FR 2025-03338

In a recent notice from the Securities and Exchange Commission (SEC), the Commission seeks an extension of approval for Rule 22e-3 from the Office of Management and Budget (OMB). This rule concerns money market funds and their ability to temporarily halt redemptions to facilitate an orderly liquidation. The SEC outlines the minimal time requirement for funds to notify the Commission of such actions, estimating the burden at one hour annually with associated costs of $511.

General Summary

The document primarily focuses on Rule 22e-3, which allows money market funds to suspend redemptions as a part of their liquidation processes. This capability is particularly important in maintaining stability and ensuring equitable treatment of all investors when a fund is winding down its operations. The SEC highlights the notification requirement associated with this rule, which involves submitting a notice to the Commission if a fund suspends redemptions under Rule 22e-3. The SEC requests public comments on this extension by April 3, 2025.

Significant Issues or Concerns

Several concerns arise from the SEC's notice:

1. Lack of Detailed Justification: The document does not delve into the necessity of extending the rule or assess its effectiveness historically. Without such evaluation, the utility of this rule may not be thoroughly understood by stakeholders.

2. Cost Estimation Scrutiny: The estimation of a one-hour burden annually at a cost of $511 for a single notice seems high, especially without a detailed breakdown. This lack of transparency could be perceived as unnecessarily wasteful spending.

3. Unexplained Cost Increase: The notice references an increase in "external costs" from $0 to $584 but provides no explanation. This could lead to suspicions of inefficiency or unwarranted expenditures.

4. Complex Language: The technical language throughout the document may be difficult for individuals without expertise in securities regulation to understand, potentially limiting the opportunity for meaningful public feedback.

5. Weak Rationale: The assumption that one fund would issue a notice every year appears unsubstantiated, given that no notices have been reported to date. This indicates that the actual need may be even less frequent than estimated.

Impact on the Public

For the general public, particularly investors in money market funds, this rule carries implications for understanding the security and behavior of investments in potentially turbulent situations. Transparency and efficient regulation can bolster investor confidence, but the complexity of the document might hinder such understanding and engagement.

Impact on Specific Stakeholders

For Money Market Funds: The rule grants funds the flexibility to manage sudden redemptions in an orderly manner, which could be critical during financial crises. However, the compliance burden, albeit minimal, could still deter smaller funds with limited resources.

For Lawyers and Compliance Professionals: For professionals involved in ensuring legal compliance for investment firms, staying informed of these regulatory nuances is essential. The vague cost descriptions may require additional clarification or negotiation with the SEC to solidify compliance measures.

In conclusion, while the rationale for extending Rule 22e-3 is presented, the document could benefit from a clearer explanation of its necessity and cost-effectiveness to ensure both public and stakeholder buy-in. Engaging with the public in a more accessible manner and elaborating on financial implications would enhance understanding and support for the rule.

The document under review seeks feedback on a request submitted by the Securities and Exchange Commission (SEC) to extend a collection of information concerning Rule 22e-3. This rule is under the Paperwork Reduction Act and deals with the rare circumstance where certain funds can suspend redemptions to manage an orderly liquidation.

Financial Details and Allocations

The financial references in the document primarily revolve around the estimated burden and costs associated with complying with Rule 22e-3. Specifically, it is stated that the total annual burden of the notification requirement is approximately one hour, costing $511. This cost is attributed to the time and resources needed for an in-house attorney to prepare and submit the necessary notice. Moreover, the document reports an increase in external costs, from $0 to $584, related to this process.

Relation to Identified Issues

Estimation Concerns

One key issue is the estimation of expenses and burdens. The cost of $511 for just an hour of work seems high, particularly when framed as a routine task of submission. Without a detailed breakdown of what this expense covers—be it legal fees, administrative costs, or processing fees—it may prompt skepticism about the cost's justification. This lack of breakdown might be perceived as an example of inefficient allocation or wasteful spending.

Justification and Need

The SEC estimates that, on average, one fund will need to make this notification annually. Yet, the document acknowledges that to date, no such notices have been received. This raises questions about the practical need for maintaining the regulation as it stands, especially given the associated costs. If the rule is seldom invoked, the expenditure tied to maintaining the processes for its enforcement may not align with its actual utility or necessity.

Transparency and Clarity

The increase in external costs from $0 to $584 lacks a comprehensive explanation. This sudden rise could appear unwarranted to external observers, as no context or detailed justification is provided for this shift. The absence of a clear explanation leaves room for concerns about transparency and possibly unnecessary financial burden on the entities involved.

These financial details highlight potential gaps between the estimated costs, their justifications, and the actual necessity or application of the rule's provisions. Addressing these gaps by improving clarity and providing more substantive explanations could enhance public comprehension and trust in the rule's administration.