[Federal Register Volume 65, Number 23 (Thursday, February 3, 2000)]
[Notices]
[Pages 5378-5379]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-02387]


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SECURITIES AND EXCHANGE COMMISSION


Requests Under Review by Office of Management and Budget

[Extension: Rule 2a-7, SEC File No. 270-258, OMB Control No. 3235-0268]

    Upon Written Request, Copies Available From: Securities and 
Exchange Commission, Office of Filings and Information Services, 
Washington, DC 20549.

    Notice is hereby given that under the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501), the Securities and Exchange Commission (the 
``Commission'') has submitted to the Office of Management and Budget 
(``OMB''), a request for extension of approval for rule 2a-7 (17 CFR 
270.21-7) under the Investment Company Act of 1940 (15 U.S.C. 80a) (the 
``Act'').
    Rule 2a-7 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 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''). The board 
also must adopt guidelines and procedures relating to certain 
responsibilities it delegates to the fund's 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 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. 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, and determinations with 
respect to adjustable rate securities an 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-SAR 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-SAR. 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.
    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.
    Commission staff estimates that 949 money market funds are subject 
to rule 2a-7 each year.\1\ The staff estimates that each of these funds 
spends an average of 336 hours each year to document credit risk 
analyses, and determinations regarding adjustable rate securities, 
asset backed securities, and securities

[[Page 5379]]

subject to a demand feature or guarantee. \2\ In addition, each year an 
estimated average of 10 money market funds each spends approximately 
2.5 hours to record (in the board minutes) board determinations and 
actions in response to certain events of default or insolvency, and to 
notify the Commission of the event. \3\ Finally, Commission staff 
estimates that in the first year of operation, the board of directors 
of an average of 10 new money market funds each spends 7 hours to 
formulate and establish written procedures for stabilizing the fund's 
NAV and guidelines for delegating certain of the board's 
responsibilities to the fund's adviser. Based on these estimates, 
Commission staff estimates the total burden of the rule's paperwork 
requirements for money market funds to be 319,211 hours. \4\ This is an 
increase from the previous estimate of 196,371 hours. The increase is 
attributable to updated information from money market funds regarding 
hourly burdens, and to a more accurate calculation of the component 
parts of some information collection burdens.
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    \1\ This estimate is based on information in the Visions98 
database, compiled by IBC Financial Data, Inc. (Oct. 22, 1999).
    \2\ This average is based on discussions with individuals at 
money market funds and their advisers. The amount of time may vary 
significantly for individual money market funds.
    \3\ This number may vary significantly from year to year.
    \4\ This estimate is based on the following calculation: ((949 
x  336) + (10  x  2.5) + 46  x  7)) = 319,211.
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    These estimates of burden hours 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.
    In addition to the burden hours, Commission staff estimates that 
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.\5\ Commission staff estimates that the 
amount an individual fund may spend ranges from $100 per year to $2 
million. Based on an average cost of $.0000052 per dollar of assets 
under management for small and medium-sized funds to $0.000039 per 
dollar of assets under management for large funds,\6\ the staff 
estimates compliance with rule 2a-7 costs the fund industry 
approximately $51.6 million.\7\ 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 
$0.000068 per dollar of assets under management for large funds, the 
staff estimates that the total annualized capital/startup costs range 
from $0 for small funds to $88.4 million for all large funds. 
Commission staff further estimates, however, that even absent the 
requirements of rule 2a-7, money market funds would spend at least half 
of the amount for capital costs ($44.2 million) and for record 
preservation ($25.8 million) 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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    \5\ The amount of assets under management in money market funds 
ranges from approximately $100,000 to $60.9 billion.
    \6\ For purpose 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.
    \7\ 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 $204 
billion under management in small and medium funds, and $1,292.6 
billion under management in large funds, the total amount was 
estimated as follows: ($0.0000052  x  $204 billion) + ($0.000039  x  
$1,292.6 billion) = $51.6 million.
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    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.
    Please direct general comments regarding the information above to: 
(i) Desk Officer for the Securities and Exchange Commission, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
New Executive Office Building, Washington, DC 20503; and (ii) Michael 
Bartell, Associate Executive Director, Office of Information 
Technology, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549. Comments must be submitted to OMB within 30 days 
of this notice.

    Dated: January 27, 2000.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-02387 Filed 2-2-00; 8:45 am]
BILLING CODE 8010-01-M