance on rule 12d1-4 and beyond the 25% voting threshold will use
pass-through voting (i.e., 2.2% of 446 acquiring funds equals 10
funds using pass-through voting).
\3\ This estimate is based on the following calculations: 2,616
= 6 hours x 436 funds.
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In addition to the mirror voting provisions of the rule, there are
some circumstances in which the acquiring funds are the only
shareholders of an acquired fund, and in such cases, pass-through
voting may be used. Staff estimates that 10 funds will use pass-through
voting. Staff estimates that internal counsel for such funds will spend
3 hours updating proxy voting policies and disclosures and 30 hours
communicating with shareholders and voting accordingly. Thus, the staff
estimates that the annual hour burden of the collection of information
imposed by the pass-through provisions to be 33 hours per fund,
resulting in a total burden of 330 hours.\4\
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\4\ This estimate is based on the following calculations: 330
hours (33 hours x 10 funds).
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Combining the estimates for the mirror voting and pass-through
voting calculations, staff estimates that 446 funds will spend a total
of 2,946 hours complying with the voting provisions of the rule.\5\
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\5\ This estimate is based on the following calculations: 446
(436 + 10; combined total of funds using mirror voting and funds
using pass-through voting); 2,946 (2,616 hours plus 330 hours).
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Fund of Funds Investment Agreements. With respect to the fund of
funds investment agreement provisions, Commission staff estimates that
12,900 funds that do not have the same investment adviser are subject
to the requirement to enter into an agreement prior to the purchase of
acquired fund shares in excess of section 12(d)(1)'s limits.\6\
Commission staff estimates, however, that the majority of affected
funds have already complied with this requirement and staff assumes
that, absent structured data to further calculate, 645 funds (5% of
affected
[[Page 3962]]
funds) would be newly subject to the rule on an annual basis.\7\
Commission staff estimates that such newly affected funds will spend 20
hours negotiating and memorializing the necessary agreements.
Commission staff further estimates that newly affected funds will spend
6 hours establishing recordkeeping and policies and procedures.
Accordingly, staff estimates that the annual burden solely for newly
affected funds will be 26 hours.\8\ Commission staff further estimates
that all affected funds will spend 12 hours on ongoing recordkeeping,
resulting in a total annual hour burden of 171,570 hours.\9\
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\6\ This estimate is based on the number of acquiring-acquired
fund pairs that do not share the same adviser as indicated in form
N-PORT data between December 2022 and July 14, 2023 (18,695) and,
consistent with the prior renewal, assumes that 69% of such
acquiring-acquired fund pairs will be subject to rule 12d1-4 (i.e.,
12,900 = 18,695 x 0.69).
\7\ This estimate is based on the following calculation: 645 =
12,900 x 0.05.
\8\ This estimate is based on the following calculations: 26
hours = 20 + 6.
\9\ This estimate is based on the following calculations:
171,570 hours = (26 hours x 645 newly affected funds) + (12 hours x
12,900 affected funds).
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Management Companies--Fund Filings. With respect to the management
company fund finding provisions, Commission staff estimates that 2,974
acquired management companies will be subject to rule 12d1-4.\10\
Commission staff further estimates that 4,965 acquiring management
companies will be subject to rule 12d1-4.\11\ This results in 7,939
management companies being subject to rule 12d1-4.\12\ Commission staff
estimates that such management companies will spend 18 hours conducting
evaluations and creating, reviewing, and maintaining written materials
pursuant to the rule, resulting in a total annual hour burden of
142,902 hours.\13\
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\10\ 2,974 acquired management companies that will be subject to
rule 12d1-4 = 4,310 acquired management companies x 69% of acquired
management companies that will be subject to rule 12d1-4 (as
estimated in the prior renewal); our calculation assumes that the
estimate of acquiring funds that will be subject to rule 12d1-4 is
also applicable to acquired funds; 4,310 acquired management
companies = 3,170 acquired registered investment companies (based on
data as of December 2022, as derived from N-PORT filings through
July 14, 2023) x 17,546 registered investment companies (based on
data as of December 2022, as derived from N-PORT filings through
July 14, 2023)/12,906 management companies (based on data as of
December 2022, as derived from N-CEN filings through July 14, 2023);
this estimate assumes that acquired management companies with
investments from acquiring funds beyond the limits of section
12(d)(1) will be subject to rule 12d1-4 at the same rate as the
acquired management companies with investments from acquiring funds
within the limits of section 12(d)(1).
\11\ 4,965 acquiring management companies that will be subject
to rule 12d1-4 = 7,195 acquiring management companies (based on data
as of December 2022, as derived from N-PORT filings through July 14,
2023) x 69% of acquiring management companies that will be subject
to rule 12d1-4 (consistent with the prior renewal); this estimate
assumes that acquiring management companies with current investments
in other funds beyond the limits of section 12(d)(1) will be subject
to rule 12d1-4 at the same rate as the acquiring management
companies with current investments in other funds within the limits
of section 12(d)(1) following the rule adoption.
\12\ 7,939 = 2,974 + 4,965.
\13\ This estimate is based on the following calculations:
142,902 = 18 hours x 7,939 funds.
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UITs--Principal Underwriter or Depositor Evaluations. With respect
to the UIT principal underwriter or depositor evaluations, Commission
staff estimates that 541 acquiring UITs will be subject to rule 12d1-
4.\14\ Commission staff estimates that such UITs will spend 5 hours
annually conducting evaluations and creating, reviewing, and
maintaining written materials.\15\ This results in a total annual hour
burden of 2,705 hours.\16\
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\14\ This estimate assumes that there are 1,353 series of UITs
and that 40% of such UITS are acquiring UITs (as estimated in the
prior renewal); the estimate of 1,353 series of UITs is based on
data as of December 2022, as derived from N-CEN filings (items F.18
and F.19) through July 14, 2023.
\15\ This estimate assumes 2.5 hours of general clerk time and
2.5 hours of senior computer operator time. 5 hours = 2.5 + 2.5.
\16\ This estimate is based on the following calculations: 2,705
= 5 hours x 541 funds.
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Separate Accounts Funding Variable Insurance Contracts. With
respect to the separate account funding variable insurance contracts,
Commission staff estimates that 186 acquiring separate accounts will be
subject to rule 12d1-4.\17\ Commission staff estimates that separate
accounts will spend 4 hours annually obtaining certificates and
maintaining records, resulting in a total annual hour burden of 744
hours.\18\
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\17\ 186 acquiring separate accounts that will be subject to
rule 12d1-4 = [418 variable annuity separate accounts registered as
UITs + 240 variable life insurance separate accounts registered as
UITs + 15 management company separate accounts (these figures are
based on data as of December 2022, as derived from N-CEN filings
through July 14, 2023)] x 40% of funds that are acquiring funds (as
estimated in the prior renewal) x 69% of acquiring separate accounts
that will be subject to rule 12d1-4 as estimated by a commenter (as
estimated in the prior renewal).
\18\ This estimate is based on the following calculations: 744 =
4 hours x 186 funds.
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The following estimates of external costs are made solely for
purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.) and are not derived from a comprehensive or even representative
survey or study of the cost of Commission rules and forms.
Voting Provisions. The staff estimates that, on average, outside
counsel will spend 1 hour per vote conducting voting procedures with
respect to mirror voting at a cost of $565 per hour. Staff therefore
estimates an annual external cost burden of $246,340 with respect to
mirror voting.\19\ Staff further estimates that, with respect to pass-
through voting, outside counsel will spend 1 hour to assist funds in
communicating with shareholders and voting accordingly at a rate of
$565 per hour. Staff therefore estimates an annual external cost burden
of $5,650 with respect to pass-through voting.\20\ Accordingly, staff
estimates a total annual external cost of $251,990 for compliance with
the voting provisions of the rule.\21\
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\19\ $246,340 = ($565 x 1 hour) x 436 funds subject to mirror
voting.
\20\ $5,650 = ($565 x 1 hour) x 10 funds subject to pass through
voting.
\21\ $251,990 = $246,340 + $5,650.
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Fund of Funds Investment Agreement. Staff estimates that, on
average, for funds newly subject to the rule, outside counsel will
spend 2 hours negotiating and memorializing the necessary agreements
under the rule at a cost of $565 per hour. Staff further estimates
that, on average, for funds newly subject to the rule, outside counsel
will spend 4 hours establishing recordkeeping policies and procedures.
Accordingly, staff estimates a total annual external costs of
$2,186,550 for compliance with the fund of funds investment agreement
provisions of the rule.\22\
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\22\ $2,186,550 = [($565 x 2) + ($565 x 4)] x 645 funds newly
subject to the fund of funds investment agreement provisions of the
rule; see footnote 7 for the calculation of funds newly subject to
the rule.
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Management Companies--Fund Filings. It is estimated that there is
no external cost burden with respect to the management company findings
provisions of the rule.
UITs--Principal Underwriter or Depositor Evaluations. It is
estimated that there is no external cost burden with respect to the UIT
evaluation provisions of the rule.
Separate Accounts Funding Variable Insurance Contracts. It is
estimated that there is no external cost burden with respect to the
separate account certification provisions of the rule.
As outlined above, we estimate the total external cost burden to
comply with rule 12d1-4 to be $2,438,540.\23\
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\23\ $2,438,540 = $251,990 + 2,186,550.
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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
by February 21, 2024 to (i) <a href="/cdn-cgi/l/email-protection#d8959a80f697959af697918a99f68b9d9b87bcbdabb387b7bebeb1bbbdaa98b7b5baf6bdb7a8f6bfb7ae"><span class="__cf_email__" data-cfemail="561b140e78191b1478191f041778051315093233253d093930303f35332416393b347833392678313920">[email protected]</span></a>
and (ii) David Bottom, Director/Chief Information Officer, Securities
and Exchange Commission, c/o John Pezzullo, 100 F Street NE,
[[Page 3963]]
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Washington, DC 20549, or by sending an email to: <a href="/cdn-cgi/l/email-protection#d18183908e9cb0b8bdb3bea991a2b4b2ffb6bea7"><span class="__cf_email__" data-cfemail="356567746a78545c59575a4d754650561b525a43">[email protected]</span></a>.
Dated: January 17, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-01100 Filed 1-19-24; 8:45 am]
BILLING CODE 8011-01-P
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