Rule 22e-3 Supporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 22e-3
A.

JUSTIFICATION
1.

Necessity of Information Collection

Section 22(e) of the Investment Company Act [15 U.S.C. 80a-22(e)] (“Act”) generally
prohibits funds, including money market funds, from suspending the right of redemption, and
from postponing the payment or satisfaction upon redemption of any redeemable security for
more than seven days. The provision was designed to prevent funds and their investment
advisers from interfering with the redemption rights of shareholders for improper purposes, such
as the preservation of management fees. Although section 22(e) permits funds to postpone the
date of payment or satisfaction upon redemption for up to seven days, it does not permit funds to
suspend the right of redemption for any amount of time, absent certain specified circumstances
or a Commission order.
Rule 22e-3 under the Act [17 CFR 270.22e-3] exempts money market funds from section
22(e) to permit them to suspend redemptions in order to facilitate an orderly liquidation of the
fund. Specifically, rule 22e-3 permits a money market fund to suspend redemptions and
postpone the payment of proceeds pending board-approved liquidation proceedings if: (i) the
fund’s board of directors, including a majority of disinterested directors, determines pursuant to
§ 270.2a-7(c)(8)(ii)(C) that the extent of the deviation between the fund’s amortized cost price
per share and its current net asset value per share calculated using available market quotations
(or an appropriate substitute that reflects current market conditions) may result in material
dilution or other unfair results to investors or existing shareholders; (ii) the fund’s board of
directors, including a majority of disinterested directors, irrevocably approves the liquidation of

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the fund; and (iii) the fund, prior to suspending redemptions, notifies the Commission of its
decision to liquidate and suspend redemptions. Rule 22e-3 also provides an exemption from
section 22(e) for registered investment companies that own shares of a money market fund
pursuant to section 12(d)(1)(E) of the Act (“conduit funds”), if the underlying money market
fund has suspended redemptions pursuant to the rule. A conduit fund that suspends redemptions
in reliance on the exemption provided by rule 22e-3 is required to provide prompt notice of the
suspension of redemptions to the Commission. Notices required by the rule must be provided by
electronic mail, directed to the attention of the Director of the Division of Investment
Management or the Director’s designee. 1 Compliance with the notification requirement is
mandatory for money market funds and conduit funds that rely on rule 22e-3 to suspend
redemptions and postpone payment of proceeds pending a liquidation, and are not kept
confidential.
2.

Purposes and Use of Information Collection

Certain provisions of rule 22e-3 contain “collection of information” requirements within
the meaning of the Paperwork Reduction Act of 1995 [44 U.S.C. 3501, et seq.]. The
Commission is submitting this collection of information to the Office of Management and
Budget (“OMB”) for review in accordance with 44 U.S.C. 3507 and 5 CFR 1320.12. The
purpose of the information collection requirement in rule 22e-3 is to assist Commission staff in
monitoring a fund’s suspension of redemptions and ascertaining whether such suspension is
consistent with the purposes of the rule and the protection of investors. 2 Rule 22e-3 is intended

1

See rule 22e-3(a)(3).

2

The rule permits the Commission to modify or rescind the exemption provided by the rule if
necessary for the protection of shareholders (for example, if a liquidating fund has not devised, or
is not properly executing a plan of liquidation that protects all shareholders). Rule 22e-3(c).

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to facilitate orderly liquidations, reduce the vulnerability of investors to the harmful effects of a
run on a fund, and minimize the potential for disruption to the securities markets.
3.

Consideration Given to Information Technology

Rule 22e-3 would require a fund that suspends redemptions in reliance on the rule to
provide notice to the Commission by electronic mail. The requirement to use electronic mail is
intended to effect timely delivery of notice, and reflects current primary methods of
communications in the business world.
4.

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 collection requirements in rule 22e-3 are not duplicated elsewhere.
5.

Effect on Small Entities

Commission staff expects that rule 22e-3 will have no impact on small entities. We
review all rules periodically, as required by the Regulatory Flexibility Act, to identify methods to
minimize recordkeeping or reporting requirements affecting small entities.
6.

Consequences of Not Conducting Collection

Less frequent information collection would be incompatible with the objectives of rule
22e-3. The notice requirement of the rule is necessary to assist Commission staff in monitoring a
money market fund’s suspension of redemptions under the rule. Moreover, the notice
requirement is triggered only in the extraordinary event that a fund breaks the buck, or is at
imminent risk of breaking the buck, and determines to liquidate.
7.

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

Not applicable.

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8.

Consultation Outside of the Agency

Before adopting rule 22e-3, the Commission received and evaluated 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.
The Commission requested public comment on this collection of information before it
submitted this request for extension to the Office of Management and Budget. The Commission
received no comments in response to its request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection does not collect personally
identifiable information (PII).

The agency has determined that a system of records notice

(SORN) and privacy impact assessment (PIA) are not required in connection with the collection
of information.
12.

Burden of Information Collection

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Commission staff estimates that, on average, one money market fund would break the
buck and liquidate every six years. 3 In addition, Commission staff estimates that there are an
average of two conduit funds that may be invested in a money market fund that breaks the buck. 4
Commission staff further estimates that a money market fund or conduit fund would spend
approximately one hour of an in-house attorney’s time to prepare and submit the notice required
by the rule. Given these estimates, the total annual burden of the notification requirement of rule
22e-3 for all money market funds and conduit funds would be approximately 30 minutes, 5 at a
cost of $201. 6
All of the estimates in this section are made solely for the purposes of the PRA and are
not derived from a comprehensive or even representative survey or study of the cost of
Commission rules.

3

This estimate is based upon the Commission’s experience with the frequency with which money
market funds have historically required sponsor support. Although the vast majority of money
market fund sponsors have supported their money market funds in times of market distress, for
purposes of this estimate Commission staff conservatively estimates that one or more sponsors
may not provide support.

4

Based on a review of filings with the Commission, Commission staff estimates that 2.3 conduit
funds are invested in each master fund. However, master funds account for only 5.1% of all
money market funds. Solely for the purposes of this information collection, and to avoid
underestimating possible burdens, the Commission conservatively assumes that any money
market that breaks the buck and liquidates would be a master fund.

5

This estimate is based on the following calculations: (1 hour ÷ 6 years) = 10 minutes per year for
each fund and conduit fund that is required to provide notice under the rule. 10 minutes per year
x 3 (combined number of affected funds and conduit funds) = 30 minutes.

6

This estimate is based on the following calculation: $401/hour x 30 minutes = $200.50. The
estimated hourly wages used in this PRA analysis were derived from reports prepared by the
Securities Industry and Financial Markets Association, modified to account for an 1800-hour
work year and multiplied by 5.35 to account for bonuses, firm size, employee benefits and
overhead, and adjusted for inflation.

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13.

Cost to Respondents

The Commission staff estimates that there is no cost burden associated with the
information collection requirement of rule 22e-3 other than the cost of the burden identified in
Item 12 of this Supporting Statement.
14.

Cost to the Federal Government

The Commission does not expect that receiving and reviewing the notices required under
rule 22e-3 would result in a material increase in staff time or annual operating costs.
15.

Changes in Burden

There is no change in the estimate of burden hours from the previous PRA.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submissions
Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.