
[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]



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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

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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\
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    \9\ ICI, 2014 Investment Company Fact Book at Fig 1.7 (2014) 
(http://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) 
(http://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) 
(http://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

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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


