2013_Rule_15b1-1_Justification_FINAL

SUPPORTI NG STATEM ENT
for the Paperwork Reduction Act I nformation Collection Submission for
Rule 15b1-1 and Form BD

A.

Justification.
1.

Necessity of Information Collection.

The Securities Exchange Act of 1934 (“Exchange Act”) regulates the nation’s securities
markets and the securities professionals who participate in those markets.
Under the Exchange Act, broker-dealers must register with the Securities and Exchange
Commission (“Commission”). Section 15(a)(1) of the Exchange Act provides that it is unlawful
for broker-dealers to solicit or effect transactions in most securities unless they are registered as
broker-dealers with the Commission pursuant to Section 15(b) of the Exchange Act. Section
15B(a)(1) of the Exchange Act also provides that it is unlawful for municipal securities dealers,
other than registered broker-dealers, to solicit or effect transactions in municipal securities unless
they are registered with the Commission as municipal securities dealers pursuant to Section
15B(a)(2) of the Exchange Act. In addition, Section 15C(a)(1) of the Exchange Act provides that it
is unlawful for government securities broker-dealers, other than registered broker-dealers and
certain financial institutions, to solicit or effect transactions in government securities unless they are
registered as government securities broker-dealers with the Commission pursuant to Section
15C(a)(2) of the Exchange Act.
Sections 15(b)(1) and (2) of the Exchange Act authorize the Commission to prescribe by
rule an application form for registration that contains such information about broker-dealers that is
necessary or appropriate in the public interest or for the protection of investors. Section 17(a)(1) of
the Exchange Act authorizes the Commission to require registered broker-dealers and registered
municipal securities dealers to make and file such reports as the Commission determines as
necessary or appropriate in the public interest or for the protection of investors.
To implement these provisions, the Commission adopted Rule 15b1-1 (17 CFR 240.15b11) and Form BD (17 CFR 249.501). Form BD is the uniform application for broker-dealer
registration. Form BD requires the applicant or registrant filing the form to provide the
Commission with certain information concerning the nature of its business and the background of
its principals, controlling persons, and employees. Form BD is designed to permit the Commission
to determine whether the applicant meets the statutory requirements to engage in the securities
business.

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In 1981, the Central Registration Depository (“CRD”) was created as a cooperative effort
between the National Association of Securities Dealers 1 and the North American Securities
Administration Association (“NASAA”), in order to facilitate a “one stop” filing process for
broker-dealers and their associated persons (i.e., only one form had to be filed with the CRD to
satisfy FINRA and participating state registration requirements). The CRD is operated and
maintained by FINRA and is used by the Commission (since 1992), 2 self-regulatory
organizations (or "SROs"), 3 and state securities regulators in connection with registering and
licensing broker-dealers and their associated persons.
2.

Purpose and Use of the Information Collection.

The Commission uses the information disclosed by applicants in Form BD: (1) to
determine whether the applicant meets the standards for registration set forth in the provisions of
the Exchange Act; (2) to develop a central information resource where members of the public may
obtain relevant, up-to-date information about broker-dealers, municipal securities dealers, and
government securities broker-dealers, and where the Commission, other regulators, and SROs may
obtain information for investigatory purposes in connection with securities litigation; and (3) to
develop statistical information about broker-dealers, municipal securities dealers, and government
securities broker-dealers. Without the information disclosed in Form BD, the Commission could
not effectively implement policy objectives of the Exchange Act with respect to its investor
protection function.
3.

Consideration Given to Information Technology

Broker-dealer applicants currently file Form BD electronically with FINRA. FINRA then
provides the Commission with access to the CRD system and provides certain reports to the
Commission, as requested. This method of collecting information reduces the regulatory burden
upon broker-dealers by permitting them to file applications for registration and amendments thereto
once and electronically, rather than requiring the broker-dealer to file multiple applications for
registration and amendments separately with the Commission, SROs, and state regulators.
4.

Duplication.

As noted above, broker-dealer applicants use Form BD to register with the Commission, the
states, and certain SROs. By filing Form BD in one central location, the Commission provides
“one stop” filing for applicants, so that they are not required to file multiple copies of Form BD.

1

The National Association of Securities Dealers merged with New York Stock Exchange Member
Regulation to form the Financial Industry Regulatory Authority (or "FINRA") on July 30, 2007. For the
sake of clarity, as used herein the term "FINRA" will be used to identify both FINRA and its predecessor,
the National Association of Securities Dealers.

2

Securities Exchange Act Release No. 31660 (Dec. 28, 1992), 58 FR 11.

3

The SROs include FINRA and various other entities.

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The requirements to disclose information in Form BD do not duplicate any other federal statute or
rule.
5.

Effect on Small Entities.

On December 31, 2012, 4,612 broker-dealers were registered with the Commission. 4 As
of December 31, 2011 there were 812 small broker-dealers. 5
All broker-dealers, regardless of size, are required to disclose the information requested in
Form BD. Therefore, the proposed amendment to Form BD will affect small broker-dealers
registered or registering with the Commission. The Commission believes, however, that the
disclosure requirements of Form BD are not unduly burdensome, particularly in relation to the
important objectives served by the disclosure of registration information.
6.

Consequences of Not Conducting Collection.

Broker-dealer applicants generally are required to file Form BD only once to register and
are required to file amendments to Form BD only when information originally reported in Form BD
changes or becomes inaccurate. Therefore, less frequent collection for Form BD information would
impair the accuracy of the information available to the Commission and decrease the protections
afforded to investors.
7.

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

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency.

The required Federal Register notice with 60-day comment period soliciting comments on
this collection of information was published. No public comments were received.
9.

Payment or Gift

Not applicable.
10.

Confidentiality.

The information provided on Form BD is not confidential, and is available to the public.

4

Based on Form BD data.

5

Based on data provided to the Commission through Forms X-17A-5.

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11.

Sensitive Questions.

Not applicable.
12.

Burden of Information Collection

Based on the number of initial applications on Form BD the Commission received from
10/1/2008 through 9/30/2012, Commission staff estimates that the Commission will receive
approximately 288 applications on Form BD. 6 While it is likely that the time necessary to
complete Form BD will vary depending on the nature and complexity of the entity’s business,
Commission staff has previously estimated that the average time necessary for a broker-dealer to
complete and file an application for broker-dealer registration on Form BD would be
approximately 2.75 hours, and that estimate has been subject to notice and comment. 7
Consequently, Commission staff estimates that total annual burden hours required for all firms to
complete and file applications for broker-dealer registration on Form BD is approximately 792
hours (2.75 x 288).
Once registered, a broker-dealer must file an amended Form BD when information it
originally reported on Form BD changes or becomes inaccurate. Commission staff has
previously estimated that the average time necessary to complete an amended Form BD would be
approximately 20 minutes, and that estimate has been subject to notice and comment. 8 Based on
the number of amended Forms BD the Commission received from 10/1/2008 through 9/30/2012,
Commission staff estimates that the total number of amendments that the Commission will
receive on Form BD would be approximately 15,602. 9 Therefore, Commission staff estimates
that the total annual burden hours necessary for broker-dealers to complete and file amended
Forms BD is approximately 5,149 hours (15,602 amended Forms BD per year x 0.33 hours per
amendment).
Thus, the Commission estimates that the total industry-wide annual filing burden for
applications and amendments filed with the Commission on Form BD is approximately 5,941
hours (792 + 5,149).

6

The Commission generally classifies Form BD data based on the Federal government's fiscal year, from
October 1 through September 30. The Commission received 313, 359, 306, 262 and 200 broker-dealer
applications on Form BD during the fiscal years ending 2008, 2009, 2010, 2011 and 2012, respectively.
288 = (313 + 359 + 306 + 262 + 200) / 5 years.

7

Securities Exchange Act Release No. 41594 (July 2, 1999), 64 FR 37586.

8

Id.

9

See supra, footnote 5. The Commission received 16,365, 17,247, 15,638, 15,491 and 13,271 amended
Forms BD during the fiscal years ending 2008, 2009, 2010, 2011 and 2012, respectively. 15,602 = (16,365
+ 17,247 + 15,638 + 15,491 + 13,271) / 5 years.

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The staff believes that a broker-dealer would have a Compliance Manager complete and
file both applications and amendments on Form BD, at $279/hour. 10 Consequently, the staff
estimates that the total internal cost of compliance associated with these burden hours for all
broker-dealers is approximately $1,657,539 each year ($279 x 5941).
13.

Costs to Respondents

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.
14.

Costs to Federal Government.

Commission staff estimates that the review and processing of a broker-dealer application
filed on Form BD requires approximately 2 hours of staff time. Thus, estimating staff time and
related overhead at $75 per hour, the cost to the Federal government in connection with review and
processing of broker-dealer applications filed on Form BD is approximately $43,200 (288
applications x 2 hours x $75). With respect to amended Forms BD, the staff estimates that it
requires approximately 1 hour of staff time to review and process the filings. Thus, the cost to the
Federal government related to the review and processing of amended Forms BD is approximately
$1,170,150 (15,602 amendments x 1 hour x $75). In sum, the total cost to the government for
reviewing and processing broker-dealer applications and amendments filed on Form BD is
approximately $1,213,350 ($43,200 + $1,170,150). 11
15.

Changes in Burden.

The reduction in the respondents’ annual time burden (from 6800 hours to 5941 hours)
and the reduction in the costs to the Federal Government (from $1,383,450 to $1,213,350) are
both due to a reduction in the estimated number of applications and amendments the staff
expects broker-dealers to file on Form BD.
16.

Information Collection Planned for Statistical Purposes.

Not applicable. The information collection is not used for statistical purposes.

10

$279 per hour figure for a Compliance Manager is from the Securities Industry and Financial Markets
Association's publication titled Management & Professional Earnings in the Securities Industry 2011, as
modified by Commission staff to account for an 1,800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.

11

The cost burden estimates in this submission have been computed according to the guidelines set forth in GSA,
Guide to Estimating Reporting Costs (1973). Accordingly, the Commission staff has valued related overhead
at 35 percent of the value of the combined salaries of the aforementioned participants.

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17.

Approval to Omit OMB Expiration Date.

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification.

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.

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