Rule 15c3-3 Supporting Statement Version D

SUPPORTING STATEMENT
for the Paperwork Reduction Act New Information Collection Submission for
Rule 15c3-3 – Customer Protection—Reserves and Custody of Securities
A.

JUSTIFICATION
1.

Necessity of Information Collection

During the “Paperwork Crisis” of 1967–1970, many brokers-dealers mishandled and
misused customer funds and securities because they had inadequate and inefficient record
keeping and segregation systems. Furthermore, the 1969–1970 “bear market” caused many
firms that lacked sufficient capital to utilize customer funds and securities to obtain financing for
their continued operation. In order to rectify these problems, the Securities and Exchange
Commission (“Commission”) adopted Rule 15c3-3 to provide increased protection for the funds
and securities of customers. 1
Rule 15c3-3 requires all broker-dealers that hold securities or cash belonging to
customers to obtain and maintain possession or control of all the fully-paid and excess margin
securities of their customers. 2 In addition, these broker-dealers must make a periodic
computation (“reserve computation”) to ascertain the amount of money being held that
constitutes customer funds or funds obtained from the use of customer securities. If this amount
– known as “customer credits” – exceeds the amount of money customers owe the firm
(“customer debits”), the broker-dealer must deposit the excess in a special reserve bank account
for the exclusive benefit of the firm’s customers (“Special Reserve Bank Account”). 3 In this
way, Rule 15c3-3 protects customer assets by requiring firms to maintain possession or control
of customer securities, and by permitting firms to use customer money only to the extent
necessary to finance customer-related business.
Rule 15c3-3 requires broker-dealers to make the reserve computation on either a weekly
or monthly basis. Broker-dealers are also required to: (1) maintain a description of the
procedures utilized to comply with the possession and control requirements of Rule 15c3-3; (2)
maintain a written notification from the bank where the Special Reserve Bank Account is located
that all assets in the account are for the exclusive benefit of the broker-dealer’s customers; and
(3) give telegraphic notice to the Commission, and the appropriate designated examining
authority (“DEA”), if they fail to make a required deposit in the Special Reserve Bank Account.
In addition, paragraph (o) of Rule 15c3-3 requires that a broker-dealer that effects
transactions for customers in security futures products (“SFP”) must: (1) establish written
policies and procedures for determining whether customer SFPs will be placed in a securities
account or a futures account, and, if applicable, the process by which a customer may elect the
type of account in which SFPs will be held; (2) provide each customer that plans to effect SFP
1

See Broker-dealers; Maintenance of Certain Basic Reserves, Exchange Act Release No. 9856 (Nov. 10,
1972), 37 FR 25224 (Nov. 29, 1972).

2

17 CFR 240.15c3-3.

3

For purposes of this Paperwork Reduction Act (“PRA”) submission, the term “Special Reserve Bank
Account” includes accounts set up in accordance with both paragraph (e)(1) and (k)(2)(i) of Rule 15c3-3.

transactions with a disclosure document containing certain information; (3) make a record of
each change in account type; and (4) send each SFP customer notification of any change of
account type.
On July 30, 2013, the Commission adopted amendments to Rule 15c3-3 as part of the
amendments to the broker-dealer financial responsibility rules (“2013 amendments”). 4 This
supporting statement describes the impact of these amendments on the current PRA collection
for Rule 15c3-3.
2.

Purpose and Use of the Information Collection

Rule 15c3-3 is an integral part of the Commission’s financial responsibility program for
broker-dealers. Its purpose is to protect the rights of customers to promptly obtain their property
from a broker-dealer. Rule 15c3-3’s reserve and notice requirements facilitate the process by
which the Commission and the various DEAs monitor how broker-dealers are fulfilling their
custodial responsibilities to investors. With the exception of the telegraphic notice requirement,
governmental agencies do not regularly receive any of the information described above. Instead,
the information is stored by the broker-dealer and made available to the various securities
regulatory authorities as required to facilitate examinations and investigations. If broker-dealers
were not required to create and maintain this information, the Commission’s ability to fulfill its
statutory directive to protect investors would be diminished.
Rule 15c3-3 also requires that a broker-dealer provide each customer that wishes to
engage in SFP activities with a disclosure document and notification of any change of account
type. Without these disclosures and notifications, in the event of a liquidation, customers may be
uncertain or confused as to which regulatory scheme is applicable to their account.
3.

Consideration Given to Information Technology

Rule 15c3-3 does not prevent a broker-dealer from using computers or other mechanical
devices to generate, obtain, disclose or maintain the records and information required under the
rule. Currently, most firms utilize automated systems to comply with Rule 15c3-3. The
Commission is not aware of any technical or legal obstacle to reducing the burden through the
use of improved information technology.
4.

Duplication

There are no similar rules that are duplicative of Rule 15c3-3. Copies of notices required
to be filed with the Commission under paragraph (i) of Rule 15c3-3 must also be filed with the
regulatory authority that examines the broker-dealer for compliance with financial responsibility,
helping to avoid duplication.

4

Financial Responsibility Rules for Broker-Dealers, Exchange Act Release No. 70072 (July 30, 2013), 78
FR 162 (Aug. 21, 2013).

2

5.

Effects on Small Entities

Paragraph (k) of Rule 15c3-3 has the effect of exempting most small broker-dealers from
the rule’s requirements. Small broker-dealers that are not exempt from Rule 15c3-3 can make
the required computation monthly as long as they have aggregate indebtedness not exceeding
800% of net capital and carry aggregate customer funds not exceeding $1,000,000. The
Commission estimates that, as of 2011 year end, approximately 5 broker-dealers were small
entities that performed a customer reserve computation pursuant to Rule 15c3-3.
6.

Consequences of not Conducting Collection

If the required information were not conducted or were conducted less frequently, the
level of protection afforded to the public by Rule 15c3-3 would be reduced.
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 Commission requested comment in the proposing release on the included PRA
analysis in March 2007. 5 The Commission re-opened the comment period in May 2012. 6 The
Commission received one comment addressing the PRA generally.
The commenter specifically stated that the estimates the Commission provided utilized
only the number of broker-dealers that the Commission “justifiably considers to be affected by
the proposals.” 7 The commenter, however, believed that most, if not all, broker-dealers will
spend over 90 hours each analyzing the effects of the rules as implemented, will spend many
more than 90 hours each in implementing procedures and modifying their written supervisory
procedures to comply with the new rules, will spend in excess of 240 hours each in the
monitoring of such rules, and will spend in excess of $15,000 each for outside counsel and
auditor opinions or work product. This commenter did not provide additional detail about the
basis for its view that the Commission’s estimates were too low. The Commission agreed with
the commenter that broker-dealers directly affected by the rule amendments may be required to
implement procedures or modify their written supervisory procedures in order to comply with
the rule amendments. In cases where the final rule amendments required a broker-dealer to
implement or document certain policies and procedures, these hour burdens were included in the
final PRA hour estimates discussed in the adopting release. Consequently, the Commission

5

See Financial Responsibility Rules for Broker-Dealers, Exchange Act Release No. 55431 (Mar. 9, 2007),
72 FR 12862 (Mar. 19, 2007).

6

See Financial Responsibility Rules for Broker-Dealers, Exchange Act Release No. 66910 (May 3, 2012),
77 FR 27150 (May 9, 2012).

7

See letter from Michael Scillia, National Investment Banking Association, to Securities and Exchange
Commission (July 12, 2012), http://www.sec.gov/comments/s7-08-07/s70807-102.pdf.

3

addressed the commenter’s concerns that directly related to the collections of information in the
PRA of the adopting release.
9.

Payment or Gift

No payments of gifts have been provided to respondents.
10.

Assurance of Confidentiality

The information collected under Rule 15c3-3 is kept confidential to the extent permitted
by the Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”) and any other applicable law.
11.

Sensitive Questions

Not applicable. No information of a sensitive nature is required.
12.

Burden of Information Collection

The Commission estimates that, as of 2011 year end, there were approximately 292
broker-dealers fully subject to Rule 15c3-3 (i.e., broker-dealers that can not claim any of the
exemptions enumerated in paragraph (k)), of which approximately 17 made daily, 196 made
weekly, and 54 made monthly, reserve computations. Paragraph (e)(3) of Rule 15c3-3 requires
each broker-dealer to make a record of each such computation. 8 Based on staff experience, the
Commission estimates that it takes between one and five hours to make a record of each reserve
computation, and that the average time spent across all the firms is 2.5 hours. Accordingly, the
Commission estimated that the total annual recordkeeping burden was approximately 40,550
hours. 9
Paragraph (f) of Rule 15c3-3 prescribes that a broker-dealer required to maintain a
Special Reserve Bank Account must obtain and retain a written notification from each bank in
which it has a Special Reserve Bank Account to evidence the bank’s acknowledgement that
assets deposited in the account are being held by the bank for the exclusive benefit of the brokerdealer’s customers. 10 As stated above, 292 broker-dealers are estimated to be fully subject to
Rule 15c3-3. In addition, 116 broker-dealers operate in accordance with the exemption provided
in paragraph (k)(2)(i), which also requires that a broker-dealer maintain a special reserve
account. Broker-dealers generally maintain longstanding relationships with banks where they
hold their Special Reserve Bank Accounts and thus do not need to obtain these letters frequently.
The Commission estimates that of the total number of broker-dealers that must comply with Rule
8

17 CFR 240.15c3-3(e)(3). 25 broker-dealers did not indicate the frequency with which they calculated
their customer reserve requirement. The Commission assumes for this supporting statement that these
firms make the calculation on a weekly basis.

9

(2.5 hours x 240 computations x 17 respondents that calculate daily) + (2.5 hours x 52 computations x 221
respondents that calculate weekly) + (2.5 hours x 12 computations x 54 respondents that calculate monthly)
= 40,550 hours. For purposes of this supporting statement, the average annual cost per respondent is
138.869 hours (40,550 hours/292 broker-dealers).

10

17 CFR 240.15c3-3(f).

4

15c3-3, only 25%, or approximately 102 broker-dealers, 11 must obtain one new letter each
year. 12 The Commission estimates that it would take a broker-dealer approximately one hour to
obtain this written notification from a bank regarding a Special Reserve Bank Account. 13
Therefore, the Commission estimates a total annual recordkeeping burden of approximately 102
hours to obtain these written notifications. 14
Paragraph (f) of Rule 15c3-3 requires a broker-dealer to immediately notify the
Commission and its DEA if it fails to make a required deposit in its Special Reserve Bank
Account. 15 In 2011, broker-dealers filed approximately 30 such notices. 16 The Commission
estimates that it will take a broker-dealer approximately 30 minutes to file the required notice,
resulting in a total annual reporting burden of approximately 15 hours. 17
Paragraph (o) of Rule 15c3-3 requires a broker-dealer that effects transactions in SFPs for
customers to make a record of each change in account type and to provide certain customers with
disclosure documents containing certain information SFP products. 18 The Commission estimates
that broker-dealers that were also registered as futures commission merchants (“FCMs”)
maintained approximately 30,140,879 customer accounts. The Commission estimates that 8% of
these customers may engage in SFP transactions, 19 and that of that 8%, 20% per year may
change account type, requiring a broker-dealer to promptly notify the customer in writing on the
date that change became effective. 20 Thus, broker-dealers may be required to create these
records for approximately 482,254 accounts. 21 The Commission estimates that it will take
approximately 3 minutes to create each record. 22 Thus, the total annual recordkeeping and
11
12

(292 +116) x 25% = 102 broker-dealers.
The Commission notes that a broker-dealer will need to obtain a letter from its bank regarding its Special
Reserve Bank Account because either the broker-dealer changed the type of business it does and became
subject to paragraph (e)(3) or (k)(2)(i) of Rule 15c3-3 or the broker-dealer established a new Special
Reserve Bank Account.

13

The language in these letters is largely standardized.

14

102 broker-dealers x 1 hour = 102 hours.

15

17 CFR 15c3-3(i).

16

Broker-dealers filed 30 such notices with the Commission in 2011.

17

30 notices x 30 minutes = 15 hours.

18

17 CFR 240.15c3-3(o)(2) and (o)(3). More specifically, a broker-dealer that changes the type of account in
which a customer’s SFPs are held must create a record of each change in account type that includes the
name of the customer, the account number, the date the broker-dealer received the customer’s request to
change the account type, and the date the change in account type took place.

19

30,140,879 accounts x 8% = 2,411,270 accounts. The Commission derived its estimate from the number of
active options accounts and conversations with industry representatives.

20

Broker-dealers that engage in an SFP business may choose not to allow customers to change account type
because it may be costly to facilitate such conversions. In addition, once a customer has researched the
issue and made a choice as to account type, it may be unlikely for the customer to change his or her account
type.

21

2,411,270 accounts x 20% = 482,254 accounts.

22

The Commission estimates that most firms will have this process automated. To the extent that no person
need be involved in the generation of this record, the burden will be very minimal.

5

disclosure burden associated with the requirements of paragraph (o) will be approximately
24,113 hours. 23
Consequently, the Commission estimates that the total annual burden associated with
Rule 15c3-3 prior to the 2013 amendments would be approximately 64,780 hours. 24
With respect to the 2013 amendments, new paragraph (a)(16) of Rule 15c3-3 excludes
from its definition of “PAB account,” an account that “has been subordinated to the claims of
creditors of the carrying broker or dealer.” 25 The Commission understands that most PAB
account holders that enter into a subordinated loan agreement with a broker-dealer that maintains
custody of customer securities and cash (“carrying broker-dealer”) in order to not be treated as
PAB accounts under paragraph (a)(16) likely will be affiliates of the broker-dealer. The
Commission estimates that the 61 broker-dealers that carry PAB accounts will enter into an
average of 11 subordination agreements as a result of new paragraph (a)(16) and it will take a
carrying broker-dealer approximately 20 hours to develop a subordination agreement. Therefore,
the Commission estimates that the total one-time recordkeeping burden will be 13,420 hours. 26
New paragraph (b)(5) of Rule 15c3-3 requires carrying broker-dealer to provide PAB
account holders with written notice that the account holder’s non-margin securities may be used
in the ordinary course of its business. As noted above, the Commission estimates that
approximately 61 broker-dealers carry PAB accounts. The Commission further estimates that,
on average, a firm will spend approximately 10 hours of employee resources drafting a standard
notice template, for a total one-time recordkeeping burden of 610 hours. 27 The Commission also
estimates that there are approximately 1,551 existing PAB customers and, therefore, brokerdealers will have to send approximately 1,551 written notices, spending approximately 10
minutes per account sending out the required written notice, for a total one-time disclosure
burden of 259 hours. 28

23

482,254 accounts x (3min / 60min) = 24,113 hours. For purposes of this supporting statement, this
annual hour burden has been divided evenly between the recordkeeping and disclosure burdens for a total
hours of 12,056.5 (24,113 / 2 = 12,056.5) each and average per firm of 41.289 hours per 292 respondents
(12,056.5 / 292 = 412.289).

24

40,550 hours + 102 hours + 15 hours + 24,113 hours = 64,780 hours.

25

For purposes of this supporting statement, the term “PAB account” references accounts that held at
carrying broker-dealers that hold the proprietary securities and cash of other broker-dealers.

26

61 broker-dealers x 11 accounts x 20 hours = 13,420 hours. For purposes of this supporting statement, the
total annualized burden over the three year approval period would be 4,474 hours (13,420 / 3 = 4,473.33,
rounded to 4,474), with an average of 73 hours per respondent (4,474 / 61 broker-dealers = 73.34).

27

61 firms x 10 hours = 610 hours. For purposes of this supporting statement, this one-time burden
annualized over the three year approval period is 203 hours (610 / 3 = 203.33, rounded to 204 hours), with
an average per 61 broker-dealers of 3 hours (204 / 61 = 3.34).

28

1,551 PAB account holders x 10 minutes = 15,510 minutes. 15,510 minutes / 60 minutes = 258.5 hours.
For purposes of this supporting statement, this one-time burden annualized over the three-year approval
period is 87 hours (259 / 3 = 86.33, rounded to 87 hours), with an average hour burden of 1.42 hours per
broker-dealer (86.33 / 61 broker-dealers = 1.42).

6

Further, the Commission estimates that based upon differences between the PAIB
Letter – which is largely being codified in the 2013 amendments – and the final rule, the 61
firms that carry PAB accounts will have to amend their standard PAB agreement template. The
Commission estimates a firm will spend, on average, approximately 20 hours of employee
resources on this task, for a total one-time recordkeeping burden of 1,220 hours. 30
29

Amended paragraph (e) of Rule 15c3-3 requires a PAB reserve computation that will
result in a one-time and annual burden. The Commission estimates that approximately 61
broker-dealers will perform a PAB reserve computation. These firms already perform a reserve
computation for domestic broker-dealer customers under the PAIB Letter. Nonetheless, the
Commission estimates these firms will spend, on average, approximately 30 hours of employee
resources per firm updating their systems to implement changes that will be necessitated by the
amendment. Therefore, the Commission estimates that the total one-time recordkeeping burden
to broker-dealers arising from updating their systems to comply with this requirement will be
approximately 1,830 hours. 31 The Commission also estimates that of the 61 broker-dealers
estimated to perform a PAB reserve computation, approximately 56 of the current PAB filers
will perform the PAB reserve computation on a weekly basis, two broker-dealers will perform it
on a monthly basis, and three broker-dealers will perform the PAB reserve computation on a
daily basis. The Commission estimates that a broker-dealer will spend, on average,
approximately 2.5 hours to complete the PAB reserve computation in order to make a record of
such computation pursuant to paragraph (e) of Rule 15c3-3. Therefore, the Commission
estimates that the total annual recordkeeping burden to broker-dealers from this requirement will
be approximately 9,215 hours. 32
New paragraph (j)(1) of Rule 15c3-3 includes a condition that a broker-dealer must
establish adequate procedures that will impose a paperwork burden if a broker-dealer wishes to
accept or use any free credit balance from the account of any customer of the broker-dealer. The
requirement that broker-dealers establish adequate procedures with regard to free credit balances
will result in one-time and annual hours burdens for broker-dealers subject to the requirements of
new paragraph (j)(1) to Rule 15c3-3. The Commission estimates that 189 broker-dealers carry
free credit balances. Most firms may already have such procedures in place with regard to the
requirements of the rule, because these provisions are being imported from current Rule 15c3-2,
which is being eliminated. Therefore, the Commission estimates that a broker-dealer will spend
29

See Letter from Michael A. Macchiaroli, Associate Director, Division of Market Regulation, Commission,
to Raymond J. Hennessy, Vice President, NYSE, and Thomas Cassella, Vice President, NASD Regulation,
Inc. (Nov. 3, 1998) (“PAIB Letter”).

30

61 firms x 20 hours = 1,220 hours. For purposes of this supporting statement, this one-time burden
annualized over the three-year approval period is 407 hours (1,220 / 3 = 406.6), with an average hour
burden of 6.67 hours per broker-dealer (407 / 61 = 6.67).

31

61 broker-dealers x 30 hours per firm = 1,830 hours. For purposes of this supporting statement, this onetime burden annualized over the three-year approval period is 610 hours (1,830 / 3 = 610), with an average
hour burden of 10 hours (610 / 61 broker-dealers = 10) per broker-dealer.

32

(56 weekly filers x 52 weeks x 2.5 hours per computation) + (2 monthly filers x 12 months x 2.5 hours per
computation) + (3 daily filers x 250 business days per year x 2.5 hours per computation) = 9,215 total
hours. For purposes of this supporting statement the average hours per respondent are 151.06 hours
(9,215/61).

7

approximately 25 additional hours reviewing and updating its procedures to ensure it is in
compliance with new paragraph (j)(1) to Rule 15c3-3 and approximately 10 additional hours per
year reviewing and updating its procedures, for a total one-time and annual hour recordkeeping
burden of 4,725 hours 33 and 1,890 hours, 34 respectively.
New paragraph (j)(2) of Rule 15c3-3 will require a broker-dealer to obtain written
affirmative consent from a new customer before including a customer’s free credit balances in a
Sweep Program, as defined in new paragraph (a)(17), as well as to provide certain disclosures
and notices to all customers with regard to the broker-dealer’s Sweep Program. These
requirements will result in one-time and annual burdens to broker-dealers subject to its
provisions. However, these requirements will apply only to firms that carry customer free credit
balances and opt to have the ability to change how its customers’ free credit balances are treated.
The Commission is including all 189 broker-dealers that carry free credit balances in its estimate
to reflect the fact that these firms may have to update their systems to comply with these new
requirements. The Commission further estimates that these firms will spend, on average,
approximately 200 hours of employee resources per firm updating their current systems
(including processes for generating customer account statements) to incorporate changes that
will be necessitated by the amendment. Therefore, the Commission estimates that the total onetime recordkeeping burden to broker-dealers arising from this requirement will be approximately
37,800 hours. 35
With respect to the annual burden associated with new paragraph (j)(2) of Rule 15c3-3,
the Commission estimates that there are 110,493,215 customer accounts of which 5% will be
impacted each year. 36 The Commission further estimates that a broker-dealer will spend, on
average, four minutes of employee resources to process a written affirmative consent for new
customers, as well as disclosures required under paragraph (j) to Rule 15c3-3. Therefore, the
Commission estimates that the annual recordkeeping burden to broker-dealers 37 arising from the
requirement will be approximately 368,311 hours. 38
Consequently, the Commission estimates that the total annualized burden associated with
the 2013 amendments to Rule 15c3-3 will be approximately 399,372 hours. 39 Finally, the total
33

189 broker-dealers x 25 hours = 4,725 hours. For purposes of this supporting statement, this one-time
burden annualized over the three-year approval period is 1,575 hours (4,725 / 3 = 1,575), with an average
hour burden per broker-dealer of 8.33 hours (1,575 / 189 broker-dealers = 8.33).

34

189 broker-dealers x 10 hours = 1,890 hours.

35

189 broker-dealers x 200 hours per firm = 37,800 hours. For purposes of this supporting statement, this
one-time burden annualized over the three-year approval period is 12,600 hours (37,800 / 3 = 12,600), with
an average hour burden per broker-dealer of 66.666 hours (12,600 / 189 broker-dealers = 66.666).

36

The Commission estimates approximately 5,524,661 accounts (110,493,215 x 5% = 5,524,661) will be
impacted annually.

37

This annual burden would affect the 189 broker-dealers that carry free credit balances.

38

(5,524,661 accounts x 4 minutes per account) / 60 minutes = 368,311 hours. For purposes of this
supporting statement, the Commission divided the total annual hour burden by 189 respondents for average
annual burden per firm of 1,948.74 hours (368,311 / 189 = 1,948.735).

39

4,474 + 203 + 87 + 407 + 610 + 9,215 + 1,575 + 1,890 +12,600 + 368,311 = 399,372 hours.

8

annualized hour burden for the total collection under Rule 15c3-3, including the 2013
amendments, will be 464,152 hours. 40
13.

Costs to Respondents

Rule 15c3-3(o)(2)(i) requires a broker-dealer that effects transactions for customers in
SFPs to provide each customer that engages in SFP transactions with a disclosure document
containing certain information. The costs of printing and sending the disclosure document to
customers will be based on the number of customer accounts that will be opened by customers to
effect transactions in SFPs. As stated in section 12 above, the Commission estimates that 8% of
the accounts held by broker-dealers that are also registered as FCMs, or 2,411,270 accounts, may
engage in SFP transactions. 41 The Commission also estimates that the cost of printing and
sending each disclosure document will be approximately $.46 per document sent, based on the
price of first class postage. Therefore, the Commission estimates that the annual recordkeeping
and disclosure cost burden associated with this rule requirement to be approximately
$1,109,184. 42
Rule 15c3-3(o)(3)(ii) requires a broker-dealer that changes the type of account in which a
customer’s SFPs are held to promptly notify the customer in writing of the date that change
became effective. The Commission estimates that 482,254 accounts 43 may change account type
per year, thus broker-dealers would be required to send this notification to 482,254 customers.
The Commission notes that firms will likely use the least expensive method to comply with these
requirements, and may include this notification with other mailings, such as customer account
statements, sent to the customer. Therefore, the Commission estimates that the cost of printing
and posting each notification will be approximately $.46 per document sent, resulting in an
annual recordkeeping and disclosure burden of $221,837. 44
Consequently, the Commission estimates that the total annual cost associated with Rule
15c3-3 prior to the 2013 amendments would be approximately $1,331,021. 45
With respect to the 2013 amendments, new paragraph (b)(5) of Rule 15c3-3 will require a
broker-dealer to incur postage costs when sending out the required written notice to customers.
The Commission estimates that there are approximately 1,551 existing PAB customers and,
therefore, broker-dealers will have to send approximately 1,551 written notices. These carrying
broker-dealers will likely use the least expensive method to comply with this requirement and
may include this notification with other mailings sent to PAB account holders. The Commission,
40

64,780 + 399,372 = 464,152 hours.

41

The Commission derived its estimate from the number of active options accounts and conversations with
industry representatives.

42

2,411,270 accounts x $.46 = $1,109,184.20.

43

2,411,270 accounts x 20% = 482,254 accounts.

44

482,254 accounts x $.46 = $221,836.84, rounded to $221,837.

45

$1,109,184 + $221,837 = $1,331,021. For purposes of this supporting statement, the average cost per 292
respondents is $4,558.29 ($1,331,021 / 292 = $4,558.29). We have also assumed that these costs are evenly
divided between recordkeeping and disclosure, for an average burden per firm of $2,279.145 each.

9

however, conservatively estimates that the postage cost or each notification, using the current
price of first class postage, will be approximately $0.46 per document sent. Therefore, the
Commission estimates that the total disclosure cost associated with sending the required written
notification to PAB account holders will be approximately $713. 46
Additionally, the Commission estimates that the 61 broker-dealers carrying PAB
accounts likely will engage outside counsel to review the required notice, as well as the standard
PAB template agreement under the final rule amendments to Rule 15c3-3. As a result, the
Commission estimates that these 61 broker-dealers will likely incur $2,000 in legal costs, 47 for a
total recordkeeping cost to the industry of $122,000 48 to review and comment on these materials.
The Commission also estimates that broker-dealers will consult with outside counsel in
making the systems changes required by the 2013 amendments, particularly with respect to the
language in the disclosures and notices under new paragraph (j)(2) to Rule 15c3-3 related to the
treatment of free credit balances. As a result, the Commission estimates that the average onetime recordkeeping cost to a broker-dealer will be approximately $20,000 49 and the average onetime recordkeeping cost to broker-dealers will be approximately $3,780,000. 50
Consequently, the Commission estimates that the total annualized cost associated with
the 2013 amendments will be approximately $1,300,905 51 and the total annualized costs for Rule
15c3-3, including the 2013 amendments, will be approximately $2,631,926. 52
14.

Costs to Federal Government

The Federal Government would experience no additional costs relating to the records
broker-dealers must create pursuant to 15c3-3, but are not required to file with the Commission.
46

1,551 notices x $0.46 = $713.46. For purposes of this supporting statement, we are annualizing the cost
over the three-year approval period, for a total annualized cost of $237.66, rounded to $238.00, with an
average cost per firm of $3.90.

47

5 hours x $400 per hour = $2,000. The Commission estimates the review of the notice and standard PAB
template would require 5 hours of outside counsel time, which is the same estimate used for outside
counsel review in another recent release. Based on Commission experience with the PAIB Letter and the
application of Rule 15c3-3, the Commission estimates the outside counsel review related to the PAB
amendments would take a comparable amount of time.

48

61 firms x $2,000 legal cost = $122,000. The Commission is annualizing the one-time costs over the three
year approval period to reflect an annualized cost of $40,667 ($122,000/3 = $40,666.66, rounded to
$40,667), with an average per firm of $666.67 ($40,667/61).

49

$400 per hour x 50 hours = $20,000. The Commission estimates that the average hourly cost for an outside
counsel will be approximately $400 per hour. The Commission used the estimate of $400 per hour for
legal services provided by outside counsel, which is the same estimate used by the Commission in other
recent releases.

50

189 broker-dealers x $20,000 = $3,780,000. The Commission is annualizing the one-time costs over the
three year approval period to reflect an annualized cost of $1,260,000 per year ($3,780,000/3), or
$6,666.666 per respondent ($1,260,000/189).

51

$238 + $40,667 + $1,260,000 = $1,300,905.

52

$1,331,021 + $1,300,905 = $2,631,926.

10

The Federal Government, however, would experience some costs associated with reviewing the
notices broker-dealers are required to file pursuant to Rule 15c3-3. The Commission estimates
that reviewing these filings requires, on average, approximately fifteen minutes of Regulation
Specialist staff time per filing at approximately $70 an hour. 53 Consequently, the Commission
estimates that, the additional cost to the Federal Government associated with reviewing
approximately 60 such notices per year would be $1,050. 54
15.

Changes in Burden

Overall, the and annualized reporting burdens and costs have generally increased due to
the adoption of the 2013 amendments to Rule 15c3-3 and an increase in postage rates as
described in paragraphs 12 and 13 above.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

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

53

This estimate is based on an annual salary of $84,000, adding average fringe benefits of 26% and average
overhead of 25%, and dividing by 1,800 hours in a year.

54

15 hours x $70 = $1,050.

11