Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 Under the Investment Advisers Act of 1940, 41838-41839 [2011-17854]
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mstockstill on DSK4VPTVN1PROD with NOTICES
41838
Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Notices
the limit of section 12(d)(l)(A)(i) of the
Act, including any purchases made
directly from an Underwriting Affiliate.
The Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Acquiring Fund in
the Fund. The Board will consider,
among other things: (i) Whether the
purchases were consistent with the
investment objectives and policies of
the Fund; (ii) how the performance of
securities purchased in an Affiliated
Underwriting compares to the
performance of comparable securities
purchased during a comparable period
of time in underwritings other than
Affiliated Underwritings or to a
benchmark such as a comparable market
index; and (iii) whether the amount of
securities purchased by the Fund in
Affiliated Underwritings and the
amount purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interests
of shareholders.
12. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings,
once an investment by an Acquiring
Fund in the Shares of the Fund exceeds
the limits of section 12(d)(l)(A)(i) of the
Act, setting forth from whom the
securities were acquired, the identity of
the underwriting syndicate’s members,
the terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
13. Before investing in a Fund in
excess of the limits in section
12(d)(1)(A), the Acquiring Fund and the
Fund will execute a Participation
Agreement stating, without limitation,
that their boards of directors or trustees
and their investment advisers, or the
trustee and Sponsor of an Acquiring
Trust, as applicable, understand the
terms and conditions of the order, and
agree to fulfill their responsibilities
under the order. At the time of its
investment in Shares of a Fund in
excess of the limit in section
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16:55 Jul 14, 2011
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12(d)(l)(A)(i), an Acquiring Fund will
notify the Fund of the investment. At
such time, the Acquiring Fund will also
transmit to the Fund a list of names of
each Acquiring Fund Affiliate and
Underwriting Affiliate. The Acquiring
Fund will notify the Fund of any
changes to the list of names as soon as
reasonably practicable after a change
occurs. The Fund and the Acquiring
Fund will maintain and preserve a copy
of the order, the Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
14. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Acquiring Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
advisory contract are based on services
provided that will be in addition to,
rather than duplicative of, the services
provided under the advisory contract(s)
of any Fund in which the Acquiring
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Acquiring Management
Company.
15. Any sales charges and/or service
fees charged with respect to shares of an
Acquiring Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
16. No Fund will acquire securities of
any investment company or company
relying on sections 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission that allows
the Fund to purchase shares of a money
market fund for short-term cash
management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–17877 Filed 7–14–11; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 3236/July 12, 2011]
Order Approving Adjustment for
Inflation of the Dollar Amount Tests in
Rule 205–3 Under the Investment
Advisers Act of 1940
I. Background
Section 205(a)(1) of the Investment
Advisers Act of 1940 (‘‘Advisers Act’’)
generally prohibits an investment
adviser from entering into, extending,
renewing, or performing any investment
advisory contract that provides for
compensation to the adviser based on a
share of capital gains on, or capital
appreciation of, the funds of a client
(also known as ‘‘performance
compensation’’ or ‘‘performance fees’’).1
Section 205(e) authorizes the Securities
and Exchange Commission
(‘‘Commission’’) to exempt any advisory
contract from the performance fee
prohibition if the contract is with
persons that the Commission
determines do not need the protections
of the prohibition, on the basis of
certain factors described in that
section.2
Rule 205–3 under the Advisers Act
exempts an investment adviser from the
prohibition against charging a client
performance fees in certain
circumstances, including when the
client is a ‘‘qualified client.’’ The rule
allows an adviser to charge performance
fees if the client has at least $750,000
under the management of an investment
adviser immediately after entering into
the advisory contract (‘‘assets-undermanagement test’’) or if the adviser
reasonably believes the client has a net
worth of more than $1,500,000 at the
time the contract is entered into (‘‘net
worth test’’). The Commission last
revised the level of these dollar amount
thresholds to account for the effects of
inflation in 1998.3
1 15
U.S.C. 80b–5(a)(1).
section 205(e), the Commission may
determine that persons do not need the protections
of section 205(a)(1) on the basis of such factors as
‘‘financial sophistication, net worth, knowledge of
and experience in financial matters, amount of
assets under management, relationship with a
registered investment adviser, and such other
factors as the Commission determines are consistent
with [section 205].’’ 15 U.S.C. 80b–5(e).
3 See Exemption To Allow Investment Advisers
To Charge Fees Based Upon a Share of Capital
Gains Upon or Capital Appreciation of a Client’s
Account, Investment Advisers Act Release No. 1731
(July 15, 1998) [63 FR 39022 (July 21, 1998)].
2 Under
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Federal Register / Vol. 76, No. 136 / Friday, July 15, 2011 / Notices
41839
II. Adjustment of Dollar Amount
Thresholds Under the Dodd-Frank Act
requests for a hearing have been
received by the Commission.9
SECURITIES AND EXCHANGE
COMMISSION
The Dodd-Frank Wall Street Reform
and Consumer Protection Act 4 (‘‘DoddFrank Act’’) amended section 205(e) of
the Advisers Act to provide that, by July
21, 2011 and every five years thereafter,
the Commission shall adjust for
inflation the dollar amount thresholds
included in rules issued under section
205(e), rounded to the nearest
$100,000.5 As discussed above, there are
two dollar amount thresholds in rules
issued under section 205(e), and they
are in the assets-under-management and
net worth tests in rule 205–3’s
definition of ‘‘qualified client.’’
On May 10, 2011, the Commission
published a notice of intent to issue an
order revising the dollar amount
thresholds of the assets-undermanagement test and the net worth
test.6 We stated that, based on
calculations of inflation since 1998
when the dollar amount thresholds were
last revised, we intended to revise the
threshold in the assets-undermanagement test from $750,000 to $1
million, and in the net worth test from
$1.5 million to $2 million.7 We also
stated that these revised dollar amounts
would take into account the effects of
inflation by reference to the historic and
current levels of the Personal
Consumption Expenditures Chain-Type
Price Index, which is published by the
Department of Commerce and often
used as an indicator of inflation in the
personal sector of the U.S. economy.8
The revised dollar amounts would
reflect inflation from 1998 to the end of
2010, and are rounded to the nearest
$100,000 as required by section 205(e)
of the Advisers Act, as amended by
section 418 of the Dodd-Frank Act.
The Commission’s notice established
a deadline of June 20, 2011 for
submission of requests for a hearing. No
III. Effective Date of the Order
[Release No. 34–64834; File No. SR–CBOE–
2011–057]
IV. Conclusion
Accordingly, pursuant to section
205(e) of the Investment Advisers Act of
1940 and section 418 of the Dodd-Frank
Act,
It is hereby ordered that, for purposes
of rule 205–3(d)(1)(i) under the
Investment Advisers Act of 1940 [17
CFR 275.205–3(d)(1)(i)], a qualified
client means a natural person who or a
company that immediately after
entering into the contract has at least
$1,000,000 under the management of
the investment adviser; and
It is further ordered that, for purposes
of rule 205–3(d)(1)(ii)(A) under the
Investment Advisers Act of 1940 [17
CFR 275.205–3(d)(1)(ii)(A)], a qualified
client means a natural person who or a
company that the investment adviser
entering into the contract (and any
person acting on his behalf) reasonably
believes, immediately prior to entering
into the contract, has a net worth
(together, in the case of a natural person,
with assets held jointly with a spouse)
of more than $2,000,000 at the time the
contract is entered into.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–17854 Filed 7–14–11; 8:45 am]
BILLING CODE 8011–01–P
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Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to PAR Official
Fees in Volatility Index Options
July 7, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on June 29,
2011, Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by CBOE. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’ or ‘‘Exchange’’)
proposes to amend its Fees Schedule
effective July 1, 2011 to establish
volume threshold tiers for the
assessment of PAR Official Fees in
Volatility Index Options classes based
on the percentage of volume that is
effected by a PAR Official on behalf of
an order originating firm or, as
applicable, an executing firm. The text
of the proposed rule change is
availableon the Exchange’s Web site
(https://www.cboe.org/legal), at the
Exchange’s Office of the Secretary and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
4 Pub.
mstockstill on DSK4VPTVN1PROD with NOTICES
L. 111–203, 124 Stat. 1376 (2010).
5 See section 418 of the Dodd-Frank Act.
6 See Investment Adviser Performance
Compensation, Investment Advisers Act Release
No. 3198 (May 10, 2011) [76 FR 27959 (May 13,
2011)] (‘‘Proposing Release’’). The Commission also
proposed for public comment certain amendments
to rule 205–3 that would reflect any inflation
adjustments to the rule that we issue by order, as
well as other rule amendments that would (i)
provide that the Commission will issue an order
every five years adjusting for inflation the dollar
amount tests, (ii) exclude the value of a person’s
primary residence from the test of whether a person
has sufficient net worth to be considered a
‘‘qualified client,’’ and (iii) add certain transition
provisions to the rule. The deadline for comments
on the proposed rule amendments was July 11,
2011. Id.
7 See id. at nn.17–18 and accompanying text.
8 See id. at nn.19–21 and accompanying text.
This Order is effective as of
September 19, 2011.
Commission has received comments on the
rule amendments that it proposed in May 2011, and
those comments are available in the public
rulemaking file S7–17–11 (available on the
Commission’s Web site at https://www.sec.gov/
comments/s7-17-11/s71711.shtml). Several
commenters expressed concern about the
Commission’s expressed intent to raise the dollar
amount thresholds of rule 205–3. The Dodd-Frank
Act clearly mandates that the Commission adjust
the dollar amount thresholds that are the subject of
this Order. The Commission intends to evaluate the
comments it receives on the rulemaking proposal in
its consideration of any adoption of the proposed
amendments. See Proposing Release, supra note 6.
PO 00000
9 The
Frm 00087
Fmt 4703
Sfmt 4703
In its filing with the Commission,
CBOE included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. CBOE has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
1 15
2 17
E:\FR\FM\15JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
15JYN1
]]>Agencies
[Federal Register Volume 76, Number 136 (Friday, July 15, 2011)]
[Notices]
[Pages 41838-41839]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17854]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 3236/July 12, 2011]
Order Approving Adjustment for Inflation of the Dollar Amount
Tests in Rule 205-3 Under the Investment Advisers Act of 1940
I. Background
Section 205(a)(1) of the Investment Advisers Act of 1940
(``Advisers Act'') generally prohibits an investment adviser from
entering into, extending, renewing, or performing any investment
advisory contract that provides for compensation to the adviser based
on a share of capital gains on, or capital appreciation of, the funds
of a client (also known as ``performance compensation'' or
``performance fees'').\1\ Section 205(e) authorizes the Securities and
Exchange Commission (``Commission'') to exempt any advisory contract
from the performance fee prohibition if the contract is with persons
that the Commission determines do not need the protections of the
prohibition, on the basis of certain factors described in that
section.\2\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 80b-5(a)(1).
\2\ Under section 205(e), the Commission may determine that
persons do not need the protections of section 205(a)(1) on the
basis of such factors as ``financial sophistication, net worth,
knowledge of and experience in financial matters, amount of assets
under management, relationship with a registered investment adviser,
and such other factors as the Commission determines are consistent
with [section 205].'' 15 U.S.C. 80b-5(e).
---------------------------------------------------------------------------
Rule 205-3 under the Advisers Act exempts an investment adviser
from the prohibition against charging a client performance fees in
certain circumstances, including when the client is a ``qualified
client.'' The rule allows an adviser to charge performance fees if the
client has at least $750,000 under the management of an investment
adviser immediately after entering into the advisory contract
(``assets-under-management test'') or if the adviser reasonably
believes the client has a net worth of more than $1,500,000 at the time
the contract is entered into (``net worth test''). The Commission last
revised the level of these dollar amount thresholds to account for the
effects of inflation in 1998.\3\
---------------------------------------------------------------------------
\3\ See Exemption To Allow Investment Advisers To Charge Fees
Based Upon a Share of Capital Gains Upon or Capital Appreciation of
a Client's Account, Investment Advisers Act Release No. 1731 (July
15, 1998) [63 FR 39022 (July 21, 1998)].
---------------------------------------------------------------------------
[[Page 41839]]
II. Adjustment of Dollar Amount Thresholds Under the Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act \4\
(``Dodd-Frank Act'') amended section 205(e) of the Advisers Act to
provide that, by July 21, 2011 and every five years thereafter, the
Commission shall adjust for inflation the dollar amount thresholds
included in rules issued under section 205(e), rounded to the nearest
$100,000.\5\ As discussed above, there are two dollar amount thresholds
in rules issued under section 205(e), and they are in the assets-under-
management and net worth tests in rule 205-3's definition of
``qualified client.''
---------------------------------------------------------------------------
\4\ Pub. L. 111-203, 124 Stat. 1376 (2010).
\5\ See section 418 of the Dodd-Frank Act.
---------------------------------------------------------------------------
On May 10, 2011, the Commission published a notice of intent to
issue an order revising the dollar amount thresholds of the assets-
under-management test and the net worth test.\6\ We stated that, based
on calculations of inflation since 1998 when the dollar amount
thresholds were last revised, we intended to revise the threshold in
the assets-under-management test from $750,000 to $1 million, and in
the net worth test from $1.5 million to $2 million.\7\ We also stated
that these revised dollar amounts would take into account the effects
of inflation by reference to the historic and current levels of the
Personal Consumption Expenditures Chain-Type Price Index, which is
published by the Department of Commerce and often used as an indicator
of inflation in the personal sector of the U.S. economy.\8\ The revised
dollar amounts would reflect inflation from 1998 to the end of 2010,
and are rounded to the nearest $100,000 as required by section 205(e)
of the Advisers Act, as amended by section 418 of the Dodd-Frank Act.
---------------------------------------------------------------------------
\6\ See Investment Adviser Performance Compensation, Investment
Advisers Act Release No. 3198 (May 10, 2011) [76 FR 27959 (May 13,
2011)] (``Proposing Release''). The Commission also proposed for
public comment certain amendments to rule 205-3 that would reflect
any inflation adjustments to the rule that we issue by order, as
well as other rule amendments that would (i) provide that the
Commission will issue an order every five years adjusting for
inflation the dollar amount tests, (ii) exclude the value of a
person's primary residence from the test of whether a person has
sufficient net worth to be considered a ``qualified client,'' and
(iii) add certain transition provisions to the rule. The deadline
for comments on the proposed rule amendments was July 11, 2011. Id.
\7\ See id. at nn.17-18 and accompanying text.
\8\ See id. at nn.19-21 and accompanying text.
---------------------------------------------------------------------------
The Commission's notice established a deadline of June 20, 2011 for
submission of requests for a hearing. No requests for a hearing have
been received by the Commission.\9\
---------------------------------------------------------------------------
\9\ The Commission has received comments on the rule amendments
that it proposed in May 2011, and those comments are available in
the public rulemaking file S7-17-11 (available on the Commission's
Web site at https://www.sec.gov/comments/s7-17-11/s71711.shtml).
Several commenters expressed concern about the Commission's
expressed intent to raise the dollar amount thresholds of rule 205-
3. The Dodd-Frank Act clearly mandates that the Commission adjust
the dollar amount thresholds that are the subject of this Order. The
Commission intends to evaluate the comments it receives on the
rulemaking proposal in its consideration of any adoption of the
proposed amendments. See Proposing Release, supra note 6.
---------------------------------------------------------------------------
III. Effective Date of the Order
This Order is effective as of September 19, 2011.
IV. Conclusion
Accordingly, pursuant to section 205(e) of the Investment Advisers
Act of 1940 and section 418 of the Dodd-Frank Act,
It is hereby ordered that, for purposes of rule 205-3(d)(1)(i)
under the Investment Advisers Act of 1940 [17 CFR 275.205-3(d)(1)(i)],
a qualified client means a natural person who or a company that
immediately after entering into the contract has at least $1,000,000
under the management of the investment adviser; and
It is further ordered that, for purposes of rule 205-3(d)(1)(ii)(A)
under the Investment Advisers Act of 1940 [17 CFR 275.205-
3(d)(1)(ii)(A)], a qualified client means a natural person who or a
company that the investment adviser entering into the contract (and any
person acting on his behalf) reasonably believes, immediately prior to
entering into the contract, has a net worth (together, in the case of a
natural person, with assets held jointly with a spouse) of more than
$2,000,000 at the time the contract is entered into.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-17854 Filed 7-14-11; 8:45 am]
BILLING CODE 8011-01-P
