2014 Rule 17f-2(e) Justification

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 or its designee for identification and appropriate
processing. This section also authorizes the Commission, by rule, to 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; and (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 every member of national securities exchange, broker,
dealer, registered transfer agent, and registered clearing agency (“covered entities”) that claims an
exemption from the fingerprint requirements of Rule 17f-2 to make and keep current a statement
entitled “Notice Pursuant to Rule 17f-2” (“Notice”) containing the information specified in
paragraph (e)(1) to support their claim of exemption.
2. Purpose and Use of the Information Collection
1

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

2

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

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The Commission uses the information filed pursuant to Rule 17f-2(e) to assist the
Commission and other regulatory agencies with monitoring and reviewing 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 keep a copy of the Notice in an easily
accessible place at the organization’s principal office and at the office employing the persons for
whom exemptions are claimed and to make the Notice 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
covered entities’ compliance 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 1320.5(d)(2)
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.
10. Confidentiality

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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. The information collection does not collect
any Personally Identifiable Information (PII).
12.

Burden of Information Collection

Based on the Commission’s 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 in the required
Notice (.4 hours, constituting a reporting type of burden) and to properly retain the Notice
according to the entity’s record retention policies and procedures (.1 hours, 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
There are no changes to the overall burden.
16. Information Collection Planned for Statistical Purposes
The collection of information for Rule 17f-2(e) is not utilized for statistical purposes.
17. Approval to Omit OMB Expiration Date
The Commission is not seeking approval to omit the expiration date.
18. Exceptions to Certification for Paperwork Reduction Act Submissions

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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.