[Federal Register Volume 87, Number 45 (Tuesday, March 8, 2022)]
[Notices]
[Pages 13032-13033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04884]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-258, OMB Control No. 3235-0268]


Proposed Collection; Comment Request; Extension: Rule 2a-7

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

    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 2a-7 (17 CFR 270.2a-7) under the Investment Company Act of 
1940 (15 U.S.C. 80a) (the ``Act'') governs money market funds. Money 
market funds are open-end management investment companies that differ 
from other open-end management investment companies in that they seek 
to maintain a stable price per share, usually $1.00. The rule exempts 
money market funds from the valuation requirements of the Act, and, 
subject to certain risk-limiting conditions, permits money market funds 
to use the ``amortized cost method'' of asset valuation or the ``penny-
rounding method'' of share pricing.
    Rule 2a-7 also imposes certain recordkeeping and reporting 
obligations on money market funds. The board of directors of a money 
market fund, in supervising the fund's operations, must establish 
written procedures designed to stabilize the fund's net asset value 
(``NAV''); establish written procedures to test periodically the 
ability of the fund to maintain a stable NAV based on certain 
hypothetical events (``stress testing''); review, revise, and approve 
written procedures to stress test a fund's portfolio; and create a 
report to the fund board documenting the results of stress testing. The 
board must also adopt guidelines and procedures relating to certain 
responsibilities it delegates to the fund's investment adviser. These 
procedures and guidelines typically address various aspects of the 
fund's operations. The fund must maintain and preserve for six years a 
written copy of both these procedures and guidelines. The fund also 
must maintain and preserve for six years a written record of the 
board's considerations and actions taken in connection with the 
discharge of its responsibilities, to be included in the board's 
minutes, including determinations to impose any liquidity fees or 
temporary suspension of redemptions. In addition, the fund must 
maintain and preserve for three years written records of certain credit 
risk analyses, evaluations with respect to securities subject to demand 
features or guarantees, evaluations with respect to asset-backed 
securities not subject to guarantees, and determinations with respect 
to adjustable rate securities and asset-backed securities. If the board 
takes action with respect to defaulted securities, events of 
insolvency, or deviations in share price, the fund must file with the 
Commission an exhibit to Form N-CR describing the nature and 
circumstances of the action. If any portfolio security fails to meet 
certain eligibility standards under the rule, the fund also must 
identify those securities in an exhibit to Form N-CR. After certain 
events of default or insolvency relating to a portfolio security, the 
fund must notify the Commission of the event and the actions the fund 
intends to take in response to the situation.
    A fund must also post certain periodic information on the its 
website including disclosure of portfolio holdings, disclosure of daily 
and weekly liquid assets and net shareholder flow, disclosure of daily 
current NAV, and disclosures of financial support received by the fund, 
the imposition and removal of liquidity fees, and the suspension and 
resumption of fund redemptions. Lastly, for funds that elect to be 
retail funds, they must create written policies and procedures 
reasonably designed to limit all beneficial owners of the fund to 
natural persons.
    The recordkeeping requirements in rule 2a-7 are designed to enable 
Commission staff in its examinations of money market funds to determine 
compliance with the rule, as well as to ensure that money market funds 
have established procedures for collecting the information necessary to 
make adequate credit reviews of securities in their portfolios. The 
reporting requirements of rule 2a-7 are intended to assist Commission 
staff in overseeing money market funds and reduce the likelihood that a 
fund is unable to maintain a stable NAV.
    Commission staff estimates that there are 320 money market funds 
(80 fund complexes), all of which are subject to rule 2a-7. Commission 
staff further estimates that there will be approximately 10 new money 
market funds established each year. Commission staff estimates that 
rule 2a-7 contains the following collection of information 
requirements:
     Record of credit risk analyses, and determinations 
regarding adjustable rate securities, asset-backed securities, asset-
backed securities not subject to guarantees, securities subject to a 
demand feature or guarantee, and counterparties to repurchase 
agreements. Commission staff estimates a total annual hour burden for 
320 funds to be 260,440 hours.
     Establishment of written procedures designed to stabilize 
NAV and guidelines and procedures for board delegation of authority. 
Commission staff estimates a total annual hour burden for 10 new money 
market funds to be 155 hours.
     Board review of procedures and guidelines of any 
investment adviser or officers to whom the fund's board has delegated 
responsibility under rule 2a-7 and amendment of such procedures and 
guidelines. Commission staff estimates a total annual hour burden for 
80 funds to be 400 hours.
     Records of the board's determination for imposing any 
liquidity fees or temporary suspension of redemptions. Commission staff 
estimates a total annual hour burden for 2 funds to be 14 hours.
     Records of the board's determinations and actions related 
to failure of a security to meet certain eligibility standards or an 
event of default or insolvency. Commission staff estimates a total 
annual hour burden for 20 funds to be 50 hours.
     Establishment of written procedures to test periodically 
the ability of the fund to maintain a stable NAV per share based on 
certain hypothetical events (``stress testing''). Commission staff 
estimates a total annual hour burden for 10 new money market funds to 
be 220 hours.
     Review, revise, and approve written procedures to stress 
test a fund's portfolio. Commission staff estimates a total annual hour 
burden for 80 fund complexes to be 960 hours.
     Reports to fund boards on the results of stress testing. 
Commission staff estimates a total annual hour

[[Page 13033]]

burden for 80 fund complexes to be 4,000 hours.
     Website disclosures of portfolio holdings, of daily and 
weekly liquid assets and net shareholder flow, of daily current NAV, 
and disclosures of financial support received by the fund, the 
imposition and removal of liquidity fees and the suspension and 
resumption of fund redemptions. Commission staff estimates a total 
annual hour burden for 320 funds to be 27,251 hours.
     For funds electing retail fund status, written policies 
and procedures limiting all beneficial owners of the fund to natural 
persons. Commission staff estimates a total annual hour burden for 2 
funds to be 26 hours.
    Thus, the Commission estimates the total annual burden of the 
rule's information collection requirements is 293,516 hours.
    The estimated total annual burden is being decreased from 337,328 
hours to 293,516 hours. This net decrease of 43,812 hours is 
attributable to a combination of factors, including a decrease in the 
number of money market funds and fund complexes, and updated 
information from money market funds regarding hourly burdens, including 
revised staff estimates of the burden hours required to comply with 
rule 2a-7.
    Commission staff estimates that in addition to the costs described 
in section 12, money market funds will incur costs to preserve records, 
as required under rule 2a-7.\1\ 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.\2\ Commission staff 
estimates that the amount an individual fund may spend ranges from $100 
per year to $300,000. Based on a cost of $0.0051295 per dollar of 
assets under management for small funds, $0.0005041 per dollar assets 
under management for medium funds, and $0.0000009 per dollar of assets 
under management for large funds, the staff estimates compliance with 
the record storage requirements of rule 2a-7 costs the fund industry 
approximately $33.0 million per year.\3\
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    \1\ A significant portion of the recordkeeping burden involves 
organizing information that the funds already collect when initially 
purchasing securities. In addition, when a money market fund 
analyzes a security, the analysis need not be presented in any 
particular format. Money market funds therefore have a choice of 
methods for maintaining these records that vary in technical 
sophistication and formality. Accordingly, the cost of preparing 
these documents may vary significantly among individual funds. The 
burden hours associated with filing reports to the Commission as an 
exhibit to Form N-CR are included in the PRA burden estimate for 
that form.
    \2\ The amount assets under management in individual money 
market funds ranges widely, varying from below $50 million to well 
over $150 billion. We further note that the assets under management 
figures were calculated based on net assets at the fund level and 
not the sum of the market values of the underlying funds.
    \3\ The staff estimated the annual cost of preserving the 
required books and records by identifying the annual costs incurred 
by several funds and then relating this total cost to the average 
net assets of these funds during the year. With a total of $328.5 
million under management in small funds, $52.4 billion under 
management in medium funds and $5.4 trillion under management in 
large funds, the costs of preservation were estimated as follows: 
((0.0051295 x $328.5 million) + (0.0005041 x $52.4 billion) + 
(0.0000009 x $5.4 trillion) = $33.0 million. For purposes of this 
PRA submission, Commission staff used the following categories for 
fund sizes: (i) Small--money market funds with $50 million or less 
in assets under management; (ii) medium--money market funds with 
more than $50 million up to and including $1 billion in assets under 
management; and (iii) large--money market funds with more than $1 
billion in assets under management.
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    Based on responses from individuals in the money market fund 
industry, the staff estimates that some of the largest fund complexes 
have created computer programs for maintaining and preserving 
compliance records for rule 2a-7. Based on a cost of $0.0000132 per 
dollar of assets under management for large funds, the staff estimates 
that total annualized capital/startup costs range from $0 for small 
funds to $71.6 million for all large funds.\4\ Commission staff further 
estimates that, even absent the requirements of rule 2a-7, money market 
funds would spend at least half of the amount for capital costs ($35.8 
million) \5\ and for record preservation ($16.5 million) \6\ to 
establish and maintain these records and the systems for preserving 
them as a part of sound business practices to ensure diversification 
and minimal credit risk in a portfolio for a fund that seeks to 
maintain a stable price per share.
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    \4\ This estimate is based on the following calculation: 
$0.0000132 x $5.4 trillion in assets under management for large 
funds = $71.6 million.
    \5\ This estimate is based on the following calculation: $71.6 
million in capital costs/2 = $35.8 million.
    \6\ This estimate is based on the following calculation: $33.0 
million in record preservation costs/2 = $16.5 million.
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    These estimates of burden hours and costs are made solely for the 
purposes of the Paperwork Reduction Act. The estimates are not derived 
from a comprehensive or even a representative survey or study of 
Commission rules.
    The collections of information required by rule 2a-7 are necessary 
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 Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimates of the burden of the proposed 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 by May 9, 2022.
    Please direct your written comments to David Bottom, Director/Chief 
Information Officer, Securities and Exchange Commission, C/O John 
Pezzullo, 100 F Street NE, Washington, DC 20549; or send an email to: 
[email protected].

    Dated: March 3, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-04884 Filed 3-7-22; 8:45 am]
BILLING CODE 8011-01-P


