Form N-CEN Supporting Statement - Derivatives (2015)

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Proposed Form N-CEN
A.

JUSTIFICATION
1.

Necessity for the Information Collection

All registered investment companies with the exception of face amount certificate
companies are required to file periodic reports with the Commission under the Investment
Company Act of 1940 (“Investment Company Act”) (15 U.S.C. 80a-1 et seq.). Section
30(a) of the Investment Company Act (15 U.S.C. 80a-29(a)) provides that each registered
investment company must file annually with the Commission such information,
documents and reports as investment companies having securities registered on a national
securities exchange are required to file annually under the Securities Exchange Act of
1934 (“Exchange Act”) (15 U.S.C. 78a et seq.). In addition, Section 30(b) of the
Investment Company Act (15 U.S.C. 80a-29(b)) requires each registered investment
company to file, among other things, “such information, documents, and reports (other
than financial statements), as the Commission may require to keep reasonably current the
information and documents contained in the registration statement of such company….”
On May 20, 2015, the Commission issued a release proposing, among other
things, to update and modernize the Form by which the Commission collects census-type
information for registered funds by amending rule 30a-1 (17 CFR 270.30a-1) to require
all funds to file reports on proposed Form N-CEN (17 CFR 274.101) on an annual basis.
Similar to current Form N-SAR (17 CFR 274.101), proposed Form N-CEN would require
reporting with the Commission of certain census-type information. 1 However, unlike

1

Investment Company Reporting Modernization, Investment Company Act Release No. 31610

Form N-SAR, which requires semi-annual reporting for all management investment
companies, proposed Form N-CEN would require annual reporting. This new collection
of information would be mandatory for all registered funds, and responses would not be
kept confidential.
On September 22, 2015, the Commission issued a release proposing new rule and
amendments to its rules and forms designed to promote effective liquidity risk management
throughout the open-end fund industry, thereby reducing the risk that funds will be unable to
meet redemption obligations and mitigating dilution of the interests of fund shareholders in
accordance with section 22(e) and rule 22c-1 under the Investment Company Act. 2 The
proposed amendments also seek to enhance disclosure regarding fund liquidity and
redemption practices. With respect to report and disclosure, among other things, the
Commission proposed amendments to proposed Form N-CEN that would require disclosure
of certain information regarding a fund’s liquidity risk management practices.
On December 11, 2015, the Commission issued a release proposing rule 18f-4, a

new exemptive rule under the Investment Company Act designed to address the investor
protection purposes and concerns underlying section 18 of the Act and to provide an
updated and more comprehensive approach to the regulation of funds’ use of derivatives,
as well as proposed amendments to proposed Forms N-PORT and N-CEN. 3 The
proposed rule would permit mutual funds, exchange-traded funds (“ETFs”), closed-end
funds, and companies that have elected to be treated as business development companies
(May 20, 2015) [80 FR 33590 (June 12, 2015)] (“Investment Company Reporting Modernization
Release”).
2

Open-End Fund Liquidity Risk Management Programs; Swing Pricing; Re-Opening of Comment
Period for Investment Company Reporting Modernization Release, Securities Act Release No. 339922 (Sep. 22, 2015) [80 FR 62274 (Oct. 15, 2015)] (“Liquidity Proposal”).

3

Use of Derivatives by Registered Investment Companies and Business Development Companies
(Dec. 11, 2015) (Proposing Release) [80 FR 80883 (Dec. 28, 2015)] (“Derivatives Proposal”).

2

(“BDCs”) under the Investment Company Act (collectively, “funds”) to enter into
derivatives transactions and financial commitment transactions (as those terms are
defined in the proposed rule) notwithstanding the prohibitions and restrictions on the
issuance of senior securities under section 18 of the Act, provided that the funds comply
with the conditions of the proposed rule. With respect to reporting and disclosure, among
other things, the Commission proposed amendments to proposed Form N-CEN that would

require reporting and disclosure of certain information regarding a fund’s derivatives
usage.
2.

Purpose of the Information Collection

The purpose of proposed Form N-CEN is to satisfy the filing and disclosure
requirements of Section 30 of the Investment Company Act, and of proposed amended
rule 30a-1 thereunder. The information required to be filed with the Commission assures
the public availability of the information and is designed to facilitate the Commission’s
oversight of registered funds and its ability to monitor trends and risks.
3.

Role of Improved Information Technology

The Commission’s electronic filing system (Electronic Data Gathering, Analysis
and Retrieval or “EDGAR”) is designed to automate the filing, processing and
dissemination of full disclosure filings. The system permits publicly held 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. Reports on proposed Form N-CEN would be required to be filed with
the Commission electronically on EDGAR in a structured (XML) format which would
permit the electronic analysis of the data in a single filing or in comparison over time or
among similar investment companies. The public may access filings on EDGAR through
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the Commission’s Internet Web site (http://www.sec.gov) or at EDGAR terminals located
at the Commission’s public reference rooms.
4.

Efforts to Identify Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it proposes a rule or a
change in a rule. The information on proposed Form N-CEN either would not be
duplicated elsewhere at all or would not be duplicated in a format that permits the
electronic analysis of the data in a single filing or in comparison over time or among
similar investment companies. Any information solicited by proposed Form N-CEN that
may be duplicated in other documents filed with the Commission is in narrative format so
that it can be read and understood by investors. The Commission is not able to analyze
narrative information electronically on a regular basis, using database or spreadsheet
applications.
5.

Effect on Small Entities

Form N-CEN must be filed by all registered investment companies other than face
amount certificate companies, regardless of size. The burden on smaller funds, however,
to prepare reports on proposed Form N-CEN may be greater than for larger funds. The
Commission believes, however, that imposing different requirements on smaller
investment companies would not be consistent with investor protection and the purposes
of Section 30 of the Investment Company Act.
The Commission reviews all rules periodically, as required by the Regulatory
Flexibility Act, to identify methods to minimize recordkeeping or reporting requirements
affecting small businesses.

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6.

Consequences of Less Frequent Collection

The Commission requires the filing of proposed Form N-CEN annually for all
registered investment companies so that it will have current information available for use
in performing inspections, selectively reviewing registration documents, and conducting
studies and other types of analyses necessary to keep the Commission’s regulatory
program for investment companies current with industry conditions. Less frequent
collection would mean that current information may not be available to investors and
may potentially decrease investor confidence in the full and fair disclosure system that is
the hallmark of the U.S. capital markets.
7.

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

Not applicable.
8.

Consultation Outside The Agency

Before adopting proposed Form N-CEN, the Commission will receive and
evaluate public comments on the proposal and its collection of information requirements.
Moreover, the Commission and staff of the Division of Investment Management
participate in an ongoing dialogue with representatives of the industry through public
conferences, meetings, and informal exchanges. These various forums provide the
Commission and the staff with a means of ascertaining the magnitude of and acting upon
paperwork burdens confronting the industry.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurances of Confidentiality

Not applicable.

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11.

Sensitive Questions

No SSNs collected. A System of Records Notice (SEC-6) can be found at
http://www.sec.gov/about/privacy/secprivacyoffice.htm.
12.

Estimate of Hour Burden

In the Investment Company Reporting Modernization Release, we estimated that
the average annual hour burden per response for proposed Form N-CEN for the first year
would be 32.37 hours and 12.37 hours in subsequent years. 4 Amortizing the burden over
three years, we estimated that the average annual hour burden per fund per year would be
19.04 and the total average annual hour burden would be 59,900 hours. 5 We also
estimated that all applicable funds would incur, in the aggregate, external annual costs of
$1,748,637, which would include the costs of registering and maintaining LEIs for funds.
In the Liquidity Proposal, we estimated that the annual average burden per
additional response to proposed Form N-CEN as a result of the proposed liquidity
amendments would be 0.5 hour per fund per year for a total average annual hour burden
of 4,367 hours. 6 We also estimated that the one time and ongoing annual costs associated
with providing additional responses to proposed Form N-CEN as a result of the proposed
amendments would be approximately $160 per fund, for a total cost of approximately
$1,397,440. 7 We did not estimate any change to the external costs associated with
proposed Form N-CEN.

4

Investment Company Reporting Modernization Release, at n. 762 and accompanying text.

5

Id. at n. 765 and accompanying text.

6

Liquidity Proposal, at n. 865 and accompanying text.

7

Id. at n. 800 and accompanying text. $160 x 8734 funds = $1,397,440.

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We are proposing amendments to Form N-CEN to identify whether the fund
relied upon proposed rule 18f-4. Specifically, the proposed amendments to Form N-CEN
would require a fund to identify the portfolio limitation(s) on which the fund relied
during the reporting period.
We estimate that 2,419 funds would be required to file responses on Form N-CEN
as a result of the proposed amendments to the form. 8 We therefore estimate that 2,419
funds would incur an average annual hour burden of .25 hours for the first year to
compile (including review of the information), tag, and electronically file the additional
information in light of the proposed amendments, and an average annual hour burden of
approximately .1 hours for each subsequent year’s filing. We further estimate an upper
bound on the initial costs of $80 per fund 9 with annual ongoing costs of $32 per fund. 10
Amortized over three years, the aggregate average annual hour burden would be an
additional .15 hours per fund, 11 with average annual ongoing costs of $48 per fund. 12
In sum, we estimate that the proposed amendments to Form N-CEN would
impose an average total annual hour burden of an additional 363 hours on applicable

8

This estimate is based on 2,419 management companies and 727 UITs filing reports on Form NSAR as of Dec. 31, 2014. UITs would not be required to complete Item 31 of proposed Form NCEN. See General Instruction A of proposed Form N-CEN.

9

This estimate is based on multiplying .25 hours by a blended hourly wage of $318.50 per hour,
$303 per hour for Senior Programmers and $334 per hour for compliance attorneys, as we believe
these employees would commonly be responsible for completing reports on proposed Form NCEN ($318.50 x .25 = $80). See Investment Company Reporting Modernization Release, at n.723
and accompanying text.

10

This estimate is based on multiplying .1 hours by a blended hourly wage of $318.50 per hour,
$303 per hour for Senior Programmers and $334 per hour for compliance attorneys, as we believe
these employees would commonly be responsible for completing reports on proposed Form NCEN ($318.50 x .1 = $32). See Investment Company Reporting Modernization Release, at n.723
and accompanying text.

11

The estimate is based on the following calculation: (.25 + (.1 x 2)) ÷ 3 = .15 hours

12

The estimate is based on the following calculation: ($80 + ($32 x 2)) ÷ 3 = $48

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funds, 13 and an average additional total cost of $115,616 on applicable funds. 14 We do
not anticipate any change to the total external annual costs of $1,748,637. 15
13.

Estimate of Total Annual Cost Burden

We do not estimate any change to the external costs associated with proposed
amendments to proposed Form N-CEN.
14.

Estimate of Costs to the Federal Government

Not applicable. This request for approval of the collection of information for this
rule and form has not been previously approved by OMB. This submission does not
include other Form N-CEN collection of information requirements, which were proposed
by the Commission in the Investment Company Reporting Modernization Release and
submitted to OMB on July 22, 2015 and also in the Open-End Fund Liquidity Risk
Management Programs; Swing Pricing; Re-Opening of the Comment Period for
Investment Company Reporting Modernization Release, which was submitted to OMB
on December 1, 2015.
15.

Explanation of Changes in Burden

Not applicable. This request for approval of the collection of information for this
form has not been previously approved by OMB.
16.

Information Collection Planned For Statistical Purposes

Not applicable.
13

The estimate is based on the following calculation: (2,419 funds x .15 hours) = 363 hours.

14

This estimate is based on annual ongoing burden estimate of 363 burden hours for management
companies (2,419 management companies x .15 hours per filing). This was then multiplied by a
blended hourly wage of $318.50 per hour, $303 per hour for Senior Programmers and $334 per
hour for compliance attorneys, as we believe these employees would commonly be responsible for
completing reports on proposed Form N-CEN ($318.50 x 363 = $115,616). See Investment
Company Reporting Modernization Release, at n.723 and accompanying text.

15

See Investment Company Reporting Modernization Release, at n.769 and accompanying text.

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17.

Approval to Not Display Expiration Date

We request authorization to omit the expiration date on the electronic version of
the form for design and IT project scheduling reasons. The OMB control number will be
displayed.
18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not applicable.

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