2011 Rule 17f-2(e) justification (2)

SUPPORTING STATEMENT
for the Paperwork Reduction Act
Current Information Collection Submission
Rule 17f-2(e)
A. JUSTIFICATION
1. Necessity of Information Collection
Congress added Section 17(f) to the Securities Exchange Act of 1934 (“Exchange Act”)1
in 1975 as part of the Securities Acts Amendments of 19752 in order to respond to a large
number of securities thefts that occurred in the late 1960s. Testimony before the Senate
Permanent Subcommittee of Investigations between 1971 and 1974 indicated that the trafficking
in stolen securities certificates was profitable for organized crime and that the failure to have
available to the financial community a means of easily identifying security-risk personnel was a
contributing factor to that problem. Specifically, Section 17(f)(2) requires every member of a
national securities exchange, broker, dealer, registered transfer agent, and registered clearing
agency to require that each of its partners, directors, officers, and employees be fingerprinted and
submit such fingerprints to the U.S. Attorney General for identification and processing. This
section also authorized the Commission to, by rule, exempt from the provisions of this paragraph
any class of partners, directors, officers, and employees of any such member, broker, dealer,
registered transfer agent, and registered clearing agency.
On March 16, 1976, the Commission adopted Rule 17f-2 under the Exchange Act. The
general purposes of Rule 17f-2 are: (1) to identify security risk personnel (i.e., persons with
criminal history records for serious offenses); (2) to provide criminal record information so that
employers can make fully informed employment decisions; (3) to deter persons with a criminal
record from seeking employment or association with covered entities. The rule attempts to
achieve these purposes primarily by requiring, subject to certain exceptions, every partner,
director, officer, and employee of every member of a national securities exchange, broker, dealer,
registered transfer agent, and registered clearing agency to be fingerprinted and submit such
fingerprints to the U.S. Attorney General or its designee.
Paragraph (e) of the rule requires members of national securities exchanges, brokers,
dealers, registered transfer agents, and registered clearing agencies (“covered entities”) that claim
an exemption from the fingerprint requirements of Rule 17f-2 to prepare and maintain a
statement supporting their claim for exemption and specifies the information that must be
included in these statements.

1

15 U.S.C. 78q(f).

2

Pub. L. No. 94-29, 89 Stat. 97 (June 4, 1975).

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2. Purpose and Use of the Information Collection
The Commission uses the information filed pursuant to Rule 17f-2(e) to assist the
Commission and other regulatory agencies to monitor and review the appropriateness of the
covered entities’ claims of exemptions to fingerprinting its personnel. Without Rule 17f-2(e), the
Commission could not perform its duties as statutorily required.
3. Consideration Given to Information Technology
Rule 17f-2(e)(2) requires covered entities to make and keep current a copy of the notice
required by Rule 17f-2(e) in an easily accessible place at the organization’s principal office and
at the office employing the persons for whom exemptions are claimed and shall be made
available upon request for inspection by the Commission, appropriate regulatory agency (if not
the Commission) or other designated examining authority. The covered entities typically utilize
computer systems to make and keep the required copies of such notices.
4.

Duplication

No other reporting requirement with respect to the information required to be reported
under Rule 17f-2(e) currently exists.
5. Effect on Small Entities
No information is requested from small entities.
6. Consequences of Not Conducting Collection
If information were collected less frequently, the Commission’s ability to monitor
compliance of registered clearing agencies would be weakened.
7. Inconsistencies with Guidelines in 5 CFR 1320.8(d)
There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.8(d).
8. Consultations Outside the Agency
The required Federal Register notice with a 60-day comment period
soliciting comments on this collection of information was published. No public
comments were received.
9. Payment or Gift
There are no payments or gifts to respondents.

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10. Confidentiality
Not applicable; no assurance of confidentiality is provided by Rule 17f-2(e). The rule
does not require respondents to submit personally-identifying information.
11. Sensitive Questions
No questions of a sensitive nature are asked.
12.

Burden of Information Collection

Based on our experience with Rule 17f-2(e), we estimate that approximately 75
respondents will incur an average burden of 30 minutes per year to comply with this rule, which
represents the time it takes for a staff person at a covered entity to properly document a claimed
exemption from the fingerprinting requirements of Rule 17f-2 (.4 hrs, constituting a reporting
type of burden), and to properly retain that document according to the entities record retention
policies and procedures (.1 hrs, constituting a recordkeeping type of burden). The total annual
burden for all covered entities is approximately 38 hours (75 entities times .5 hours, rounded up).
13. Costs to Respondents
The work associated with the burden of 38 hours per year is typically performed by the
covered entities’ staff. There is no cost to respondents other than the internal wage or salary costs
associated with generating and maintaining the documentation as described in Item 12, above.
14. Costs to Federal Government
Federal Government costs from Rule 17f-2(e) are appropriate regulatory agency staff time
and related overhead needed to check during periodic inspections that the notices are being kept.
Costs to the Federal Government due to Rule 17f-2(e) are therefore zero.
15. Changes in Burden
While there are no changes to the overall burden, the burden types have been amended, in
that the total 0.5 hrs burden is comprised of 0.4 hrs of a reporting burden (reflecting generation of
the documentation by a staff person at a covered entity), and 0.1 hrs of a recordkeeping burden
(representing the time and resources for the respondent to properly retain that document
according to the respondent’s record retention policies and procedures).
16. Information Collection Planned for Statistical Purposes
The collection of information for Rule 17f-2(e) is not utilized for statistical purposes.

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17. Display of OMB Approval 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
This collection complies with the requirements in 5 CFR 1320.9.
B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.