
[Federal Register: March 3, 2009 (Volume 74, Number 40)]
[Notices]               
[Page 9318-9320]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr09-127]                         

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SECURITIES AND EXCHANGE COMMISSION

 
Submission for OMB Review; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Investor Education and Advocacy, 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'') has submitted to the Office of Management and 
Budget a request for extension of the previously approved collection of 
information discussed below.
    Rule 22c-2 (17 CFR 270.22c-2 ``Mutual Fund Redemption Fees'') 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 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 300 funds or series 
thereof (excluding money market funds and ETFs) are newly formed each 
year and would need to make this determination.
    Commission staff estimates that it takes approximately 2 hours of 
the boards' time, as a whole, to approve a

[[Page 9319]]

redemption fee or make the required determination. In addition, 
Commission staff estimates that it takes compliance personnel of the 
fund approximately 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 counsel of the fund approximately 
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 
approximately 13 hours.\3\ As a result, Commission staff estimates that 
the total time spent for all funds on this process is 3900 hours.\4\
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    \3\ This calculation is based on the following estimates: (2 
hours of board time + 3 hours of internal counsel time + 8 hours of 
compliance time = 13 hours).
    \4\ This calculation is based on the following estimates: (13 
hours x 300 funds = 3,900 hours).
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    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 agreement. Commission staff estimates that 
there are approximately 7,254 open-end fund series currently in 
operation (excluding money market funds and ETFs). However, 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 680 
currently active fund groups.\5\ Commission staff estimates that, on 
average, each active fund group enters into relationships with 
approximately 5 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 approximately 4 hours 
of attorney time per intermediary (representing 2.5 hours of fund 
attorney time and 1.5 hours of intermediary attorney time). 
Accordingly, Commission staff estimates that each existing fund group 
expends 20 hours each year \6\ to enter into new information sharing 
agreements, and all existing fund groups incur a total of 13,600 hours.
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    \5\ ICI, 2008 Investment Company Fact Book at Fig 1.7 (2008) 
(http://www.ici.org/stats/latest/2008_factbook.pdf).
    \6\ This estimate is based on the following calculations: (4 
hours x 5 new intermediaries = 20 hours).
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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 approximately 22 new funds or fund groups that 
form each year that will have to enter into information sharing 
agreements with each of their intermediaries.\7\ Commission staff 
estimates that funds and 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 approximately 100 information sharing agreements with their 
intermediaries when they begin operations.\8\ As discussed previously, 
Commission staff estimates that it takes approximately 4 hours of 
attorney time 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,\9\ and all 
newly formed fund groups will incur a total of 8800 hours to enter into 
information sharing agreements with their intermediaries.\10\
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    \7\ ICI, 2008 Investment Company Fact Book at Fig 1.7 (2008) 
(http://www.ici.org/stats/latest/2008_factbook.pdf).
    \8\ 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 to according the 
requirements of each intermediary.
    \9\ This estimate is based on the following calculations: (4 
hours x 100 intermediaries = 400 hours).
    \10\ This estimate is based on the following calculations: (22 
fund groups x 400 hours + 8,800 hours).
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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 estimates that there are approximately 7,254 
open-end fund series currently in operation (excluding money market 
funds and ETFs). However, the Commission staff anticipates that most 
shareholder information agreements will be stored at the fund group 
level and estimates that there are currently approximately 680 fund 
groups. Commission staff estimates that maintaining records of 
information sharing agreements requires approximately 10 minutes of 
time spent by a general clerk per fund, each year. Accordingly, 
Commission staff estimates that all funds will incur approximately 113 
hours \11\ in complying with the recordkeeping requirement of rule 22c-
2(a)(3).
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    \11\ This estimate is based on the following calculations: (10 
minutes x 680 fund groups = 6,800 minutes); (6,800 minutes / 60 = 
113 hours).
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    Therefore, Commission staff estimates that to comply with the 
information sharing agreement requirements of rule 22c-2(a)(1) and (3) 
requires a total of 22,513 hours.\12\
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    \12\ This estimate is based on the following calculations: 
(13,600 hours + 8,800 hours + 113 hours = 22,513 hours).
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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 283,560 responses for all fund groups annually. 
In addition, the staff estimates that funds make 300 responses related 
to board determinations, 3,400 responses related to new intermediaries 
of existing fund groups, 2,200 responses related to new fund group 
information sharing agreements, and 680 responses related to 
recordkeeping, for a total of 6,580 responses related to the other 
requirements of rule 22c-2. Therefore, the Commission staff estimates 
that the total number of responses is 290,140 (283,560 + 6,580 = 
290,140). Commission staff also estimates that there are 7,254 
potential respondents making 290,140 responses each year. The 
Commission staff estimates that the total hour burden for rule 22c-2 is 
26,413 hours.\13\
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    \13\ This estimate is based on the following calculations: 
(3,900 hours (board determination) + 22,513 hours (information 
sharing agreements) = 26,413 total hours).
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    Rule 22c-2 requires funds to enter into information sharing 
agreements with their intermediaries that enable funds to, upon request 
(i) be provided certain information regarding shareholders and their 
trades that are held through a financial intermediary or an indirect 
intermediary, and (ii) require the intermediary to execute instructions 
from the fund restricting or prohibiting further purchases or exchanges 
by shareholders that violate the fund's frequent trading policies. As a 
result of this requirement, some funds and

[[Page 9320]]

intermediaries have had to develop and maintain information sharing, 
monitoring, and order execution systems (collectively ``information 
sharing systems'').
    In general, the staff estimates that the typical charges involved 
in operating and maintaining information sharing systems average 25 
cents for every 100 account transactions requested. The Commission 
staff estimates that, on average, each fund group requests information 
for 100,000 transactions each week, incurring costs of $250 weekly, or 
$13,000 a year.\14\ In addition, the Commission staff estimates that 
funds pay access fees to use these information sharing systems (or 
comparable internal costs) of approximately $30,000 each year. The 
Commission staff therefore estimates that a fund group would typically 
incur approximately $43,000 in costs each year related to the operation 
and maintenance of information sharing systems required by rule 22c-2. 
The Commission staff has previously estimated that there are 
approximately 680 fund groups currently active, and therefore estimates 
that all fund groups incur a total of $29,240,000 in ongoing costs each 
year related to maintaining and operating information sharing 
systems.\15\
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    \14\ This estimate is based on the following calculations: 
(100,000 transaction requests x 0.0025[cent] = $250); ($250 x 52 
weeks = $13,000).
    \15\ This estimate is based on the following calculation: (680 
fund groups x $43,000 = $29,240,000).
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    Commission staff estimates that it requires approximately $100,000 
to purchase or develop and implement such an information sharing system 
for the first time. Commission staff has previously estimated that 
approximately 22 funds or fund groups are formed each year managed by 
new advisers, and therefore estimates that all these funds would incur 
total costs of approximately $2,200,000.\16\
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    \16\ This estimate is based on the following estimate: ($100,000 
x 22 new fund groups = $2,200,000).
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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.
    Please direct general comments regarding the above information to 
the following persons: (i) Desk Officer for the Securities and Exchange 
Commission, Office of Management and Budget, Room 10102, New Executive 
Office Building, Washington, DC 20503 or send an e-mail to: Shagufta_
Ahmed@omb.eop.gov; and (ii) Charles Boucher, Director/CIO, Securities 
and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, 
Alexandria, VA 22312; or send an e-mail to: PRA_Mailbox@sec.gov. 
Comments must be submitted to OMB within 30 days of this notice.

    Dated: February 25, 2009.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-4425 Filed 3-2-09; 8:45 am]

BILLING CODE 8011-01-P
