83 FR 9788 - Proposed Collection; Comment Request

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 45 (March 7, 2018)

[Federal Register Volume 83, Number 45 (Wednesday, March 7, 2018)]
[Notices]
[Pages 9788-9791]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-04572]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; 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 22c-2, SEC File No. 270-541, OMB Control No. 3235-0620.

    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 for extension and approval.

[[Page 9789]]

    Rule 22c-2 (17 CFR 270.22c-2) under the Investment Company Act of 
1940 (15 U.S.C. 80a) (the ``Investment Company Act'' or ``Act'') 
requires the board of directors (including a majority of independent 
directors) of most registered open-end investment companies (``funds'') 
to either approve a redemption fee of up to two percent or determine 
that imposition of a redemption fee is not necessary or appropriate for 
the fund. Rule 22c-2 also requires a fund to enter into written 
agreements with their financial intermediaries (such as broker-dealers 
and retirement plan administrators) under which the fund, upon request, 
can obtain certain shareholder identity and trading information from 
the intermediaries. The written agreement must also allow the fund to 
direct the intermediary to prohibit further purchases or exchanges by 
specific shareholders that the fund has identified as being engaged in 
transactions that violate the fund's market timing policies. These 
requirements enable funds to obtain the information that they need to 
monitor the frequency of short-term trading in omnibus accounts and 
enforce their market timing policies.
    The rule includes three ``collections of information'' within the 
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\1\ First, the 
rule requires boards to either approve a redemption fee of up to two 
percent or determine that imposition of a redemption fee is not 
necessary or appropriate for the fund. Second, funds must enter into 
information sharing agreements with all of their ``financial 
intermediaries'' \2\ and maintain a copy of the written information 
sharing agreement with each intermediary in an easily accessible place 
for six years. Third, pursuant to the information sharing agreements, 
funds must have systems that enable them to request frequent trading 
information upon demand from their intermediaries, and to enforce any 
restrictions on trading required by funds under the rule.
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    \1\ 44 U.S.C. 3501-3520.
    \2\ The rule defines a Financial Intermediary as: (i) Any 
broker, dealer, bank, or other person that holds securities issued 
by the fund in nominee name; (ii) a unit investment trust or fund 
that invests in the fund in reliance on section 12(d)(i)(E) of the 
Act; and (iii) in the case of a participant directed employee 
benefit plan that owns the securities issued by the fund, a 
retirement plan's administrator under section 316(A) of the Employee 
Retirement Security Act of 1974 (29 U.S.C. 1002(16)(A) or any person 
that maintains the plans' participant records. Financial 
Intermediary does not include any person that the fund treats as an 
individual investor with respect to the fund's policies established 
for the purpose of eliminating or reducing any dilution of the value 
of the outstanding securities issued by the fund. Rule 22c-2(c)(1).
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    The collections of information created by rule 22c-2 are necessary 
for funds to effectively assess redemption fees, enforce their policies 
in frequent trading, and monitor short-term trading, including market 
timing, in omnibus accounts. These collections of information are 
mandatory for funds that redeem shares within seven days of purchase. 
The collections of information also are necessary to allow Commission 
staff to fulfill its examination and oversight responsibilities.
    Rule 22c-2(a)(1) requires the board of directors of all registered 
open-end management investment companies and series thereof (except for 
money market funds, ETFs, or funds that affirmatively permit short-term 
trading of its securities) to approve a redemption fee for the fund, or 
instead make a determination that a redemption fee is either not 
necessary or appropriate for the fund. Commission staff understands 
that the boards of all funds currently in operation have undertaken 
this process for the funds they currently oversee, and the rule does 
not require boards to review this determination periodically once it 
has been made. Accordingly, we expect that only boards of newly 
registered funds or newly created series thereof would undertake this 
determination. Commission staff estimates that 42 funds (excluding 
money market funds and ETFs) are newly formed each year and would need 
to make this determination.\3\
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    \3\ This estimate is based on the number of registrants filing 
initial Form N-1A or N-3. This estimate does not carve out money 
market funds, ETFs, or funds that affirmatively permit short-term 
trading of their securities, so this estimate corresponds to the 
outer limit of the number of registrants that would have to make 
this determination.
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    Based on conversations with fund representatives,\4\ Commission 
staff estimates that it takes 2 hours of the board's time as a whole 
(at a rate of $4465 per hour) \5\ to approve a redemption fee or make 
the required determination on behalf of all series of the fund. In 
addition, Commission staff estimates that it takes compliance personnel 
of the fund 8 hours (at a rate of $66 per hour) \6\ to prepare trading, 
compliance, and other information regarding the fund's operations to 
enable the board to make its determination, and takes internal 
compliance counsel of the fund 3 hours (at a rate of $345 per hour) \7\ 
to review this information and present its recommendations to the 
board. Therefore, for each fund board that undertakes this 
determination process, Commission staff estimates it expends 13 hours 
\8\ at a cost of $10,493.\9\ As a result, Commission staff estimates 
that the total time spent for all funds on this process is 546 hours at 
a cost of $440,706.\10\
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    \4\ Unless otherwise stated, estimates throughout this analysis 
are derived from a survey of funds and conversations with fund 
representatives.
    \5\ The estimate of $4465 per hour for the board's time as a 
whole is based on conversations with representatives of funds and 
their legal counsel.
    \6\ The $66 per hour figure for a compliance clerk is from 
SIFMA's Office Salaries in the Securities Industry 2013, modified 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.
    \7\ The $345 per hour figure for internal compliance counsel is 
from SIFMA's Management & Professional Earnings in the Securities 
Industry 2013, modified by 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.
    \8\ This calculation is based on the following estimates: (2 
hours of board time + 3 hours of internal compliance counsel time + 
8 hours of compliance clerk time = 13 hours).
    \9\ This calculation is based on the following estimates: 
($8,930 ($4,465 board time x 2 hours = $8,930) + $528 ($66 
compliance time x 8 hours = $528) + $1,035 ($345 attorney time x 3 
hours = $1,035) = $10,493).
    \10\ This calculation is based on the following estimates: (13 
hours x 42 funds = 546 hours); ($10,493 x 42 funds = $440,706).
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    Rule 22c-2(a)(2) also requires a fund to enter into information-
sharing agreements with each of its financial intermediaries. 
Commission staff understands that all currently registered funds have 
already entered into such agreements with their intermediaries. Funds 
enter into new relationships with intermediaries from time to time, 
however, which requires them to enter into new information sharing 
agreements. Commission staff understands that, in general, funds enter 
into information-sharing agreement when they initially establish a 
relationship with an intermediary, which is typically executed as an 
addendum to the distribution agreement. The Commission staff 
understands that most shareholder information agreements are entered 
into by the fund group (a group of funds with a common investment 
adviser), and estimates that there are currently 850 currently active 
fund groups.\11\ Commission staff estimates that, on average, each 
active fund group enters into relationships with 3 new intermediaries 
each year. Commission staff understands that funds generally use a 
standard information sharing agreement, drafted by the fund or an 
outside entity, and modifies that agreement according to the

[[Page 9790]]

requirements of each intermediary. Commission staff estimates that 
negotiating the terms and entering into an information sharing 
agreement takes a total of 4 hours of attorney time (at a rate of $392 
per hour) \12\ per intermediary (representing 2.5 hours of fund 
attorney time and 1.5 hours of intermediary attorney time). 
Accordingly, Commission staff estimates that it takes 12 hours at a 
cost of $4704 each year \13\ to enter into new information sharing 
agreements, and all existing market participants incur a total of 
10,200 hours at a cost of $3,998,400.\14\
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    \11\ ICI, 2017 Investment Company Fact Book at Fig 1.8 (2017) 
(https://www.ici.org/research/stats/factbook).
    \12\ The $392 per hour figure for attorneys is from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by 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.
    \13\ This estimate is based on the following calculations: (4 
hours x 3 new intermediaries = 12 hours); (12 hours x $392 = 
$4,704).
    \14\ This estimate is based on the following calculations: (12 
hours x 850 fund groups = 10,200 hours); (10,200 hours x $392 = 
$3,998,400).
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    In addition, newly created funds advised by new entrants 
(effectively new fund groups) must enter into information sharing 
agreements with all of their financial intermediaries. Commission staff 
estimates that there are 47 new fund groups that form each year that 
will have to enter into information sharing agreements with each of 
their intermediaries.\15\ Commission staff estimates that fund groups 
formed by new advisers typically have relationships with significantly 
fewer intermediaries than existing fund groups, and estimates that new 
fund groups will typically enter into 100 information sharing 
agreements with their intermediaries when they begin operations.\16\ As 
discussed previously, Commission staff estimates that it takes 4 hours 
of attorney time (at a rate of $392 per hour) \17\ per intermediary to 
enter into information sharing agreements. Therefore, Commission staff 
estimates that each newly formed fund group will incur 400 hours of 
attorney time at a cost of $156,800 \18\ and that all newly formed fund 
groups will incur a total of 18,800 hours at a cost of $7,369,600 to 
enter into information sharing agreements with their 
intermediaries.\19\
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    \15\ ICI, 2017 Investment Company Fact Book at Fig 1.8 (2017) 
(https://www.ici.org/research/stats/factbook).
    \16\ Commission staff understands that funds generally use a 
standard information sharing agreement, drafted by the fund or an 
outside entity, and then modifies that agreement according to the 
requirements of each intermediary.
    \17\ The $392 per hour figure for an attorney is from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by 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.
    \18\ This estimate is based on the following calculations: (4 
hours x 100 intermediaries = 400 hours); (400 hours x $392 = 
$156,800).
    \19\ This estimate is based on the following calculations: (47 
fund groups x 400 hours = 18,800 hours) ($392 x 18,800 = 7,369,600).
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    Rule 22c-2(a)(3) requires funds to maintain records of all 
information-sharing agreements for 6 years in an easily accessible 
place. Commission staff understands that most shareholder information 
agreements are stored at the fund group level and estimates that there 
are currently approximately 850 fund groups.\20\ Commission staff 
understands that information-sharing agreements are generally included 
as addendums to distribution agreements between funds and their 
intermediaries, and that these agreements would be stored as required 
by the rule as a matter of ordinary business practice. Therefore, 
Commission staff estimates that maintaining records of information-
sharing agreements requires 10 minutes of time spent by a general clerk 
(at a rate of $59 per hour) \21\ per fund, each year. Accordingly, 
Commission staff estimates that all funds will incur 141.67 hours at a 
cost of $8,358.53 \22\ in complying with the recordkeeping requirement 
of rule 22c-2(a)(3).
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    \20\ ICI, 2017 Investment Company Fact Book at Fig 1.8 (2017) 
(https://www.ici.org/research/stats/factbook).
    \21\ The $59 per hour figure for a general clerk is derived from 
SIFMA's Office Salaries in the Securities Industry 2013 modified 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.
    \22\ This estimate is based on the following calculations: (10 
minutes x 850 fund groups = 8,500 minutes); (8,500 minutes/60 = 
141.67 hours); (141.67 hours x $59 = $8,358.53).
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    Therefore, Commission staff estimates that to comply with the 
information sharing agreement requirements of rule 22c-2(a)(2) and (3), 
it requires a total of 29,141.67 hours at a cost of $11,403,358.53.\23\
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    \23\ This estimate is based on the following calculations: 
(10,200 hours + 18,800 hours + 141.67 hours = 29,141.67 hours); 
($3,998,400 + $7,369,600 + $8,358.53 = $11,403,358.53).
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    The Commission staff estimates that on average, each fund group 
requests shareholder information once a week, and gives instructions 
regarding the restriction of shareholder trades every day, for a total 
of 417 responses related to information sharing systems per fund group 
each year, and a total 354,450 responses for all fund groups 
annually.\24\ In addition, as described above, the staff estimates that 
funds make 42 responses related to board determinations, 2,550 
responses related to new intermediaries of existing fund groups, 4,700 
responses related to new fund group information sharing agreements, and 
850 responses related to recordkeeping, for a total of 8,142 responses 
related to the other requirements of rule 22c-2. Therefore, the 
Commission staff estimates that the total number of responses is 
362,592 (354,450 + 8,142 = 362,592).
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    \24\ This estimate is based on the following calculations: (52 + 
365 = 417); (417 x 850 fund groups = 354,450).
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    The Commission staff estimates that the total hour burden for rule 
22c-2 is 29,687.67 hours at a cost of $11,817,056.50.\25\ Responses 
provided to the Commission will be accorded the same level of 
confidentiality accorded to other responses provided to the Commission 
in the context of its examination and oversight program. Responses 
provided in the context of the Commission's examination and oversight 
program are generally kept confidential. Complying with the information 
collections of rule 22c-2 is mandatory for funds that redeem their 
shares within 7 days of purchase. 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.
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    \25\ This estimate is based on the following calculations: (546 
hours (board determination) + 29,141.67 hours (information sharing 
agreements) = 29,687.67 total hours); ($440,706 (board 
determination) + $11,376,350.53 (information sharing agreements) = 
$11,817,056.50).
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    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information will 
have practical utility; (b) the accuracy of the agency'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 in writing within 60 
days of this publication.
    Please direct your written comments to Pamela Dyson, Director/Chief 
Information Officer, Securities and Exchange Commission, C/O Remi 
Pavlik-Simon, 100 F Street NE, Washington, DC 20549; or send an email 
to: [email protected].


[[Page 9791]]


    Dated: March 1, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04572 Filed 3-6-18; 8:45 am]
 BILLING CODE 8011-01-P