[Federal Register Volume 76, Number 216 (Tuesday, November 8, 2011)]
[Notices]
[Pages 69316-69318]
[FR Doc No: 2011-28828]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65667; File No. SR-Phlx-2011-136]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing of Proposed Rule Change Relating to Transfer of Exchange House
Accounts

November 2, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on October 19, 2011, NASDAQ OMX PHLX LLC (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange, pursuant to Section 19(b)(1) of the Act \3\ and Rule
19b-4 thereunder,\4\ proposes a new Exchange Rule 912 entitled
``Transfer of Accounts'' to codify a current Exchange policy with
respect to the transfer of accounts.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaqtrader.com/micro.aspx?id=PHLXRulefilings,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to codify the Exchange's
current policy with respect to the transfer of accounts by
memorializing the policy in a new Exchange Rule 912 entitled ``Transfer
of Accounts.'' \5\ The proposed new rule should provide member
organizations guidance with respect to requests to transfer accounts
either to or from a member organization.\6\
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    \5\ Exchange Rule 912 is currently reserved. The Exchange
proposes to delete the word ``Reserved'' and insert this new Rule in
its place.
    \6\ These accounts are Phlx member house accounts which are
assigned by the Exchange's Membership Department. These Phlx house
accounts are not customer accounts but rather are assigned to Phlx
member firms and utilized by members to transact business on the
Exchange. These accounts uniquely identify each member for various
reasons, including but not limited to: audit trail, clearing and
billing. This will have no impact on member registrations.
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    Proposed new Exchange Rule 912 would require a member organization
to notify the Exchange's Membership Department, in writing, to transfer
an account either to or from a member organization. The Exchange would
also require member organizations to execute a Letter of Indemnity \7\
in order to obligate the successor and assigns of the account(s) to
accept full responsibility for payment of all outstanding Exchange
fees, dues, fines and/or charges.
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    \7\ This is a standard form that is required to be completed by
members desiring to transfer their Phlx account.
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    By way of example, if a member organization acquired another member
organization and wished to maintain the acquired member's current
account assignments, the surviving member organization would be
required, pursuant to this proposed Rule, to submit a request to the
Exchange's Membership Department for a transfer of those accounts to
itself. Another example might be an individual currently employed as a
member by one organization who elects to transfer his affiliation to
another member organization. In that regard, that individual may wish
to maintain the account that is already assigned and request that the
Membership Department reassign the account to the new member
organization. Any member organization may request an account transfer
from the Exchange's Membership Department. However, both member
organizations involved must consent to the transfer prior to it
becoming effective.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \8\ in general, and furthers the objectives of Section
6(b)(5) of the Act \9\ in particular, in that it is designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general to protect investors and the public interest,
by providing an accommodation for members and member organizations who
desire to transfer accounts. The Exchange believes that memorializing
its current policy within an Exchange Rule will provide member
organizations clear guidelines on procedures related to transfers of
accounts. In addition, the Exchange will require member organizations
to execute a Letter of Indemnity to clearly delineate which firm has
responsibility for liabilities associated with the accounts. The
Exchange believes that the proposed rule creates an orderly process for
allowing such transfers and reduces risk by clearly allocating
financial responsibilities with respect to the accounts.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-Phlx-2011-136 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2011-136. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2011-136 and should be
submitted on or before November 29, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28828 Filed 11-7-11; 8:45 am]
BILLING CODE 8011-01-P


Comment Info: =================

General Comment: A 75 day comment period is insufficient time for the vaping industry and the wider vaping community to comment on the proposed deeming regulations. I would respectfully request that the period for comment be extended to 180 days.

In high school i got dangerously addicted to cigarettes. My first year of college I was very worried about my lungs, but then I was introduced to vaping. Vaping has completely abolished my want for cigarettes. Since I have started vaping I have been able to exercise without coughing and hacking up a lung. Vaping is much healthier and conscious for bystanders in second hand smoke. I have been cigarette free for more than a year. Vaping saved my life. It wouuld be a shame to stop the possibility of others quitting cigarettes via a more healthy solution.


[Federal Register Volume 83, Number 123 (Tuesday, June 26, 2018)]
[Notices]
[Page 29839]
[FR Doc No: 2018-13682]

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SECURITIES AND EXCHANGE COMMISSION

Submission for OMB Review; Comment Request

Upon Written Request Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736

Extension:
     Form 1-SA, SEC File No. 270-661, OMB Control No. 3235-0721

    Notice is hereby given that, pursuant to the Paperwork Reduction
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget this request for extension of the previously approved
collection of information discussed below.
    Form 1-SA (17 CFR 239.92) is used to file semiannual reports by
Tier 2 issuers under Regulation A, an exemption from registration under
the Securities Act of 1933 (15 U.S.C. 77a et seq.). Tier 2 issuers
under Regulation A conducting offerings of up to $50 million within a
12-month period are required to file Form 1-SA. Form 1-SA provides
semiannual, interim financial statements and information about the
issuer's liquidity, capital resources and operations after the issuer's
second fiscal quarter. The purpose of the Form 1-SA is to better inform
the public about companies that have conducted Tier 2 offerings under
Regulation A. We estimate that approximately 55 issuers file Form 1-SA
annually. We estimate that Form 1-SA takes approximately 187.43 hours
to prepare. We estimate that 85% of the 187.43 hours per response
(159.32 hours) is prepared by the company for a total annual burden of
8,763 hours (159.32 hours per response x 55 responses).
    An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number.
    The public may view the background documentation for this
information collection at the following website, www.reginfo.gov.
Comments should be directed to: (i) Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 10102, New Executive Office
Building, Washington, DC 20503, or by sending an email to:
[email protected]; and (ii) Pamela Dyson, Director/Chief
Information Officer, Securities and Exchange Commission, c/o Candace
Kenner, 100 F Street NE, Washington, DC 20549 or send an email to:
[email protected]. Comments must be submitted to OMB within 30 days
of this notice.

    Dated: June 21, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13682 Filed 6-25-18; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 119 (Wednesday, June 22, 2022)]
[Proposed Rules]
[Pages 37254-37262]
[FR Doc No: 2022-13307]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 270 and 275

[Release Nos. IA-6050; IC-34618; File No. S7-18-22]
RIN 3235-AM95

Request for Comment on Certain Information Providers Acting as
Investment Advisers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule; equest for comment.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is seeking public comment on certain information providers
whose activities, in whole or in part, may cause them to meet the
definition of ``investment adviser'' under the Investment Advisers Act
of 1940 (``Advisers Act'' or ``Act'').

DATES: Comments should be received on or before August 16, 2022.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include
File No. S7-18-22 on the subject line.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-18-22. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method of submission. The Commission will post all
comments on the Commission's website (http://www.sec.gov). Comments are
also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m.
Operating conditions may limit access to the Commission's public
reference room. All comments received will be posted without change.
Persons submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make publicly available.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this request for
comment. A notification of the inclusion in the comment file of any
such materials will be made available on the Commission's website. To
ensure direct electronic receipt of such notifications, sign up through
the ``Stay Connected'' option at www.sec.gov to receive notifications
by email.

FOR FURTHER INFORMATION CONTACT: Christopher Chase, Juliet Han, Senior
Counsels, or Melissa Roverts Harke, Assistant Director, Investment
Adviser Regulation Office, or Matthew Cook, Senior Counsel, Chief
Counsel's Office, Division of Investment Management, at<PHONE_NUMBER>
or [email protected], Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Commission is seeking public comment on
certain information providers whose activities, in whole or in part,
may cause them to meet the definition of ``investment adviser'' under
the Act.

Table of Contents

I. Introduction
    A. Index Providers
    B. Model Portfolio Providers
    C. Pricing Services
II. Investment Adviser Status Under the Advisers Act
III. Implications of Investment Adviser Status
    A. Registration Under, and Applicability of, the Advisers Act
    1. Advisers Prohibited From Registering Under the Advisers Act
    2. Requirements for SEC-Registered Advisers
    B. Related Investment Company Act Matters

I. Introduction

    The role of index providers, model portfolio providers, and pricing
services (``information providers'' or ``providers'') has grown in size
and scope in recent years, significantly changing the face of the asset
management industry. The development and nature of these services may
raise investment adviser status issues under the Advisers Act.\1\
Investment adviser status, in turn, has regulatory implications,
including questions relating to registration under the Advisers Act. In
addition, the development and nature of these services may raise
questions under the Investment Company Act of 1940 (``Investment
Company Act''), including whether an information provider is acting as
an ``investment adviser'' of an investment company under the Investment
Company Act.\2\ These providers' operations also raise potential
concerns about investor protection and market risk, including, for
example, the potential for front-running of trades where the providers
and their personnel have advance knowledge of changes to the
information they generate and potential conflicts of interest where the
providers or their personnel hold investments they value or that are
constituents of their indexes or models. Some individual information
providers of the types we describe below have registered with the
Commission as investment advisers (sometimes because of other business
in which they engage), and others have not.\3\ Some may be prohibited
(absent exemptive relief) from Commission registration because, for
example, they lack regulatory assets under management. Depending on the
facts and circumstances, however, particular information providers may
have an ability, perhaps through operations of sufficient size and
scope, to affect national markets or otherwise have a ``national
presence.'' Accordingly, we are seeking comment regarding information
providers to facilitate consideration of whether regulatory action is
necessary and appropriate to further the Commission's mission.
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    \1\ 15 U.S.C. 80b. Unless otherwise noted, all references to
statutory sections are to 15 U.S.C. 80b of the United States Code,
at which the Advisers Act is codified, and all references to rules
under the Advisers Act are to title 17, part 275 of the Code of
Federal Regulations [17 CFR 275].
    \2\ 15 U.S.C. 80a-2(20).
    \3\ For example, at least one pricing service has registered as
an investment adviser with the Commission because it has related
person advisers; another has registered because of its ability to
affect national markets (despite a lack of assets under management).
See, e.g., infra note 42 (discussing IDC application and order).
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A. Index Providers

    Index providers compile, create the methodology for, sponsor,
administer, and/or license market indexes. They typically determine the
particular ``market'' (which may be a sector or other group of
securities) that the index measures, the index constituents that
measure that market, and the weightings that each constituent receives.
Once the index is designed and its methodology is created, index
providers determine the index's level (or measurement) pursuant to that
methodology. These activities leave room for significant discretion--
for example, an index provider typically has the ability to make
changes to the index by adding or dropping particular constituents
(i.e., index reconstitution) or modifying their

weighting within the index (i.e., index rebalancing),\4\ in some cases
without publicly disclosing their index methodologies or rules.
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    \4\ See Paul G. Mahoney & Adriana Z. Robertson, Advisers by
Another Name, University of Virginia School of Law (Jan. 2021), at
28, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3767087 (``[C]ompiling an index . . . is an
inherently discretionary exercise.'').
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    The number and variety of indexes have grown over time, with
millions of indexes in the global market.\5\ Some are broad-based and
widely used, while others are more narrowly focused, including
specialized indexes that are designed to be tracked by a particular
user.\6\ Specialized indexes can be composed of constituents on the
basis of a variety of considerations, including ``factors'' that may be
seen to cause certain types of securities to outperform or underperform
the market as a whole. Index providers that offer specialized indexes
might allow a user to ``specify the customization criteria'' on which a
provider can create an index; \7\ offer ``flexibility'' with respect to
the components of the index; \8\ and can be ``built to the exact
specifications of . . . clients, in any major asset class.'' \9\
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    \5\ See, e.g., Index Industry Association, Fourth Annual IIA
Benchmark Survey Reveals Significant Growth in ESG Amid Continued
Multi-Asset Innovation & Heightened Competition (Oct. 28, 2020),
available at https://www.businesswire.com/news/home/20201028005255/en/Index-Industry%E2%80%99s-Fourth-Annual-Benchmark-Survey-Reveals-Significant-Growth-in-ESG-Amid-Continued-Multi-Asset-Innovation-Heightened-Competition (noting that in 2020, the overall number of
indexes climbed by approximately three percent to 3.05 million).
    \6\ For purposes of this Request for Comment, ``specialized''
indexes may be customized or bespoke indexes. ``Customized'' indexes
are those where an existing index is modified to suit the needs of a
particular user, e.g., removing from a securities index all
securities issued by companies engaged in a particular trade or
business, and ``bespoke'' indexes are those where an index provider
constructs an index at the request or direction of a particular
user.
    \7\ Customized Indexes for Specific Needs, MSCI, available at
https://www.msci.com/custom-indexes.
    \8\ FTSE Russell Product Guide Oct 2019, FTSE Russell (2019), at
15, available at https://content.ftserussell.com/sites/default/files/support_document/FTSE%20Russell%20Product%20Guide%20Oct%202019%20Single.pdf.
    \9\ Bespoke and Custom Index Service, Markit, available at
https://products.markit.com/indices/products/BespokeIndices.asp?showLevel=8.
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    Index providers are compensated by licensing indexes to users for
the creation of investment products, reporting, and internal use.
Generally, index providers license information related to their indexes
to two main groups--those that seek to use the index as a benchmark,
such as active managers, and those that seek to track the index, such
as index funds. Although there are many indexes available and no formal
barriers to becoming an index provider, three index providers account
for over two-thirds of the market for indexes, totaling approximately
$5.0 billion in revenue in 2021.\10\
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    \10\ Sonya Swink, Index Providers Take Record $5bn in Revenue in
2021, Financial Times (May 24, 2022), available at https://www.ft.com/content/595c3c18-7c13-4e33-9a68-f82f558b7ad6.
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    While indexes have historically been associated with passive
investing, index providers, particularly those that design specialized
indexes, may be making active decisions in designing or administering
the index.\11\ In some cases, these decisions may be personalized for a
particular user, for example designing or modifying an index for the
specific purpose of licensing its use by particular investors and/or
their advisers to be employed as part of their investment strategy.
Whether or not an index is specialized, the index provider's inclusion
or exclusion of a particular security in an index drives advisers with
clients tracking that index to purchase or sell securities in response.
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    \11\ Some scholars have recently made this argument. See Adriana
Z. Robertson, Passive in Name Only: Delegated Management and
``Index'' Investing, 36 Yale J. on Reg. 795, 798 (2019) (``Rather
than being passive in any meaningful sense, index investing simply
represents a form of delegated management. . . . Not only are these
indices managed portfolios in the strictly financial sense, by their
construction they often also imply a substantial amount of delegated
decisionmaking authority.''); see also Jill Fisch, Assaf Hamdani &
Steven Davidoff Solomon, The New Titans of Wall Street: A
Theoretical Framework for Passive Investors, 18 U. Pa. L. Rev. 17,
21 (2019) (``The construction and management of [an] index is not
passive but entails a form of managed investing, if not by the
passive funds themselves, then by the index providers.''). Indexes
may be actively rebalanced or reconstituted on a predetermined
schedule (e.g., semiannually). Constitution also may change on an ad
hoc basis as a result of mergers, acquisitions, or bankruptcies.
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B. Model Portfolio Providers

    A model portfolio generally consists of a diversified group of
assets (often mutual funds or exchange-traded funds (``ETFs''))
designed to achieve a particular expected return with exposure to
corresponding risks. As with indexes, a model portfolio may be
rebalanced or have constituent changes over time.\12\ These models
provide a convenient way to allocate and diversify investments through
a single, professionally managed portfolio. For example, an investment
adviser can outsource portfolio management to a model portfolio
provider and select among several models offering the adviser's clients
different risk targets. A stable or more conservative portfolio
generally would invest in mutual funds and ETFs that provide a client
with low risk exposure and low return volatility, while an aggressive
portfolio generally would invest in mutual funds and ETFs that provide
the client with higher-risk exposure and higher return volatility.
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    \12\ A model portfolio may be physically or synthetically
rebalanced (e.g., to reduce costs during a volatile market,
derivatives that have the effect of rebalancing may be used in lieu
of trading in a defined benefit plan). Model portfolios are distinct
from portfolio allocation models, which can be educational tools
that investors use to obtain a sense of which asset classes (as
opposed to which specific securities) are appropriate for the
investor to allocate its assets to (e.g., 60% in equities, 40% in
fixed income).
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    Model portfolio providers, sometimes referred to as ``model
originators,'' include broker-dealers, asset managers, third-party
strategists, asset allocators, and advisers.\13\ They design allocation
models, may update or rebalance them over time, provide various degrees
of customization, and may offer this information on a discretionary or
non-discretionary basis. While target allocation models that pursue
defined outcomes or investment strategies (e.g., capital preservation,
income) have been most common in the marketplace, there is a growing
demand for specialized models that focus on a particular industry or
strategy--for example, models that focus on sustainable or ``ESG''
(environmental, social, and governance) investments.\14\
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    \13\ This discussion focuses on third-party model portfolio
providers that sell models to wealth managers that apply them to
client portfolios (or make available selected models to clients)
versus internal firm models. This discussion includes as third-party
model portfolio providers those persons who make available their own
portfolios so that others can copy or license those portfolios in
exchange for compensation. Portfolios may be made available through
the provider's online platform.
    \14\ Model Portfolios See Greater Usage Among Advisory Firms,
Ted Godbout, National Association of Plan Advisors (Feb. 23, 2021),
available at https://www.napa-net.org/news-info/daily-news/model-portfolios-see-greater-usage-among-advisory-firms.
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    Model portfolio providers may consider the characteristics and
investment goals of a general client type, such as whether the investor
is focused on retirement or short-term financial management, or may
engage in a more detailed, customized analysis when crafting a model
portfolio through, for example, the use of direct indexing
strategies.\15\
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    \15\ Direct indexing is a personalized indexing strategy in
which, rather than invest in one or more index ETFs, an investor
buys some or all of an index's constituent securities (i.e., a
representative amount) to mirror its characteristics and then
periodically adjusts these holdings to continue to closely replicate
the index. With this investment strategy, an investor may achieve
the diversification benefits of an ETF as well as the flexibilities
that come from owning individual securities, such as tax benefits
(e.g., harvesting individual security tax losses and capital gains)
and customization (e.g., overweighting or underweighting a security
or sector allocation). The availability of fractional share
investing and commission-free trading has made direct indexing an
increasingly popular strategy for certain retail investors. See
Rebecca Baldridge and Benjamin Curry, Beat Funds at Their Own Game
with Direct Indexing, Forbes (Apr. 15, 2021), available at https://www.forbes.com/advisor/investing/direct-indexing/; Steve Johnson,
Direct Indexing Looks Set to Disrupt the Retail ETF Market,
Financial Times (Feb. 10, 2021), available at https://www.ft.com/content/3b35120a-dd92-48b0-8b6f-e26f116473e0; Rebecca Lake, What is
Direct Indexing?, U.S. News & World Report (Sept. 20, 2019),
available at https://money.usnews.com/investing/investing-101/articles/what-is-direct-indexing.

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    Model portfolio providers generally are compensated by fees on
securities bought, sold, and held in the model (e.g., an asset manager
that builds a model using proprietary products), but some providers
charge a fee for the use of the model portfolio separate from the
underlying product fees or receive commissions or other transaction-
based compensation.\16\
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    \16\ The additional fee compensates the model provider for its
asset allocation advice. 2020 Model Portfolio Landscape, Morningstar
Manager Research (Aug. 2020), at 3. Any person receiving
transaction-based compensation (such as commissions) in exchange for
providing a model portfolio or other information service must
determine whether it is subject to statutory or regulatory
requirements under Federal law, including the requirement to
register as a broker-dealer pursuant to section 15(a) of the
Securities Exchange Act of 1934. See 15 U.S.C. 78o(a).
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    Investment advisers' use of a third party's model portfolios may
raise concerns with respect to clients' understanding of the fees they
are paying, the services being performed by each party (i.e., the
client-facing adviser and the model portfolio provider), and their
respective conflicts (or potential conflicts) of interest.\17\ For
example, clients may be unsure which services are being performed by a
model portfolio provider and which are being performed by the adviser,
as well as by whom they are owed a fiduciary duty. This uncertainty may
be increased where, for example, the client-facing adviser seeks to
disclaim or limit its fiduciary duty or any other duty when
implementing a model provided by a third-party model portfolio
provider.\18\ In addition, an adviser may invest according to a model
customized by the provider for the adviser, including where (for
example) the model portfolio provider may adjust the model based on
input from the adviser.
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    \17\ There may be a similar lack of understanding among
investors in pooled investment vehicles, including registered
investment companies, that rely on third-party models.
    \18\ The Commission has stated that ``an adviser's federal
fiduciary duty may not be waived, though it will apply in a manner
that reflects the agreed-upon scope of the relationship.''
Commission Interpretation Regarding Standard of Conduct for
Investment Advisers, Investment Advisers Act Release No. 5248 (June
5, 2019) [84 FR 33669, 33672 (Jul. 12, 2019)].
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C. Pricing Services

    Pricing services provide prices, valuations, and additional data
about a particular investment (e.g., a security, a derivative, or
another investment), to assist users with determining an appropriate
value of the investment.\19\ In addition, a pricing service may provide
pricing information when market quotations are unavailable, such as
when the primary market for a foreign security is closed, or when the
relevant security is traded in over-the-counter markets that result in
incomplete information on the security's market price.
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    \19\ The names for these services may vary, such as pricing
services, valuation agents, or providers of fairness opinions.
---------------------------------------------------------------------------

    In providing pricing information to users, pricing services may
exercise significant discretion. They often determine a valuation
methodology to use; develop valuation model templates; determine the
sources or relevance of inputs; determine whether the valuations
generated are appropriate or require further adjustment; and may need
to address any pricing challenges raised by the user. Because pricing
services rely on and prioritize differently a variety of inputs,
methods, models, and assumptions in determining a pricing level,
different pricing services may determine different pricing levels for
the same security.\20\ A pricing service may offer different pricing
levels for the same security as well, depending on the service's type
of analysis or evaluation and the user's needs. Depending on the
specific analysis, pricing services may be compensated through
subscription fees, through other fixed fees, and as a percentage of
assets.
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    \20\ See Money Market Fund Reform, Amendments to Form PF,
Investment Advisers Act Release No. 3879 (July 23, 2014) [79 FR
47736 (Aug. 14, 2014)].
---------------------------------------------------------------------------

    The Commission recently discussed pricing services in adopting rule
2a-5 under the Investment Company Act, which addresses valuation
practices and the role of the board of directors with respect to the
fair value of the investments of a registered investment company or
business development company.\21\ Under the rule, fair value as
determined in good faith requires overseeing and evaluating any pricing
services used. The Commission recognized that pricing services play an
important role in the fair value process, while also noting the
potential risks and conflicts of interest that pricing services can
present in registrants' valuing of securities.\22\ Staff have also
observed compliance issues in connection with registrants' interactions
with third-party pricing services, including the risks of misleading
disclosure regarding whether those services provide ``independent''
values and the possibility of stale or otherwise inaccurate
valuations.\23\
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    \21\ Good Faith Determinations of Fair Value, Investment Company
Act Release No. 34128 (Dec. 3, 2020) [86 FR 748, 756 (Jan. 6, 2021)]
(``Fair Value Release''), available at https://www.sec.gov/rules/final/2020/ic-34128.pdf.
    \22\ See Fair Value Release, at text following n.98.
    \23\ Compliance Alert, Division of Examinations (published as
Office of Compliance Inspections and Examinations), Securities and
Exchange Commission (July 2008), available at https://www.sec.gov/about/offices/ocie/complialert0708.htm. This compliance alert and
other staff statements (including those cited herein) represent the
views of Commission staff and are not a rule, regulation, or
statement of the Commission. The Commission has neither approved nor
disapproved the content of these documents and, like all staff
statements, they have no legal force or effect, do not alter or
amend applicable law, and create no new or additional obligations
for any person.
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II. Investment Adviser Status Under the Advisers Act

    The Advisers Act generally defines an ``investment adviser'' as any
person who, for compensation, engages in the business of advising
others, either directly or through publications or writings, as to the
value of securities or as to the advisability of investing in,
purchasing, or selling securities, or any person who, for compensation
and as part of a regular business, issues or promulgates analyses or
reports concerning securities.\24\ The definition generally includes
three elements for determining whether a person is an investment
adviser: (i) the person provides advice, or issues analyses or reports,
concerning securities; (ii) the person is in the business of providing
such services; and (iii) the person provides such services for
compensation. Each element must be met in order for a person to be
deemed an investment adviser.
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    \24\ 15 U.S.C. 80b-2(a)(11).
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    With respect to the first element, a person generally is an
investment adviser even if its advice, reports, or analyses about
securities do not relate to specific securities, provided the services
are performed as part of a business and for compensation. For example,
in the context of financial planning services, our staff has taken the
position that a person may be ``advising'' another within the meaning
of the Advisers Act if the advice addresses whether to invest in
securities instead of a non-securities investment.\25\
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    \25\ Statement of Staff Interpretive Position, Applicability of
the Investment Advisers Act to Financial Planners, Pension
Consultants, and Other Persons Who Provide Investment Advisory
Services as a Component of Other Financial Services, Investment
Advisers Act Release No. 1092 (Oct. 8, 1987) [52 FR 38400, 38402
(Oct. 16, 1987)] (``Financial Planners Release'') (``A person who,
in the course of developing a financial program for a client,
advises a client as to the desirability of investing in, purchasing
or selling securities, as opposed to, or in relation to, any non-
securities investment or financial vehicle would also be
``advising'' others within the meaning of Section 202(a)(11).'');
see also U.S. v. Elliott, 62 F.3d 1304, 1309-10 (11th Cir. 1996)
(citing Financial Planners Release and stating ``[W]e are persuaded
that both Elliott and Melhorn are `in the business' of advising
others because they satisfy all three of the disjunctive factors''
in the Financial Planners Release); Luzerne County Retirement Bd. v.
Makowski, 627 F.Supp.2d 506, 572-74 (M.D. Penn. 1995) (applying
three-part test of Financial Planners Release and granting summary
judgment in favor of defendants as to count alleging violations of
the Advisers Act); infra note 31 (describing the Solely Incidental
Release, as defined therein).

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    With respect to the second element, giving advice does not need to
constitute the principal business activity or any particular portion of
the business activities of a person in order for the person to be
considered ``in the business'' of acting as an investment adviser under
the Advisers Act. Rather, the giving of advice need only be done on a
basis such that it constitutes a business activity occurring with some
regularity.\26\ Finally, the receipt of any economic benefit, whether
in the form of an advisory fee or some other fee relating to the total
services rendered, commissions, or some combination of the two, would
generally suffice with respect to compensation under the definition.
The source of an ``economic benefit'' that would satisfy this element
of the definition is not, however, limited to fees and commissions.\27\
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    \26\ See, e.g., Elliott, 62 F.3d at 1310 (stating that
defendants ``provided investment advice on more than rare, isolated
occasions'' and ``regularly gave advice regarding the safety and
effectiveness'' of specific investment vehicles ``based upon the
personal circumstances of individual investors''); SEC v. Battoo,
158 F. Supp. 3d 676, 698 (N.D. Ill. 2016). Our staff took a similar
view. See Financial Planners Release, 52 FR at 38402 (``The
frequency of the activity is a factor, but not determinative.'').
    \27\ At least one court has found that an ``economic benefit''
could even include an adviser's ill-gotten gains from investors'
misappropriated funds. See U.S. v. Ogale, 378 Fed. Appx. 959, 960-61
(11th Cir. 2010) (``The receipt of any economic benefit qualifies as
compensation under the Investment Adviser's [sic] Act and thus the
investment adviser enhancement.''); see also U.S. v. Miller, 833
F.3d 274, 282 (3rd Cir. 2016) (finding that adviser compensation
includes ``any economic benefit'' and holding that defendant who
sold his firm's promissory notes to his clients met the compensation
element of Section 202(a)(11)); U.S. v. Elliott, 62 F.3d at 1311
(finding that adviser compensation includes ``any economic benefit''
and holding that defendants were investment advisers even though
they did not receive an investment adviser's fee but did receive
compensation from an economic relationship that included providing
ongoing investment advice as a primary aspect of the relationship).
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    As technology and advisory practices have evolved, one aspect of
this statutory definition that market participants have questioned is
whether certain types of information or data constitute ``analyses or
reports concerning securities.'' For example, these questions have
arisen in the context of databases and various computer software
services offering calculations and pricing models. Our staff has
considered these questions, in the context of one part of the statutory
definition,\28\ and stated that, while this is a facts and
circumstances analysis, relevant factors could include whether: (i) The
information is not readily available to the public in its raw state,
(ii) the categories of information are highly selective, and (iii) the
information is organized or presented in a manner that suggests the
purchase, holding, or sale of any security or securities.\29\
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    \28\ This staff analysis does not consider other aspects of the
statutory definition--e.g., whether such information or data
constitutes advice ``as to the value of securities,'' see section
202(a)(11).
    \29\ See, e.g., Datastream International, Inc., SEC Staff No-
Action Letter (Mar. 15, 1993), available at https://www.sec.gov/divisions/investment/noaction/1993/datastream-international-031593-202a.pdf; RDM Infodustries, SEC Staff No-Action Letter (Mar. 25,
1996), available at https://www.sec.gov/divisions/investment/noaction/1996/rfminfodustries032596.pdf.
---------------------------------------------------------------------------

    The Advisers Act expressly excludes from the definition of
investment adviser certain types of persons or persons engaging in
certain types of activities.\30\ The exclusions generally cover persons
that are already subject to regulation, either by the Commission or
another regulator, or persons that Congress did not intend to be
covered by the Act. For example, the Advisers Act excludes from the
definition ``any broker or dealer whose performance of such services is
solely incidental to the conduct of his business as a broker or dealer
and who receives no special compensation therefor.'' \31\ The Advisers
Act also authorizes the Commission to exempt from the definition of
investment adviser any other person ``not within the intent'' of the
statutory definition.\32\
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    \30\ See 15 U.S.C. 80b-2(a)(11)(A) through (H). A person relying
on any of the exclusions must meet all of its requirements. See,
e.g., Solely Incidental Release, infra note 31.
    \31\ 15 U.S.C. 80b-2(a)(11)(C) (``broker-dealer exclusion'').
The Commission has adopted an interpretation of the ``solely
incidental prong'' of the broker-dealer exclusion that states that
``a broker-dealer's provision of advice as to the value and
characteristics of securities or as to the advisability of
transacting in securities is consistent with the solely incidental
prong if the advice is provided in connection with and is reasonably
related to the broker-dealer's primary business of effecting
securities transactions.'' Commission Interpretation Regarding the
Solely Incidental Prong of the Broker-Dealer Exclusion from the
Definition of Investment Adviser, Investment Advisers Act Release
No. 5249 (June 5, 2019) [84 FR 33681 (July 12, 2019)] (``Solely
Incidental Release''). The Solely Incidental Release also states
that ``[w]hether advisory services provided by a broker-dealer
satisfy the solely incidental prong is assessed based on the facts
and circumstances surrounding the broker-dealer's business, the
specific services offered, and the relationship between the broker-
dealer and the customer.'' Id. In the Solely Incidental Release, the
Commission stated that broker-dealers ``receive special compensation
where there is a clearly definable charge for investment advice.''
Id. at n.68 (internal citations omitted).
    \32\ 15 U.S.C. 80b-2(a)(11)(H). The Commission is authorized to
exempt persons by rule, regulation, or order, see id., and has
exercised that authority. See, e.g., In the Matter of 1112 Partners,
LLC, Investment Advisers Act Release No. 4917 (May 29, 2018)
(order).
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    In addition, the Advisers Act excludes from the definition the
``publisher of any bona fide newspaper, news magazine or business or
financial publication of general and regular circulation''
(``publisher's exclusion'').\33\ In Lowe v. SEC, the Supreme Court
construed the publisher's exclusion and held that publishers are
excluded from the definition under the Advisers Act as long as their
publication: (i) Provides only impersonal advice; (ii) is ``bona
fide,'' meaning that it provides genuine and disinterested commentary;
and (iii) is of general and regular circulation rather than issued from
time to time in response to episodic market activity.\34\ Building on
Lowe, the court in SEC v. Park stated that the personalized or
disinterested nature of a publication ``clearly'' affects whether it is
``bona fide.'' \35\
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    \33\ 15 U.S.C. 80b-2(a)(11)(D).
    \34\ Lowe, 472 U.S. 181, 208-210 (1985); see also Alfred A.
Zurl, SEC Staff No-Action Letter (Aug. 7, 1995), available at
https://www.sec.gov/divisions/investment/noaction/1995/alfredzurl080795.pdf (applying Lowe).
    \35\ SEC v. Park, 99 F. Supp.2d 889, 895 (N.D. Ill. 2000).
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    Certain providers have relied on the publisher's exclusion. We
believe that index providers have historically concluded, for example,
that, even if they meet the definition of investment adviser, they may
rely on the exclusion and thus need not register with the Commission or
be subject to any section of the Advisers Act, including section 206.
Similarly, other providers, such as pricing services, may be relying on
the publisher's exclusion.
    Given the length of time since Lowe was decided, and understanding
that new business models have developed in the interim, we are
considering the extent to which providers' activities, in whole or in
part, may raise investment adviser status issues. We specifically
request comment on the following:

General

    1. Are our descriptions of each information provider accurate and
comprehensive? What types of potential risks and conflicts of interest
does each type of provider present? How many providers of each type do
commenters estimate currently offer their services in the United
States?
    2. Are there any other types of information providers whose
activities, in whole or in part, may raise investment adviser status
issues? If so, which providers, and why?

General Questions Related to Information Providers' Status

    3. How do providers analyze whether they meet the Advisers Act's
definition of ``investment adviser'' under each element of the
definition? For those providers that have determined that they meet the
definition, what were the determining factors?
    4. In light of new technologies and current market practices, when
determining what constitutes ``analyses or reports concerning
securities,'' what factors may raise investment adviser status issues?
For example, are the factors described above appropriate? \36\ Should
they be modified? If so, what modifications and why? What economic
benefits and costs would result if advisers were required to consider
the factors described above or with modifications? Alternatively, are
there other factors that advisers should be required to consider
regarding what constitutes ``analyses or reports concerning
securities''? Should the Commission provide additional guidance? What
benefits and costs would result from requiring other factors or
providing additional guidance?
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    \36\ See supra text accompanying note 29.
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    5. We understand that some information providers may determine that
providing data or other information is not providing ``analyses or
reports concerning securities'' and therefore the provider is not an
investment adviser under the Advisers Act based on the factors above.
Which types of information providers take this position, and on what
basis do they consider such data and information not to be analyses or
reports concerning securities?
    6. Which providers rely on the publisher's exclusion? On what
basis? To what extent do they rely on Lowe to inform the determination?
How do they determine whether their publications are ``impersonal,''
``bona fide,'' or of ``general and regular circulation''?
    7. Which providers rely on another exclusion from the definition of
``investment adviser''? Which exclusion and on what basis? For example,
do some broker-dealers that provide model portfolios to their customers
rely on the broker-dealer exclusion from the definition of investment
adviser? To what extent do broker-dealer model portfolio providers
provide their portfolios to investors or to other financial
professionals, such as investment advisers or other managers (e.g.,
banks, trust companies), which may then use the model portfolios with
their own customers or clients? Does this have an impact on the broker-
dealer's reliance on the exclusion? How are broker-dealers typically
compensated for providing these model portfolios? Under what
circumstances does a broker-dealer provide a model portfolio in
exchange for a commission or other transaction-based compensation? On
what basis is such commission or other transaction-based compensation
charged? Do these broker-dealers receive different forms of
compensation?
    8. To what extent do information providers view themselves as
having fiduciary obligations to any investors that rely on the
information they provide (for example, when investors receive such
information through another financial professional)? How do providers
view the scope of such obligations? Do they view their obligations more
narrowly than those of a traditional client-facing adviser, and if so,
how? How do these providers address potential conflicts of interest
that may arise during their relationships with clients or users of
their services?
    9. How do information providers exercise discretion in providing
information? For example, do index providers or model portfolio
providers create indexes or portfolios at the request of their
licensees or users based on more customized investment objectives and
goals? In these circumstances, does the provider include or exclude
certain companies, funds, or countries from an index or portfolio based
on the input of its licensee or user? As another example, in
determining which inputs or factors to prioritize in assessing a
security's price, does a pricing service prioritize certain factors
over others based on the input of its licensee or user?
    10. In what ways do information providers exercise discretion in
establishing and updating their services or the information they
provide? Is such discretion limited by a service's users? For example,
with respect to pricing services, do users limit providers' discretion
by contract, either by reference to standard pricing guides or
principles or otherwise? If so, do users treat pricing services
differently from other providers in how discretion is limited? If so,
how and on what basis? Do the responses change when considering other
types of information providers?
    11. To what extent, and under what circumstances, does each type of
information provider personalize the services it offers? For example,
what are industry practices around direct indexing and specialized
indexes, and how prevalent are they?
    12. Do information providers adjust the services offered based on
input from the users of their services? Do providers disclose such
adjustments to users, including when such adjustments are made to
address previous errors of the provider?
    13. Under what circumstances do information providers disclose
changes or updates to the services provided, and to whom? For example,
describe index providers' disclosures about the changes in the index
strategy or related aspects (e.g., tracking methodology, portfolio
structure, portfolio limitations, index data distribution channels) and
the level of discretion that the index provider may exercise. How do
information providers communicate these changes or updates?
    14. How, and in what form, are information providers compensated?
Do information providers charge license, subscription, or other types
of fees? Are there tiers of fees? For example, do pricing services'
users pay multiple times for use of the same price? Are subscription
fees different from engagement fees? If so, how? When an investment
adviser or an investment company compensates information providers, is
that compensation borne by advisory clients or fund investors?
    15. Should the Commission use its authority to exempt any of the
information providers from the definition of ``investment adviser''?
\37\ If so, what facts and circumstances should factor in to an
exemption? Please explain your answer.
---------------------------------------------------------------------------

    \37\ See supra note 32.
---------------------------------------------------------------------------

    16. What are the economic benefits and costs associated with
investment adviser status for each type of information provider
identified above? Are there provisions of the Advisers Act that
providers are unable to comply with or that would be operationally
complex and burdensome?

Questions Related to Index Providers

    17. To what extent are users of index providers' services
registered investment companies or other pooled

investment vehicles? What other types of users license indexes? Is
there a difference in this respect between users of broad-based indexes
and specialized indexes?
    18. Do index providers that develop broad-based indexes raise
different investment adviser status issues as compared to those that
develop customized or bespoke indexes? If so, what factors categorize
or distinguish different types of indexes? Does an index that is
specialized raise investment adviser status issues? Are there other
parameters that we should utilize?
    19. How, if at all, do index providers limit the dissemination of
their methodologies or indexes to only those who license such
information? Should the limitations placed on dissemination affect the
analysis of their status as an investment adviser?
    20. Under what circumstances, if any, is an index provider
compensated based on the amount of assets that are managed according to
its index? Do compensation methods for index providers differ based on
whether they provide broad-based indexes or specialized indexes? If so,
how or on what basis do such compensation methods differ?
    21. What are the economic benefits and costs associated with
investment adviser status for index providers that develop broad-based
indexes versus specialized indexes?

Questions Related to Model Portfolio Providers

    22. Do model portfolio providers raise different investment adviser
status issues than those raised by index providers that provide
specialized indexes? In what ways are they distinguishable?

Questions Related to Pricing Services

    23. Is there a distinction between typical pricing services in the
market and a ``valuation specialist'' that exercises informed judgment
in determining valuation inputs, methodologies, and the legitimacy of a
valuation conclusion? How should any regulation reflect these
distinctions, or any other distinction between types of pricing
services?
    24. To what extent do the results of price challenges to a pricing
service's values affect the prices provided to other users of pricing
services? Are there times when a pricing service aggregates or delivers
information from another pricing service?

III. Implications of Investment Adviser Status

A. Registration Under, and Applicability of, the Advisers Act

    Generally, a person that meets the definition of ``investment
adviser'' (and cannot rely on an exclusion) must register under the
Advisers Act, unless it: (i) Is prohibited from registering under
section 203A of the Act, or (ii) qualifies for an exemption from the
Act's registration requirement, each as discussed below. All advisers,
including an unregistered adviser, are subject to the Advisers Act's
antifraud provisions.\38\
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    \38\ See section 206 of the Act, rules 206(4)-5 and 206(4)-8
under the Act;ssee also, e.g., S. Rep. No. 1760, 86th Cong., 2d
Sess. 7 (1960), which specifies that the antifraud provisions in
section 206 of the Act apply to both registered and unregistered
advisers.
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1. Advisers Prohibited From Registering Under the Advisers Act
    Section 203A of the Advisers Act prohibits certain advisers from
registering under the Act, unless they meet an assets-under-management
(``AUM'') threshold. In general, a small adviser with less than $25
million in AUM that is regulated or required to be regulated as an
adviser in the state where it maintains its principal office and place
of business, and a mid-sized adviser with between $25 million and $100
million in AUM that is required to be registered as an adviser in the
state where it maintains its principal office and place of business and
that is subject to examination by its state securities commissioner,
are ineligible to register with the Commission. These smaller and mid-
sized advisers are regulated at the state level.\39\
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    \39\ The Act also provides several voluntary exemptions from
registration. See, e.g., 15 U.S.C. 80b-3(b), (l), and (m). In
addition, venture capital fund advisers and private fund advisers
with less than $150 million in AUM in the United States (referred to
as ``exempt reporting advisers'') are exempt from registration, but
are required to file reports on Form ADV with the Commission and are
subject to certain rules under the Act. See 15 U.S.C. 80b-3(l) and
(m); 15 U.S.C. 80b-4(a); 17 CFR 275.204-4.
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    The relevant thresholds reflect an amount ``designed to distinguish
investment advisers with a national presence from those that are
essentially local businesses.'' \40\ Even when advisers lack such a
``national presence,'' we are authorized to exempt from the prohibition
on Commission registration those investment advisers for which the
prohibition ``would be unfair, a burden on interstate commerce, or
otherwise inconsistent'' with the purposes of the Act's provisions
allocating authority between the Commission and state securities
authorities.\41\ On this basis, we have exempted certain types of
advisers from the prohibition against registration with the Commission,
including pension consultants, internet investment advisers, and some
pricing services.\42\
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    \40\ Exemption for Certain Investment Advisers Operating Through
the Internet, Investment Advisers Act Release No. 2091 (Dec. 12,
2002) [67 FR 77620, 77621 (Dec. 18, 2002)], at nn.4-5 and
accompanying text (citing S. Rep. No. 293, 104th Cong., 2d Sess. 3-5
(1996) (``Senate Report'')); see also Senate Report at 3-4 (``The
states should play an important and logical role in regulating small
investment advisers whose activities are likely to be concentrated
in their home state. Larger advisers, with national businesses,
should be registered with the Commission and be subject to national
rules.'').
    \41\ 15 U.S.C. 80b-3a(c).
    \42\ See rule 203A-2(a) and (e); Rules Implementing Amendments
to the Advisers Act of 1940, Investment Advisers Act Release No.
1633 (May 15, 1997) [62 FR 28112 (May 22, 1997)], at n.60 and
accompanying text (noting the Commission's adoption of a higher
assets-under-management threshold for registration by pension
consultants as ``necessary to demonstrate that a pension
consultant's activities have an effect on national markets''). See
Interactive Data Corporation, Investment Advisers Act Release No.
1685 (Dec. 9, 1997) (notice) and In the Matter of Interactive Data
Corporation, Investment Advisers Act Release No. 1692 (Jan. 6, 1998)
(order) (Interactive Data Corporation (``IDC'') argued that it
should be permitted to register despite the fact that it did not
qualify for an exemption from the prohibition on registration.
Specifically, IDC argued that it is the type of large, national
investment adviser that Congress intended to be registered with the
SEC, that prohibiting its registration would unfairly burden
interstate commerce, and that its services have a significant
national impact).
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    Certain providers, if they are investment advisers, may not have
significant AUM, or regulatory assets under management (``RAUM''),
depending on how those terms are used,\43\ but could service a
significant portion of the financial intermediaries and other players
in the national financial markets with broad market effects. For
example, to the extent that many advisers rely on a single pricing
service, and all use that service's evaluated price for a particular
security, that pricing service may affect the national market in that
security in a way that would not happen if the same advisers each
reached independent determinations of, or relied on separate pricing
services to determine, the security's price. Similarly, the decisions
of index providers can affect domestic and global financial markets in
some circumstances. Some analysis has shown an increase in stock price,
among other effects, associated with inclusion in the S&P 500
Index.\44\ As an example,

model portfolios may be used to manage large amounts of assets
(serving, in some cases, as the basis for their providers'
compensation), even though model portfolio providers do not have
discretionary authority over those assets and, accordingly, may not
have RAUM.\45\
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    \43\ See infra text accompanying note 47.
    \44\ See, e.g., Jim Hawley and Jon Lukomnik, The Long and Short
of It: Are We Asking the Right Questions? Modern Portfolio Theory
and Time Horizons, 41 Seattle U. L. Rev. 449, 453-456 (2018)
(summarizing studies describing market effects of index inclusion)
(internal citations omitted). But see Maria Kasch and Asani Sarkar,
Is There an S&P 500 Index Effect?, FIRS 2013 (Mar. 2014), available
at https://ssrn.com/abstract=2171235.
    \45\ As another example, when major equity index providers
included in their emerging market indexes the ``A shares'' of
certain Chinese companies listed in China, the weight of Chinese
markets in those indexes increased and investors tracking those
indexes invested in those companies. See, e.g., Division of Economic
and Risk Analysis, U.S. Securities and Exchange Commission, Risk
Spotlight: U.S. Investors' Exposure to Domestic Chinese Issuers
(July 6, 2020), available at https://www.sec.gov/files/US-Investors-Exposure-to-Domestic-Chinese-Issuers_2020.07.06.pdf (noting that the
weight of Chinese A shares in the three emerging market indexes
ranged between 4% and 5.5% after completion of each index's
inclusion process); see also Xie Yu, China's Bonds Win Third Key
Index Inclusion, Wall Street Journal (Sept. 24, 2020) (reporting
that FTSE Russell would add Chinese government debt to certain
indices and estimating the inclusion ``could attract more than $100
billion of foreign capital''), available at https://www.wsj.com/articles/chinas-bonds-win-third-key-index-inclusion-11600994714;
Robin Wigglesworth, Trillions 258-59 (Portfolio 2021) (describing
efforts by the Chinese government to affect decisions of index
providers).
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2. Requirements for SEC-Registered Advisers
    Advisers registered (or required to be registered) with the
Commission are subject to substantive prohibitions and requirements;
contractual requirements; recordkeeping obligations; and oversight by
the Commission, including periodic filings and inspection. Many of the
rules under the Act are generally designed to apply to the variety of
advisers' business models. Form ADV similarly is designed to facilitate
reporting by advisers with disparate business models and client types.
However, it is possible to differentiate application of the adviser
regulatory regime (including reporting requirements) to a type of
investment adviser.\46\
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    \46\ The Commission has tailored the adviser regulatory regime
to recognize advisers in different situations. See Exemptions for
Advisers to Venture Capital Funds, Private Fund Advisers with Less
Than $150 Million in Assets Under Management, and Foreign Private
Advisers, Advisers Act Release No. 3222 (June 22, 2011) [76 FR 39645
(July 6, 2011)] (adopting rules to implement exemptions from the
registration requirements of the Advisers Act for advisers to
certain privately offered investment funds and stating that the
Commission does not apply most of the substantive provisions of the
Advisers Act to the non-U.S. clients of a non-U.S. adviser
registered with the Commission).
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    To the extent that providers' activities may constitute investment
advice, and have the potential to affect broadly the national
securities markets, we request comment on all aspects of the investment
adviser regulatory regime with respect to these providers. Such
comments would be particularly useful given that many of the provisions
of the Act, the rules thereunder, and Form ADV are designed primarily
for investment advisers that provide investment advice designed for the
objectives and needs of specific clients, which may not be the case
with all of these information providers. We specifically request
comment on the following:
Registration Under the Advisers Act
    25. To the extent that a provider meets the Act's definition of
``investment adviser,'' should it register with the SEC or the states
in which it maintains its principal office or places of business? As a
policy matter, should Commission registration be permitted or required?
What economic benefits and costs would result? What would be the effect
of registration on the ability of new competitors to come into the
marketplace? What would be the effect of registration on providers'
ability to speak or communicate? If any type of information provider
were required to register, what process might we provide to ensure an
orderly transition of registration status?
    26. Some providers are currently SEC-registered while others are
not. For each type, on what basis? For those providers that have
registered with the Commission as investment advisers, what were the
determining factors? How would the economic benefits and costs differ
between providers that are currently SEC-registered and others that are
not?
    27. Do providers have RAUM with respect to their information
services? \47\ For example, do providers ``provide continuous and
regular supervisory or management services'' to securities portfolios
as required by the instructions on Form ADV for purposes of calculating
RAUM? What range of RAUM is common? Should the Commission amend the
Instructions to Form ADV to provide a calculation of RAUM that
encompasses any or all providers? In particular, should the Commission
define RAUM in a manner that explicitly applies to model portfolio
providers?
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    \47\ Form ADV uses the term ``regulatory assets under
management'' instead of ``assets under management.'' Form ADV
describes how advisers must calculate RAUM and states that in
determining the amount of RAUM, an adviser should ``include the
securities portfolios for which [it] provide[s] continuous and
regular supervisory or management services as of the date of
filing'' the form. See Form ADV, Instructions for Part 1A,
Instruction 5.b.
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    28. Should there be exemptions from the prohibition against
registration for providers that have a ``national presence'' or can
have a significant effect on the national markets regardless of RAUM?
Are there factors that we should take into account in identifying those
providers? For example, what characteristics would distinguish
providers that have a national presence from ones that do not? Should
registration be mandatory or optional? What would be the economic
benefits and costs of mandatory or optional registration?
    29. Under what circumstances should a provider that acts as an
investment adviser be required to treat as its advisory client another
investment adviser that uses its services (the ``serviced adviser'')?
Under what circumstances, if any, should such a provider's advisory
client be the client, or end-user, of the serviced adviser? If a
provider's advisory client is the end-user of the serviced adviser, to
what extent and under what circumstances should such end-user have the
right to approve the assignment of the advisory agreement between the
serviced adviser and the provider? To what extent and under what
circumstances should such end-user receive the disclosure documents of
the provider?
Applicability of the Advisers Act
    30. Should we exempt providers that meet the definition of
investment adviser, and are required to register with the SEC under the
Advisers Act, from any of the provisions of the Act and rules that
apply to SEC-registered advisers and, if so, which provisions and why?
Would any such provisions raise operational or compliance challenges
such that an exemption is necessary? What would be the economic
benefits and costs of exempting providers that meet the definition of
investment adviser, and are required to register with the SEC under the
Act? How would such an exemption affect investors? What would be the
effects on competition in the market for information providers if we
were to exempt providers from some or all requirements of the Act?
Alternatively, should any provisions of the Act or rules apply
differently to providers? Which ones, why, and how should they apply?
For example, should disclosure obligations differ to the extent the
providers do not have a client-facing role?
    31. Would requiring providers to register with the SEC and become
subject to the regulatory regime under

the Act in its current form cause them to alter their business models,
consolidate, or exit the market? \48\ How would this affect investors?
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    \48\ See, e.g., Kathleen H. Moriarty, Should Index Providers Be
Regulated as Investment Advisers Under the U.S. Investment Advisers
Act of 1940, Journal of Index Investing (2021), at 67-68, available
at https://jii.pm-research.com/content/iijindinv/11-12/4-1/54.full.pdf.
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    32. At least one regulatory framework for index providers exists
outside of the United States, under the European Securities and Market
Authority (``ESMA'') and its EU Benchmarks Regulation (``BMR'').\49\
Some of the BMR's key provisions include requiring EU administrators of
a broad class of benchmarks to be authorized or registered by a
national regulator, and for these administrators to implement various
governance systems and other controls to ensure the integrity and
reliability of their benchmarks. Administrators are also required to
provide a code of conduct specifying requirements and responsibilities
regarding input data. Although the BMR affects U.S.-based index
providers that wish to have market access in the EU, it does not
directly affect their business in the United States. Should any U.S.
regulatory action, if adopted and implemented, be aligned with the
framework placed by the BMR in the EU? Are there particular components
of the BMR that should or should not be applied to index providers in
the United States, and why? What has been the effect of the BMR on the
provision of benchmarks and indexes in the EU? Has the BMR served as a
barrier to entry for new benchmark and index providers?
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    \49\ Regulation (EU) 2016/1011.
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Reporting Obligations and Public Disclosure
    33. What information do registered advisers and investment
companies currently submit to the Commission with respect to their
information providers? What information, if any, should registrants be
required to submit? What information currently required should be
modified and why? Should some of the information be provided
confidentially to the Commission? If so, which types of information and
why?
    34. Should Form ADV require specific information about advisers'
use of information providers? Should we require additional or different
information on Form ADV for providers that meet the definition of
investment adviser and are required to register with the SEC under the
Advisers Act? If so, what information? What would be the economic
benefit and cost of requiring additional or different information on
Form ADV?

B. Related Investment Company Act Matters

    Analysis under the Investment Company Act of whether a person is an
investment adviser of a fund generally relies on two main elements:
    (i) The person regularly furnishes advice to the fund with respect
to the desirability of investing in, purchasing or selling securities
or other property, or is empowered to determine what securities or
property should be purchased or sold by the fund; and
    (ii) The person acts pursuant to a contract with the fund.\50\
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    \50\ See 15 U.S.C. 80a-2(a)(20)(A).
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    In addition, the Investment Company Act includes in the definition
of an investment adviser to a fund a person who, pursuant to a contract
with an investment adviser of an investment company, ``regularly
performs substantially all the duties'' undertaken by such investment
adviser.\51\
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    \51\ See 15 U.S.C. 80a-2(a)(20)(B).
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    An investment adviser of a fund under the Investment Company Act is
subject to certain requirements and limitations. Among other things,
this status may trigger prohibitions related to self-dealing and other
types of overreaching of a fund by its affiliates (including its
investment adviser), ineligibility criteria for certain affiliated
persons (including investment advisers), and requirements related to
the approval of compliance procedures and practices by the fund's board
of directors.\52\ In addition, the Investment Company Act contains
specific requirements related to shareholder and board approval of the
fund's advisory contract (including of any assignment of the
contract).\53\
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    \52\ In addition, among other provisions related to its
relationship with a fund, an adviser under the Investment Company
Act is subject to regulations related to loans, purchases or sales
of assets, or the receipt of commissions or similar compensation in
connection with such purchases and sales. See 15 U.S.C. 80a-17.
    \53\ 15 U.S.C. 80a-15(a); 15 U.S.C. 80a-15(c).
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    The Investment Company Act sets out certain exceptions to its
definition of investment adviser of a fund, including for persons
distributing their publications to subscribers, providing statistical
information without regularly furnishing advice or making
recommendations concerning specific securities, compensated under the
supervision of a court, or persons excluded by rule or regulation.\54\
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    \54\ See 15 U.S.C. 80a-2(a)(20).
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    Certain providers may implicate the Investment Company Act's
provisions relating to an investment adviser of an investment company.
For example, index providers, particularly to the extent the index
provider maintains a bespoke index created for a single fund, could
meet the definition of an investment adviser to a fund under the
Investment Company Act. This may be the case if the index is maintained
with an eye to the specific needs of a fund. To the extent that no
exception from the definition applies, the index provider could
implicate the Investment Company Act's definition of investment adviser
of an investment company, including when the index provider does not
contract directly with a fund, but instead indirectly with the fund's
investment adviser. A similar analysis may apply to other providers, as
well.
    We request comment on certain aspects of the Investment Company Act
regime with respect to providers. We specifically request comment on
the following:
    35. How do providers analyze whether they meet the Investment
Company Act's definition of ``investment adviser'' of a fund under each
element of the definition? What are the economic benefits and costs
associated with whether a provider meets the Investment Company Act's
definition of ``investment adviser'' of a fund? Would the application
of the definition to providers serve as a material barrier to entry for
new entrants?
    36. To what extent do providers contract directly with funds? For
example, do providers typically enter into contracts with the fund's
adviser, or an affiliate of the adviser? If a fund's adviser delegates
services to a provider, what duties does the adviser retain and what
duties does the adviser delegate? Does the fund or its adviser make an
affirmative determination made whether the provider is acting as an
investment adviser under the Investment Company Act?
    37. The Investment Company Act excludes from the definition of
investment adviser of a fund ``a person whose advice is furnished
solely through uniform publications distributed to subscribers
thereto.'' To what extent do providers distribute uniform publications?
If so, how do these providers interpret ``uniform''? Do providers that
rely on the Advisers Act publisher's exclusion also rely on this
exception and, if so, on what basis?
    38. To the extent a provider to a fund is an investment adviser of
the fund, the fund and its provider would need to comply with various
provisions of the Investment Company Act. What would be a reasonable
amount of time for a

registered investment company to come into compliance with these
provisions? Are there measures we can take to assist with the
transition? Are there provisions of the Investment Company Act that
present unique challenges for providers?
    39. Rule 38a-1 under the Investment Company Act requires a fund's
board, including a majority of its independent directors, to approve
policies and procedures reasonably designed to prevent violation of the
Federal securities laws by the fund and certain service providers.\55\
To what extent do funds currently extend their compliance program to
information providers, where such entity is not considered an
investment adviser or one of the rule's other named service providers
(principal underwriters, administrators and transfer agents)? Does this
analysis differ depending on the provider? Should we amend Rule 38a-1
to incorporate information providers within a fund's compliance
program, rather than requiring registration of information providers as
investment advisers? What would be the costs and benefits of such an
approach?
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    \55\ See rule 38a-1 under the Investment Company Act.
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    40. In circumstances where a fund's adviser contracts with an
information provider, how much information is provided to the fund's
board regarding the providers on an ongoing basis? Do fund boards
approve the engagement of providers in these circumstances? Does this
differ depending on the provider?
General Request for Comment
    This request for comment is not intended to limit the scope of
comments, views, issues, or approaches to be considered. In addition to
information providers, investment advisers and investment companies,
advisory clients and other investors, we welcome comment from other
market participants and particularly welcome statistical, empirical,
and other data from commenters that may support their views or support
or refute the views or issues raised by other commenters.

    By the Commission.

    Dated: June 15, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-13307 Filed 6-21-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 84 (Friday, May 1, 2015)]
[Notices]
[Pages 24910-24911]
[FR Doc No: 2015-10220]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 13806-004]

5440 Hydro Inc.; Notice of Application Accepted for Filing With
the Commission, Intent To Waive Scoping, Soliciting Motions To
Intervene and Protests, Ready for Environmental Analysis, and
Soliciting Comments, Terms and Conditions, and Recommendations, and
Establishing an Expedited Schedule for Processing

    Take notice that the following hydroelectric application has been
filed with the Commission and is available for public inspection.
    a. Type of Application: Exemption From Licensing.
    b. Project No.: P-13806-004.
    c. Date filed: July 28, 2014.
    d. Applicant: 5440 Hydro Inc.
    e. Name of Project: Brooklyn Dam Hydroelectric Project.
    f. Location: On the Upper Ammonoosuc River, in the Town of
Northumberland, Coos County, New Hampshire. The project would not
occupy lands of the United States.
    g. Filed Pursuant to: Public Utility Regulatory Policies Act of
1978, 16 U.S.C. 2705, 2708.
    h. Applicant Contact: Lutz Loegters, 5440 Hydro Inc., 717 Atlantic
Avenue, Suite 1A, Boston, Massachusetts 02111,<PHONE_NUMBER>.
    i. FERC Contact: John Ramer,<PHONE_NUMBER><EMAIL_ADDRESS>    j. Deadline for filing motions to intervene and protests, comments,
terms and conditions, and recommendations: Due to the small size and
location of this project and the close coordination with state and
federal agencies during preparation of the application, the 60- day
timeframe in 18 CFR 4.34(b) is shortened. Instead, motions to intervene
and protests, comments, terms and conditions, and recommendations are
due 30 days from the issuance date of this notice. All reply comments
must be filed with the Commission within 45 days from the issuance date
of this notice.
    The Commission strongly encourages electronic filing. Please file
motions to intervene, protests, comments, and recommendations using the
Commission's eFiling system at http://www.ferc.gov/docs-filing/efiling.asp. Commenters can submit brief comments up to 6,000
characters, without prior registration, using the eComment system at
http://www.ferc.gov/docs-filing/ecomment.asp. You must include your
name and contact information at the end of your comments. For
assistance, please contact FERC Online Support at
<EMAIL_ADDRESS>(866) 208-3676 (toll free), or (202) 502-
8659 (TTY). In lieu of electronic filing, please send a paper copy to:
Secretary, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426. The first page of any filing should include
docket number P-13806-004.
    The Commission's Rules of Practice require all intervenors filing
documents with the Commission to serve a copy of that document on each
person on the official service list for the project. Further, if an
intervenor files comments or documents with the Commission relating to
the merits of an issue that may affect the responsibilities of a
particular resource agency, they must also serve a copy of the document
on that resource agency.
    k. This application has been accepted for filing and is now ready
for environmental analysis.
    l. The Brooklyn Dam Hydroelectric Project would consist of: (1) An
existing 163-foot-long and 14-foot-high dam that includes: (a) A 113-
foot-long spillway with a crest elevation 878.69 feet National Geodetic
Vertical Datum of 1929 (NGVD29); (b) 2.50-foot-high flashboards with a
crest elevation 881.23 feet NGVD29; and (c) a 50-foot-long floodgate
structure with four 6.9-foot-wide, 10-foot-high floodgates; (2) an
existing 100-foot-long, 45-foot-wide forebay with three 15.2-foot-wide,
15.5-foot-high trashracks with 1.0-inch open bar spacing; (3) an
existing 40-foot-long, 15.78-foot-high tailrace training wall; (4) an
existing 9-foot-wide, 9-foot-high side waste gate; (5) an existing 26-
acre impoundment having a gross storage capacity of 52-acre-feet at
elevation 881.23 feet NGVD29; (6) an existing 45-foot-long, 48-foot-
wide, and 23-foot-high brick and concrete powerhouse that would contain
two proposed 300-kilowatt (kW), Kaplan turbine-generating units for a
total installed capacity of 600 kW; (7) an existing 48-foot-long, 45-
foot-wide tailrace; (8) a proposed 400-foot-long 35.4-kilovolt

above-ground transmission line; (9) three proposed single phased
transformers; and (10) appurtenant facilities. On average, the project
would generate approximately 2,800 megawatt-hours annually. The
applicant proposes to remove a non-operating sluice gate on the
spillway, rehabilitate the powerhouse, and operate the project in a
run-of-river mode.
    m. Due to the project works already existing and the limited scope
of proposed rehabilitation of the project site described above, the
applicant's close coordination with federal and state agencies during
the preparation of the application, completed studies during pre-filing
consultation, and agency recommended preliminary terms and conditions,
we intend to waive scoping and expedite the exemption process. Based on
a review of the application, resource agency consultation letters
including the preliminary 30(c) terms and conditions, and comments
filed to date, Commission staff intends to prepare a single
environmental assessment (EA). Commission staff determined that the
issues that need to be addressed in its EA have been adequately
identified during the pre-filing period, which included a public
meeting and site visit, and no new issues are likely to be identified
through additional scoping. The EA will consider assessing the
potential effects of project construction and operation on aquatic,
terrestrial, threatened and endangered species, recreation and land
use, aesthetic, and cultural and historic resources.
    n. A copy of the application is available for review at the
Commission in the Public Reference Room or may be viewed on the
Commission's Web site at http://www.ferc.gov using the ``eLibrary''
link. Enter the docket number excluding the last three digits in the
docket number field to access the document. For assistance, contact
FERC Online Support. A copy is also available for inspection and
reproduction at the address in item h above.
    Register online at http://www.ferc.gov/docs-filing/esubscription.asp to be notified via email of new filings and issuances
related to this or other pending projects. For assistance, contact FERC
Online Support.
    o. Any qualified applicant desiring to file a competing application
must submit to the Commission, on or before the specified intervention
deadline date, a competing development application, or a notice of
intent to file such an application. Submission of a timely notice of
intent allows an interested person to file the competing development
application no later than 120 days after the specified intervention
deadline date. Applications for preliminary permits will not be
accepted in response to this notice.
    A notice of intent must specify the exact name, business address,
and telephone number of the prospective applicant, and must include an
unequivocal statement of intent to submit a development application. A
notice of intent must be served on the applicant(s) named in this
public notice.
    Anyone may submit comments, a protest, or a motion to intervene in
accordance with the requirements of Rules of Practice and Procedure, 18
CFR 385.210, .211, .214. In determining the appropriate action to take,
the Commission will consider all protests or other comments filed, but
only those who file a motion to intervene in accordance with the
Commission's Rules may become a party to the proceeding. Any comments,
protests, or motions to intervene must be received on or before the
specified comment date for the particular application.
    All filings must (1) bear in all capital letters the title
``PROTEST'', ``MOTION TO INTERVENE'', ``NOTICE OF INTENT TO FILE
COMPETING APPLICATION,'' ``COMPETING APPLICATION,'' ``COMMENTS,''
``REPLY COMMENTS,'' ``RECOMMENDATIONS,'' or ``TERMS AND CONDITIONS;''
(2) set forth in the heading the name of the applicant and the project
number of the application to which the filing responds; (3) furnish the
name, address, and telephone number of the person protesting or
intervening; and (4) otherwise comply with the requirements of 18 CFR
385.2001 through 385.2005. All comments, recommendations, terms and
conditions or prescriptions must set forth their evidentiary basis and
otherwise comply with the requirements of 18 CFR 4.34(b). Agencies may
obtain copies of the application directly from the applicant. A copy of
any protest or motion to intervene must be served upon each
representative of the applicant specified in the particular
application. A copy of all other filings in reference to this
application must be accompanied by proof of service on all persons
listed in the service list prepared by the Commission in this
proceeding, in accordance with 18 CFR 4.34(b) and 385.2010.
    p. Procedural Schedule: The application will be processed according
to the following procedural schedule. Revisions to the schedule may be
made as appropriate.
    MILESTONE: Notice of the availability of the EA.
    TARGET DATE: October 1, 2015.

    Dated: April 23, 2015.
Kimberly D. Bose,
 Secretary.
[FR Doc. 2015-10220 Filed 4-30-15; 8:45 am]
BILLING CODE 6717-01-P