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Statement on Investment Company Design, Delivery and Disclosures Rulemaking Package

Chairman Jay Clayton

June 5, 2018

Yesterday, the Commission approved three items from the Division of Investment Management that collectively are a step toward modernizing both the design, delivery and content of disclosures from mutual funds and other investment companies to investors. Specifically, the Commission approved:

  • First, the adoption of new rule 30e‑3 under the Investment Company Act of 1940, which will provide funds with an optional “notice and access” delivery method for making their shareholder reports accessible to investors on a publicly available website;
  • Second, the issuance of a release that requests public comment from fund investors on how to enhance the design, delivery and content of fund disclosure, including shareholder reports and prospectuses; and
  • Third, the issuance of a release that requests public comment about the current framework for processing fees charged by intermediaries for delivering fund shareholder reports and other materials to investors.

Rule 30e-3

Rule 30e-3 was proposed in 2015, and since that time, the Commission has benefitted from robust public comment and engagement from a diverse group of interested parties.

In my view, the rule 30e-3 is an important and positive step toward modernizing the delivery of fund disclosures. Rule 30e‑3 requires that shareholder reports and other specified documents be available to investors on a publicly available website. Website accessibility and electronic documents provide investors numerous tools that are not available with paper documents. They can offer improved search functions, the ability to hyperlink and move quickly within a document, and the option to more conveniently save a document for future reference. And, this is only the beginning of the Commission exploring the ways that electronic documents can be more interactive and ultimately useful for investors.

This rule also will help funds save on printing and mailing costs, which are ultimately borne by fund investors. Retail investors bear increasing responsibility to save for retirement, college, and other important financial goals. All cost savings helps investors get closer to meeting those goals.

The new rule includes several modifications from the proposal that are intended to improve investor protection, including an extended transition period and important protections for investors who wish to receive their shareholder reports in paper.

First, it is important that investors receive advance notice of the coming change and ample opportunity to let funds and intermediaries know how they would like to receive their reports. To meet this objective, the recommendation provides an extended transition period. The earliest a fund could begin to rely on the rule would be January 1, 2021, and then only if the fund has included prominent statements on each prospectus, summary prospectus, and annual and semi-annual report sent to investors during the prior two-year period. This extended transition period should help prevent investors, who want to receive their reports in paper, from experiencing any interruption in paper delivery. Of course, an investor could also switch to paper delivery at any later time, too, if he or she wishes.

Second, for investors who wish to receive their shareholder reports in paper, it is important that the process of requesting paper be convenient and easy. So, the rule provides that investors can elect to receive paper reports for all future deliveries by simply calling a toll-free telephone number, as well as any other methods that will allow investors to easily communicate their preference. This preference only has to be communicated once — and will apply to all current and future funds held in that account.

Third, the rule provides additional flexibility to funds and intermediaries to allow them to better communicate with investors. For example, the rule allows the 30e-3 notice to include content from the shareholder report. This approach draws upon certain aspects of the Commission’s Investor Advisory Committee recommendation.

Requests for Comment

The first request for comment seeks public input, particularly from individual investors, on enhancing the fund disclosures themselves. This is a first major step in a long-term initiative to improve the investor experience by focusing on the design, delivery, and content of fund disclosure for the benefit of Main Street investors. Fund disclosures are especially important because millions of American investors invest in funds to help them reach key financial goals, such as saving for retirement and their children’s educations.

The request for comment examines whether funds present information in a way that works best for investors. It requests feedback directly from retail fund investors on the design, delivery, and content of fund disclosures, like prospectuses, shareholder reports, and advertisements. It also solicits feedback on how to harness technology to make disclosure more interactive and personalized — and better meet the needs of 21st century investors. Importantly, the release includes a short “Feedback Flier” designed specifically for retail investors to enable them to provide input in a streamlined manner. I look forward to the input from retail investors, as well as others that wish to comment on this critical, investor-focused initiative.

In connection with rule 30e-3’s proposal, questions were raised about the framework under New York Stock Exchange and self-regulatory organization rules for processing fees that intermediaries charge funds to forward fund shareholder reports, prospectuses, and other materials to investors. The second request for comment will gather information on the assessment and appropriateness of these processing fees in advance of developing any recommendations for rulemaking or other Commission activity. I look forward to the thoughtful engagement of all interested stakeholders on this topic. Yesterday, the Commission also voted to affirm the approval of amendments to New York Stock Exchange rules that would limit and clarify the processing fees that may be charged in connection with shareholder report deliveries under rule 30e‑3.

Collaborative Efforts of SEC Staff

I would like to thank the staff for their dedication and thoughtful work on these releases. They reflect input from the Division of Investment Management, the Division of Economic and Risk Analysis, and the Office of General Counsel, as well as the Division of Trading and Markets, the Division of Corporation Finance, the Office of Investor Education and Advocacy, the Office of the Investor Advocate, and the Office of Compliance Inspections and Examinations. This was truly a collaborative effort, with coordination across the agency.

Specifically, I would like to thank:

  • Dalia Blass, Paul Cellupica, Barry Miller, Michael Kosoff, Jennifer McHugh, Michael Pawluk, Matthew DeLesDernier, John Lee, and Angela Mokodean in the Division of Investment Management. I’d also like to thank Diane Blizzard, formerly the Associate Director of the Division’s Rulemaking Office, who left the agency last week after eighteen years of service.

I would also like to thank:

  • Bob Stebbins, Meridith Mitchell, Lori Price, Marie-Louise Huth, Robert Teply, Cathy Ahn, Robert Bagnall, Maureen Johansen, Monica Lilly, and Daniel Matro in the Office of the General Counsel;
  • Chyhe Becker, Vanessa Countryman, Hari Phatak, Lauren Moore, Christof Stahel, Michael Willis, Anzhela Knyazeva, Jeremy Ko, and Hermine Wong in the Division of Economic and Risk Analysis. I would also like to thank Jeffrey Harris, the former Chief Economist of the Division of Economic and Risk Analysis;
  • Brett Redfearn, Heather Seidel, David Shillman, Lourdes Gonzalez, Sharon Lawson, Michael Bradley, John Fahey, Alicia Goldin, Eugene Hsia, Moshe Rothman, and Devin Ryan in the Division of Trading and Markets;
  • David Fredrickson, Elizabeth Murphy, Jonathan Ingram, Felicia Kung, Raymond Be, and Carolyn Sherman in the Division of Corporation Finance;
  • Owen Donley, Jill Felker, and Vanessa Meeks in the Office of Investor Education and Advocacy;
  • Rick Fleming, Marc Sharma, and Brian Scholl in the Office of the Investor Advocate; and
  • Jane Jarcho, Daniel Kahl, Kristin Snyder, Katherine Feld, and Christopher Mulligan in the Office of Compliance Inspections and Examinations.

I also want to thank my fellow Commissioners and their staff for their engagement on these releases.

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