PRA Supporting Statement for Rule 19b-4 Form 19b-4

PAPERWORK REDUCTION ACT SUBMISSION
Rule 19b-4 and Form 19b-4
SUPPORTING STATEMENT
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C.
Section 3501 et seq.
A.

Justification
1.

Necessity of Information Collection

The Securities Exchange Act of 1934 (“Exchange Act”) provides a framework for selfregulation within which national securities exchanges, national securities associations, and
registered clearing agencies have primary responsibility for regulating their members or
participants, and the Municipal Securities Rulemaking Board is responsible for establishing rules for
certain transactions in municipal securities. The Exchange Act charges the Commission with
supervising each of these organizations (generally referred to as self-regulatory organizations or
“SROs”) and with assuring that each complies with and advances the policies of the Exchange Act.
As part of its oversight responsibilities, the Commission is required to review changes in the rules of
the various SROs.
Section 19(b) of the Exchange Act, as amended, requires each SRO to file with the
Commission, in accordance with such rules as the Commission may prescribe, copies of any
proposed rule, or any proposed change in, addition to, or deletion from the rules of such SRO
(collectively, a “proposed rule change”) accompanied by a concise general statement of the basis
and purpose of such proposed rule change. Rule 19b-4 currently requires an SRO seeking
Commission approval for a proposed rule change to provide the information stipulated in Form
19b-4. Form 19b-4 currently requires a description of the terms of a proposed rule change, the
proposed rule change’s impact on various market segments, and the relationship between the
proposed rule change and the SRO’s existing rules. Form 19b-4 also requires an accurate
statement of the authority and statutory basis for, and purpose of, the proposed rule change, the
proposal’s impact on competition, and a summary of any written comments received by the SRO
from SRO members. An SRO also is required to submit Form 19b-4 to the Commission
electronically, post a proposed rule change on its public website within two business days of its
filing, and to post and maintain a current and complete set of its rules on its website.
The Commission is required to publish notice of a proposed rule change together with the
terms of substance of the proposed rule change or a description of the subjects and issues involved,
and to give interested persons an opportunity to submit written data, views, and arguments
concerning such proposed rule change. The Commission must either approve or disapprove a
proposed rule change not later than 45 days after the date of publication in the Federal Register,
which publication must be made by the Commission as soon as practicable. The Commission may,
with the consent of the SRO, extend the time period for approval or disapproval by up to an
additional 45 days if it determines that a longer period is appropriate and publishes the reasons for
the determination. In order to approve a proposed rule change, the Commission must make an

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affirmative finding that the proposed rule change is consistent with the Exchange Act and the rules
thereunder. Section 19(b) also provides that certain administrative or interpretive proposed rule
changes may become effective on filing, subject to the Commission's authority to temporarily
suspend the proposed rule change within sixty days of filing.
2.

Purpose and Use of the Information Collection

Rule 19b-4 implements the requirements of Section 19(b) of the Exchange Act by requiring
SROs to file their proposed rule changes on Form 19b-41 and by clarifying which actions taken by
SROs are deemed proposed rule changes and so must be filed pursuant to Section 19(b). Rule 19b4 and Form 19b-4 were adopted in 1975 pursuant to Sections 2, 3, 6, 11A, 15A, 15B, 17, 19, and 23
of the Act and were significantly amended in 1980 to clarify and simplify the filing process.
Form 19b-4 is designed to provide the Commission with the information necessary to
determine, as required by the Exchange Act, whether the proposed rule change is consistent with the
Exchange Act and the rules thereunder. The information received is also made available to
members of the public who may wish to comment on a particular proposed rule change.
The federal securities laws generally require that, before an SRO's proposed rule change
may be approved, the Commission must make certain required findings. Also, if the
Commission determines that a proposed rule change, which became effective on filing, does not
meet the statutory standards, it may summarily temporarily suspend such proposed rule change.
3.

Consideration Given to Information Technology

The Commission and the SROs continue to improve their systems for information gathering,
storage, and retrieval through increasing use of computer technology. Some of these improvements,
such as increased use of e-mail in correspondence between the Commission and the SROs, have
improved the efficiency of the Commission’s oversight role. However, the process of compiling,
preparing, and filing of the data required for review of each proposed rule change reflects the
complexity of the SROs' business. The Commission believes that use of improved technology,
specifically electronic filing of proposed rule changes, and posting of proposed rule changes and
SRO rules on SRO web sites has and will continue to reduce the respondents’ burden in making
these filings. Currently, the Electronic Form 19b-4 Filing System (“EFFS”) is used by SROs to
file proposed rule changes electronically with the Commission pursuant to Exchange Act Section
19(b), and SRTS is the internal Commission system used to manage SRO proposed rule changes.
4.

Duplication

Not applicable. Each proposed rule change by an SRO must be treated on an individual
basis.
5.
1

Reducing the Burden on Small Entities

17 CFR 249.819.

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Not applicable. None of the SROs subject to the collection of information is a small entity,
as that term applies to this Item 5.
6.

Consequences of Not Conducting the Collection

The collection of information is required with respect to any proposed rule change described
by Rule 19b-4. Any less frequent collection would deprive the Commission of the information on
proposed rule changes it needs to comply with its statutory 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.

Consultations Outside the Agency

Each proposed rule change is published in the Federal Register for public comment. The
comment period is generally 21 days. In addition, the Commission shall not approve such proposed
rule change prior to the thirtieth day after the date of publication of notice of the filing thereof,
unless it finds good cause for doing so and publishes its reasons.
For this information collection, the required Federal Register notice with a 60-day
comment period soliciting comments was published. No public comments were received.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

Not applicable. An SRO's proposed rule change, when filed with the Commission, is public
information.
11.

Sensitive Questions

Not applicable. No questions of a sensitive nature are involved.
12.

Estimate of Respondent Reporting Burden

An SRO proposed rule change is generally filed with the Commission after an SRO's
staff has obtained approval by its board of directors. The time required to complete a filing varies
significantly and is difficult to separate from the time an SRO spends in developing internally the
proposed rule change. In 2008, OMB approved a request to extend the existing collection of
information provided for in Rule 19b-4 and Form 19b-4. See 73 FR 5245 (January 29, 2008)
(Submission for OMB review; comment request). The PRA analysis conducted in 2008
estimated that the average time to complete a proposed rule change filing was 23.22 hours,

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without differentiating between average and complex rule filings.2
In fiscal year 2009, 25 SRO respondents3 filed 1,405 rule change proposals subject to the
current collection of information. Of this total, the Commission estimates that 60 proposed rule
changes could be characterized as novel or complex and 1,345 proposed rule changes could be
characterized as average. The Commission estimates that the total annual reporting burden for
filing proposed rule changes with the Commission pursuant to Rule 19b-4 and Form 19b-4 will
be 53,470 hours ((1,345 X 34 hours) + (60 X 129 hours)). Thus, on average, the reporting burden
for filing proposed rule changes is approximately 38.0569 hours (53,470 hours/(1345 average
rule change proposals + 60 complex rule change proposals)).
The Commission previously estimated that an SRO would take four hours to post
proposed rule changes, and amendments under Exchange Act Section 19(b) on its website and
four hours to update the posted SRO rules on its website once the proposed rules become
effective.4 The Commission believes that these estimates remain valid. In addition, of the 1,405
proposed rule changes filed in fiscal year 2009, 1,071 were approved or not abrogated.5
Accordingly, the total annual third-party disclosure burden for SROs to post proposed rule
changes on their websites and to update their posted rules on their websites once the proposed
2

In a PRA analysis conducted in 2004 in connection with amendments to Rule 19b-4 and
Form 19b-4, the Commission estimated that 34 hours is the amount of time that would be
required to complete an average proposed rule change filing and 129 hours is the amount
of time required to complete a novel or complex proposed rule change. See Exchange
Act Release No. 50486 (October 4, 2004), 69 FR 60287 (October 8, 2004). In light of the
changes made to Exchange Act Section 19(b) pursuant to Section 916 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which provides
for new deadlines by which the Commission must publish and act upon proposed rule
changes, the Commission has decided to revert to the figures contained in the PRA
analysis conducted in 2004 and preliminarily estimates that it will take 34 hours to
complete an average proposed rule change filing and 129 hours to complete a complex
proposed rule change filing. Specifically, the shortened time period by which proposed
rule changes will be reviewed by the Commission is likely to cause the SROs to spend
additional time preparing and checking the filing, as there will be less time for them to
correct a filing after it has been made, justifying the use of the more conservative
estimates.

3

Currently, there are 25 registered SROs.

4

See supra note 2.

5

Previously, the Commission was able to “abrogate” an immediately effective filing and
require the SRO to refile the proposal for consideration, notice, and public comment
pursuant to Section 19(b)(2). The Dodd-Frank Act eliminated the concept of
“abrogation.” Instead, an immediately effective filing may be temporarily suspended, in
which case the Commission would be required to institute proceedings to determine
whether to disapprove the proposal.

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rules become effective will be 9,904 hours ((1,071 approved or not temporarily suspended rules
X four hours) = 4,284 hours) + ((1,405 rule change proposals X four hours) = 5,620 hours).
The table below summarizes, the Commission’s preliminarily estimates of the total
hourly reporting burden pursuant to Rule 19b-4 and Form 19b-4.
Nature of Information Collection Burden

Annualized Time Burden Estimate

Proposed rule change filings

53,470

Posting of proposed rules changes and updating
posted rules on websites once the proposed rules
become effective

9,904

TOTAL

63,374

13.

Estimate of Total Annual Cost Burden
The Commission does not expect any additional material costs on SROs.
14.

Estimate of Cost to the Federal Government

The Commission estimates that the cost of reviewing approximately 1405 filings pursuant to
Section 19(b) and Rule 19b-4 is $5,772,300. This figure was derived as follows:
Review by Type of Filing
average filings
1345 x 20 hours legal review time
complex filings
60 x 600 hours legal review time
total legal review time
Related Cost
62,900 hours of legal work at $87/hour6
printing costs (Federal Register)

26,900 hours
36,000 hours
62,900 hours

$5,264,370
300,000
$5,772,300

The Commission does not expect any additional cost on the Federal Government.

6

Based on an attorney at SK-14, as adjusted for special SEC pay rates, fringe benefits, and
associated overhead.

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15.

Explanation of Changes in Burden

As indicated above in Item 12, the Commission staff has revised its estimate of the time to
complete each response since the collection of information was previously submitted to OMB for
approval. The Commission accordingly adjusted the respondent reporting burden to reflect this
change.
16.

Information Collections Planned for Statistical Purposes

Not applicable. The information collections above are not planned for statistical purposes.
17.

Explanation as to Why Expiration Date Will Not Be Displayed

We request authorization to omit the expiration date on the electronic version of the form
for design and IT project scheduling reasons. The OMB control number will be displayed.
18.

Exceptions to Certification

This collection complies with the requirements in 5 CFR 1320.9.

B.

Collection of Information Employing Statistical Methods
Not applicable. The collection of information does not employ statistical methods.