Rule 17f-1(g) justification

PAPERWORK REDUCTION ACT SUBMISSION

17 CFR 240.17f-1(g)

SUPPORTING STATEMENT

SUPPORTING STATEMENT – Rule 17f-1(g)

A. Justification

(1) Necessity for Information Collection

The Commission, pursuant to Sections 2, 17(f), 19(a), and 23 of the Securities Exchange Act of 1934 (“Act”), adopted Rule 17f-1 on December 6, 1976. This Rule implemented Section 17(f)(1) of the Act by establishing reporting and inquiry requirements regarding missing, lost, stolen, or counterfeit securities. Section 17(f)(1) of the Act was a response by Congress to the large number of securities thefts that had occurred in recent years. Testimony at the hearings conducted before the Senate Permanent Subcommittee on Investigation between 1971 and 1974 indicated that the trafficking in stolen securities was a profitable area for organized crime and that the failure to have available to the financial community a means of easily identifying missing, lost, stolen or counterfeit certificates was a contributing factor to the increase in, and ease of, negotiating such securities. The purpose of Section 17(f)(1) and Rule 17f-1 thereunder is to create a central data base of information related to missing, lost, stolen, or counterfeit securities and to make available to covered institutions information that promptly identifies those securities, removing them from the stream of commerce and facilitating the capture of those who engage in such traffic.

Paragraph (g) of Rule 17f-1 requires that all reporting institutions (i.e., every national securities exchange, member thereof, registered securities association, broker, dealer, municipal securities dealer, registered transfer agent, registered clearing agency, participant therein, member of the Federal Reserve System, and bank insured by the FDIC) maintain and preserve a number of documents related to their participation in the Lost and Stolen Securities Program (“Program”) under Rule 17f-1. The following documents must be kept in an easily accessible place for three years, according to paragraph (g): (1) copies or all reports of theft or loss (Form X-17F-1A) filed with the Commission’s designee; (2) all agreements between reporting institutions regarding registration in the Program or other aspects of Rule 17f-1; and (3) all confirmations or other information received from the Commission or its designee as a result of inquiry.

(2) Purposes of and Consequences of Not Requiring the Collection of Information

Reporting institutions utilize these records and reports (a) to report missing, lost, stolen or counterfeit securities to the database, (b) to confirm inquiry of the database, and (c) to demonstrate compliance with Rule 17f-1. The Commission and the reporting institutions’ examining authorities utilize these records to monitor the incidence of thefts and losses incurred by reporting institutions and to determine compliance with Rule 17f-1. If reporting institutions did not retain such records, compliance with Rule 17f-1 could not be monitored effectively.

(3) Role of Improved Information Technology and Obstacles to Reducing Burden

Most transfer agent processing systems are automated and those automated systems enable transfer agents to easily identify and to retain records under the Rule. There are no legal or technical obstacles that, if removed, would reduce burdens.

(4) Efforts to Identify Duplication

No other reporting requirement with respect to the information required to be reported under the Rule currently exists.

(5) Effect on Small Entities

The minimal record retention requirements of Rule 17f-1(g) do not require small entities to create records, but simply to retain existing records.

(6) Consequences of Less Frequent Collection

Rule 17f-1(g) does not require periodic collection, but does require retention of records generated as a result of compliance with Rule 17f-1. Any less frequent reporting or inquiry under Rule 17f-1 would expose reporting institutions to significant financial loss.

(7) Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

The collection of information is not inconsistent with 5 CFR 1320.5(d)(2).

(8) Consultations Outside the Agency

Prior to adopting Rule 17f-1(g), the Commission communicated with, and requested the views of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation. The Commission communicates on a continuous basis with these organizations, and has not received any indication of major problems with Rule 17f-1(g). The Commission also communicates with many registered transfer agents on a continuous basis and has not discovered any major problems with Rule 17f-1(g).

(9) Payment of Gift to Respondents

Not applicable.

(10) Assurance of Confidentiality

Under Section 17(b) and (f) of the Act, the information required by Rule 17f-1(g) is available to the Commission and Federal bank regulators for examinations or collection purposes. Rule 0-4 of the Act deems such information to be confidential.

(11) Sensitive Questions

No questions of a sensitive nature are asked.

(12) Estimate of Respondent Reporting Burden

The Commission estimates that there are 25,628 reporting institutions (respondents) and, on average, each respondent would need to retain 33 records annually, with each retention requiring approximately 1 minute. The total estimated annual burden is 14,095.4 hours (25,628 x (33 records + 1 minute/response x 1 hour/60 minutes) = 14,095.4).

As indicated above, the Commission estimates that each respondent must spend 33 minutes per year (33 records x 1 minute/response) to retain information under the rule. Assuming an average hourly cost for clerical work of $22.00, the average total yearly record retention cost for each respondent would be $12.10. Based on these estimates, the total annual cost for the estimated 25,628 reporting institutions would be approximately $310,099.

(13) Estimate of Total Annualized Cost Burden

Not applicable. The Commission does not anticipate that respondents would have to incur any capital or startup costs, nor any additional operational or maintenance costs (other than as provided in Item 12), to comply with the collection of information requirements required by Rule 17f-1(g).

(14) Estimate of Cost to Federal Government

There is no cost to the Federal government from Rule 17f-1(g).

(15) Explanation of Changes in Burden

Aggregate burden hours have decreased by 47.3 hours (14,142.7 – 14,095.4 = 47.3), due to the decrease in the number of reporting institutions that have registered in the Lost and Stolen Securities Program. The aggregate costs have increased by $27,245 ($310,099 - $282,854 = $27,245), due to increase in the average hourly costs for clerical work, as partially offset by the decrease in the number of reporting institutions that have registered with the Program.

(16) Information Collection Planned for Statistical Purposes

Not applicable. This information is not published for statistical use.

(17) Explanation as to Why Expiration Date Will Not be Displayed

Not applicable. The Commission is not seeking approval not to display the expiration date for OMB approval.

(18) Exceptions to Certification

Not applicable. The Commission is not seeking an exception to the certification statement.

B. Collection of Information Employing Statistical Methods

Not applicable. No statistical methods are employed in connection with the collections of information.

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