oversight

SEC: Technical Revisions to the Rules and Forms Regulating Money Market Funds

Published by the Government Accountability Office on 1997-12-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Office of the General Counsel


      B-278811



      December 18, 1997

      The Honorable Alfonse M. D'Amato
      Chairman
      The Honorable Paul S. Sarbanes
      Ranking Minority Member
      Committee on Banking, Housing, and Urban Affairs
      United States Senate

      The Honorable Thomas J. Bliley, Jr.
      Chairman
      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Subject:   Securities and Exchange Commission: Technical Revisions to the Rules
                 and Forms Regulating Money Market Funds

      Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on
      a major rule promulgated by the Securities and Exchange Commission (SEC),
      entitled "Technical Revisions to the Rules and Forms Regulating Money Market
      Funds" (RIN: 3235-AE17). We received the rule on December 3, 1997. It was
      published in the Federal Register as a final rule on December 9, 1997. 62 Fed. Reg.
      64968.

      The final rule amends the rules and forms governing money market funds. The rule
      revises terminology used in rule 2a-7 under the Investment Company Act of 1940 to
      reflect common market usage and resolve certain interpretative issues.

      Enclosed is our assessment of the SEC's compliance with the procedural steps
      required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.
      Our review indicates that the SEC complied with the applicable requirements.

      If you have any questions about this report, please contact James Vickers, Assistant
      General Counsel, at (202) 512-8210. The official responsible for GAO evaluation
      work relating to the Securities and Exchange Commission is Thomas McCool,


                                                                            GAO/OGC-98-20
Director, Financial Institutions and Markets Issues. Mr. McCool can be reached at
(202) 512-8678.




Robert P. Murphy
General Counsel

Enclosure

cc: The Honorable Jonathan G. Katz
    Secretary, Securities and Exchange
     Commission




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                                                                         ENCLOSURE

       ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
                                ISSUED BY
              THE SECURITIES AND EXCHANGE COMMISSION
                                ENTITLED
            "TECHNICAL REVISIONS TO THE RULES AND FORMS
                  REGULATING MONEY MARKET FUNDS"
                             (RIN: 3235-AE17)

(i) Cost-benefit analysis

The SEC performed a cost-benefit analysis on the effects of the final rule.

According to the SEC, the costs of the amendments are likely to be minimal
because no additional procedural or reporting burdens are placed on the funds by
the rule.

One benefit of the rule is the additional flexibility that will promote market
efficiency by allowing funds to invest in a wider variety of instruments that present
risks consistent with maintaining a stable net asset value. The SEC states that the
benefits cannot be quantified because it is not possible to predict with certainty
how funds will structure their portfolio holdings in response to the amendments.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,
607, and 609

The SEC prepared an Initial Regulatory Flexibility Analysis in connection with the
proposed rule, which was summarized in the notice of proposed rulemaking and
was available to the public in its entirety. No comments were received in response
to the analysis.

The preamble to the final rule contains a summary of the Final Regulatory
Flexibility Analysis, a complete copy of which was submitted to our Office and was
made available to the public. The analysis describes the reason for the rule and the
legal basis for it; descriptions and estimates of the number of small entities affected
by the rule; a discussion of the recordkeeping, reporting, and other compliance
requirements; and the steps taken to minimize the burdens on small entities.

The SEC estimates that of the approximately 650 investment companies registered
with the SEC that have one or more money market funds, 130 would be considered
small entities.




                                                                     GAO/OGC-98-20
Regarding the steps taken to minimize the burden, the SEC concludes that different
requirements for small entities were not necessary and would be inconsistent with
investor protection. The SEC also states that the final rule uses performance
standards to the extent practicable rather than design standards.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform
Act of 1995, 2 U.S.C. §§ 1532-1535

As an independent regulatory agency, the SEC is not subject to title II of the
Unfunded Mandates Reform Act of 1995.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

The final rule was issued using the notice and comment procedures contained at
5 U.S.C. § 553.

On December 18, 1996, the SEC published a Notice of Proposed Rulemaking in the
Federal Register. 61 Fed. Reg. 66621. The SEC received responses from 17
commenters, including 9 mutual fund complexes. The SEC discusses the comments
received and any changes it made to the proposed rule based on those comments in
the preamble to the final rule.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The final rule contains information collections which are subject to review by the
Office of Management and Budget (OMB) under the Paperwork Reduction Act.

Following a review by OMB of the SEC's submission required by the act, OMB has
approved the collections as complying with the requirements of the act and has
issued control numbers for the documents.

Statutory authorization for the rule

The final rule is issued pursuant to sections 6(c), 8(b), 22(c), 34(b), 35(d), and 38(a)
of the Investment Company Act of 1940. 15 U.S.C. §§ 80a-6(c), 80a-8(b), 80a-22(c),
80a-33(b), 80a-34(d), and 80a-37(a).

Executive Order No. 12866

The rule, promulgated by an independent regulatory agency, is not subject to the
review requirements of Executive Order No. 12866.



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