Notice2025-01934
Proposed Collection; Comment Request; Extension: Rule 12b-1
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
January 30, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 19 (Thursday, January 30, 2025)</title>
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[Federal Register Volume 90, Number 19 (Thursday, January 30, 2025)]
[Notices]
[Pages 8545-8546]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-01934]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-188, OMB Control No. 3235-0212]
Proposed Collection; Comment Request; Extension: Rule 12b-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.
Section 12(b) of the Investment Company Act of 1940 (the ``Act'')
\1\ prohibits a registered open-end investment company (``fund''),
other than a fund complying with Section 10(d) of the Act,\2\ from
acting as a distributor of securities that it has issued, except
through an underwriter, in contravention of Commission rules.\3\ Rule
12b-1 under the Act permits a fund to bear expenses associated with the
distribution of its shares, provided that the fund complies with
certain requirements.\4\
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\1\ 15 U.S.C. 80a-1 et seq.
\2\ 15 U.S.C. 80a-10(d).
\3\ 15 U.S.C. 80a-12(b).
\4\ 17 CFR 270.12b-1.
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Rule 12b-1 requires, among other things, that the fund adopt a
written plan describing all material aspects of the proposed financing
of distribution (``rule 12b-1 plan'').\5\ The rule 12b-1 plan must be
in writing and approved by the fund's board of directors, and
separately by the ``independent'' directors (as described in the
rule).\6\ If the rule 12b-1 plan is being adopted after public offering
of the fund's voting securities, it must also be approved initially by
a vote of at least a majority of the fund's outstanding voting
securities.\7\ Similarly, any material amendments to the rule 12b-1
plan must be approved by the fund's directors, including the
independent directors, and any material increase in the amount to be
spent under the rule 12b-1 plan must be approved by the fund's
shareholders.\8\ In considering the implementation or continuance of a
rule 12b-1 plan, the fund's board must request and evaluate information
reasonably necessary to make an informed decision.\9\ The board also
must conclude, in the exercise of reasonable business judgment and in
light of the directors' fiduciary duties, that there is a reasonable
likelihood that the rule 12b-1 plan will benefit the fund and its
shareholders.\10\
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\5\ 17 CFR 270.12b-1(b).
\6\ 17 CFR 270.12b-1(b)(2).
\7\ 17 CFR 270.12b-1(b)(1).
\8\ 17 CFR 270.12b-1(b)(4).
\9\ 17 CFR 270.12b-1(d).
\10\ 17 CFR 270.12b-1(e).
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The rule 12b-1 plan and, in certain instances, any related
agreements must incorporate certain specified provisions, including
that: (i) the plan or agreement will continue in effect for more than
one year only if the board, including the independent directors,
approve the continuance at least annually; \11\ (ii) the fund's board
will review quarterly reports of the amounts spent under the plan; \12\
and (iii) the plan may be terminated at any time by a majority vote of
the independent directors or outstanding voting securities.\13\ Rule
12b-1 also requires the fund to preserve for six years copies of the
rule 12b-1 plan and any related agreements and reports, as well as
minutes of board meetings that describe the factors considered and the
basis for implementing or continuing the rule 12b-1 plan.\14\
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\11\ 17 CFR 270.12b-1(b)(3)(i).
\12\ 17 CFR 270.12b-1(b)(3)(ii).
\13\ 17 CFR 270.12b-1(b)(3)(iii).
\14\ 17 CFR 270.12b-1(f).
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Rule 12b-1 also prohibits funds from paying for distribution of
fund shares with brokerage commissions on their portfolio
transactions.\15\ The rule requires funds that use broker-dealers that
sell their shares to also execute their portfolio securities
transactions, to implement policies and procedures reasonably designed
to prevent: (i) the persons responsible for selecting broker-dealers to
effect transactions in fund portfolio securities from taking into
account broker-dealers' promotional or sales efforts when making those
decisions; and (ii) a fund, its adviser, or its principal underwriter,
from entering into any agreement under which the fund directs brokerage
transactions or revenue generated by those transactions to a broker-
dealer to pay for distribution of the fund's (or any other fund's)
shares.\16\
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\15\ 17 CFR 270.12b-1(h)(1).
\16\ 17 CFR 270.12b-1(h)(2)(ii).
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The board and shareholder approval requirements of the rule are
designed to ensure that fund shareholders and directors receive
adequate information to evaluate and approve a rule 12b-1 plan and,
thus, are necessary for investor protection. The provisions that
require the board to be provided with quarterly reports and termination
authority are designed to ensure that the rule 12b-1 plan continues to
benefit the fund and its shareholders. The recordkeeping requirements
of the rule are necessary to enable Commission staff to oversee
compliance with the rule. The requirement that funds or their advisers
implement, and fund boards approve, policies and procedures in order to
prevent persons charged with allocating fund brokerage from taking
distribution efforts into account is designed to ensure that funds'
selection of brokers to effect portfolio securities transactions is not
influenced by considerations about the sale of fund shares.
Commission staff estimates that there are approximately 5,246 funds
(for purposes of this estimate, registered open-end investment
companies or series thereof) that have at least one share class subject
to a rule 12b-1 plan and approximately 250 fund families with common
boards of directors that have at least one fund with a 12b-1 plan. The
Commission further estimates that the annual hour burden for complying
with the rule is 425 hours for
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each fund family with a portfolio that has a rule 12b-1 plan. We
therefore estimate that the total hourly burden per year for all funds
to comply with current information collection requirements under rule
12b-1 is 106,250 hours. Commission staff estimates that approximately
three funds per year prepare a proxy in connection with the adoption or
material amendment of a rule 12b-1 plan. The staff further estimates
that the cost of each fund's proxy is $30,000. Thus, the total annual
cost burden of rule 12b-1 to the fund industry is $90,000.
Estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act and are not derived from a
comprehensive or even representative survey or study of the costs of
Commission rules and forms. The collections of information required by
rule 12b-1 are necessary to obtain the benefits of the rule. Notices to
the Commission will not be kept confidential.
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 March 31, 2025.
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: Austin Gerig, Director/
Chief Data Officer, Securities and Exchange Commission, c/o Tanya
Ruttenberg, 100 F Street NE, Washington, DC 20549 or send an email to:
<a href="/cdn-cgi/l/email-protection#144446554b59757d78767b6c546771773a737b62"><span class="__cf_email__" data-cfemail="7a2a283b25371b13161815023a091f19541d150c">[email protected]</span></a>.
Dated: January 24, 2025.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-01934 Filed 1-29-25; 8:45 am]
BILLING CODE 8011-01-P
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