2015 9b-1 Justification DGL REDLINE

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 9b-1
A.

Justification
1. Necessity of Information Collection

In February 1979, the Commission published the Report of the Special Study of the Options
Market (“Options Study”), which identified several problems arising from efforts to accommodate
listed options trading within the existing framework for registering securities under the Securities
Act. The Options Study found that the requirements to provide information on the mechanics and
risks of options trading, as well as information about the issuer, made the prospectus lengthy and
complicated and did not meet the needs of options investors, many of whom may lack the financial
background needed to understand the relatively technical descriptions presented in the registration
statement. The Options Study concluded that information relating to options and the trading
markets for options should be separated from information about the issuer and that the information
concerning listed options should be presented in a “readily understandable” manner to a reader
without a financial background.
Based on these findings, the Options Study recommended that a specifically tailored
Exchange Act disclosure document be developed into which certain of the information currently in
the options prospectus would be moved. It was contemplated that this disclosure document would
present a description of the risks and uses of options trading in a manner that would be intelligible
to unsophisticated investors. Rule 9b-1 (17 CFR 240.9b-1), which was adopted in 1982 in
conjunction with two other rules, implemented this Options Study recommendation.
Rule 9b-1 requires that prior to purchasing or selling a contract for a standardized option, an
investor must receive a copy of the options disclosure document (“ODD”). Under this options
disclosure system, the ODD, rather than a traditional prospectus, is an investor’s primary source of
information about standardized options. Rule 9b-1 also sets forth the specific categories of
information required to be disclosed in the ODD and requires the ODD to be filed with the
Commission 60 days prior to the date it is distributed to investors. In addition, Rule 9b-1 provides
that the ODD must be amended if the information in the document becomes materially inaccurate
or incomplete and that amendments must be filed with the Commission 30 days prior to the
distribution to customers.
2. Purpose and Use of the Information Collection
The information in the ODD is intended to enhance investor understanding of standardized
options by presenting all essential information about such options in a readable form. The ODD,
rather than a traditional prospectus, is an investor’s primary source of information about
standardized options.
3. Consideration Given to Information Technology

In May 1996, the Commission issued an interpretive release that permits the use of
electronic media to deliver, among other things, the ODD to investors.
4. Duplication
Rule 9b-1 permits two or more options markets to work together in formulating a single
disclosure document covering options traded on each participating options market.
5. Effect on Small Entities
Some of the broker-dealers that are subject to Rule 9b-1 are small entities. The staff,
however, believes that the rule requirements are not unduly burdensome on smaller broker-dealers.
The information contained in the ODD is in a standardized format prepared by the options markets
and, therefore, does not need to be generated internally by the broker-dealer. The broker-dealer is
required to deliver the ODD and any amendments only once with respect to each customer. The
expense of providing this information would be limited to delivery, either through postal mail or
electronically.
6. Consequences of Not Conducting Collection
The ODD furnished to customers is a substitute for a prospectus. If such disclosure were
less frequent, customers might not have the information necessary to properly understand
standardized options prior to purchase.
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 a 60-day comment period soliciting comments
on this collection of information was published. No public comments were received.
9. Payment or Gift
The respondents receive no payments or gifts.
10. Confidentiality
There is no assurance of confidentiality provided by Rule 9b-1.
11. Sensitive Questions
No questions of a sensitive nature are asked. The information collection does not collect

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any Personally Identifiable Information (PII).
12. Burden of Information Collection
Reporting
There are 12 options markets that must comply with Rule 9b-1. These respondents work
together to prepare a single ODD covering options traded on each market, as well as amendments to
the ODD. These respondents file approximately 3 amendments per year. The ODD is generally
filed on behalf of the options markets by the options clearing corporation (“OCC”). The OCC also
works on the drafts and submits the ODD amendments to the Commission.1 The staff calculates
that the preparation and filing of amendments should take no more than 8 hours per options market.
Thus, the total time burden for all options markets per year is 288 hours (12 options markets x 8
hours per amendment x 3 amendments).
Third Party Disclosure
In addition, the staff estimates that there are approximately 1,500 broker-dealers subject to
Rule 9b-1, and that each of these firms will process an average of 3 new customers for options each
week. Thus, each respondent will have to furnish approximately 156 ODDs per year. The staff
calculates that the furnishing of the ODD should take no more than 30 seconds per customer,
resulting in a total time burden for each broker-dealer of 78 minutes or 1.3 hours. Thus, the total
time burden for all broker-dealers per year is 1,950 hours (1,500 broker-dealers x 1.3 hours).
Therefore, the aggregate time burden for all respondents (both options markets and brokerdealers), is 2,238 hours per year (288 hours for options markets + 1,950 hours for broker-dealers).
The estimated internal cost of compliance for options markets is $380 per hour for an inhouse attorney,2 for an annualized cost of $109,440. The estimated internal cost of compliance for
broker-dealers is $57 per hour for a general clerk,3 for an annualized cost of $111,150. The sum of
1

While the OCC assists the options exchanges in preparing ODD amendments and
submitting them to the Commission, these hours are not included in the burden estimate
because the OCC is not a “respondent” for purposes of PRA. Instead, the hours that the
Commission staff estimates that the OCC spends on behalf of the options exchanges in
preparing and submitting ODD amendments are incorporated in the total estimated
burden hours for the options exchanges.

2

The $380 per hour figure for an Attorney is from SIFMA’s Management & Professional
Earnings in the Securities Industry 2013, modified by Commission staff to account for an
1800-hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.

3

The $57 per hour figure for a General Clerk is from SIFMA’s Office Salaries in the
Securities Industry 2013, modified by Commission staff to account for an 1800-hour
work-year and multiplied by 2.93 to account for bonuses, firm size, employee benefits
and overhead.

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the internal compliance costs for all respondents (both options markets and broker-dealers), is
$220,590 per year. These figures were computed in the following manner:
288

hours of legal work of the options exchanges
(attorney)

1,950 hours of administrative work of broker-dealers
(general clerk)

@ $380 per hour = $109,440

@ $57 per hour = $111,150
$220,590

13. Costs to Respondents
Not applicable; (a) it is not anticipated that respondents will have to incur any capital and
start up costs to comply with Rule 9b-1; (b) it is not anticipated that the respondents will have to
incur any additional operational or maintenance costs (other than provided for in Item No. 12
above) to comply with the Rule.
14. Costs to Federal Government
Cost to the federal government results from appropriate regulatory agency staff time and
related overhead cost devoted to assuring compliance by broker-dealers with the requirements of
the rule and reviewing any ODDs and amendments filed by the OCC on behalf of the options
markets. The staff estimates that approximately 99 hours of professional staff time and 66 hours of
office staff time per year are devoted to this activity, at a cost of $255 per hour for professionals and
$69 per hour for office staff, for a total cost of $29,799 for staff time. 4 This amount was based
upon our computation of the value of staff time devoted to this activity and the related overhead.
This estimate was computed based upon GSA, Guide to Estimating Reporting Costs (1973).
15. Changes in Burden
The increase in the estimated time burden is due to an increase in the estimated number of
respondents. The number of options markets that must comply with Rule 9b-1 increased from 9 to
12. It is estimated that each options market will spend approximately eight hours on the preparation
and filing of each amendment. The previous compliance burden estimate was 216 hours (9 options
markets x 8 hours per amendment x 3 amendments per year). This compliance burden has
increased by 72 hours to a total compliance burden of 288 hours (12 options markets x 8 hours per
amendment x 3 amendments per year).

4

The 2013 estimate for SEC office workers ($69) was the midpoint of the Washington, DC
annual salary for a Grade SK-5 employee, divided by the OMB standard of 2087 hours
and multiplied by 2.93 to account for benefit and overhead costs. The 2013 estimate for
SEC professionals ($255) was the average of the midpoints of the Washington, DC
annual salaries for SK-11 and SK-12 employees, divided by the OMB standard of 2087
hours and multiplied by 5.35 to account for benefit and overhead costs.

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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 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
The collection does not involve statistical methods.

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