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

    Total annual burden............  ..............          48,474       ......................      19,195,704
----------------------------------------------------------------------------------------------------------------
Notes:
1. For ``Written Derivatives Risk Management Program Development,'' these estimates include initial burden
  estimates annualized over a three-year period.
2. See supra note 627.

2. Board Oversight and Reporting

    The proposed rule would require: (1) A fund's board of directors to
approve the designation of the fund's derivatives risk manager,\632\
(2) the derivatives risk manager to provide written reports to the
board regarding the program's implementation and effectiveness,\633\
and (3) the derivatives risk manager to provide written reports
describing any exceedances of the fund's guidelines and the results of
the fund's stress testing and backtesting.\634\ We estimate that 2,693
funds would be subject to these requirements.\635\
---------------------------------------------------------------------------

    \632\ See proposed rule 18f-4(c)(5)(i); supra section II.C
(discussing the proposed board oversight and reporting
requirements).
    \633\ See proposed rule 18f-4(c)(5)(ii); supra section II.C.
    \634\ See proposed rule 18f-4(c)(5)(iii); supra section II.C.
Burdens associated with reports to the fund's board of directors of
material risks arising from the fund's derivatives transactions, as
described in proposed rule 18f-4(c)(1)(v), are discussed above in
supra section IV.B.1.
    \635\ See supra notes 498, 627 and accompanying text.
---------------------------------------------------------------------------

    Table 3 below summarizes the proposed PRA initial and ongoing
annual burden estimates associated with the board oversight and
reporting requirements under proposed rule 18f-4. We do not estimate
that there will be any initial or ongoing external costs associated
with the board oversight and reporting requirements.

                              Table 3--Board Oversight and Reporting PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \2\       Internal time
                                          hours         hours \1\                                      costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Approving the designation of the                  3               1   x   $17,860 (combined rate         $17,860
 derivatives risk manager.                                                 for 4 directors) \2\.
Derivatives risk manager written     ..............               8   x   $357 (derivatives risk           2,856
 reports \3\.                                                              manager).
                                     ..............               1   x   $17,860 (combined rate          17,860
                                                                           for 4 directors).
                                    ----------------------------------------------------------------------------
    Total annual burden per fund...  ..............              10       ......................          11,786
        Number of funds............  ..............         x 2,693       ......................         x 2,693
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............          26,930       ......................      31,739,698
----------------------------------------------------------------------------------------------------------------
Notes:
1. For ``Approving the Designation of the Derivatives Risk Manager,'' this estimate includes initial burden
  estimates annualized over a three-year period.
2. See supra notes 627.
3. See supra notes 631-632 and accompanying text.

3. Disclosure Requirement Associated With Limit on Fund Leverage Risk
    The proposed rule would also generally require funds relying on the
rule to comply with an outer limit on fund leverage risk based on VaR.
This outer limit would be based on a relative VaR test that compares
the fund's VaR to the VaR of a ``designated reference index.'' If the
fund's derivatives risk manager is unable to identify an appropriate
designated reference index, the fund would be required to comply with
an absolute VaR test.\636\ Under the proposed rule, a fund must
disclose its designated reference index in its annual report.\637\ We
estimate that 2,424 funds would be subject to this disclosure
requirement.\638\
---------------------------------------------------------------------------

    \636\ The collections of information burdens for disclosure
requirements associated with the proposed limit on fund leverage
risk are reflected in the PRA for proposed rule 18f-4 and not in the
funds' applicable disclosure forms because the burden arises from
the proposed rule. The Paperwork Reduction Act analysis for the
funds' applicable disclosure forms will not reflect the collections
of information burdens for disclosure requirements associated with
the proposed limit on fund leverage risk.
    A fund that is a leveraged/inverse investment vehicle, as
defined in the proposed sales practices rules, would not be required
to comply with the proposed VaR-based limit on fund leverage risk.
Broker-dealers and investment advisers would be required to approve
retail investors' accounts to purchase or sell shares in these
funds. See infra sections IV.C and IV.D (discussing leveraged/
inverse investment vehicles and leveraged/inverse funds covered by
the sales practices rules). The proposed rule also would provide an
exception from the proposed VaR tests for funds that use derivatives
to a limited extent or only to hedge currency risks. See infra
sections IV.B.5 (discussing the proposed rule's provisions regarding
limited derivatives users).
    VaR test burdens related to recordkeeping and reporting are
reflected in the recordkeeping section below, and also in the Forms
N-PORT, N-CURRENT, and N-CEN burdens discussed below. See infra
sections IV.F, IV.G, and IV.H.
    \637\ See proposed rule 18f-4(c)(2)(iv).
    \638\ See supra notes 519-520 and accompanying text.
---------------------------------------------------------------------------

    Table 4 below summarizes the proposed PRA initial and ongoing
annual burden estimates associated with the disclosure requirement
associated with the proposed limit on fund leverage risk. We do not
estimate that there will be any paperwork-related initial or ongoing
external costs associated with this proposed disclosure requirement.

            Table 4--Disclosure Requirement Associated With Limit on Fund Leverage Risk PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \1\       Internal time
                                          hours           hours                                        costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Disclosure of designated reference                0              .5   x   $309 (compliance               $154.50
 index.                                                                    manager).
                                                  0              .5   x   365 (compliance                 182.50
                                                                           attorney).
                                    ----------------------------------------------------------------------------
    Total annual burden per fund...  ..............          1 hour       ......................             337
        Number of funds............  ..............         x 2,424       ......................         x 2,424
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............           2,424       ......................         816,888
----------------------------------------------------------------------------------------------------------------
Notes:
1. See supra note 627.

4. Disclosure Requirement for Leveraged/Inverse Funds
    Under the proposed rule, a fund would not have to comply with the
proposed VaR-based leverage risk limit if it: (1) Meets the definition
of a ``leveraged/inverse investment vehicle'' in the proposed sales
practices rules; (2) limits the investment results it seeks to 300% of
the return (or inverse of the return) of the underlying index; and (3)
discloses in its prospectus that it is not subject to proposed rule
18f-4's limit on fund leverage risk.\639\ We estimate that 269 funds
would be subject to the proposed prospectus disclosure requirement for
leveraged/inverse funds.\640\
---------------------------------------------------------------------------

    \639\ See proposed rule 18f-4(c)(4); supra section II.G
(discussing the alternative requirements for leveraged/inverse
funds).
    \640\ See supra note 467 and accompanying text (164 leveraged/
inverse ETFs + 105 leveraged mutual funds).
---------------------------------------------------------------------------

    Table 5 below summarizes the proposed PRA initial and ongoing
annual burden estimates associated with the disclosure requirement in
the proposed rule's alternative provision for leveraged/inverse funds.
We do not estimate that there will be any initial or ongoing external
costs associated with this proposed disclosure requirement.

              Table 5--Disclosure Requirement Associated With Leveraged/Inverse Funds PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \1\       Internal time
                                          hours           hours                                        costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Leveraged/inverse fund prospectus                 0             .25   x   $309 (compliance                   $77
 disclosure.                                                               manager).
                                                  0             .25   x   365 (compliance                     91
                                                                           attorney).
                                    ----------------------------------------------------------------------------
    Total annual burden per fund...  ..............               1       ......................             168
        Number of funds............  ..............           x 269       ......................           x 269
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............             269       ......................          45,192
----------------------------------------------------------------------------------------------------------------
Notes:
1. See supra note 627.

5. Disclosure Changes for Money Market Funds
    Money market funds are excluded from the scope of the rule and
could not rely on proposed rule 18f-4 to enter into derivatives
transactions or other transactions addressed in the proposed rule.\641\
To the extent a money market fund currently discloses in its prospectus
that it may use any of these transactions--even if it is not currently
entering into these transactions--money market funds would be subject
to the burdens associated with making disclosure changes to their
prospectuses. We estimate that 413 funds could be subject to such
disclosure changes on account of money market funds' exclusion from the
proposed rule.\642\
---------------------------------------------------------------------------

    \641\ See proposed rule 18f-4(a) (defining the term ``Fund'' to
``. . . not include a registered open-end company that is regulated
as a money market fund''); supra section II.A.1 (discussing the
exclusion of money market funds from the scope of the proposed
rule).
    \642\ See supra note 454 and accompanying text. This likely
overestimates the total number of funds subject to these disclosure
changes, because we believe that money market funds currently do not
typically engage in derivatives transactions or the other
transactions addressed by proposed rule 18f-4. See supra section
II.A.1.
---------------------------------------------------------------------------

    Table 6 below summarizes the proposed PRA initial and ongoing
annual burden estimates associated with disclosure changes that money
market funds could make because of their exclusion from proposed rule
18f-4.\643\ We do not estimate that there will be any initial or
ongoing external costs associated with this disclosure change
requirement.
---------------------------------------------------------------------------

    \643\ These per-fund burden estimates likely overestimate the
total burden associated with these disclosure changes. See supra
note 641.

                        Table 6--Disclosure Changes for Money Market Funds PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \1\       Internal time
                                          hours           hours                                        costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Money market prospectus disclosure              .75             .25   x   $309 (compliance                   $77
 changes.                                                                  manager).
                                                .75             .25   x   $365 (compliance                    91
                                                                           attorney).
                                    ----------------------------------------------------------------------------
    Total annual burden per fund...  ..............              .5       ......................             168
        Number of funds............  ..............           x 413       ......................           x 413
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............             207       ......................          69,384
----------------------------------------------------------------------------------------------------------------
Notes:
1. See supra note 627.

6. Policies and Procedures for Limited Derivatives Users
    Proposed rule 18f-4 would require funds relying on the limited
derivatives user provisions to adopt and implement written policies and
procedures reasonably designed to manage the fund's derivatives
risks.\644\ Only funds that limit their derivatives exposure to 10% of
their net assets or that use derivatives transactions solely to hedge
certain currency risks would be permitted to rely on these provisions.
We estimate that 2,398 funds would be subject to the limited
derivatives users requirements.\645\ In addition to the initial burden
to document the policies and procedures, we estimate that limited
derivatives users would have an ongoing burden associated with any
review and revisions to its policies and procedures to ensure that they
are ``reasonably designed'' to manage the fund's derivatives risks.
Below we estimate the initial and annual ongoing burdens associated
with documentation and any review and revision of the limited
derivatives users' policies and procedures.
---------------------------------------------------------------------------

    \644\ See proposed rule 18f-4(c)(3); supra section II.E
(discussing the proposed policies and procedures requirement for
limited derivatives users).
    \645\ See supra paragraph following note 525.
---------------------------------------------------------------------------

    Table 7 below summarizes the proposed PRA initial and ongoing
annual burden estimates associated with the policies and procedures
requirement for limited derivatives users under proposed rule 18f-4. We
do not estimate that there will be any initial or ongoing external
costs associated with the policies and procedures requirement for
limited derivatives users.

                  Table 7--Policies and Procedures for Limited Derivatives Users PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \2\       Internal time
                                          hours         hours \1\                                      costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Written policies and procedures....               3               1   x   $329 (senior manager)             $329
                                                                           \ 4\.
                                                  3               1   x   $365 (compliance                   365
                                                                           attorney) \ 4\.
Review of policies and procedures..               0             .25       $329 (senior manager)            82.25
                                                                           \4\.
                                                  0             .25       $365 (compliance                 91.25
                                                                           attorney) \4\.
                                    ----------------------------------------------------------------------------
    Total annual burden per fund...  ..............             2.5       ......................          867.50
        Number of funds............  ..............         x 2,398       ......................         x 2,398
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............           5,995       ......................       2,080,265
----------------------------------------------------------------------------------------------------------------
Notes:
1. For ``Written Policies and Procedures,'' these estimates include initial burden estimates annualized over a
  three-year period.
2. See supra note 627.

7. Recordkeeping Requirements
    Proposed rule 18f-4 would require a fund to maintain certain
records documenting its derivatives risk management program's written
policies and procedures, along with its stress test results, VaR
backtesting results, internal reporting or escalation of material risks
under the program, and reviews of the program.\646\ The proposed rule
would also require a fund to maintain records of any materials provided
to the fund's board of directors in connection with approving the
designation of the derivatives risk manager and any written reports
relating to the derivatives risk management program.\647\ A fund that
is required to comply with the proposed VaR test would also have to
maintain records documenting the determination of: Its portfolio VaR;
the VaR of its designated

reference indexes, as applicable; its VaR ratio (the value of the VaR
of the Fund's portfolio divided by the VaR of the designated reference
index), as applicable; and any updates to any of its VaR calculation
model and the basis for any material changes to its VaR model.\648\ A
fund that is a limited derivatives users under the proposed rule would
have to maintain a written record of its policies and procedures that
are reasonably designed to manage derivatives risks.\649\ A fund
engaging in unfunded commitment agreements would be required to
maintain records documenting the sufficiency of its funds to meet its
obligations with respect to all unfunded commitment agreements.\650\
---------------------------------------------------------------------------

    \646\ See proposed rule 18f-4(c)(6)(i)(A); supra section II.K
(discussing the proposed recordkeeping requirements).
    \647\ See proposed rule 18f-4(c)(6)(i)(B).
    \648\ See proposed rule 18f-4(c)(6)(i)(C).
    \649\ See proposed rule 18f-4(c)(6)(i)(D).
    \650\ See proposed rule 18f-4(e)(2).
---------------------------------------------------------------------------

    We estimate that 5,091 funds would be subject to the recordkeeping
requirements.\651\ Below we estimate the average initial and ongoing
annual burdens associated with the recordkeeping requirements. This
average takes into account that some funds such as limited derivatives
users may have less extensive recordkeeping burdens than other funds
that use derivatives more substantially.
---------------------------------------------------------------------------

    \651\ See supra notes 467, 498 and accompanying text, and
paragraph following note 525 (2,693 funds that would be subject to
the proposed derivatives risk management program and limit on fund
leverage risk requirements + 2,398 funds relying on the limited
derivatives user exception and complying with the related limited
derivatives user requirements).
---------------------------------------------------------------------------

    Table 8 below summarizes the proposed PRA estimates associated with
the recordkeeping requirements in rule 18f-4.

                                                          Table 8--Recordkeeping PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Internal        Internal                                                          Initial         Annual
                                         initial burden   annual burden              Wage rate \2\         Internal time   external cost   external cost
                                              hours         hours \1\                                          costs          burden          burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Proposed Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Establishing recordkeeping policies and             1.5              .5       $62 (general clerk).......             $31          $1,800            $600
 procedures.
                                                    1.5              .5       $95 (senior computer                 47.50  ..............  ..............
                                                                               operator).
Recordkeeping..........................               0               2   x   62 (general clerk)........              31               0               0
                                                      0               2   x   $95 (senior computer                 47.50  ..............  ..............
                                                                               operator).
                                        ----------------------------------------------------------------------------------------------------------------
    Total annual burden per fund.......  ..............               5       ..........................             157  ..............             600
        Number of funds................  ..............         x 5,091       ..........................         x 5,091  ..............           5,091
                                        ----------------------------------------------------------------------------------------------------------------
    Total annual burden................  ..............          25,455       ..........................         799,287  ..............       3,054,600
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. For ``Establishing Recordkeeping Policies and Procedures,'' these estimates include initial burden estimates annualized over a three-year period.
2. See supra note 627.

8. Proposed Rule 18f-4 Total Estimated Burden
    As summarized in Table 9 below, we estimate that the total hour
burdens and time costs associated with proposed rule 18f-4, including
the burden associated with documenting the derivatives risk management
program, board oversight and reporting, disclosure requirements
associated with the proposed VaR tests, disclosure requirements
associated with the alternative requirements for leveraged/inverse
funds, policies and procedures development for limited derivatives
users, and recordkeeping, amortized over three years, would result in
an average aggregate annual burden of 109,754 hours and an average
aggregate annual monetized time cost of $54,761,797. We also estimate
that, amortized over three years, there would be external costs of
$3,054,600 associated with this collection of information. Therefore,
each fund that relies on the rule would incur an average annual burden
of approximately 20.56 hours, at an average annual monetized time cost
of approximately $10,757, and an external cost of $600 to comply with
proposed rule 18f-4.\652\
---------------------------------------------------------------------------

    \652\ These per-fund burden estimates likely overestimate the
total burden of proposed rule 18f-4 because not all funds (e.g.,
limited derivatives users) would incur the various burdens set forth
in the table.

                                Table 9--Proposed Rule 18f-4 Total PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                Internal
                                                                   Internal hour    burden time   External  cost
                                                                      burden           cost           burden
----------------------------------------------------------------------------------------------------------------
Derivatives risk management program.............................          48,474     $19,195,704              $0
Board oversight and reporting...................................          26,930      31,739,698               0
Disclosure requirement associated with limit on fund leverage              2,424         816,888               0
 risk...........................................................
Disclosure requirement associated with alternative requirements              269          45,192               0
 for leveraged/inverse funds....................................
Disclosure changes for money market funds.......................             207          69,384               0
Policies and procedures for limited derivatives users...........           5,995       2,080,265               0
Recordkeeping requirements......................................          25,455         799,287       3,054,600
                                                                 -----------------------------------------------
    Total annual burden.........................................         109,754      54,746,418       3,054,600
        Number of funds.........................................         / 5,091         / 5,091         / 5,091
                                                                 -----------------------------------------------
    Average annual burden per fund..............................           20.56          10,754             600
----------------------------------------------------------------------------------------------------------------

C. Proposed Rule 15l-2: Sales Practices Rule for Broker-Dealers

    Proposed rule 15l-2 would impose burdens on registered broker-
dealers relating to investments in leveraged/inverse investment
vehicles by their retail customers.\653\ The proposed rule is designed
to address investor protection concerns relating to leveraged/inverse
investment vehicles by helping to ensure that retail investors in these
products are capable of evaluating their characteristics and the unique
risks they present. The collections of information under proposed rule
15l-2, discussed below, would assist the Commission with its
accounting, auditing and oversight functions. The respondents to the
proposed rule would be broker-dealers registered under the Exchange Act
with retail customers that transact in leveraged/inverse investment
vehicles. Compliance with proposed rule 15l-2 would be mandatory for
all such broker-dealers. To the extent that records required to be
created and maintained by broker-dealers under the proposed rule are
provided to the Commission in connection with examinations or
investigations, such information would be kept confidential subject to
the provisions of applicable law.
---------------------------------------------------------------------------

    \653\ Specifically, the proposed sales practices rules (proposed
rule 15l-2, as well as proposed rule 211(h)-1 under the Advisers
Act), would require broker-dealers and investment advisers to engage
in due diligence before accepting or placing an order for a retail
investor to trade a leveraged/inverse investment vehicle or
approving an investor's account for such trading. See supra section
II.G.2.
---------------------------------------------------------------------------

    We estimate that, as of December 31, 2018, there were approximately
2,766 broker-dealers registered with the Commission that reported some
sales to retail customer investors.\654\ We further estimate that 700
of those broker dealers with retail customer accounts (approximately
25%) have retail customer accounts that invest in leveraged/inverse
investment vehicles.
---------------------------------------------------------------------------

    \654\ Our estimates relating to retail sales by broker-dealers
are based on data obtained from Form BD and Form BR. See also supra
note 543 and accompanying text.
---------------------------------------------------------------------------

1. Due Diligence and Account Approval
    Under proposed rule 15l-2, before accepting an order from a
customer that is a natural person (or the legal representative of a
natural person) to buy or sell shares of a leveraged/inverse investment
vehicle, or approve such a customer's account to engage in those
transactions, the broker-dealer must approve the customer's account to
engage in those transactions in accordance with the proposed rule.\655\
To make this determination, the broker-dealer must exercise due
diligence to ascertain certain facts about the customer, his or her
financial situation, and investment objectives. To comply with this due
diligence requirement, the broker-dealer must seek to obtain certain
information described in the proposed rule. This proposed rule is
modeled, in large part, after the FINRA rule requiring due diligence
and account approval for retail investors to trade in options. Based on
our understanding of how broker-dealers comply with the FINRA options
account requirements, we believe that a common way for broker-dealers
to comply with this due diligence obligation would be to utilize in-
house legal and compliance counsel, as well as in-house computer and
website specialists, to create an online form for customers to provide
the required information for approval of their accounts to trade in
leveraged/inverse investment vehicles. We also believe that a portion
of the due diligence would be performed by individuals associated with
a broker-dealer or by telephone or in-person meetings with investors.
Based on our understanding of current broker-dealer practices, we do
not believe there would be any initial or ongoing external costs
associated with the proposed broker-dealer due diligence requirement.
---------------------------------------------------------------------------

    \655\ See supra section II.G.2.b.
---------------------------------------------------------------------------

    Currently, there are 105 leveraged/inverse mutual funds, 164
leveraged/inverse ETFs, and 17 exchange-listed commodity- or currency-
based trusts or funds that meet the definition of ``leveraged/inverse
investment vehicle'' under the proposed rule.\656\ Accordingly, there
are 286 leveraged/inverse investment vehicles in total for which a
broker-dealer would be required to approve a retail customer's account
before the customer could transact in the shares of those vehicles.
Based on our experience with broker-dealers and leveraged/inverse
investment vehicles, we estimate that each of these leveraged/inverse
investment vehicles is held by approximately 2,500 separate retail
investor accounts held by registered broker dealers, for a total of
715,000 existing accounts requiring approval to trade in leveraged/
inverse investment vehicles. We further estimate that approximately
10,000 new retail accounts will be opened each year requiring approval
to trade in leveraged/inverse investment vehicles.\657\
---------------------------------------------------------------------------

    \656\ See supra note 467 and accompanying text.
    \657\ See supra note 545 and accompanying text.
---------------------------------------------------------------------------

    Table 10 below summarizes our initial and ongoing PRA burden
estimates associated with the due diligence and account approval
requirements in proposed rule 15l-2. Based on our understanding of
current broker-dealer practices, we do not estimate that there will be
any initial or ongoing external costs associated with the proposed due
diligence and account approval requirements.

                                     Table 10--Proposed Rule 15l-2 Due Diligence and Account Approval PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Internal        Internal                                                          Initial         Annual
                                             initial     annual  burden              Wage rate \2\        Internal  time  external  cost  external  cost
                                          burden hours      hours \1\                                          costs          burden          burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Proposed Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Development and implementation of                     6               2   x   $365 (compliance attorney)            $730  ..............  ..............
 customer due diligence.
                                                      9               3   x   284 (senior systems                    852  ..............  ..............
                                                                               analyst).
                                                     12               4   x   331 (senior programmer)...           1,324  ..............  ..............
Annual burden per broker-dealer........  ..............               9       ..........................           2,906  ..............  ..............
Estimated number of affected broker-     ..............             700       ..........................             700  ..............  ..............
 dealers.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total burden (I)...................  ..............           6,300       ..........................       2,034,200  ..............  ..............
                                        ----------------------------------------------------------------------------------------------------------------
Customer due diligence.................               3               1   x   365 (compliance attorney).             365  ..............  ..............
                                                      3          1 hour   x   70 (compliance clerk).....              70  ..............  ..............
Evaluation of customer information for                1             .33   x   $309 (compliance manager).          101.97  ..............  ..............
 account approval/disapproval.

Total annual burden per customer                      7            2.33       ..........................          536.97  ..............  ..............
 account.
Estimated number of affected customer    ..............           \3\ x       ..........................    x 248,333.33    x 248,333.33    x 248,333.33
 accounts.                                                   248,333.33
                                        ----------------------------------------------------------------------------------------------------------------
    Total burden (II)..................  ..............      578,616.66       ..........................    $133,347,548  ..............  ..............
                                        ----------------------------------------------------------------------------------------------------------------
    Total annual burden (I + II).......  ..............      584,916.66       ..........................     135,381,748              $0              $0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra note 627.
3. We estimate that 715,000 existing customer accounts with broker-dealers would require the proposed rule 15l-2 account approval for trading in
  leveraged/inverse investment vehicles, and that 10,000 new customer accounts opened each year would require such approval. Accordingly, we believe
  that over a three-year period, a total of 745,000 accounts will require approval, which when annualized over a three-year period, equals 248,333.33
  accounts per year.

2. Policies and Procedures

    Proposed rule 15l-2 requires broker-dealers to adopt and implement
policies and procedures reasonably designed to achieve compliance with
the proposed rule's provisions.\658\ We believe that broker-dealers
likely would establish these policies and procedures by adjusting their
current systems for implementing and enforcing compliance policies and
procedures. While broker-dealers already have policies and procedures
in place to address compliance with other Commission rules (among other
obligations), they would need to update their existing policies and
procedures to account for rule 15l-2. To comply with this obligation,
we believe that broker-dealers would use in-house legal and compliance
counsel to update their existing policies and procedures to account for
the requirements of rule 15l-2. For purposes of these PRA estimates, we
assume that broker-dealers would review the policies and procedures
that they would adopt under proposed rule 15l-2 annually (for example,
to assess whether the policies and procedures continue to be
``reasonably designed'' to achieve compliance with the proposed rule).
We therefore have estimated initial and ongoing burdens associated with
the proposed policies and procedures requirement. As discussed above,
we estimate that approximately 700 broker dealers have retail customer
accounts that invest in leveraged/inverse investment vehicles. We do
not estimate that there will be any initial or ongoing external costs
associated with the proposed policies and procedures requirement.
---------------------------------------------------------------------------

    \658\ See supra section II.G.2.b.
---------------------------------------------------------------------------

    Table 11 below summarizes our initial and ongoing annual PRA burden
estimates associated with the policies and procedures requirement in
proposed rule 15l-2.

                       Table 11--Proposed Rule 15l-2 Policies and Procedures PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \2\       Internal time
                                          hours         hours \1\                                      costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Establishing and implementing rule                3               1   x   $309 (compliance               $309.00
 15l-2 policies and procedures.                                            manager).
                                                  1            0.33   x   365 (compliance                 $20.45
                                                                           attorney).
                                                  1            0.33   x   530 (chief compliance           174.90
                                                                           officer).
Reviewing and updating rule 15l-2    ..............               1   x   309 (compliance                 309.00
 policies and procedures.                                                  manager).
                                     ..............               1   x   365 (compliance                 365.00
                                                                           attorney).
                                     ..............               1   x   530 (chief compliance           530.00
                                                                           officer).
Total annual burden per broker-      ..............            4.66       ......................        1,808.35
 dealer.
Number of affected broker-dealers..  ..............           x 700       ......................           x 700
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............           3,262       ......................       1,265,845
----------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra note 627.

3. Recordkeeping
    Under proposed rule 15l-2, a broker-dealer would have to maintain a
written record of the information that it obtained under the rule 15l-2
due diligence requirement and its written approval of the customer's
account, as well as the firm's policies and procedures, for a period of
not less than six years (the first two years in an easily accessible
place) after the date of the closing of the client's account.\659\ To
comply with this obligation, we believe that broker-dealers would use
in-house personnel to compile and maintain the relevant records. We do
not estimate that there will be any initial or ongoing external costs
associated with this requirement.
---------------------------------------------------------------------------

    \659\ See supra section II.G.2.c.
---------------------------------------------------------------------------

    Table 12 below summarizes our PRA initial and onging annual burden
estimates associated with the recordkeeping requirement in proposed
rule 15l-2.

                            Table 12--Proposed Rule 15l-2 Recordkeeping PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                         initial     annual  burden            Wage rate \1\      Internal  time
                                      burden  hours       hours                                        costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Recordkeeping......................               0               1   x   $62 (general clerk)...             $62
----------------------------------------------------------------------------------------------------------------
                                                  0               1   x   $95 (senior computer                95
                                                                           operator).
Total annual burden per broker-                   0               2       ......................             157
 dealer.
Number of affected broker-dealers..           x 700           x 700       ......................           x 700
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total annual burden............               0           1,400       ......................         109,900
----------------------------------------------------------------------------------------------------------------
Notes:
1. See supra note 627.

4. Proposed Rule 15l-2 Total Estimated Burden
    As summarized in Table 13 below, we estimate that the total hour
burdens and time costs associated with proposed rule 15l-2, including
the burden associated with the due diligence and account approval
requirement, the policies and procedures requirement, and the
recordkeeping requirement, would result in an average aggregate annual
burden of 589,578.66 hours and an average aggregate time cost of
$136,757,493. Therefore, each broker-dealer would incur an annual
burden of approximately 842.26 hours, at an average time cost of
approximately $195,367.85, to comply with proposed rule 15l-2.

                                Table 13--Proposed Rule 15l-2 Total PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                                                     Internal        Internal
                                                                      initial      burden  time   External  cost
                                                                   burden hours        cost           burden
----------------------------------------------------------------------------------------------------------------
Due diligence and account approval..............................      584,916.66    $135,381,748              $0
Policies and procedures.........................................           3,262       1,265,845               0
Recordkeeping...................................................           1,400         109,900               0
    Total annual burden.........................................      589,578.66     136,757,493               0
                                                                 -----------------------------------------------
        Number of affected broker-dealers.......................           / 700           / 700           / 700
                                                                 -----------------------------------------------
    Average annual burden per affected broker-dealer............          842.26      195,367.85               0
----------------------------------------------------------------------------------------------------------------

D. Proposed Rule 211(h)-1: Sales Practices for Registered Investment
Advisers

    Proposed 211(h)-1 would impose burdens on registered investment
advisers relating to investments in leveraged/inverse investment
vehicles by their retail clients.\660\ Proposed rule 211(h)-1 is
designed to address investor protection concerns relating to leveraged/
inverse investment vehicles by helping to ensure that retail investors
in these products are capable of evaluating their characteristics and
the unique risks they present. The Commission also believes that the
collections of information under proposed rule 211(h)-1, discussed
below, would assist the Commission with its accounting, auditing and
oversight functions.
---------------------------------------------------------------------------

    \660\ See supra note 652.
---------------------------------------------------------------------------

    The respondents to the proposed rule would be investment advisers
registered under the Advisers Act that place orders for retail clients
to invest in leveraged/inverse investment vehicles. Compliance with
proposed rule 211(h)-1 would be mandatory for all such investment
advisers. To the extent that records required to be created and
maintained by investment advisers under the proposed rule are provided
to the Commission in connection with examinations or investigations,
such information would be kept confidential subject to the provisions
of applicable law.
    We estimate that, as of December 31, 2018, approximately 8,235
investment advisers registered with the Commission have some portion of
their business dedicated to retail investors, including either
individual high net worth clients or individual non-high net worth
clients.\661\ Based on our experience with registered investment
advisers, we further estimate that 2,000 of these investment advisers
with retail client accounts (approximately 25%) have retail client
accounts that invest in leveraged/inverse investment vehicles. As such,
the investment advisers for those client accounts would be subject to
the requirements of proposed rule 211(h)-1.\662\
---------------------------------------------------------------------------

    \661\ Based on responses to Item 5.D of Form ADV.
    \662\ See supra note 547 and accompanying paragraph.
---------------------------------------------------------------------------

1. Due Diligence and Account Approval
    Under proposed rule 211(h)-1, before placing an order for the
account of a client that is a natural person (or the legal
representative of a natural person) to buy or sell shares of a
leveraged/inverse investment vehicle, or approving such a client's
account to engage in those transactions, the investment adviser must
approve the client's account to engage in those transactions in
accordance with the proposed rule.\663\ To make this determination, the
adviser must exercise due diligence to ascertain certain facts about
the client, his or her financial situation, and investment objectives.
To

comply with this due diligence requirement, the investment adviser must
seek to obtain certain information described in the proposed rule.
Based on our understanding of how broker-dealers comply with the FINRA
options account requirements, as discussed above (which we assume, for
purposes of this PRA estimate, that investment advisers could model
their compliance programs after), we believe that investment advisers
likely would comply with this due diligence obligation by utilizing in-
house legal and compliance counsel, as well as in-house computer and
website specialists, to create an online form for clients to complete
with the required information for approval of their accounts to trade
in leveraged/inverse investment vehicles.\664\ We also believe that a
portion of the due diligence would be performed by individuals
associated with an investment adviser by telephone or in-person
meetings with investors.
---------------------------------------------------------------------------

    \663\ See proposed rule 211(h)-1; supra section II.G.2.
    \664\ See supra paragraph accompanying note 654.
---------------------------------------------------------------------------

    Currently, there are 105 leveraged/inverse mutual funds, 164
leveraged/inverse ETFs, and 17 exchange-listed commodity- or currency-
based trusts or funds that meet the definition of ``leveraged/inverse
investment vehicle'' under the proposed rule.\665\ Accordingly, there
are 286 leveraged/inverse investment vehicles in total for which an
investment adviser would be required to approve a retail client's
account before the client could transact in the shares those vehicles.
Based on our experience with registered investment advisers, we
estimate that each of these leveraged/inverse investment vehicles is
held by approximately 2,500 separate retail investor accounts held by
investment advisers, for a total of 715,000 existing accounts requiring
approval to trade in leveraged/inverse investment vehicles. Based on
our experience, we further estimate that approximately 10,000 new
retail accounts will be opened each year requiring approval to trade in
leveraged/inverse investment vehicles.\666\
---------------------------------------------------------------------------

    \665\ See supra note 467 and accompanying text.
    \666\ See supra note 547 and accompanying text.
---------------------------------------------------------------------------

    Table 14 below summarizes our initial and ongoing PRA burden
estimates associated with the due diligence requirement in proposed
rule 211(h)-1. We do not estimate that there will be any initial or
ongoing external costs associated with the proposed due diligence and
approval requirements.

                                    Table 14--Proposed Rule 211(h)-1 Due Diligence and Account Approval PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Internal        Internal                                                          Initial         Annual
                                         initial burden   annual burden              Wage rate \2\         Internal time   external cost   external cost
                                              hours         hours \1\                                          costs          burden          burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Proposed Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Development and implementation of                     6               2   x   $365 (compliance attorney)            $730              $0              $0
 client due diligence.
                                                      9               3   x   $284 (senior systems                   852  ..............  ..............
                                                                               analyst).
                                                     12               4   x   $331 (senior programmer)..           1,324  ..............  ..............
Annual burden per investment adviser...  ..............               9       ..........................           2,906  ..............  ..............
Estimated number of affected investment  ..............           2,000       ..........................           2,000  ..............  ..............
 advisers.
                                        ----------------------------------------------------------------------------------------------------------------
    Total burden (I)...................  ..............          18,000       ..........................       5,812,000  ..............  ..............
Client due diligence...................               3               1   x   $365 (compliance attorney)             365  ..............  ..............
                                                      3               1   x   $70 (compliance clerk)....              70  ..............  ..............
Evaluation of client information for                  1             .33       $309 (compliance manager).          101.97  ..............  ..............
 account approval/disapproval.
Total annual burden per client account.               7            2.33       ..........................          536.97  ..............  ..............
Estimated number of affected client                               \3\ x                                     x 248,333.33  ..............  ..............
 accounts.                                                   248,333.33
                                        ----------------------------------------------------------------------------------------------------------------
    Total burden (II)..................  ..............      578,616.66       ..........................     133,347,548  ..............  ..............
                                        ----------------------------------------------------------------------------------------------------------------
    Total annual burden (I + II).......  ..............      596,616.66       ..........................     139,159,548               0               0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra note 627.
3. We estimate that 715,000 existing client accounts with registered investment advisers would require the proposed rule 211(h)-1 account approval for
  trading in leveraged/inverse investment vehicles, and that 10,000 new client accounts opened each year would require such approval. Accordingly, we
  believe that over a three-year period, a total of 745,000 client accounts would require approval, which when annualized over a three-year period, is
  248,333.33 accounts per year.

2. Policies and Procedures
    Proposed rule 211(h)-1 requires investment advisers to adopt and
implement policies and procedures reasonably designed to achieve
compliance with the proposed rule's provisions.\667\ We believe that
investment advisers likely would establish these policies and
procedures by adjusting their current systems for implementing and
enforcing compliance policies and procedures. While investment advisers
already have policies and procedures in place to address compliance
with other Commission rules (among other obligations), they would need
to update their existing policies and procedures to account for rule
211(h)-1. To comply with this obligation, we believe that investment
advisers would use in-house legal and compliance counsel to update
their existing policies and procedures to account for the requirements
of rule 211(h)-1. For purposes of these PRA estimates, we assume that
investment advisers would review the policies and procedures that they
would adopt under proposed rule 211(h)-1 annually (for example, to
assess whether the policies and procedures continue to be ``reasonably
designed'' to achieve compliance with the proposed rule, and in
compliance with Advisers Act rule 206(4)-7(b)). We therefore have
estimated initial and ongoing burdens associated with the proposed
policies and procedures requirement. We do not estimate that there will
be any initial or

ongoing external costs associated with the proposed policies and
procedures requirement.
---------------------------------------------------------------------------

    \667\ See supra section II.G.2.b.
---------------------------------------------------------------------------

    Table 15 below summarizes our PRA estimates associated with the
policies and procedures requirement in proposed rule 211(h)-1.

                     Table 15--Proposed Rule 211(h)-1 Policies and Procedures PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \2\       Internal time
                                          hours         hours \1\                                      costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Establishing and implementing rule                3          1 hour   x   $309 (compliance                  $309
 211(h)-1 policies and procedures.                                         manager).
                                                  1            0.33   x   $365 (compliance                120.45
                                                                           attorney).
                                                  1            0.33   x   $530 (chief compliance          174.90
                                                                           officer).
Reviewing and updating rule 211(h)-  ..............               1       $309 (compliance                   309
 1 policies and procedures.                                                manager).
                                                                  1       $365 (compliance                   365
                                                                           attorney).
                                                                  1       $530 (chief compliance             530
                                                                           officer).
Total annual burden per investment   ..............            4.66       ......................        1,808.35
 adviser.
Number of affected investment        ..............         x 2,000       ......................         x 2,000
 advisers.
                                    ----------------------------------------------------------------------------
    Total annual burden............  ..............           9,320       ......................       3,616,700
----------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra note 627.

3. Recordkeeping
    Under the proposed rule, a registered investment adviser would have
to maintain a written record of the information that it obtained under
the rule 211(h)-1 due diligence requirement and its written approval of
the client's account for buying or selling shares of leveraged/inverse
investment vehicles, as well as the firm's policies and procedures, for
a period of not less than six years (the first two years in an easily
accessible place) after the date of the closing of the client's
account.\668\ To comply with this obligation, we believe that
investment advisers would use in-house personnel to compile and
maintain the relevant records. We do not estimate that there will be
any initial or ongoing external costs associated with this requirement.
---------------------------------------------------------------------------

    \668\ See supra section II.G.2.c.
---------------------------------------------------------------------------

    Table 16 below summarizes our PRA estimates associated with the
recordkeeping requirement in proposed rule 211(h)-1.

                          Table 16--Proposed Rule 211(h)-1 Recordkeeping PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \2\       Internal time
                                          hours         hours \1\                                      costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Recordkeeping......................               0             2.5   x   $62 (general clerk)...            $155
                                                  0             2.5   x   $95 (senior computer            237.50
                                                                           operator).
Total annual burden per investment                0               5       ......................          392.50
 adviser.
Number of affected investment               x 2,000         x 2,000       ......................         x 2,000
 advisers.
                                    ----------------------------------------------------------------------------
    Total annual burden............               0          10,000       ......................         785,000
----------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra note 627.

4. Proposed Rule 211(h)-1 Total Estimated Burden
    As summarized in Table 17 below, we estimate that the total hour
burdens and time costs associated with proposed rule 211(h)-1,
including the burden associated with the due diligence and account
approval requirement, the policies and procedures requirement, and the
recordkeeping requirement, would result in an average aggregate annual
burden of 615,936.66 hours and an average aggregate time cost of
$143,561,248. Therefore, each investment adviser would incur an annual
burden of approximately 307.97 hours, at an average time cost of
approximately $71,780.62 to comply with proposed rule 211(h)-1.

                           Table 17--Proposed Rule 211(h)-1 Total Estimated PRA Burden
----------------------------------------------------------------------------------------------------------------
                                                                     Internal        Internal
                                                                  initial burden    burden time   External  cost
                                                                       hours           cost           burden
----------------------------------------------------------------------------------------------------------------
Due diligence and account approval..............................      596,616.66    $139,159,548              $0
Policies and procedures.........................................           9,320       3,616,700               0
Recordkeeping...................................................          10,000         785,000               0
                                                                 -----------------------------------------------
    Total annual burden.........................................      615,936.66     143,561,248               0
        Number of affected investment advisers..................         / 2,000         / 2,000         / 2,000
                                                                 -----------------------------------------------
    Average annual burden per investment adviser................          307.97       71,780.62               0
----------------------------------------------------------------------------------------------------------------

E. Rule 6c-11
    We recently adopted rule 6c-11, which permits ETFs that satisfy
certain conditions to operate without first obtaining an exemptive
order from the Commission.\669\ The rule is designed to create a
consistent, transparent, and efficient regulatory framework for such
ETFs and facilitate greater competition and innovation among ETFs. Rule
6c-11 includes a provision excluding leveraged/inverse ETFs from the
scope of ETFs that may rely on that rule. To promote a level playing
field among ETFs, and in view of the other conditions we are proposing
to place on leveraged/inverse ETFs under proposed rule 18f-4 and on
transactions in leveraged/inverse ETFs' securities under proposed rule
15l-2 and 211(h)-1, we are proposing to amend rule 6c-11 to permit
leveraged/inverse ETFs to rely on that rule. Because we believe this
proposed amendment would increase the number of funds relying on rule
6c-11, we are updating the PRA analysis for rule 6c-11 to account for
any burden increases that would result from this increase in
respondents to that rule. We are not updating the rule 6c-11 PRA
analysis in any other respect.
---------------------------------------------------------------------------

    \669\ See supra notes 352-355 and accompanying text.
---------------------------------------------------------------------------

    Rule 6c-11 requires an ETF to disclose certain information on its
website, to maintain certain records, and to adopt and implement
certain written policies and procedures. The purpose of these
collections of information is to provide useful information to
investors who purchase and sell ETF shares in secondary markets and to
allow the Commission to better monitor reliance on rule 6c-11 and will
assist the Commission with its accounting, auditing and oversight
functions.
    The respondents to rule 6c-11 will be ETFs registered as open-end
management investment companies other than share class ETFs and non-
transparent ETFs. This collection will not be mandatory, but will be
necessary for those ETFs seeking to operate without individual
exemptive orders, including all ETFs whose existing exemptive orders
will be rescinded. Information provided to the Commission in connection
with staff examinations or investigations will be kept confidential
subject to the provisions of applicable law.
    Under current PRA estimates, 1,735 ETFs would be subject to these
requirements. The current PRA estimates for rule 6c-11 include 74,466.2
total internal burden hours, $24,771,740.10 in internal time costs, and
$1,735,000 in external time costs.
    We continue to believe that the current annual burden and cost
estimates for rule 6c-11 are appropriate, but estimate that the
proposed amendment to rule 6c-11 would result in an increase in the
number of respondents. Specifically, we estimate that an additional 164
ETFs (all leveraged/inverse ETFs) would rely on rule 6c-11, resulting
in an increase in the number of respondents to 1,899 ETFs.\670\ Table
18 below summarizes these revisions to the estimated annual responses,
burden hours, and burden-hour costs based on the proposed amendment to
rule 6c-11.
---------------------------------------------------------------------------

    \670\ See supra note 467 and accompanying text.

                                                           Table 18--Rule 6c-11 PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Previously        Updated                                             Previously        Updated
                                                       estimated       estimated        Previously     Updated estimated     estimated       estimated
                                                        annual          annual       estimated annual   annual internal       annual          annual
                                                     internal hour   internal hour   internal burden    time burden cost   external cost   external cost
                                                      burden \1\      burden \2\        time cost                             burden          burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Website disclosure................................       33,398.75       36,555.75     $10,717,945.15     $11,731,053.51      $1,735,000      $1,899,000
Recordkeeping.....................................           8,675           9,495         680,987.50         745,357.50               0               0
Policies and procedures...........................       32,392.45       35,454.33      13,372,807.45      14,636,865.33               0               0
                                                   -----------------------------------------------------------------------------------------------------
    Total annual burden...........................        74,466.2       81,505.08      24,771,740.10      27,113,276.34       1,735,000       1,899,000
        Number of affected ETFs...................         / 1,735         / 1,899            / 1,735            / 1,899         / 1,735         / 1,899
                                                   -----------------------------------------------------------------------------------------------------
    Average annual burden per ETF.................           42.92           42.92          14,277.66          14,277.66           1,000           1,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. The previously estimated burdens and costs in this table are based on an estimate of 1,735 ETFs relying on rule 6c-11.
2. The updated estimated burdens and costs in this table are based on an estimate of 164 leveraged/inverse ETFs that would rely on rule 6c-11 pursuant
  to the proposed amendment to that rule, for a total estimate of 1,899 ETFs that would rely on rule 6c-11.

F. Form N-PORT

    We are proposing to amend Form N-PORT to add new items to Part B
(``Information About the Fund''), as well as to make certain amendments
to the form's General Instructions.
    Form N-PORT, as amended, would require funds to provide information
about their derivatives exposure.\671\ We estimate that 5,091 funds
would be subject to this exposure-related disclosure requirement.\672\
---------------------------------------------------------------------------

    \671\ See proposed Item B.9 of Form N-PORT; supra section
II.H.1.a.
    \672\ See supra notes 467, 498 and accompanying text, and
paragraph following note 525 (2,693 funds that would be subject to
the proposed derivatives risk management program and limit on fund
leverage risk requirements + 2,398 funds relying on the limited
derivatives user exception and complying with the related limited
derivatives user requirements).
---------------------------------------------------------------------------

    In addition, funds that are subject to the limit on fund leverage
risk in proposed rule 18f-4 would have to report certain VaR-related
information, including: (1) The fund's highest daily VaR during the
reporting period and its corresponding date; and (2) the fund's median
daily VaR for the reporting period. Funds subject to the relative VaR
test during the reporting period also would have to report: (1) The
name of the fund's designated reference index, (2) the index
identifier, (3) the fund's highest daily VaR ratio during the reporting
period and its corresponding date; and (4) the fund's median daily VaR
ratio for the reporting period.\673\ Finally, all funds that are
subject to the proposed limit on fund leverage risk also would have to
report the number of exceptions that the fund identified as a result of
the backtesting of its VaR calculation model.\674\ We estimate that
2,424 funds would be subject to these VaR-related disclosure
requirements.\675\
---------------------------------------------------------------------------

    \673\ See proposed Item B.10 of Form N-Port; supra section
II.H.1.b.
    \674\ See id.
    \675\ See supra paragraph following note 525.
---------------------------------------------------------------------------

    Preparing reports on Form N-Port is mandatory for all management
investment companies (other than money market funds and small business
investment companies) and UITs that operate as ETFs and is a collection
of information under the PRA. The information required by Form N-Port
must be data-tagged in XML format. Responses to the reporting
requirements will be kept confidential, subject to the provisions of
applicable law, for reports filed with respect to the first two months
of each quarter; the third month of the quarter will not be kept
confidential, but made public sixty days after the quarter end. Form N-
Port is designed to assist the Commission its regulatory, disclosure
review, inspection, and policymaking roles, and to help investors and
other market participants better assess different fund products.\676\
---------------------------------------------------------------------------

    \676\ The specific purposes for each of the new proposed
reporting items are discussed in section II.H.1 supra.
---------------------------------------------------------------------------

    Based on current PRA estimates, we estimate that funds prepare and
file their reports on Form N-Port either by (1) licensing a software
solution and preparing and filing the reports in house, or (2)
retaining a service provider to provide data aggregation, validation
and/or filing services as part of the preparation and filing of reports
on behalf of the fund. We estimate that 35% of funds subject to the
proposed N-Port filing requirements would license a software solution
and file reports on Form N-Port in house, and the remainder would
retain a service provider to file reports on behalf of the fund.
    Table 19 below summarizes our PRA initial and ongoing annual burden
estimates associated with the proposed amendments to Form N-Port.

                                                           Table 19--Form N-PORT PRA Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Internal        Internal                                                          Initial         Annual
                                         initial burden   annual burden              Wage rate \2\         Internal time   external cost   external cost
                                              hours         hours \1\                                          costs          burden          burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Proposed Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Report derivatives exposure information               2        \3\ 4.33   x   $365 (compliance attorney)          $1,580  ..............  ..............
                                                      2            4.33   x   $331 (senior programmer)..           1,433  ..............  ..............
                                        ----------------------------------------------------------------------------------------------------------------
    Total new burden for derivatives     ..............            8.66       ..........................           3,013  ..............  ..............
     exposure information.
Number of funds for derivatives                                 x 5,091                                          x 5,091
 exposure information.
                                        ----------------------------------------------------------------------------------------------------------------
    Total new annual burden for          ..............          44,088       ..........................      15,339,183  ..............  ..............
     derivatives exposure information
     (I).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Report VaR-related information.........               2            4.33   x   $365 (compliance attorney)           1,580          $5,490          $4,210
                                                      2            4.33   x   $331 (senior programmer)..           1,433  ..............  ..............
                                        ----------------------------------------------------------------------------------------------------------------
    Total new burden for VaR-related     ..............            8.66       ..........................           3,013  ..............  ..............
     information.
Number of funds for VaR-related                                 x 2,424                                          x 2,424
 information.
                                        ----------------------------------------------------------------------------------------------------------------

    Total new annual burden for VaR-     ..............          20,992       ..........................       7,303,512  ..............  ..............
     related information (II).
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total new annual burden (I + II)...  ..............          65,080       ..........................      22,642,695  ..............  \4\ 21,433,110
Current burden estimates...............  ..............       1,803,826       ..........................  ..............  ..............     103,776,240
                                        ----------------------------------------------------------------------------------------------------------------
    Revised burden estimates...........  ..............       1,868,906       ..........................  ..............  ..............     125,209,350
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra note 627. These PRA estimates assume that the same types of professionals would be involved in the proposed reporting requirements that we
  believe otherwise would be involved in preparing and filing reports on Form N-PORT.
3. This estimate assumes that, annually after the initial 2 hours to comply with the new N-PORT requirements, each of a compliance attorney and a senior
  programmer would incur 1 burden hours per filing associated with the new reporting requirements. The estimate of 4.33 hours is based on the following
  calculation: ((2 hours for the first filing x 1 = 2) + (3 additional filings in year 1 x 1 hour for each of the additional 3 filings in year 1 = 3) +
  (4 filings in years 2 and 3 x 1 hour per filing x 2 years) = 8)/3 = 4.33.
4. This estimate is based on the following calculation: $4,210 (average costs for funds reporting the proposed information on Form N-PORT) * 5,091 funds
  (which includes funds reporting derivative exposure information and VaR-related information).

G. Form N-RN

    We are proposing to amend Form N-LIQUID (which we propose to re-
title as ``Form N-RN'') to add new current reporting requirements for
funds subject to the proposed VaR-based limit on fund leverage risk
pursuant to proposed rule 18f-4.\677\ Specifically, a fund that
determines that it is out of compliance with the VaR test and has not
come back into compliance within three business days after such
determination would have to file a non-public report on Form N-RN
providing certain information regarding its VaR test breaches.\678\ If
the portfolio VaR of a fund subject to the relative VaR test were to
exceed 150% of the VaR of its designated reference index for three
business days, a fund would have to report: (1) The dates on which the
fund portfolio's VaR exceeded 150% of the VaR of its designated
reference index; (2) the VaR of its portfolio for each of these days;
(3) the VaR of its designated reference index for each of these days;
(4) the name of the designated reference index; and (5) the index
identifier. If the portfolio VaR of a fund subject to the absolute VaR
test were to exceed 10% of the value of the fund's net assets for three
business days, a fund would have to report: (1) The dates on which the
fund portfolio's VaR exceeded 10% of the value of its net assets; (2)
the VaR of its portfolio for each of these days; and (3) the value of
the fund's net assets for each of these days.
---------------------------------------------------------------------------

    \677\ See supra section II.H.2.
    \678\ This requirement would be implemented through the proposed
amendments to rule 30b1-10 under the Investment Company Act, and
proposed rule 18f-4(c)(7). For purposes of this PRA analysis, the
burden associated with the proposed amendments to rule 30b1-10 and
proposed rule 18f-4(c)(7) is included in the collection of
information requirements for Form N-RN.
---------------------------------------------------------------------------

    In addition, if a fund that has filed Part E or Part F of Form N-RN
to report it has breached its applicable VaR test, has come back into
compliance with either the relative VaR test or the absolute VaR test,
as applicable, it must file a report on Form N-RN to indicate
that.\679\ Specifically, a fund must report the dates on which its
portfolio VaR exceeded, as applicable, 150% of the VaR of its
designated reference index (if the fund is subject to the relative VaR
test under proposed rule 18f-4(c)(2)(i)) or exceeded 15% of the value
of its net assets (if the fund is subject to the absolute VaR test
under proposed rule 18f-4(c)(2)(ii)).\680\ Furthermore, a fund must
also report the current VaR of its portfolio.\681\
---------------------------------------------------------------------------

    \679\ See proposed Part G of Form N-RN.
    \680\ Id.
    \681\ Id.
---------------------------------------------------------------------------

    A fund would have to report information for either VaR test breach,
within one business day following the third business day after the fund
has determined that its portfolio VaR exceeds either of the VaR test
thresholds, as applicable. Similarly, a fund that has come back into
compliance with its applicable VaR test would have to file such a
report within one business day. We estimate that 2,424 funds per year
would be required to comply with either of the VaR tests, and the
Commission would receive approximately 30 filing(s) per year in
response to each of the new VaR-related items that we proposed to
include on Form N-RN, as amended.\682\
---------------------------------------------------------------------------

    \682\ This estimate is similar to the Commission's estimates of
the number of reports that funds, in the aggregate, would submit
annually in response to the liquidity-related items of Form N-
LIQUID. See Liquidity Adopting Release, supra note 359, at nn.1281-
1283 and accompanying paragraph. See also supra paragraph following
note 525.
---------------------------------------------------------------------------

    Under the proposed amendments to Form N-RN, preparing a report on
this form would be mandatory for any fund that is out of compliance
with its applicable VaR test for more than three business days, as
described above, and for any fund that has come back into compliance
with its applicable VaR test. A report on Form N-RN is a collection of
information under the PRA. The VaR test breach information provided on
Form N-RN, as well as the information a fund provides when it has come
back into compliance, would enable the Commission to receive
information on events that could impact funds' leverage-related risk
more uniformly and efficiently and would enhance the Commission's
oversight of funds when significant fund and/or market events occur.
The Commission would be able to use the newly required information that
funds would provide on Form N-RN in its regulatory, disclosure review,
inspection, and policymaking roles. Responses to the reporting
requirements and this collection of information would be kept
confidential, subject to provisions of applicable law.
    Table 20 below summarizes our PRA initial and ongoing annual burden
estimates associated with the proposed amendments to funds' current
reporting requirement. Staff estimates there will

be no external costs associated with this collection of information. We
further assume similar hourly and cost burdens, as well as similar
response rates, for responses to either a breach of the absolute VaR
test or the relative VaR test.

                                        Table 20--Form N-RN PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                                Internal        Internal
                                             initial burden   annual burden        Wage rate \1\   Internal time
                                                  hours           hours                                costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Relative or absolute VaR test breach                      0       \2\ 0.005   x             $365           $1.83
 reports...................................                                          (compliance
                                                                                attorney)
                                                          0           0.005   x     $331 (senior            1.66
                                                                                programmer)
                                            --------------------------------------------------------------------
    Total new annual burden per fund.......  ..............            0.01       ..............            3.49
        Number of funds....................                         x 2,424                              x 2,424
                                            --------------------------------------------------------------------
    Total new annual burden................  ..............              24       ..............           8,460
Current burden estimates...................  ..............             941       ..............  ..............
                                            --------------------------------------------------------------------
    Revised burden estimates...............  ..............             965       ..............  ..............
----------------------------------------------------------------------------------------------------------------
Notes:
1. See supra note 627. These PRA estimates assume that the same types of professionals would be involved in the
  proposed reporting requirements that we believe otherwise would be involved in preparing and filing reports on
  Form N-LIQUID.
2. This estimate is based on the assumption that, of the 2,424 funds that would be required to comply with
  either of the VaR tests, on average the Commission would receive 30 reports regarding a relative or absolute
  VaR test breach and that compliance attorney and senior programmer would each spend 30 minutes as part of
  preparing and submitting this report.

H. Form N-CEN

    We are proposing to amend Form N-CEN to require a fund to identify
whether it relied on proposed rule 18f-4 during the reporting
period.\683\ Form N-CEN is a structured form that requires registered
funds to provide census-type information to the Commission on an annual
basis. The proposed amendments also would require a fund to identify
whether it relied on any of the exemptions from various requirements
under the proposed rule, specifically: (1) Whether the fund is a
limited derivatives user excepted from the proposed rule's program
requirement, under either of the proposed exception's alternatives
(either a funds that limits its derivatives exposure to 10% of its net
assets, or a fund that uses derivatives transactions solely to hedge
certain currency risks); or (2) whether it is a leveraged/inverse
investment fund covered by the proposed sales practices rules that,
under proposed rule 18f-4, would be excepted from the proposed limit on
fund leverage risk. Finally, a fund would have to identify whether it
has entered into reverse repurchase agreements or similar financing
transactions, or unfunded commitment agreements, as provided under the
proposed rule.
---------------------------------------------------------------------------

    \683\ See supra section II.H.3.
---------------------------------------------------------------------------

    Preparing a report on Form N-CEN, as amended, would be mandatory
for all registered funds. Responses would not be kept confidential. We
estimate that 12,375 funds would be subject to these disclosure
requirements.\684\
---------------------------------------------------------------------------

    \684\ See supra section III.B.1 (9,788 mutual funds + 1,910 ETFs
organized as an open-end fund or as a share-class of an open-end
fund + 664 registered closed-end funds + 13 variable annuity
separate accounts registered as management investment companies on
Form N-3).
---------------------------------------------------------------------------

    The purpose of Form N-CEN is to satisfy the filing and disclosure
requirements of section 30 of the Investment Company Act, and of
amended rule 30a-1 thereunder. The information required to be filed
with the Commission assures the public availability of the information
and is designed to facilitate the Commission's oversight of registered
funds and its ability to monitor trends and risks.
    Table 21 below summarizes our PRA initial and ongoing annual burden
estimates associated with the proposed amendments to Form N-CEN based
on current Form N-CEN practices and burdens associated with minor
amendments to the form. Staff estimates there will be no external costs
associated with this collection of information.

                                       Table 21--Form N-CEN PRA Estimates
----------------------------------------------------------------------------------------------------------------
                                        Internal        Internal
                                     initial burden   annual burden            Wage rate \1\       Internal time
                                          hours           hours                                        costs
----------------------------------------------------------------------------------------------------------------
                                               Proposed Estimates
----------------------------------------------------------------------------------------------------------------
Reporting derivatives-related fund                0            0.01   x   $365 (compliance                  $3.7
 census information.                                                       attorney).
                                                  0            0.01   x   $331 (senior                       3.3
                                                                           programmer).
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total new annual burden per      ..............            0.02       ......................               7
     fund.
Number of funds....................                        x 12,375                                     x 12,375
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr

    Total new annual burden........  ..............             248       ......................          86,625
Current burden estimates...........  ..............          74,425       ......................  ..............
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Revised burden estimates.......  ..............          74,673       ......................  ..............
----------------------------------------------------------------------------------------------------------------
Notes:
1. See supra note 627. These PRA estimates assume that the same types of professionals would be involved in the
  proposed reporting requirements that we believe otherwise would be involved in preparing and filing reports on
  Form N-CEN.
2. This estimate assumes each fund reporting on Form N-CEN would spend 1 to 2 minutes reporting these new data
  elements.

I. Request for Comments

    We request comment on whether these estimates are reasonable.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments
in order to: (1) Evaluate whether the proposed collections of
information are necessary for the proper performance of the functions
of the Commission, including whether the information will have
practical utility; (2) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collections of information; (3)
determine whether there are ways to enhance the quality, utility, and
clarity of the information to be collected; and (4) determine whether
there are ways to minimize the burden of the collections of information
on those who are to respond, including through the use of automated
collection techniques or other forms of information technology.
    Persons wishing to submit comments on the collection of information
requirements of the proposed rules and amendments should direct them to
the OMB, Attention Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
DC 20503, and should send a copy to, Vanessa Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090, with reference to File No. S7-24-15. OMB is required to
make a decision concerning the collections of information between 30
and 60 days after publication of this release; therefore a comment to
OMB is best assured of having its full effect if OMB receives it within
30 days after publication of this release. Requests for materials
submitted to OMB by the Commission with regard to these collections of
information should be in writing, refer to File No. S7-24-15, and be
submitted to the Securities and Exchange Commission, Office of FOIA
Services, 100 F Street NE, Washington, DC 20549-2736.

V. Initial Regulatory Flexbility Analysis

    This Initial Regulatory Flexibility Analysis has been prepared in
accordance with section 3 of the Regulatory Flexibility Act.\685\ It
relates to proposed rules 18f-4, 15l-2, 211(h)-1, and proposed
amendments to Forms N-PORT, N-LIQUID (which we propose to re-title as
``Form N-RN''), and N-CEN.\686\
---------------------------------------------------------------------------

    \685\ 5 U.S.C. 603.
    \686\ As discussed above, the proposed conforming amendment to
Form N-2 does not change the Form N-2 collection of information. See
supra note 622. We also do not believe there to be any reporting,
recordkeeping, or compliance burden associated with this proposed
conforming amendment.
---------------------------------------------------------------------------

A. Reasons for and Objectives of the Proposed Actions

    The Commission is proposing new rules 18f-4, 211(h)-1, and 15l-2,
amendments to rule 6c-11, as well as amendments to Forms N-PORT, N-
LIQUID, and N-CEN. These proposed rules, and proposed rule and form
amendments, are designed to address the investor protection purposes
and concerns underlying section 18 of the Investment Company Act and to
provide an updated and more comprehensive approach to the regulation of
funds' use of derivatives and the other transactions covered by
proposed rule 18f-4.\687\
---------------------------------------------------------------------------

    \687\ See supra section I.B (discussing the requirements of
section 18, and as well as Congress' concerns underlying the limits
of section 18).
---------------------------------------------------------------------------

    Proposed rule 18f-4 is designed to provide an updated,
comprehensive approach to the regulation of funds' use of derivatives
and certain other transactions, generally through the implementation of
a derivatives risk management program, limits on fund leverage risk,
board oversight and reporting, and related recordkeeping
requirements.\688\ The proposed sales practices rules are designed to
address certain specific considerations raised by certain leveraged/
inverse investment vehicles by requiring registered broker-dealers and
investment advisers to satisfy due diligence and account approval
requirements.\689\ Finally, the proposed amendments to Forms N-PORT, N-
LIQUID, and N-CEN are designed to enhance the Commission's ability to
effectively oversee the use by funds, broker-dealers and investment
advisers of the proposed rules and to provide the Commission and the
public with greater insight into the impact that funds' use of
derivatives may have on their portfolios.\690\
---------------------------------------------------------------------------

    \688\ See supra section II.A.2.
    \689\ See supra section II.G.
    \690\ See supra section II.H.
---------------------------------------------------------------------------

    All of these requirements are discussed in detail in section II of
this release. The costs and burdens of these requirements on small
funds, investment advisers, and broker-dealers are discussed below as
well as above in our Economic Analysis and Paperwork Reduction Act
Analysis, which discuss the applicable costs and burdens on all funds,
investment advisers, and broker-dealers.\691\
---------------------------------------------------------------------------

    \691\ See supra sections III and IV. These sections also discuss
the professional skills that we believe compliance with the proposed
rules, and proposed rule and form amendments would entail.
---------------------------------------------------------------------------

B. Legal Basis

    The Commission is proposing new rule 18f-4 under the authority set
forth in sections 6(c), 12(a), 18, 31(a), 38(a), and 61 of the
Investment Company Act of 1940 [15 U.S.C. 80a-6(c), 80a-12(a), 80a-18,
80a-30(a), 80a-37(a), and 80a-60]. The Commission is proposing
amendments to rule 6c-11 under the authority set forth in sections
6(c), 22(c), and 38(a) of the Investment Company Act [15 U.S.C. 80a-
6(c), 22(c), and 80a-37(a)]. The Commission is proposing new rule 15l-2
under the authority set forth in sections 3, 3(b), 3E, 10, 15(l), 15F,
17, 23(a), and 36 of the Securities Exchange Act of 1934 [15 U.S.C.
78c, 78c(b), 78c-5, 78j, 78o(l), 78o-10, 78q, 78w(a), and 78mm]. The
Commission is proposing new rule 211(h)-1 under the authority set forth
in sections 206, 206A, 208, 211(a), and 211(h), and of the Investment
Advisers Act of 1940 [15 U.S.C. 80b-6, 80b-6a, 80b-8, 80b-11(a), and
80b-11(h)]. The Commission is

proposing amendments to Form N-PORT, Form N-LIQUID (which we propose to
re-title as ``Form N-RN''), Form N-CEN, and Form N-2 under the
authority set forth in sections 8, 18, 30, and 38 of the Investment
Company Act of 1940 [15 U.S.C. 80a-8, 80a-18, 80a-29, 80a-37, 80a-63],
sections 6, 7(a), 10 and 19(a) of the Securities Act of 1933 [15 U.S.C.
77f, 77g(a), 77j, 77s(a)], and sections 10, 13, 15, 23, and 35A of the
Exchange Act [15 U.S.C. 78j, 78m, 78o, 78w, and 78ll].

C. Small Entities Subject to Proposed Rules

    For purposes of Commission rulemaking in connection with the
Regulatory Flexibility Act, an investment company is a small entity if,
together with other investment companies in the same group of related
investment companies, it has net assets of $50 million or less as of
the end of its most recent fiscal year (a ``small fund'').\692\
Commission staff estimates that, as of June 2019, approximately 42
registered open-end mutual funds, 8 registered ETFs, 33 registered
closed-end funds, and 16 BDCs (collectively, 99 funds) are small
entities.\693\
---------------------------------------------------------------------------

    \692\ See rule 0-10(a) under the Investment Company Act [17 CFR
270.0-10(a)].
    \693\ This estimate is derived an analysis of data obtained from
Morningstar Direct as well as data reported to the Commission for
the period ending June 2019.
---------------------------------------------------------------------------

    For purposes of Commission rulemaking in connection with the
Regulatory Flexibility Act, a broker-dealer is a small entity if it:
(1) Had total capital (net worth plus subordinated liabilities) of less
than $500,000 on the date in the prior fiscal year as of which its
audited financial statements were prepared pursuant to rule 17a-5(d)
under the Exchange Act, or, if not required to file such statements,
had total capital (net worth plus subordinated liabilities) of less
than $500,000 on the last business day of the preceding fiscal year (or
in the time that it has been in business, if shorter); and (2) it is
not affiliated with any person (other than a natural person) that is
not a small business or small organization.\694\ Commission staff
estimates that, as of June 30, 2019, there are approximately 942
broker-dealers that may be considered small entities.\695\
---------------------------------------------------------------------------

    \694\ See rule 0-10(c)(1)-(2) under the Exchange Act [17 CFR
240.0-10(c)(1)(2)].
    \695\ This estimate is derived from an analysis of data for the
period ending June 30, 2019 obtained from Financial and Operational
Combined Uniform Single (FOCUS) Reports that broker-dealers
generally are required to file with the Commission and/or SROs
pursuant to rule 17a-5 under the Exchange Act [17 CFR 240.17a-5].
---------------------------------------------------------------------------

    Under Commission rules, and for the purposes of the Advisers Act
and the Regulatory Flexibility Act, a registered investment adviser
generally is a small entity if it: (1) Has assets under management
having a total value of less than $25 million; (2) did not have total
assets of $5 million or more on the last day of the most recent fiscal
year; and (3) does not control, is not controlled by, and is not under
common control with another investment adviser that has assets under
management of $25 million or more, or any person (other than a natural
person) that had total assets of $5 million or more on the last day of
its most recent fiscal year.\696\ We believe that proposed rule 211(h)-
1 would not affect most investment advisers that are small entities
(``small advisers''). Many small advisers would not be affected because
they are registered with one or more state securities authorities and
not with the Commission. Under section 203A of the Advisers Act, many
small advisers are prohibited from registering with the Commission and
are regulated by state regulators.\697\ Of those advisers that are
registered with the Commission, we estimate based on IARD data that as
of June 30, 2019, approximately 470 SEC-registered investment advisers
are small entities under the RFA.\698\ Of these, we estimate that 171
registered investment advisers are small entities that provide advice
to individual clients.\699\
---------------------------------------------------------------------------

    \696\ See rule 0-7(a) under the Advisers Act [17 CFR 275.0-
7(a)].
    \697\ 15 U.S.C. 80b-3a.
    \698\ Based on SEC registered investment adviser responses to
Item 12 of Form ADV.
    \699\ Based on SEC-registered investment adviser responses to
Items 5.D.(1)(a)-(b), 5.D.(3)(a)-(b), 5.F and 12 of Form ADV. These
responses indicate that: The investment adviser has clients that are
high net worth individuals and/or individuals other than high net
worth individuals; the investment adviser has regulatory assets
under management attributable to clients that are high net worth
individuals and/or individuals other than high net worth
individuals; and that the investment adviser is a small entity.
Firms that are registered as a broker-dealer and an investment
adviser are counted in both the total number of small investment
advisers and small broker-dealers that would be subject to the new
requirements. We believe that counting these firms twice is
appropriate because of any additional burdens of complying with the
rules with respect to both their advisory and brokerage businesses.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

1. Proposed Rule 18f-4
a. Derivatives Risk Management Program, and Board Oversight and
Reporting
    Proposed rule 18f-4 would generally require a fund relying on the
rule--including small entities, but not including funds that are
limited derivatives users--to adopt and implement a derivatives risk
management program.\700\ This risk management program would include
policies and procedures reasonably designed to assess and manage the
risks of the fund's derivatives transactions.\701\ The program
requirement is designed to permit a fund to tailor the program's
elements to the particular types of derivatives that the fund uses and
related risks, as well as how those derivatives impact the fund's
investment portfolio and strategy. The proposal would require a fund's
program to include the following elements: (1) Risk identification and
assessment; (2) risk guidelines; (3) stress testing; (4) backtesting;
(5) internal reporting and escalation; and (6) periodic review of the
program. The proposed rule also would require: (1) A fund's board of
directors to approve the designation of the fund's derivatives risk
manager and (2) the derivatives risk manager to provide written reports
to the board regarding the program's implementation and effectiveness,
including describing any exceedances of the fund's guidelines and the
results of the fund's stress testing and backtesting.\702\
---------------------------------------------------------------------------

    \700\ See supra section II.A.2; proposed rule 18f-4(c)(1).
    \701\ See proposed rule 18f-4(a).
    \702\ See supra sections II.C and III.C.1.
---------------------------------------------------------------------------

    As discussed above, we estimate that the one-time operational costs
necessary to establish and implement a derivatives risk management
program would range from $70,000 to $500,000 per fund, depending on the
particular facts and circumstances and current derivatives risk
management practices of the fund.\703\ We also estimate that each fund
would incur ongoing program-related costs that range from 65% to 75% of
the one-time costs necessary to establish and implement a derivatives
risk management program.\704\ Thus, we estimate that a fund would incur
ongoing annual costs associated with proposed rule 18f-4 that would
range from $45,500 to $375,000.\705\ We estimate that approximately 22%
of funds would be required to implement a derivatives risk management
program, including board oversight.\706\ We

similarly estimate--applying to small funds the same estimated
percentage of funds that would implement a derivatives risk management
program--that approximately 22% of small funds (approximately 22 small
funds) would establish a derivatives risk management program.\707\
---------------------------------------------------------------------------

    \703\ See supra section III.C.1. This section, along with
sections IV.B.1 and IV.B.2, also discusses the professional skills
that we believe compliance with this aspect of the proposal would
entail.
    \704\ Id.
    \705\ Id.
    \706\ These are funds that would not be considered limited
derivatives users under the proposed rule. See supra sections II.E,
III.C.1, IV.B.1 and IV.B.2; infra section V.D.1.c.
    \707\ See supra sections III.C.1 and V.C. We estimate that there
are 99 small funds that meet the small entity definition. See supra
note 692 and accompanying text. 99 small funds x 22% = approximately
22 funds that are small entities.
---------------------------------------------------------------------------

    There are different factors that would affect whether a smaller
fund incurs program-related costs that are on the higher or lower end
of the estimated range. For example, we would expect that smaller
funds--and more specifically, smaller funds that are not part of a fund
complex--may not have existing personnel capable of fulfilling the
responsibilities of the proposed derivatives risk manager, or may
choose to hire a derivatives risk manager rather than assigning that
responsibility to a current officer (or officers) of the fund's
investment adviser who is not a portfolio manager. Also, while we would
expect larger funds or funds that are part of a large fund complex to
incur higher program-related costs in absolute terms relative to a
smaller fund or a fund that is part of a smaller fund complex, we would
expect a smaller fund to find it more costly, per dollar managed, to
comply with the proposed program requirement because it would not be
able to benefit from a larger fund complex's economies of scale.\708\
---------------------------------------------------------------------------

    \708\ See supra section III.C.1.
---------------------------------------------------------------------------

b. Limit on Fund Leverage Risk
    Proposed rule 18f-4 would also generally require a fund relying on
the rule--including small entities, but not including funds that are
limited derivatives users or that are certain leveraged/inverse funds
that the rule describes--to comply with an outer limit on fund leverage
risk based on VaR.\709\ This outer limit would be based on a relative
VaR test that compares the fund's VaR to the VaR of a designated
reference index. If the fund's derivatives risk manager is unable to
identify an appropriate designated reference index, the fund would be
required to comply with an absolute VaR test.\710\ Under the proposed
rule, a fund must disclose its designated reference index in its annual
report.\711\ This proposed requirement is designed to limit fund
leverage risk consistent with the investor protection purposes
underlying section 18.
---------------------------------------------------------------------------

    \709\ See supra sections II.D, II.E, and II.G.
    \710\ See supra sections II.D.2, II.D.3.
    \711\ Proposed rule 18f-4(c)(2)(iv).
---------------------------------------------------------------------------

    As discussed above, we estimate that the one-time operational costs
necessary to establish and implement a VaR calculation model consistent
with the proposed limit on fund leverage risk would range from $5,000
to $100,000 per fund, depending on the particular facts and
circumstances and current derivatives risk management practices of the
fund.\712\ We estimate that approximately 19% of funds would be
required to comply with the proposed limit on fund leverage risk.\713\
We similarly estimate--applying to small funds the same estimated
percentage of funds overall that would comply with this requirement--
that approximately 19% of small funds (approximately 19 small funds)
would be required to comply with the proposed limit on fund leverage
risk.\714\
---------------------------------------------------------------------------

    \712\ See supra section III.C.2. This section, along with
section IV.B.3, also discusses the professional skills that we
believe compliance with this aspect of the proposal would entail.
    \713\ See supra section III.C.2. This estimate excludes both:
(1) Limited derivatives users, and (2) funds that are leveraged/
inverse investment vehicles under the proposed sales practices
rules. Id.; see also supra sections II.E, II.G, III.C.2, III.C.3,
III.C.5, and IV.B.3; infra section V.D.1.c.
    \714\ See supra sections III.C.2 and V.C. We estimate that there
are 99 small funds that meet the small entity definition. See supra
note 692 and accompanying text. 99 small entities x 19% =
approximately 19 funds that are small entities.
---------------------------------------------------------------------------

    There are multiple factors that could affect whether the costs that
smaller funds would incur in complying with the proposed limit on fund
leverage risk would be on the lower versus higher end of this estimated
range. To the extent that funds (including smaller funds) have already
established and implemented portfolio VaR testing practices and
procedures, these funds would incur fewer costs relative to those funds
that have not already established and implemented VaR-based analysis in
their risk management. If as a result of fewer resources, a smaller
fund, and more specifically a smaller fund not part of a fund complex,
hired a third-party vendor to comply with the VaR-based limit on fund
leverage risk, this could increase costs of complying with the proposed
limit for those funds. Finally, costs would vary based on factors such
as whether the fund uses multiple types of derivatives or uses
derivatives more extensively, whether the fund would be implementing
the absolute VaR test versus the relative VaR test, and whether (for a
fund that uses the relative VaR test) the fund uses a designated
reference index for which the index provider charges a licensing
fee.\715\
---------------------------------------------------------------------------

    \715\ See supra note 202 and accompanying paragraph; note 517
and accompanying sentence.
---------------------------------------------------------------------------

c. Requirements for Limited Derivatives Users
    Proposed rule 18f-4 includes an exception from the proposed rule's
risk management program requirement and limit on fund leverage risk for
``limited derivatives users.'' \716\ The proposed exception would be
available to a fund that either limits its derivatives exposure to 10%
of its net assets, or that uses derivatives transactions solely to
hedge certain currency risks. Any fund that relies on the proposed
exception--small funds as well as large funds--would also be required
to adopt policies and procedures that are reasonably designed to manage
its derivatives risks. We expect that the risks and potential impact of
these funds' derivatives use may not be as significant, compared to
those of funds that do not qualify for the exception, and that a
principles-based policies and procedures requirement would
appropriately address these risks. These ``reasonably designed''
policies and procedures would have a scope that that reflects the
extent and nature of a fund's use of derivatives within the parameters
that the proposed exception provides.
---------------------------------------------------------------------------

    \716\ See supra section II.E; proposed rule 18f-4(c)(3)(i)-(ii).
---------------------------------------------------------------------------

    As discussed above, we estimate that the one-time costs to
establish and implement policies and procedures reasonably designed to
manage a fund's derivative risks would range from $1,000 to $100,000
per fund, depending on the particular facts and circumstances and
current derivatives risk management practices of the fund.\717\ We also
estimate that the ongoing annual costs that a fund that is a limited
derivatives user would incur range from 65% to 75% of the one-time
costs to establish and implement the policies and procedures. Thus, we
estimate that a fund would incur ongoing annual costs associated with
the proposed limited derivatives user exception that would range from
$650 to $75,000.\718\ We anticipate that larger funds that are limited
derivatives users--or limited derivatives user funds that are part of a
large fund complex--would likely experience economies of scale in
complying with the proposed requirements for limited derivatives users
that smaller funds would not

necessarily experience.\719\ Thus, smaller funds that are limited
derivatives users could incur costs on the higher end of the estimated
range. However, a smaller fund whose derivatives use is limited could
benefit from the proposed limited derivatives user exception, because
it would not be required to adopt a derivatives risk management program
(including all of the proposed program elements), and therefore such a
fund could potentially avoid incurring costs and bearing compliance
burdens that may be disproportionate to any benefits.\720\
---------------------------------------------------------------------------

    \717\ See supra section III.C.3 (discussing the one-time range
of costs for implementing the limited derivatives user requirements
under proposed rule18f-4 and the variables impacting a fund
incurring costs at the lower or higher end of the estimated cost
range). This section, along with section IV.B.6, also discusses the
professional skills that we believe compliance with this aspect of
the proposal would entail.
    \718\ Id.
    \719\ See supra note 707 and accompanying text.
    \720\ See supra section II.E.
---------------------------------------------------------------------------

    We estimate that approximately 19% of funds that use derivatives
would qualify for the limited derivatives user exception.\721\ We would
expect some small funds to fall within the proposed limited derivatives
user exception.\722\ However, not all small funds that use derivatives
would necessarily qualify as limited derivatives users. We estimate--
applying to small funds the same estimated percentage of funds overall
that would qualify as limited derivatives users--that approximately 19%
of small funds that use derivatives (approximately 19 small funds)
would comply with the proposed requirements for limited derivatives
users under the proposed rule.\723\
---------------------------------------------------------------------------

    \721\ Id. This estimate excludes both: (1) Funds that would
comply with the derivatives risk management program, and (2) funds
that would be leveraged/inverse investment vehicles under proposed
rule 15l-2. See also supra sections II.A.2, II.E, II.G, III.C.1,
III.C.3, III.C.5, IV.B.4, and V.D.1.a.
    \722\ Id.; see also supra section III.C.3.
    \723\ Id.; see also supra sections III.C.3 and V.C. We estimate
that there are 99 small funds that meet the small entity definition.
See supra note 692 and accompanying text. 99 small entities x 19% =
approximately 19 funds that are small entities.
---------------------------------------------------------------------------

d. Reverse Repurchase Agreements and Unfunded Commitment Agreements
    Proposed rule 18f-4 would permit a fund to engage in reverse
repurchase agreements and other similar financing transactions so long
as they are subject to the relevant asset coverage requirements of
section 18.\724\ Because funds are required to rely on the asset
segregation approach in Release 10666, the degree to which funds could
engage in reverse repurchase agreements under the proposal would
generally be the same as under current practice. Therefore we do not
estimate a significant compliance burden--either for small funds that
engage in reverse repurchase agreements or for larger funds--associated
with the proposed provisions regarding reverse repurchase agreements in
rule 18f-4.\725\ For large and small funds subject to the proposed
limit on fund leverage risk, any portfolio leveraging effect of reverse
repurchase agreements or similar financing transactions would be
included and restricted through the proposed VaR-based limits, and
therefore would incrementally affect the costs associated with
complying with these limits.\726\