Rule 19h-1 Supporting Statement - Final 10-22-15

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission
for Rule 19h-1
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.

Justification
1.

Necessity of Information Collection

Rule 19h-1 (the “Rule”) under the Securities Exchange Act of 1934 (the “Exchange Act”)
prescribes the form and content of notices and applications by self-regulatory organizations
(“SROs”) regarding proposed admissions to, or continuances in, membership, participation or
association with a member of any person subject to a statutory disqualification. The Rule was
adopted on July 8, 1977, in response to changes made by the Securities Act amendments of 1975,
and in order to codify procedures for Commission resolution of other issues relating to re-admission
to, or continuance in, the securities business of persons subject to statutory disqualification. Rule
19h-1 was adopted pursuant to authority granted the Commission in Sections 6, 11A, 15, 15A, 17,
17A, 19, and 23 of the Exchange Act, 15 U.S.C. 78f, 78k-1, 78o, 78o-3, 78q, 78q-1, 78s, and 78w.
2.

Purpose and Use of the Information Collection

The Commission uses the information provided in the submissions filed pursuant to Rule
19h-1 to review decisions of SROs to permit the entry into or continuance in the securities business
of persons who have committed misconduct. The filings submitted pursuant to the Rule also permit
inclusion of an application to the Commission for consent to associate with a member of an SRO
notwithstanding a Commission order barring such association.
The Commission reviews filings made pursuant to the Rule to ascertain whether it is in the
public interest to permit the employment in the securities business of persons subject to a statutory
disqualification. The filings contain information that is essential to the staff's review and ultimate
determination on whether an association or employment is in the public interest and consistent with
investor protection. Without these filings, persons subject to a statutory disqualification could
reenter or continue employment in the securities business without the Commission’s critical review
of their character, ability to act as a fiduciary, and their employer's plan of supervision. The failure
to collect and review this information could result in significant harm to the investing public.
3.

Consideration Given to Information Technology

At this time, the Commission only accepts written submissions under the collection of
information. The Commission believes that submission of a written notice for review is the least
burdensome and most effective means of giving the Commission notice of the SRO’s intent.
1

4.

Duplication

Not applicable. There is no duplication of this submission process to the Commission.
5.

Effect on Small Entities

Rule 19h-1 does not have a significant economic impact on a substantial number of small
entities.
6.

Consequences of Not Conducting Collection

The principal purpose of Rule 19h-1 is to provide the Commission with an opportunity to
ensure persons subject to statutory disqualification are not permitted to enter or to continue in the
securities industry without the Commission’s review of whether the entry or continuance is
consistent with the public interest and the protection of investors. The information must be
provided when persons who are subject to statutory disqualification seek to enter or to continue in
the securities business. A less frequent reporting requirement would weaken the Commission’s
ability to ensure that investors are protected from persons who have committed misconduct that
might affect their ability to act as a fiduciary. Moreover, a less frequent collection of information is
not practical if the Commission is to have a meaningful and timely opportunity to review the
proposed employment or continuance in the industry of such persons.
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

In that this application is directed solely to the Commission and no other entities compile
pertinent data on the applicants, no other agencies, state or local governments, or other
organizations were consulted by the Commission on this matter.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

No assurance of confidentiality is provided.

2

11.

Sensitive Questions
The form of the notice does not impose the burden of any questions of a sensitive nature.

The collection of information includes Personally Identifiable Information (“PII”). 1 In
particular, the collection of information includes the following information about individuals, as
described in the table below.

i.

ii.

Nature of Information Collection
Burden
19h-1(a) – Notice of admission or
continuance notwithstanding a
statutory disqualification

PII Collected

19h-1(a)(4) – Notification of
proposed admission or continuance
pursuant to an exception from the
notice requirements

1. Name of the person subject to statutory
disqualification
2. Name of the person’s prospective supervisor(s)

1. Name of the person concerned and last known
place of residence or business as reflected on the
records of the SRO
2. Qualifications, experience and disciplinary
records of the proposed supervisors of the person
and their family relationship (if any) to that person
3. A copy of a completed Form U-4 with the
respect to the proposed association of such person.
Form U-4 collects the person’s name, date of birth,
social security number (“SSN”), employer address,
place of birth, height, weight, hair color, eye color,
residential address history, employment history,
and criminal history.
4. Name and place of employment of any other
associated person of the proposed employer who is
subject to a statutory disqualification

iii. 19h-1(b) – Preliminary notifications

1. Name of the person subject to statutory
disqualification
2. The person’s last known place of residence

iv. 19h-1(d) – Application to the
Commission for relief from certain
statutory disqualifications

1. Name of the person concerned and last known
place of residence or business as reflected on the
records of the SRO

1

The term “Personally Identifiable Information” refers to information which can be used to distinguish or trace an
individual’s identity, such as a person’s name, social security number, biometric records, etc. alone, or when
combined with other personal or identifying information that is linked or linkable to a specific individual, such as
date and place of birth, or mother’s maiden name.

3

Nature of Information Collection
Burden

PII Collected
2. Qualifications, experience and disciplinary
records of the proposed supervisors of the person
and their family relationship (if any) to that person
3. A copy of a completed Form U-4 with the
respect to the proposed association of such person.
Form U-4 collects a person’s name, date of birth,
SSN, employer address, place of birth, height,
weight, hair color, eye color, residential address
history, employment history, and criminal history.
4. Name and place of employment of any other
associated person of the proposed employer who is
subject to a statutory disqualification

Pursuant to Rules 19h-1(a) and 19h-1(d), respondents will be required to submit a copy of a
completed Form U-4. Form U-4 is a form adopted and used by the Financial Industry Regulatory
Authority. Form U-4 requires the disclosure of certain PII, including an individual’s name, date of
birth, SSN, employer address, place of birth, height, weight, hair color, eye color, residential
address history, employment history, and criminal history. While the Commission does not
explicitly request SSNs as part of the collection of information, because Form U-4 collects the SSNs
of natural persons, the Commission may indirectly receive SSNs as part of the collection
information. The Commission collects a copy of Form U-4 for informational purposes only in order
to facilitate the staff's review and ultimate determination on whether an association or employment
is in the public interest and consistent with investor protection.
The Commission has published a System of Records Notice for the collection of
information relating to 19h-1. 2
12.

Burden of Information Collection

i.
19h-1(a) - Notice of admission or continuance notwithstanding a statutory
disqualification
The notice required under Rule 19h-1(a) is an ongoing reporting burden. The Commission
estimates that this collection of information would apply to approximately 20 SROs each year. The
Commission estimates that each SRO would be required to submit a notice under Rule 19h-1(a)
approximately 11 times each year. Finally, the Commission estimates that a SRO would spend on
average approximately 80 hours submitting each notice required by Rule 19h-1(a). The
Commission does not estimate any ongoing, annual burdens associated with Rule 19h-1(a).

2

See System of Records Notice SEC-18, available at http://www.sec.gov/about/privacy/sorn/secsorn18.pdf.

4

In summary, the Commission estimates that, over a three-year period, the total reporting
burden for completing and submitting the notice required by Rule 19h-1(a) would be 52,800 hours 3,
or 17,600 hours per year when annualized over three years. The reporting burden per respondent
would be 2,640 hours 4, or 880 hours per year when annualized over three years.
ii.
19h-1(a)(4) – Notification of proposed admission or continuance pursuant to an
exception from the notice requirements
The notification required under Rule 19h-1(a)(4) is an ongoingreporting burden. The
Commission estimates that this collection of information would apply to approximately 20 SROs
each year. The Commission estimates that each SRO would be required to submit a notification
under Rule 19h-1(a)(4) approximately 9 times each year. Finally, the Commission estimates that
a SRO would spend on average approximately 80 hours submitting each notice required by Rule
19h-1(a)(4). The Commission does not estimate any ongoing, annual burdens associated with
Rule 19h-1(a)(4).
In summary, the Commission estimates that, over a three-year period, the total reporting
burden for completing and submitting the notification required by Rule 19h-1(a)(4) would be
43,200 hours 5, or 14,400 hours per year when annualized over three years. The reporting burden
per respondent would be 2,160 hours 6, or 720 hours per year when annualized over three years.
iii.

19h-1(b) – Preliminary notifications

The notification required under Rule 19h-1(b) is an ongoing reporting burden. The
Commission estimates that this collection of information would apply to approximately 20 SROs
each year. The Commission estimates that each SRO would be required to submit a notification
under Rule 19h-1(b) approximately 28 times each year. Finally, the Commission estimates that
an SRO would spend on average approximately 13 hours submitting each notice required by
Rule 19h-1(b). The Commission does not estimate any ongoing, annual burdens associated with
Rule 19h-1(b).
In summary, the Commission estimates that, over a three-year period, the total reporting
burden for completing and submitting the notification required by Rule 19h-1(b) would be
3

20 (total number of respondents) x 11 (number of responses per year, per respondent) x 80 (hour burden per
response) x 3 (years) = 52,800.

4

1 (respondent) x 11 (number of responses per year, per respondent) x 80 (hour burden per response) x 3 (years) =
2,640.

5

20 (total number of respondents) x 9 (number of responses per year, per respondent) x 80 (hour burden per
response) x 3 (years) = 43,200.
6

1 (respondent) x 9 (number of responses per year, per respondent) x 80 (hour burden per response) x 3 (years) =
2,160.

5

21,840 hours 7, or 7,280 hours per year when annualized over three years. The reporting burden
per respondent would be 1,092 hours 8, or 364 hours per year when annualized over three years.
iv.
19h-1(d) – Application to the Commission for relief from certain statutory
disqualifications
The application required under Rule 19h-1(d) is an ongoing reporting burden. The
Commission estimates that this collection of information would apply to approximately 20 SROs
each year. The Commission estimates that applications under Rule 19h-1(d) will be submitted
by SROs on behalf of the persons seeking relief.
The Commission estimates that an SRO would be required to submit an application
under Rule 19h-1(d) approximately 5 times a year. Finally, the Commission estimates that an
SRO would spend on average approximately 80 hours submitting each application required by
Rule 19h-1(d). The Commission does not estimate any ongoing, annual burdens associated with
Rule 19h-1(d).
In summary, the Commission estimates that, over a three-year period, the total reporting
burden for completing and submitting the application required by Rule 19h-1(d) would be 24,000
hours 9, or 8,000 hours per year when annualized over three years. The reporting burden per
respondent would be 1,200 hours 10, or 400 hours per year when annualized over three years.

7

20 (total number of respondents) x 28 (number of responses per year, per respondent) x 13 (hour burden per
response) x 3 (years) = 21,840.

8

1 (respondent) x 28 (number of responses per year, per respondent) x 13 (hour burden per response) x 3 (years) =
1,092.

9

20 (total number of respondents) x 5 (number of responses per year, per respondent) x 80 (hour burden per
response) x 3 (years) = 24,000.

10

1 (respondent) x 5 (number of responses per year, per respondent) x 80 (hour burden per response) x 3 (years) =
1,200.

6

v.

Summary of hourly burdens

Nature of Information
Collection Burden

19h-1(a) – Notice of
proposed admission or
continuance of a
person,
notwithstanding a
statutory
disqualification
19h-1(a)(4) –
Notification of
proposed admission or
continuance of a person
pursuant to an
exception from the
notice requirements
provided in 19h1(a)(3)(ii), (iv), or (v)
19h-1(b) – Notification
of receipt of an
application for
admission to, or
continuance in,
participation or
membership which
would require a notice
under 19h-1(a)
19h-1(d) – Application
for relief from certain
statutory
disqualifications
TOTAL

13.

Initial
Burden Per
Response
Per Year
Per
Respondent

Ongoing
Burden Per
Response
Per Year
Per
Respondent

Total
Annualized
Burden Per
Year Per
Respondent

Total
Annualized
Reporting
Burden for
All
Respondents

Total
Burden Per
Respondent
Over Three
Years

Total
Burden Per
All
Respondents
Over Three
Years

Type of
Burden

Total
Number of
Respondents

Total
Number of
Responses
Per Year

Reporting

20

11

0

80

880

17,600

2,640

52,800

Reporting

20

9

0

80

720

14,400

2,160

43,200

Reporting

20

28

0

13

364

7,280

1,092

21,840

Reporting

20

5

0

80

400

8,000

1,200

24,000

47,280

7,092

141,840

Costs to Respondents

The Commission estimates that respondents will not seek outside assistance in completing
the collection of information, and therefore, respondents will not experience any external costs in
connection with the collection of information.
14.

Cost to Federal Government

Not applicable.
15.

Changes in Burden

The Commission has increased its estimate of the number of respondents from 5, as
described in its prior submission, to 20. The Commission is making this change to be consistent
with the current number of SROs registered with the Commission.
7

In addition, the Commission is now providing burden estimates for each of the four
components of Rule 19h-1 that impose a collection of information.
Finally, the Commission no longer estimates that each response to the collection of
information would impose a burden of 5 hours per respondent. The Commission has increased its
estimates of the burdens imposed by each response to the collection of information, as described
above.
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

OMB Expiration Date Display Approval

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.

Collection of Information Employing Statistical Methods
This collection does not involve statistical methods.

8