PAPERWORK REDUCTION ACT SUBMISSION
A. Justification
1. Necessity of Information Collection
The Securities Exchange Act of 1934, as amended (“Act”)1 sets forth a scheme of self-regulation under which national securities exchanges, national securities associations, and registered clearing agencies have primary responsibility for regulating their members or participants. Under this scheme, the Commission's role is primarily one of oversight; the Act charges the Commission with the responsibility for assuring that each of these organizations (“self-regulatory organizations” or “SROs”) complies with and advances the policies of the Act. As part of its oversight responsibilities, the Commission is required to review changes in the rules of the various self-regulatory organizations.
Section 19(b) of the Act, as amended by the Securities Act Amendments of 1975, requires each SRO to file with the Commission copies of any proposed amendment to its constitution, articles of incorporation, by-laws, rules or similar instrument or any interpretation of these instruments (collectively, “rule changes”). The Commission is required to publish notice of the filing, and then either to approve the rule change or institute proceedings to determine whether the rule change should be disapproved. Rule 19b-4 implements the requirements of Section 19(b) of the Act by requiring SROs to file their rule changes on Form 19b-4 and by clarifying which actions by SROs must be filed pursuant to Section 19(b). Rule 19b-4 was adopted in 1975 pursuant to Sections 2, 3, 6, 11A, 15A, 15B, 17, 19, and 23 of the Act.
The Commission has exercised its rulemaking authority2 by promulgating paragraphs (b), (c) and (d) of Rule 19b-4 under the Act, which interpret the terms “stated policy, practice or interpretation” and “proposed rule change.” Paragraph (c) of Rule 19b-4 provides that certain stated policies, practices and interpretations of SROs do not constitute proposed rule changes. Specifically, a “stated policy, practice or interpretation” of an SRO is not a proposed rule change if it is reasonably and fairly implied by an existing SRO rule. The Commission then amended Rule 19b-4 by adding paragraph (e) to state that the listing and trading of new derivative securities products would not be proposed rule changes so long as there are existing SRO trading rules, procedures, surveillance programs, and listing standards.
The Commission believes that, when the Commission has approved, pursuant to Section 19(b) of the Act, an SRO’s trading rules, procedures, surveillance programs, and listing standards for the product class that would include the new derivative securities product, the listing and trading of the new derivative securities product may be reasonably and fairly implied by the SRO’s existing trading rules, procedures, surveillance programs, and listing standards. The Commission therefore deemed the listing and trading of new derivative securities products not to be proposed rule changes pursuant to Rule 19b-4(b)(1) under certain conditions.
Certain provisions of Rule 19b-4(e) contain “collection of information requirements” within the meaning of the Paperwork Reduction Act of 19953 through the use of Form 19b-4(e) under the Act. The collection of information requires an SRO to submit a completed one-page sheet of nine questions within five days of beginning to trade a new derivative securities product through its facilities. Form 19b-4(e) asks factual information regarding the characteristics of the subject new derivative securities product and the securities underlying it. Such questions do not require any analysis or exhibits.
2. Purpose of, and Consequences of Not Requiring, the Information Collection
Rule 19b-4(e) permits SROs to immediately list and trade a new derivative securities product so long as such product is in compliance with the criteria of Rule 19b-4(e) under the Act. However, in order for the Commission to maintain an accurate record of all new derivative securities products traded through the facilities of SROs and to determine whether an SRO has properly availed itself of the permission granted by Rule 19b-4(e), it is necessary that the SRO maintain, on-site, a copy of Form 19b-4(e) under the Act. Rule 19b-4(e) requires SROs to file a summary form, Form 19b-4(e), and thereby notify the Commission, within five business days after the commencement of trading a new derivative securities product. In addition, the Commission reviews SRO compliance with Rule 19b-4(e) through its routine inspections of the SROs.
Role of Improved Information Technology and Obstacles to Reducing
Burden
The compilation and filing of the data required reflects the complexity of the SROs’ businesses. Thus, improved technology would not reduce the burden.
4. Efforts to Identify Duplication
Not applicable. The Commission believes that no duplication of the requirements of Rule 19b-4(e) exists.
5. Effects on Small Entities
Not applicable. The SROs who are required to respond to the collection of information are not small businesses.
6. Consequences of Less Frequent Collection
The Commission could not collect the information less frequently. To do so would deprive the Commission of the information that it needs on new derivative securities products to comply with its statutory oversight obligations.
7. Inconsistencies With Guidelines in 5 CFR 1320.5(d)(2)
The information collection is consistent with the general information collection guidelines imposed for public protection as set forth in 5 CFR 1320.5(d)(2).
8. Consultation Outside the Agency
Rule 19b-4(e) and Form 19b-4(e) were adopted after appropriate public notice and comment.
9. Payment or Gift to Respondents
Not applicable. No payments or gifts are required to be made or are made to respondents.
10. Assurance of Confidentiality
Not applicable. Any collection of information pursuant to Rule 19b-4(e) and Form 19b-4(e) under the Act would not be held confidential and would be available for public inspection from the Commission upon request.
11. Sensitive Questions
Not applicable. No questions of a sensitive nature are involved.
12. Estimate of Respondent Reporting Burden
There are currently 14 SROs which may be subject to the reporting requirements of Rule 19b-4(e). In proposing the adoption of Rule 19b-4(e) and Form 19b-4(e), Commission staff estimated that each respondent would require two hours to complete and submit a Form 19b-4(e), and that there would be an aggregate of 45 such filings per year by all respondents. The Commission’s experience since the adoption of Rule 19b-4(e) and Form 19b-4(e), however, has been that the total time required to complete each filing is closer to one hour, and that the expected number of such filings in a year is closer to 50. The Commission estimates, therefore, that, based on an average of 50 annual responses from the 14 respondents, each response taking approximately one hour to complete, the current average reporting burden is 3.57 hours per respondent, or 50 hours annually for all respondents.
The Commission continues to calculate the related costs of completing each Form 19b-4(e) based on the information supplied by the SROs used in computing their overall burden under the related requirements of Form 19b-4. The Commission estimates, therefore, that an SRO will incur a cost of $239.50 for each Form 19b-4(e) that its submits, broken down as follows:
1/2 hour legal work of legal work at $310/hour4 $155
1/2 hour of clerical work at work at $169/hour5 per hour $84.50
$239.50
The staff estimates that the overall related cost to each respondent of complying with Rule 19b-4(e) is $855.01 annually ($239.50 per response multiplied by 3.57 responses annually), or $11,975 in aggregate annually for all respondents ($855.01 annually per respondent multiplied by 14 total respondents). This represents an increase in the cost to all respondents from 2004 because the cost per hour of labor has been revised pursuant to the new SIA Report on Management & Professional Earnings in the Securities Industry 2005 publication, modified to account for an 1800-hour work-year and multiplied by 5.35% to account for bonuses, firm size, employee benefits and overhead.
13. Estimate Of Total Annualized Cost Burden
Not applicable. Because the proposed amendments clarify existing practice under Rule 19b-4(e), it is not anticipated that respondents will have to incur any capital and start-up costs, nor any additional operational or maintenance costs (other than as provided in Item 12), to comply with the collection of information.
Additionally, the Commission notes that Rule 19b-4(e) has not imposed new recordkeeping burdens on the SROs. Paragraph (2)(i) of Rule 19b-4(e) reiterates the SROs’ existing recordkeeping burdens under Rule 17a-1 of the Act.
14. Estimate Of Cost To The Federal Government
Costs to the Federal Government in administering Rule 19b-4(e) result from appropriate regulatory staff time and related overhead costs devoted to reviewing the filings submitted by respondents. In fiscal year 2005, the staff estimates that it devotes approximately 50 hours of staff time to the annual administration of Rule 19b-4(e), which, at $87/hour6, has a related annual cost of $4,350.
15. Explanation of Changes in Burden
The Commission staff has not revised its estimate of the overall number of responses expected annually or the time to complete each response since the collection of information was last submitted to OMB for approval in 2004. The Commission has adjusted the per hour costs related to the labor involved in responding to Form 19b-4 based on updated estimates of current costs in the labor market.
16. Information Collection Planned for Statistical Purposes
Not applicable. The information is not published for statistical use.
17. Explanation as to Why Expiration Date Will Not Be Displayed
Not applicable.
18. Exceptions to Certification
None.
B. Collection of Information Employing Statistical Methods
Not applicable. The collection of information does not employ statistical methods.
1 15 U.S.C. 78a et seq.
2 Sections 3(a)(26), 3(a)(27), 3(a)(28) and Section 3(b), of the Act provide that the Commission may promulgate rules regarding, among other things, “stated policies, practices and interpretations” of SROs. Section 19(b) authorizes the Commission to promulgate rules regarding “proposed rule changes” of SROs. Section 23(a) of the Act provides that the Commission shall have power to make such rules and regulations as may be necessary or appropriate to implement the provisions of the Act for which it is responsible or for the execution of the functions vested in it by the Act, and may for such purposes classify persons, securities, transactions, statements, applications, reports and other matters within its jurisdiction, and prescribe greater, lesser or different requirements for different classes thereof. (See e.g., Securities Exchange Act Release No. 34140 (June 1, 1994) 59 FR 29393 (June 7, 1994)). In addition, in 1996, Congress granted the Commission the authority, under Section 36(a), to exempt any class of person, security or transaction from any provision of the Act. Pub. L. No. 104-290, 110 Stat. 3416 (1996).
3 44 U.S.C. 3501 et seq.
4SIA Report on Management & Professional Earnings in the Securities Industry 2005, modified to account for an 1800-hour work-year and multiplied by 5.35% to account for bonuses, firm size, employee benefits and overhead.
5SIA Report on Management & Professional Earnings in the Securities Industry 2005, modified to account for an 1800-hour work-year and multiplied by 5.35% to account for bonuses, firm size, employee benefits and overhead.
6Based on an attorney at SK-14/6, as adjusted for special SEC pay rates, fringe benefits, and includes overhead.
| File Type | application/msword |
| File Title | PAPERWORK REDUCATION ACT SUBMISSION |
| Last Modified By | martinsons |
| File Modified | 2007-01-23 |
| File Created | 2007-01-23 |