Notice2024-14441
Proposed Collection; Comment Request; Extension: Rule 12d1-1
Primary source
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Published
July 1, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 126 (Monday, July 1, 2024)</title>
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[Federal Register Volume 89, Number 126 (Monday, July 1, 2024)]
[Notices]
[Pages 54575-54585]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14441]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-526, OMB Control No. 3235-0584]
Proposed Collection; 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'') 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 (``OMB'') for extension and approval.
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
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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 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 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\ 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 2022 PRA extension
regarding rule 2a-7.\13\ 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.
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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 <a href="https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf">https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.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, 2019August 3, 2022) (the ``2022 rule 2a-7 PRA
extension''), available at <a href="https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202109-3235-024">https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202109-3235-024</a>; 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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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 the table below.
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Commission staff estimates that in addition to the internal costs
described 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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\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 $5,672 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 <a href="https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf">https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf</a>.
\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 <a href="https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf">https://www.sec.gov/files/investment/2023q3-private-funds-statistics-20240331-accessible.pdf</a>.
\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).
\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
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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 external 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 be 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 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 30, 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:
<a href="/cdn-cgi/l/email-protection#93c3c1d2ccdef2fafff1fcebd3e0f6f0bdf4fce5"><span class="__cf_email__" data-cfemail="732321322c3e121a1f111c0b330016105d141c05">[email protected]</span></a>.
Dated: June 26, 2024.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-14441 Filed 6-28-24; 8:45 am]
BILLING CODE 8011-01-P
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