Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Proposed Rules 12995 

Regulatory Findings 

The FAA determined that this 

proposed AD would not have federalism 

implications under Executive Order 

13132. This proposed AD would not 

have a substantial direct effect on the 

States, on the relationship between the 

national Government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify this proposed regulation: 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866, 

(2) Would not affect intrastate 

aviation in Alaska, and 

(3) Would not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

The Proposed Amendment 

Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA proposes to amend 14 CFR part 

39 as follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive: 

Airbus SAS: Docket No. FAA–2024–0233; 

Project Identifier MCAI–2023–01003–T. 

(a) Comments Due Date 

The FAA must receive comments on this 

airworthiness directive (AD) by April 8, 

2024. 

(b) Affected ADs 

None. 

(c) Applicability 

This AD applies to Airbus SAS Model 

A330–841 and A330–941 airplanes, 

certificated in any category, as identified in 

European Union Aviation Safety Agency 

(EASA) AD 2023–0169, dated September 4, 

2023 (EASA AD 2023–0169). 

(d) Subject 

Air Transport Association (ATA) of 

America Code 26, Fire Protection. 

(e) Unsafe Condition 

This AD was prompted by a report of a 

protective cap found still in place on the 

drain hole of a fire extinguishing pipe, and 

by further investigations indicating these 

caps may have remained on other airplanes. 

The FAA is issuing this AD to address 

protective caps possibly remaining in place 

on fire extinguishing pipes installed on the 

affected airplanes. The unsafe condition, if 

not addressed, could result in accumulation 

of water and ice in the pipe and, in case of 

an engine fire, prevent extinguishing that 

engine fire, possibly resulting in reduced 

control of the airplane. 

(f) Compliance 

Comply with this AD within the 

compliance times specified, unless already 

done. 

(g) Requirements 

Except as specified in paragraphs (h) and 

(i) of this AD: Comply with all required 

actions and compliance times specified in, 

and in accordance with, EASA AD 2023– 

0169. 

(h) Exceptions to EASA AD 2023–0169 

(1) Where EASA AD 2023–0169 refers to its 

effective date, this AD requires using the 

effective date of this AD. 

(2) This AD does not adopt the ‘‘Remarks’’ 

section of EASA AD 2023–0169. 

(i) No Reporting Requirement 

Although the service information 

referenced in EASA AD 2023–0169 specifies 

to submit certain information to the 

manufacturer, this AD does not include that 

requirement. 

(j) Additional AD Provisions 

The following provisions also apply to this 

AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, International 

Validation Branch, FAA, has the authority to 

approve AMOCs for this AD, if requested 

using the procedures found in 14 CFR 39.19. 

In accordance with 14 CFR 39.19, send your 

request to your principal inspector or 

responsible Flight Standards Office, as 

appropriate. If sending information directly 

to the manager of the International Validation 

Branch, mail it to the address identified in 

paragraph (k) of this AD. Information may be 

emailed to: 9-AVS-AIR-730-AMOC@faa.gov. 

Before using any approved AMOC, notify 

your appropriate principal inspector, or 

lacking a principal inspector, the manager of 

the responsible Flight Standards Office. 

(2) Contacting the Manufacturer: For any 

requirement in this AD to obtain instructions 

from a manufacturer, the instructions must 

be accomplished using a method approved 

by the Manager, International Validation 

Branch, FAA; or EASA; or Airbus SAS’s 

EASA Design Organization Approval (DOA). 

If approved by the DOA, the approval must 

include the DOA-authorized signature. 

(3) Required for Compliance (RC): Except 

as required by paragraph (j)(2) of this AD, if 

any service information contains procedures 

or tests that are identified as RC, those 

procedures and tests must be done to comply 

with this AD; any procedures or tests that are 

not identified as RC are recommended. Those 

procedures and tests that are not identified 

as RC may be deviated from using accepted 

methods in accordance with the operator’s 

maintenance or inspection program without 

obtaining approval of an AMOC, provided 

the procedures and tests identified as RC can 

be done and the airplane can be put back in 

an airworthy condition. Any substitutions or 

changes to procedures or tests identified as 

RC require approval of an AMOC. 

(k) Additional Information 

For more information about this AD, 

contact Vladimir Ulyanov, Aviation Safety 

Engineer, FAA, 1600 Stewart Avenue, Suite 

410, Westbury, NY 11590; telephone 206– 

231–3229; email Vladimir.Ulyanov@faa.gov. 

(l) Material Incorporated by Reference 

(1) The Director of the Federal Register 

approved the incorporation by reference 

(IBR) of the service information listed in this 

paragraph under 5 U.S.C. 552(a) and 1 CFR 

part 51. 

(2) You must use this service information 

as applicable to do the actions required by 

this AD, unless this AD specifies otherwise. 

(i) European Union Aviation Safety Agency 

(EASA) AD 2023–0169, dated September 4, 

2023. 

(ii) [Reserved] 

(3) For EASA AD 2023–0169, contact 

EASA, Konrad-Adenauer-Ufer 3, 50668 

Cologne, Germany; telephone +49 221 8999 

000; email ADs@easa.europa.eu; website 

easa.europa.eu. You may find this EASA AD 

on the EASA website at ad.easa.europa.eu. 

(4) You may view this material at the FAA, 

Airworthiness Products Section, Operational 

Safety Branch, 2200 South 216th St., Des 

Moines, WA. For information on the 

availability of this material at the FAA, call 

206–231–3195. 

(5) You may view this material at the 

National Archives and Records 

Administration (NARA). For information on 

the availability of this material at NARA, 

visit www.archives.gov/federal-register/cfr/ 

ibr-locations, or email fr.inspection@

nara.gov. 

Issued on February 14, 2024. 

Victor Wicklund, 

Deputy Director, Compliance & Airworthiness 

Division, Aircraft Certification Service. 

[FR Doc. 2024–03464 Filed 2–20–24; 8:45 am] 

BILLING CODE 4910–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR PART 270 

[Release No. IC–35129; File No. S7–2024– 

01] 

RIN 3235–AN33 

Qualifying Venture Capital Funds 

Inflation Adjustment 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: To implement the 

requirements of the Economic Growth, 


khammond on DSKJM1Z7X2PROD with PROPOSALS
12996 Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Proposed Rules 

1See 15 U.S.C. 80a–3(a) and 80a–3(c)(1). 

2Public Law 115–174, section 504 (May 24, 

2018); 15 U.S.C. 80a–3(c)(1). In order to meet this 

statutory exclusion, a qualifying venture capital 

fund’s outstanding securities cannot be beneficially 

owned by more than 250 persons, and the fund 

must not be making, or presently proposing to 

make, a public offering of its securities. Id. 

3Public Law 115–174, section 504 (May 24, 

2018); 15 U.S.C. 80a–3(c)(1)(C)(i). For purposes of 

section 3(c)(1), a ‘‘venture capital fund’’ has the 

meaning given the term in 17 CFR 275.203(l)–1. 15 

U.S.C. 80a–3(c)(1)(C)(i). 

4 Id. 

5Proposed rule 3c–7’s definition of qualifying 

venture capital fund is expressly limited to 

construing the term for purposes of section 3(c)(1) 

of the Act. Under 12 CFR 351.10, the term 

qualifying venture capital fund has a different 

meaning. 

6Public Law 115–174, section 504 (May 24, 

2018); 15 U.S.C. 80a–3(c)(1) (defining a ‘‘qualifying 

venture capital fund’’ as ‘‘a venture capital fund 

that has not more than $10,000,000 in aggregate 

capital contributions and uncalled committed 

capital’’ and requiring the Commission to adjust 

this dollar threshold for inflation once every 5 

years, beginning from a measurement made by the 

Commission on a date selected by the Commission, 

rounded to the nearest $1,000,000). 

7Such orders would also be available on the 

Commission’s website. 

8The revised dollar threshold would reflect 

inflation as of Dec. 2023, and is rounded to the 

nearest $1,000,000 as required by section 3(c)(1)(C) 

of the Act. The Dec. 2023 PCE Index was 121.421, 

and the May 2018 PCE Index was 101.941. 121.421/ 

101.941 × $10,000,000 = $11,910,909; $11,910,909 

rounded to the nearest multiple of $1,000,000 = 

$12,000,0000. 

9The values of the PCE Index are available from 

the Bureau of Economic Analysis, a bureau of the 

Department of Commerce. See https://www.bea.gov. 

The PCE Index measures the prices that people 

living in the United States, or those buying on their 

behalf, pay for goods and services. The PCE Index 

is known for capturing inflation (or deflation) 

across a wide range of consumer expenses and 

reflecting changes in consumer behavior. See 

https://www.bea.gov/data/personal-consumptionexpenditures-price-index. 

Regulatory Relief, and Consumer 

Protection Act of 2018 (‘‘EGRRCPA’’), 

the Securities and Exchange 

Commission (‘‘Commission’’) is 

proposing a rule that would adjust for 

inflation the dollar threshold used in 

defining a ‘‘qualifying venture capital 

fund’’ under the Investment Company 

Act of 1940 (‘‘Investment Company Act’’ 

or ‘‘Act’’). The proposed rule also would 

allow the Commission to adjust for 

inflation this threshold amount by order 

every five years and specify how those 

adjustments would be determined. 

DATES: Comments should be submitted 

on or before March 22, 2024. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

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

rules/2024/02/qvcf-inflationadjustment); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

2024–01 on the subject line. 

Paper Comments 

• Send paper comments to Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–2024–01. 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 of submission. The 

Commission will post all comments on 

the Commission’s website (https://

www.sec.gov/rules/2024/02/qvcfinflation-adjustment). Comments are 

also 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 

a.m. and 3 p.m. Operating conditions 

may limit access to the Commission’s 

public reference room. 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. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

A summary of the proposal of not 

more than 100 words is posted on the 

Commission’s website (https://

www.sec.gov/rules/2024/02/qvcfinflation-adjustment). 

FOR FURTHER INFORMATION CONTACT: 

Michael Khalil, Senior Counsel, Brad 

Gude, Branch Chief, or Brian 

McLaughlin Johnson, Assistant Director, 

Investment Company Regulation Office, 

at (202) 551–6792, Division of 

Investment Management, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–8549. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

Section 3(a) of the Investment 

Company Act defines the term 

‘‘investment company’’ for purposes of 

the Act, and section 3(c)(1) provides 

certain exclusions from that definition.1

Section 504 of the Economic Growth, 

Regulatory Relief, and Consumer 

Protection Act of 2018 (‘‘EGRRCPA’’) 

amended section 3(c)(1) of the 

Investment Company Act by excluding 

‘‘qualifying venture capital funds’’ from 

the investment company definition.2

Section 504 of EGRRCPA also added 

new Investment Company Act section 

3(c)(1)(C), defining a ‘‘qualifying 

venture capital fund’’ as ‘‘a venture 

capital fund that has not more than 

$10,000,000 in aggregate capital 

contributions and uncalled committed 

capital.’’ 3 The statutory definition 

requires this $10,000,000 threshold ‘‘be 

indexed for inflation once every 5 years 

by the Commission, beginning from a 

measurement made by the Commission 

on a date selected by the Commission, 

rounded to the nearest $1,000,000.’’ 4

II. Discussion 

Pursuant to section 3(c)(1)(C) of the 

Act and section 504 of EGRRCPA, we 

are proposing a new rule under the 

Investment Company Act, 17 CFR 

270.3c–7 (‘‘rule 3c–7’’), that would 

update for inflation the dollar threshold 

for defining a qualifying venture capital 

fund under section 3(c)(1)(C) of the Act. 

Proposed rule 3c–7 would also provide 

that the Commission will subsequently 

issue orders every five years making 

future inflation adjustments to the 

definition of qualifying venture capital 

fund and specify how those adjustments 

would be determined. 

A. Current Inflation-Adjusted Definition 

of Qualifying Venture Capital Fund 

Proposed rule 3c–7(a) would state the 

current inflation-adjusted dollar 

threshold for purposes of defining a 

qualifying venture capital fund under 

section 3(c)(1)(C) of the Investment 

Company Act.5 Pursuant to EGRRCPA,6

proposed rule 3c–7(a) would use 

December 2023 as the current 

measurement date and adjust the 

current dollar threshold for determining 

a qualifying venture capital fund under 

section 3(c)(1)(C) of the Act to 

$12,000,000 or, following a date five 

years after the effective date of any final 

rule, the dollar amount specified in the 

most recent order issued by the 

Commission in accordance with the 

proposed rule and as published in the 

Federal Register.7

This revised dollar threshold would 

take into account the effects of inflation 

by reference to the historic and current 

levels of the Personal Consumption 

Expenditures Chain-Type Price Index 

(‘‘PCE Index’’),8 which is published by 

the Department of Commerce.9 The PCE 

Index is often used as an indicator of 


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Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Proposed Rules 12997 

10See Clinton P. McCully, Brian C. Moyer & 

Kenneth J. Stewart, Comparing the Consumer Price 

Index and the Personal Consumption Expenditures 

Price Index, Survey of Current Bus., Nov. 2007, at 

26 n.1 (PCE Index measures changes in ‘‘prices paid 

for goods and services by the personal sector in the 

U.S. national income and product accounts’’ and is 

primarily used for macroeconomic analysis and 

forecasting). See also Federal Reserve Board, 

Monetary Policy Report to the Congress, at n.1 (Feb. 

17, 2000), available at https://www.federalreserve.

gov/boarddocs/hh/2000/february/ReportSection1.

htm#FN1 (noting the reasons for using the PCE 

Index rather than the consumer price index). 

11See, e.g., Investment Adviser Performance 

Compensation, Investment Advisers Act Release 

No. 3372 (Feb. 15, 2012) [77 FR 10358, 10367 (Feb. 

22, 2012)] (stating that the Commission had 

proposed and was adopting the PCE Index in 

relation to the definition of ‘‘qualified clients’’ 

because it is widely used as a broad indicator of 

inflation in the economy, and because the 

Commission has used it in other provisions of the 

federal securities laws); Definitions of Terms and 

Exemptions Relating to the ‘‘Broker’’ Exceptions for 

Banks, Securities Exchange Act Release No. 56501 

(Sept. 24, 2007) [72 FR 56514 (Oct. 3, 2007)] (using 

PCE Index in adopting periodic inflation 

adjustments to the fixed-dollar thresholds for both 

‘‘institutional customers’’ and ‘‘high net worth 

customers’’ under Rule 701 of Regulation R 

‘‘because it is a widely used and broad indicator of 

inflation in the U.S. economy’’); see also 

Amendments to Form ADV, Investment Advisers 

Act Release No. 3060 (July 28, 2010) [75 FR 49234 

(Aug. 12, 2010)] (using PCE Index in increasing for 

inflation the threshold amount for prepayment of 

advisory fees that triggers an adviser’s duty to 

provide clients with an audited balance sheet and 

the dollar threshold triggering the exception to the 

delivery of brochures to advisory clients receiving 

only impersonal advice). The Dodd-Frank Act also 

requires the use of the PCE Index to calculate 

inflation adjustments for the cash limit protection 

of each investor under the Securities Investor 

Protection Act of 1970. See section 929H(a) of the 

Dodd-Frank Act, 15 U.S.C. 78fff–3. 

12See infra section III. 

13The CPI–U is the statistical metric developed 

by the U.S. Bureau of Labor Statistics to monitor the 

change in the price of a set list of products. The 

CPI–U represents changes in prices of all goods and 

services purchased for consumption by urban 

households. See Consumer Price Index available at 

https://www.bls.gov/cpi (last visited Feb. 7, 2024, 

12:51 p.m.). 

14See, e.g., Inflation Adjustments and Other 

Technical Amendments Under Titles I and III of the 

Jobs Act, Securities Act Release No. 10332 (Mar. 31, 

2017) [82 FR 17545 (Apr. 12, 2017)] (citing the 

Jumpstart Our Business Startups Act (‘‘JOBS Act’’), 

Public Law 112–106, 126 Stat. 306 (2012); 

Crowdfunding, Securities Act Release No. 9974 

(Oct. 30, 2015) [80 FR 71387 (Nov. 16, 2015)] (citing 

the JOBS Act); 17 CFR 201.1001 (Adjustment of 

civil monetary penalties); Adjustments to Civil 

Monetary Penalty Amounts, Investment Company 

Act Release No. 22310 (Nov. 1, 1996) [61 FR 57773 

(Nov. 8, 1996)] (citing the Debt Collection 

Improvement Act of 1996 (Pub. L. 104–134)). 

15 Inflation as measured by PCE Index was 

19.11%, while inflation as measured by CPI–U was 

23.15%. See footnote 8 (showing PCE Index 

calculation). The May 2018 PCE Index was 101.941 

and the Dec. 2023 PCE Index was 121.421 

((121.421/101.941¥1) × 100 = 19.11%). The May 

2018 CPI–U was 250.792 and the Dec. 2023 CPI– 

U was 308.850 ((308.850/250.792¥1) × 100 = 

23.15%). 

16Before conducting the mandated rounding to 

the nearest million, inflation as calculated 

according to the PCE Index would have resulted in 

an increase of $1.911 million (i.e., a new 

$11,911,000 threshold), while inflation as 

calculated according to CPI–U would have resulted 

in an increase of $2.315 million (i.e., a new 

$12,315,000 threshold). 

17Proposed rule 3c–7 would provide that the 

Commission will issue an order effective on or 

about five years after the effective date of the rule, 

and approximately every five years thereafter, 

adjusting for inflation the dollar threshold 

necessary to be a qualifying venture capital fund for 

purposes of section 3(c)(1) of the Act. 

18Proposed rule 3c–7 would provide that the 

dollar threshold for qualifying venture capital funds 

will be adjusted for inflation by (i) dividing the 

year-end value of the PCE Index for the calendar 

year preceding the calendar year in which the order 

is being issued, by the year-end value of the PCE 

Index for the calendar year 2018, (ii) multiplying 

$10,000,000 (i.e., the original 2018 statutory 

threshold for a qualifying venture capital fund) by 

that quotient, and (iii) rounding the product to the 

nearest multiple of $1,000,000. 

19See supra footnotes 8–12 and accompanying 

text and infra section III. 

inflation in the personal sector of the 

U.S. economy.10 Additionally, the 

Commission routinely has used the PCE 

Index in similar contexts in Commission 

rules and provisions of the federal 

securities laws.11

We are proposing to use the PCE 

Index to calculate inflation adjustments 

for this rulemaking because the 

methodology and scope of the PCE 

Index (which considers both urban and 

rural households and expenditures 

made on their behalf by third parties) 

reflects a broad sector of the U.S. 

economy.12

We also considered other inflation 

adjustment calculations. For example, 

the Commission has been required by 

statute to use the Consumer Price Index 

for all Urban Consumers (‘‘CPI–U’’) 13 to 

conduct certain inflation adjustments.14

We calculated the rate of inflation 

between May 2018 and December 2023 

using both PCE Index and CPI–U. While 

these indexes yielded slightly different 

rates of inflation for the measured time 

period,15 after rounding to the nearest 

$1,000,000 as required by EGRRCPA, 

both indexes yielded an adjusted 

inflation threshold of $12,000,000, or an 

increase of $2,000,000.16

Notwithstanding that the PCE Index 

and CPI–U yield the same inflation 

adjustment for this time-period after the 

rounding required by EGRRCPA, we are 

proposing to use the PCE Index to 

calculate inflation adjustments for this 

rulemaking because the PCE Index 

reflects a broader scope of the U.S. 

economy and in light of the additional 

considerations discussed below in the 

Economic Analysis. 

B. Future Inflation Adjustments to the 

Definition of Qualifying Venture Capital 

Fund 

Proposed rule 3c–7(b) would provide 

a mechanism for future inflation 

adjustments. Specifically, the 

Commission would issue an order every 

five years adjusting for inflation the 

dollar threshold for qualifying venture 

capital funds for purposes of section 

3(c)(1) of the Act.17 Proposed rule 3c– 

7(b) would also specify the PCE Index 

(or any successor index thereto) as the 

inflation index used to calculate future 

inflation adjustment of the dollar 

threshold in the rule.18 We are 

proposing to use the PCE Index for these 

updates for the same reasons we are 

proposing to use the PCE Index for the 

proposed initial adjustment.19

We request comment on proposed 

rule 3c–7. 

(1) Is the proposed use of the PCE 

Index as a measure of inflation 

appropriate? Is there another index 

(such as the CPI–U) or other measure 

that would be more appropriate, and if 

so, why? 

(2) The proposed rule would establish 

the original $10,000,000 threshold 

stated in EGRRCPA as the baseline for 

all future inflation adjustments, as a 

consistent denominator for all future 

calculations. Should we instead 

establish each future adjustment of the 

dollar amount as a new baseline for the 

next calculation of the threshold 

amount? If we were to adopt that 

approach, because EGRRCPA’s 

amendments to section 3(c)(1)(C) of the 

Act requires that the revised threshold 

be rounded to the nearest $1,000,000, 

could the establishment of a new 

baseline at the rounded amount, each 

time the threshold is adjusted, result in 

the underestimation or overestimation 

of the effects of inflation in subsequent 

periods? 

C. Effective Date 

Because the rule would implement a 

required inflation adjustment to an 

existing statutory exclusion from 

regulation, we are not proposing a 

compliance period or extended effective 

date. Reliance on section 3(c)(1) is 

voluntary and a fund that newly met the 

definition of a qualifying venture capital 

fund under rule 3c–7 could choose 

whether to rely on the exclusion 

provided by section 3(c)(1) for such 

funds. 

(3) Do commenters see a benefit to 

including a compliance period or 

extended effective date for this 

proposed rule? If so, please describe. 

III. Economic Analysis 

The Commission is sensitive to the 

economic effects that could result from 

proposed rule 3c–7. To comply with the 

inflation adjustment required under 


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12998 Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Proposed Rules 

20An adviser to a venture capital fund may or 

may not be required to register with the 

Commission depending on its specific facts and 

circumstances including the adviser’s total 

regulatory assets under management, the state of its 

principal office, and whether it solely manages 

private funds or venture capital funds. Many of the 

advisers to qualifying venture capital funds are 

‘‘exempt reporting advisers.’’ See, e.g., Exemptions 

for Advisers to Venture Capital Funds, Private Fund 

Advisers with Less Than $150 Million in Assets 

Under Management, and Foreign Private Advisers, 

Investment Advisers Act Release No. 3222 (June 22, 

2011) [76 FR 39645 (July 6, 2011)], at n.20 and 

accompanying text. Exempt reporting advisers are 

not subject to the investment adviser registration 

requirements under the Advisers Act. They are, 

however, subject to certain other requirements 

under the Advisers Act and its rules that also apply 

to registered advisers, including the requirement to 

file reports on Form ADV and the Advisers Act’s 

antifraud provisions. See 17 U.S.C. 80b–3(l). 

21Based on Form ADV data between Jan. 1, 2022 

and Dec. 31, 2022. These estimates encompass all 

private funds reported on Form ADV that advisers 

indicated are venture capital funds. The estimate of 

qualifying venture capital funds includes only these 

funds that qualify for the exclusion from the 

definition of investment company under section 

3(c)(1) of the Act, have no more than 250 beneficial 

owners, and report gross assets of no more than 

$10,000,000. These numbers somewhat 

underestimate the total number of relevant funds. 

First, gross assets may include assets that are not 

considered aggregate capital contributions or 

uncalled capital commitments. Second, with certain 

exceptions, advisers with less than $25 million in 

regulatory assets under management are prohibited 

from registering with the Commission and must 

instead register with state regulators, with certain 

exceptions. Some states require these advisers to 

file Form ADV under state registration, while other 

states do not. Accordingly, these estimates do not 

capture funds managed by advisers registered in 

states that do not require filing Form ADV. 22This estimate is based on the number of 

venture capital funds reported on Form ADV 

between Jan. 1, 2022 and Dec. 31, 2022, that have 

gross asset value between $10,000,000 and 

$12,000,000, between 100 and 250 beneficial 

owners, and currently do not qualify for an 

exception under section 3(c)(1). 

23See, e.g., Mark Humphery-Jenner, Private 

Equity Fund Size, Investment Size, and Value 

Creation, 16 Rev. Fin. 799 (2012). In Table IV, the 

authors find a correlation between the natural 

logarithm of private equity fund size and the 

natural logarithm of investment size of 0.56. 

EGRRCPA, we are proposing rule 3c–7 

to state the current threshold for 

qualifying venture capital funds as 

indexed for inflation. This proposed 

rule would allow the Commission to 

adjust the current threshold in the 

definition of the term ‘‘qualifying 

venture capital fund’’ from $10,000,000 

to $12,000,000 in response to inflation 

as measured by the PCE Index, and to 

perform future statutorily required 

inflation adjustments using the same 

methodology. 

For purposes of analyzing the 

economic effects of the proposed rule, 

we use as our baseline the current 

venture capital fund market and the 

current regulatory framework. To be 

excepted from registration under section 

3(c)(1), an issuer (including a venture 

capital fund) must, among other things, 

either have not more than 100 beneficial 

owners, or in the case of a qualifying 

venture capital fund, which currently is 

defined as having no more than 

$10,000,000 in aggregate capital 

contributions and uncalled committed 

capital, have no more than 250 

beneficial owners. 

An adviser to a venture capital fund 

that is either registered with the 

Commission or is an ‘‘exempt reporting 

adviser’’ is required to file reports on 

Form ADV.20 Based on this data, there 

are at least 23,759 venture capital funds, 

of which at least 14,822 are qualifying 

venture capital funds as of December 

2022.21 Of the qualifying venture capital 

funds, 653 have more than 100 

beneficial owners and so could not use 

the section 3(c)(1) exclusion absent 

meeting the current $10,000,000 asset 

threshold. Increasing the asset threshold 

in the definition of the term ‘‘qualifying 

venture capital fund’’ will increase the 

number of venture capital funds that 

can be qualifying venture capital funds. 

Specifically, we estimate that there are 

approximately three venture capital 

funds that are not currently excluded 

from registration under section 3(c)(1) 

but that could be defined as a qualifying 

venture capital fund if the threshold 

were adjusted for inflation to 

$12,000,000 as proposed.22

Incentives for funds to change their 

behaviors to stay within the regulatory 

definition of a ‘‘qualifying venture 

capital fund’’ would also strengthen or 

be mitigated depending on the specific 

circumstances of the fund. If the 

threshold is increased to $12,000,000, a 

fund near the current $10,000,000 

threshold in aggregate capital 

contributions and uncalled capital 

commitments, and a number of 

beneficial owners above 100 but well 

below 250, would have additional room 

to raise capital while remaining a 

qualifying venture capital fund. 

Accordingly, it would have weaker 

incentives to prevent growth until its 

aggregate capital contributions and 

uncalled capital commitments approach 

the new threshold. Funds near an 

anticipated future adjusted threshold of 

aggregate capital contributions and 

uncalled capital commitments could 

have a greater incentive to maintain a 

balance below this future threshold and 

maintain fewer than 250 beneficial 

owners. 

While the immediate impacts 

described above are likely to be 

meaningful for funds near the existing 

and future adjusted thresholds, the 

overall effect of the proposed rule on the 

venture capital fund market would be 

minimal; the inflation adjustment 

should maintain the scope of funds that 

can be defined as a qualifying venture 

capital fund, thereby preserving the 

economic effects associated with the 

original provision. 

Relatively few funds would be 

directly impacted by the proposed 

change in the asset threshold. 

Accordingly, the proposed rule would 

not substantively impact efficiency, 

competition, or capital formation in the 

near term. In addition, over time, as 

future inflation adjustments are made, 

the proposed rule would preserve the 

costs and benefits associated with the 

original provision by maintaining a 

consistent threshold standard. At the 

margin, the proposed rule may 

encourage market competition by 

lowering barriers to entry for emerging 

venture capital managers. Specifically, 

it could lower compliance costs for 

eligible funds by exempting them from 

certain regulatory requirements such as 

registration as an investment company 

and make it easier for their managers to 

raise smaller amounts of capital from a 

larger number of accredited investors. 

Absent the periodic inflation 

adjustments that the proposed rule 

would implement, the capital threshold 

for qualifying venture capital funds 

would, over time, shrink in real terms. 

This would either result in higher 

compliance costs for these types of 

funds—because these funds would be 

newly required to register under the 

Act—or cause the managers of these 

funds to change their strategies. For 

example, such funds may decide to 

merge with other funds to spread out 

any fixed costs from registration or stop 

operating these types of funds 

altogether. They may also choose to 

limit the number of investors to be 

under the conventional section 3(c)(1) 

limit of no more than 100 beneficial 

owners. Either of these shifts could limit 

the types of funds available for 

investment, especially to accredited 

investors with relatively fewer assets. 

For example, funds that merge or choose 

to rely on the conventional section 

3(c)(1) limit could become more likely 

to seek larger investments from 

relatively fewer beneficial owners. It 

could also impact smaller firms’ ability 

to raise capital since these firms 

disproportionately raise capital from 

smaller funds.23 Whether managers 

changed their behavior or not, the 

number of qualifying venture capital 

funds would decrease absent the 

periodic inflation adjustment. At least 

some of the capital that would 

otherwise be allocated to these funds 

would likely go to funds that are not 

excluded from the Act and thus would 


khammond on DSKJM1Z7X2PROD with PROPOSALS
Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Proposed Rules 12999 

24 44 U.S.C. 3502(3). 

25 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

26 5 U.S.C. 603(a). 

27 5 U.S.C. 605(b). 

28 17 CFR 270.0–10(a). 

29 15 U.S.C. 80a–3(c)(1). 

30See supra footnote 21. 

31See supra footnote 22. 

32Public Law 104–121, Title II, 110 Stat. 857 

(1996) (codified in various sections of 5 U.S.C., 15 

U.S.C. and as a note to 5 U.S.C. 601). 

receive the investor protection benefits 

provided by the Act. 

Because the proposed rule would 

implement the statutory inflation 

adjustments mandated by EGRRCPA, 

the only reasonable alternative to be 

considered relates to the choice of 

inflation index to be used. As discussed 

above, two indexes were considered— 

the PCE Index and CPI–U. These 

measures differ because of different 

scopes and different methodologies. 

CPI–U reflects only expenditures made 

directly by urban households, whereas 

the PCE Index considers both urban and 

rural households and considers 

expenditures made on their behalf by 

third parties, such as employer-paid 

health insurance. The PCE Index also 

better captures substitution effects since 

its category weights update quarterly 

whereas those of the CPI–U update 

annually. Category weights reflect the 

quantity of goods and services 

purchased in a particular category. As 

some determinants of prices change, 

consumers will substitute purchases 

between categories. Category weights 

that change less frequently will less 

accurately capture these substitution 

effects. The indexes’ survey 

methodologies also differ: CPI–U relies 

on two voluntary consumer surveys 

whereas the PCE Index incorporates 

multiple surveys of businesses, some of 

which are government mandated and 

carry fines for nonresponse. The scope 

of the PCE Index, covering all American 

households, is more relevant to the 

affected parties of this proposed rule 

than is the scope of the CPI–U, which 

only reflects urban households. 

We request comment on all aspects of 

the economic analysis of proposed rule 

3c–7. To the extent possible, we request 

that commenters provide supporting 

data and analysis. In particular, we ask 

commenters to consider the following 

questions: 

(4) The proposed rule would require 

that the PCE Index or its successor 

index be used to perform future 

inflation adjustments. Are there 

additional factors beyond those 

discussed in this release that should be 

considered regarding which index to 

use for these adjustments? 

(5) We estimate that three of the funds 

reported on Form ADV would be 

directly impacted by the proposed 

change in threshold. This is the number 

of reported venture capital funds that 

have gross asset value between 

$10,000,000 and $12,000,000, between 

100 and 250 beneficial owners, and 

currently do not qualify for an exception 

under section 3(c)(1). Does this estimate 

capture the likely number of directly 

affected funds? How could this estimate 

be improved? 

(6) Are the costs and benefits of the 

proposed rule accurately characterized? 

(7) Are the effects on competition, 

efficiency, and capital formation arising 

from the proposed rule accurately 

characterized? 

IV. Paperwork Reduction Act 

Proposed rule 3c–7 does not contain 

a ‘‘collection of information’’ 

requirement within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’) nor would it create any new 

filing, reporting, recordkeeping, or 

disclosure reporting requirements.24

Accordingly, the PRA is not applicable 

and we are not submitting the proposed 

rule to the Office of Management and 

Budget for review under the PRA.25 We 

request comment on whether our 

conclusion that there is no collection of 

information is correct. 

V. Regulatory Flexibility Act 

Certification 

The Regulatory Flexibility Act of 1980 

(‘‘RFA’’) requires the Commission, when 

issuing a rulemaking proposal, to 

prepare and make available for public 

comment an initial regulatory flexibility 

analysis (‘‘IRFA’’) that describes the 

impact of the proposed rule on small 

entities,26 unless the Commission 

certifies that the rule, if adopted, would 

not have a significant economic impact 

on a substantial number of small 

entities.27 Pursuant to 5 U.S.C. 605(b), 

we hereby certify that proposed new 

rule 3c–7 under the Investment 

Company Act would not, if adopted, 

have a significant economic impact on 

a substantial number of small entities. 

We are proposing new rule 3c–7 

pursuant to the authority set forth in the 

Investment Company Act, particularly 

sections 3 and 38 thereof [15 U.S.C. 80a 

et seq.], and the Economic Growth, 

Regulatory Relief, and Consumer 

Protection Act of 2018, particularly 

section 504 [Pub. L. 115–174, 132 Stat. 

1296]. Generally, for purposes of the 

Investment Company Act and the RFA, 

an investment company is a small entity 

if, together with other investment 

companies in the same group of related 

investment companies, it has net assets 

of $50 million or less as of the end of 

its most recent fiscal year.28

To qualify for a section 3(c)(1) 

exclusion, an issuer must (among other 

things) have no more than 100 

beneficial owners, or in the case of a 

qualifying venture capital fund, no more 

than 250 beneficial owners.29 Based on 

Form ADV filings, as of December 2022, 

there were at least 14,822 funds that had 

met the definition of a qualifying 

venture capital fund.30 Of those funds, 

approximately 653 had between 100 and 

250 beneficial owners, such that they 

would have had to rely on meeting the 

definition of a qualifying venture capital 

fund in order to qualify for a section 

3(c)(1) exclusion. A review of Form 

ADV filings also suggest that there are 

approximately three venture capital 

funds that are not currently relying on 

the exclusion in section 3(c)(1) but that 

have between $10,0000 and $12,000,000 

in aggregate capital contributions and 

uncalled committed capital, and 

between 100 and 250 beneficial owners, 

such that they could meet the definition 

of a qualifying venture capital fund 

under proposed rule 3c–7.31 We do not 

believe that three out of 653 total 

venture capital funds with between 100 

and 250 beneficial owners represent a 

‘‘substantial number’’ of small entities. 

For these reasons, the Commission 

believes that proposed rule 3c–7 would 

not, if adopted, have a significant 

economic impact on a substantial 

number of small entities. 

The Commission encourages written 

comments on the certification. We 

solicit comment as to whether the 

proposed rule could have an effect on 

small entities that has not been 

considered. We ask that commenters 

describe the nature of any impact on 

small entities and provide empirical 

data to support the extent of the impact. 

VI. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),32 the Commission 

must advise OMB whether a proposed 

regulation constitutes a ‘‘major’’ rule. 

Under SBREFA, a rule is considered 

‘‘major’’ where, if adopted, it results in 

or is likely to result in: 

• An annual effect on the economy of 

$100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment, or innovation. 

We request comment on whether our 

proposal would be a ‘‘major rule’’ for 


khammond on DSKJM1Z7X2PROD with PROPOSALS
13000 Federal Register / Vol. 89, No. 35 / Wednesday, February 21, 2024 / Proposed Rules 

purposes of SBREFA. We solicit 

comment and empirical data on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment, or innovation. 

Commenters are requested to provide 

empirical data and other factual support 

for their views to the extent possible. 

Statutory Authority 

The new rule contained in this release 

is being proposed under the authority 

set forth in the Investment Company 

Act, particularly sections 3 and 38 

thereof [15 U.S.C. 80a et seq.] and the 

Economic Growth, Regulatory Relief, 

and Consumer Protection Act of 2018, 

particularly section 504 thereof [115 

Pub. L. 174, 132 Stat. 1296]. 

List of Subjects in 17 CFR Part 270 

Investment companies, Securities. 

For reasons set forth in the preamble, 

we are proposing to amend title 17, 

chapter II of the Code of Federal 

Regulations as follows: 

PART 270—RULES AND 

REGULATIONS, INVESTMENT 

COMPANY ACT OF 1940 

■ 1. The general authority citation for 

part 270 continues to read, in part, as 

follows: 

Authority: 15 U.S.C. 80a–1 et seq., 80a– 

34(d), 80a–37, 80a–39, and Pub. L. 111–203, 

sec. 939A, 124 Stat. 1376 (2010), unless 

otherwise noted. 

* * * * * 

■ 2. Section 270.3c–7 is added to read 

as follows: 

§ 270.3c–7 Inflation-adjusted definition of 

qualifying venture capital fund. 

(a) Inflation-adjusted definition of 

qualifying venture capital fund. For 

purposes of section 3(c)(1)(C)(i) of the 

Act (15 U.S.C. 80a–3(c)(1)(C)(i)), the 

term qualifying venture capital fund 

means a venture capital fund (as that 

term is defined in 17 CFR 275.203(1)– 

1 or any successor regulation) that has 

not more than $12,000,000 in aggregate 

capital contributions and uncalled 

committed capital, or, following [DATE 

FIVE YEARS AFTER EFFECTIVE DATE 

OF FINAL RULE], the dollar amount 

specified in the most recent order issued 

by the Commission in accordance with 

paragraph (b) of this section and as 

published in the Federal Register. 

(b) Future inflation adjustments. 

Pursuant to section 3(c)(1)(C)(i) of the 

Act (15 U.S.C. 80a–3(c)(1)(C)(i)), the 

dollar amount specified in paragraph (a) 

of this section shall be adjusted by order 

of the Commission, issued on or about 

[DATE FIVE YEARS AFTER EFFECTIVE 

DATE OF FINAL RULE] and 

approximately every five years 

thereafter. The adjusted dollar amount 

established in such orders shall be 

computed by: 

(1) Dividing the year-end value of the 

Personal Consumption Expenditures 

Chain-Type Price Index (or any 

successor index thereto), as published 

by the United States Department of 

Commerce, for the calendar year 

preceding the calendar year in which 

the order is being issued, by the yearend value of such index (or successor) 

for the calendar year 2018; and 

(2) Multiplying $10,000,000 times the 

quotient obtained in paragraph (b)(1) of 

this section and rounding the product to 

the nearest multiple of $1,000,000. 

By the Commission. 

Dated: February 14, 2024. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2024–03436 Filed 2–20–24; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Highway Administration 

23 CFR Part 924 

[Docket No. FHWA–2023–0045] 

RIN 2125–AG07 

Highway Safety Improvement Program 

AGENCY: Federal Highway 

Administration (FHWA), U.S. 

Department of Transportation (DOT). 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The purpose of this notice of 

proposed rulemaking (NPRM) is to 

update the Highway Safety 

Improvement Program (HSIP) 

regulations to address provisions in the 

Infrastructure Investment and Jobs Act 

(IIJA) (also known as the ‘‘Bipartisan 

Infrastructure Law’’ (BIL)) and reflect 

current priorities and state-of-practice. 

Specifically, FHWA proposes to amend 

the regulatory language to incorporate 

the Safe System Approach, clarify the 

scope of the HSIP to focus on the safety 

of all road users on the entire public 

road network, improve evaluation 

practices, streamline reporting efforts, 

and ensure States are collecting Model 

Inventory of Roadway Elements (MIRE) 

fundamental data elements. The 

proposed changes would clarify 

provisions regarding the planning, 

implementation, evaluation, and 

reporting of HSIPs that are administered 

in each State. These changes would 

further strengthen and advance the 

safety and equity priorities of the DOT 

National Roadway Safety Strategy 

(NRSS) and assist States with making 

safety gains designed to eliminate 

fatalities and serious injuries on the 

Nation’s roads. 

DATES: Comments must be received on 

or before April 22, 2024. 

ADDRESSES: Mail or hand deliver 

comments to the U.S. Department of 

Transportation, Dockets Management 

Facility, 1200 New Jersey Avenue SE, 

Washington, DC 20590, or submit 

electronically at www.regulations.gov. 

All comments should include the 

docket number that appears in the 

heading of this document. All 

comments received will be available for 

examination and copying at the above 

address from 9 a.m. to 5 p.m., E.T., 

Monday through Friday, except Federal 

holidays. Those desiring notification of 

receipt of comments must include a selfaddressed, stamped postcard or may 

print the acknowledgment page that 

appears after submitting comments 

electronically. Anyone is able to search 

the electronic form of all comments 

received into any of our dockets by the 

name of the individual submitting the 

comment (or signing the comment, if 

submitted on behalf of an association, 

business, labor union, etc.). You may 

review DOT’s complete Privacy Act 

Statement in the Federal Register 

published on April 11, 2000 (Volume 

65, Number 70, Pages 19477–78) or you 

may visit www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Karen Scurry, Office of Safety, (202) 

897–7168, karen.scurry@dot.gov; or Mr. 

David Serody, Office of the Chief 

Counsel, (202) 366–4241, david.serody@

dot.gov, Federal Highway 

Administration, 1200 New Jersey 

Avenue SE, Washington, DC 20590. 

Office hours are from 8:00 a.m. to 4:30 

p.m., E.T., Monday through Friday, 

except Federal holidays. 

SUPPLEMENTARY INFORMATION: 

Electronic Access and Filing 

You may submit or access all 

comments received by the DOT online 

through: www.regulations.gov. 

Electronic submission and retrieval help 

and guidelines are available on the 

website. It is available 24 hours each 

day, 365 days each year. Please follow 

the instructions. An electronic copy of 

this document may also be downloaded 

from the Federal Register’s home page 

at: www.federalregister.gov. 


khammond on DSKJM1Z7X2PROD with PROPOSALS