[Federal Register Volume 85, Number 179 (Tuesday, September 15, 2020)]
[Rules and Regulations]
[Pages 57089-57108]
[FR Doc No: 2020-14884]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 202 and 270

[Release No. IC-33921; File No. S7-19-19]
RIN 3235-AM51

Amendments to Procedures With Respect to Applications Under the
Investment Company Act of 1940

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is
adopting amendments to its rules under the Investment Company Act of
1940 to establish an expedited review procedure for applications that
are substantially identical to recent precedent as well as a rule to
establish an internal timeframe for review of applications outside of
such expedited procedure. In addition, the Commission is adopting an
amendment to its rules under the Investment Company Act of 1940 to deem
an application outside of expedited review withdrawn when the applicant
does not respond in writing to comments within 120 days.

DATES: Effective date: June 14, 2021.

FOR FURTHER INFORMATION CONTACT: Steven Amchan and Hae-Sung Lee, Senior
Counsels; Daniele Marchesani, Assistant Chief Counsel; Chief Counsel's
Office, at<PHONE_NUMBER>; or Keith Carpenter, Senior Special Counsel;
Disclosure Review and Accounting Office, at<PHONE_NUMBER>, Division of
Investment Management, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission
(``Commission'') is adopting an amendment to 17 CFR 270.05 (rule 0-5)
under the Investment Company Act of 1940 [15 U.S.C. 80a et seq.], an
amendment to 17 CFR 200.30-5 (rule 30-5) and 17 CFR 202.13. The
Commission is also adopting related amendments to rule 30-5 of its
Rules of Organization and Program Management governing delegation of
authority to the Director of Division of Investment Management.

Table of Contents

I. Introduction and Background
    A. Overview of Applications for Relief Under the Act
    B. Efforts To Improve the Application Process
    C. Factors Affecting the Application Process
II. Discussion of Commission Action
    A. Expedited Review Procedure
    1. Eligibility for Expedited Review
    2. Additional Information Required for Expedited Review
    3. Expedited Review Timeframe
    B. Timeframe for ``Standard Review'' of Applications
    C. Applications Deemed Withdrawn Under the Standard Review
Process
    D. Release of Comments on Applications and Responses
    E. Other Matters
III. Economic Analysis
    A. Introduction
    B. Economic Baseline
    1. Applications for Relief
    2. Review Process
    C. Benefits and Costs of the Amendment to Rule 0-5
    1. Benefits
    2. Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    E. Reasonable Alternatives
    1. Different Precedent or Timeframe Requirements
IV. Paperwork Reduction Act
    A. Burden of Information Collection

    B. Cost to Respondents
V. Final Regulatory Flexibility Analysis
    A. Reasons for and Objectives of the Actions
    B. Legal Basis
    C. Small Entities Subject to the Amendment
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Significant Alternatives
VI. Statutory Authority

I. Introduction and Background

    The applications process under the Investment Company Act of 1940
(``Act'') has been a significant and valuable tool in the evolution of
the investment management industry, and the rules we are adopting are
intended to increase its efficiency and transparency. The Commission is
adopting amendments to rule 0-5 under the Act to establish an expedited
review procedure for applications that are substantially identical to
recent precedent as well as a rule to establish an internal timeframe
for review of applications outside of such expedited procedure. The
Commission is also adopting amendments to rule 0-5 to deem an
application outside of expedited review withdrawn when the applicant
does not respond in writing to comments within 120 days.\1\
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    \1\ Unless otherwise specified, references to days herein are to
calendar days.
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    On October 18, 2019, we proposed these rule amendments and new
rule.\2\ We also announced our intention to begin disseminating
publicly staff of the Division of Investment Management (``Staff'' or
``Division'') comments on applications as well as responses to those
comments. As discussed in greater detail below, commenters \3\
generally supported the rules to make the applications process more
efficient and transparent.\4\ Some commenters were supportive of our
proposal without suggesting modifications.\5\ Other commenters
recommended modifications and clarifications to certain aspects of it.
For example, several commenters suggested broadening the eligibility
requirements to use the expedited review process.\6\ Additionally, a
number of commenters recommended making the proposed internal timeframe
for standard applications shorter.\7\ Finally, while a few commenters
supported our proposal to begin publicly releasing Staff comments and
applicants' responses,\8\ several did not and expressed concerns.\9\
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    \2\ See Amendments to Procedures With Respect to Applications
under the Investment Company Act of 1940, Investment Company Act
Release No. 33658 (Oct. 18, 2019) [84 FR 58075 (Oct. 30, 2019)]
(``Proposing Release'').
    \3\ The comment letters on the Proposing Release (File No. S7-
19-19) are available at https://www.sec.gov/comments/s7-19-19/s71919.htm.
    \4\ See Comment Letter of the Investment Company Institute (Nov.
29, 2019) (``ICI Comment Letter''); Comment Letter of the Investment
Adviser Association (Nov. 27, 2019) (the Investment Adviser
Association stated that it supports the comments and recommendations
put forth in the ICI Comment Letter); Comment Letter of the Asset
Management Group of the Securities Industry and Financial Markets
Association (Nov. 27, 2019) (``SIFMA AMG Comment Letter''); Comment
Letter of Fidelity Investments (Nov. 29, 2019) (``Fidelity Comment
Letter''); Comment Letter of Stradley Ronon Stevens & Young, LLP
(Dec. 4, 2019) (``Stradley Comment Letter''); Comment Letter of the
Small Business Investor Alliance (Nov. 29, 2019) (``SBIA Comment
Letter''); Comment Letter of Kathleen Crowley (Nov. 6, 2019)
(``Kathleen Crowley Comment Letter''). One commenter questioned why
the changes we are adopting require a rule. See Comment Letter of
Diane Smith (Oct. 20, 2019) (``Diane Smith Comment Letter''). The
commenter asked why the Staff cannot just quickly notice
applications that are substantially identical to precedent. Id. We
are enacting these procedures as rules because we believe that
applicants will benefit from the certainty and transparency of these
rules.
    \5\ See SBIA Comment Letter; Kathleen Crowley Comment Letter.
    \6\ See ICI Comment Letter; SIFMA AMG Comment Letter; Fidelity
Comment Letter; Comment Letter of the American Investment Council
(Nov. 26, 2019) (``AIC Comment Letter''); Stradley Comment Letter.
    \7\ See id.
    \8\ See Diane Smith Comment Letter; Comment Letter of the
Capital Group Companies (Nov. 26, 2019) (``Capital Group Comment
Letter''); Comment Letter of Abigail Najera (Nov. 14, 2019)
(``Abigail Najera Comment Letter''); Comment Letter of Ed Snoke
(Dec. 21, 2019) (``Ed Snoke Comment Letter'').
    \9\ See ICI Comment Letter; SIFMA AMG Comment Letter; Fidelity
Comment Letter; Stradley Comment Letter.
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    After consideration of the comments we received, we are adopting
the rule amendments and rule largely as proposed, with modifications to
address comments.\10\ Additionally, at the present time Staff comments
and applicants' responses will not be publicly disseminated.
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    \10\ A few commenters had suggestions for improving the
applications notice process. See Diane Smith Comment Letter; Ed
Snoke Comment Letter. While changing the application notice process
is beyond the scope of this rulemaking, the Staff will consider the
suggestions as they continue to consider process improvements and
any additional recommendations to the Commission.
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A. Overview of Applications for Relief Under the Act

    In 1940, Congress passed the Act in response to numerous abuses
that existed in the investment company industry prior to that time.\11\
As a result, the Act imposes significant substantive restrictions on
the operation of investment companies that it regulates (``funds'').
Congress, however, also recognized the need for flexibility to address
unforeseen or changed circumstances, consistent with the protection of
investors, in the administration of the Act.\12\
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    \11\ See generally Investment Trusts and Investment Companies,
Report of the Securities and Exchange Commission, pt. 3, ch. 7, H.R.
Doc. No. 136, 77th Cong., 1st Sess. (1941); 15 U.S.C. 80a-1.
    \12\ See e.g., Investment Trusts and Investment Companies:
Hearings on S. 3580 Before a Subcomm. of the Senate Comm. on Banking
and Currency, 76th Cong., 3d Sess. 872 (1940) (hereinafter 1940
Senate Hearings) (Commissioner Healy stated that ``it seemed
possible and even quite probable that there might be companies--
which none of us have been able to think of--that ought to be
exempted.''); id. at 197 (David Schenker, Chief Counsel of the
Investment Trust Study, stated that ``the difficulty of making
provision for regulating an industry which has so many variants and
so many different types of activities . . . is precisely [the reason
that section 6(c)] is inserted.'').
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    The Act, therefore, contains provisions that empower the Commission
to issue orders granting exemptions from provisions of the Act,
authorizing transactions, or providing other relief.\13\ Most
significantly, section 6(c) gives the Commission the broad power to
exempt conditionally or unconditionally any person, security, or
transaction from any provisions of the Act or any rule thereunder,
provided that the 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].''
\14\ The Commission regularly receives applications seeking orders for
exemptions or other relief under the Act.\15\ If the request meets the
applicable standards, the Commission publishes a notice of the
application in the Federal Register and on its public website, stating
its intent to grant the requested relief.\16\ The notice gives
interested persons an opportunity to request a hearing on the
application. If the Commission does not receive a hearing request
during the notice

period, and does not otherwise order a hearing on an application,
subsequent to the expiration of the notice period, the Commission
generally issues an order granting the requested relief.\17\
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    \13\ As the orders are subject to the terms and conditions set
forth in the applications requesting relief, references in this
release to ``relief'' or ``orders'' include the terms and conditions
described in the related application.
    \14\ 15 U.S.C. 80a-6(c). Other sections of the Act provide the
Commission with additional or specific exemptive authority. See,
e.g., section 3(b)(2) (Commission may find that an issuer is
``primarily engaged'' in a non-investment company business even
though the issuer may technically meet the definition of investment
company); section 12(d)(1)(J) (Commission may exempt any person,
security, or transaction, or any class or classes of transactions,
from section 12(d)(1) if the exemption is consistent with the public
interest and the protection of investors); and section 17(b)
(Commission may exempt proposed transactions from the Act's
affiliated transaction prohibitions) (codified at 15 U.S.C. 80a-
3(b)(2), 15 U.S.C. 80a-(12)(d)(1)(J), and 15 U.S.C. 80a-17(b)).
    \15\ In fiscal year 2019, approximately 112 initial applications
were filed under the Act on EDGAR Form Type 40-APP.
    \16\ Notices of the Commission's intent to deny the requested
relief, and the related orders, are rare because applicants
typically withdraw or abandon their application in anticipation of
such actions.
    \17\ 15 U.S.C. 80a-39; 17 CFR 270.0-5. In fiscal year 2019, the
Commission issued 97 orders for applications under the Act.
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    The Staff reviews the applications that the Commission receives
under the Act.\18\ During the review process, the Division may issue
comments to the applicant, asking for clarification of, or modification
to, an application to determine whether, or ensure that, the relief
meets the Act's standards.\19\ In addition, the Commission has granted
the Director of the Division of Investment Management (``Director'')
delegated authority to issue notices of applications and orders
generally where the matter does not appear to the Director to present
significant issues that have not been previously settled by the
Commission or to raise questions of fact or policy indicating that the
public interest or the interest of investors warrants that the
Commission consider the matter.\20\ The vast majority of notices of
applications and orders are issued by the Commission via the Staff
under delegated authority. For those applications for which the
Director does not have delegated authority, after the Division's review
is completed, the Division presents them to the Commission. The
Director does not have delegated authority to deny applications.
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    \18\ Applications under the Act are filed on EDGAR. See
Mandatory Electronic Submission of Applications for Orders under the
Investment Company Act and Filings Made Pursuant to Regulation E,
Investment Company Act Release No. 28476 (Oct. 29, 2008). The
Commission has stated that the Staff will not, except in the most
extraordinary situations, review draft applications. See Commission
Policy and Guidelines for Filing of Applications for Exemption,
Investment Company Act Release No. 14492 (Apr. 30, 1985) (specifying
certain procedures that applicants should follow in order to
facilitate the review of applications) (``1985 Release'').
Consistent with the Commission's statement, the Staff currently only
reviews draft applications in very limited circumstances. One
commenter stated that the Staff has not provided a clear explanation
of how it evaluates whether an application meets this high standard,
and requested that we more clearly define it, and establish a formal
process for applicants to seek review of draft applications. See AIC
Comment Letter. The Commission's longstanding policies regarding
draft applications from the 1985 Release are well established and we
do not believe they require further elaboration. Applicants seeking
clarifications as to their particular facts and circumstances are
encouraged to reach out to the Staff.
    \19\ In the past, the Staff placed applications on inactive
status when applicants did not respond to comments within 60 days.
Such inactive status was for internal tracking purposes only and had
no effects on the application process. In the expedited review
process we are adopting, 17 CFR 270.0-5(f)(2)(iii) (rule 0-
5(f)(2)(iii)) deems expedited applications withdrawn without
prejudice if the applicant has not filed an amendment responsive to
a Staff request for modification within 30 days. For non-expedited
applications, new 17 CFR 270.0-5(g) (rule 0-5(g)) provides that if
an applicant has not responded in writing to a request for
clarification or modification of an application within 120 days,
such application will be deemed withdrawn without prejudice.
    \20\ Title 17 CFR 200.30-5(a)(1) generally delegates the power
to issue notices with respect to applications under the Act where
the matter does not appear to the Director to present significant
issues that have not been previously settled by the Commission or to
raise questions of fact or policy indicating that the public
interest or the interest of investors warrants that the Commission
consider the matter. Title 17 CFR 200.30-5(a)(2) generally delegates
the power to authorize the issuance of orders where (1) a notice has
been issued and no request for a hearing has been received from any
interested person within the period specified in the notice, (2) the
Director believes that the matter presents no significant issues
that have not been previously settled by the Commission, and (3) it
does not appear to the Director to be necessary in the public
interest or the interest of investors that the Commission consider
the matter.
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    The applications process under the Act has been a significant and
valuable tool in the evolution of the investment management industry,
and sometimes is the origin of new rules under the Act.\21\ Some
applications, for example, have requested relief from provisions of the
Act to permit funds to operate in a more efficient and less costly
manner.\22\ Applicants have also sought relief to implement innovative
features or create new types of funds that do not fit within the
regulatory confines of the Act.\23\ For example, over the course of 27
years, exchange-traded funds (``ETFs'') originated and developed
through the applications process.\24\ Because the drafters of the Act
in 1940 did not contemplate the ETF structure, ETFs need exemptions
from certain provisions of the Act to operate.\25\ ETFs registered
under the Act now have approximately $3.32 trillion in total net assets
and account for approximately 16 percent of total net assets of
registered investment companies.\26\
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    \21\ See infra footnote 35.
    \22\ See, e.g., Franklin Alternative Strategies Funds, et al.,
Investment Company Act Release Nos. 33095 (May 10, 2018) (Notice of
Application) and 33117 (June 5, 2018) (Order) (permitting applicants
to operate a joint lending and borrowing facility).
    \23\ For example, money market funds need exemptive relief from
section 2(a)(41) (which requires registered investment companies to
value their securities based on market values, if available, or if
not, as determined in good faith by the board of directors) in order
to operate. In a series of orders beginning in the 1970s, the
Commission permitted money market funds to use alternative valuation
methods, such as amortized cost or penny rounding. The Commission
later adopted 17 CFR 270.2a-7 (rule 2a-7 under the Act) to allow
money market funds to operate without individual exemptive orders.
    \24\ See Exchange-Traded Funds, Investment Company Act Release
No. 33646 (Sept. 25, 2019).
    \25\ In 2019, the Commission adopted 17 CFR 270.6c-11 (rule 6c-
11) providing relief to most ETFs under the Act. See id.
    \26\ See id. at 5.
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B. Efforts To Improve the Application Process

    As discussed in the previous section, granting appropriate
exemptions from the Act can provide important economic benefits to
funds and their shareholders, foster financial innovation, and increase
the diversity of opportunities for investors. We thus recognize the
importance of considering and, where appropriate, granting relief as
efficiently and quickly as possible. However, in light of our statutory
mission of investor protection and the substantive concerns underlying
the Act, we also recognize the critical importance of analyzing
applications carefully to determine whether the relief requested,
together with any terms and conditions of the relief, meets the
relevant statutory standards.\27\
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    \27\ See 15 U.S.C. 80a-6(c).
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    Over time, some applicants have expressed concern regarding the
length of time required to obtain an order on both routine and novel
applications. In 1990, the Commission requested comments on, among
other things, whether it should adopt different procedures for
applications.\28\ In response, commenters argued that lengthy review
procedures delay the commencement of transactions, prevent applicants
from responding quickly to changing market conditions, and slow the
entry of new products to the market, all to the detriment of
investors.\29\ As a result, in 1993, the Commission proposed amendments
to rule 0-5 under the Act to establish an expedited review procedure
for certain routine applications.\30\ The Commission, however, did not
adopt these proposed amendments.
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    \28\ Request for Comments on Reform of the Regulation of
Investment Companies, Investment Company Act Release No. 17534 (June
15, 1990), 55 FR 25322 (the ``Study Release'').
    \29\ See, e.g., Letter from the Subcomm. on Investment Companies
and Investment Advisers of the Committee on Federal Regulation of
Securities, Section of Business Law, American Bar Association, to
Jonathan G. Katz, Secretary, SEC, 7-9 (Oct. 18, 1990), File No. S7-
11-90.
    \30\ See Expedited Procedure for Exemptive Orders and Expanded
Delegated Authority, Investment Company Act Release No. 19362 (Mar.
26, 1993). The proposal sought to implement the Staff's
recommendations from the Protecting Investors report by proposing to
amend rule 0-5 under the Act to establish an expedited review
procedure for certain routine applications. See Division of
Investment Management, SEC, Protecting Investors: A Half Century of
Investment Company Regulation, Procedures for Exemptive Orders, 503-
522 (1992) (considering comments received in response to the Study
Release).
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    In subsequent years, initiatives aimed at improving the application
process

have continued. For example, in 2008, the Staff implemented an internal
performance target of providing initial comments on at least 80 percent
of applications within 120 days after their receipt.\31\ We believe
this performance measure has helped make the application process more
efficient. In 2008, the first year with this performance target, the
Division provided initial comments within 120 days on 81 percent of
applications.\32\ By 2010, the Division met this target on 100 percent
of applications, and has not dropped below 99 percent any year
since.\33\ For filings made on or after June 1, 2019, the Division
implemented a new internal target of providing comments on both initial
applications and amendments within 90 days.\34\ Notwithstanding the
recent improvements, we have continued to consider ways to improve the
applications process as we recognize the importance of completing the
review of an application in an appropriate and timely manner. The rule
changes we are adopting are intended to improve the efficiency and
speed of the application process while preserving the ability to assess
the appropriateness of the requested relief. In addition, the
Commission has made it a priority to propose and adopt rules to replace
lines of routine applications.\35\ These rules benefit the application
process by making the corresponding applications no longer necessary,
which, in turn, allows the Staff to devote additional resources to
other, more novel types of applications that can promote further
industry innovation and expand investment choices for investors.
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    \31\ Unlike the 1993 proposal to amend rule 0-5 under the Act,
this performance target was an internal measure and did not involve
the amendment of any rule. See U.S. Securities and Exchange
Commission, 2008 Performance and Accountability Report, at 40,
available at https://www.sec.gov/about/secpar/secpar2008.pdf. See
also Remarks Before the ICI 2007 Securities Law Developments
Conference by Andrew J. Donohue, Director, Division of Investment
Management (Dec. 6, 2007), available at https://www.sec.gov/news/speech/2007/spch120607ajd.htm. In 2006, the Commission's Inspector
General found that the application process was not always timely and
provided recommendations for improving the process. See SEC
Inspector General Report, IM Exemptive Application Processing (Audit
No. 408), Sept. 29, 2006.
    \32\ See U.S. Securities and Exchange Commission 2008
Performance and Accountability Report, at 40.
    \33\ See Fiscal Year 2019, Congressional Budget Justification
Annual Performance Plan, Fiscal Year 2017, Annual Performance
Report, at 99 available at https://www.sec.gov/files/secfy19congbudgjust.pdf. In addition to the Division's performance
target for comments on initial filings, the Staff also began
tracking and seeking the same target for comments on amendments.
    \34\ In fiscal year 2019, after the implementation of the new
internal target, the Division provided comments within 90 days on
100% of applications.
    \35\ See, e.g., Exchange-Traded Funds, Investment Company Act
Release No. 33646 (Sept. 25, 2019); Fund of Funds Arrangements,
Investment Company Act Release No. 33329 (Dec. 19, 2018) (proposed
rule). Earlier examples of rules replacing lines of routine
applications include, among others, 17 CFR 270.3a-7 (rule 3a-7)
excluding certain structured financings from the definition of
``investment company'' (Exclusion from the Definition of Investment
Company for Structured Financings, Investment Company Act Release
No. 19105 (Nov. 19, 1992) [57 FR 56248 (Nov. 27, 1992)]); amending
17 CFR 270.15a-4 (rule 15a-4) to address changes in control and
acquisitions of investment advisers (Temporary Exemption for Certain
Investment Advisers, Investment Company Act Release No. 24177 (Nov.
29, 1999) [64 FR 68019 (Dec. 6, 1999)]); and 17 CFR 270.17a-8 (rule
17a-8) addressing mergers of affiliated investment companies
(Investment Company Mergers, Investment Company Act Release No.
25666 (July 18, 2002) [67 FR 48511 (July 24, 2002)]). See also supra
footnote 23 and SEC Inspector General Report IM Exemptive
Application Processing (Audit No. 408), Sept. 29, 2006, at 4.
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C. Factors Affecting the Application Process

    The amount of time necessary for the Staff to review an application
depends in large part on the nature of the application. The Staff
generally characterizes applications as falling into one of two general
categories: (1) Applications that seek novel, largely unprecedented
relief or relief for which some Commission precedent exists but that
raises additional questions of fact, law, or policy; and (2)
applications that seek relief substantively identical to relief that
the Commission has recently granted (``routine applications'').
    Applications in the first category may involve financial
innovations or transactions on the forefront of the investment
management industry. In those instances, substantial time and resources
are needed to analyze thoroughly the legal and policy issues raised,
and the recommendations the Staff must make to the Commission often
include significant policy considerations. As part of this process, the
Staff generally works with the applicant to refine the proposal and to
develop appropriate terms and conditions for the relief that address
the applicable standards under the Act. This process can be time
consuming.
    The Staff generally should be able to review routine applications
much more quickly than applications in the first category because the
Staff has already performed the overall legal and policy analysis
underlying the requested relief. Sometimes, however, routine
applications for which there is clear precedent nonetheless contain
significantly different versions of the terms or representations
compared to the relevant precedent. These applications require extra
time to review because the Staff must analyze the changes to determine
whether they alter the scope or nature of the requested relief. On more
rare occasions, the Staff may re-evaluate the appropriateness of relief
previously granted or the terms and conditions associated with the
relief, or consider whether the relief can appropriately be granted to
a specific applicant.\36\
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    \36\ Several additional factors may affect the timing of the
review including, for example, applicants' responsiveness to Staff
comments, the number of pending applications, and market or other
developments that affect the applicants' business plans.
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    For all applications, the Commission must consider the applicants'
desire to obtain prompt relief while ensuring it has sufficient time to
meet its overarching responsibility to consider whether an application
meets the standard for the requested relief.

II. Discussion of Commission Action

    The rule amendments and rule we are adopting are intended to make
the application process more efficient and effective in furthering the
purposes of the Act.\37\ They are also intended to provide additional
certainty and transparency in the application process. Specifically, we
are adopting an expedited review process for routine applications, an
informal internal procedure for applications that would not qualify for
the expedited process, and a rule to deem an application withdrawn when
an applicant does not respond in writing to Staff comments within 120
days.
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    \37\ Our actions do not concern applications under the
Investment Advisers Act of 1940 (``Advisers Act''). The Commission
receives only a few applications under the Advisers Act each year,
and these applications are filed on paper rather than electronically
via the EDGAR system. See www.sec.gov/rules/iareleases.shtml. These
applications are generally fact intensive, so they are less likely
to qualify for an expedited review process like the one we are
adopting here. See, e.g., The Jeffrey Company, Investment Advisers
Act Release Nos. 4659 (Mar. 7, 2017) (Notice of Application) and
4681 (Apr. 4, 2017) (Order) (family office application). Cf. infra
footnote 67 and accompanying text.
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A. Expedited Review Procedure

    In order to expedite the review of routine applications, the
Commission is adopting amendments to rule 0-5 under the Act, which sets
forth the procedure for applications under the Act. These amendments
establish an expedited review procedure for applications that are
substantially identical to recent precedent. We believe that the
approach we are adopting balances applicants' desire for a prompt
decision on their application with the Commission's need

for adequate time to consider requests for relief.
    We believe that the new procedure will encourage applicants for
expedited review to submit applications substantially identical to
precedent, which will help facilitate Staff review. Accordingly, we
should be able to grant relief that meets the applicable standards more
quickly, and, in turn, devote additional resources to the review of
more novel requests.\38\ A more efficient application process will
allow applicants to realize the benefits of relief more quickly than
otherwise would be the case.\39\ Further, we believe that the expedited
review procedure will make the applications process less expensive for
applicants, because we anticipate that it will reduce the number of
Staff comments that would require a response and enable applicants to
have more certainty regarding the timing of application processing.
Generally, we believe fund shareholders will share in these benefits.
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    \38\ The Staff will issue notices under delegated authority for
applications reviewed under the expedited procedure.
    \39\ See infra, discussion in Section III.C.1.
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1. Eligibility for Expedited Review
    Title 17 CFR 270.0-5(d)(1) (rule 0-5(d)(1)) provides that an
applicant may request expedited review if the application is
substantially identical to two other applications for which an order
granting the requested relief has been issued within three years of the
date of the application's initial filing.
``Substantially Identical'' Standard
    Like the proposal, 17 CFR 270.0-5(d)(2) (rule 0-5(d)(2)) defines
``substantially identical'' applications as those requesting relief
from the same sections of the Act and 17 CFR part 270, containing
identical terms and conditions, and differing only with respect to
factual differences that are not material to the relief requested.\40\
We intend for applicants only to use the expedited procedure for
routine applications that are substantially identical to precedent and
seek the same relief that others have already received, so that
additional consideration generally is unnecessary. The ``substantially
identical'' requirement will help to ensure that applicants use the
procedure only when they do not need to modify the terms and conditions
of the precedent applications and are not raising new issues for the
Commission to consider.\41\ In addition, the requirement will help to
ensure that applicants submit applications that include language that
is substantially identical to the language of the precedent
applications, which will facilitate Staff review.
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    \40\ Factual differences not material to the relief requested
might include the applicants' identities, the state of legal
organization of a fund, and the constitution of the fund's board of
directors.
    \41\ Even small changes to the terms and conditions of an
application, compared to a precedent application, may either raise a
novel issue or require a significant amount of time for the Staff to
consider whether a novel issue is raised. See supra Section I.C.
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    Two commenters generally supported the proposed ``substantially
identical'' standard to qualify for expedited review.\42\ A number of
other commenters, instead, suggested broadening this standard, as well
as clarifying certain aspects of it.\43\
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    \42\ See Capital Group Comment Letter; Abigail Najera Comment
Letter.
    \43\ See ICI Comment Letter; SIFMA AMG Comment Letter; Fidelity
Comment Letter; AIC Comment Letter.
---------------------------------------------------------------------------

    Commenters suggested several different modifications to our
proposed ``substantially identical'' standard. A few commenters
suggested that the standard be changed so that applications would need
to be ``substantially identical in all applicable respects'' to
precedent.\44\ One of these commenters suggested that the Commission
could require each applicant to explain in its expedited application
why particular conditions in precedent are irrelevant.\45\ Another
commenter recommended that the expedited application's terms and
conditions be substantially identical and differ only with respect to
factual differences that are not material to the relief requested.\46\
An additional commenter suggested that ``substantially identical'' be
replaced with objective criteria, but did not provide specific
suggestions, or that ``substantially identical'' be defined as
differences ``not relevant in any material respects.'' \47\
---------------------------------------------------------------------------

    \44\ See ICI Comment Letter (``We also request that the
Commission clarify that an application for expedited review may
contain conditions that are substantially identical in all
applicable respects with those set forth in prior precedent.'');
Fidelity Comment Letter (suggesting that ``in place of the
`substantially identical' standard, an application for expedited
review must contain terms and conditions that are substantially
identical to prior precedent `in all applicable respects' '').
    \45\ See ICI Comment Letter.
    \46\ See AIC Comment Letter.
    \47\ See SIFMA AMG Comment Letter.
---------------------------------------------------------------------------

    We are adopting the ``substantially identical'' standard largely as
proposed. With the expedited process, we are seeking to create a new
process that is both faster and more certain in its timing than the
current process while maintaining sufficient time for the Staff to
evaluate applications that may raise novel issues. The ``substantially
identical standard'' accomplishes that because it makes the expedited
procedure only available for applications that closely track precedent.
In most cases under this standard, the Staff should be able to issue a
notice within 45 days without issuing any comments to the applicant
first.\48\ Modifying the standard to permit more extensive differences
from precedent applications would require the Staff to inquire about
and consider the nature of these differences, which would frustrate the
objective of creating a quick review process with increased certainty.
Additionally, permitting more extensive differences from precedent
would likely lead the Staff to issue more comments in the expedited
process and/or transfer applications to the standard process, which
could significantly impair our ability to achieve the objectives of the
expedited process.
---------------------------------------------------------------------------

    \48\ See supra, discussion in Section II.A about reducing the
number of Staff comments.
---------------------------------------------------------------------------

    For the same reason, we are not, as some commenters suggested,
modifying the rule to allow for ``mix and match'' precedent
applications, i.e., applications that combine portions or sections of
different prior applications.\49\ Applications that mix and match
multiple precedents will not meet the ``substantially identical''
standard in the rule.\50\ Different lines of applications often have
sections that are interconnected with each other in particular ways. In
the Staff's experience, the reviews of applications combining different
lines of precedent require analysis of whether all the relevant terms
and conditions have been carried forward appropriately and work
together in a manner consistent with each of the relevant precedents.
Such reviews have resulted in a significant number of comments,
rendering such applications inconsistent with the approach to, and
purpose underlying, the expedited process.
---------------------------------------------------------------------------

    \49\ See ICI Comment Letter; Fidelity Comment Letter.
    \50\ See Proposing Release, supra footnote 2, at n. 29.
---------------------------------------------------------------------------

    Several commenters requested clarifications relating to the
``substantially identical'' standard. One commenter asked the
Commission to clarify the use of the word ``terms'' in the requirement
that an expedited application must contain ``identical terms and
conditions'' compared to precedent.\51\ Reference to the ``terms'' of
an application in rule 0-5(d)(2) means the representations in an
application that are material to the requested relief. Terms are
separate and apart from any

express conditions included in the application.
---------------------------------------------------------------------------

    \51\ See ICI Comment Letter.
---------------------------------------------------------------------------

    The same commenter also asked the Commission to identify in detail
any information in an application other than the requested relief and
the registrant-provided conditions that must be substantially identical
to prior precedent to meet the ``substantially identical''
requirement.\52\ Based on the Staff's experience, applications that
involve the same types of entities, request the same relief, and are
subject to the same terms and conditions as precedent, would usually be
``substantially identical'' notwithstanding minor differences, such as
different names and places of legal organization.\53\ The reference to
``identical'' terms and conditions requires that not only the substance
of the terms and conditions be the same, but also that their wording be
the same. Applications that are ``substantially identical'' may also
have other factual differences not relating to the terms and conditions
of the application.
---------------------------------------------------------------------------

    \52\ See id.
    \53\ Some commenters expressed concern about whether applicants
with different affiliate structures from precedent applications
would be able to satisfy the ``substantially identical'' standard.
See ICI Comment Letter; Fidelity Comment Letter. To the extent that
an applicant's affiliate structure is material to the relief
requested, the applicant would not be able to meet the
``substantially identical'' standard.
---------------------------------------------------------------------------

    In a similar vein, this commenter suggested that alternatively we
issue standard template conditions for routine or frequently requested
applications for exemptive relief.\54\ Recent precedent would normally
reflect the latest approved terms and conditions, so we do not believe
creating a template would increase the effectiveness of the rule. We
believe that when a line of applications becomes so routine that
standard terms and conditions could be articulated, a better approach
would be to consider codifying such relief in a new rule under the Act
that would make applications unnecessary.\55\ Further, as noted above,
minor modifications would generally not disqualify an application from
the expedited review process. Applicants may also use the standard
review process to make more extensive modifications to develop new
lines of relief.
---------------------------------------------------------------------------

    \54\ See ICI Comment Letter.
    \55\ Several commenters encouraged the Commission periodically
to codify exemptive relief in rules. See Diane Smith Comment Letter;
ICI Comment Letter.
---------------------------------------------------------------------------

    Finally, another commenter requested that the Commission provide
guidance regarding the objective criteria used to determine that an
application is ``substantially identical'' to a precedent application
(and therefore eligible for expedited review).\56\ Under the rule
amendments we are adopting, ``substantially identical'' applications
are applications containing identical terms and conditions, and
differing only with respect to factual differences that are not
material to the relief requested. While it is impossible to identify
what all those factual differences may be for any future line of
expedited applications, we believe that filed applications that have
been approved, including any amendments thereto, will provide
additional useful guidance to applicants in this respect.
---------------------------------------------------------------------------

    \56\ See SIFMA AMG Comment Letter.
---------------------------------------------------------------------------

Number of Precedents
    Under the rule as adopted, an application may be filed under
expedited review if it is substantially identical to two precedent
applications for which an order granting the requested relief has been
issued within three years of the date of the application's initial
filing.\57\ Some commenters suggested that we only require one
precedent application to qualify for expedited review.\58\ One of these
commenters opined that where the Commission is comfortable enough to
provide relief to one applicant, subsequent applicants that meet the
requirements should receive the same treatment.\59\ Other commenters,
instead, agreed with our proposal that two precedents is an appropriate
number to qualify for an expedited review process.\60\
---------------------------------------------------------------------------

    \57\ See rule 0-5(d)(1). An application may be filed under
expedited review if it is substantially identical to more than two
qualifying precedent applications as well. However, such an
application would include exhibits with marked copies showing
changes from only two qualifying precedent applications and an
accompanying cover letter explaining why those two precedents were
chosen. See 17 CFR270.0-5(e)(2) (rule 0-5(e)(2)) and (e)(3) (rule 0-
5(e)(3)).
    \58\ See SIFMA AMG Comment Letter; Stradley Comment Letter.
    \59\ See SIFMA AMG Comment Letter.
    \60\ See ICI Comment Letter; Fidelity Comment Letter.
---------------------------------------------------------------------------

    After considering these comments, we continue to believe that
requiring a minimum of two precedents is appropriate. As one of the
commenters supporting our proposal noted, two prior precedents
demonstrate that a line of relief is established so that a faster
review is appropriate, while minimizing burdens on applicants.\61\
---------------------------------------------------------------------------

    \61\ See ICI Comment Letter.
---------------------------------------------------------------------------

Lookback Period
    We proposed to require that the precedents used for expedited
review have been issued within the last two years prior to the filing
of the application in question.\62\ The proposed two-year requirement
was designed to help ensure that the precedents are relatively recent,
so that in most cases, it is less likely that there would be questions
as to whether the terms and conditions of the precedent applications
are still appropriate. We requested comment on whether the two year
standard was appropriate. After consideration of the comments we
received, discussed further below, we are extending the lookback period
to three years.
---------------------------------------------------------------------------

    \62\ See Proposing Release, supra footnote 2, at 13.
---------------------------------------------------------------------------

    One commenter believed our proposed two-year lookback period was
too long given the rate of change in the investment management
industry, and said it should be 18 months.\63\ Most commenters,
however, thought it was too short. They argued that it should be five
years to make the expedited procedure more widely available considering
that there may be lines of applications that continue to be routine
even if the Commission has not approved two applications in that line
within the last two years.\64\ Several of these commenters also
proposed alternative options. One commenter proposed an alternative of
one application within three years, and two within five years.\65\
Another commenter proposed an alternative of one application within two
years, and two within five years.\66\
---------------------------------------------------------------------------

    \63\ See Abigail Najera Comment Letter (18 months would ``ensure
immediate relevance'' of the precedents selected).
    \64\ See AIC Comment Letter; Fidelity Comment Letter; ICI
Comment Letter; SIFMA AMG Comment Letter; Stradley Comment Letter.
    \65\ See AIC Comment Letter.
    \66\ See SIFMA AMG Comment Letter.
---------------------------------------------------------------------------

    In choosing the proposed lookback period, we sought to make the
expedited procedure available only when more limited review is needed
to ensure that an application include terms and conditions that justify
granting the requested relief. Accordingly, we sought to exclude from
expedited review applications that used older precedent, which the
Staff would need to reevaluate in light of industry and regulatory
developments.
    We believe that extending the lookback period to five years would
frustrate our goal of creating a quicker and more efficient review
process for appropriate applications. In particular, the Staff needs to
review all applications that were approved after the precedent that
applicant is relying on to ensure that the precedent includes up to
date terms and conditions, and is otherwise consistent with the
Commission's current policies. As a

result, the longer the lookback period is, the longer the review
process needs to be. Based on Staff review of application filings, we
believe that most lines of applications appropriate for the expedited
review process will have at least two precedents in the two-year time
period we proposed. We also believe extending the lookback period to
three years in response to commenters' views will provide applicants
with additional flexibility, without frustrating our goals described
above. Accordingly, we are modifying the lookback period to three
years.
    Because we are extending the lookback period in response to the
comments we received, to facilitate Staff review, we have revised the
rule to require applicants to explain in their cover letter why they
chose the particular precedents they are using. If more recent
precedents were available, the applicant must explain why the
precedents used, rather than the more recent precedents, are
appropriate. This new provision will help ensure that applicants will
only use older precedent when there is a good reason for doing so and
will support the efficiency of the process by aiding the Staff's review
of whether the precedent is appropriate.
Lines of Applications That Might Not Qualify for Expedited Review
    Our proposal stated that certain kinds of applications appeared
highly unlikely to be suitable for expedited review. These included,
for example, applications filed under sections 2(a)(9), 3(b)(2), 6(b),
9(c), and 26(c) of the Act.\67\ We explained that these types of
applications are generally too fact-specific for applicants to be able
to meet the substantially identical standard. Our proposal also said
that other lines of applications would also usually not meet the
standard for expedited review.\68\
---------------------------------------------------------------------------

    \67\ See e.g., Bridgeway Capital Management, Inc., Investment
Company Act Release Nos. 28685 (Apr. 1, 2009) (Notice of
Application) and 28716 (Apr. 28, 2009) (Order) (declaration
regarding control, section 2(a)(9) application); Exact Sciences
Corporation, Investment Company Act Release Nos. 33228 (Sept. 14,
2018) (Notice of Application) and 33267 (Oct. 11, 2018) (Order)
(inadvertent investment companies, section 3(b)(2) application);
Hudson Advisors L.P., et al. Investment Company Act Release Nos.
32804 (Aug. 31, 2017) (Notice of Application) and 32834 (Sept. 26,
2017) (Order) (employees securities company, section 6(b)
application); Charles Schwab & Co. Inc. and Charles Schwab
Investment Management, Inc., Investment Company Act Release Nos.
33157 (July 10, 2018) (Notice of Application) and 33195 (Aug. 7,
2018) (Order) (ineligible--disqualified firm, section 9(c)
application); AXA Equitable Life Insurance Company, et al.,
Investment Company Act Release Nos. 33201 (Aug. 15, 2018) (Notice of
Application) and 33224 (Sept. 11, 2018) (Order) (fund substitution,
section 26(c) application).
    \68\ See Proposing Release, supra footnote 2, at n.32. See infra
footnote 75.
---------------------------------------------------------------------------

    In our proposal, we requested comment on whether these types of
applications are unlikely to be suitable for expedited review and
whether the proposed rule should explicitly exclude them from expedited
review.
    Some commenters argued that the rule should explicitly exclude
certain types of applications, with one commenter recommending that we
should exclude all of the applications discussed, as the Commission did
in its 1993 expedited review proposal,\69\ to avoid creating
uncertainty about such applications.\70\ Other commenters suggested
excluding applications under section 26(c) of the Act,\71\ or
applications that ``change the deal'' on investors, saying that such
applications should only be granted sparingly after appropriate and due
consideration.\72\
---------------------------------------------------------------------------

    \69\ See supra footnote 30.
    \70\ See Comment Letter of John Smith (Nov. 29, 2019) (``John
Smith Comment Letter'') (noting that when the Commission proposed
expedited review procedures in 1993, it explicitly excluded certain
types of applications, and that in the Proposing Release we did not
explain why we are reversing that position).
    \71\ See Capital Group Comment Letter (stating that the
Commission's and Staff's role in evaluating these applications is
critical because they present conflicts of interest in which
investors' judgment is being replaced).
    \72\ See Ed Snoke Comment Letter (pointing, as examples, to
substitution and multi-class applications).
---------------------------------------------------------------------------

    Another commenter disagreed with our statement in the Proposing
Release that co-investment applications would usually not meet the
standard for expedited review.\73\ This commenter stated that co-
investment applications could satisfy the ``substantially identical''
standard, and that they should be eligible for expedited review.\74\
---------------------------------------------------------------------------

    \73\ See AIC Comment Letter.
    \74\ See id.
---------------------------------------------------------------------------

    After considering these comments, we are not explicitly excluding
any particular types of applications from expedited review. We continue
to believe, based on Staff experience, that certain lines of
applications will generally not satisfy such standard because they are
too fact specific to meet the substantially identical standard, as
discussed above.\75\ That is, while the terms and conditions may be
substantially identical, the Staff looks at particular facts and
circumstances outlined in the application to evaluate whether the
requested relief meets the applicable standard.\76\ Were circumstances
to arise, however, in which an application in those lines can satisfy
the ``substantially identical'' standard, the Staff may be able to
proceed under expedited review.\77\ If rule 0-5 explicitly excluded
those applications from expedited review, the Staff would not have such
option regardless of whether the application in substance is suited for
expedited review. We believe that maintaining this flexibility is
important so as not to frustrate the purpose of the rule.
---------------------------------------------------------------------------

    \75\ In addition to the lines of applications discussed in our
proposal, investment company deregistration applications filed under
section 8(f) are also unlikely to be suitable for expedited review.
    \76\ For example, when considering applications seeking an order
under section 3(b)(2) of the Act declaring an applicant to be
engaged in a business other than that of investing, reinvesting,
owning, holding, or trading securities, we examine, among other
things, the applicant's historical development, public
representations of policy, directors' and officers' activities, as
well as the nature of the applicant's assets and the sources of its
income. See e.g., Lyft, Inc., Investment Company Act Release Nos.
33399 (Mar. 14, 2019) (Notice of Application) and 33442 (Apr. 8,
2019) (Order).
    \77\ Co-investment applications that meet the substantially
identical standard will also be eligible for expedited review. See
supra footnote 68, Proposing Release at footnote 32.
---------------------------------------------------------------------------

2. Additional Information Required for Expedited Review
    Applicants seeking expedited review will need to include certain
information with the application under 17 CFR 270.0-5(e) (rule 0-5(e)),
as we had proposed. Title 17 CFR 270.0-5(e)(1) (rule 0-5(e)(1))
requires that the cover page of the application include a notation
prominently stating ``EXPEDITED REVIEW REQUESTED UNDER 17 CFR 270.0-
5(d).'' This requirement will assist the Staff in quickly identifying
and effectively processing the request for expedited review. Rule 0-
5(e)(2) requires applicants to submit exhibits with marked copies of
the application showing changes from the final versions of the two
precedent applications. These exhibits will help the Staff to readily
discern any variations between the application seeking expedited review
and the precedent applications. Rule 0-5(e)(3) requires an accompanying
cover letter, signed, on behalf of the applicant, by the person
executing the application, (i) identifying the two substantially
identical applications that serve as precedent, explaining why the
applicant chose those particular precedents, and, if more recent
applications of the same type have been approved, why the precedents
chosen, rather than the more recent applications, are appropriate; and
(ii) certifying that the applicant believes the application meets the
requirements of 17 CFR 270.0-5(d) (rule 0-5(d)) and that the marked
copies required by rule

0-5(e)(2) are complete and accurate.\78\ These requirements are largely
the same as proposed, with one modification to include the requirement,
discussed in Section II.A.1 above, to explain why the applicant chose
particular precedents.
---------------------------------------------------------------------------

    \78\ Section 34(b) of the Act makes it unlawful for any person
to make any untrue or misleading statement of material fact in any
registration statement, application, report, account, record, or
other document filed or transmitted under the Act, or to omit from
any such document any fact necessary in order to prevent the
statements made therein from being materially misleading. We
recognize that in certain cases an applicant and its counsel may
view an application to be ``substantially identical'' under rule 0-
5(d)(2), even if the application is ultimately found not to meet
such requirement under 17 CFR 270.0-5(f)(1)(ii) (rule 0-
5(f)(1)(ii)). Complete and accurate marked copies must, among other
things, show the changes in the application from the final versions
of the two precedents that were filed on EDGAR (as opposed to
earlier drafts).
---------------------------------------------------------------------------

    We requested comment on whether the proposed requirements were
appropriate. One commenter supported our proposed requirement for this
additional information, saying that it did not believe the requirements
would be unduly burdensome.\79\ Another commenter suggested that even
if we require two precedents, marked copies against both precedents
would be redundant and of limited value, and we should only require one
marked copy.\80\ The commenter further stated that the cover letter and
certification are also unnecessary because the marked copy will
indicate the precedent used, and the notation on the cover page
indicates that the applicant believes that the application qualifies
for expedited review. The commenter suggested that we could instead
require applicants seeking expedited treatment to expand the
verification required by 17 CFR 270.0-2(d) (rule 0-2(d) under the Act)
to verify that the marked copies submitted to qualify for expedited
treatment are complete and accurate to the best of the signer's
knowledge.\81\
---------------------------------------------------------------------------

    \79\ See ICI Comment Letter.
    \80\ See Stradley Comment Letter.
    \81\ See id.
---------------------------------------------------------------------------

    After considering these comments, we continue to believe that the
additional information we are requesting will help ensure the expedited
procedure works as intended without being unduly burdensome to
applicants. First, we believe it is necessary for the Staff to review
marked copies of the application against both precedents submitted in
order to allow the Staff to verify whether the new application is
substantially identical to both such precedents. Second, while we
understand that the fact that an application is filed for expedited
review, as indicated by its cover page notation, may implicitly convey
that the applicant believes it qualifies for expedited review, the
requirement for a certification in the cover letter should work to
ensure that applicants have confirmed that the application meets all
the requirements for the expedited review.\82\ Expanding the
verification required by rule 0-2(d), as suggested by one commenter,
would not serve the same function as this requirement because rule 0-
2(d) does not address the qualification requirements of the new
expedited review process. Additionally, because the applicants make,
review, and submit to the Commission the marked copies, we believe they
can certify that such marked copies are complete and accurate.
Accordingly, we are adopting 17 CFR 270.0-5(e) (rule 0-5(e))
substantially as proposed.
---------------------------------------------------------------------------

    \82\ To the extent applicants' confirmation helps prevent the
submission of applications that are not suitable for expedited
review, Staff time and resources will not be spent unnecessarily,
and our overall objective of efficiency will be furthered.
---------------------------------------------------------------------------

3. Expedited Review Timeframe
    Under 17 CFR 270.0-5(f), a notice for an application submitted for
expedited review will be issued no later than 45 days from the date of
filing \83\ unless the applicant is notified that the application is
not eligible for expedited review because (i) it does not meet the
criteria in rule 0-5(d) or rule 0-5(e), or (ii) additional time is
necessary for appropriate consideration of the application. We have
changed the timeline for the Staff's review of unsolicited amendments,
as discussed below. We are also modifying this portion of the rule to
clarify that an application will not be eligible for the expedited
review procedure if it does not comply with the requirements of rule 0-
5(e).
---------------------------------------------------------------------------

    \83\ Notice of the application, followed by an order concluding
the matter, will be issued under current rule 0-5(a) and (b),
respectively.
---------------------------------------------------------------------------

    We proposed 45 days as the timeframe for expedited review, based on
the Division's experience considering and acting on routine
applications. Commenters were generally supportive of the 45-day
timeframe.\84\
---------------------------------------------------------------------------

    \84\ See, e.g., ICI Comment Letter; Fidelity Comment Letter;
SIFMA AMG Comment Letter; SBIA Comment Letter.
---------------------------------------------------------------------------

    While we anticipate that the notice for an application meeting rule
0-5(d)'s criteria will typically be issued within the 45-day timeline,
there may be situations where further consideration is necessary for
appropriate consideration of the application.\85\ These may include,
for example, cases where the Commission is considering a change in
policy that would make the requested relief, or its terms and
conditions, no longer appropriate. There also may be cases where the
Staff is investigating potential violations of Federal securities laws
that may be relevant to the request for relief.\86\ In such cases, the
Staff might not be in a position to make a determination on the
application at the end of the 45-day period.
---------------------------------------------------------------------------

    \85\ One commenter, noting that our proposed new rule for
applications outside of expedited procedure states that it does not
create enforceable rights, suggested that we clarify whether the new
expedited review process creates an enforceable right for
applicants, and if so, what possible damages would be. See John
Smith Comment Letter. The creation of a new expedited process under
rule 0-5 does not create any enforceable rights (in judicial
proceedings or otherwise).
    \86\ To the extent such circumstances are nonpublic and are not
known to the applicant, the Staff may not be able to inform the
applicant of the reason for the delay.
---------------------------------------------------------------------------

    If the Staff notifies the applicant under rule 0-5(f)(1)(ii) that
an application is not eligible for expedited review, it will give the
applicant the option to either withdraw the application or amend it to
make changes so that the application could proceed outside of the
expedited review process. In connection with the amendments to rule 0-
5, we are also amending 17 CFR 200.30-5 to delegate to the Division
Director the authority to notify an applicant under rule 0-5(f)(1)(ii)
that an application pursuant to the Act is not eligible for expedited
review under rule 0-5.
    Certain conditions will govern the operation of the 45-day time
period. We proposed that the 45-day period would restart upon the
filing of any amendment that the Commission or Staff did not solicit
because the Staff would need additional time to review the change or
changes made in such an amendment.
    Several commenters had suggestions for modifying the timeframe for
unsolicited amendments in expedited review.\87\ One commenter stated
that applicants sometimes amend applications to correct or update
factual information that is immaterial to the legal analysis or request
for relief.\88\ This commenter and others recommended that we instead
establish a 14-day pause for immaterial unsolicited amendments, and a
45-day period only for material unsolicited amendments.\89\ Another
commenter suggested that the review period for unsolicited amendments
be limited to 14 days when the applicant provides the Staff with a
representation

that the amendment does not contain material changes and the applicant
supplies a marked copy of the amendment highlighting the changes from
the previous filing.\90\
---------------------------------------------------------------------------

    \87\ See ICI Comment Letter; SIFMA AMG Comment Letter; Fidelity
Comment Letter.
    \88\ See ICI Comment Letter.
    \89\ See ICI Comment Letter; Fidelity Comment Letter.
    \90\ See SIFMA AMG Comment Letter.
---------------------------------------------------------------------------

    We understand that these modifications would provide applicants
more flexibility to make changes to their application without
triggering another 45-day review period. We believe, however, that it
is important for the benefits created by such flexibility to justify
the resulting burden on the review process. Accordingly, we are
changing the timeline for Staff review of unsolicited amendments to 30
days. The expedited process rule that we are adopting pauses the 45-day
review period upon the filing of an unsolicited amendment, and the 45-
day review period resumes running on the 30th day after such amendment
is filed.\91\ Notwithstanding this provision, however, the Staff may
act before the end of such pause, if the unsolicited amendment only
encompasses minor changes. We believe that this modification will
increase applicants' flexibility to revise their applications by
shortening the resulting potential extension of the timeline, while
still providing the Staff with sufficient time to review such
unsolicited changes.
---------------------------------------------------------------------------

    \91\ See 17 CFR 270.0-5(f)(2)(i)(B).
---------------------------------------------------------------------------

    In addition, as proposed, any comment by the Staff requesting a
modification of the application will pause the 45-day period. Although
the Commission anticipates that the Staff will issue few such comments
on an application that qualifies for expedited review, there may be
times when a comment is necessary, for example, to either reflect an
event that occurred after the application was filed or to resolve
technical matters.\92\ There may also be times when a revised term or
condition is being added in a line of routine applications and the
Staff may ask applicants to make corresponding changes to their
application.
---------------------------------------------------------------------------

    \92\ In cases where an application is not substantially
identical to precedent, the Staff will notify the applicant under
rule 0-5(f)(1)(ii) that the application is not eligible for
expedited review. Using the comment process to ensure that an
application is substantially identical to precedent would require
Staff time and defeat the purpose of the expedited review process.
See supra Section II.A.1. We believe that, as applicants gain
familiarity with the ``substantially identical'' standard in
practice, the application process will run smoothly.
---------------------------------------------------------------------------

    The amended rule provides that the 45-day period will pause upon
such a request by the Staff and will resume 14 days after the filing of
an amended application that is responsive to such request. The Staff
will need the additional time to review the amended application and
determine whether a notice can be issued under 17 CFR 270.0-5(f)(1)(i).
Based on the Division's experience regarding amendments to routine
applications, we are adopting 14 days as the appropriate amount of time
for the Staff to make this determination. Commenters were supportive of
this aspect of the rule.\93\
---------------------------------------------------------------------------

    \93\ See Fidelity Comment Letter; ICI Comment Letter.
---------------------------------------------------------------------------

    Additionally, the rule provides that the 45-day period will pause
upon any irregular closure of the Commission's Washington, DC office to
the public for normal business, including, but not limited to, closure
due to a lapse in Federal appropriations, national emergency, inclement
weather, or ad hoc Federal holiday. The 45-day period will resume upon
the reopening of the Commission's Washington, DC office to the public
for normal business.\94\
---------------------------------------------------------------------------

    \94\ See 17 CFR 270.0-5(f)(2)(i)(C).
---------------------------------------------------------------------------

    The rule further provides that, if applicants do not file an
amendment responsive to the Staff's requests for modification within 30
days of receiving such requests, including a marked copy showing any
changes made and a certification that such marked copy is complete and
accurate, the application will be deemed withdrawn.\95\ This withdrawal
will be without prejudice, but if the applicant were to resubmit the
application, a new timeframe would begin. In adopting this rule, we are
committing to processing routine applications promptly. We believe that
applicants seeking to benefit from the expedited processing should act
expeditiously.\96\
---------------------------------------------------------------------------

    \95\ See infra footnote 119.
    \96\ If an applicant takes longer than 30 days to respond to
Staff comments, the application may not be appropriate for expedited
review.
---------------------------------------------------------------------------

B. Timeframe for ``Standard Review'' of Applications

    In addition to an expedited review process, the Commission is also
adopting a rule to provide a timeframe for all other applications filed
under rule 0-5. We believe that rule 17 CFR 202.13 will provide
applicants with added transparency regarding the timing of the review
of applications. Currently, the Division uses an internal performance
timeline to govern the timing of Staff responses to applications and
amendments. While the Staff in recent years has been successful in
meeting the applicable timeline, and has recently moved to the same 90-
day timeline set forth by the proposed rule,\97\ the rule should result
in a more transparent timeline, including the time at which the Staff
would forward an application to the Commission. We are modifying the
rule from the proposal to shorten the timeline for Staff action in some
instances.
---------------------------------------------------------------------------

    \97\ See supra Section II.B.
---------------------------------------------------------------------------

    Under the rule we are adopting, the Staff should take action on the
application within 90 days of the initial filing and each of the first
three amendments thereto, and within 60 days of any subsequent
amendment.\98\ In addition, the Staff may grant 60-day extensions, and
applicants should be notified of any such extension.\99\
---------------------------------------------------------------------------

    \98\ As with the expedited review process, the standard review
period will also pause upon any irregular closure of the
Commission's Washington, DC office to the public for normal
business. See 17 CFR 202.13(a).
    \99\ The provisions of this rule, including the timeframes
provided for, are not intended to create enforceable rights by any
interested parties and shall not be deemed to do so. Rather, this
rule provides informal non-binding guidelines for the Division and
procedures that the Commission anticipates the Division following.
See 17 CFR 202.13(c).
---------------------------------------------------------------------------

    For the purposes of the rule, and as proposed, action on an
application or amendment consists of (i) issuing a notice of
application; (ii) providing the applicants with comments; or (iii)
informing the applicants that the application will be forwarded to the
Commission, in which case the application is no longer subject to
paragraph (a) of the rule.\100\ If the Staff does not support the
requested relief, the Staff typically notifies applicants that it would
recommend that the Commission deny the application and gives applicants
the opportunity to withdraw the application before such recommendation
is made.\101\
---------------------------------------------------------------------------

    \100\ See 17 CFR 202.13(b).
    \101\ See supra footnote 16.
---------------------------------------------------------------------------

    We requested comment on this timeframe for ``standard review'' of
applications.\102\ There was broad support generally for our proposed
90-day timeframe for initial applications.\103\ Several commenters
recommended limiting the Staff's ability to extend the review period or
reducing the Staff's time to review amendments. One commenter suggested
that the Commission enumerate the circumstances upon which the Staff
can grant itself 90-day extensions, and/or provide only the Division
Director the ability to grant extensions on matters not enumerated but
substantially similar to those described in the rule.\104\
---------------------------------------------------------------------------

    \102\ See Proposing Release, supra footnote 2, at 22.
    \103\ See, e.g., ICI Comment Letter; Fidelity Comment Letter;
SIFMA AMG Comment Letter.
    \104\ See ICI Comment Letter. The commenter further recommended
that the Commission require the Division Director to review and/or
approve additional extensions beyond the first 90-day extension.
While it might not be practicable for the Director only to be able
to review and approve extensions, we expect that the Division will
review and approve such extensions in situations where necessary for
the appropriate consideration of an application.

---------------------------------------------------------------------------

    Two commenters suggested ways of constraining the Staff's ability
to grant multiple 90-day extensions.\105\ One of those commenters
recommended that the Commission consider a deadline for final action on
standard review applications.\106\ The other commenter stated that the
ability to issue unlimited 90-day extensions would undermine the
efficacy of the proposed standard review timeframe, and suggested an
approach similar to expedited review in which the 90-day period would
pause, as opposed to restart, for the comment process, and only restart
upon applicants filing an unsolicited amendment.\107\
---------------------------------------------------------------------------

    \105\ See Stradley Comment Letter; Fidelity Comment Letter.
    \106\ See Stradley Comment Letter.
    \107\ See Fidelity Comment Letter.
---------------------------------------------------------------------------

    Three commenters suggested shortening the length of the extensions
and reducing the review time for amendments.\108\ One commenter
suggested extensions should be for 30 days, so that the maximum
internal deadline would be 120 days, absent an amendment.\109\ Another
commenter stated that a 90-day extension period is excessive and that
it should be shortened to 45 days.\110\ That commenter said that
because Staff reviews of subsequent amendments are not de novo, they
should not take as long as the review of the initial application
filing.\111\ Another commenter recommended that for applications under
standard review, the Staff have 14 business days to review solicited
amendments and immaterial unsolicited amendments, and 90 business days
to review material unsolicited amendments.\112\
---------------------------------------------------------------------------

    \108\ See Stradley Comment Letter; SIFMA AMG Comment Letter; ICI
Comment Letter.
    \109\ See Stradley Comment Letter.
    \110\ See SIFMA AMG Comment Letter.
    \111\ See id.
    \112\ See ICI Comment Letter.
---------------------------------------------------------------------------

    In addition to comments regarding the timeframe, we received a few
comments that addressed whether Staff action should be required. One
commenter stated that the proposed rule would undermine the
Commission's policy goals because it only states that the Staff
``should take action'' without actually requiring Staff action within
90 days. The commenter suggested that we require Staff action or
communication to the applicant to occur within 90 days.\113\ That
commenter further suggested that any such required actions or
communications include providing applicants with substantive status
updates, such as whether the Division has shared the applications with
another Commission division.\114\ Another commenter recommended that we
require the Staff to provide applicants with an update regarding the
status of their application at approximately the mid-point of the
review period.\115\
---------------------------------------------------------------------------

    \113\ See id.
    \114\ See id.
    \115\ See SIFMA AMG Comment Letter.
---------------------------------------------------------------------------

    We are adopting the rule with modifications to address some
concerns raised by commenters. Our intention is to provide applicants
with more transparency and certainty regarding the timing of the review
of applications. At the same time, it is essential that the Staff
retain the ability to appropriately consider the relevant legal and
policy issues. By filing an application, applicants are seeking
exemptions or other relief under the Act. The Division may grant such
relief under delegated authority only if the applicable standard is
satisfied. Accordingly, the rule must preserve some flexibility for
situations where more time is needed for appropriate consideration of
an application. If the rule were to limit the number of extensions, and
the Staff were not in the position to approve an application under
delegated authority, the Staff might be unable to recommend that the
Commission approve the application. Such a result would make the
application process less efficient than the alternative of a further
extension.
    In response to the concerns raised about the possibility of the
comment process extending too long, however, the final rule provides
for shorter timelines than those we proposed in order to provide
shorter timeframes for Staff review of certain subsequent amendments.
In particular, the rule provides that after the third amendment to an
application, the Staff should take action on any subsequent amendments
within 60 days of their filing.\116\ We also are decreasing the length
of any extensions to the timelines by the Staff from 90 days to 60
days.\117\ We believe these changes will help move the review process
towards its conclusion, while at the same time preserving the
flexibility that the Staff needs to make sure that the requested relief
satisfies the relevant statutory standard.
---------------------------------------------------------------------------

    \116\ See 17 CFR 202.13(a). We do not believe that the review
process for amendments to applications should always be shorter than
the initial review. With many novel applications, or other
applications departing from precedent, the Staff's initial comments
typically identify threshold issues, which the Staff then considers
more in depth in subsequent reviews of the application, on the basis
of the applicants' responses. The Staff's review of those responses,
as well as discussions on how to address those issues in the
applications, often take more time than the review of the initial
filing. Accordingly, we do not believe that a shorter review period
for the first few amendments is appropriate.
    \117\ See 17 CFR 202.13(a).
---------------------------------------------------------------------------

    Applicants' responsiveness to Staff comments is an essential
component of a successful and timely application process. We have
previously stated that the Staff should not have to spend an inordinate
amount of time processing clearly deficient applications at the expense
of delaying action on other applications.\118\ Consistent with this
longstanding policy, if the Staff issues comments on an application and
the next amendment filed is not responsive to those comments, the Staff
will repeat such comments, direct the applicant to explain why the
comments were not addressed, or potentially recommend that the
Commission deny the application.
---------------------------------------------------------------------------

    \118\ See Commission Policy and Guidelines for Filing of
Applications for Exemption, Investment Company Act Release No. 14492
(Apr. 30, 1985).
---------------------------------------------------------------------------

    Finally, we do not support imposing specific requirements for
communication between the Staff and applicants. At the outset of each
review, the Staff provides applicants with the contact information for
the Staff. Our Staff is always available to applicants and, in fact,
applicants frequently contact the Staff to inquire about their
application's current status. We also do not believe the Staff should
be required to notify applicants if the Division shares their
application with another Commission division, because such
communications may involve nonpublic internal deliberations.
Accordingly, we do not believe that communication schedules fixed by
rule are needed to foster more effective communication.

C. Applications Deemed Withdrawn Under the Standard Review Process

    The Commission is also amending rule 0-5 to deem an application
withdrawn if the applicant does not respond in writing to Staff
comments. Deeming inactive applications withdrawn will both assist us
in maintaining a clear record of pending applications, as well as
provide the public, including potential new applicants, with a better
sense of the applications that the Commission is actively considering
at any given time.
    Rule 0-5(g) provides that, if an applicant has not responded in
writing to a request for clarification or modification of an
application filed under this section within 120 days after

the request, the application will be deemed withdrawn.\119\ The
withdrawal will be without prejudice and the applicant would be free to
refile, however the timeline would restart with the new
application.\120\
---------------------------------------------------------------------------

    \119\ An application requesting expedited review will not be
subject to this withdrawal provision because under rule 0-
5(f)(2)(iii), it will be deemed withdrawn if the applicant has not
filed an amendment responsive to a Staff request for modifications
within 30 days.
     An applicant can request to withdraw an application with a
letter filed as form APP-WD on EDGAR, with the corresponding
permission being filed as form APP-WDG on EDGAR. The Staff will
reflect that an application is deemed withdrawn under rule 0-5(g) by
uploading a form APP-WDG on EDGAR, without need for any action by
the applicant. The Staff intends to reflect the withdrawal by
uploading the form APP-WDG generally within 30 days after the end of
the 30-day period for expedited applications and the 120-day period
for other applications.
    \120\ Under rule 17 CFR 203.13, the 90-day timeline for Staff
comments applies to all new applications even if a predecessor
withdrawn application was subject to the 60-day timeline applicable
to certain amendments.
---------------------------------------------------------------------------

    One commenter said that it did not have any recommendations
regarding this aspect of our proposal, but requested clarification of
how the Staff would treat an application that the Staff requests to be
withdrawn and an applicant declines to withdraw.\121\ Withdrawals under
rule 0-5(g) will happen by operation of law. Applicants will not need
to take any affirmative action to cause the withdrawal.
---------------------------------------------------------------------------

    \121\ See ICI Comment Letter.
---------------------------------------------------------------------------

    Another commenter suggested that applicants be able to request
extensions to the response period before withdrawal occurs to ensure
that Staff comments and applicant responses are not made public
prematurely.\122\ We believe this concern is now moot given we are not
moving forward at this time with publicly disseminating Staff comments
on applications, and responses to those comments, as discussed
below.\123\
---------------------------------------------------------------------------

    \122\ See SIFMA AMG Comment Letter.
    \123\ See infra, discussion in Section II.D.
---------------------------------------------------------------------------

D. Release of Comments on Applications and Responses

    Finally, in our proposal we announced our intention to begin to
disseminate publicly Staff comments on applications, and responses to
those comments and stated that we believed it would improve the
transparency of the application process.
    Most commenters recommended against public dissemination of Staff
comments and responses, expressing a number of concerns.\124\ First,
they argued that public dissemination would discourage innovation in
the fund industry and thwart open dialogue between applicants and the
Staff.\125\ The commenters noted that applications may present novel
ideas and explained that initial applicants would become reluctant to
share proprietary information with the Staff regarding these ideas,
given that dissemination of such information could provide competitive
advantages to third parties.\126\ Second, commenters believe that
public dissemination may also lead to increased confidential treatment
requests for materials filed in connection with applications, thus
substantially increasing the administrative burden on applicants and
the Staff.\127\ Further, to avoid the dissemination of information,
applicants may choose to communicate with the Staff orally rather than
in writing, which would make communications with the Staff less
effective in sharing relevant information.\128\ Consequently, the
commenters believe that public dissemination of comments and responses
to those comments would generally increase burdens on applicants and
the Staff and make the application process less efficient.\129\
---------------------------------------------------------------------------

    \124\ See ICI Comment Letter; IAA Comment Letter; Fidelity
Comment Letter; SIFMA AMG Comment Letter; Stradley Comment Letter.
    \125\ See ICI Comment Letter; SIFMA AMG Comment Letter; Stradley
Comment Letter.
    \126\ See ICI Comment Letter.
    \127\ See ICI Comment Letter; IAA Comment Letter; Fidelity
Comment Letter; SIFMA AMG Comment Letter; Stradley Comment Letter.
    \128\ See ICI Comment Letter; SIFMA AMG Comment Letter.
    \129\ See ICI Comment Letter; Fidelity Comment Letter; Stradley
Comment Letter.
---------------------------------------------------------------------------

    Third, commenters opposing public dissemination noted that
information disclosed would be of little utility to investors, given it
is not the type of information relevant to investment decisions.\130\
The commenters were also concerned that the information may be
confusing to the public given that written correspondence from various
stages in the review of an application may present an incomplete
picture of the review process and the resolution of the relevant
issues.\131\
---------------------------------------------------------------------------

    \130\ See ICI comment letter; Fidelity Comment Letter; SIFMA AMG
Comment Letter.
    \131\ See Stradley Comment Letter. See also Fidelity Comment
Letter.
---------------------------------------------------------------------------

    Some commenters also distinguished the applications process from
the review of disclosure filings, for which the Staff currently
publicly disseminates comments.\132\ In particular, the commenters
noted that certain registration statement amendments can become
effective automatically, and thus there may be benefit to publishing
comments because there would be no other public record.\133\
Conversely, applications do not have automatic effectiveness;
applicants file and amend an application publicly, and such amended
application, together with the Commission notice of an application,
provide a fulsome record of the issues considered during the
application's review.\134\
---------------------------------------------------------------------------

    \132\ In our proposal, we noted that dissemination of comments
on applications and responses to those comments would follow a
process similar to the process that the Division of Investment
Management's Disclosure Review and Accounting Office uses to
publicly disseminate comment letters and responses on disclosure
filings.
    \133\ See ICI Comment Letter.
    \134\ See ICI Comment Letter; Stradley Comment Letter.
---------------------------------------------------------------------------

    However, some commenters supported public dissemination of comments
and responses to comments. Those commenters believed that it would be
beneficial for future applicants to be able to review the Staff's
comments and applicants' responses, enhancing transparency.\135\
---------------------------------------------------------------------------

    \135\ See Capital Group Comment Letter. See also Ed Snoke
Comment Letter and Diane Smith Comment Letter (suggesting release of
comments at the time of the notice to help for the basis for any
hearing request on the application). We note that the publicly
available application as well as the Commission notice of the
application provide the public with the relevant information on
which to base a hearing request.
---------------------------------------------------------------------------

    While the Commission plans to continue to consider publicly
disseminating Staff comments and response to those comments, the
comment letters discussed above raised issues with respect to this
proposal that merit further consideration. Accordingly, comments and
responses will not be disseminated at this time.

E. Other Matters

    Pursuant to the Congressional Review Act,\136\ the Office of
Information and Regulatory Affairs has designated these amendments as
not ``a major rule,'' as defined by 5 U.S.C. 804(2). If any of the
provisions of these rules, or the application thereof to any person or
circumstance, is held to be invalid, such invalidity shall not affect
other provisions or application of such provisions to other persons or
circumstances that can be given effect without the invalid provision or
application.
---------------------------------------------------------------------------

    \136\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

III. Economic Analysis

A. Introduction

    We are mindful of the costs imposed by, and the benefits obtained
from, our rules. Section 2(c) of the Act states that when the
Commission is engaging in rulemaking under the Act and is required to
consider or determine whether the action is necessary or

appropriate in (or, with respect to the Act, consistent with) the
public interest, the Commission shall consider whether the action will
promote efficiency, competition, and capital formation, in addition to
the protection of investors. The following analysis considers the
potential economic effects that may result from amended rule 0-5,
including the benefits and costs to applicants and other market
participants as well as the broader implications of the rule for
efficiency, competition, and capital formation.
    Amended rule 0-5 creates an expedited review process for applicants
whose application is substantially identical to two previously approved
precedential applications. The rule further provides that an
application for relief will be deemed withdrawn if the applicant does
not respond in writing within 120 days of a request for clarification
or modification of the application.\137\ Overall, we anticipate that
these amendments will benefit both applicants and investors by allowing
eligible applicants to realize the benefits of relief more quickly than
under the current process, which generally will be shared with fund
shareholders. Additionally, we expect the amendments to result in cost
savings associated with the application process, which could be passed
on to investors. As discussed below, we anticipate that we will receive
approximately 50 applications per year seeking expedited review under
the Act.
---------------------------------------------------------------------------

    \137\ See supra footnote 119.
---------------------------------------------------------------------------

    The scope of the benefits and costs of amended rule 0-5 depends on
the expected volume of applications generally as well as the expected
volume of applications for expedited review in particular. Those
benefits and costs also depend on the extent to which applicant
experience under amended rule 0-5 is expected to differ from current
experience. Below, we describe the number of applications as well as
the time the Commission takes in responding to such applications.

B. Economic Baseline

1. Applications for Relief
    The table below reports the number of initial applications by
category and calendar year for 2017, 2018, and 2019.\138\
---------------------------------------------------------------------------

    \138\ We use a combination of EDGAR and internal data for this
baseline analysis. The table includes initial applications that were
initially filed from 2017 to 2019.

----------------------------------------------------------------------------------------------------------------
                     Exemption type \1\                           2017         2018         2019        Total
----------------------------------------------------------------------------------------------------------------
12(d)(3)....................................................            0            1            0            1
Affiliated Sales............................................            2            2            0            4
Business Development Companies..............................            1            2            1            4
Co-Investment...............................................           21           15           14           50
Deregistration..............................................            0            0            1            1
Distributions...............................................            1            4            1            6
Employees Securities Company................................            4            1            2            7
Exchange-Traded Funds.......................................           39           33           22           94
Family Office...............................................            0            1            0            1
Fund of Funds--Multi-Group..................................            9            3            2           14
Inadvertent Investment Companies............................            1            0            0            1
Ineligible--Disqualified Firm...............................            1            1            0            2
Insurance Products..........................................            4            2            1            7
Inter-fund Lending..........................................            5            1            3            9
Interval Funds..............................................            2            0            0            2
Joint Transaction...........................................            0            3            0            3
Multi-Class.................................................           11            9            5           25
Multi-Manager...............................................           14            9            6           29
Other.......................................................            8           10           11           29
Unit Investment Trusts--Other...............................            1            0            1            2
                                                             ---------------------------------------------------
    Total...................................................          124           97           70          291
----------------------------------------------------------------------------------------------------------------
\1\ See U.S. Securities and Exchange Commission, Investment Company Act Notices and Orders: Category Listing,
  available at https://www.sec.gov/rules/icreleases.shtml.

    Among the 291 applications shown in the above table, the largest
broad categories of applications are applications related to exchange-
traded funds (94, or 32 percent of applications) and applications
related to co-investment (50, or 17 percent of applications).\139\
Together, these two categories of applications make up 144, or 49
percent of applications from 2017 to 2019.
---------------------------------------------------------------------------

    \139\ The Commission's recent adoption of rule 6c-11 will permit
exchange-traded funds that satisfy certain conditions to operate
without obtaining an exemptive order. See supra footnote 24. Also,
the Commission recently proposed new 17 CFR 270.12d1-4 (rule 12d1-4
under the Investment Company Act) that would, under specified
circumstances, permit a fund to acquire shares of another fund in
excess of the limits of section 12(d)(1) of the Act without
obtaining an exemptive order from the Commission. See Funds of Funds
Arrangements, Investment Company Act Release No. 33329 (Dec. 19,
2018) (84 FR 1286, Feb. 1, 2019).
---------------------------------------------------------------------------

    The table below reports the number of amended filings associated
with the 291 initial applications from 2017 to 2019, for those initial
applications that resulted in notices from 2017 to 2019.\140\
---------------------------------------------------------------------------

    \140\ Eighty-nine initial filings did not result in a notice
before December 31, 2019. Because the table provides information on
the number of amended filings associated with applications that
resulted in notices, those 89 initial filings are excluded from the
sample.

                                            Number of Amended Filings
----------------------------------------------------------------------------------------------------------------
       0                1                2               3               4              >4             Total
----------------------------------------------------------------------------------------------------------------
           42               90              39              17               9               5             202
----------------------------------------------------------------------------------------------------------------

    Of the 202 applications from 2017 to 2019, 42 (21 percent) initial
applications resulted in a notice without any amendment. Ninety (45
percent) applications resulted in a notice after one amendment to the
initial application. Overall, 70 (35 percent) initial applications
required two or more amended applications prior to receiving a notice.
2. Review Process
    The current rules governing applications for exemption serve as a
baseline against which we assess the economic impacts of amended rule
0-5. At present, there are no rules under the Act or other rules
governing timeframes for Commission consideration of applications for
exemption. While rules governing timeframes for the consideration of
applications for exemption have not been formalized, in 2008 the Staff
adopted the performance target of providing comments on at least 80
percent of initial applications within 120 days after their
receipt.\141\ For filings made on or after June 1, 2019, the Division
has now implemented a new internal target of providing comments on both
initial applications and amendments within 90 days.
---------------------------------------------------------------------------

    \141\ See supra footnote 31.
---------------------------------------------------------------------------

    The table below summarizes the number of days between an
applicant's initial filing and a response from the Commission from 2017
to 2019.

----------------------------------------------------------------------------------------------------------------
                      Year                             Mean         % <=45 days     % <=90 days    % <=120 days
----------------------------------------------------------------------------------------------------------------
2017............................................              85             16%             46%             98%
2018............................................              95              10              37              91
2019............................................              66              30              84             100
Overall.........................................              84              18              52              96
----------------------------------------------------------------------------------------------------------------

    We note that the prolonged Government shutdown from December 22,
2018 to January 25, 2019 (35 days) affected turnaround times for those
applications initially submitted in the latter portion of 2018, as the
Staff was not able to review and process applications during that time.
Overall, from 2017 through 2019, 18 percent of applicants experienced
times between initial filing and a response from the Commission of 45
days or less. Fifty-two percent of applicants experienced times of 90
days or less, and 96 percent of applicants experienced times of 120
days or less.

C. Benefits and Costs of Amended Rule 0-5

    We are adopting an expedited review process for routine
applications and a new rule to deem an application for expedited
exemptive relief withdrawn when an applicant fails to respond to Staff
comments. These actions could have both direct as well as indirect
effects. Because the actions affect the application process, the
actions could affect both applicants and the Commission. Further, to
the extent the actions have a direct effect on the Commission, there
could arise an indirect effect on applicants as well as investors.
These potential direct and indirect effects are discussed in the
context of benefits and costs of the rule described below.
    The magnitude of these estimated expected effects will depend, at
least in part, on the extent to which anticipated outcomes differ from
the baseline. For example, as noted above, we calculate that in recent
years 18 percent of initial applications have received Commission
response within 45 days.\142\ The expected benefits and costs will
depend on the extent to which the actions result in outcomes that
differ from recent experience.\143\
---------------------------------------------------------------------------

    \142\ As discussed above, 52% of initial filings have received
Commission action within 90 days.
    \143\ The expected benefits and costs will also depend on the
amount of application activity. Recent Commission rulemaking and
proposed rules, if adopted, could result in a reduction in the
number of future applications. See supra footnote 35.
---------------------------------------------------------------------------

1. Benefits
    We expect that the adopted expedited review process will have the
direct effect of allowing the benefits of relief to be realized by
applicants more quickly than otherwise would be the case. Further, we
expect that the adopted expedited review procedure will make the
application process less expensive. For example, we believe that for
applications that seek relief substantively identical to relief that
the Commission has recently granted the new procedure will encourage
applicants to submit applications that are substantially identical to
precedent. Submitting applications that are substantially identical to
precedent should reduce the cost of drafting applications as well as
reduce costs associated with needing to file multiple amendments.
    We estimate that the expedited review process will significantly
reduce costs for applicants compared to applicants receiving orders
under standard review. We believe the estimated total cost burden per
application for applicants to receive an order for an average
application under standard review utilizing outside counsel is
approximately $74,550 \144\ and the estimated hour or cost burden per
application for applicants utilizing in-house counsel will be
approximately 150 hours or $58,800.\145\ The Staff estimates that the
total cost burden per application for applicants to receive an order
for an application under the adopted expedited review utilizing outside
counsel is approximately $14,910 \146\ and the estimated hour or cost
burden per application for applicants utilizing in-house counsel will
be approximately 30 hours or $11,760.\147\ Therefore, the estimated
costs for an application under the expedited review process equate to
an 80 percent savings compared to the estimated costs for an average
application under the standard review process.
---------------------------------------------------------------------------

    \144\ This estimate is based on the following calculations: $497
(hourly rate for outside counsel) x 150 (estimated hours to receive
an order for an application under standard review) = $74,550.
    \145\ This estimate is based on the following calculations: $392
(hourly rate for in-house counsel) x 150 (estimated hours to receive
an order for an application under standard review) = $58,800.
    \146\ This estimate is based on the following calculations: $497
(hourly rate for outside counsel) x 30 (estimated hours to receive
an order for an application under expedited review) = $14,910.
    \147\ This estimate is based on the following calculations: $392
(hourly rate for in-house counsel) x 30 (estimated hours to receive
an order for an application under expedited review) = $11,760.
---------------------------------------------------------------------------

    The estimated savings for an application under expedited review
compared to an average application under the standard review process
would be approximately $59,640 \148\ per application utilizing outside
counsel or

120 hours \149\ or $47,040 \150\ per application utilizing in-house
counsel. Accordingly, the expedited review process would decrease the
total estimated annual cost burden by approximately $2,385,600
utilizing outside counsel and total estimated annual hour burden by
approximately 1,200 hours utilizing in-house counsel.\151\ The total
estimated annual savings for the expedited review process for both
outside and in-house counsel would be $2,856,000.\152\ We expect that
investors in entities utilizing the expedited review process will
benefit to the extent those cost savings are passed along.
---------------------------------------------------------------------------

    \148\ This estimate is based on the following calculations:
$74,550 (estimated total cost under standard review utilizing
outside counsel) - $14,910 (estimated total cost under expedited
review utilizing outside counsel) = $59,640.
    \149\ This estimate is based on the following calculations: 150
(estimated total hours under standard review utilizing in-house
counsel) - 30 (estimated total hours under expedited review
utilizing in-house counsel) = 120.
    \150\ This estimate is based on the following calculations:
$58,800 (estimated total cost under standard review utilizing in-
house counsel) - $11,760 (estimated total cost under expedited
review utilizing in-house counsel) = $47,040.
    \151\ This estimate is based on the following calculations:
    $59,640 (estimated savings per application under expedited
review) x 50 (estimated number of applications under expedited
review, see infra footnote 182) x 0.80 (approximate percentage of
applications prepared by outside counsel) = $2,385,600.
    120 (estimated hours saved per application under expedited
review) x 50 (estimated number of applications under expedited
review, see infra footnote 182) x 0.20 (approximate percentage of
applications prepared by in-house counsel) = 1,200.
    \152\ This estimate is based on the following calculations:
$2,385,600 (estimated total cost savings utilizing outside counsel)
+ [1,200 (estimated total hours saved utilizing in-house counsel) x
$392 (hourly rate for in-house counsel)] = $2,856,000. This estimate
takes into account the incremental costs of the expedited review
requirements.
---------------------------------------------------------------------------

    We expect that the adopted actions will also have a direct effect
on the Commission. As discussed in Section I.C above, a significant
factor affecting the time to review an application is often how the
application has been drafted. Applications for which there is clear
precedent often omit standard terms or conditions, or contain
significantly different versions of the standard terms or
representations, from the relevant precedent. These variances increase
the time required for the Staff's review because the Staff must analyze
the changes to determine whether they alter the scope or nature or
appropriateness of the requested relief. To the extent the new
procedure would encourage applicants for expedited review to submit
applications that are substantially identical to precedent, we expect
the new procedure to reduce the amount of Staff resources required to
review such applications.
    The anticipated reduction in Staff resources required to review
applications could result in indirect effects associated with the
adopted actions. In particular, to the extent Staff is able to devote
greater resources to more novel applications, the benefits realized by
applicants with more novel applications may be realized more quickly
than otherwise would be the case. To the extent those benefits are
passed along to investors, investors would experience indirect benefits
as well. Additionally, to the extent these indirect benefits accrue to
applicants with more novel applications, the adopted actions could
foster the submission of a greater number of novel applications which
could lead to greater innovation in investment products. Further, the
adopted actions could benefit investors by enhancing competition among
market participants, which we discuss in more detail below.
2. Costs
    Adopted rule 0-5(d) creates the opportunity for applicants whose
applications meet certain requirements to request expedited review
subject to the requirements of adopted rules 0-5(d) and 0-5(e). The
adopted amendment to rule 0-5 does not require potential applicants to
request expedited review. Potential applicants for expedited review,
then, would only bear the costs of requesting expedited review in those
circumstances where the applicant believes the benefits justify the
costs.
    With respect to applications for expedited review, amended rule 0-
5(e)(2) requires applicants to submit exhibits with marked copies of
the application showing changes from the final versions of the two
precedent applications. Based on interactions with applicants and Staff
experience, for those applicants relying on outside counsel to prepare
two marked copies against two recent precedents, the estimated cost is
$2,485 per application.\153\ Applicants utilizing in-house counsel to
provide two marked copies against two recent precedents would spend 5
hours or $1,960 per application.\154\
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    \153\ See infra footnote 186.
    \154\ See infra footnote 179.
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    Amended rule 0-5(e)(1) requires that the cover page of the
application include a notation prominently stating ``EXPEDITED REVIEW
REQUESTED UNDER 17 CFR 270.0-5(d).'' Amended rule 0-5(e)(3) further
requires the accompanying cover letter to certify on behalf of the
applicant that the applicant believes the application meets the
requirements of rule 0-5(d), and that the marked copies required by
rule 0-5(e)(2) are complete and accurate with an explanation on why the
particular precedents were chosen. The written certification is similar
to the representation required from counsel under 17 CFR 280.485 (rule
485) for post-effective amendments filed by certain registered
investment companies.\155\ Such a representation would be subject to
section 34(b) of the Act.\156\ Based on conversations with applicants
and Staff experience, we expect the cost of these cover letter
requirements to be $994 per application utilizing outside counsel \157\
and 2 hours or $784 per application utilizing in-house counsel.\158\
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    \155\ See rule 485(b)(4).
    \156\ See supra footnote 78.
    \157\ See infra footnote 186.
    \158\ See infra footnote 183.
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    We estimate we will receive approximately 50 applications \159\ per
year seeking expedited review under the Act. Therefore, we estimate
that the new requirements will impose a total annual cost burden of
approximately $139,160 utilizing outside counsel \160\ and total annual
hour burden of approximately 70 hours utilizing in-house counsel \161\
for a cost burden of $27,440.\162\ The total estimated annual cost
burden for all applicants expected to seek expedited review, reflecting
the use of both outside and in-house counsel, would be $166,600.\163\
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    \159\ See infra footnote 176.
    \160\ See infra footnote 187.
    \161\ See infra footnote 180.
    \162\ See infra footnote 181.
    \163\ $166,600 = $139,160 (cost of utilizing outside counsel) +
$27,440 (cost of utilizing in-house counsel).
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    Amended rule 0-5 also provides that, with respect to expedited
reviews, if applicants do not file an amendment responsive to Staff's
requests for modification within 30 days of receiving such requests,
including a marked PDF copy showing any changes made and a
certification that such marked copy is accurate and complete, the
application will be deemed withdrawn. We believe the cost of complying
with the 30-day requirement would be the same as complying with the
current 60-day requirement.\164\ We assume that those applicants
requesting expedited review would likely bear an opportunity cost the
longer the application process is delayed. Applicants for expedited
review, then, will benefit from responding to Staff requests for
modification in a more timely manner than they would under the current
requirement.
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    \164\ In the past, Staff placed an application on inactive
status when an applicant did not respond to comments within 60 days.
See supra footnote 19.

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    Adopted rule 0-5(g) additionally provides that, if an applicant has
not responded in writing to a request for clarification or modification
of an application filed under standard review within 120 days after the
request, the application will be deemed withdrawn. As an oral response
will not stop an application from being deemed withdrawn, the ``in
writing'' requirement will create an additional cost. We believe the
``in writing'' requirement will increase the burden by $994 per
application for applicants relying on outside counsel.\165\ Applicants
utilizing in-house counsel would spend 2 hours or $784 per
application.\166\ We estimate we will receive approximately 90
applications \167\ seeking standard review under the Act annually and
of those 90 applications, we estimate that approximately 10 percent
will result in applicants responding ``in writing'' to avoid the
application's deemed withdrawal pursuant to rule 0-5(g). Therefore, the
``in writing'' requirement under rule 0-5(g) would increase the total
estimated annual cost burden by approximately $7,157 utilizing outside
counsel \168\ and total estimated annual hour burden by approximately
3.6 hours utilizing in-house counsel \169\ for an estimated cost burden
of $1,411.\170\ The total estimated annual cost burden for both outside
and in-house counsel would be $8,568.\171\
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    \165\ See infra footnote 188.
    \166\ See infra footnote 183.
    \167\ See infra footnote 182.
    \168\ See infra footnote 189.
    \169\ See infra footnote 184.
    \170\ See infra Section IV, PRA Table 1.
    \171\ $8,568 = $7,157 (cost of utilizing outside counsel) +
$1,411 (cost of utilizing in-house counsel).
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D. Effects on Efficiency, Competition, and Capital Formation

    This section evaluates the impact of adopted amendments to rule 0-5
on efficiency, competition, and capital formation.
    Efficiency. We expect the expedited review process to benefit
potential applicants directly by providing them an opportunity, subject
to certain conditions, for expedited exemptive relief. Further, to the
extent the adopted rule encourages applications that are substantially
identical to precedent, we expect the adopted rule should reduce the
likelihood of applicants needing to file amendments. To the extent the
expedited review process allows applicants to realize the benefits of
relief more quickly and with fewer filings, we would expect the
operating efficiency of applicants to increase more quickly and to do
so with a greater net benefit than under the existing application
process.
    As discussed above, applications for which there is clear precedent
often omit standard terms or conditions, or contain significantly
different versions of the standard terms or representations, from the
relevant precedent. As a result, the Staff requires increased time and
resources to review the changes to determine whether they alter the
scope or nature of the requested relief. To the extent the new
procedures would encourage applicants for expedited review to submit
applications that are substantially identical to precedent, we expect
the new procedures to reduce the amount of Staff resources required to
review such applications and increase Staff resources available to
review more novel applications. As a result, the benefits of any
innovative features and new product types associated with novel
applications could be realized by investors more quickly, thereby
increasing investment efficiency (that is, the ability of investors to
find and invest in funds that meet their particular needs or
strategies) more quickly than under the current process.
    Competition. The adopted rule would likely increase competition in
those situations where applicants would meet the requirements for
expedited review. The effect on competition is expected to operate
through two channels. The first channel would be the speed with which
potential competitors could realize the benefits of relief. The
expedited review process would allow applicants to compete more quickly
with prior applicants who already realized those benefits.\172\ Second,
to the extent the adopted expedited review process reduces the cost of
applying for exemptive relief, the cost reduction would lower barriers
to competing with those applicants who have already been granted
relief.
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    \172\ To the extent the adopted expedited review process will
allow subsequent applicants to compete more quickly, benefits to
``first-movers'' (i.e., prior applicants, including the two relied
on as precedent) may be reduced. We would expect any resulting
effect on innovation to be minimal. In general, we anticipate that
the expected gains from innovation will justify the expected loss in
benefits associated with quicker competition.
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    Capital Formation. The adopted rule may lead to increased capital
formation. As discussed above, to the extent the expedited review
process allows applicants to realize the benefits of relief both more
quickly and at a lower cost, we would expect the efficiency of the
application process to increase, allowing more investor money to be
used productively. The increased efficiency could also lead to more
applications, including more novel applications. To the extent this
results in a broader range of investment products, some investors may
find new investment opportunities that more closely match their
investment goals. This could induce these investors to invest
additional money, increasing demand for intermediated assets as a whole
and, as a result, facilitating capital formation.
    Also, to the extent the new procedures would encourage applicants
for expedited review to submit applications that are substantially
identical to precedent, we expect the new procedures to reduce the
amount of Staff resources required to review such applications and
increase Staff resources available to review more novel applications.
An increase in Staff resources available to review more novel
applications could, in turn, lead to more applicants who would
implement innovative features or create new types of products. To the
extent investors do not substitute one type of product or feature for
another and find new products and features valuable, an increase in the
number of applications involving innovative features or new types of
products, could increase the overall amount of resources investors are
willing to invest and, as a result, facilitate capital formation.

E. Reasonable Alternatives

    Rule 0-5(d)(1) provides that an applicant may request expedited
review if the application is substantially identical to two other
applications for which an order granting the requested relief was
issued. As alternatives, the rule could require a single precedent or
more than two precedents. Our decision to require two precedent
applications reflects a balancing of the accessibility to the expedited