Document ID: SEC-2015-1981-0001
Agency: sec
Document Type: Notice
Title: Conditional Exemption under the Securities Exchange Act from the Confirmation Requirements for Certain Transactions In Money Market Funds
Posted Date: 2015-11-25T05:00Z

[Federal Register Volume 80, Number 227 (Wednesday, November 25, 2015)]
[Notices]
[Pages 73849-73851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29928]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76480; File No. S7-08-14]

Order Granting a Conditional Exemption Under the Securities 
Exchange Act of 1934 From the Confirmation Requirements of Exchange Act 
Rule 10b-10(a) for Certain Transactions in Money Market Funds

November 19, 2015.

I. Introduction

    On July 23, 2014, the Securities and Exchange Commission 
(``Commission'') published a notice requesting comment on a proposal to 
grant a conditional exemption to broker-dealers, subject to certain 
conditions, from the immediate confirmation requirements of Rule 10b-10 
of the Securities Exchange Act of 1934 (``Exchange Act'') for 
transactions effected in shares of institutional prime money market 
funds.\1\ Concurrent with the issuance of the Notice, the Commission 
adopted amendments to Rule 2a-7 of the Investment Company Act of 1940 
(``Investment Company Act'') \2\ that, among other things, require 
institutional prime money market funds \3\ to sell and redeem fund 
shares based on the current market-based value of the securities held 
in their portfolios (i.e., transact at a ``floating'' net asset value 
(``NAV'')).\4\ The Commission received two comments in response to the 
Notice.\5\ After careful consideration the Commission is granting the 
proposed exemption pursuant to Exchange Act Section 36(a) \6\ and Rule 
10b-10(f),\7\ and providing certain clarifications to address comments 
received.
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    \1\ See Notice of Proposed Exemptive Order Granting Permanent 
Exemptions Under the Securities Exchange Act of 1934 from the 
Confirmation Requirements of Exchange Act Rule 10b-10 for Certain 
Money Market Funds, Exchange Act Release No. 72658 (July 23, 2014), 
79 FR 44076 (July 29, 2014) (``Notice'').
    \2\ 17 CFR 270.2a-7.
    \3\ ``Institutional prime money market funds'' are money market 
funds operating in accordance with Investment Company Act Rule 2a-
7(c)(1)(ii), which include funds that are often referred to as (i) 
``tax exempt'' or (ii) ``municipal'' funds that do not qualify as a 
``retail money market fund'' as defined in Rule 2a-7(a)(25).
    \4\ See Money Market Fund Reform; Amendments to Form PF, 
Securities Act Release No. 9616, Investment Advisers Act Release No. 
3879, Investment Company Act Release No. 31166 (July 23, 2014), 79 
FR 47736, at section III.B (Aug. 14, 2014) (``Money Market Fund 
Reform Adopting Release'').
    \5\ See Letters to Kevin M. O'Neill, Deputy Secretary, 
Commission, from J. Charles Cardona, President, The Dreyfus 
Corporation (Aug. 19, 2014) (``Dreyfus Letter''), http://www.sec.gov/comments/s7-08-14/s70814-2.pdf; and Dorothy Donohue, 
Acting General Counsel, Investment Company Institute (Aug. 15, 2014) 
(``ICI Letter''), http://www.sec.gov/comments/s7-08-14/s70814-1.pdf.
    \6\ Section 36(a) of the Exchange Act generally authorizes the 
Commission to conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities, or transactions, from certain provisions of the Exchange 
Act or certain rules or regulations thereunder, by rule, regulation, 
or order, to the extent that such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors. 15 U.S.C. 78mm.
    \7\ Exchange Act Rule 10b-10(f) provides that the Commission may 
conditionally or unconditionally exempt any broker or dealer from 
the requirements of paragraphs (a) and (b) of Rule 10b-10 with 
regard to specific transactions or specific classes of transactions 
for which the broker or dealer will provide alternative procedures 
to effect the purposes of the rule. 17 CFR 240.10b-10(f).
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II. Proposal for Exemptions Pursuant to Notice

    Exchange Act Rule 10b-10(a) generally requires broker-dealers to 
provide customers with specified information relating to their 
securities transactions at or before the completion of the 
transactions.\8\ Rule 10b-10(b), however, provides an exception from 
this requirement for certain transactions in money market funds that 
attempt to maintain a stable NAV when no sales load or redemption fee 
is charged.\9\ The exception permits broker-dealers to provide 
transaction information to money market fund shareholders on a monthly, 
rather than immediate, basis, subject to the conditions set forth in 
paragraphs (2) and (3) of Rule 10b-10(b).\10\ Accordingly, customers 
historically have received information about their transactions in 
shares of money market funds, including institutional prime money 
market funds, on a monthly basis.
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    \8\ 17 CFR 240.10b-10(a).
    \9\ 17 CFR 240.10b-10(b).
    \10\ With respect to such money market funds, Exchange Act Rule 
10b-10(b)(2) requires a broker-dealer to give or send to a customer 
within five business days after the end of each monthly period: A 
written statement disclosing, each purchase or redemption, effected 
for or with, and each dividend or distribution credited to or 
reinvested for, the account of such customer during the month; the 
date of such transaction; the identity, number, and price of any 
securities purchased or redeemed by such customer in each such 
transaction; the total number of shares of such securities in such 
customer's account; any remuneration received or to be received by 
the broker or dealer in connection therewith; and that any other 
information required by [Rule 10b-10(a)] will be furnished upon 
written request: Provided, however, that the written statement may 
be delivered to some other person designated by the customer for 
distribution to the customer. 17 CFR 240.10b-10(b)(2). Exchange Act 
Rule 10b-10(b)(3) requires the customer to be provided with prior 
notification in writing disclosing the intention to send the written 
information referred to in Rule 10b-10(b)(1) in lieu of an immediate 
confirmation. 17 CFR 240.10b-10(b)(3).
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    Given that share prices of institutional prime money market funds 
likely will fluctuate under the Commission's amendments to Investment 
Company Act Rule 2a-7,\11\ absent an exemption, broker-dealers would 
not be able to continue to rely on the exception under Exchange Act 
Rule 10b-10(b) for transactions in money market funds operating in 
accordance with Rule 2a-7(c)(1)(ii).\12\ Instead, broker-dealers would 
be required to provide immediate confirmations for such transactions in 
accordance with Rule 10b-10(a).
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    \11\ 17 CFR 270.2a-7.
    \12\ See generally Money Market Fund Reform; Amendments to Form 
PF, Securities Act Release No. 9408, Investment Advisers Act Release 
No. 3616, Investment Company Act Release No. 30551 (June 5, 2013), 
78 FR 36834, 36934 (June 19, 2013); see also Exchange Act Rule 10b-
10(b)(1), 17 CFR 240.10b-10(b)(1) (limiting alternative monthly 
reporting to money market funds that attempt to maintain a stable 
NAV).
    As adopted, government and retail money market funds are exempt 
from the Investment Company Act Rule 2a-7(c)(1)(ii) floating NAV 
requirement, and therefore, will continue to maintain a stable NAV. 
See Money Market Fund Reform Adopting Release, supra note 4, at 
sections III.C.1 and III.C.2. Accordingly, for investor transactions 
in the exempt funds, broker-dealers would continue to qualify for 
the exception under Rule 10b-10 and be permitted to send monthly 
transaction reports.
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    To address the potential burdens created by such a requirement, the 
Commission published the Notice proposing to exempt broker-dealers from 
the requirements of Exchange Act Rule 10b-10(a) when effecting 
transactions in money market funds operating in accordance with 
Investment Company Act Rule 2a-7(c)(1)(ii), for or with the account of 
a customer, where: (i) no sales load is deducted upon the purchase or 
redemption of shares in the money market fund, (ii) the broker-dealer 
complies with the provisions of Rule 10b-10(b)(2) and Rule 10b-10(b)(3) 
that are applicable to money market funds that attempt to maintain a 
stable NAV referenced in Rule 10b-10(b)(1),\13\ and (iii) the broker-
dealer has notified the customer of its ability to request delivery of 
an immediate confirmation consistent with the written notification 
requirements of Exchange Act Rule 10b-

[[Page 73850]]

10(a) and has not received such a request from the customer.
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    \13\ The proposed conditions under ``(i)'' and ``(ii)'' are 
consistent with the confirmation delivery requirements in Exchange 
Act Rule 10b-10(b) for all transactions in investment company 
securities that attempt to maintain a stable NAV where no sales load 
or redemption fee is charged. 17 CFR 240.10b-10(b).
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III. Comments on Proposal

    The Commission received two comments on the Notice, both expressing 
general support for the proposal.\14\ However, both commenters 
requested clarification regarding the third condition, which would 
require a broker-dealer to notify its customer of the customer's 
ability to request delivery of an immediate confirmation consistent 
with the written notification requirements of Exchange Act Rule 10b-
10(a). Specifically, commenters questioned whether the notification may 
be made on a one-time basis or whether it would need to be made on a 
transaction-by-transaction basis.\15\ In response, the Commission is 
clarifying that these notifications may be made on a one-time basis.
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    \14\ See Dreyfus Letter; ICI Letter, supra note 5.
    \15\ Dreyfus Letter, at 1; ICI Letter, at 2.
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IV. Discussion of the Exemption

    The Commission finds that it is necessary and appropriate in the 
public interest, and consistent with the protection of investors to 
allow broker-dealers, subject to certain conditions, to provide 
transaction information to investors in any money market fund operating 
pursuant to Rule 2a-7(c)(1)(ii) on a monthly basis in lieu of providing 
immediate confirmations as required under Exchange Act Rule 10b-10(a). 
In making this finding, the Commission considered several factors, as 
discussed more fully below as well as in the Notice.
    First, the attributes of institutional prime money market funds 
mitigate the need for the protections intended by confirmation delivery 
under Rule 10b-10(a).\16\ For example, institutional prime money market 
funds will continue to be subject to the ``risk limiting'' provisions 
of Rule 2a-7, including those provisions governing the credit quality, 
liquidity, diversification, and maturity of fund investments.\17\ Under 
those ``risk limiting'' provisions, mutual funds that hold themselves 
out as money market funds--including institutional prime money market 
funds--may acquire only investments that are short-term, high-quality, 
dollar-denominated instruments.\18\ As a result, while the prices of 
institutional prime money market funds likely will fluctuate, they are 
not likely to exhibit regular day-to-day fluctuations, primarily due to 
the high quality and short duration of these funds' underlying 
portfolio securities.\19\
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    \16\ See Notice, 79 FR at 44077.
    \17\ Investment Company Act Rule 2a-7(d), 17 CFR 270.2a-7(d) 
(risk-limiting conditions).
    \18\ Id.; see also Money Market Fund Reform Adopting Release, 79 
FR at 47775.
    \19\ Money Market Fund Reform Adopting Release, 79 FR at 47779 
n.491.
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    Second, customers that need daily pricing information may obtain it 
through means other than confirmation statements.\20\ For example, 
under the fund disclosure requirements of Investment Company Act Rule 
2a-7(h)(10)(iii), customers--including institutional investors--will be 
able to access an institutional prime money market fund's daily mark-
to-market NAV per share through the fund's Web site.\21\
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    \20\ Id., at section III.E.9.c; see also Notice, 79 FR at 44078.
    \21\ 17 CFR 270.2a-7(h)(10)(iii).
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    Third, absent an exemption, broker-dealers are likely to incur 
significant costs associated with providing immediate, rather than 
monthly, confirmations for transactions in shares of institutional 
prime money market funds. Such costs, in turn, would likely be passed 
along to investors.\22\
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    \22\ An analysis of the costs and benefits of providing 
immediate trade confirmations requirements under Rule 10b-10 with 
respect to institutional prime money market funds is discussed in 
the Money Market Fund Reform Adopting Release. See Money Market Fund 
Reform Adopting Release, 79 FR at 47785-86; Notice, 79 FR at 44077-
78.
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    However, given that there likely will be some price fluctuations in 
institutional prime money market funds, the Commission believes that it 
is also necessary and appropriate in the public interest and consistent 
with the protection of investors to condition the exemption on a 
broker-dealer providing immediate confirmations upon a customer's 
request. Accordingly, to be eligible for the exemption, a broker-dealer 
must (1) provide an initial written notification to the customer of its 
ability to request delivery of immediate confirmations consistent with 
the written notification requirements of Exchange Act Rule 10b-10(a), 
and (2) not receive any such request from the customer.\23\ In 
addition, consistent with conditions applicable to confirmation 
delivery requirements provided in Exchange Act Rule 10b-10(b) for all 
transactions in investment company securities that attempt to maintain 
a stable NAV where no sales load or redemption fee is charged, the 
Commission is imposing the conditions that no sales load is deducted 
upon the purchase or redemption of shares in the institutional prime 
money market fund, and that the broker-dealer complies with the 
provisions of paragraphs (2) and (3) of Rule 10b-10(b) that are 
applicable to money market funds that attempt to maintain a stable NAV 
referenced in Rule 10b-10(b)(1).
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    \23\ This Order has been modified from the proposal to specify 
that, to meet the notification condition, the broker-dealer must 
provide an ``initial written notification to the customer of such 
account.'' The condition was modified to clarify that the 
notification may be made on a one-time basis for each applicable 
account and not on a transaction-by-transaction basis.
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V. Conclusion

    In light of the above, and in accordance with Exchange Act Section 
36 \24\ and Rule 10b-10(f),\25\ the Commission finds that conditionally 
exempting broker-dealers from the requirements of Exchange Act Rule 
10b-10(a) for transactions in institutional prime money market funds is 
necessary and appropriate in the public interest, and consistent with 
the protection of investors.
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    \24\ 15 U.S.C. 78mm.
    \25\ 17 CFR 240.10b-10(f).
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    Therefore, it is hereby ordered, pursuant to Section 36 of the 
Exchange Act and Exchange Act Rule 10b-10(f), that broker-dealers shall 
be exempt from the written notification requirements under Exchange Act 
Rule 10b-10(a) when effecting transactions in money market funds 
operating in accordance with Investment Company Act Rule 2a-
7(c)(1)(ii), for or with the account of a customer, where: (i) No sales 
load is deducted upon the purchase or redemption of shares in the money 
market fund, (ii) the broker-dealer complies with the provisions of 
Rule 10b-10(b)(2) and Rule 10b-10(b)(3) that are applicable to money 
market funds that attempt to maintain a stable NAV referenced in Rule 
10b-10(b)(1), and (iii) the broker-dealer has provided an initial 
written notification to the customer of such account of its ability to 
request delivery of immediate confirmations consistent with the written 
notification requirements of Exchange Act Rule 10b-10(a) and has not 
received such a request from the customer.

VI. Paperwork Reduction Act

    This Order contains ``collection of information requirements'' 
within the meaning of the Paperwork Reduction Act of 1995 (``PRA''). 
The Commission has submitted the information to the Office of 
Management and Budget (``OMB'') for review in accordance with 44 U.S.C. 
3507 and 5 CFR 1320.10. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a current valid control number. The title of this 
collection is ``Money Market Fund Reform/Exchange Act Rule

[[Page 73851]]

10b-10.'' We are applying for a new OMB Control Number for this 
collection in accordance with 44 U.S.C. 3507(j).

A. Summary of Collection of Information

    In addition to the conditions typically applicable under Rule 10b-
10(b),\26\ under the terms of this Order, to be exempt from the 
immediate confirmation requirements of Exchange Act Rule 10b-10(a) for 
purposes of an institutional prime money market fund, a broker-dealer 
must also (1) notify the customer of its ability to request delivery of 
an immediate confirmation, consistent with the written notification 
requirements of Rule 10b-10(a), and (2) not receive any such request 
from the customer.\27\ The condition of notifying the customer of its 
ability to request delivery of an immediate confirmation creates a 
burden under the PRA, and must be satisfied by sending a notification 
to a customer on a one-time basis for each applicable account.
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    \26\ The Commission has previously estimated the PRA burdens 
associated with providing immediate confirmations and/or monthly 
statements to customers under Rule 10b-10 regarding securities 
transactions, including money market funds. See Submission for OMB 
Review; Comment Request, 78 FR 39023 (June 28, 2013). That 
submission, however, does not address the PRA burden associated with 
the notification condition set forth in this Order.
    \27\ If the conditions of this Order are satisfied, broker-
dealers will be eligible to provide monthly statements for 
transactions in institutional prime money market funds in lieu of 
the immediate confirmation requirements of Exchange Act Rule 10b-
10(a)--as has historically been the case for money market funds 
prior to the adoption of the money market fund reform amendments. 
When requested by a customer, the broker-dealer would be required 
under this Order to provide immediate confirmations in accordance 
with Exchange Act Rule 10b-10(a).
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B. Proposed Use of Information

    The notification condition in this Order will alert customers of 
their ability to request immediate confirmations, consistent with the 
terms of Exchange Act Rule 10b-10(a). The notification condition allows 
customers to obtain immediate confirmations should they choose to 
request them.

C. Respondents

    As stated in the Money Market Fund Reform Adopting Release, based 
on FOCUS report data as of December 31, 2013, the Commission estimates 
that there are approximately 320 broker-dealers that clear customer 
transactions or carry customer funds and securities.\28\ In the Money 
Market Fund Reform Adopting Release, the Commission also conservatively 
estimated that those broker-dealers are the respondents that would 
provide trade confirmations to customers in institutional prime money 
market funds.\29\
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    \28\ Money Market Fund Reform Adopting Release, 79 FR at 47785 & 
n.563.
    \29\ Id.
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D. Total Burden Estimates Relating to This Order

    The Commission estimates that the initial one-time burden required 
to implement, modify, or reprogram existing systems to generate and 
transmit the required notifications to customers would be 36 hours for 
each of the 320 broker-dealers that clear customer transactions or 
carry customer funds and securities.\30\ Thus, the Commission estimates 
that the initial burden for issuance of the notifications in accordance 
with this Order, including burdens to implement, modify, or reprogram 
existing systems to generate such notifications will be approximately 
11,520 burden hours.\31\ The Commission anticipates that after broker-
dealers incur the initial costs to establish systems to generate and 
transmit the notifications to existing customers, broker-dealers will 
be able to minimize any additional costs, such as by providing the 
notifications as part of a new account application.\32\ As a result, 
the Commission anticipates that any additional annual burdens arising 
from the notification condition will be minimal,\33\ and conservatively 
estimates that broker-dealers will, on average, incur annual costs of 
5% of those initial costs, or 576 burden hours.\34\
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    \30\ In the Money Market Fund Reform Adopting Release, the 
Commission estimated that the initial one-time burden to implement, 
modify, or reprogram existing systems to generate immediate 
confirmations (rather than monthly statements) would be 355 burden 
hours for each of the 320 broker-dealers that clear customer 
transactions or carry customer funds and securities. Id. at 47785 & 
n.562. Given the non-repeat nature of the notification requirement 
and substantial savings in resources noted by commenters, the 
Commission estimates that the burdens to develop system changes to 
provide the notices to all applicable customers would be no more 
than 10% of the prior 355 burden hours estimate associated with 
requiring immediate confirmations.
    \31\ This estimate is based on the following: 36 hours x 320 
firms = 11,520 hours.
    \32\ See, e.g., ICI Letter, supra note 5, at 2.
    \33\ As stated, supra note 26, other than the notification 
condition set forth in this Order, the Commission has previously 
estimated the additional burdens associated with providing immediate 
confirmations and/or monthly statements under Rule 10b-10. See 
Submission for OMB Review; Comment Request, 78 FR 39023 (June 28, 
2013).
    \34\ This estimate is based on the following: 11,520 hours x 5% 
= 576 hours.
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E. The Collection of Information Is Required To Obtain a Benefit

    The collection of information results from a condition of this 
Order and will be required for a broker-dealer to be exempt from the 
immediate confirmation requirements of Exchange Act Rule 10b-10(a).

F. Confidentiality

    The notification would be provided by a broker-dealer directly to a 
customer and thus would not be kept confidential.

G. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits 
comment to:
    1. Evaluate whether the proposed collection is necessary for the 
proper performance of our functions, including whether the information 
shall have practical utility;
    2. Evaluate the accuracy of our estimate of the burden of the 
proposed collection of information;
    3. Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected; and
    4. Evaluate whether there are ways to minimize the burden of 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons submitting comments on the collection of information 
requirements should direct them to the Office of Management and Budget, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
should also send a copy of their comments to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090, with reference to File No. S7-08-14. 
Requests for materials submitted to OMB by the Commission with regard 
to this collection of information should be in writing, with reference 
to File No. S7-08-14, and be submitted to the Securities and Exchange 
Commission, Records Management, Office of Filings and Information 
Services, 100 F Street NE., Washington, DC 20549. As OMB is required to 
make a decision concerning the collections of information between 30 
and 60 days after publication in the Federal Register, a comment to OMB 
is best assured of having its full effect if OMB receives it within 30 
days of publication.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-29928 Filed 11-24-15; 8:45 am]
BILLING CODE 8011-01-P