Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 Under the Investment Advisers Act of 1940, 32993-32994 [2021-13192]
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Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Notices
subparagraph (f)(6) of Rule 19b–4
thereunder.19
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
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filing also will be available for
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comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2021–36 and should
be submitted on or before July 14, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13105 Filed 6–22–21; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2021–36 on the subject line.
Paper Comments
jbell on DSKJLSW7X2PROD with NOTICES
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2021–36. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
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SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
2:00 p.m. on Thursday,
June 24, 2021.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will be closed to
the public.
MATTERS TO BE CONSIDERED:
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the closed meeting. Certain
staff members who have an interest in
the matters also may be present.
In the event that the time, date, or
location of this meeting changes, an
announcement of the change, along with
the new time, date, and/or place of the
meeting will be posted on the
Commission’s website at https://
www.sec.gov.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (6), (7), (8), 9(B)
and (10) and 17 CFR 200.402(a)(3),
(a)(5), (a)(6), (a)(7), (a)(8), (a)(9)(ii) and
(a)(10), permit consideration of the
scheduled matters at the closed meeting.
The subject matter of the closed
meeting will consist of the following
topics:
Institution and settlement of
injunctive actions;
TIME AND DATE:
20 17
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CFR 200.30–3(a)(12).
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32993
Institution and settlement of
administrative proceedings;
Resolution of litigation claims; and
Other matters relating to examinations
and enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting agenda items that
may consist of adjudicatory,
examination, litigation, or regulatory
matters.
CONTACT PERSON FOR MORE INFORMATION:
For further information, please contact
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Dated: June 17, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–13155 Filed 6–17–21; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 5756]
Order Approving Adjustment for
Inflation of the Dollar Amount Tests in
Rule 205–3 Under the Investment
Advisers Act of 1940
June 17, 2021.
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 any
person that the Commission determines
does 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 when the client is a
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).
2 Under
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32994
Federal Register / Vol. 86, No. 118 / Wednesday, June 23, 2021 / Notices
‘‘qualified client.’’ 3 The rule allows an
adviser to charge performance fees if the
client has at least a certain dollar
amount in assets under management
(currently, $1,000,000) with the adviser
immediately after entering into the
advisory contract (‘‘assets-undermanagement test’’) or if the adviser
reasonably believes, immediately prior
to entering into the contract, that the
client has a net worth of more than a
certain dollar amount (currently,
$2,100,000) (‘‘net worth test’’).4
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’) 5 amended section 205(e) of
the Advisers Act to provide that, by July
21, 2011 and every five years thereafter,
the Commission shall, by order, adjust
for the effects of inflation the dollar
amount thresholds included in rules
issued under section 205(e), rounded to
the nearest multiple of $100,000.6 The
Commission issued an order to revise
the dollar amount thresholds of the
assets-under-management and net worth
tests (to $1,000,000 and $2,000,000,
respectively, as discussed above) on July
12, 2011.7 Rule 205–3 codifies the
threshold amounts revised by the 2011
Order and states that the Commission
will issue an order on or about May 1,
2016, and approximately every five
years thereafter, adjusting for inflation
the dollar amount thresholds of the
rule’s assets-under-management and net
worth tests based on the Personal
Consumption Expenditures Chain-Type
Price Index (‘‘PCE Index,’’ published by
the United States Department of
Commerce).8 On June 14, 2016, the
Commission issued an order adjusting
for inflation, as appropriate, the dollar
amount thresholds of the assets-undermanagement test and the net worth test
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3 The
exemption applies to the entrance into,
performance, renewal, and extension of advisory
contracts. See rule 205–3(a).
4 See rule 205–3(d)(1)(i)–(ii); see also Order
Approving Adjustment for Inflation of the Dollar
Amount Tests in Rule 205–3 under the Investment
Advisers Act of 1940, Advisers Act Release No.
4421 (June 14, 2016) [81 FR 39985 (June 20, 2016)]
(‘‘2016 Order’’). Rule 205–3 includes other
definitions of ‘‘qualified client’’ that do not
reference specific dollar amount tests. See, e.g., rule
205–3(d)(1)(ii)(B) and rule 205–3(d)(1)(iii).
5 Public Law 111–203, 124 Stat. 1376 (2010).
6 See section 418 of the Dodd-Frank Act
(requiring the Commission to issue an order every
five years revising dollar amount tests in a rule that
exempts a person or transaction from section
205(a)(1) of the Advisers Act if the dollar amount
test was a factor in the Commission’s determination
that the persons do not need the protections of that
section).
7 See Order Approving Adjustment for Inflation of
the Dollar Amount Tests in Rule 205–3 under the
Investment Advisers Act of 1940, Advisers Act
Release No. 3236 (July 12, 2011) [76 FR 41838 (July
15, 2011)] (‘‘2011 Order’’). The 2011 Order was
effective as of September 19, 2011. Id.
8 See rule 205–3(e).
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17:13 Jun 22, 2021
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(to $1,000,000 and $2,100,000,
respectively).9
II. Adjustment of Dollar Amount
Thresholds
On May 10, 2021, the Commission
published a notice of intent to issue an
order that would adjust for inflation the
dollar amount thresholds of the assetsunder-management test and the net
worth test.10 The Commission stated
that, based on calculations that take into
account the effects of inflation by
reference to historic and current levels
of the PCE Index, the dollar amount of
the assets-under-management test
would increase from $1,000,000 to
$1,100,000, and the dollar amount of the
net worth test would increase from
$2,100,000 to $2,200,000.11 These dollar
amounts—which are rounded to the
nearest multiple of $100,000 as required
by section 205(e) of the Advisers Act—
would reflect inflation from 2016 to the
end of 2020.
The Commission’s notice established
a deadline of June 4, 2021 for
submission of requests for a hearing. No
requests for a hearing have been
received by the Commission.
III. Effective Date of the Order
This Order is effective as of August
16, 2021. To the extent that contractual
relationships are entered into prior to
the Order’s effective date, the dollar
amount test adjustments in the Order
would not generally apply retroactively
to such contractual relationships,
subject to the transition rules
incorporated in rule 205–3.12
9 See 2016 Order, supra footnote 4. The 2016
Order was effective as of August 15, 2016. Id. As
a result of the 2016 Order, the dollar amount
threshold of the net worth test was increased to
$2,100,000, but the dollar amount threshold of the
assets-under-management test remained at
$1,000,000. Id.
10 See Performance-Based Investment Advisory
Fees, Advisers Act Release No. 5733 (May 10, 2021)
[86 FR 26685 (May 17, 2021)]. Because the amount
of the Commission’s inflation adjustment
calculations are larger than the rounding amount
specified under rule 205–3, the dollar amount of
both tests would be adjusted as a result of the
Commission’s inflation adjustment calculation
effected pursuant to the rule.
11 See id. at section II.A.
12 See rule 205–3(c)(1) (‘‘If a registered investment
adviser entered into a contract and satisfied the
conditions of this [section] that were in effect when
the contract was entered into, the adviser will be
considered to satisfy the conditions of this [section];
Provided, however, that if a natural person or
company who was not a party to the contract
becomes a party (including an equity owner of a
private investment company advised by the
adviser), the conditions of this [section] in effect at
that time will apply with regard to that person or
company.’’); see also Investment Adviser
Performance Compensation, Advisers Act Release
No. 3198 (May 10, 2011) [76 FR 27959 (May 13,
2011)], at section II.B.3. The 2011 Order and 2016
Order each applied to contractual relationships
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IV. Conclusion
Accordingly, pursuant to section
205(e) of the Advisers Act and section
418 of the Dodd-Frank Act,
It is hereby ordered that, for purposes
of rule 205–3(d)(1)(i) under the Advisers
Act [17 CFR 275.205–3(d)(1)], a
qualified client means a natural person
who, or a company that, immediately
after entering into the contract has at
least $1,100,000 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
Advisers Act [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
$2,200,000.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13192 Filed 6–22–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–92197; File No. SR–ICC–
2021–013]
Self-Regulatory Organizations; ICE
Clear Credit LLC; Order Approving
Proposed Rule Change Relating to the
ICC End-of-Day Price Discovery
Policies and Procedures
June 16, 2021.
I. Introduction
On April 23, 2021, ICE Clear Credit
LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (the ‘‘Act’’),1 and Rule 19b–4
thereunder,2 a proposed rule change to
revise and update ICC’s End-of-Day
Price Discovery Policies and Procedures
(the ‘‘Pricing Policy’’). The Pricing
Policy formalizes ICC’s end-of-day
(‘‘EOD’’) price discovery process that
provides prices for cleared credit default
entered into on or after the effective date and did
not apply retroactively to contractual relationships
previously in existence. See Investment Adviser
Performance Compensation, Advisers Act Release
No. 3372 (Feb. 15, 2012) [77 FR 10358 (Feb. 22,
2012)], at section I, n.16; 2016 Order, supra footnote
4, at section III.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 86, Number 118 (Wednesday, June 23, 2021)]
[Notices]
[Pages 32993-32994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13192]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 5756]
Order Approving Adjustment for Inflation of the Dollar Amount
Tests in Rule 205-3 Under the Investment Advisers Act of 1940
June 17, 2021.
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 any person that the
Commission determines does 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 when the client
is a
[[Page 32994]]
``qualified client.'' \3\ The rule allows an adviser to charge
performance fees if the client has at least a certain dollar amount in
assets under management (currently, $1,000,000) with the adviser
immediately after entering into the advisory contract (``assets-under-
management test'') or if the adviser reasonably believes, immediately
prior to entering into the contract, that the client has a net worth of
more than a certain dollar amount (currently, $2,100,000) (``net worth
test'').\4\
---------------------------------------------------------------------------
\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).
\3\ The exemption applies to the entrance into, performance,
renewal, and extension of advisory contracts. See rule 205-3(a).
\4\ See rule 205-3(d)(1)(i)-(ii); see also Order Approving
Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3
under the Investment Advisers Act of 1940, Advisers Act Release No.
4421 (June 14, 2016) [81 FR 39985 (June 20, 2016)] (``2016 Order'').
Rule 205-3 includes other definitions of ``qualified client'' that
do not reference specific dollar amount tests. See, e.g., rule 205-
3(d)(1)(ii)(B) and rule 205-3(d)(1)(iii).
---------------------------------------------------------------------------
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') \5\ amended section 205(e) of the Advisers Act to
provide that, by July 21, 2011 and every five years thereafter, the
Commission shall, by order, adjust for the effects of inflation the
dollar amount thresholds included in rules issued under section 205(e),
rounded to the nearest multiple of $100,000.\6\ The Commission issued
an order to revise the dollar amount thresholds of the assets-under-
management and net worth tests (to $1,000,000 and $2,000,000,
respectively, as discussed above) on July 12, 2011.\7\ Rule 205-3
codifies the threshold amounts revised by the 2011 Order and states
that the Commission will issue an order on or about May 1, 2016, and
approximately every five years thereafter, adjusting for inflation the
dollar amount thresholds of the rule's assets-under-management and net
worth tests based on the Personal Consumption Expenditures Chain-Type
Price Index (``PCE Index,'' published by the United States Department
of Commerce).\8\ On June 14, 2016, the Commission issued an order
adjusting for inflation, as appropriate, the dollar amount thresholds
of the assets-under-management test and the net worth test (to
$1,000,000 and $2,100,000, respectively).\9\
---------------------------------------------------------------------------
\5\ Public Law 111-203, 124 Stat. 1376 (2010).
\6\ See section 418 of the Dodd-Frank Act (requiring the
Commission to issue an order every five years revising dollar amount
tests in a rule that exempts a person or transaction from section
205(a)(1) of the Advisers Act if the dollar amount test was a factor
in the Commission's determination that the persons do not need the
protections of that section).
\7\ See Order Approving Adjustment for Inflation of the Dollar
Amount Tests in Rule 205-3 under the Investment Advisers Act of
1940, Advisers Act Release No. 3236 (July 12, 2011) [76 FR 41838
(July 15, 2011)] (``2011 Order''). The 2011 Order was effective as
of September 19, 2011. Id.
\8\ See rule 205-3(e).
\9\ See 2016 Order, supra footnote 4. The 2016 Order was
effective as of August 15, 2016. Id. As a result of the 2016 Order,
the dollar amount threshold of the net worth test was increased to
$2,100,000, but the dollar amount threshold of the assets-under-
management test remained at $1,000,000. Id.
---------------------------------------------------------------------------
II. Adjustment of Dollar Amount Thresholds
On May 10, 2021, the Commission published a notice of intent to
issue an order that would adjust for inflation the dollar amount
thresholds of the assets-under-management test and the net worth
test.\10\ The Commission stated that, based on calculations that take
into account the effects of inflation by reference to historic and
current levels of the PCE Index, the dollar amount of the assets-under-
management test would increase from $1,000,000 to $1,100,000, and the
dollar amount of the net worth test would increase from $2,100,000 to
$2,200,000.\11\ These dollar amounts--which are rounded to the nearest
multiple of $100,000 as required by section 205(e) of the Advisers
Act--would reflect inflation from 2016 to the end of 2020.
---------------------------------------------------------------------------
\10\ See Performance-Based Investment Advisory Fees, Advisers
Act Release No. 5733 (May 10, 2021) [86 FR 26685 (May 17, 2021)].
Because the amount of the Commission's inflation adjustment
calculations are larger than the rounding amount specified under
rule 205-3, the dollar amount of both tests would be adjusted as a
result of the Commission's inflation adjustment calculation effected
pursuant to the rule.
\11\ See id. at section II.A.
---------------------------------------------------------------------------
The Commission's notice established a deadline of June 4, 2021 for
submission of requests for a hearing. No requests for a hearing have
been received by the Commission.
III. Effective Date of the Order
This Order is effective as of August 16, 2021. To the extent that
contractual relationships are entered into prior to the Order's
effective date, the dollar amount test adjustments in the Order would
not generally apply retroactively to such contractual relationships,
subject to the transition rules incorporated in rule 205-3.\12\
---------------------------------------------------------------------------
\12\ See rule 205-3(c)(1) (``If a registered investment adviser
entered into a contract and satisfied the conditions of this
[section] that were in effect when the contract was entered into,
the adviser will be considered to satisfy the conditions of this
[section]; Provided, however, that if a natural person or company
who was not a party to the contract becomes a party (including an
equity owner of a private investment company advised by the
adviser), the conditions of this [section] in effect at that time
will apply with regard to that person or company.''); see also
Investment Adviser Performance Compensation, Advisers Act Release
No. 3198 (May 10, 2011) [76 FR 27959 (May 13, 2011)], at section
II.B.3. The 2011 Order and 2016 Order each applied to contractual
relationships entered into on or after the effective date and did
not apply retroactively to contractual relationships previously in
existence. See Investment Adviser Performance Compensation, Advisers
Act Release No. 3372 (Feb. 15, 2012) [77 FR 10358 (Feb. 22, 2012)],
at section I, n.16; 2016 Order, supra footnote 4, at section III.
---------------------------------------------------------------------------
IV. Conclusion
Accordingly, pursuant to section 205(e) of the Advisers Act and
section 418 of the Dodd-Frank Act,
It is hereby ordered that, for purposes of rule 205-3(d)(1)(i)
under the Advisers Act [17 CFR 275.205-3(d)(1)], a qualified client
means a natural person who, or a company that, immediately after
entering into the contract has at least $1,100,000 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 Advisers Act [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 $2,200,000.
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13192 Filed 6-22-21; 8:45 am]
BILLING CODE 8011-01-P
