NEW Form N-CEN Supporting Statement For ETF Proposal

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

JUSTIFICATION
1.

Necessity of 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….”
Form N-CEN is a structured form that requires registered funds to provide censustype information to the Commission on an annual basis. 1 Filers must submit this report
electronically using the Commission’s electronic filing system (“EDGAR”) in Extensible
Markup Language (“XML”) format. This collection of information is mandatory for all
registered funds, and responses will not be kept confidential.
1

See Investment Company Reporting Modernization, Investment Company Act Release No. 32314
(October 13, 2016) (“Reporting Modernization Adopting Release”). Form N-CEN was proposed in
Investment Company Reporting Modernization, Investment Company Act Release No. 31610 (May 20,
2015) (“Proposing Release”).

On June 28, 2018, the Commission issued a release proposing amendments to
Form N-CEN, relating to proposed new rule 6c-11 under the Investment Company Act. 2
Proposed rule 6c-11 would permit exchange-traded funds (“ETFs”) that satisfy certain
conditions to operate without obtaining an exemptive order. In relevant part, the
proposed Form N-CEN amendments would require ETFs to report whether they are
relying on rule 6c-11. 3
2.

Purpose and Use of the Information Collection

Form N-CEN contain “collections of information” within the meaning of the
Paperwork Reduction Act of 1995 (“PRA”), and the Commission is submitting the
collection of information to the Office of Management and Budget (“OMB”) for review
in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The purpose of Form N-CEN
is to satisfy the filing and disclosure requirements of Section 30 of the Investment
Company Act, and of 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.

Consideration Given to 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
2

See Exchange-Traded Funds, Investment Company Act Release No. 33140 (June 28, 2018) (the
“ETF Release”).
3

See proposed Item C.7.k. of Form N-CEN.

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speed, accuracy and availability of information, generating benefits to investors and
financial markets. Reports on Form N-CEN are 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 the
Commission’s Internet Web site (http://www.sec.gov) or at EDGAR terminals located at
the Commission’s public reference rooms.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it proposes a rule or a form
or a change in a rule or form. The information provided under reports on 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 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 investment
companies, however, to prepare reports on Form N-CEN may be greater than for larger
investment companies. The Commission believes, however, that imposing different

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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.
6.

Consequences of Not Conducting Collection

The Commission requires the filing of 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

The Commission and staff of the Division of Investment Management participate
in an ongoing dialogue with representatives of the investment company industry through
public conferences, meetings, and information 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 also requested public comment on
changes in information collection requirements related to the proposed Form N-CEN

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amendments in the ETF Release before it submitted this request for revision and approval
to the OMB.
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 collects basic
Personally Identifiable Information (PII) that may include names, job titles, work
addresses and telephone numbers. However, the agency has determined that the
information collection does not constitute a system of record for purposes of the Privacy
Act. Information is not retrieved by a personal identifier. In accordance with Section
208 of the E-Government Act of 2002, the agency has conducted a Privacy Impact
Assessment (PIA) of the EDGAR system, in connection with this collection of
information. The EDGAR PIA, published on 1/29/2016, is provided as a supplemental
document and is also available at https://www.sec.gov/privacy.
12.

Burden of Information Collection

We previously estimated that the Commission would receive an average of 3,113
reports on Form N-CEN. 4 We further estimated the total aggregate annual hour burden
to be 74,425 hours.

4

See Reporting Modernization Adopting Release at text accompanying n.1524.

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We estimate in the ETF Release that, based on Commission staff experience, we
believe that our proposal to require ETFs to report if they are relying on rule 6c-11 would
increase the estimated burden hours associated with Form N-CEN by approximately 0.1
hours, both initially and on an ongoing basis. 5 Therefore, in the aggregate, we estimate
that ETFs would incur an annual burden of an additional 163.5 hours to comply with the
proposed amendments to Form N-CEN,6 for a new annual aggregate total of 74,588.5
hours. 7 The monetized value of these 74,588.5 burden hours is estimated to be $25.02
million. 8
13.

Cost to Respondents

The Commission previously estimated, with respect to the initial filing of a report
on Form N-CEN, an external cost of $219 per fund and, with respect to subsequent

5

This estimate stems from the Commission staff’s understanding of the time it takes to complete
initially complete and review items on Form N-CEN.
6

This estimate is based on the following calculation: 0.1 hours x 1,635 ETFs = 163.5 hours.

7

This estimate is based on the following calculation: 74,425 hours + 163.5 hours = 74,588.5 hours.

8

The Commission estimates the wage rate associated with these burden hours based on salary
information for the securities industry compiled by the Securities Industry and Financial Markets
Association. The estimated wage figure is based on published rates for senior programmers and compliance
attorneys, modified to account for an 1,800-hour work year; multiplied by 5.35 to account for bonuses, firm
size, employee benefits, and overhead; and adjusted to account for the effects of inflation, yielding
effective hourly rates of $319 and $352, respectively. See Securities Industry and Financial Markets
Association, Report on Management & Professional Earnings in the Securities Industry 2013. We estimate
that senior programmers and compliance attorneys would divide their time equally, yielding an estimated
hourly wage of $335.50. ($319 per hour for senior programmers + $3352 per hour for compliance
attorneys) ÷ 2 = $335.50 per hour. Based on the Commission’s estimate of 74,588.5 burden hours per year
and the estimated wage rate of $335.50 per hour, the total annual paperwork expenses for funds associated
with the internal hour burden imposed by the reporting requirements of Form N-CEN are about $25.02
million. This estimate is based upon the following calculation: 74,588.5 hours per year × $335.50 per hour
= $25.02 million.

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filings, an annual external cost of $119 per fund. 9 We estimated that the
amortized annual external cost per fund would be $152.33. 10 External costs include the
cost of goods and services, which with respect to reports on Form N-CEN, would include
the costs of registering and maintaining an LEI for the registrant/funds. 11 In sum, we
estimated that all applicable funds will incur, in the aggregate, external annual costs of
$2,088,176. 12
We estimate in the ETF Release that the proposed amendments to Form N-CEN
would impose no additional external costs associated with this collection of information.
14.

Costs to Federal Government

We previously estimated that the annual cost of reviewing and processing new
registration statements, post-effective amendments, proxy statements, and shareholder
reports of investment companies amounted to approximately $19.5 million in fiscal year
2015, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead.
9

As of June 30, 2016, the cost of obtaining an LEI from the Global Markets Entity Identifier
(“GMEI”) Utility in the United States was $200, plus a $19 surcharge for the LEI Central Operating Unit.
The annual cost of maintaining an LEI from the GMEI Utility was $100, plus a $19 surcharge for the LEI
Central Operating Unit. See GMEI Utility, Frequently Asked Questions, available at
https://www.gmeiutility.org/frequentlyAskedQuestions.jsp. The Commission has further estimated the
one-time burden associated with obtaining an LEI is one hour, with ongoing administration of an LEI
corresponding to one hour per year.
10

This estimate is based on the following calculation: $219 + (2 years x $119) / 3 = $152.33.

11

See Items B.1.d. and C.1.c. of Form N-CEN (requiring LEI for the registrant and each
management investment company).

12

This estimate is based on the following calculation: $152 per registrant or fund per year × (3,113
investment company registrants + 9,039 mutual funds (which reflects the number of mutual fund series, but
excludes money market funds, which would have already obtained LEIs pursuant to the requirements of
Form N-MFP) + 1,586 ETFs (excluding 8 UITs that are not ETFs)) = $152 per fund per year × 13,738
registrants and funds = $2,088,176 per year. This estimate is based on data obtained from the Investment
Company Institute (“ICI”) and reports filed by registrants on Form N-SAR. See ICI, 2016 I NVES T M ENT
COM P ANY F AC T BOOK (56th ed., 2016) at 22, 176, available at
https://www.ici.org/pdf/2016_factbook.pdf.

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More recently, we estimated that the annual cost of reviewing and processing new
registration statements, post-effective amendments, proxy statements, and shareholder
reports of investment companies amounted to approximately $22.2 million in fiscal year
2017, based on the Commission’s computation of the value of staff time devoted to this
activity and related overhead. We estimate that the proposed amendments to Form NCEN, however, would impose no additional costs to the federal government associated
with this collection of information.
15.

Changes in Burden

The estimated change in burden for the collection of information for Form NCEN associated with the proposed amendments to Form N-CEN in the ETF Release is an
increase of 163.5 hours. We estimate that the proposed amendments to Form N-CEN
would impose no additional external costs associated with this collection of information.
16.

Information Collection Planned For Statistical Purposes

Not applicable.
17.

Approval to Omit OMB 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 for Paperwork Reduction Act Submissions

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

Not applicable.

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