NEW Rule 6c-11 PRA Supporting Statement (Adoption) (Revised)

OMB CONTROL NUMBER 3235-0764

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 6c-11
A. JUSTIFICATION
1. Necessity for the Information Collection
Rule 6c-11 1 under the Investment Company Act of 1940 (the “Act”) will permit
exchange-traded funds (“ETFs”) that satisfy certain conditions to operate without
first obtaining an exemptive order from the Commission. The rule is designed to
create a consistent, transparent, and efficient regulatory framework for ETFs and
facilitate greater competition and innovation among ETFs. The rule eliminates
historical distinctions and conditions that the Commission no longer believes are
necessary and thus appropriately levels the playing field for ETFs that pursue the
same or similar investment strategies. Rule 6c-11 will require an ETF to disclose
certain information on its website, to maintain certain records, and to adopt and
implement written policies and procedures governing its constructions of baskets, as
well as written policies and procedures that set forth detailed parameters for the
construction and acceptance of custom baskets that are in the best interests of the
ETF and its shareholders. These requirements are “collection of information” within
the meaning of the Paperwork Reduction Act of 1995 (“PRA”). 2 The information
collection is integral to the framework of rule 6c-11 and therefore necessary to help
further the rule’s aforementioned goals. The information collection also will assist
the Commission’s examination staff in assessing ETFs’ compliance with the
conditions of rule 6c-11.
2. Purpose and Use of the Information Collection
The collection of information under rule 6c-11 is integral to the framework of rule
6c-11 and therefore necessary to help further the rule’s goals of creating a consistent,
transparent, and efficient regulatory framework for such ETFs and facilitating greater
competition and innovation among ETFs. The information collection also will assist
the Commission’s examination staff in assessing ETFs’ compliance with the
conditions of rule 6c-11. The respondents to rule 6c-11 are ETFs registered as openend management investment companies other than share-class ETFs,
leveraged/inverse ETFs, or non-transparent ETFs.

1

17 CFR 270.6c-11.

2

See 44 U.S.C. 3501 through 3521.

3. Consideration Given to Information Technology
Rule 6c-11 does not require the reporting of any information or the filing of any
documents with the Commission. The Electronic Signatures in Global and National
Commerce Act 3 and conforming amendments to rules under the Investment
Advisers Act of 1940 permit ETF advisers to maintain records electronically.
4. Duplication
The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication and reevaluates them whenever it adopts a new rule or
a change to a rule. The information collection that is be required by rule 6c-11 is not
duplicated elsewhere.
5. Effect on Small Entities
The information collection requirements of rule 6c-11 do not distinguish between
small entities and other entities. We do not believe that exempting any subset of
ETFs, including small entities, from rule 6c-11 would permit the Commission to
achieve its stated objectives. Similarly, the Commission does not believe that it can
establish simplified or consolidated compliance requirements for small entities under
the rule without compromising its objectives. The conditions necessary to rely on
rule 6c-11 are designed to provide investor protection benefits. These benefits should
apply to investors in smaller funds as well as investors in larger funds.
Finally, the Commission believes that rule 6c-11 appropriately uses a
combination of performance and design standards. Rule 6c-11 provides ETFs that
satisfy the requirements of the rule with exemptions from certain provisions of the
Act necessary for ETFs to operate. Because the provisions of the Act from which
ETFs would be exempt provide important investor and market protections, the
conditions of the rule must be specifically designed to ensure that these investor and
market protections are maintained. However, where the Commission believes that
flexibility is beneficial, it adopted performance-based standards that provide a
regulatory framework, rather than prescriptive requirements, to give funds the
opportunity to adopt policies and procedures tailored to their specific needs without
raising investor or market protection concerns.
6. Consequences of Not Conducting Collection
The collection of information under rule 6c-11 is integral to the framework of rule
6c-11 and therefore necessary to help further the rule’s goals of creating a consistent,
3

P.L. 106-229, 114 Stat. 464 (June 30, 2000).

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transparent, and efficient regulatory framework for such ETFs and facilitating greater
competition and innovation among ETFs. Thus, not requiring this collection of
information would be incompatible with the goals of rule 6c-11.
7. Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
Rule 6c-11 requires ETFs to preserve and maintain copies of all written
authorized participant agreements ETFs. Additionally, rule 6c-11 requires ETFs to
maintain records setting forth the following information for each basket exchanged
with an authorized participant: (i) the names and quantities of the positions
composing the basket; (ii) identification of the basket as a “custom basket” and a
record stating that the custom basket complies with the ETF’s custom basket policies
and procedures (if applicable); (iii) cash balancing amounts (if any); and (iv) the
identity of the authorized participant conducting the transaction. ETFs have to
maintain these records for at least five years, the first two years in an easily accessible
place. Although this five-year period exceeds the three-year guideline for most kinds
of records under 5 CFR 1320.5(d)(2), the Commission believes that this is warranted
because the rule contributes to the effectiveness of the Commission’s examination
and inspection program. Because the period between examinations may be as long as
five years, it is important that the Commission have access to records that cover the
entire period between examinations.
8. Consultation Outside the Agency
In its release proposing rule 6c-11, the Commission requested public comment on
the information collections related to the proposed rule. The Commission did not
receive any comments on the information collections related to proposed rule 6c-11.
Moreover, the Commission and the staff of the Division of Investment Management
participate in an ongoing dialogue with representatives of the investment company
industry through public conferences, meetings, and information exchanges. These
various forums provide the Commission and staff with a means of ascertaining and
acting upon the paperwork burdens confronting the industry.
9. Payment or Gift
No payment or gift to respondents was provided.
10. Confidentiality
Responses provided to the Commission in connection with staff examinations or
investigations would be kept confidential subject to the provisions of applicable law.
If information collected pursuant to rule 6c-11 is reviewed by the Commission’s
examination staff, it will be accorded the same level of confidentiality accorded to
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other responses provided to the Commission in the context of its examination and
oversight program.
11. Sensitive Questions
No information of a sensitive nature, including social security numbers, will be
required under this collection of information. The information collection does not
collect personally identifiable information (PII). The agency has determined that a
system of records notice (SORN) and privacy impact assessment (PIA) are not
required in connection with the collection of information.
12. Estimate of Hour Burden
The following estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act and are not derived from a comprehensive
or even representative survey or study of the cost of Commission rules and forms. 4
Rule 6c-11 will require an ETF to disclose certain information on its website, to
maintain certain records, and to adopt and implement written policies and
procedures governing its constructions of baskets, as well as written policies and
procedures that set forth detailed parameters for the construction and acceptance of
custom baskets that are in the best interests of the ETF and its shareholders. These
requirements are collections of information under the PRA.
The respondents to rule 6c-11 are ETFs registered as open-end management
investment companies other than share-class ETFs, leveraged/inverse ETFs, or nontransparent ETFs. This collection is not mandatory, but is necessary for those ETFs
seeking to operate without individual exemptive orders. We estimate that 1,735
ETFs likely will rely on rule 6c-11. Information provided to the Commission in
connection with staff examinations or investigations will be kept confidential subject
to the provisions of applicable law.
Website Disclosures
Rule 6c-11 will require an ETF to disclose on its website, each business day, the
portfolio holdings that will form the basis for each calculation of NAV per share. The
4

The Commission’s estimates of the relevant wage rates, as set forth in the tables below,
are based on salary information for the securities industry compiled by the Securities
Industry and Financial Markets Association’s Office Salaries in the Securities Industry
2013. The estimated figures are modified by firm size, employee benefits, overhead, and
adjusted to account for the effects of inflation. See Securities Industry and Financial
Markets Association, Report on Management & Professional Earnings in the Securities
Industry 2013.

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rule will require that the portfolio holdings information contain specified
information, including description and amount of each position. Additionally, the
rule will require an ETF to disclose on its website: (i) the ETF’s NAV per share,
market price, and premium or discount, each as of the end of the prior business day;
(ii) a tabular chart and line graph showing the ETF’s premiums and discounts for the
most recently completed calendar year and the most recently completed calendar
quarters of the current year (or for the life of the fund if shorter); and (iii) the ETF’s
median bid-ask spread over the last thirty calendar days.
Rule 6c-11(c)(1)(vi) also will require any ETF whose premium or discount was
greater than 2% for more than seven consecutive trading days to post that
information on its website, along with a discussion of the factors that are reasonably
believed to have materially contributed to the premium or discount. Given the
threshold for this requirement, we do not believe that many ETFs will be required to
disclose this information on a routine basis. We estimate that most ETFs will be
required to make this disclosure only once in their lifetimes. Therefore, we believed
that this requirement will impose only initial costs and that there will be no ongoing
costs associated with it.

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TABLE 1: RULE 6c-11 WEBSITE DISCLOSURE PRA ESTIMATES

Website development
Review of website disclosures

Annual hours1

11.25 hours

3.75 hours

×

$284 (senior systems analyst)

$1,065

11.25 hours

3.75 hours

×

$331 (senior programmer)

$1,241.25

7.5 hours

2.5 hours

×

$309 (compliance manager)

$772.50

7.5 hours

2.5 hours

×

$365 (compliance attorney)

$912.50

1.5 hours

×

$284 (senior systems analyst)

$426

1.5 hours

×

$331 (senior programmer)

$496.50

1.875 hours

×

$309 (compliance manager)

$579.38

1.875 hours

×

$365 (compliance attorney)

Website updates
Review of updated website disclosure
Total annual burden per ETF

37.5 hours

Wage Rate2

Internal time
costs

Initial hours

19.25 hours

Initial
external
cost burden

Annual external
cost burden3

$3,000

$1,000

$3,000

$1,000

$684.36
$6,177.49

Number of ETFs

× 1,735

× 1,735

× 1,735

× 1,735

Total annual burden

33,398.75 hours

$10,717,945.15

$5,205,000

$1,735,000

Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra footnote 4.
3. Includes initial external cost burdens annualized over a three-year period.

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Table 1 above summarizes the final PRA estimates associated with the website
disclosure requirements of rule 6c-11. We estimate that the annual total burdens and
time costs for drafting, reviewing and uploading the website disclosures will be
33,398.75 hours, at a total internal time cost of $10,717,945.15. We further estimate
an annual external cost burden of $1,735,000.
Recordkeeping
Rule 6c-11 requires ETFs to preserve and maintain copies of all written
authorized participant agreements. Additionally, the rule will require ETFs to
maintain records setting forth the following information for each basket exchanged
with an authorized participant: (i) ticker symbol, CUSIP or other identifier,
description of holding, quantity of each holding, and percentage weight of each
holding composing the basket; (ii) if applicable, identification of the basket as a
“custom basket” and a record stating that the custom basket complies with the ETF’s
custom basket policies and procedures (if applicable); (iii) cash balancing amounts (if
any); and (iv) the identity of the authorized participant conducting the transaction.
ETFs would have to maintain these records for at least five years, the first two years
in an easily accessible place.

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TABLE 2: RULE 6c-11 RECORDKEEPING PRA ESTIMATES

Recordkeeping
Total annual burden per ETF

Initial
hours

Annual hours1

0 hours

2.5 hours

0 hours

2.5 hours

0 hours

5 hours

Wage rate1

Internal time
costs

×

$62 (general clerk)

$155

×

$95 (senior computer operator)

$237.50

Initial
external
cost
burden

Annual
external
cost burden

$0

$0

$392.50

Number of ETFs

× 1,735

× 1,735

Total annual burden

8,675 hours

$680,987.50

Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra footnote 4.

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Table 2 above summarizes the final PRA estimates associated with the
recordkeeping requirements of rule 6c-11. We estimate that the annual total burdens
and time costs associated with these requirements will be 8,675 hours, at a total
internal time cost of $680,987.50. We do not estimate that there will be any initial or
ongoing external costs associated with the recordkeeping requirement.
Policies and Procedures
Rule 6c-11 will require ETFs relying on the rule to adopt and implement written
policies and procedures that govern the construction of baskets and the process that
will be used for the acceptance of basket assets. Additionally, to use custom baskets,
an ETF would be required to adopt and implement written policies and procedures
setting forth detailed parameters for the construction and acceptance of custom
baskets that are in the best interests of the ETF and its shareholders. These policies
and procedures also may include a periodic review requirement in order to ensure
that the ETF’s custom basket procedures are being consistently followed. Finally, as
discussed above, an ETF using custom baskets would be required to maintain
records detailing the composition of each custom basket.

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TABLE 3: RULE 6c-11 POLICIES AND PROCEDURES PRA ESTIMATES

Establishing and implementing
standard baskets policies and
procedures

Establishing and implementing
custom baskets policies and
procedures

Wage rate2

Internal time
costs

×

$329 (senior manager)

$329

.67 hours

×

$530 (chief compliance officer)

$353.33

.33 hours

×

$365 (compliance attorney)

$121.67

9 hours

3 hours

×

$329 (senior manager)

$987

5 hours

1.67 hours

×

$466 (ass’t general counsel)

$776.67

5 hours

1.67 hours

×

$530 (chief compliance officer)

$883.33

1 hour

.33 hours

×

$365 (compliance attorney)

$121.67

Initial hours

Annual hours1

3 hours

1 hour

2 hours
1 hour

Reviewing and updating baskets
policies and procedures

5 hours

×

$329 (senior manager)

$1645

2.5 hours

×

$466 (ass’t general counsel)

$1165

2.5 hours

×

$530 (chief compliance officer)

Total annual burden per ETF

18.67 hours

$7,707.67

Number of ETFs

× 1,735

× 1,735

Total annual burden

32,392.45 hours

$13,372,807.45

Notes:
1. Includes initial burden estimates annualized over a three-year period.
2. See supra footnote 4.

10

Initial
external
cost
burden

Annual external
cost burden

$0

$0

$1325

Table 3 above summarizes the final PRA estimates associated with the policies
and procedures requirements of rule 6c-11. We estimate that the annual total burdens
and time costs associated with these requirements will be 32,392.45 hours, at a total
internal time cost of $13,372,807.45. We do not estimate that there will be any initial or
ongoing external costs associated with the recordkeeping requirement.
TABLE 4: RULE 6c-11 TOTAL PRA ESTIMATES
Internal
hour burden

Internal
burden time cost

External
cost burden

Website disclosure

33,398.75 hours

$10,717,945.15

$1,735,000

Recordkeeping

8,675 hours

$680,987.50

$0

Developing policies and procedures

32,392.45 hours

$13,372,807.45

$0

Total annual burden

74,466.2 hours

$24,771,740.10

$1,735,000

As summarized in Table 4 above, we estimate that the total hour burdens and
time costs associated with rule 6c-11, including the burden associated with website
disclosure, recordkeeping, and developing policies and procedures, will result in an
average aggregate annual burden of 74,466.2 hours and an average aggregate time
cost of $24,771,740.10. We also estimate that there are external costs of $1,735,000
associated with this collection of information.
TABLE 5: CHANGE IN RULE 6c-11 PRA ESTIMATES
Annual Number of Responses
Previously approved: 0
Requested:
1,735
Change:
1,735
Annual Time Burden (Hrs.)
Previously approved: 0
Requested:
74,466.2 hours
Change:
74,466.2 hours
Annual Cost Burden ($)
Previously approved: $0
Requested:
$1,735,000
Change:
$1,735,000

13. Cost to Respondents
As shown in Table 1 above, the estimated external cost burden is the estimated
cost associated with ETFs consulting outside professionals to assist with website
development relating to new website disclosures. The staff estimates the initial
external cost would be $3,000 for an external website developer to develop the
webpage. Commission staff does not believe there will be any ongoing external costs
related to the website disclosure requirements. Amortized over a 3-year period, the
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external cost is approximately $1,000. Accordingly, we estimate that the total
external cost related to the website disclosures would be $1,735,000. We estimate
that the costs related to rule 6c-11’s recordkeeping and policies and procedures
requirements are fully captured as internal hour burdens in Item 12.
14. Costs to Federal Government
The annual cost of reviewing and processing disclosure documents, including
new registration statements, post-effective amendments, proxy statements,
shareholder reports, and other filings of investment companies amounted to
approximately $22.2 million in fiscal year 2018, based on the Commission’s
computation of the value of staff time devoted to this activity and related overhead.
15. Changes in Burden
Rule 6c-11 is a new rule, and therefore there are no currently approved burden
estimates associated with the rule. As such, the increase in the annual burdens is
equivalent to the estimated total annual burdens, which are 74,466.2 hours (annual
time burden) and $1,735,000 (annual external cost burden).
16. Information Collection Planned for Statistical Purposes
Not applicable.
17. Approval to Omit OMB Expiration Date
The Commission is not seeking approval to not display the expiration date for
OMB approval.
18. Exceptions to Certification for Paperwork Reduction Act Submissions
The Commission is not seeking an exception to the certification statement.
B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL
METHODS
The collection of information will not employ statistical methods.

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