Rule 139b (2022) Supporting Statement

OMB CONTROL NUMBER: 3235-0769
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 139b
A. JUSTIFICATION
1.

Necessity for the Information Collection

As directed by the Fair Access to Investment Research Act of 2017 1 (the “FAIR Act”), the
Commission adopted rule 139b under the Securities Act of 1933 2 to extend the safe harbor under
rule 139 to a “covered investment fund research report.” 3 Specifically, rule 139b provides a safe
harbor to a broker-dealer who publishes or distributes in the regular course of its business
research reports concerning one or more “covered investment fund(s)” while participating in the
distribution of a covered investment fund’s securities. A broker-dealer may issue an issuerspecific research report or an industry research report so long as the respective conditions for each
report are met; however, should a broker-dealer offer performance information in either report, it
must comply with the disclosure requirements for standardized performance in rule 139b(a)(3).
As a result, rule 139b contains a “collection of information” requirement within the meaning of
the Paperwork Reduction Act of 1995 (“PRA”). 4
In the Adopting Release, the Commission adopted a provision that rule 139b include a
standardize performance requirement. The standardized performance requirement of rule 139b
compels broker-dealers issuing research reports that include performance information about open1

Pub. L. 115-66, 131 Stat. 1196 (2017).

2

15 U.S.C. 77a et seq.

3

See Covered Investment Fund Research Reports, Securities Act Release No. 10580 (Nov. 30, 2018)
[83 FR 64180 (Dec. 13, 2018)] (“Adopting Release”).

4

44 U.S.C. 3501–3521.

end funds to do so in accordance with the requirements set forth in paragraphs (d), (e), and (g) of
rule 482. 5 Rule 139b 6 also requires that research reports that include performance information
about closed-end funds present it in accordance with the instructions to item 4.1(g) of Form N-2 7
under the Investment Company Act of 1940 (“Investment Company Act”). 8 Performance
measures calculated by broker-dealers are not required to be kept confidential and there is no
mandatory retention period.
2.

Purpose and Use of the Information Collection

As noted above, investors tend to consider fund performance a significant factor in
evaluating or comparing investment companies. Standardized performance also aids in
addressing potential investor confusion if a communication were not easily recognizable as
research as opposed to an advertising prospectus or supplemental sales literature.
Rule 139b compels broker-dealers issuing research reports that include performance
information about open-end funds to do so in accordance with the requirements set forth in
paragraphs (d), (e), and (g) of rule 482. Rule 139b also requires that research reports that include
performance information about closed-end funds present it in accordance with the instructions to
item 4.1(g) of Form N-2 under the Investment Company Act. Thus, the standardized performance
requirement of rule 139b is a “collection of information” requirement within the meaning of the
PRA, and the Commission is submitting the collection of information to the Office of

5

See 17 CFR 230.139b(a)(3) and 17 CFR 230.482.

6

See 17 CFR 230.139b(a)(3).

7

17 CFR §239.14 and 17 CFR 274.11a-1.

8

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

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Management and Budget (“OMB”) for review in accordance with 44 U.S. C. 3507(d) and 5 CFR
1320.11. The rule requires that a broker or dealer that publishes or distributes a research report
under rule 139b and offers performance information in that report, must also provide alongside
that standardized performance information as required by rule 139b(a)(3).
As noted above, rule 139b contains a “collection of information” requirements within
the meaning of the PRA. The title for the collection of information is:
•

3.

“Rule 139b Disclosure of Standardized Performance.”

Consideration Given to Information Technology

The collection of information requirements under the rule 139b will not be provided to
the Commission, either electronically or otherwise.
4.

Duplication

Rule 139b duplicates many of the provisions of rule 139 with modifications to
accommodate covered investment funds. As directed by the FAIR Act, the Commission adopted
rule 139b in order to extend the rule 139 safe harbor for broker-dealers publishing or distributing
research reports when participating in the offering of an issuer’s securities to covered investment
funds. The duplication of rule 139 is, therefore, consistent with Congressional directive.
Furthermore, rule 139b incorporates performance standards from other rules. As
discussed above, rule 139b requires that research reports about open-end funds that include
performance information must present it in accordance with paragraphs (d), (e), and (g) of rule
482. Rule 139b also requires that research reports about closed-end funds that include
performance information must present it in accordance with instructions to item 4.1(g) of Form
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N-2. These overlapping performance standards are intended to promote the Commission’s goal of
minimizing investor confusion related to whether a publication is a research report or an
investment company advertisement or selling material.
The Commission believes that there are no other federal rules duplicating, overlapping, or
conflicting with rule 139b.
5.

Effect on Small Entities

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. The current performance standards for research reports do not distinguish between
small broker-dealers and other broker-dealers. To the extent smaller broker-dealers publish or
distribute research reports, their burden to prepare research reports may be greater than for larger
broker-dealers due to economies of scale. This burden will include the cost of reviewing a
research report to confirm that it meets the requirements of rule 139b.
The Commission considered special requirements for small entities. The Commission
believes, however, that imposing different requirements on smaller broker-dealers will not be
consistent with investor protection and the purposes of the rule’s conditions. The use of different
standards for small entities may create a risk that investors may receive false or misleading
information.
6.

Consequences of Not Conducting Collection

Rule 139b requires that research reports about open-end funds that include performance
information must present it in accordance with paragraphs (d), (e), and (g) of rule 482. Rule 139b
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also requires that research reports about closed-end funds that include performance information
must present it in accordance with instructions to item 4.1(g) of Form N-2. Standardized
performance helps reduce potential investor confusion between research reports and investment
company advertisements or selling materials.
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 information exchanges. These various forums provide the
Commission and staff with a means of ascertaining and acting upon the paperwork burdens
confronting the industry. The Commission requested public comment on the information
collection requirements in rule 139b before it submitted this request for approval to OMB. The
Commission received no comments in response to its request.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No PII collected/not applicable.
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12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the PRA and are not derived from a quantitative, comprehensive, or even representative survey
or study of the burdens associated with Commission rules and forms. Rule 139b(a)(3) requires
that covered investment fund research reports about open-end funds that include performance
information must present it in accordance with paragraphs (d), (e), and (g) of rule 482. Rule
139b(a)(3) also requires that covered investment fund research reports about closed-end funds that
include performance information must present it in accordance with instructions to item 4.1(g) of
Form N-2. The standardized performance requirement is mandatory only if a broker-dealer
provides performance information in their covered investment fund research report. Performance
information provided in a covered investment fund research report will not be kept confidential.
For purposes of the PRA, we estimate that 10% of the rule 482 and rule 34b-1
communications currently filed by broker-dealers with FINRA (approximately 48,341) could be
considered as rule 139b covered investment fund research reports. 9 We estimate that
broker-dealers will publish annually 4,834 (10% of 48,341) covered investment fund research
reports. Moreover, we assume for purposes of the PRA that all estimated rule 139b research
reports will include fund performance information. We further estimate that for the year ended
December 31, 2021, 1,169 broker-dealers would likely be respondents to the collection of
information with a frequency of 4.1 responses for the year. 10 Additionally, we estimate that each

9

10

Based on data provided by FINRA, for the period January 1, 2021 through December 31, 2021, there
were an aggregate of 48,340 filings received by FINRA that were coded either as Rule 482 or Rule
34b-1 filings.
4,834 covered investment fund research reports / 1,169 broker-dealers = 4.1 annual responses per
broker-dealer.

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research report will require 3 hours of ongoing internal burden hours by a broker-dealers’
personnel to comply with the rule 139b collection of information requirements, which for each
broker-dealer is estimated to be 12.3 internal burden hours. 11 Accordingly, we estimate that the
standardized performance presentation requirements will result in an average annual hour burden of
about 12.3 hours per broker-dealer.

In sum, we estimate that rule 139b’s requirements will impose a total annual internal hour
burden of 14,379 hours on broker-dealers. 12 We do not think there is an external cost burden
associated with this collection of information.
Based on a Commission estimate of 14,379 hours and an estimated wage rate of
approximately $243.25 per hour, 13 the total cost of the hour burden for complying with the
standardized performance requirements of rule 139b is $3,497,692. 14

11

4.1 annual responses per broker-dealer x 3 internal burden hours = 12.3 annual internal burden hours
per broker-dealer. In the Adopting Release, the Commission estimated that the initial implementation
of rule 139b would impose additional burden hours upon broker-dealers for a period of three years. As
of the date of this Supporting Statement, such three year phase-in period has expired and the
calculations herein are based upon the original on-going estimate of 3 hours * 4.1 responses.

12

12.3 burden hours * 1,169 broker-dealers.

13

The Commission’s estimates of the relevant wage rates are based on salary information for the
securities industry compiled by the Securities Industry and Financial Markets Association’s Office
Salaries in the Securities Industry 2013, and modified by the Commission staff in 2022 to account for
an 1800-hour work-year and inflation, and multiplied by 5.35 to account for bonuses, firm size,
employee benefits and overhead. The estimated wage rate of $243.25 is a weighted average based on
the estimate that a junior business analyst would handle 75% of the hours spent at an hourly rate of
$191 and a compliance attorney would handle the remaining 25% of the hours spent at an hourly rate
of $400. ($191 x 0.75) + ($4 x 0.25) = $243.25.

14

$243.25 x 14,379 = $3,497,692.

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Table 1: Summary of Annual Responses, Burden Hours, and Burden Hour Costs Estimates
for the Disclosure Requirement under Rule 139b.
IC Title

Annual No. of Responses
Previously Requested
approved

IC Responses

13.

6,500

4,834

Annual Time Burden (Hrs.)

Burden Cost Burden ($)

Change Previously Requested Change Previously Requested
approved
approved
-1,666

20,731

14,379

-6,352 $4,451,982 $3,497,692

Change
-$954,290

Cost to Respondents

Compliance with the conditions of rule 139b will not require any investment in capital
equipment or outside services. As noted above, we do not believe there to be an external cost
burden.
14.

Cost to the Federal Government

There is no cost associated with rule 139b.
15.

Changes in Burden

The total annual hour burden is 14,379 hours. The decrease in burden hours over the
previous burden estimate of 20,731 is due to: (i) the decrease in Rule 139b filings; (ii) a
decrease in the number of estimated broker-dealer respondents; and (iii) the cessation of the
initial three year compliance period and its corresponding affects upon the previous internal
burden hours. Additionally, we do not believe there to be an external cost burden associated
with rule 139b.
16.

Information Collection Planned for Statistical Purposes

Not applicable.

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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.

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