Daily Rules, Proposed Rules, and Notices of the Federal Government
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The Securities and Exchange Commission (“Commission”) is proposing for comment amendments to Rules 101 and 201 of Regulation S-T
Recently, we initiated a series of amendments to keep EDGAR current technologically and to make it more useful to the investing public and Commission staff. In April 2000, we adopted rule and form amendments in connection with the modernization of EDGAR.
Today, we propose to require that applicants submit electronically on the EDGAR system their applications for orders under any section of the Investment Company Act (“applications”). We make this proposal to facilitate the efficient submission of applications by applicants, to enable the public to access them more quickly and search them more easily, and to improve the Commission's ability to track and process such applications. We also propose to make revisions to Rule 0-2 and related amendments to Regulation S-T, our electronic filing rules. In addition, we are proposing to add Regulation E filings to the list of those that must be filed electronically through EDGAR.
The rules under Regulation S-T currently provide that submissions for exemptive relief under any section of the Investment Company Act shall not be made in electronic format.
We propose to amend certain provisions of Regulation S-T and Investment Company Act Rule 0-2
Regulation S-T requires the electronic filing of any amendments and related correspondence and supplemental information pertaining to a document that is the subject of mandated EDGAR submission.
We make this proposal, in light of the primary goals of the EDGAR system, to facilitate the rapid dissemination of financial and business information in connection with filings, including filings by investment companies. Requiring these applications to be submitted electronically would benefit members of the investing public and the financial community by making information contained in these filings readily available to them and more easily searchable.
As with other entities that make submissions on EDGAR, applicants would be subject to the provisions of Regulation S-T
One technical specification that the EDGAR Filer Manual includes is the electronic “submission type” for each submission made on EDGAR. We expect that the EDGAR electronic submission types for applications would be designed to facilitate and expedite the review of these applications.
Currently, the applications submitted in paper typically reference the provisions of the Investment Company Act and of the rules and regulations under which the application is made.
Consistent with our proposal, we expect that the EDGAR Filer Manual and the EDGARLink software would provide for three EDGAR electronic submission types for applications: 40-APP, 40-OIP, and 40-6B. Submission type 40-APP would be used for submissions typically processed by the Division's Office of Investment Company Regulation; a new submission type 40-OIP would be used for submissions typically processed by the Division's Office of Insurance Products. We also would plan to use submission type 40-6B for employees' securities company applications (also processed by the Office of Investment Company Regulation), since we have historically kept records for these applicants separately. We would discontinue use of the paper submission type 40-6C; applications formerly recorded under this submission type would be submitted as either 40-APP or 40-OIP, as appropriate.
We anticipate that the EDGAR Filer Manual would provide guidance for applicants in choosing the correct submission type. Most applications would be submitted under EDGAR submission type 40-APP, the submission type designated for the Office of Investment Company Regulation. But, the following categories of applications would be transmitted under EDGAR submission type 40-OIP, the submission type for the Office of Insurance Products:
(1) Applications with regard to mixed and shared funding filed under Section 6(c) of the Investment Company Act, for exemptions from the provisions of Sections 9(a), 13(a),
(2) Applications relating to the recapture of bonus credits filed under Section 6(c) of the Investment Company Act for exemptions from the provisions of Sections 2(a)(32) and 27(i)(2)(A) of the Investment Company Act
(3) Applications relating to the substitution of securities held by a variable insurance separate account filed under Section 26(c) of the Investment Company Act;
(4) Applications for approval of the terms of an exchange offer involving variable insurance contracts filed under Section 11(a) of the Investment Company Act.
We believe that these three submission types would facilitate and expedite the review of submissions. Our internal system will be able to quickly route the application to the appropriate office. If applicants have any questions as to the appropriate EDGAR submission type, we would encourage them to verify in advance the correct submission type so that the application can be routed automatically to the appropriate Office. We would provide contact information in the EDGAR Filer Manual and on the Commission's Web site so that, in case of doubt, applicants may contact the staff.
We request comment on whether these EDGAR submission types would be sufficient or whether other or additional submission types would be helpful to applicants or the public in connection with the submission of applications.
For applications with multiple co-applicants, the applicants would be able to submit the application with all co-applicants included in one submission. The applicants would choose one applicant to list first as the “primary” co-applicant. Then, they would include in the EDGAR template the information for all other co-applicants,
We expect that the internal EDGAR system would be enhanced to allow for the upload and public dissemination via the EDGAR system of notices and orders in connection with specific applications.
We request comment on the impact of our making the submission of requests for orders under the Investment Company Act mandatory electronic submissions. Should we implement this rule? We request comment on whether it would be burdensome for us to require applicants to submit applications electronically. To which applications should the rule apply? We ask commenters to address the issue of what the transition period should be for investment companies and other applicants to prepare for the mandatory electronic submission of these applications.
We ask commenters to provide detailed information on any difficulties and considerations unique to these proposed requirements. In the event commenters believe that any aspect of the proposed requirements would be burdensome, we ask for specific details and alternative approaches.
Rule 0-2 currently 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 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 providing a notarized signature in substantially the form specified in the rule. Each application subject to Rule 0-2 must state 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. Rule 0-2 requires that a proposed notice of the proceeding initiated by the filing of the application accompany each application as an exhibit and, if necessary, be modified to reflect any amendment to the application.
We are proposing three amendments to Rule 0-2 governing the form of applications under the Investment Company Act. First, we propose to eliminate the requirement to have verifications of applications and statements of facts made in connection with applications notarized.
We are also proposing an amendment to Rule 201 of Regulation S-T. Rules 201 and 202
A filer may obtain a temporary hardship exemption under Rule 201 if it experiences unanticipated technical difficulties that prevent the timely preparation and submission of an electronic filing by filing a properly legended paper copy
A filer may apply for a continuing hardship exemption under Rule 202 if it cannot file all or part of a filing without undue burden or expense.
We are proposing to make the temporary hardship exemption unavailable for submission of applications under the Investment Company Act.
We have previously made unavailable the ability for filers to use the temporary hardship exemption for EDGAR submissions of beneficial ownership reports filed by officers, directors and principal security holders under Section 16(a) of the Exchange Act [15 U.S.C. 78p(a)].
Currently, these companies must make most of their filings electronically on the EDGAR system. However, they must make their Regulation E
You are invited to submit written comments relating to the rule proposals set forth in this release. We request comment not only on the specific issues we discuss in this release, but on any other approaches or issues that we should consider in connection with the submission of applications for orders and Regulation E filings on the EDGAR system. We seek comment from any interested person, including those required to file information with us on the EDGAR system, as well as investors, disseminators of EDGAR data, EDGAR filing agents, and other members of the public who have access to and use information from the EDGAR system.
We are sensitive to the costs and burdens of our rules. The rules we are proposing today would reflect the addition of applications under the Investment Company Act as mandatory electronic submissions on EDGAR. In addition, the proposals would amend Rule 0-2 and make unavailable to applicants Regulation S-T's provision for temporary hardship exemptions. In addition, the proposals would add Regulation E filings to the list of those that must be filed electronically through EDGAR.
We expect that the addition of applications under the Investment Company Act as mandatory electronic submissions on EDGAR would result in considerable benefits to the securities markets, investors, and other members of the public, by expanding the accessibility of information, and increasing the types of information, filed and made available for public review through the EDGAR system. The primary goal of the EDGAR system since its inception has been to facilitate the rapid dissemination of financial and business information in connection with filings, including filings by investment companies. The proposed amendments would benefit investors, financial analysts and others by increasing the efficiency of retrieving and disseminating these applications. The mandated electronic transmission of these documents would enable the public to access them more quickly and search them more easily. Instead of having to come in person or through an agent to the Commission's public reference room to conduct a search for a particular submission that is in paper or microfiche, the public would be able to find and review the application on any computer with an Internet
Persons who may consider requesting a hearing on an application on the basis of a notice would be able to more easily obtain the actual application so that they could better understand the legal issues. We believe this would be a significant improvement in the applications process.
We also expect that applicants would benefit from the increased efficiencies in the filing process for these submissions resulting from the proposed amendments. By electronically transmitting these documents directly to the Commission, applicants would avoid the uncertainties and delays that can occur with the manual delivery of paper documents; we believe that it would be a simpler and more efficient means to submit applications. Applicants also would benefit from no longer having to submit multiple copies of paper documents to the Commission.
Because the Commission's staff would be able to retrieve and analyze information contained in these submissions more readily than under our current paper system, mandated electronic submission of these documents should facilitate the staff's retrieval and review of a particular document. Applicants and investors should benefit from increased efficiencies in the Commission's storage, retrieval, and analysis of these submissions which would result from the proposed amendments.
We believe the proposal to amend Rule 0-2 would benefit applicants. Removing the notarization requirement would remove a requirement from filers that is unnecessary, and removing the requirement to include a draft notice as an exhibit will result in a cost-savings to applicants. And, we believe that making unavailable to applicants Regulation S-T's Rule 201 provision for temporary hardship exemptions would benefit applicants because applicants would not bear the cost of both submitting an application in paper and in electronic form as a confirming copy within 6 business days as required by the temporary hardship exemption rule. This is true in light of the fact that there is no deadline for the submission of an application.
We also expect that the addition of Regulation E filings as mandatory electronic submissions on EDGAR would result in benefits to the securities markets, investors, and other members of the public, by expanding the accessibility of information, and increasing the types of information, filed and made available for public review through the EDGAR system. Requiring these Regulation E filings to be submitted on EDGAR would benefit members of the investing public and the financial community by making information contained in these Commission filings more easily searchable and readily available to them. The proposals would result in the benefit to the public of the EDGAR page of our Web site being a comprehensive source from which to find filings of small business investment companies and business development companies.
We also expect that Regulation E filers would benefit from the increased efficiencies in the filing process for these submissions resulting from the proposed amendments. By electronically transmitting these documents directly to the Commission, these filers would avoid the uncertainties and delays that can occur with the manual delivery of paper documents; we believe that it would be a simpler and more efficient means to submit these Regulation E filings. Regulation E filers also would benefit from no longer having to submit multiple copies of paper documents to the Commission.
The proposed amendments would benefit investors, financial analysts and others by increasing the efficiency of retrieving and disseminating these filings. The mandated electronic transmission of these documents would enable the public to access them more quickly. Instead of having to come in person or through an agent to the Commission's public reference room to conduct a search for a particular submission that is in paper or microfiche, the public would be able to find and review the filing on any computer with an Internet connection by accessing the EDGAR system through the Commission's Web site or through a third party Web site that links to EDGAR. The proposed amendments would also enable financial analysts and others to retrieve, analyze and disseminate more rapidly this information.
An investor would be able to more efficiently gather information of interest about Regulation E filers. Also, Regulation E filers and investors should benefit from increased efficiencies in the Commission's storage, retrieval, and analysis of these submissions which would result from the proposed amendments. Mandated EDGAR submission of these documents would result in their addition to the Commission's central electronic repository of filings that is free to anyone who has access to a computer linked to the Internet. Because the Commission's staff would be able to retrieve and analyze information contained in these Regulation E submissions more readily than under our current paper system, mandated electronic submission of these documents should facilitate the staff's retrieval and review of a particular document.
In the Paperwork Reduction Act section, we estimate that, if the proposed amendments are adopted, the total reduction in the burden would be approximately $52,550.
We expect that, if adopted, the proposed amendments would result in some initial and ongoing costs to applicants. We also expect, however, that many applicants would not bear the full range of costs that would result from the amendments for the reasons described below. Initial costs are those associated with filing a Form ID in order to obtain the access codes needed to submit an application electronically and otherwise preparing to make an application submission.
Ongoing costs are those associated with maintaining the framework developed through the initial costs (for example, updating information required by Form ID) and additional costs arising from each subsequent submission of an application.
We expect that the vast majority of applicants would need to incur few, if any, additional costs related to obtaining computer and Internet access. We believe that the vast majority of
We expect no additional costs to applicants from our proposal to amend Rule 0-2. We request comment on whether our proposed amendments to Rule 0-2 to remove the current requirements for notarization of the application and provision of a draft notice as an exhibit would result in any additional costs. We expect no additional costs to applicants from our proposal to make unavailable to applicants Regulation S-T's Rule 201 provision for temporary hardship exemption. An applicant would still be able to request a continuing hardship exemption under Regulation S-T Rule 202 under appropriate circumstances.
We believe that mandatory EDGAR submission of Regulation E filings would result in minimal cost to these filers. For the following reasons, we also expect that Regulation E filers would not bear the full range of costs frequently associated with new electronic filing requirements. Initial costs are those associated with the purchase of compatible computer equipment and software, including EDGAR software if obtained from a third-party vendor and not from the Commission's Web site. Initial costs also include those resulting from the training of existing employees to be EDGAR proficient or the hiring of additional employees or agents that are already skilled in EDGAR processing. Initial costs further include those associated with the formatting and transmission of an applicant's first document submitted on EDGAR. These transmission costs may include those related to subscribing to an Internet service provider. Regulation E filers already file on EDGAR and would have minimal or no initial costs.
Ongoing costs are those associated with the electronic formatting and transmission of subsequent EDGAR filings. Regulation E filers may also incur future costs resulting from the training or hiring of employees regarding updated EDGAR filing requirements. The magnitude of these costs would depend on the filers' levels of technological proficiency and their previous familiarity with EDGAR filing requirements. Regulation E filers would incur the ongoing costs associated with formatting and transmitting their subsequent EDGAR filings. Consequently, the mandated EDGAR requirements should result only in costs related primarily to the electronic formatting of these documents in a format compatible with EDGAR, and transmission of the EDGAR formatted documents to the Commission. In any event, we believe that any costs for transmission, formatting, and education would be comparable to savings from not having to incur similar costs related to paper submissions.
We solicit comment on the costs and benefits of the proposed amendments. We request your views on the costs and benefits described above as well as on any other costs and benefits that could result from adoption of these proposals. Please identify any costs or benefits associated with the rule proposal for the mandatory electronic submission of applications (and related proposed amendments to Investment Company Act Rule 0-2 and Rule 201 of Regulation S-T) and Regulation E filings and any impact that the rule proposals may have on the ease of locating and using EDGAR data. How much, if any, expense would be avoided with the removal of the notary and draft notice requirements? What are the benefits that investors, financial analysts, other members of the financial community, applicants, and small business investment company and business development company Regulation E filers should realize from these proposals? Would the proposed amendments help an investor to gather information about an applicant and its operations? What are the likely expected initial and ongoing costs of these added categories of mandated EDGAR submissions? Are there costs in addition to those discussed above? Are there unidentified costs associated with any of the proposed amendments and, if so, what are they?
We encourage commenters to identify any costs or benefits associated with the rule proposals. We also request data to quantify the costs and the benefits identified.
Section 23(a)(2) of the Exchange Act requires us, in adopting rules under the Exchange Act, to consider the anti-competitive effects of any rules that we adopt thereunder. Furthermore, Section 2(b) of the Securities Act,
The proposed amendments regarding mandated electronic filing of applications and the related amendments to Rule 0-2 and Regulation S-T's Rule 201 are intended to simplify the requirements for submitting applications and facilitate more efficient transmission, analysis, storage and retrieval of information. This should improve the accessibility and usefulness of information available to all applicants and the public, including those wishing to request a hearing on an application. It may make the investment products offered by applicants more competitive, since all applicants would have ready access to the applications of others. The proposed rules would also improve the accessibility of information available to the public about the operation of investment companies and improve investors' ability to make informed investment decisions. We believe the proposed amendments would not impose a burden on competition and would not have an adverse impact on capital formation. The proposed amendments regarding mandated electronic filings under Regulation E by small business investment companies and business development companies are intended to facilitate more efficient transmission, analysis, storage and retrieval of information. This should improve the accessibility and usefulness of information available for use by filers, investors, and the public. It may make the investment products offered by filers more competitive, since all filers would have immediate online access to Regulation E filings of their competitors. We believe that the proposed rules would also improve the accessibility of information available to the public about the operation of small business investment companies and business development companies and thereby improve investors' ability to make informed investment decisions. We believe the proposed amendments would not impose a burden on
We request comment on the impact the proposed rule would have on efficiency, competition and capital formation. We request comment on whether the proposed amendments, if adopted, would impose a burden on competition and whether they would promote efficiency, competition, and capital formation. We also request commenters to provide empirical data and other factual support for their views if possible.
This Initial Regulatory Flexibility Act Analysis (Analysis) has been prepared in accordance with 5 U.S.C. 603. It relates to our proposed amendments to add applications for orders under the Investment Company Act to the list of submissions that must be made electronically, including proposals to amend Rule 0-2 and make unavailable to applicants the provision for temporary hardship exemptions in Rule 201 of Regulation S-T, and to add Regulation E filings to the list of those that must be filed electronically through EDGAR.
The proposals would require applications for orders under any section of the Investment Company Act to be submitted electronically on EDGAR. The proposed amendments to Rule 0-2 would remove the requirements for notarization and provision of a draft notice, and the proposed amendments to Rule 201 of Regulation S-T would make applications ineligible for temporary hardship exemptions. We make these proposals because the absence of an electronic system for submitting applications for orders limits the usefulness of the information collected.
The proposals would add Regulation E filings made by small business investment companies and business development companies to the list of those that must be filed electronically through EDGAR. We also make this proposal because the absence of an electronic system for submitting Regulation E filings limits the usefulness of the information collected.
We are proposing amendments to Rules 101, and 201 of Regulation S-T and Rule 0-2 under the Investment Company Act pursuant to authority set forth in Sections 6, 7, 8, 10 and 19(a) of the Securities Act [15 U.S.C. 77f, 77g, 77h, 77j, and 77s(a)], Sections 3, 12, 13, 14, 15(d), 23(a) and 35A of the Exchange Act [15 U.S.C. 78c, 78l, 78m, 78n, 78o(d), 78w(a), and 78ll], and Sections 8, 30, 31 and 38 of the Investment Company Act [15 U.S.C. 80a-8, 80a-29, 80a-30, and 80a-37].
For purposes of the Regulatory Flexibility Act, an investment company is a small entity if it, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year.
The proposed amendments would require applicants to submit requests for orders and small business investment companies and business development companies to submit Regulation E filings electronically on the EDGAR system. The Commission estimates some one-time formatting and ongoing burdens that would be imposed on all applicants and Regulation E filers, including those that are small entities. We note, however, that all Regulation E filers and many applicants currently make other filings on EDGAR. Furthermore, we believe that non-investment company applicants would have no greater burden than that of those filers of Section 16 reports or Schedules 13D and 13G
There would be no change in reporting or recordkeeping requirements. The proposed amendments to Rule 0-2 would reduce compliance requirements to the extent that they would remove the requirements for notarization of the application and provision of a draft notice with the application.
We solicit comment on the effect the proposed amendments would have on small entities.
The Commission believes that there are no rules that duplicate, overlap, or conflict with the proposed amendments.
The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish our stated objectives, while minimizing any significant adverse impact on small entities. In connection with the proposed amendments, the Commission considered the following alternatives: (i) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (ii) the clarification, consolidation, or simplification of compliance and reporting requirements under the proposed amendments for small entities; (iii) the use of performance rather than design standards; and (iv) an exemption from coverage of the proposed amendments, or any part thereof, for small entities.
The Commission believes at the present time that special compliance or reporting requirements for small entities, or an exemption from coverage for small entities, would not be appropriate or consistent with investor protection. Different requirements for applicants or Regulation E filers that are small entities could make it more difficult for the public to locate Commission filings and disclosure documents for these applicants. We believe it is important that the benefits resulting from the proposal be provided to the public for all applications and Regulation E filings, not just the ones from those that are not considered small entities.
We have endeavored throughout the proposed amendments to minimize the regulatory burden on all applicants and Regulation E filers, including small entities, while meeting our regulatory objectives. Small entities should benefit from the Commission's reasoned approach to the proposed amendments
The Commission encourages the submission of written comments with respect to any aspect of this analysis. Comment is specifically requested on the number of small entities that would be affected by the proposed amendments and the likely impact of the proposals on small entities. Commenters are asked to describe the nature of any impact and provide empirical data supporting the extent of the impact. These comments will be considered in the preparation of the Final Regulatory Flexibility Act Analysis if the proposed rule amendments are adopted, and will be placed in the same public file as comments on the proposal.
The proposed rule amendments contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
The title for the collection of information is “General Requirements of Papers and Applications.”
Applicants file applications as they deem necessary. The Commission receives approximately 125 applications per year under the Investment Company Act of 1940. 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 applicant for purposes of this analysis.
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. Based on conversations with applicants and attorneys, the cost ranges from approximately $7,000 for preparing a well-precedented, routine application to approximately $80,000 to prepare a complex and/or novel application. We estimate that the Commission receives 20 of the most time-consuming applications annually, 80 applications of medium difficulty, and 25 of the least difficult applications. This distribution gives a total estimated annual cost burden to applicants of filing all applications of $5,255,000 [(20 × $80,000) + (80 × $43,500) + (25 × $7,000)].
In addition, based on conversations with applicants, we estimate that in-house counsel would spend from ten to fifty hours helping to draft and review an application. We estimate a total annual hour burden to all respondents of 3,650 hours (50 hours × 20 applications) + (30 hours × 80 applications) + (10 hours × 25 applications). We are proposing to decrease the burden associated with the existing collection of information for Rule 0-2 to reflect the proposed amendments. The proposed amendments to Rule 0-2 would, if adopted, eliminate the requirement to have verifications of applications and statements of facts made in connection with applications notarized. The notary service would be provided by a secretary or similar administrative employee of the applicant or the outside counsel preparing the application and would represent a negligible cost or hour burden to the applicant, so elimination of the notarization requirement would not be likely to decrease the burden measurably.
The proposed amendments would also eliminate the requirement that applicants include proposed notices as exhibits to applications. A proposed notice is merely a summary of the statements in the application. We estimate that preparation of the proposed notice by outside counsel represents approximately 1% of the cost of preparing an application. Elimination of this requirement would reduce the estimated cost burden by approximately $52,550 (1% of $5,255,000). The proposed amendments will not change the hour burden.
If the proposed amendments are adopted, we estimate the total reduction in the burden would be approximately $52,550.
The title for the collection of information is “General Rules and Regulations for Electronic Filing.” (OMB Control No. 3235-0424). The purpose