[Federal Register Volume 86, Number 57 (Friday, March 26, 2021)]
[Notices]
[Pages 16249-16267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-06243]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-526, OMB Control No. 3235-0584]


Proposed Collection; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

Extension:
    Rule 12d1-1

    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 (``OMB'') for extension and approval.
    An investment company (``fund'') is generally limited in the amount 
of securities the fund (``acquiring fund'') can acquire from another 
fund (``acquired fund''). Section 12(d) of the Investment Company Act 
of 1940 (the ``Investment Company Act'' or ``Act'') \1\ provides that a 
registered fund (and companies it controls) cannot:
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    \1\ See 15 U.S.C. 80a.
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     Acquire more than three percent of another fund's 
securities;
     invest more than five percent of its own assets in another 
fund; or
     invest more than ten percent of its own assets in other 
funds in the aggregate.\2\
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    \2\ See 15 U.S.C. 80a-12(d)(1)(A). If an acquiring fund is not 
registered, these limitations apply only with respect to the 
acquiring fund's acquisition of registered funds.
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    In addition, a registered open-end fund, its principal underwriter, 
and any registered broker or dealer cannot sell that fund's shares to 
another fund if, as a result:
     The acquiring fund (and any companies it controls) owns 
more than three percent of the acquired fund's stock; or
     all acquiring funds (and companies they control) in the 
aggregate own more than ten percent of the acquired fund's stock.\3\
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    \3\ See 15 U.S.C. 80a-12(d)(1)(B).
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    Rule 12d1-1 under the Act provides an exemption from these 
limitations for ``cash sweep'' arrangements in which a fund invests all 
or a portion of its available cash in a money market fund rather than 
directly in short-term instruments.\4\ An acquiring fund relying on the 
exemption may not pay a sales load, distribution fee, or service fee on 
acquired fund shares, or if it does, the acquiring fund's investment 
adviser must waive a sufficient amount of its advisory fee to offset 
the cost of the loads or distribution fees.\5\ The acquired fund may be 
a fund in the same fund complex or in a different fund complex. In 
addition to providing an exemption from section 12(d)(1) of the Act, 
the rule provides exemptions from section 17(a) of the Act and rule 
17d-1 thereunder, which restrict a fund's ability to enter into 
transactions and joint arrangements with affiliated persons.\6\ These 
provisions would otherwise prohibit an acquiring fund from investing in 
a money market fund in the same fund complex,\7\ and prohibit a fund 
that acquires five percent or more of the securities of a money market 
fund in another fund complex from making any additional investments in 
the money market fund.\8\
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    \4\ See 17 CFR 270.12d1-1.
    \5\ See rule 12d1-1(b)(1).
    \6\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d); 17 CFR 
270.17d-1.
    \7\ An affiliated person of a fund includes any person directly 
or indirectly controlling, controlled by, or under common control 
with such other person. See 15 U.S.C. 80a-2(a)(3) (definition of 
``affiliated person''). Most funds today are organized by an 
investment adviser that advises or provides administrative services 
to other funds in the same complex. Funds in a fund complex are 
generally under common control of an investment adviser or other 
person exercising a controlling influence over the management or 
policies of the funds. See 15 U.S.C. 80a-2(a)(9) (definition of 
``control''). Not all advisers control funds they advise. The 
determination of whether a fund is under the control of its adviser, 
officers, or directors depends on all the relevant facts and 
circumstances. See Investment Company Mergers, Investment Company 
Act Release No. 25259 (Nov. 8, 2001) [66 FR 57602 (Nov. 15, 2001)], 
at n.11. To the extent that an acquiring fund in a fund complex is 
under common control with a money market fund in the same complex, 
the funds would rely on the rule's exemptions from section 17(a) and 
rule 17d-1.
    \8\ See 15 U.S.C. 80a-2(a)(3)(A), (B).

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    The rule also permits a registered fund to rely on the exemption to 
invest in an unregistered money market fund that limits its investments 
to those in which a registered money market fund may invest under rule 
2a-7 under the Act, and undertakes to comply with all the other 
provisions of rule 2a-7.\9\ In addition, the acquiring fund must 
reasonably believe that the unregistered money market fund (i) operates 
in compliance with rule 2a-7, (ii) complies with sections 17(a), (d), 
(e), 18, and 22(e) of the Act \10\ as if it were a registered open-end 
fund, (iii) has adopted procedures designed to ensure that it complies 
with these statutory provisions, (iv) maintains the records required by 
rules 31a-1(b)(1), 31a-1(b)(2)(ii), 31a-1(b)(2)(iv), and 31a-1(b)(9); 
\11\ and (v) preserves permanently, the first two years in an easily 
accessible place, all books and records required to be made under these 
rules.
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    \9\ See 17 CFR 270.2a-7.
    \10\ See 15 U.S.C. 80a-17(a), 15 U.S.C. 80a-17(d), 15 U.S.C. 
80a-17(e), 15 U.S.C. 80a-18, 15 U.S.C. 80a-22(e).
    \11\ See 17 CFR 270.31a-1(b)(1), 17 CFR 270.31a-1(b)(2)(ii), 17 
CFR 270.31a-1(b)(2)(iv), 17 CFR 270.31a-1(b)(9).
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    Rule 2a-7 contains certain collection of information requirements. 
An unregistered money market fund that complies with rule 2a-7 would be 
subject to these collection of information requirements. In addition, 
the recordkeeping requirements under rule 31a-1 with which the 
acquiring fund reasonably believes the unregistered money market fund 
complies are collections of information for the unregistered money 
market fund. The adoption of procedures by unregistered money market 
funds to ensure that they comply with sections 17(a), (d), (e), 18, and 
22(e) of the Act also constitute collections of information. By 
allowing funds to invest in registered and unregistered money market 
funds, rule 12d1-1 is intended to provide funds greater options for 
cash management. In order for a registered fund to rely on the 
exemption to invest in an unregistered money market fund, the 
unregistered money market fund must comply with certain collection of 
information requirements for registered money market funds. These 
requirements are intended to ensure that the unregistered money market 
fund has established procedures for collecting the information 
necessary to make adequate credit reviews of securities in its 
portfolio, as well as other recordkeeping requirements that will assist 
the acquiring fund in overseeing the unregistered money market fund 
(and Commission staff in its examination of the unregistered money 
market fund's adviser).
    The estimated average burden hours in this collection of 
information are made solely for purposes of the Paperwork Reduction Act 
and are not derived from a quantitative, comprehensive or even 
representative survey or study of the burdens associated with 
Commission rules and forms.
    The number of unregistered money market funds that are affected by 
rule 12d1-1 is an estimate based on the number of private liquidity 
funds reported on Form PF as of the fourth calendar quarter 2019.\12\ 
The hour burden estimates for the condition that an unregistered money 
market fund comply with rule 2a-7 are based on the burden hours 
included in the Commission's 2019 PRA extension regarding rule 2a-
7.\13\ However, we have updated the estimated costs associated using 
the following methodology:
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    \12\ See the U.S. Securities and Exchange Commission's Division 
of Investment Management--Analytics Office Private Funds Statistics, 
Fourth Calendar Quarter (Oct. 2, 2020) available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf.
    \13\ See Securities and Exchange Commission, Request for OMB 
Approval of Extension for Approved Collection for Rule 2a-7 under 
the Investment Company Act of 1940 (OMB Control No. 3235-0268) 
(approved May 28, 2019) (the ``2019 rule 2a-7 PRA extension''). The 
2019 rule 2a-7 PRA extension was the most recent rule 2a-7 
submission that includes certain estimates with respect to aggregate 
annual hour and cost burdens for collections of information for 
registered money market funds.
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     For professional personnel: SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified for 
2020 by Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead;
     For a fund board of directors: SIFMA data does not include 
a board of directors. For board time, Commission staff currently uses a 
cost of $4,770 per hour, which was last adjusted for inflation in 2019. 
This estimate assumes an average of nine board members per year; and
     For clerical personnel: SIFMA's Office Salaries in the 
Securities Industry 2013, modified for 2020 by Commission staff to 
account for an 1,800-hour work-year and inflation, and multiplied by 
2.93 to account for bonuses, firm size, employee benefits, and 
overhead.
    The estimated burden of information collection for rule 2a-7 is set 
forth in Table 1 below. We use these estimated burdens for registered 
money market funds to extrapolate the information collection burdens 
for unregistered money market funds under rule 12d1-1 in Table 2 below.
BILLING CODE 8011-01-P

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    \14\ The estimated responses and hour burdens shown in this 
chart were included in the Securities and Exchange Commission, 
Request for OMB Approval of Extension for Approved Collection for 
Rule 2a-7 under the Investment Company Act of 1940 (OMB Control No. 
3235-0268) (approved May 28, 2019) (the ``2019 rule 2aa-7 PRA 
extension''). The 2019 rule 2aa-7 PRA extension was the most recent 
rule 2a-7 submission that includes certain estimates with respect to 
aggregate annual hour and cost burdens for collections of 
information for registered money market funds.
    However, the cost burdens shown in this chart have been updated. 
The cost burdens for professional personnel are based on SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified for 2020 by the Commission staff to account for an 1,800-
hour work-year and inflation, and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits and overhead and the cost 
burdens for clerical personnel are based on SIFMA's Office Salaries 
in the Securities Industry 2013, modified for 2020 by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 2.93 to account for bonuses, firm size, employee 
benefits and overhead. However, SIFMA data does not include a board 
of directors. For board time, Commission staff currently uses a cost 
of $4,770 per hour, which was last adjusted for inflation in 2019. 
This estimate assumes an average of nine board members per year.
    \15\ The number of funds based on Form N-MFP filings for the 
month ended September 30, 2018 and used in the 2019 rule 2a-7 PRA 
extension.
    \16\ For purposes of the 2019 rule 2a-7 PRA extension, we 
assumed that on average 25% (433 funds x .25 = 108 funds) of money 
market funds would review and update their procedures on annual 
basis).
    \17\ We have not amortized the one-time hour and cost burdens 
figures associated with new funds, because we estimated there would 
be 10 new funds each year. Therefore, the burden would occur each 
year instead of occurring over a three-year period. We have done 
this throughout this PRA.
    \18\ Commission staff estimates that there are 91 fund complexes 
subject to rule 2a-7. This estimate is based on Form N-MEP filings 
with the Commission for the month ended September 30, 2018.
    \19\ We estimated that approximately two new money market funds 
would seek to qualify as retail money market funds under rule 2a-7 
and therefore be required to adopt written policies and procedures 
reasonably designed to limit beneficial owners to natural persons.
    For purposes of the 2019 rule 2a-7 PRA extension, Form N-MFP 
data reflects that of the 30 new money market funds created between 
April of 2015 through September 2018, only six new money market 
funds elected to be retail funds--or approximately two per year ((6 
funds/42 months) x 12 months). Based on these figures, we estimated 
that two new money market fund per year would elect to be a retail 
fund.

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    Based on the estimated burden of information collection for rule 
2a-7 and Form PF filings, the estimated burden of information 
collection for rule 12d1-1 is set forth in Table 2 below.

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    \20\ The cost burdens shown in this chart for professional 
personnel are based on SIFMA's Management & Professional Earnings in 
the Securities Industry 2013, modified for 2020 by the Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits and overhead and the cost burdens for clerical personnel 
are based on SIFMA's Office Salaries in the Securities Industry 
2013, modified for 2020 by Commission staff to account for an 1,800-
hour work-year and inflation, and multiplied by 2.93 to account for 
bonuses, firm size, employee benefits and overhead. However, SIFMA 
data does not include a board of directors. For board time, 
Commission staff currently uses a cost of $4,770 per hour, which was 
last adjusted for inflation in 2019. This estimate assumes an 
average of nine board members per year.
    We use these estimated burdens for registered money market funds 
to extrapolate the information collection burdens for unregistered 
money market funds under rule 12d1-1 in this Table 2.
    \21\ The number of liquidity funds is based on the following: 65 
x the percentage of liquidity funds that are at least partially in 
compliance with the risk-limiting provisions of rule 2a-7 and used 
in the most recent supporting statement for rule 2a-7 100-37.2) = 
62.8%. The result (rounded up to a whole number) is 41 liquidity 
funds. The number of liquidity funds is based on the U.S. Securities 
and Exchange Commission's Division of Investment Management--
Analytics Office Private Funds Statistics, Fourth Calendar Quarter 
(Oct. 2, 2020) available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf.
    \22\ The number of new unregistered money market funds is 
estimated from 2018-2019 historical Form PF filings by liquidity 
fund advisers. See Securities and Exchange Commission's Division of 
Investment Management--Analytics Office Private Funds Statistics, 
Fourth Calendar Quarter (Oct. 2, 2020) available at https://www.sec.gov/divisions/investment/private-funds-statistics/private-funds-statistics-2019-q4.pdf.
    \23\ We recognize that in many cases the adviser to an 
unregistered money market fund typically performs the function of 
the fund's board. Money Market Fund Reform; Amendments to Form PF 
Investment Company Act Rel. No. 31166 (Jul. 23, 2014), 79 FR 47735, 
47809 (Aug. 14, 2014).
    \24\ For purposes of this PRA extension, we assumed that on 
average 25% (41 funds x .25 = approximately 10 funds) of liquidity 
funds would review and update their procedures on annual basis.
    \25\ This number has been derived from the number of advisers to 
liquidity funds. See U.S Securities and Exchange Commission, 
Division of Investment Management, Analytics Office, Private Fund 
Statistics, Fourth Quarter 2019 (Oct. 2, 2020), Table 2.
    \26\ See supra note 23.
    \27\ There are no liquidity funds of this type; liquidity funds 
only are offered to qualified investors.
    \28\ See supra note 23.
    \29\ Id.
    \30\ Id.
    \31\ In the context of registered money market funds, we have 
previously estimated an average of approximately 2 occurrences for 
20 funds each year; however, this number may vary significantly in 
any particular year. For purposes of this PRA extension, we assumed 
there would be same proportion of unregistered money market funds 
experiencing events of default or solvency each year. (20/433 
registered money market funds = approximately 5%. 5% x 41 liquidity 
funds = approximately 2 liquidity funds.)

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    Commission staff estimates that in addition to the costs described 
in Table 2 above, unregistered money market funds will incur costs to 
preserve records, as required under rule 2a-7. These costs will vary 
significantly for individual funds, depending on the amount of assets 
under fund management and whether the fund preserves its records in a 
storage facility in hard copy or has developed and maintains a computer 
system to create and preserve compliance records. In the 2019 rule 2a-7 
PRA extension, Commission staff estimated that the amount an individual 
money market fund may spend ranges from $100 per year to $300,000. We 
have no reason to believe the range is different for unregistered money 
market funds. Based on Form PF data as of the fourth calendar quarter 
2019, liquidity funds have $294 billion in gross asset value.\32\ The 
Commission does not have specific information about the proportion of 
assets held in small, medium-sized, or large unregistered money market 
funds. Because liquidity funds are often used as cash management 
vehicles, the staff estimates that each private liquidity fund is a 
``large'' fund (i.e., more than $1 billion in assets under management). 
Based on a cost of $0.0000009 per dollar of assets under management 
(for large funds),\33\ the staff estimates compliance with rule 2a-7 
for these unregistered money market funds totals $264,600 annually.\34\
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    \32\ See U.S Securities and Exchange Commission, Division of 
Investment Management, Analytics Office, Private Fund Statistics, 
Fourth Quarter 2019 (Oct. 2, 2020), Table 3.
    \33\ The recordkeeping cost estimates are $0.0051295 per dollar 
of assets under management for small funds, and $0.0005041 per 
dollar of assets under management for medium-sized funds. The cost 
estimates are the same as those used in the most recently approved 
rule 2a-7 submission.
    \34\ This estimate is based on the following calculation: ($294 
billion x $0.0000009) = $264,600 for large funds.
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    Consistent with estimates made in the rule 2a-7 submission, 
Commission staff estimates that unregistered money market funds also 
incur capital costs to create computer programs for maintaining and 
preserving compliance records for rule 2a-7 of $0.0000132 per dollar of 
assets under management. Based on the assets under management figures 
described above, staff estimates

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annual capital costs for all unregistered money market funds of $3.88 
million.\35\
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    \35\ This estimate is based on the following calculation: ($294 
billion x 0.0000132) = $3.88 million.
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    Commission staff further estimates that, even absent the 
requirements of rule 2a-7, money market funds would spend at least half 
of the amounts described above for record preservation ($132,300) and 
for capital costs ($1.94 million). Commission staff concludes that the 
aggregate annual costs of compliance with the rule are $132,300 for 
record preservation and $1.94 million for capital costs.
    The collections of information required for unregistered money 
market funds by rule 12d1-1 are necessary in order for acquiring funds 
to be able to obtain the benefits described above. Notices to the 
Commission will not be kept confidential. 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 David Bottom, Director/Chief 
Information Officer, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549; or send an email to: PRA_Mailbox@sec.gov.

    Dated: March 22, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-06243 Filed 3-25-21; 8:45 am]
BILLING CODE 8011-01-C


