60 day notice

60 day notice for crowdfunding 300-304.pdf

Crowdfunding Rules 300-304 (Intermediaries)

60 day notice

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Federal Register / Vol. 83, No. 240 / Friday, December 14, 2018 / Notices

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definition of investment company under
the Act.
In 1997, the Commission adopted rule
3a–4, which clarifies that programs
organized and operated in accordance
with the rule are not required to register
under the Investment Company Act or
comply with the Act’s requirements.1
These programs differ from investment
companies because, among other things,
they provide individualized investment
advice to the client. The rule’s
provisions have the effect of ensuring
that clients in a program relying on the
rule receive advice tailored to the
client’s needs.
For a program to be eligible for the
rule’s safe harbor, each client’s account
must be managed on the basis of the
client’s financial situation and
investment objectives and in accordance
with any reasonable restrictions the
client imposes on managing the
account. When an account is opened,
the sponsor 2 (or its designee) must
obtain information from each client
regarding the client’s financial situation
and investment objectives, and must
allow the client an opportunity to
impose reasonable restrictions on
managing the account.3 In addition, the
sponsor (or its designee) must contact
the client annually to determine
whether the client’s financial situation
or investment objectives have changed
and whether the client wishes to impose
any reasonable restrictions on the
management of the account or
reasonably modify existing restrictions.
The sponsor (or its designee) must also
notify the client quarterly, in writing, to
contact the sponsor (or its designee)
regarding changes to the client’s
financial situation, investment
objectives, or restrictions on the
account’s management.
Additionally, the sponsor (or its
designee) must provide each client with
a quarterly statement describing all
activity in the client’s account during
the previous quarter. The sponsor and
1 Status of Investment Advisory Programs Under
the Investment Company Act of 1940, Investment
Company Act Rel. No. 22579 (Mar. 24, 1997) [62 FR
15098 (Mar. 31,1997)] (‘‘Adopting Release’’). In
addition, there are no registration requirements
under section 5 of the Securities Act of 1933 for
programs that meet the requirements of rule 3a–4.
See 17 CFR 270.3a–4, introductory note.
2 For purposes of rule 3a–4, the term ‘‘sponsor’’
refers to any person who receives compensation for
sponsoring, organizing or administering the
program, or for selecting, or providing advice to
clients regarding the selection of, persons
responsible for managing the client’s account in the
program.
3 Clients specifically must be allowed to designate
securities that should not be purchased for the
account or that should be sold if held in the
account. The rule does not require that a client be
able to require particular securities be purchased for
the account.

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personnel of the client’s account
manager who know about the client’s
account and its management must be
reasonably available to consult with the
client. Each client also must retain
certain indicia of ownership of all
securities and funds in the account.
The Commission staff estimates that
19,618,731 clients participate each year
in investment advisory programs relying
on rule 3a–4.4 Of that number, the staff
estimates that 3,531,372 are new clients
and 16,087,359 are continuing clients.5
The staff estimates that each year the
investment advisory program sponsors’
staff engage in 1.5 hours per new client
and 1 hour per continuing client to
prepare, conduct and/or review
interviews regarding the client’s
financial situation and investment
objectives as required by the rule.6
Furthermore, the staff estimates that
each year the investment advisory
program sponsors’ staff spends 1 hour
per client to prepare and mail quarterly
client account statements, including
notices to update information.7 Based
on the estimates above, the Commission
estimates that the total annual burden of
the rule’s paperwork requirements is
41,003,148 hours.8
The estimate of average burden hours
is made solely for the purposes of the
Paperwork Reduction Act. The estimate
is not derived from a comprehensive or
even a representative survey or study of

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the costs of Commission rules and
forms. 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
control number.
Written comments are invited on: (a)
Whether the collections of information
are necessary for the proper
performance of the functions of the
Commission, including whether the
information has practical utility; (b) the
accuracy of the Commission’s estimate
of the burdens of the collections of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burdens of the collections
of information on respondents,
including through the use of automated
collection techniques or other forms of
information technology. Consideration
will be given to comments and
suggestions submitted in writing within
60 days of this publication.
Please direct your written comments
to Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Candace
Kenner, 100 F Street NE, Washington,
DC 20549; or send an email to: PRA_
[email protected].
Dated: December 10, 2018.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018–27094 Filed 12–13–18; 8:45 am]

4 These

estimates are based on an analysis of the
number of individual clients from Form ADV Item
5D(a)(1) and (b)(1) of advisers that report they
provide portfolio management to wrap programs as
indicated in Form ADV Item 5I(2)(b) and (c), and
the number of individual clients of advisers that
identify as internet advisers in Form ADV Item
2A(11). From analysis comparing reported
individual client assets in Form ADV Item 5D(a)(3)
and 5D(b)(3) to reported wrap portfolio manager
assets in Form ADV Item 5I(2)(b) and (c), we
discount the estimated number of individual clients
of non-internet advisers providing portfolio
management to wrap programs by 10%. These
estimates are based on the number of new clients
expected due to average year-over-year growth in
individual clients from Form ADV Item 5D(a)(1)
and (b)(1) (about 8%) and an assumed rate of yearly
client turnover of 10%.
5 These estimates are based on the number of new
clients expected due to average year-over-year
growth in individual clients from Form ADV Item
5D(a)(1) and (b)(1) (about 8%) and an assumed rate
of yearly client turnover of 10%.
6 These estimates are based upon consultation
with investment advisers that operate investment
advisory programs that rely on rule 3a–4.
7 The staff bases this estimate in part on the fact
that, by business necessity, computer records
already will be available that contain the
information in the quarterly reports.
8 This estimate is based on the following
calculation: (16,087,359 continuing clients × 1
hour) + (3,531,372 new clients × 1.5 hours) +
(19,618,731 total clients × (0.25 hours × 4
statements)) = 41,003,148 hours. We note that the
breakdown of burden hours between professional
and staff time discussed below may not equal the
estimate of total burden hours due to rounding.

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BILLING CODE 8011–01–P

SECURITIES AND EXCHANGE
COMMISSION
SEC File No. 270–774, OMB Control No.
3235–0726]

Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington, DC
20549–2736
Extension:
Rules 300–304 of Regulation
Crowdfunding (Intermediaries).

Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(‘‘PRA’’) (44 U.S.C. 3501 et seq.), the
Securities and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
provided for Rule 17Ab2–1 (17 CFR
240.17Ab2–1) and Form CA–1:
Registration of Clearing Agencies (17
CFR 249b.200) under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’)
(15 U.S.C. 78a et seq.). The Commission
plans to submit this existing collection

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64384

Federal Register / Vol. 83, No. 240 / Friday, December 14, 2018 / Notices

of information to the Office of
Management and Budget (‘‘OMB’’) for
extension and approval.
Rules 300–304 of Regulation
Crowdfunding enumerate the
requirements with which intermediaries
must comply to participate in the offer
and sale of securities in reliance on
Section 4(a)(6) of the Securities Act of
1933 (‘‘Section 4(a)(6)’’). Rule 300
requires an intermediary to be registered
with the Commission as a broker or as
a funding portal and be a member of a
registered national securities
association.1
Rule 301 requires intermediaries to
have a reasonable basis for believing
that an issuer seeking to offer and sell
securities in reliance on Section 4(a)(6)
through the intermediary’s platform
complies with the requirements in
Section 4A(b) of the Securities Act and
the related requirements in Regulation
Crowdfunding. Rule 302 provides that
no intermediary or associated person of
an intermediary may accept an
investment commitment in a transaction
involving the offer or sale of securities
made in reliance on Section 4(a)(6) until
the investor has opened an account with
the intermediary and the intermediary
has obtained from the investor consent
to electronic delivery of materials. Rule
303 requires an intermediary to make
publicly available on its platform the
information that an issuer of
crowdfunding securities is required to
provide to potential investors, in a
manner that reasonably permits a
person accessing the platform to save,
download or otherwise store the
information, for a minimum of 21 days
before any securities are sold in the
offering, during which time the
intermediary may accept investment
commitments. Rule 303 also requires
intermediaries to comply with the
requirements related to the maintenance
and transmission of funds. An
intermediary that is a registered broker
is required to comply with the
requirements of Rule 15c2–4 of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) (Transmission or
Maintenance of Payments Received in
Connection with Underwritings).2 An
intermediary that is a registered funding
portal must direct investors to transmit
the money or other consideration
directly to a qualified third party that
has agreed in writing to hold the funds
for the benefit of, and to promptly
transmit or return the funds to, the
1 Currently,

FINRA is the only registered national
securities association.
2 17 CFR 240.15c2–4.

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persons entitled thereto in accordance
with Regulation Crowdfunding.
The rules also require intermediaries
to implement and maintain systems to
comply with the information disclosure,
communication channels, and investor
notification requirements. These
requirements include providing
disclosure about compensation at
account opening (Rule 302), obtaining
investor acknowledgements to confirm
investor qualifications and review of
educational materials (Rule 303),
providing investor questionnaires (Rule
303), providing communication
channels with third parties and among
investors (Rule 303), notifying investors
of investment commitments (Rule 303),
confirming completed transactions
(Rule 303) and confirming or
reconfirming offering cancellations
(Rule 304).
The Commission staff estimates that
there are 62 intermediaries engaged in
crowdfunding activity and therefore
subject to Rules 300–304. The
Commission staff estimates that
annualized industry burden would be
15,621 hours to comply with Rules 300–
304. This estimate is composed of a onetime burden for new intermediaries to
comply with the rules and develop the
platform and ongoing burdens
associated with maintaining the
platform. The Commission staff
estimates that the costs associated with
complying with Rules 300–304 are
estimated to be approximately a total
amount of $5,772,327. These costs are
composed of a one-time burden for new
intermediaries to comply with the rules
and develop the platform and ongoing
burdens associated with maintaining the
platform.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including whether the
information shall have practical utility;
(b) the accuracy of the Commission’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
under the PRA unless it displays a
currently valid OMB control number.

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Please direct your written comments
to: Charles Riddle, Acting Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington,
DC 20549, or send an email to: PRA_
[email protected].
Dated: December 10, 2018.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018–27093 Filed 12–13–18; 8:45 am]
BILLING CODE 8011–01–P

SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84778; File No. SR–
CboeEDGX–2018–058]

Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Amend Its Provision Related to Its Risk
Monitor Mechanism
December 10, 2018.

Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
30, 2018, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) proposes to
amend its provision related to its Risk
Monitor Mechanism. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (http://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, and
at the Commission’s Public Reference
Room.
1 15

U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17

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