PRA - Rule 0-2 Supporting Statement (2013)

SUPPORTING STATEMENT
Rule 0-2
A.

JUSTIFICATION
1.

Necessity for the Collection Information

Several sections of the Investment Company Act of 1940 (“Act” or “Investment
Company Act”) 1 give the Securities and Exchange Commission (“Commission”) the authority to
issue orders granting exemptions from the Act’s provisions. The section that grants broadest
authority is section 6(c), which provides the Commission with authority to conditionally or
unconditionally exempt persons, securities or transactions from any provision of the Investment
Company Act, or the rules or regulations thereunder, if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the Act. 2 Congress enacted section
6(c) to give the Commission the flexibility to address unforeseen or changed circumstances in
the investment company industry. Rule 0-2 under the Investment Company Act, 3 entitled
“General Requirements of Papers and Applications,” prescribes general instructions for filing an
application seeking exemptive relief with the Commission.
Rule 0-2(c)(1) requires that every application for an order for which a form is not
specifically prescribed and which is executed by a corporation, partnership or other company and
filed with the Commission contain a statement of the applicable provisions of the articles of
incorporation, bylaws or similar documents, relating to the right of the person signing and filing
such application to take such action on behalf of the applicant, and a statement that all such

1

15 U.S.C. 80a-1 et seq.

2

15 U.S.C. 80a-6(c).

3

17 CFR 270.0-2.

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requirements have been complied with and that the person signing and filing the application is
fully authorized to do so. If such authorization is dependent on resolutions of stockholders,
directors, or other bodies, such resolutions must be attached as an exhibit to or quoted in the
application. Any amendment to the application must contain a similar statement as to the
applicability of the original statement of authorization. When any application or amendment is
signed by an agent or attorney, rule 0-2(c)(1) requires that the power of attorney evidencing his
authority to sign shall state the basis for the agent’s authority and shall be filed with the
Commission. Every application subject to rule 0-2 must be verified by the person executing the
application by executing an instrument in substantially the form specified in the rule. Each
application subject to rule 0-2 must state the reasons why the applicant is deemed to be entitled
to the action requested, the name and address of each applicant, and the name and address of any
person to whom any questions regarding the application should be directed. Electronic filing of
all applications for orders under the Investment Company Act is mandatory.
2.

Purpose of the Information Collection

Respondents to the collection are applying for orders of the Commission exempting them
from one or more provisions of the Investment Company Act. The Commission uses the
information required by rule 0-2 to decide whether the applicant should be deemed to be entitled
to the action requested by the application.
3.

Role of Improved Information Technology

All applications for orders under any section of the Investment Company Act must be
filed electronically on the Commission’s electronic filing system (Electronic Data Gathering,
Analysis and Retrieval System or “EDGAR”). EDGAR is designed to automate the filing,
processing and dissemination of all disclosure filings. The system permits publicly held

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companies to transmit filings to the Commission electronically. This automation has increased
the speed, accuracy, and availability of information, generating benefits to investors and
financial markets.
4.

Efforts to Identify Duplication

The Commission periodically evaluates collection of information requirements for
duplication, and reevaluates them whenever it proposes a rule or form, or a change in either. The
reporting requirements of rule 0-2 are not duplicated elsewhere.
5.

Effect on Small Entities

The requirements of rule 0-2 apply equally to all applicants seeking orders of the
Commission exempting them from one or more provisions under the Act, regardless of size. The
burden on smaller entities may be greater; however, allowing small entities to seek exemption
from Investment Company Act provisions contributes to lessening the burden on these entities
overall. As required by the Regulatory Flexibility Act, 4 the Commission reviews all rules
periodically to identify ways to minimize reporting and recordkeeping requirements that may
affect small businesses.
6.

Consequences of Less Frequent Collection

The requirements of rule 0-2 apply only to applications for orders from the Commission
for which a form is not specifically prescribed. Applicants file applications as they deem
necessary. Because the Commission has no control over the number of applications submitted, it
cannot generally require less frequent collection unless it does not require the collection with
respect to every application. Eliminating rule 0-2 requirements for certain or all applications
would make it difficult for the Commission to review requests for exemptive relief. The

4

5 U.S.C. 601.

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Commission will, however, when it deems it necessary and appropriate, codify prior exemptive
relief granted to applicants into rules, thus eliminating the need for respondents to file exemptive
applications in those instances and relieving them of the requirements of rule 0-2. 5
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Not applicable.
8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry through public
conferences, meetings and informal exchanges. These various forums provide the Commission
and the staff with a means of ascertaining and acting upon paperwork burdens confronting the
industry. The Commission requested public comment on the collection of information
requirements of rule 0-2 before it submitted this request for extension and approval to the Office
of Management and Budget. The Commission received no comments in response to this request.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

Not applicable.
11.

Sensitive Questions

Not applicable.

5

For example, in 2006 the Commission adopted rules 12d1-1, 12d1-2, and 12d1-3 which codified
and expanded upon a number of exemptive orders issued that permit funds to invest in other
funds. See Fund of Funds Investments, Investment Company Act Release No. 27399 (June 20,
2006) [71 FR 36640 (June 27, 2006)].

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12.

Estimates of Hour Burden

Applicants for orders under the Investment Company Act can include registered
investment companies, affiliated persons of registered investment companies, and issuers seeking
to avoid investment company status, among other entities. Applicants file applications as they
deem necessary. Commission staff estimates that it receives approximately 110 applications per
year under the Investment Company Act. Although each application typically is submitted on
behalf of multiple entities, the entities in the vast majority of cases are related companies and are
treated as a single respondent for purposes of this analysis.
The time to prepare an application depends on the complexity and/or novelty of the issues
covered by the application. We estimate that the Commission receives 15 of the most timeconsuming applications annually, 75 applications of medium difficulty, and 20 of the least
difficult applications. Based on conversations with applicants, we estimate that in-house counsel
would spend from ten to fifty hours helping to draft and review an application. We estimate a
total annual hour burden to all respondents of 3,200 hours [(50 hours x 15 applications) + (30
hours x 75 applications) + (10 hours x 20 applications)] at an annual cost of $1,212,800. 6
The estimate of annual burden hours is made solely for the purposes of the Paperwork
Reduction Act, and is not derived from a comprehensive or even representative survey or study
of the costs of Commission rules and forms.
13.

Estimate of Total Annual Cost Burden

Much of the work of preparing an application is performed by outside counsel. The cost
outside counsel charges applicants depends on the complexity of the issues covered by the
6

The cost estimate is based on the following calculation: 3,650 hours x $379/hour = $1,212,800.
The $379/hour figure for an Attorney is from the SIFMA Report on Management & Professional
Earnings in the Securities Industry 2012, modified to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.

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application and the time required for preparation. Based on conversations with attorneys who
serve as outside counsel, the cost ranges from approximately $10,000 for preparing a wellprecedented, routine application to approximately $150,000 to prepare a complex and/or novel
application. We estimate that the Commission receives 15 of the most time-consuming
applications annually, 75 applications of medium difficulty, and 20 of the least difficult
applications. This distribution gives a total estimated annual cost burden to applicants of filing
all applications of $8,450,000 [(15 x $150,000) + (75 x $80,000) + (20 x $10,000)].
The estimate of annual cost burden is made solely for the purposes of the Paperwork
Reduction Act, and is not derived from a comprehensive or even representative survey or study
of the costs of Commission rules and forms.
14.

Estimate of Cost to the Federal Government

The annual cost of reviewing and processing all applications under the Investment
Company Act for orders from the Commission for exemptive relief amounted to approximately
$9.6 million in fiscal year 2011, based on the Commission’s computation of the value of staff
time devoted to this activity and related overhead.
15.

Explanation of Changes in Burden

The annual burden for this collection of information is estimated to be 3,200 hours and
$8,450,000. The annual hour burden decreased by 450 hours, and the annual cost burden
decreased by approximately $1.2 million, because the number of applications decreased by 15.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to not Display Expiration Date

Not applicable.

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18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.