Rule_237_Supporting_Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 237

A.

JUSTIFICATION
1. Necessity for the Information Collection
In Canada, as in the United States, individuals can invest a portion of their earnings in

tax-deferred retirement savings accounts (“Canadian retirement accounts”). These accounts,
which operate in a manner similar to individual retirement accounts in the United States,
encourage retirement savings by permitting savings on a tax-deferred basis. Individuals who
establish Canadian retirement accounts while living and working in Canada and who later move
to the United States (“Canadian-U.S. Participants” or “participants”) often continue to hold their
retirement assets in their Canadian retirement accounts rather than prematurely withdrawing (or
“cashing out”) those assets, which would result in immediate taxation in Canada.
Once in the United States, however, these participants historically have been unable to
manage their Canadian retirement account investments. Most securities that are “qualified
investments” for Canadian retirement accounts are not registered under the U.S. securities laws.
Those securities, therefore, generally cannot be publicly offered and sold in the United States
without violating the registration requirement of the Securities Act of 1933 (“Securities Act”). 1
As a result of this registration requirement, Canadian-U.S. Participants previously were not able
to purchase or exchange securities for their Canadian retirement accounts as needed to meet their
changing investment goals or income needs.

1

15 U.S.C. 77. In addition, the offering and selling of securities of investment companies
(“funds”) that are not registered pursuant to the Investment Company Act of 1940 (“Investment
Company Act”) is generally prohibited by U.S. securities laws. 15 U.S.C. 80a.

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The Commission issued a rulemaking in 2000 that enabled Canadian-U.S. Participants to
manage the assets in their Canadian retirement accounts by providing relief from the U.S.
registration requirements for offers of securities of foreign issuers to Canadian-U.S. Participants
and sales to Canadian retirement accounts. 2 Rule 237 under the Securities Act 3 permits
securities of foreign issuers, including securities of foreign funds, to be offered to Canadian-U.S.
Participants and sold to their Canadian retirement accounts without being registered under the
Securities Act.
Rule 237 contains a “collection of information” requirement within the meaning of the
Paperwork Reduction Act of 1995 (“PRA”). 4 Rule 237 requires written offering materials for
securities that are offered and sold in reliance on the rule to disclose prominently that those
securities are not registered with the Commission and are exempt from registration under the
U.S. securities laws. Rule 237 does not require any documents to be filed with the Commission.
2.

Purpose of the Information Collection

Rule 237 has provided relief from the U.S. registration requirements for the offer of a
foreign issuer’s securities to a Canadian-U.S. Participant and the sale of those securities to his or
her Canadian retirement account. The collection of information requirement – that written
offering materials concerning securities offered or sold in reliance on the rule disclose

2

See Offer and Sale of Securities to Canadian Tax-Deferred Retirement Savings Accounts, Release
Nos. 33-7860, 34-42905, IC-24491 (June 7, 2000) [65 FR 37672 (June 15, 2000)]. This
rulemaking also included new rule 7d-2 under the Investment Company Act, permitting foreign
funds to offer securities to Canadian-U.S. Participants and sell securities to Canadian retirement
accounts without registering as investment companies under the Investment Company Act. 17
CFR 270.7d-2.

3

17 CFR 230.237.

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prominently that those securities are not registered with the Commission and are exempt from
registration – is designed to ensure that Canadian-U.S. Participants are aware that those
securities are not subject to the protections afforded by registration under the U.S. securities
laws.
3.

Consideration Given to Information Technology

There are no requirements in rule 237 that any documents be filed with the Commission.
There is no “collection of information” that involves the use of automated, electronic,
mechanical, or other forms of information technology.
4.

Duplication

No other rule duplicates the requirement that written offering materials concerning
securities offered or sold in reliance on rule 237 disclose that those securities are not registered
with the Commission. 5 This information likely would not be readily available to Canadian-U.S.
Participants without this disclosure requirement.
5.

Effect on Small Entities

4

44 U.S.C. 3501 - 3502.

5

Rule 7d-2 under the Investment Company Act requires that the fund provide similar, but not
identical, disclosures. The differences reflect that investment companies are registered under the
Investment Company Act, while securities issued by the funds to the public are registered under
the Securities Act. Canadian funds can rely on both rule 7d-2 and rule 237 to offer securities to
participants and sell securities to their Canadian retirement accounts. Rule 237, however, does
not require any disclosure in addition to that required by rule 7d-2. Thus, the disclosure
requirements of rule 237 do not impose any burden on Canadian funds in addition to the burden
imposed by the disclosure requirements of rule 7d-2. To avoid double-counting this burden, the
staff has excluded Canadian funds from the estimate of the hourly burden associated with rule
237.

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Rule 237 enables Canadian-U.S. participants to manage assets in their Canadian
retirement accounts by providing relief from U.S. registration requirements. The burden under
the rule consists of adding certain disclosure information to written offering materials. This is a
minimal and non-recurring burden that applies equally to both small and large entities. The
Commission believes that it would not be feasible to adjust the rule to lessen this minor burden
on small entities because the disclosure requirements ensure that participants are aware that
securities covered by the rule are not subject to protections afforded under the U.S. securities
laws.
6.

Consequences of Nor Conducting Collection

The rule requires each written offering document for securities offered or sold in reliance
on the rule to disclose prominently that those securities are not registered with the Commission.
Less frequent disclosure of this information would not fulfill the objective of ensuring that
Canadian-U.S. Participants are aware that the investments that they make for their Canadian
retirement accounts are not subject to the protections afforded by registration under the U.S.
securities laws.
7.

Inconsistencies With Guidelines in 5 CFR 1230.5(d)(2)

Not applicable.
8.

Consultations Outside of the Agency

The Commission requested public comment on the collection of information
requirements in rule 237 before it submitted this request for extension and approval to the Office
of Management and Budget. The Commission received no comments in response to its request.

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The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the fund industry through public conferences,
meetings, and informal exchanges. These forums provide the Commission and the staff means
of ascertaining and acting upon paperwork burdens confronting the industry.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No questions of a sensitive nature are involved. The information collection does not
collect any Personally Identifiable Information (PII).
12.

Burden of Information Collection

Rule 237 requires written offering documents for securities offered and sold in reliance
on the rule to disclose prominently that the securities are not registered with the Commission and
are exempt from registration under the U.S. securities laws. The burden under the rule
associated with adding this disclosure to written offering documents is minimal and is nonrecurring. The foreign issuer, underwriter, or broker-dealer can re-draft an existing prospectus
or other written offering material to add this disclosure statement, or may draft a sticker or
supplement containing this disclosure to be added to existing offering materials. In either case,
the staff estimates that it would take an average of 10 minutes per document to draft the requisite
disclosure statement.

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The Commission understands that there are approximately 3,619 Canadian issuers other
than funds that may rely on rule 237 to make an initial public offering of their securities to
Canadian-U.S. Participants. 6 The staff estimates that in any given year approximately 36 (or 1
percent) of those issuers are likely to rely on rule 237 to make a public offering of their securities
to participants, and that each of those 36 issuers, on average, distributes 3 different written
offering documents concerning those securities, for a total of 108 offering documents.
The staff therefore estimates that during each year that rule 237 is in effect,
approximately 36 respondents 7 would be required to make 108 responses by adding the new
disclosure statements to approximately 108 written offering documents. Thus, the staff estimates
that the total annual burden associated with the rule 237 disclosure requirement would be
approximately 18 hours (108 offering documents x 10 minutes per document). The total annual
cost of burden hours is estimated to be $6,840 (18 hours x $380 per hour of attorney time). 8
6

This estimate is based on the following calculation: 3,520 equity issuers (as of April 2016) + 99
bond issuers (as of April 2016) = 3,619 total issuers (as of April 2016). See World Federation of
Exchanges, Monthly Reports, available at http://www.worldexchanges.org/home/index.php/statistics/monthly-reports (providing number of equity issuers
listed on Canada’s Toronto Stock Exchange). After 2009, the World Federation of Exchanges
ceased reporting the number of fixed-income issuers on Canada’s Toronto Stock Exchange. The
number of fixed-income issuers as of April 2016 is based on the ratio of the number of fixedincome issuers listed on Canada’s Toronto Stock Exchange in 2009 (111) relative to the number
of bonds listed on that exchange in that year (178) multiplied against the number of bonds listed
on that exchange as of April 2016 (159): (111/178) x 159 = 99.

7

This estimate of respondents only includes foreign issuers. The number of respondents would be
greater if foreign underwriters or broker-dealers draft stickers or supplements to add the required
disclosure to existing offering documents.

8

The Commission’s estimate concerning the wage rate for attorney time is based on salary
information for the securities industry compiled by the Securities Industry and Financial Markets
Association (“SIFMA”). The $380 per hour figure for an attorney is from SIFMA’s Management
& Professional Earnings in the Securities Industry 2013, modified by Commission staff to
account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size,
employee benefits, and overhead.

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In addition, issuers from foreign countries other than Canada could rely on rule 237 to
offer securities to Canadian-U.S. Participants and sell securities to their accounts without
becoming subject to the registration requirements of the Securities Act. However, the staff
believes that the number of issuers from other countries that rely on rule 237, and that therefore
are required to comply with the offering document disclosure requirements, is negligible.
13.

Cost to Respondents

The disclosure requirements do not entail any annual cost burden in addition to the cost
of the hourly burden discussed above.
14.

Costs to the Federal Government

The disclosure requirements would not entail any cost to the federal government. Rule
237 does not require issuers to file any documents with the Commission.
15.

Changes in Burden

The burden hours for rule 237 decreased from 20.5 hours to 18 hours based on a decrease
in the estimated number of issuers that may rely on the rule.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.