Supporting Stmt for Rules 201 and 200(g)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rules 201 and 200(g) of Regulation SHO
A.

Justification
1.

Information Collection Necessity
i.

Policies and Procedures Requirement under Rule 201

The information collected under Rule 201’s written policies and procedures requirement
helps ensure that trading centers do not execute or display any impermissibly priced short sale
orders, unless an order is marked “short exempt,” in accordance with the rule’s requirements.
The information collected also aids the Commission and self-regulatory organizations (“SROs”)
that regulate trading centers in monitoring compliance with the rule’s requirements. In addition,
it aids trading centers and broker-dealers in complying with the rule’s requirements.
ii.

Policies and Procedures Requirements under Broker-Dealer and Riskless
Principal Provisions

The information collected under the written policies and procedures requirement of the
broker-dealer provision of Rule 201(c) helps prevent the incorrect identification of orders for
purposes of the broker-dealer provision. The information collected under the written policies
and procedures requirement of the riskless principal provision of Rule 201(d)(6) helps to ensure
that broker-dealers comply with the requirements of the riskless principal provision. The
information collected also enables the Commission and SROs to examine for compliance with
the requirements of these provisions.
iii.

Marking Requirements

The information collected pursuant to the “short exempt” marking requirement of Rule
200(g) enables the Commission and SROs to monitor whether a person entering a sell order
covered by Rule 201 is acting in accordance with one of the provisions contained in paragraph
(c) or paragraph (d) of Rule 201. In particular, the “short exempt” marking requirement provides
a record that will aid in surveillance for compliance with the provisions of Rule 201. It also
provides an indication to a trading center when it must execute or display a short sale order
without regard to whether the short sale order is at a price that is less than or equal to the
national best bid. In addition, it helps a trading center determine whether its policies and
procedures are reasonable and whether its surveillance is effective.
2.

Information Collection Purpose and Use

Rule 201 is a short sale-related circuit breaker rule that, if triggered, imposes a restriction
on the prices at which securities may be sold short. Specifically, the rule requires that a trading
center establish, maintain, and enforce written policies and procedures reasonably designed to
prevent the execution or display of a short sale order of a covered security at a price that is less

than or equal to the current national best bid if the price of that covered security decreases by
10% or more from the covered security’s closing price as determined by the listing market for
the covered security as of the end of regular trading hours on the prior day. In addition, the rule
requires that the trading center establish, maintain, and enforce written policies and procedures
reasonably designed to impose this short sale price test restriction for the remainder of the day
and the following day when a national best bid for the covered security is calculated and
disseminated on a current and continuing basis by a plan processor pursuant to an effective
national market system plan.
Rule 200(g) provides that a broker-dealer may mark certain qualifying sell orders “short
exempt.” In particular, if the broker-dealer chooses to rely on its own determination that it is
submitting the short sale order to the trading center at a price that is above the current national
best bid at the time of submission or to rely on an exception specified in the rule, it must mark
the order as “short exempt.”
As stated above, the information collected under Rule 201’s written policies and
procedures requirement applicable to trading centers, the written policies and procedures
requirement of the broker-dealer provision of Rule 201(c), the written policies and procedures
requirement of the riskless principal provision of Rule 201(d)(6), and the “short exempt”
marking requirement of Rule 200(g) enable the Commission and SROs to examine and monitor
for compliance with the requirements of Rules 201 and 200(g).
In addition, the information collected under Rule 201’s written policies and procedures
requirement applicable to trading centers help ensure that trading centers do not execute or
display any impermissibly priced short sale orders, unless an order is marked “short exempt,” in
accordance with the rule’s requirements. Similarly, the information collected under the written
policies and procedures requirement of the broker-dealer provision of Rule 201(c) and the
riskless principal provision of Rule 201(d)(6) help to ensure that broker-dealers comply with the
requirements of these provisions. The information collected pursuant to the “short exempt”
marking requirement of Rule 200(g) also provides an indication to a trading center when it must
execute or display a short sale order without regard to whether the short sale order is at a price
that is less than or equal to the current national best bid.
3.

Consideration Given to Information Technology

Since Rules 201 and 200(g) do not specify a particular format, respondents may use
automation, or other forms of information technology, to the extent they find it helpful.
4.

Duplication

We are not aware of duplication of this information.
5.

Effects on Small Entities

The collection of information necessary to ensure compliance with the requirements of
Rules 201 and 200(g) is not unduly burdensome on smaller entities. Much of the requisite
information is otherwise collected and maintained by industry members in connection with
2

existing Commission or SRO rules. Moreover, the information is generally that which a brokerdealer or participant of a registered clearing agency would maintain in the ordinary course of its
business.
6.

Consequences of Not Conducting Collection

Failure to collect the required information, as discussed above, would impede the ability
of trading centers and broker-dealers to verify compliance with Rule 201 and Rule 200(g).
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

Not applicable; no payments or gifts were, or will be, provided to respondents.
10.

Confidentiality

No assurances of confidentiality are provided in the statute or the rules.
11.

Sensitive Questions

Not applicable; no information of a sensitive nature is required under the rules.
12.

Information Collection Burden
i.

Policies and Procedures Requirement under Rule 201

Rule 201 requires each trading center to establish, maintain, and enforce written policies
and procedures reasonably designed to prevent the execution or display of a short sale order of a
covered security at a price that is less than or equal to the current national best bid during the
period when the short sale price test restriction of Rule 201 is in effect. Thus, trading centers
must have written policies and procedures reasonably designed to permit the trading center to be
able to obtain information from the single plan processor regarding whether a covered security is
subject to the short sale price test restriction of Rule 201; if the covered security is subject to the
short sale price test restriction of Rule 201, to determine whether or not the short sale order is
priced in accordance with the provisions of Rule 201(b); and to recognize when an order is
marked “short exempt” such that the trading center’s policies and procedures do not prevent the
execution or display of such order at a price that is less than or equal to the current national best
bid, even if the covered security is subject to the short sale price test restriction of Rule 201.

3

A “trading center” is defined, under Rule 201(a)(9), as “a national securities exchange or
national securities association that operates an SRO trading facility, an alternative trading
system, an exchange market maker, an OTC market maker, or any other broker or dealer that
executes orders internally by trading as principal or crossing orders as agent.” Because Rule 201
applies to any trading center that executes or displays a short sale order in a covered security, the
rule applies to 19 registered national securities exchanges that trade covered securities (or “SRO
trading centers”), 1 and approximately 299 broker-dealers (including alternative trading systems,
or “ATSs”) registered with the Commission (or “non-SRO trading centers”). 2
Although the exact nature and extent of the policies and procedures that a trading center
must establish vary depending upon the nature of the trading center (e.g., SRO vs. non-SRO, full
service broker-dealer vs. market maker), we estimate that, on average, it takes an SRO trading
center approximately 220 hours 3 of legal, compliance, information technology, and business
operations personnel time, 4 and a non-SRO trading center approximately 160 hours 5 of legal,

1

Currently, there are 19 national securities exchanges (BatsBZX, BatsBYX, BatsEDGA, BatsEDGX, BOX, C2,
CBOE, CHX, ISE, ISEGemini, ISEMercury, MIAX, NASDAQ, NASDAQ BX, NASDAQ PHLX, NSX,
NYSE, NYSEMKT, and NYSE Arca) that operate an SRO trading facility for covered securities and thus are
subject to the Rule. We previously indicated that one national securities association (FINRA) would also be
subject to the Rule. See Exchange Act Release No. 61595 (Mar. 10, 2010), 75 FR 11232, 11280, n. 650 (Feb.
26, 2010) (“Adopting Release”).

2

This number includes the approximately 215 firms that were registered equity market makers, options market
makers, or specialists at year-end 2015 (this number was derived from annual FOCUS reports), as well as the
84 ATSs that operate trading systems that trade covered securities as of June 2016. The Commission believes it
is reasonable to estimate that in general, firms that are block positioners - i.e., firms that are in the business of
executing orders internally - are the same firms that are registered market makers (for instance, they may be
registered as a market maker in one or more Nasdaq stocks and carry on a block positioner business in
exchange-listed stocks), especially given the amount of capital necessary to carry on such a business.

3

We are basing our estimates on the burden hour estimates provided in connection with the adoption of
Regulation NMS because the policies and procedures developed in connection with that regulation’s Order
Protection Rule are in many ways similar to what a trading center would need to do to comply with Rule 201.
See Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (“Regulation NMS Adopting Release”); see
also Adopting Release, 75 FR at 11283. We note, however, that these estimates may be on the high end
because trading centers have already had to establish similar policies and procedures to comply with Regulation
NMS.

4

Based on experience and estimates provided in connection with Regulation NMS, we anticipate that of the 220
hours we estimate will be spent to establish the required policies and procedures, 70 hours will be spent by
legal personnel, 105 hours will be spent by compliance personnel, 20 hours will be spent by information
technology personnel and 25 hours will be spent by business operations personnel of the SRO trading center.

5

We are basing our estimates on the burden hour estimates provided in connection with the adoption of
Regulation NMS because the policies and procedures developed in connection with that regulation’s Order
Protection Rule are in many ways similar to what a trading center would need to do to comply with Rule 201.
See Regulation NMS Adopting Release, 70 FR 37496; see also Adopting Release, 75 FR at 11283. We note,
however, that these estimates may be on the high end because trading centers have already had to establish
similar policies and procedures to comply with Regulation NMS.

4

compliance, information technology, and business operations personnel time, 6 to develop the
required policies and procedures. We estimate for purposes of this PRA extension that
approximately 3 new SRO trading centers and approximately 15 new non-SRO trading centers
will register with the Commission over the next three years 7 and therefore become subject to the
policies and procedures requirement under Rule 201. Based on these figures, we estimate that it
will require a total of 660 hours 8 for SRO trading centers to establish the required written
policies and procedures, and a total of 2,400 hours 9 for non-SRO trading centers to establish the
required written policies and procedures. Thus, we estimate a total of approximately 3,060
burden hours, or approximately 1,020 hours amortized over three years, for trading centers to
establish the required written policies and procedures. 10
Although the exact nature and extent of the policies and procedures of a trading center
vary depending upon the nature of the trading center (e.g., SRO vs. non-SRO, full service
broker-dealer vs. market maker), we estimate that, on average, it takes an SRO and non-SRO
trading center each approximately two hours per month of on-going internal legal time and three
hours per month of on-going internal compliance time to ensure that its written policies and
procedures are up-to-date and remain in compliance with the amendments to Rule 201, or a total
of 60 hours annually per respondent. 11 In addition, we estimate that, on average, it takes an SRO
and non-SRO trading center each approximately 16 hours per month of on-going compliance
time, 8 hours per month of on-going information technology time, and 4 hours per month of on6

Based on experience and estimates provided in connection with Regulation NMS, we anticipate that of the 160
hours we estimate will be spent to establish policies and procedures, 37 hours will be spent by legal personnel,
77 hours will be spent by compliance personnel, 23 hours will be spent by information technology personnel
and 23 hours will be spent by business operations personnel of the non-SRO trading center.

7

Since the prior PRA extension, there are 2 additional SRO trading centers (19 currently, versus 17 in the prior
PRA extension). Thus, for purposes of this PRA extension, we estimate that 3 new SRO trading centers (i.e.,
national securities exchanges) may register with the Commission over the next three years (an average of 1
each year). Since the prior PRA extension, there has been an approximate 28% decline in the number of
registered equity market makers, options market makers, or specialists (215 at year-end 2015, versus 296 at
year-end 2012 as noted in the prior PRA extension). Therefore, for purposes of this PRA extension, based on
this downward trend, we estimate no net additions of equity market makers, options market makers, or
specialists over the next three years. Additionally, for purposes of this PRA extension, based on recent trends,
we estimate that approximately 15 new ATSs may notice their operations on Form ATS with the Commission
over the next three years (an average of 5 each year). Thus, we estimate that 15 new non-SRO trading centers
(i.e., market makers, specialists, and ATSs) may register with the Commission over the next three years.

8

The estimated 660 burden hours necessary for SRO trading centers to establish policies and procedures are
calculated by multiplying 3 times 220 hours (3 x 220 hours = 660 hours).

9

The estimated 2,400 burden hours necessary for non-SRO trading centers to establish policies and procedures
are calculated by multiplying 15 times 160 hours (15 x 160 hours = 2,400 hours).

10

These figures were calculated as follows: 660 hours + 2,400 hours = 3,060 hours; 3,060/3 = 1,020 hours.

11

This figure was calculated as follows: (2 legal hours x 12 months) + (3 compliance hours x 12 months) = 60
hours annually per respondent. As discussed above, this burden estimate of 60 hours is based on experience
and what was estimated for Regulation NMS to ensure that written policies and procedures were up-to-date and
remained in compliance. See Regulation NMS Adopting Release, 70 FR 37496; see also Adopting Release, 75
FR at 11283.

5

going legal time associated with on-going monitoring and surveillance for and enforcement of
trading in compliance with Rule 201, or a total of 336 hours annually per respondent. 12 Thus,
we estimate a total of 125,928 annual burden hours for all trading centers to ensure that their
written policies and procedures are up-to-date and remain in compliance with the amendments to
Rule 201 and for on-going monitoring and surveillance for and enforcement of trading in
compliance with Rule 201. 13
ii.

Policies and Procedures Requirements under the Broker-Dealer and
Riskless Principal Provisions

To rely on the broker-dealer provision of Rule 201(c), a broker-dealer marking a short
sale order in a covered security “short exempt” under Rule 201(c) must identify the order as
being at a price above the current national best bid at the time of submission to the trading center
and must establish, maintain, and enforce written policies and procedures that are reasonably
designed to prevent the incorrect identification of orders as being submitted to the trading center
at a permissible price. At a minimum, the broker-dealer’s policies and procedures must be
reasonably designed to enable a broker-dealer to monitor, on a real-time basis, the national best
bid so as to determine the price at which the broker-dealer may submit a short sale order to a
trading center in compliance with the requirements of Rule 201(c). In addition, a broker-dealer
must take such steps as necessary to enable it to enforce its policies and procedures effectively.
To rely on the riskless principal provision under Rule 201(d)(6), a broker-dealer must
have written policies and procedures in place to assure that, at a minimum: (i) the customer order
was received prior to the offsetting transaction; (ii) the offsetting transaction is allocated to a
riskless principal or customer account within 60 seconds of execution; and (iii) that it has
supervisory systems in place to produce records that enable the broker-dealer to accurately and
readily reconstruct, in a time-sequenced manner, all orders on which the broker-dealer relies
pursuant to this provision.
While not all broker-dealers enter sell orders in securities covered by the amendments to
Rules 201 and 200(g) in a manner that will subject them to this collection of information, we
estimate, for purposes of this PRA extension, that all of the approximately 4,162 registered
broker-dealers (as of January 1, 2016) will do so. For purposes of this PRA extension, the
Commission staff has estimated that there were approximately 8.152 billion “short exempt”
orders entered during 2015. 14
12

This figure was calculated as follows: (16 compliance hours x 12 months) + (8 information technology hours x
12 months) + (4 legal hours x 12 months) = 336 hours annually per respondent. As discussed above, this
burden estimate of 336 hours is based on experience and what was estimated for Regulation NMS regarding
similarly required on-going monitoring and surveillance for and enforcement of trading in compliance with that
regulation’s policies and procedures requirement.

13

This figure was calculated as follows: (60 hours x 318 current respondents) + (336 hours x 318 current
respondents) = 125,928 hours annually for all respondents.

14

In the years since the issuance of the prior PRA extension, the Commission has been able to access more
accurate data regarding orders, which have been incorporated into the cost estimates provided in this PRA
extension. In arriving at this “short exempt” orders estimate, we estimated 35.3 million “short exempt”

6

Although the exact nature and extent of the required policies and procedures that a
broker-dealer must establish under the broker-dealer or the riskless principal provisions vary
depending upon the nature of the broker-dealer (e.g., full service broker-dealer vs. market
maker), we estimate that, on average, it takes a broker-dealer approximately 160 hours 15 of legal,
compliance, information technology and business operations personnel time, 16 to develop the
required policies and procedures. The number of broker-dealers registered with the Commission
has declined by approximately 10% over the past 4 years. 17 We therefore estimate for purposes
of this PRA extension that a de minimus number of new broker-dealers will register with the
Commission over the next three years and therefore become subject to the broker-dealer
provision in Rule 201(c) and the riskless principal provision in Rule 201(d)(6). Based on this
estimate, we anticipate only de minimus additional expenses over the next three years for newly
registered broker-dealers to establish policies and procedures required under the broker-dealer
provision in Rule 201(c) and the riskless principal provision in Rule 201(d)(6).
Although the exact nature and extent of the required policies and procedures that a
broker-dealer must have under the broker-dealer or the riskless principal provisions vary
depending upon the nature of the broker-dealer (e.g., full service broker-dealer vs. market
maker), we estimate that it takes, on average, a broker-dealer approximately two hours per month
of internal legal time and three hours per month of internal compliance time to ensure that its
written policies and procedures are up-to-date and remain in compliance with Rule 201(c) or
201(d)(6), or a total of 60 hours annually per respondent. 18 In addition, we estimate that, on
average, it takes a broker-dealer approximately 16 hours per month of on-going compliance time,
8 hours per month of on-going information technology time, and 4 hours per month of on-going
transactions during 2015, resulting in approximately 70.7 billion shares transacted. We estimated that
approximately 36.7 billion of those shares transacted during 2015 were attributable to ETFs, while the
remaining 34 billion shares transacted were attributable to stocks. Utilizing trade-to-order volume ratios for
stocks and ETFs, as published on the Commission’s Market Structure website, we converted the “short exempt”
shares transacted during 2015 to “short exempt” orders entered during 2015. See
https://www.sec.gov/marketstructure/research/highlight-2013-01.html.
15

We base this estimate of 160 hours on the estimated burden hours we believe it will take a non-SRO trading
center (which includes broker-dealers) to develop similarly required policies and procedures, since the policies
and procedures required under the broker-dealer provision or the riskless principal exception will be similar to
those required for non-SRO trading centers in complying with paragraph (b) of Rule 201. See Regulation NMS
Adopting Release, 70 FR 37496; see also Adopting Release, 75 FR at 11286.

16

Based on experience and estimates provided in connection with Regulation NMS, we anticipate that of the 160
hours we estimate will be spent to establish policies and procedures, 37 hours will be spent by legal personnel,
77 hours will be spent by compliance personnel, 23 hours will be spent by information technology personnel
and 23 hours will be spent by business operations personnel of the broker-dealer.

17

The number of broker-dealers registered with the Commission has declined by approximately 10% over the
past 4 years; from 4,612 (as of January 1, 2013), to 4,410 (as of January 1, 2014), to 4,299 (as of January 1,
2015), to 4,162 (as of January 1, 2016).

18

This figure was calculated as follows: (2 legal hours x 12 months) + (3 compliance hours x 12 months). As
discussed above, this burden estimate of 60 hours is based on experience and what was estimated for a
Regulation NMS respondent to ensure that its written policies and procedures were up-to-date and remained in
compliance.

7

legal time associated with on-going monitoring and surveillance for and enforcement of trading
in compliance with Rule 201, or a total of 336 hours annually per respondent. 19 Thus, we
estimate a total of 1,648,152 annual burden hours for all broker-dealers to ensure that their
written policies and procedures are up-to-date and remain in compliance with Rule 201(c) or
201(d)(6) and for on-going monitoring and surveillance for and enforcement of trading in
compliance with Rule 201. 20
iii.

Marking Requirements

The amendments to Rule 200(g) in 2010 added a new marking requirement of “short
exempt.” In particular, if the broker-dealer chooses to rely on its own determination that it is
submitting the short sale order to the trading center at a price that is above the current national
best bid at the time of submission or to rely on an exception specified in the Rule, it must mark
the order as “short exempt.” It has been approximately six years since the amendments to Rule
200(g) added the “short exempt” marking requirement. As a result, we believe that brokerdealers currently have the necessary systems and processes in place to comply with the general
marking requirements under Rule 200(g). We note that the time necessary for a broker-dealer to
mark an order “short exempt” is consistent with the amount of time to mark an order “long” or
“short” pursuant to Rule 200(g). Consistent with the prior PRA extension, we conservatively
estimate that marking an order takes approximately .000139 hours (or 0.5 seconds) to
complete. 21
For purposes of this PRA extension, we estimate that all of the approximately 4,162
registered broker-dealers will sell shares marked “short exempt.” For purposes of this PRA
extension, as noted above, the Commission staff estimates that there were approximately 8.152
billion “short exempt” orders entered during 2015. 22 This is an average of approximately 1.958
million annual “short exempt” orders by each respondent. 23
Thus, our estimate for the paperwork compliance for the “short exempt” marking
requirement of Rule 200(g) for each broker-dealer is approximately 272 annual burden hours
19

This figure was calculated as follows: (16 compliance hours x 12 months) + (8 information technology hours x
12 months) + (4 legal hours x 12 months) = 336 hours annually per respondent. As discussed above, this
burden estimate of 336 hours is based on experience and what was estimated for Regulation NMS for similarly
required on-going monitoring and surveillance for and enforcement of trading in compliance with that
regulation’s policies and procedures requirement.

20

This figure was calculated as follows: (60 hours x 4,162 current respondents) + (336 hours x 4,162 current
respondents) = 1,648,152 hours annually for all current respondents.

21

This estimate is based on the same time estimate for marking sell orders “long” or “short” used upon adoption
of Rule 200(g) under Regulation SHO. See Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008,
48023, n.140 (Aug. 6, 2004) (“2004 Regulation SHO Adopting Release”); see also Exchange Act Release No.
48709 (Oct. 28, 2003), 68 FR 62972, 63000, n.232 (Nov. 6, 2003).

22

See supra note 14.

23

This figure was calculated as follows: 8,152,586,061 “short exempt” orders divided by 4,162 registered
broker-dealers = 1,958,814.

8

(1,958,814 responses multiplied by 0.000139 hours). The total estimated annual hour burden is
1,133,209 burden hours (8,152,586,061 orders marked “short exempt” multiplied by 0.000139
hours).
13.

Costs to Respondents
i.

Policies and Procedures Requirement under Rule 201

We expect that SRO and non-SRO respondents incur one-time external costs for
outsourced legal services. While we recognize that the amount of legal outsourcing utilized to
help establish written policies and procedures varies widely from entity to entity, we estimate
that on average, each trading center outsources 50 hours of legal time in order to establish
policies and procedures in accordance with the amendments. 24 As noted above, we estimate for
purposes of this PRA extension that approximately 3 new SRO trading centers and
approximately 15 new non-SRO trading centers will register with the Commission over the next
three years and therefore become subject to the policies and procedures requirement under Rule
201. Based on these figures, we estimate that it will take trading centers a total of approximately
900 hours, or 300 hours amortized over three years, to establish policies and procedures in
accordance with the amendments. 25 Thus, we estimate a one-time total external cost of
approximately $360,000 for both SRO and non-SRO trading centers resulting from outsourced
legal work, or approximately $120,000 amortized over three years. 26
ii.

Policies and Procedures Requirements under the Broker-Dealer and
Riskless Principal Provisions

In addition, we expect that broker-dealers incur one-time external costs for outsourced
legal services. While we recognize that the amount of legal outsourcing utilized to help establish
written policies and procedures varies widely from entity to entity, we estimate that on average,
each broker-dealer outsources 50 hours 27 of legal time in order to establish policies and
procedures in accordance with the broker-dealer provision in Rule 201(c) and the riskless
principal provision in Rule 201(d)(6). As noted above, the number of broker-dealers registered
24

As discussed above, we base our burden estimate of 50 hours of outsourced legal time on the burden estimate
used for Regulation NMS because the policies and procedures developed in connection with that Regulation’s
Order Protection Rule are in many ways similar to what a trading center will need to do to comply with Rule
201. See Regulation NMS Adopting Release, 70 FR 37496.

25

These figures were calculated as follows: (50 legal hours x 3 SRO trading centers) + (50 legal hours x 15 nonSRO trading centers) = 900 hours; 900/3 = 300 hours.

26

This figure was calculated as follows: (50 legal hours x $400 x 3 SRO trading centers) + (50 legal hours x $400
x 15 non-SRO trading centers) = $360,000; $360,000/3 = $120,000. Based on industry sources, the Staff
estimates that the average hourly rate for outsourced legal services in the securities industry is $400.

27

As discussed above, we base our burden estimate of 50 hours of outsourced legal time on the burden estimate
used for Regulation NMS because the policies and procedures developed in connection with that Regulation’s
Order Protection Rule are in many ways similar to what a broker-dealer will need to do to comply with the
policies and procedures required under the broker-dealer provision and the riskless principal exception of Rule
201. See Regulation NMS Adopting Release, 70 FR 37496; see also Adopting Release, 75 FR at 11286.

9

with the Commission has declined by approximately 10% over the past 4 years. We therefore
estimate for purposes of this PRA extension that a de minimus number of new broker-dealers
will register with the Commission over the next three years and therefore become subject to the
broker-dealer provision in Rule 201(c) and the riskless principal provision in Rule 201(d)(6).
Based on this estimate, we anticipate only de minimus additional expenses over the next three
years for newly registered broker-dealers to establish policies and procedures in accordance with
the broker-dealer and riskless principal provisions of Rule 201.
iii.

Marking Requirements

In the prior PRA extension, we estimated the associated costs for a broker-dealer to
implement modifications to various existing systems in order to comply with the 2010
amendments to Rule 200(g). It has been approximately six years since those amendments were
implemented, and as a result, we believe that any broker-dealer currently registered with the
Commission would already have the necessary systems in place to comply with the current
marking requirements of Rule 200(g), including Rule 200(g)(2). Thus, for currently registered
broker-dealers, we believe that there should not be any outstanding costly systems modifications
as were contemplated in the prior PRA extension. For any broker-dealer that would register with
the Commission over the next three years, 28 we believe that compliance with Rule 200(g),
including Rule 200(g)(2), would be addressed as part of the broker-dealer’s broader system
implementation, and not a separately identifiable cost center as contemplated in the prior PRA
extension. For these reasons, for purposes of this PRA extension, we estimate a de minimus
external cost burden associated with the “short exempt” marking requirement over the next three
years.
14.

Costs to Federal Government

Not applicable.
15.

Changes in Burden

Our estimates of the hour burden and external costs associated with the collection of
information requirements for trading centers have not changed from the prior PRA extension,
except to the extent that: (1) total ongoing burden estimates have changed because we have
updated the estimated number of trading centers; 29 and (2) total one-time burden and cost
estimates have changed because our calculations are based on the estimated number of new
trading centers that will become subject to the policies and procedures requirement under Rule
201 over the next three years. 30

28

As noted above, we estimate for purposes of this PRA extension that a de minimus number of new brokerdealers will register with the Commission over the next three years.

29

See supra Section A.12(i).

30

Trading centers that existed at the time of the prior PRA extension should now have the necessary policies and
procedures in place and should no longer experience an initial development burden.

10

Our estimates of the hour burden and external costs associated with the collection of
information requirements for broker-dealers have not changed from the prior PRA extension,
except to the extent that: (1) total ongoing burden estimates have changed because we have
updated the estimated number of broker-dealers; 31 and (2) total one-time burden and cost
estimates have changed because our calculations are based on the estimated number of new
broker-dealers that will become subject to the rules over the next three years. 32
Our estimates of the hour burden associated with the collection of information
requirements for broker-dealers in connection with the marking requirements have not changed
from the prior PRA extension, except to the extent that total burden estimates have changed
because we have updated the estimated number of broker-dealers 33 and the estimated number of
annual “short exempt” orders. 34
Our estimates of the external costs associated with the collection of information
requirements for broker-dealers in connection with the marking requirements have not changed
from the prior PRA extension, except to the extent that total external cost estimates have
changed because our calculations are based on the estimated number of new broker-dealers that
will become subject to the rules over the next three years. 35
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.

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

31

See supra Section A.12(ii).

32

Broker-dealers that existed at the time of the prior PRA extension should now have the necessary policies and
procedures in place and should no longer experience an initial development burden.

33

See supra Section A.12(ii) and (iii).

34

See supra Section A.12(ii) and (iii). In the years since the issuance of the prior PRA extension, the
Commission has been able to access more accurate data regarding orders, which have been incorporated into
the cost estimates provided in this PRA extension.

35

Broker-dealers that existed at the time of the prior PRA extension should now have the necessary policies and
procedures in place and should no longer experience an initial development burden.

11