Rule 0-4 Supporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 0-4
A.

JUSTIFICATION
1.

Necessity for the Collection Information

Multiple sections of the Investment Advisers Act of 1940 (“Act” or “Advisers 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 206A, which provides the Commission with authority to conditionally or unconditionally
exempt persons, securities or transactions from any provision of the Advisers 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 206A to give the Commission
the flexibility to address unforeseen or changed circumstances in the investment adviser industry.
Rule 0-4 under the Advisers Act, 3 entitled “General Requirements of Papers and Applications,”
prescribes general instructions for filing an application seeking exemptive relief with the
Commission.
Rule 0-4 currently 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. 80b-1 et seq.

2

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

3

17 CFR 275.0-4.

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 0-4 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 0-4 must be verified by the person executing the
application by providing a notarized signature in substantially the form specified in the rule.
Each application subject to rule 0-4 must state the reasons why the applicant is deemed to be
entitled to the action requested with a reference to the provisions of the Act and rules thereunder,
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. Rule 0-4 requires that a proposed notice
of the proceeding initiated by the filing of the application accompany each application as an
exhibit and, if necessary, be modified to reflect any amendment to the application.
Rule 0-4 contains a currently approved “collection of information,” for purposes of the
Paperwork Reduction Act, under Office of Management and Budget (“OMB”) control number
3235-0633. An agency may not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB control number.
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 Advisers Act. The requirements of rule 0-4 are designed to
provide Commission staff with the necessary information to assess whether granting the orders

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of exemption are necessary and appropriate, in the public interest and consistent with the
protection of investors and the intended purposes of the Act.
3.

Consideration Given to Information Technology

Currently, applications subject to rule 0-4 are not permitted to be filed electronically, but
the Commission may consider them for electronic filing in the future.
4.

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 0-4 are not duplicated elsewhere.
5.

Effect on Small Entities

The requirements of rule 0-4 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 Advisers 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 Not conducting Collection

The requirements of rule 0-4 apply only to applications for orders from the Commission
for which a form is not specifically prescribed. 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 0-4

4

5 U.S.C. 601.

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requirements for certain or all applications would make it difficult for the Commission to process
and review requests for exemptive relief. The 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 0-4.
7.

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

Rule 0-4 requires applications to be filed in quintuplicate. 5 Multiple copies are needed
because they must be distributed to several different offices within the Commission.
8.

Consultations Outside the Agency

The Commission requested public comment on the collection of information
requirements in rule 0-4 before it submitted this request for extension to the Office of
Management and Budget. The Commission received no comments in response to its request.
The Commission and the staff of the Division of Investment Management also participate
in an ongoing dialogue with representatives of the investment adviser 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.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.

5

17 CFR 275.0-4(b).

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11.

Sensitive Questions

There are no questions of a sensitive nature asked. This information collection does not
collect any Personally Identifiable Information (PII).
12.

Burden of Information Collection

Most of the work of preparing an application is performed by outside counsel and,
therefore, imposes no hourly burden on the respondents. Nevertheless, the Commission requests
approval for one burden hour for administrative purposes. 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.

Costs to Respondents

Applicants for orders under the Advisers Act can include registered investment advisers,
affiliated persons of registered investment advisers, and entities seeking to avoid investment
adviser status, among others. Commission staff estimates that it receives up to three applications
per year submitted under rule 0-4 of the Act seeking relief from various provisions of the
Advisers Act and, in addition, up to nine applications per year submitted under Advisers Act rule
206(4)-5, which addresses certain “pay to play” practices and also provides the Commission the
authority to grant applications seeking relief from certain of the rule’s restrictions. 6 Although
some applications are submitted on behalf of multiple applicants, these applicants in the vast
majority of cases are related entities and are treated as a single respondent for purposes of this
analysis. Most of the work of preparing an application is performed by outside counsel. The

6

See 17 CFR 275.206(4)-5(e) (providing the Commission authority, upon application, to exempt
an adviser from certain of the rule’s restrictions, and providing a non-exclusive list of factors the
Commission will consider when evaluating these applications).

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cost outside counsel charges applicants depends on the complexity of the issues covered by the
application and the time required. Based on conversations with applicants and attorneys, the cost
for applications ranges from approximately $12,800 for preparing a well-precedented, routine (or
otherwise less involved) application to approximately $200,000 to prepare a complex or novel
application. We estimate that the Commission receives one of the most time-consuming
applications annually, two applications of medium difficulty, and nine of the least difficult
applications subject to rule 0-4. 7 This distribution gives a total estimated annual cost burden to
applicants of filing all applications of $402,200 [(1x$200,000) + (2x$43,500) + (9x$12,800)].
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.

Cost to the Federal Government

The annual cost of reviewing and processing all applications under the Advisers Act for
orders from the Commission for exemptive relief amounted to approximately $600,000 in fiscal
year 2014, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead.
15.

Changes in Burden

There is no change in hour burden. Rule 0-4 imposes no hourly burden, however we are
continuing to request one hour for administrative purposes. The estimated annual cost burden
for this collection of information has decreased from $702,000 to $402,200 because the number
of applications decreased.
16.
7

Information Collection Planned for Statistical Purposes

The estimated 9 least difficult applications include the estimated 9 applications per year
submitted under Advisers Act rule 206(4)-5.

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Not applicable.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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