2011 Rule 17f-2(c) justification

SUPPORTING STATEMENT
for the Paperwork Reduction Act
Information Collection Submission for
“Rule 17f-2(c)”
A. JUSTIFICATION
1. Information Collection Necessity
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 (“covered entities”) to be fingerprinted
and submit such fingerprints to the U.S. Attorney General or its designee.
Paragraph (c) of Rule 17f-2 specifies that the fingerprinting requirement may be satisfied
by submitting fingerprint cards to a registered national securities exchange or to a registered
national securities association pursuant to a plan filed with and declared effective by the
Commission and forwards such fingerprint cards to the U.S. Attorney General or its designee for
identification and processing.

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 Information Collection Use
The purpose of this requirement is driven by the fact that fingerprint cards are processed
by the Federal Bureau of Investigation (the U.S. Attorney General’s designee), and will not
accept or process fingerprint cards directly from submitting organizations.3 Therefore,
Commission approval of plans from registered securities associations (also known as “selfregulatory organizations”) is essential to carry out the Congressional goal to fingerprint securities
industry personnel. The filing of these plans for approval by the Commission assures covered
entities and their personnel that fingerprint cards will be handled responsibly and with due care
for confidentiality.
3. Consideration Given to Information Technology
Rule 17f-2(e)(2) requires covered entities to submit fingerprint cards to the U.S. Attorney
General or its designee (in practice, the FBI). Improved information technology has enabled the
FBI to collect such fingerprint records electronically. There is a strong trend by the securities
industry to take advantage of this as doing so greatly reduces the cost of compliance.
4.

Duplication

Rule 17f-2(b) provides that if fingerprint cards have already been taken pursuant to any
other federal or state law or regulation and are submitted to the U.S. Attorney General or its
designee, the requirements of Section 17(f)(2) of the Act are satisfied.
5. Effect on Small Entities
No information is requested from small entities.
6. Consequences of Not Conducting Collection
If the fingerprint plans were not collected and approved by the Commission, the
Commission will be unable to meet the purposes of Section 17(f)(2) of the Act.
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).

3

In practice, the Financial Industry Regulatory Authority (“FINRA”), which is a registered
national securities association, submits most, if not all, of the fingerprint cards to the FBI on
behalf of the covered entities.

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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 were no payments or gifts to respondents.
10. Confidentiality
The Privacy Act and the Freedom of Information Act provide protection from
unwarranted disclosure.
11. Sensitive Questions
No questions of a sensitive nature are asked.
12.

Burden of Information Collection

We received three years of information dating to 2008 from FINRA, which revealed that
an annual average of 5,000 respondents have submitted an annual average 306,000 sets of
fingerprints (which includes both electronic and paper submissions) to FINRA. We estimate that
it takes approximately 10 minutes to for respondents to collect the fingerprints through FINRA
(electronically or manually by paper) and 5 minutes to submit them to the FBI (again, either
electronically or by paper mail or courier service) in compliance with Rule 17f-2(c), for a total
burden of 15 minutes per submission. Therefore, we estimate the total burden to be 76,500 hours
(306,000 submissions times .25 hours). This represents a reporting burden by the covered entities
to third parties, namely FINRA and the FBI, and is assessed on a per-submission basis.
13. Costs to Respondents
There is a $30.25 fee levied by FINRA ($13) and the FBI ($17.25) to process each set of
fingerprints. Approximately 305,787 fingerprints are submitted annually. Therefore, we estimate
the total annualized cost to the industry to be $9,256,500 (306,000 times $30.25, rounded up to
the nearest $100). This cost reflects FINRA’s and the FBI’s costs associated with generating,
maintaining, and disclosing the fingerprint information.

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14. Costs to Federal Government
The costs to the federal government to administer Rule 17f-2(c) are zero. First, the
fingerprint cards are collected and submitted to the FBI by self-regulatory organizations. Second,
while the Commission periodically reviews new fingerprinting plans that are submitted by SROs
for Commission approval, the costs to the federal government for this aspect of the rule is
composed solely of staff time to review such plans. For purposes of the Paperwork Reduction
Act burden, this cost is considered zero.
15. Changes in Burden
The decrease in time burden since 2008 is due to a change in Agency estimates, based on
the average annual decrease in the number of fingerprint cards submitted by FINRA to the FBI
over the past three years. In addition, more fingerprints are being provided electronically
therefore reducing the annual time burden from 91,989 hours to 76,500 hours. There is a strong
trend by the securities industry to take advantage of this as doing so greatly reduces the cost of
compliance annually $1,782,180.00.
16. Information Collection Planned for Statistical Purposes
The collections of information statistics for Rule 17f-2(c) will not be published.
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.