2017 15c2-11 Supporting Statement DGL

SUPPORTING STATEMENT
For the Paperwork Reduction Act New Information Collection Submission for
Rule 15c2-11
A.

Justification
1.

Necessity of Information Collection

On September 13, 1971, effective December 13, 1971 (see 36 FR 18641, September
18, 1971), the Commission adopted Rule 15c2-11 (17 CFR 240.15c2-11) (“Rule 15c2-11” or
“Rule”) under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (“Exchange Act”)
to regulate the initiation or resumption of quotations in a quotation medium by a broker-dealer
for over-the-counter (“OTC”) securities. The Rule was designed primarily to prevent certain
manipulative and fraudulent trading schemes that had arisen in connection with the distribution
and trading of unregistered securities issued by shell companies or other companies having
outstanding but infrequently traded securities. Subject to certain exceptions, the Rule prohibits
brokers-dealers from publishing a quotation for a security, or submitting a quotation for
publication, in a quotation medium unless they have reviewed specified information
concerning the security and the issuer. This information review requirement is intended to
have a broker-dealer give some measure of attention to financial and other information about
an issuer before it initiates or resumes quotations for that issuer’s securities. Pursuant to
subsection (c) of the Rule, the documents and information required by Rule 15c2-11 must be
preserved by the broker-dealer for a period of not less than three years.
Generally, Rule 15c2-11 applies to broker-dealers that initiate or resume publication of
quotations of securities that are not listed and traded on a national securities exchange
(“covered OTC securities”). Most covered OTC securities are quoted on the OTC Bulletin
Board, which is operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) or
on OTC Link (formerly the “Pink Sheets”) operated by OTC Markets Group, Inc. Certain
exceptions, however, except broker-dealers from having to satisfy the Rule’s information
review and retention requirements. For example, the “piggyback” exception in Rule 15c211(f)(3) allows broker-dealers to publish or submit a quotation in an interdealer quotation
system for a covered OTC security that is already the subject of quotations with a specified
frequency without having to fulfill the Rule’s information review and retention
requirements.
Rule 15c2-11 does not require that broker-dealers submit to the Commission the
information collected pursuant to the Rule. Rule 15c2-11(d)(1) does, however, require the
broker-dealer submitting the quotation to furnish to the interdealer quotation system, at least
three days before the quotation is published or submitted, the information regarding the
security and the issuer which the broker-dealer is required to maintain. Furthermore, FINRA
Rule 6432 prohibits a member from initiating or resuming the quotation of covered OTC
securities in a quotation medium unless the member has demonstrated compliance with the
requirements of Rule 15c2-11 pertaining to the review and maintenance of information
about the security and the issuer. To demonstrate compliance with FINRA Rule 6432 and
Rule 15c2-11, a member must file with FINRA a Form 211, in the form required by,

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FINRA, at least three business days before the quotation is published or displayed. Once a
broker-dealer has filed a Form 211 with respect to a security, and that Form 211 is cleared
by FINRA, the security may become “piggyback eligible” provided the quoting activity
meets the requirements of Rule 15c2-11(f)(3).
The Commission is statutorily authorized by Section 15(c)(2) of the Exchange Act, 15
U.S.C. 78o(c)(2), to adopt rules and regulations that define and prescribe means reasonably
designed to prevent such acts and practices as are fraudulent, deceptive, or manipulative.
Further, statutory authority is found in Section 23(a) of the Exchange Act, 15 U.S.C. 78w.
2.

Purpose and Use of the Information Collection

The security and issuer information required by Rule 15c2-11 is to be reviewed and
maintained by broker-dealers publishing or submitting quotations in a quotation medium. This
review protects investors by preventing fraudulent and manipulative quotations. Brokerdealers would not be required to collect and maintain this information but for the Rule.
3.

Consideration Given to Information Technology

The increased use and availability of computers and the Internet will likely reduce the
burdens created by Rule 15c2-11. The availability of financial and other information of
reporting issuers over the Commission’s EDGAR system, which is available via the Internet,
also reduces the burdens associated with Rule 15c2-11 compliance.
4.

Duplication

The requirements of Rule 15c2-11 are not duplicated elsewhere. In certain
circumstances, information specified in the Rule must also be produced by issuers pursuant to
the issuer filing regulations under the Exchange Act, or in order to assist broker-dealers to
comply with their regulatory requirements, i.e., suitability standards of the Commission or the
self-regulatory organizations. Rule 15c2-11 requirements generally conform to obligations
imposed by other statutory or regulatory provisions.
5.

Effect on Small Entities

The Rule requirements are not unduly burdensome on smaller broker-dealers.
6.

Consequences of Not Conducting Collection

Since the information required by the Rule is only collected when a broker-dealer is
initiating or resuming quotations for a particular security, it is not possible to reduce the
number of collections.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

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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.
10.

Confidentiality

Not applicable. Respondents receive no assurance of confidentiality.
11.

Sensitive Questions

There are no questions of a sensitive nature asked, except those related to the
securities industry, that are necessary to protect investors as required by federal securities
law. The information collection does not collect any Personally Identifiable Information
(PII).
12.

Burden of Information Collection

The information required by the Rule is only collected when a broker-dealer is
initiating or resuming quotations for a particular security and, as such, it is generally only a
one-time or initial burden. Thereafter, a security generally becomes “piggyback eligible”
provided the quoting activity meets the requirements of Rule 15c2-11(f)(3). The onetime/initial burden involves reviewing and recordkeeping of the required information as
well as filing the required third party disclosure of Form 211 with FINRA.
Based on information from OTC Markets Group, Inc., it is estimated that as of
February 13, 2017, there was approximately 1 covered OTC security quoted exclusively on the
OTC Bulletin Board, 9,552 quoted exclusively on OTC Link, and 87 quoted on both for a total
of 9,640 covered OTC securities.1 Based on information provided by FINRA, in the 2016
calendar year, FINRA received approximately 461 applications from broker-dealers to initiate
or resume publication of quotations of covered OTC securities on the OTC Bulletin Board
and/or OTC Link or other quotation mediums. We estimate that (i) 195 of the covered OTC
securities were issued by reporting issuers, while the other 266 were issued by non-reporting
issuers, and (ii) it will take a broker-dealer about 4 hours (with approximately 1 hour of which
1

Although there may be covered OTC securities quoted in other quotation mediums,
the empirical data to include them in these estimations is not readily available.

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relates to third party disclosure to FINRA with respect to the Form 211) to review, record and
retain the information pertaining to a reporting issuer, and about 8 hours (with approximately 1
hour of which relates to third party disclosure to FINRA with respect to the Form 211) to
review, record and retain the information pertaining to a non-reporting issuer.
We therefore estimate that broker-dealers who initiate or resume publication of
quotations for covered OTC securities of reporting issuers will require approximately 780
hours (195 x 4) to review, record and retain the information required by the Rule. We estimate
that broker-dealers who initiate or resume publication of quotations for covered OTC securities
of non-reporting issuers will require approximately 2,128 hours (266 x 8) to review, record and
retain the information required by the Rule. Thus, we estimate the total annual burden hours
for broker-dealers to initiate or resume publication of quotations of covered OTC securities to
be 2,908 hours (780 + 2128). The Commission believes that the compliance costs for these
2,128 hours would be borne by internal staff working at a rate of $57 per hour. 2
13.

Costs to Respondents

The Commission does not believe that respondents would incur any one-time start-up
or ongoing operation or maintenance costs to comply with Rule 15c2-11.
14.

Costs to the Federal Government

Rule 15c2-11 does not present a significant cost to the government because the
government does not review the information collected by the respondents.
15.

Changes in Burden

The decrease in total burden hours is due to a decrease in the number of applications
from broker-dealers to initiate or resume publication of covered OTC securities from the prior
time period. In addition, the ratio of covered OTC securities of reporting issuers to covered
OTC securities of non-reporting issuers increased, and the recordkeeping burden on reporting
issuers is less than that of non-reporting issuers. There are no other changes in the burden.
16.

Information Collection Planned for Statistical Purposes

Not applicable. There is no intention to publish the information for any purpose.
17.

Approval to Omit OMB Expiration Date

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

2

$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-hourworkyear and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee
benefits and overhead.

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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.