Proposed Collection; Comment Request, 57993-57995 [2014-22914]
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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Notices
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
Washington, DC 20549–0213.
mstockstill on DSK4VPTVN1PROD with NOTICES
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.
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
1 44
U.S.C. 3501–3520.
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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.
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 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 approximately 117 funds
or series thereof (excluding money
market funds and ETFs) are newly
formed each year and would need to
make this determination.
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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57993
Based on conversations with fund
representatives,3 Commission staff
estimates that it takes 2 hours of the
board’s time, as a whole, (at a rate of
$4000 per hour) 4 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 (at a rate of $64
per hour) 5 8 hours 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 (at a
rate of $334 per hour) 3 hours 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 6 at a cost of $9514.7 As a
result, Commission staff estimates that
the total time spent for all funds on this
process is 884 hours at a cost of
$646,952.8
B. Information Sharing Agreements
Rule 22c–2(a)(2) 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
3 Unless otherwise stated, estimates throughout
this analysis are derived from a survey of funds and
conversations with fund representatives.
4 The estimate of $4000 per hour for the board’s
time as a whole is based on conversations with
representatives of funds and their legal counsel.
5 Unless otherwise stated, all cost estimates for
personnel time are derived from SIFMA’s
Management & Professional Earnings in the
Securities Industry 2013, modified to account for an
1800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits,
and overhead.
6 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).
7 This calculation is based on the following
estimates: ($8000 ($4000 board time × 2 hours =
$8000) + $512 ($64 compliance time × 8 hours =
$512) + $1002 ($334 × 3 hours attorney time =
$1002) = $9514).
8 This calculation is based on the following
estimates: (13 hours × 68 funds = 884 hours); ($9514
× 68 funds = $646,952).
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57994
Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Notices
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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
801 currently active fund groups.9
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
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 $380) 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 $4560 each year 10
to enter into new information sharing
agreements, and all existing market
participants incur a total of 9612 hours
at a cost of $3,652,560.11
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 58 new fund groups that form each
year that will have to enter into
information sharing agreements with
each of their intermediaries.12
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.13 As discussed previously,
Commission staff estimates that it takes
4 hours of attorney time (at a rate of
$380) per intermediary to enter into
information sharing agreements.
9 ICI, 2014 INVESTMENT COMPANY FACT BOOK at Fig
1.7 (2014) (https://www.ici.org/pdf/2014_
factbook.pdf).
10 This estimate is based on the following
calculations: (4 hours × 3 new intermediaries = 12
hours); (12 hours × $380 = $4560).
11 This estimate is based on the following
calculations: (12 hours × 801 fund groups = 9612
hours); (9612 hours × $380 = $3,652,560).
12 ICI, 2014 INVESTMENT COMPANY FACT BOOK at
Fig 1.7 (2014) (https://www.ici.org/pdf/2014_
factbook.pdf).
13 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.
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Therefore, Commission staff estimates
that each newly formed fund group will
incur 400 hours of attorney time at a
cost of $152,000,14 and all newly formed
fund groups will incur a total of 23,200
hours at a cost of $8,816,000 to enter
into information sharing agreements
with their intermediaries.15
Rule 22c–2(a)(3) requires funds to
maintain records of all informationsharing 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 801 fund groups.16
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 informationsharing agreements requires 10 minutes
of time spent by a general clerk (at a rate
of $57) 17 per fund, each year.
Accordingly, Commission staff
estimates that all funds will incur
133.50 hours at a cost of $7609.50 18 in
complying with the recordkeeping
requirement of rule 22c–2(a)(3).
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
32,945.5 hours at a cost of
$12,476,169.50.19
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 334,017
responses for all fund groups
14 This estimate is based on the following
calculations: (4 hours × 100 intermediaries = 400
hours); (400 hours × $380 = $152,000).
15 This estimate is based on the following
calculations: (58 fund groups × 400 hours = 23,200
hours) ($380 × 23,200 = $8,816,000).
16 ICI, 2014 INVESTMENT COMPANY FACT BOOK at
Fig 1.7 (2014) (https://www.ici.org/pdf/2014_
factbook.pdf).
17 $57 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 multiplied by 2.93 to account for
bonuses, firm size, employee benefits, and
overhead.
18 This estimate is based on the following
calculations: (10 minutes × 801 fund groups = 8010
minutes); (8010 minutes/60 = 133.5 hours); (133.5
hours × $57 = $7609.50).
19 This estimate is based on the following
calculations: (9612 hours + 23,200 hours + 133.5
hours = 32,945.5 hours); ($3,652,560 + $8,816,000
+ $7609.50 = $12,476,169.50).
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Sfmt 4703
annually.20 In addition, as described
above, the staff estimates that funds
make 68 responses related to board
determinations, 2403 responses related
to new intermediaries of existing fund
groups, 5800 responses related to new
fund group information sharing
agreements, and 801 responses related
to recordkeeping, for a total of 9072
responses related to the other
requirements of rule 22c–2. Therefore,
the Commission staff estimates that the
total number of responses is 343,164
(334,017 + 9147 = 343,164).
The Commission staff estimates that
the total hour burden for rule 22c–2 is
33,829.5 hours at a cost of
$13,123,121.50.21
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.
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 Thomas Bayer, Chief Information
Officer, Securities and Exchange
Commission, C/O Remi Pavlik-Simon,
100 F Street NE., Washington, DC
20 This estimate is based on the following
calculations: (52 + 365 = 417); (417 × 801 fund
groups = 334,017).
21 This estimate is based on the following
calculations: (884 hours (board determination) +
32,945.5 hours (information sharing agreements) =
33,829.5 total hours); ($12,476,169.50 + $646,952 =
$13,123,121.50).
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Federal Register / Vol. 79, No. 187 / Friday, September 26, 2014 / Notices
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
20549; or send an email to: PRA_
Mailbox@sec.gov.
Dated: September 22, 2014.
Kevin M. O’Neill,
Deputy Secretary.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2014–22914 Filed 9–25–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73182; File No. SR–
NASDAQ–2014–094]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Extend
the Pilot Period for the Retail Price
Improvement Program Until December
31, 2014
September 23, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 11, 2014, The NASDAQ
Stock Market LLC (‘‘NASDAQ’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I and II below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
mstockstill on DSK4VPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to extend the
pilot period for the Exchange’s Retail
Price Improvement (‘‘RPI’’) Program,
which is set to expire on September 30,
2014, for three months, to expire on
December 31, 2014.
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com, at
NASDAQ’s principal office, 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
In its filing with the Commission, the
self-regulatory organization 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 those statements may be examined at
the places specified in Item III below.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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19:14 Sep 25, 2014
Jkt 232001
1. Purpose
The purpose of this filing is to extend
the pilot period of the RPI Program,3
currently scheduled to expire on
September 30, 2014, for three months, to
expire on December 31, 2014.
Background
In February 2013, the Commission
approved the RPI Program on a pilot
basis.4 Initially the pilot period of the
RPI Program was set to expire on March
28, 2014, however, the pilot period was
extended for six months and is
scheduled to expire on September 30,
2014.5 The Program is designed to
attract retail order flow to the Exchange,
and allow such order flow to receive
potential price improvement. The
Program is currently limited to trades
occurring at prices equal to or greater
than $1.00 per share. Under the
Program, a new class of market
participant called a Retail Member
Organization (‘‘RMO’’) is eligible to
submit certain retail order flow (‘‘Retail
Orders’’)6 to the Exchange. NASDAQ
members (‘‘Members’’) are permitted to
provide potential price improvement for
Retail Orders in the form of nondisplayed interest that is priced more
aggressively than the Protected National
Best Bid or Offer (‘‘Protected NBBO’’).7
3 Securities Exchange Act Release No. 68937
(February 15, 2013), 78 FR 12397 (February 22,
2013) (‘‘RPI Approval Order’’) (SR–NASDAQ–2012–
129).
4 See id.
5 Securities Exchange Act Release No. 71826
(March 28, 2014), 79 FR 18597 (April 2, 2014) (SR–
NASDAQ–2014–030).
6 A ‘‘Retail Order’’ is defined in NASDAQ Rule
4780(a)(2), in part, as ‘‘an agency or riskless
principal order that originates from a natural person
and is submitted to Nasdaq by a Retail Member
Organization, provided that no change is made to
the terms of the order with respect to price (except
in the case that a market order is changed to a
marketable limit order) or side of market and the
order does not originate from a trading algorithm or
any other computerized methodology.’’
7 The term Protected Quotation is defined in
Chapter XII, Sec. 1(19) and has the same meaning
as is set forth in Regulation NMS Rule 600(b)(58).
The Protected NBBO is the best-priced protected
bid and offer. Generally, the Protected NBBO and
the national best bid and offer (‘‘NBBO’’) will be the
same. However, a market center is not required to
route to the NBBO if that market center is subject
to an exception under Regulation NMS Rule
611(b)(1) or if such NBBO is otherwise not available
for an automatic execution. In such case, the
Protected NBBO would be the best-priced protected
bid or offer to which a market center must route
interest pursuant to Regulation NMS Rule 611.
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57995
The Program was approved by the
Commission on a pilot basis running
one-year from the date of
implementation.8 The Commission
approved the Program on February 15,
2013.9 The Exchange implemented the
Program on March 28, 2013.10 The
Commission extended the pilot for an
additional six months at the conclusion
of the initial pilot period.11 Thus, the
pilot period for the Program is
scheduled to end on September 30,
2014.
Proposal To Extend the Operation of the
Program
The Exchange established the RPI
Program in an attempt to attract retail
order flow to the Exchange by
potentially providing price
improvement to such order flow. The
Exchange believes that the Program
promotes competition for retail order
flow by allowing Exchange members to
submit Retail Price Improvement Orders
(‘‘RPI Orders’’) 12 to interact with Retail
Orders. Such competition has the ability
to promote efficiency by facilitating the
price discovery process and generating
additional investor interest in trading
securities, thereby promoting capital
formation. The Exchange believes that
extending the pilot is appropriate
because it will allow the Exchange and
the Commission additional time to
analyze data regarding the Program that
the Exchange has committed to
provide.13 As such, the Exchange
believes that it is appropriate to extend
the current operation of the Program.14
Through this filing, the Exchange seeks
to extend the current pilot period of the
Program until December 31, 2014.
2. Statutory Basis
NASDAQ believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,15 in
8 See
RPI Approval Order, supra note 3 at 12397.
9 Id.
10 Securities Exchange Act Release No. 69308
(April 4, 2013), 78 FR 21663 (April 11, 2013) (SR–
NASDAQ–2013–057).
11 Supra note 5.
12 A Retail Price Improvement Order is defined in
NASDAQ Rule 4780(a)(3), in part, as consisting of
‘‘non-displayed liquidity on NASDAQ that is priced
better than the Protected NBBO by at least $0.001
and that is identified as such.’’
13 See RPI Approval Order, supra note 3 at 12401.
14 Concurrently with this filing, the Exchange has
submitted a request for an extension of the
exemption under Regulation NMS Rule 612
previously granted by the Commission that permits
it to accept and rank the RPI orders in sub-penny
increments. See Letter from John Yetter, Deputy
General Counsel, The NASDAQ Stock Market LLC
to Elizabeth M. Murphy[sic], Secretary, Securities
and Exchange Commission dated March 24,
2014[sic].
15 15 U.S.C. 78f.
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]]>Agencies
[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Notices]
[Pages 57993-57995]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22914]
[[Page 57993]]
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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, Washington, DC 20549-0213.
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.
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
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 approximately 117 funds or series
thereof (excluding money market funds and ETFs) are newly formed each
year and would need to make this determination.
Based on conversations with fund representatives,\3\ Commission
staff estimates that it takes 2 hours of the board's time, as a whole,
(at a rate of $4000 per hour) \4\ 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 (at a rate of $64 per hour) \5\ 8 hours 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 (at a rate of $334 per hour) 3 hours 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 \6\ at a cost
of $9514.\7\ As a result, Commission staff estimates that the total
time spent for all funds on this process is 884 hours at a cost of
$646,952.\8\
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\3\ Unless otherwise stated, estimates throughout this analysis
are derived from a survey of funds and conversations with fund
representatives.
\4\ The estimate of $4000 per hour for the board's time as a
whole is based on conversations with representatives of funds and
their legal counsel.
\5\ Unless otherwise stated, all cost estimates for personnel
time are derived from SIFMA's Management & Professional Earnings in
the Securities Industry 2013, modified to account for an 1800-hour
work-year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead.
\6\ 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).
\7\ This calculation is based on the following estimates: ($8000
($4000 board time x 2 hours = $8000) + $512 ($64 compliance time x 8
hours = $512) + $1002 ($334 x 3 hours attorney time = $1002) =
$9514).
\8\ This calculation is based on the following estimates: (13
hours x 68 funds = 884 hours); ($9514 x 68 funds = $646,952).
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B. Information Sharing Agreements
Rule 22c-2(a)(2) 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
[[Page 57994]]
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 801 currently active fund groups.\9\ 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 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 $380) 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 $4560 each year \10\ to enter into new information sharing
agreements, and all existing market participants incur a total of 9612
hours at a cost of $3,652,560.\11\
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\9\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014)
(https://www.ici.org/pdf/2014factbook.pdf).
\10\ This estimate is based on the following calculations: (4
hours x 3 new intermediaries = 12 hours); (12 hours x $380 = $4560).
\11\ This estimate is based on the following calculations: (12
hours x 801 fund groups = 9612 hours); (9612 hours x $380 =
$3,652,560).
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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 58 new fund groups that form each year that
will have to enter into information sharing agreements with each of
their intermediaries.\12\ 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.\13\ As
discussed previously, Commission staff estimates that it takes 4 hours
of attorney time (at a rate of $380) 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 $152,000,\14\ and all newly formed fund groups will incur
a total of 23,200 hours at a cost of $8,816,000 to enter into
information sharing agreements with their intermediaries.\15\
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\12\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014)
(https://www.ici.org/pdf/2014factbook.pdf).
\13\ 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.
\14\ This estimate is based on the following calculations: (4
hours x 100 intermediaries = 400 hours); (400 hours x $380 =
$152,000).
\15\ This estimate is based on the following calculations: (58
fund groups x 400 hours = 23,200 hours) ($380 x 23,200 =
$8,816,000).
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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 801 fund groups.\16\ 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 $57)
\17\ per fund, each year. Accordingly, Commission staff estimates that
all funds will incur 133.50 hours at a cost of $7609.50 \18\ in
complying with the recordkeeping requirement of rule 22c-2(a)(3).
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\16\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014)
(https://www.ici.org/pdf/2014factbook.pdf).
\17\ $57 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 multiplied by 2.93 to account for
bonuses, firm size, employee benefits, and overhead.
\18\ This estimate is based on the following calculations: (10
minutes x 801 fund groups = 8010 minutes); (8010 minutes/60 = 133.5
hours); (133.5 hours x $57 = $7609.50).
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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 32,945.5 hours at a cost of $12,476,169.50.\19\
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\19\ This estimate is based on the following calculations: (9612
hours + 23,200 hours + 133.5 hours = 32,945.5 hours); ($3,652,560 +
$8,816,000 + $7609.50 = $12,476,169.50).
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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 334,017 responses for all fund groups
annually.\20\ In addition, as described above, the staff estimates that
funds make 68 responses related to board determinations, 2403 responses
related to new intermediaries of existing fund groups, 5800 responses
related to new fund group information sharing agreements, and 801
responses related to recordkeeping, for a total of 9072 responses
related to the other requirements of rule 22c-2. Therefore, the
Commission staff estimates that the total number of responses is
343,164 (334,017 + 9147 = 343,164).
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\20\ This estimate is based on the following calculations: (52 +
365 = 417); (417 x 801 fund groups = 334,017).
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The Commission staff estimates that the total hour burden for rule
22c-2 is 33,829.5 hours at a cost of $13,123,121.50.\21\
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\21\ This estimate is based on the following calculations: (884
hours (board determination) + 32,945.5 hours (information sharing
agreements) = 33,829.5 total hours); ($12,476,169.50 + $646,952 =
$13,123,121.50).
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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.
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 Thomas Bayer, Chief
Information Officer, Securities and Exchange Commission, C/O Remi
Pavlik-Simon, 100 F Street NE., Washington, DC
[[Page 57995]]
20549; or send an email to: PRAMailbox@sec.gov.
Dated: September 22, 2014.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22914 Filed 9-25-14; 8:45 am]
BILLING CODE 8011-01-P
