Federal Register / Vol. 88, No. 244 / Thursday, December 21, 2023 / Notices 88429 

6Hourly rates are 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. 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See IM–7150–1. 

4For example, for one instance of 100 contracts, 

the BOX Firm ID would be entitled to an allocation 

of at least 40% or 40 contracts. If the customer order 

is sent as multiple small PIPs for 2 contracts, the 

BOX Participant would receive at least 50% of each 

PIP sent (2 * .40 = .8, rounded up to 1 contract). 

Therefore, the total allocation of the original 100 

contract order would be at least 50% or 50 

contracts, rather than 40% or 40 contracts, a 

potential over allocation of at least 10 contracts. 

Continued 

hour.6 The staff therefore estimates that 

the aggregate annual burden, in dollars, 

of the hours needed to comply with the 

paperwork requirements of the rule is 

approximately $3,586,200 ((8,600 hours 

× $253 = $2,175,800) + (17,200 hours × 

$82 = $1,410,400)). It is estimated that 

there is no cost burden of rule 19a–1 

other than these estimates. 

To comply with state law, many 

investment companies already must 

distinguish the different sources from 

which a shareholder distribution is paid 

and disclose that information to 

shareholders. Thus, many investment 

companies would be required to 

distinguish the sources of shareholder 

dividends whether or not the 

Commission required them to do so 

under rule 19a–1. 

These estimates are made solely for 

the purposes of the Paperwork 

Reduction Act, and are not derived from 

a comprehensive or even a 

representative survey or study of the 

costs of Commission rules. Compliance 

with the collection of information 

required by rule 19a–1 is mandatory for 

management companies that make 

statements to shareholders pursuant to 

section 19(a) of the Act. 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. 

The public may view background 

documentation for this information 

collection at the following website: 

www.reginfo.gov. Find this particular 

information collection by selecting 

‘‘Currently under 30-day Review—Open 

for Public Comments’’ or by using the 

search function. Written comments and 

recommendations for the proposed 

information collection should be sent 

within 30 days of publication of this 

notice by January 22, 2024 to (i) 

MBX.OMB.OIRA.SEC_desk_officer@

omb.eop.gov and (ii) David Bottom, 

Director/Chief Information Officer, 

Securities and Exchange Commission, c/ 

o John Pezzullo, 100 F Street NE, 

Washington, DC 20549, or by sending an 

email to: PRA_Mailbox@sec.gov. 

Dated: December 18, 2023. 

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–28118 Filed 12–20–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–99191; File No. SR–BOX– 

2023–30] 

Self-Regulatory Organizations; BOX 

Exchange LLC; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend IM–7150–1 and 

Rule 7250 (Quote Mitigation) 

December 15, 2023. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

11, 2023, BOX Exchange LLC (the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend IM– 

7150–1 and Rule 7250 (Quote 

Mitigation). The text of the proposed 

rule change is available from the 

principal office of the Exchange, at the 

Commission’s Public Reference Room 

and also on the Exchange’s internet 

website at https://

rules.boxexchange.com/rulefilings. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to modernize and improve the 

operation of the rules. Specifically, the 

Exchange is proposing to amend: (1) 

IM–7150–1 to remove certain language 

to provide better consistency with the 

surveillance the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 

currently provides for the Exchange; 

and (2) Rule 7250 (Quote Mitigation) to 

update and clarify the quote mitigation 

process used by the Exchange. The 

Exchange is proposing to make such 

changes in response to requests from 

Exchange Regulation Staff in an effort to 

improve the efficacy of the Exchange’s 

existing regulatory framework. 

IM–7150–1 

IM–7150–1 (a) currently provides 

that: ‘‘it shall be considered conduct 

inconsistent with just and equitable 

principles of trade for any Initiating 

Participant to engage in a pattern of 

conduct where the Initiating Participant 

submits Primary Improvement Orders 

into the PIP process for two (2) contracts 

or less for the purpose of manipulating 

the PIP process in order to gain a higher 

allocation percentage than the Initiating 

Participant would have otherwise 

received in accordance with the 

allocation procedures set forth in Rule 

7150.’’ 3 The Exchange now proposes to 

remove the language that states, ‘‘2 

contracts or less.’’ 

FINRA currently provides 

surveillance for this requirement for the 

Exchange and other options exchanges. 

FINRA’s surveillance program monitors 

for manipulative activity by a market 

participant and includes surveillance 

designed to detect activity where an 

Initiating Participant submits Primary 

Improvement Orders into the PIP 

process for four (4) contracts or less for 

the purpose of manipulating the PIP 

process in order to gain a higher 

allocation percentage than the Initiating 

Participant would have otherwise 

received. Even though IM–7150–1 as 

written, notates that a pattern of orders 

for two (2) contracts may indicate 

manipulation of the PIP Process, FINRA 

has identified the potential for 

manipulation for orders greater than two 

(2) contracts and expanded such 

surveillance accordingly. For example, 

unbundling an order for 50 contracts 

into four (4) lots may have the same 

effect as unbundling the order for two 

(2) contracts.4 Under the current rule 


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88430 Federal Register / Vol. 88, No. 244 / Thursday, December 21, 2023 / Notices 

Similarly, if the customer order is sent as multiple 

small PIPs for 4 contracts, the BOX Participant 

would receive at least 50% of each PIP sent (4 * 

.40 = 1.6, rounded up to 2 contracts). Therefore, the 

total allocation of the original 100 contract order 

would be at least 50% or 50 contracts, rather than 

40% or 40 contracts, a potential over allocation of 

at least 10 contracts. 

5See BOX Rule 7150(f). 

6 Id. 

7See BOX Rule 7150. 

8See BOX Rule 7250. 

9See Securities Exchange Act Release Nos. 55073 

(January 19, 2007) 72 FR 2047 (January 17, 2007) 

(SR–BSE–2006–48) (Order Approving BSE Quote 

Mitigation Plan) and 55155 (January 23, 2007) 72 

FR 4714 (February 1, 2007) (SR–BSE–2006–49) 

(Order Approving Penny Pilot Program on BSE). 

10See Securities Exchange Act Release No. 68141 

(November 2, 2012) 77 FR 67040 (November 8, 

2012) (Notice of Filing and Immediate Effectiveness 

of a Proposal Regarding Quote Mitigation). 

11 15 U.S.C. 78f(b). 

12 15 U.S.C. 78f(b)(5). 

text, if FINRA were to discover 

manipulative behavior on three (3) or 

four (4) contracts it would be more 

difficult to prosecute and deter this 

manipulative behavior on BOX. The 

Exchange believes that the removal of 

the two (2) contracts or less language 

would help align the rule text with 

current FINRA surveillance practices 

and improve the efficacy of the Rule by 

allowing FINRA and the Exchange to 

more readily prosecute and deter 

manipulative behavior in situations 

where the Initiating Participant 5

submits Primary Improvement Orders 6

into the PIP 7 process for three (3) or 

four (4) contracts, as well as one (1) or 

two (2) contracts, for the purpose of 

manipulating the PIP process. 

Rule 7250 

BOX Rule 7250 currently states that: 

‘‘in order to control the number of 

quotations the Exchange disseminates, 

the Exchange shall utilize a mechanism 

so that newly-received quotations and 

other changes to the Exchange’s best bid 

and offer are not disseminated for a 

period of up to, but not more than one 

second.’’ 8 The rule as it currently reads, 

provides that the Exchange always 

utilizes a mechanism to control the 

number of quotations disseminated by 

the Exchange. The Exchange is now 

proposing to amend this language to 

allow the Exchange to utilize the 

mechanism when appropriate. 

BOX’s Quote Mitigation mechanism 

was originally adopted over fifteen years 

ago as a response to the implementation 

of the Penny Pilot Program 9 amid 

concerns that market quality and system 

capacity would be overwhelmed by the 

increase in options market data traffic 

created by the Penny Pilot Program. The 

Exchange sought to reduce both peak 

and overall market data traffic by 

bundling order updates within a certain 

timeframe. The rule was amended in 

2012 to adopt the existing quote 

mitigation mechanism that systemically 

limits the dissemination of quotations 

and other changes to the BOX best bid 

and offer according to prescribed time 

criteria (a ‘‘holdback timer’’).10 For 

example, if there is a change in the price 

of a security underlying an option, 

multiple market participants may adjust 

the price or size of their quotes. Rather 

than disseminating each individual 

change, the holdback timer permits BOX 

to wait until multiple Participants have 

adjusted their quotes and then 

disseminates a new quotation. 

Through internal review, the 

Exchange found that, while this 

mechanism and functionality still exists 

on the Exchange, it is not always 

necessary. The Exchange is proposing to 

amend the rule to replace the ‘‘shall’’ 

with ‘‘may’’ and instead provide that 

‘‘the Exchange may utilize a mechanism 

so that newly-received quotations and 

other changes to the Exchange’s best bid 

and offer are not disseminated for a 

period of up to, but not more than one 

second.’’ This proposed amendment 

will modernize the Rule by still 

allowing the Exchange to control the 

number of quotations that the Exchange 

disseminates using the aforementioned 

mechanism if the need arises but will 

enable the Exchange to rely on other 

methods within the overall BOX quote 

mitigation strategy. For example, BOX 

actively monitors the quotation activity 

of its Market Makers. When the 

Exchange detects that a Market Maker is 

disseminating an unusual number of 

quotes, the Exchange contacts that 

Market Maker and alerts it to such 

activity. Such monitoring frequently 

reveals that the Market Maker may have 

internal system issues or has incorrectly 

set system parameters that were not 

immediately apparent. Alerting a 

Market Maker to possible excessive 

quoting usually leads the market maker 

to take steps to reduce the number of its 

quotes. BOX also has a policy of 

withdrawing approval of underlying 

securities with low trading volume, 

thereby eliminating the quotation traffic 

attendant to such listings. 

The Exchange believes that the rule, 

as written, is outdated and while the 

Exchange still has the ability to utilize 

the quote mitigation mechanism, it is 

not always necessary to do so. The 

Exchange believes this proposed change 

will better align Rule 7250 with current 

Exchange practices and provide greater 

efficacy and flexibility to the current 

quote mitigation strategies in place at 

the Exchange. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with the 

requirements of Section 6(b) of the 

Act,11 in general, and Section 6(b)(5) of 

the Act,12 in particular, in that it is 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general to protect investors and the 

public interest. 

Specifically, the Exchange believes 

that the proposed amendment to IM– 

7150–1 to remove the language that 

limits the prohibition for any Initiating 

Participant to engage in a pattern of 

conduct where the Initiating Participant 

submits Primary Improvement Orders 

into the PIP process for the purpose of 

manipulating the PIP process to only 

cover Primary Improvement Orders of 

two (2) contracts or less will help 

protect investors and the public interest 

by allowing greater protection against 

manipulative behaviors. Although the 

Rule currently covers orders of two (2) 

contracts or less, FINRA currently 

surveils and reviews the submission of 

four (4) contracts or less for the 

Exchange. Even though IM–7150–1 as 

written, notates that a pattern of orders 

for two (2) contracts may indicate 

manipulation of the PIP Process, FINRA 

has identified the potential for 

manipulation for orders greater than two 

(2) contracts and now the Exchange 

seeks to expand the rule language 

accordingly. This proposed amendment 

to remove the two (2) contracts or less 

limitation from IM–7150–1 is designed 

to promote just and equitable principles 

of trade, remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general protect investors 

and the public interest, by aligning the 

Rule to current surveillance practices 

and allowing FINRA to prosecute and 

deter manipulative behavior in violation 

of this Rule relating to three (3) or four 

(4) contracts on behalf of the Exchange 

more effectively. The Exchange believes 

that the removal of the two (2) contracts 

or less language would improve the 

efficacy of FINRA’s surveillance by 

helping FINRA and the Exchange 

prosecute and deter manipulative 

behavior in situations where the 

Initiating Participant submits Primary 


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Federal Register / Vol. 88, No. 244 / Thursday, December 21, 2023 / Notices 88431 

13 15 U.S.C. 78s(b)(3)(A). 

14 17 CFR 240.19b–4(f)(6). 

15 In addition, Rule 19b–4(f)(6) requires a selfregulatory organization to give the Commission 

written notice of its intent to file the proposed rule 

change at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. The 

Exchange has satisfied this requirement. 

16 17 CFR 240.19b–4(f)(6)(iii). 

17For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

Improvement Orders into the PIP 

process for three (3) or four (4) 

contracts, as well as one (1) or two (2) 

contracts, for the purpose of 

manipulating the PIP process. As such, 

the Exchange believes the proposed rule 

change is in the public interest, and 

therefore, consistent with the Act. 

The Exchange believes that amending 

BOX Rule 7250 to provide that the 

Exchange may utilize a mechanism so 

that newly-received quotations and 

other changes to the Exchange’s best bid 

and offer are not disseminated for a 

period of up to, but not more than one 

second, will allow the Exchange to 

control the number of quotations that 

the Exchange disseminates through the 

use of the aforementioned mechanism 

but will enable the Exchange to rely on 

other methods within the overall BOX 

quote mitigation strategy, such as 

monitoring and delisting. The Exchange 

believes that the current rule, as written, 

is outdated and while the Exchange still 

has the ability to utilize the quote 

mitigation mechanism, it is not always 

necessary to do so. The Exchange 

believes this proposed change will 

better align the Rule with current 

Exchange practices, provide greater 

efficacy and flexibility to the current 

quote mitigation strategies in place at 

the Exchange, and make the Rule clearer 

for Participants. As such, the Exchange 

believes the proposed rule change is in 

the public interest, and therefore, 

consistent with the Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will result in 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange believes that the proposed 

change will not impose a burden on 

intermarket or intramarket competition. 

While the Exchange does not believe 

that the proposed non-controversial 

change is a burden on competition, or 

is competitive in nature, the Exchange 

believes that proposed updates seek to 

modernize and improve the operation of 

the rules. 

The proposed amendment to IM– 

7150–1 is designed to help the Exchange 

and FINRA more effectively prosecute 

and deter manipulative behavior in 

violation of this Rule relating to three 

(3) or four (4) contracts. This rule 

change is being proposed to help deter 

manipulative behaviors on the Exchange 

and is not intended to address 

competitive issues. The proposed 

change to Rule 7250 is intended to 

modernize and help optimize the 

quotation mitigation practices on the 

Exchange and is not intended to address 

competitive issues. The proposed 

changes to IM–7150–1 and Rule 7250 

will apply equally to all market 

participants. 

For the foregoing reasons, the 

Exchange does not believe that the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Pursuant to Section 19(b)(3)(A) of the 

Act 13 and Rule 19b–4(f)(6) 14

thereunder, the Exchange has 

designated this proposal as one that 

effects a change that: (i) does not 

significantly affect the protection of 

investors or the public interest; (ii) does 

not impose any significant burden on 

competition; and (iii) by its terms, does 

not become operative for 30 days after 

the date of the filing, or such shorter 

time as the Commission may designate 

if consistent with the protection of 

investors and the public interest.15

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act normally does not become operative 

for 30 days after the date of its filing. 

However, Rule 19b–4(f)(6)(iii) 16 permits 

the Commission to designate a shorter 

time if such action is consistent with the 

protection of investors and the public 

interest. The Exchange requested that 

the Commission waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The proposed change raises no 

novel legal or regulatory issues. 

Therefore, the Commission believes that 

waiver of the 30-day operative delay is 

consistent with the protection of 

investors and the public interest. 

Accordingly, the Commission hereby 

waives the 30-day operative delay and 

designates the proposed rule change 

operative upon filing.17

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include file number SR– 

BOX–2023–30 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to file 

number SR–BOX–2023–30. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (https://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 


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88432 Federal Register / Vol. 88, No. 244 / Thursday, December 21, 2023 / Notices 

18 17 CFR 200.30–3(a)(12), (59). 

1 15 U.S.C. 80a–1 et seq. 

2 15 U.S.C. 80a–2(a)(41). See also 17 CFR 270.2a– 

4. 

3See 15 U.S.C. 80a–22(c) and 23(c). See also 17 

CFR 270.22c–1(a). 

4See Good Faith Determinations of Fair Value, 

Investment Company Act Release No. 34128 (Dec. 

7, 2020) (‘‘Adopting Release’’). 

5Rule 2a–5(e)(4). 

6Rule 2a–5(b). 7Rule 2a–5(b). 

a.m. and 3 p.m. Copies of the filing also 

will be available for inspection and 

copying at the principal office of the 

Exchange. Do not include personal 

identifiable information in submissions; 

you should submit only information 

that you wish to make available 

publicly. We may redact in part or 

withhold entirely from publication 

submitted material that is obscene or 

subject to copyright protection. All 

submissions should refer to file number 

SR–BOX–2023–30 and should be 

submitted on or before January 11, 2024. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–28042 Filed 12–20–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–xxx, OMB Control No. 

3235–0779] 

Submission for OMB Review; 

Comment Request; Extension: Rule 

2a–5 

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. 3501–3520), the Securities 

and Exchange Commission 

(‘‘Commission’’) has submitted to the 

Office of Management and Budget a 

request for extension of the previously 

approved collection of information 

described below. 

Section 2(a)(41) of the Investment 

Company Act of 1940 (‘‘Investment 

Company Act’’) 1 requires funds to value 

their portfolio investments using the 

market value of their portfolio securities 

when market quotations for those 

securities are ‘‘readily available,’’ and, 

when a market quotation for a portfolio 

security is not readily available, by 

using the fair value of that security, as 

determined in good faith by the fund’s 

board.2 The aggregate value of a fund’s 

investments is the primary determinant 

of the fund’s net asset value (‘‘NAV’’), 

which for many funds determines the 

price at which their shares are offered 

and redeemed (or repurchased).3

Rule 2a–5 provides requirements for 

determining in good faith the fair value 

of the investments of a registered 

investment company or companies that 

have elected to be treated as business 

development companies under the 

Investment Company Act (‘‘BDCs’’ and, 

collectively, ‘‘funds’’) for purposes of 

section 2(a)(41) of the Investment 

Company Act and rule 2a–4 

thereunder.4 Under the rule, fair value 

as determined in good faith requires 

assessing and managing material risks 

associated with fair value 

determinations; selecting, applying, and 

testing fair value methodologies; and 

overseeing and evaluating any pricing 

services used. The rule also permits a 

fund’s board to designate a ‘‘valuation 

designee’’ to perform fair value 

determinations. The valuation designee 

can be the adviser of the fund or an 

officer of an internally managed fund.5

When a board designates the 

performance of determinations of fair 

value to a valuation designee for some 

or all of the fund’s investments under 

the rule, the rule requires the board to 

oversee the valuation designee’s 

performance of fair value 

determinations. 

To facilitate the board’s oversight, the 

rule also includes certain reporting and 

other requirements in the case of 

designation to a valuation designee.6 As 

relevant here, the rule requires, if the 

board designates performance of fair 

value determinations to a valuation 

designee, that the valuation designee 

report to the board in both periodic and 

as needed reports on a per-fund basis. 

Specifically, on a periodic basis, the 

valuation designee must provide to the 

board: 

• Quarterly Reports. 

At least quarterly, in writing, (1) any 

reports or materials requested by the 

board related to the fair value of 

designated investments or the valuation 

designee’s process for fair valuing fund 

investments and (2) a summary or 

description of material fair value 

matters that occurred in the prior 

quarter. This summary or description 

must include (1) any material changes 

in the assessment and management of 

valuation risks, including any material 

changes in conflicts of interest of the 

valuation designee (and any other 

service provider), (2) any material 

changes to, or material deviations from, 

the fair value methodologies, and (3) 

any material changes to the valuation 

designee’s process for selecting and 

overseeing pricing services, as well as 

any material events related to the 

valuation designee’s oversight of pricing 

services. 

• Annual Reports. 

At least annually, in writing, an 

assessment of the adequacy and 

effectiveness of the valuation designee’s 

process for determining the fair value of 

the designated portfolio of investments. 

At a minimum, this annual report must 

include a summary of the results of the 

testing of fair value methodologies 

required under the rule and an 

assessment of the adequacy of resources 

allocated to the process for determining 

the fair value of designated investments, 

including any material changes to the 

roles or functions of the persons 

responsible for determining fair value. 

Further, the rule requires the 

valuation designee to provide a written 

notification to the board of the 

occurrence of matters that materially 

affect the fair value of the designated 

portfolio of investments (defined as 

‘‘material matters’’) within a time period 

determined by the board, but in no 

event later than five business days after 

the valuation designee becomes aware 

of the material matter. Material matters 

in this instance include, as examples, a 

significant deficiency or material 

weakness in the design or effectiveness 

of the valuation designee’s fair value 

determination process or of material 

errors in the calculation of net asset 

value. The valuation designee must also 

provide such timely follow-on reports as 

the board may reasonably determine are 

appropriate.7

The Commission staff estimates that 

9,800 funds are subject to rule 2a–5. The 

internal annual burden estimate is 34 

hours for a fund. Based on these 

estimates, the total annual burden hours 

associated with the rule is estimated to 

be 333,200 hours. The estimated burden 

hours associated with rule 2a–5 have 

increased by 15,810 hours from the 

current allocation of 317,390 hours. The 

external cost associated with this 

collection of information is 

approximately $3,674 per fund, and the 

total annual external cost burden is 

$36,005,200. The estimated external 

cost has increased by $6,319,900 from 

the current estimate of $29,685,300. 

These increases are due to an increase 

in the estimated number of affected 

entities, as well as in the estimated 

hourly burden and the external cost 


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