Rule 0-2 SUPPORTING STATEMENT [ETFS ADOPTION]

OMB CONTROL NUMBER 3235-0636

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 0-2
A. JUSTIFICATION
1. Necessity for the Information Collection
Several sections of the Investment Company Act of 1940 (“Act” or “Investment
Company 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 6(c), which provides the Commission with authority to
conditionally or unconditionally exempt persons, securities or transactions from any
provision of the Investment Company 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 6(c) to give the Commission the flexibility
to address unforeseen or changed circumstances in the investment company industry. Rule
0-2 under the Investment Company Act, 3 entitled “General Requirements of Papers and
Applications,” prescribes general instructions for filing an application seeking exemptive
relief with the Commission.
Rule 0-2(c)(1) 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 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 0-2(c)(1) 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 0-2 must
be verified by the person executing the application by executing an instrument in
substantially the form specified in the rule. Each application subject to rule 0-2 must state
1

15 U.S.C. 80a-1 et seq.

2

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

3

17 CFR 270.0-2.

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the reasons why the applicant is deemed to be entitled to the action requested, 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. Electronic filing of all applications for orders
under the Investment Company Act is mandatory.
On September 25, 2019, the Commission issued a release adopting a new rule that will
permit exchange-traded funds (“ETFs”) that satisfy certain conditions to operate without
the expense and delay of obtaining an exemptive order. 4
2. Purpose and Use of the Information Collection
Respondents to the collection are applying for orders of the Commission exempting
them from one or more provisions of the Investment Company Act. The Commission uses
the information required by rule 0-2 to decide whether the applicant should be deemed to be
entitled to the action requested by the application.
3. Consideration Given to Information Technology
All applications for orders under any section of the Investment Company Act must be
filed electronically on the Commission’s electronic filing system (Electronic Data
Gathering, Analysis and Retrieval System or “EDGAR”). EDGAR is designed to automate
the filing, processing and dissemination of all 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.
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 0-2 are not duplicated elsewhere.
5. Effect on Small Entities
The requirements of rule 0-2 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 Investment Company Act provisions contributes to lessening the burden on
these entities overall. As required by the Regulatory Flexibility Act, 5 the Commission
reviews all rules periodically to identify ways to minimize reporting and recordkeeping
requirements that may affect small businesses.

4

Exchange-Traded Funds, Investment Company Act Release No. 33646 ([Sept. 25], 2019) [84
FR 57162 (Oct. 24, 2019)].

5

5 U.S.C. 601.

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6. Consequences of Not Conducting Collection
The requirements of rule 0-2 apply only to applications for orders from the Commission
for which a form is not specifically prescribed. Applicants file applications as they deem
necessary. 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 0-2 requirements for certain or
all applications would make it difficult for the Commission to 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 0-2. 6
7. Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
Not applicable.
8. Consultation Outside the Agency
The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company 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. The Commission requested public comment on the collection of
information requirements of rule 0-2 before it submitted the request for extension and
approval to the Office of Management and Budget. The Commission received no comments
in response to this 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). A System of Records Notice for applications under the

6

For example, in 2006 the Commission adopted rules 12d1-1, 12d1-2, and 12d1-3 which
codified and expanded upon a number of exemptive orders issued that permit funds to invest
in other funds. See Fund of Funds Investments, Investment Company Act Release No. 27399
(June 20, 2006) [71 FR 36640 (June 27, 2006)].

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Investment Company Act can be found at
https://www.sec.gov/about/privacy/sorn/secsorn2.pdf.
12. Burden of Information Collection
Applicants for orders under the Investment Company Act can include registered
investment companies, affiliated persons of registered investment companies, and issuers
seeking to avoid investment company status, among other entities. Applicants file
applications as they deem necessary. Commission staff estimates that it receives
approximately 184 applications per year under the Investment Company Act. Although
each application typically is submitted on behalf of multiple entities, the entities in the vast
majority of cases are related companies and are treated as a single respondent for purposes
of this analysis. The time to prepare an application depends on the complexity and/or
novelty of the issues covered by the application.
Rule 6c-11 will permit ETFs that satisfy the conditions of the rule to operate without the
need to obtain an exemptive order from the Commission under the Act. 7 Therefore, rule 6c11 will alleviate some of the burdens associated with rule 0-2 because it will reduce the
number of entities that require exemptive relief in order to operate. Based on staff
experience, we estimate that approximately one-third (rounded to 30%) of the annual
burdens, both internal and external, associated with rule 0-2 are attributable to ETF
applications.
TABLE 1: RULE 0-2 PRA ESTIMATES
Annual hours

Annual internal time cost

Annual external cost burden 8

Rule 0-2 burdens currently approved

x = 5,340

y = $2,029,200.60

z = $14,090,000

Estimated effect of rule 6c-11 on rule 0-2 burdens

- 0.3(x)

- 0.3(y)

- 0.3(z)

Revised estimated burden

3,738 hours

$1,420,440.42

$9,863,000

7

See supra footnote 4 and accompanying text.

8

See infra section 13.

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TABLE 2: CHANGE IN RULE 0-2 PRA ESTIMATES
Annual Number of Responses
Previously approved: 184
Requested:
184
Change:
0
Annual Time Burden (Hours)
Previously approved: 5,340 hours
Requested:
3,738 hours
Change:
-1,602 hours
Annual Cost Burden ($)
Previously approved: $14,090,000
Requested:
$9,863,000
Change:
-$4,227,000

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 representative survey or study
of the costs of Commission rules and forms.
13. Cost to Respondents
Much of the work of preparing an application is performed by outside counsel. The
cost outside counsel charges applicants depends on the complexity of the issues covered by
the application and the time required for preparation. The approved total estimated annual
cost burden to applicants of filing all applications is $14,090,000. As discussed above, based
on staff experience, we estimate that approximately one-third (rounded to 30%) of the
annual burdens, both internal and external, associated with rule 0-2 are attributable to ETF
applications. As shown in Table 1 above, we estimate that the total estimated annual cost
burden will decrease to $9,863,000.
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 Investment
Company Act for orders from the Commission for exemptive relief amounted to
approximately $9.6 million in fiscal year 2018, based on the Commission’s computation of
the value of staff time devoted to this activity and related overhead.
15. Changes in Burden
The estimated hourly burden associated with rule 0-2 decreased from 5,340 hours to
3,738 hours (a decrease of 1,602 hours), and the estimated annual cost burden decreased
from $14,090,000 to $9,863,000 (a decrease of $4,227,000). 9 These decreases are due to our
9

See supra Table 2.

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adoption of rule 6c-11, which we believe will decrease the hour and cost burdens associated
with rule 0-2.
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 Submission
Not applicable.
B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.