15c3-3 supporting statement - version C

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 15c3-3 – Customer Protection—Reserves and Custody of Securities
A.

Justification
1.

Information Collection Necessity

During the “Paperwork Crisis” of 1967–1970, many brokers-dealers mishandled and
misused customer funds and securities because they had inadequate and inefficient record
keeping and segregation systems. Furthermore, the 1969–1970 “bear market” caused many
firms that lacked sufficient capital to utilize customer funds and securities to obtain financing for
their continued operation. In order to rectify these problems, the Securities and Exchange
Commission (“Commission”) adopted Rule 15c3-3 under the Securities Exchange Act of 1934
(“Exchange Act”) to provide increased protection for the funds and securities of customers. 1
Rule 15c3-3 requires all broker-dealers that hold securities or cash belonging to
customers to obtain and maintain possession or control of all the fully-paid and excess margin
securities of their customers. 2 In addition, these broker-dealers must make a periodic
computation (“reserve computation”) to ascertain the amount of money being held that
constitutes customer funds or funds obtained from the use of customer securities. If this amount
– known as “customer credits” – exceeds the amount of money customers owe the firm
(“customer debits”), the broker-dealer must deposit the excess in a special reserve bank account
for the exclusive benefit of the firm’s customers (“Special Reserve Bank Account”). 3 In this
way, Rule 15c3-3 protects customer assets by requiring firms to maintain possession or control
of customer securities, and by permitting firms to use customer money only to the extent
necessary to finance customer-related business.
Rule 15c3-3 requires broker-dealers to make the reserve computation on either a weekly
or monthly basis. Broker-dealers are also required to: (1) maintain a description of the
procedures utilized to comply with the possession and control requirements of Rule 15c3-3; (2)
maintain a written notification from the bank where the Special Reserve Bank Account is located
that all assets in the account are for the exclusive benefit of the broker-dealer’s customers; and
(3) give telegraphic notice to the Commission, and the appropriate designated examining
authority (“DEA”), if they fail to make a required deposit in the Special Reserve Bank Account.
In addition, paragraph (o) of Rule 15c3-3 requires that a broker-dealer that effects
transactions for customers in security futures products (“SFP”) must: (1) establish written
policies and procedures for determining whether customer SFPs will be placed in a securities
account or a futures account, and, if applicable, the process by which a customer may elect the
type of account in which SFPs will be held; (2) provide each customer that plans to effect SFP
1

See Broker-dealers; Maintenance of Certain Basic Reserves, Exchange Act Release No. 9856 (Nov. 10,
1972), 37 FR 25224 (Nov. 29, 1972).

2

17 CFR 240.15c3-3.

3

For purposes of this Paperwork Reduction Act (“PRA”) submission, the term “Special Reserve Bank
Account” includes accounts set up in accordance with both paragraph (e)(1) and (k)(2)(i) of Rule 15c3-3.

transactions with a disclosure document containing certain information; (3) make a record of
each change in account type; and (4) send each SFP customer notification of any change of
account type.
2.

Information Collection Purpose and Use

Rule 15c3-3 is an integral part of the Commission’s financial responsibility program for
broker-dealers. Its purpose is to protect the rights of customers to promptly obtain their property
from a broker-dealer. Rule 15c3-3’s reserve and notice requirements facilitate the process by
which the Commission and the various DEAs monitor how broker-dealers are fulfilling their
custodial responsibilities to investors. With the exception of the telegraphic notice requirement,
governmental agencies do not regularly receive any of the information described above. Instead,
the information is stored by the broker-dealer and made available to the various securities
regulatory authorities as required to facilitate examinations and investigations. If broker-dealers
were not required to create and maintain this information, the Commission’s ability to fulfill its
statutory directive to protect investors will be diminished.
Rule 15c3-3 also requires that a broker-dealer provide each customer that wishes to
engage in SFP activities with a disclosure document and notification of any change of account
type. Without these disclosures and notifications, in the event of a liquidation, customers may be
uncertain or confused as to which regulatory scheme is applicable to their account.
3.

Consideration Given to Information Technology

Rule 15c3-3 does not prevent a broker-dealer from using computers or other mechanical
devices to generate, obtain, disclose, or maintain the records and information required under the
rule. Currently, most firms utilize automated systems to comply with Rule 15c3-3. The
Commission is not aware of any technical or legal obstacle to reducing the burden through the
use of improved information technology.
4.

Duplication

There are no similar rules that are duplicative of Rule 15c3-3. Copies of notices required
to be filed with the Commission under paragraph (i) of Rule 15c3-3 must also be filed with the
regulatory authority that examines the broker-dealer for compliance with financial responsibility,
helping to avoid duplication.
5.

Effects on Small Entities

Paragraph (k) of Rule 15c3-3 has the effect of exempting most small broker-dealers from
the rule’s requirements. Small broker-dealers that are not exempt from Rule 15c3-3 can make
the required computation monthly as long as they have aggregate indebtedness not exceeding
800% of net capital and carry aggregate customer funds not exceeding $1,000,000. The
Commission estimates that, as of 2015 year end, 5 broker-dealers were small entities that
performed a customer reserve computation pursuant to Rule 15c3-3.

2

6.

Consequences of not Conducting Collection

If the required information were not conducted or were conducted less frequently, the
level of protection afforded to the counterparties and the U.S. financial system by Rule 15c3-3
will be diminished.
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. The Commission received one comment
requesting substantive changes to Rule 15c3-3. The Commission notes that this PRA renewal is
not being submitted in connection with a rulemaking; therefore, the Commission cannot make
substantive changes to its rules at this time.
9.

Payment or Gift

No payments of gifts have been provided to respondents.
10.

Confidentiality

The information collected by the Commission under Rule 15c3-3, as amended, is kept
confidential to the extent permitted by the Freedom of Information Act (5 U.S.C. § 552 et seq.).
11.

Sensitive Questions

The collections of information do not expressly include Personally Identifiable
Information (“PII”). 4 As such, we believe that the treatment of any PII with the collection of
information associated with Rule 15c3-3 is not likely to implicate the Federal Information
Security Management Act of 2002 or the Privacy Act of 1974.
12.

Information Collection Burden

The Commission estimates that, as of June 30, 2016, there were approximately 224
broker-dealers fully subject to Rule 15c3-3 (i.e., broker-dealers that cannot claim any of the
exemptions enumerated in paragraph (k)), of which approximately 12 made daily, 162 made
weekly, and 50 made monthly, reserve computations. 5 Paragraph (e)(3) of Rule 15c3-3 requires
each broker-dealer to make a record of each such computation. 6 Based on staff experience, the
Commission estimates that it takes between one and five hours to make a record of each reserve
4

The term “Personally Identifiable Information” refers to information that can be used to distinguish or trace
an individual’s identity, such as their 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, mother’s maiden name, etc.

3

computation, and that the average time spent across all the firms is 2.5 hours. Accordingly, the
Commission estimates that the total annual recordkeeping burden is approximately 30,060
hours. 7
Furthermore, paragraph (e) of Rule 15c3-3 requires a PAB reserve computation that will
result in a one-time and annual burden. The Commission estimates that approximately 62
broker-dealers perform a PAB reserve computation. 8 The Commission estimates that, of these
62 firms, 31 firms will spend, on average, approximately 30 hours of employee resources per
firm updating their systems to comply with the rule. Therefore, the Commission estimates that
the total one-time recordkeeping burden to broker-dealers arising from updating their systems
will be approximately 930 hours. 9 The Commission also estimates that of the 62 broker-dealers
estimated to perform a PAB reserve computation, approximately 57 of the current PAB filers
will perform the PAB reserve computation on a weekly basis, 2 broker-dealers will perform it on
a monthly basis, and 3 broker-dealers will perform the PAB reserve computation on a daily
basis. The Commission estimates that a broker-dealer will spend, on average, approximately 2.5
hours to complete the PAB reserve computation in order to make a record of such computation
pursuant to paragraph (e) of Rule 15c3-3. Therefore, the Commission estimates that the total
annual recordkeeping burden to broker-dealers from this requirement will be approximately
9,345 hours. 10
Paragraph (a)(16) of Rule 15c3-3 excludes from its definition of “PAB account,” an
account that “has been subordinated to the claims of creditors of the carrying broker or dealer.” 11
The Commission understands that most PAB account holders that enter into a subordinated loan
agreement with a broker-dealer that maintains custody of customer securities and cash (“carrying
broker-dealer”) in order to not be treated as PAB accounts under paragraph (a)(16) likely will be
affiliates of the broker-dealer. The Commission estimates that the 62 broker-dealers that carry
PAB accounts will enter into an average of 11 subordination agreements under paragraph (a)(16)
and it will take a carrying broker-dealer approximately 20 hours to draft a subordination
5

This estimate is based on the number of firms that, as of June 30, 2016, indicated on either Part II or Part II
CSE of their FOCUS reports (OMB Collection Number 3235-0123) that they make their 15c3-3
computations daily (line 4332), weekly (line 4333), or monthly (line 4334).

6

17 CFR 240.15c3-3(e)(3). 25 broker-dealers did not indicate the frequency with which they calculated
their customer reserve requirement. The Commission assumes for this supporting statement that these
firms make the calculation on a weekly basis.

7

(2.5 hours x 250 computations annually x 12 respondents that calculate daily) + (2.5 hours x 52
computations annually x 162 respondents that calculate weekly) + (2.5 hours x 12 computations annually x
50 respondents that calculate monthly) = 30,060 hours.

8

This estimate is based on the number of brokers-dealers that have, as of June 30, 2016, either aggregate
credit items (line 2170) or debit items (line 2230) on either Part II or Part II CSE of their FOCUS Reports.

9

31 broker-dealers x 30 hours per firm = 930 hours.

10

(57 weekly filers x 52 weeks x 2.5 hours per computation) + (2 monthly filers x 12 months x 2.5 hours per
computation) + (3 daily filers x 250 business days per year x 2.5 hours per computation) = 9,345 total
hours.

11

For purposes of this supporting statement, the term “PAB account” references accounts held at carrying
broker-dealers that hold the proprietary securities and cash of other broker-dealers.

4

agreement. Therefore, the Commission estimates that the total one-time recordkeeping burden
will be 13,640 hours. 12
Paragraph (b)(5) of Rule 15c3-3 requires carrying broker-dealer to provide PAB account
holders with written notice that the account holder’s non-margin securities may be used in the
ordinary course of its business. As noted above, the Commission estimates that approximately
62 broker-dealers carry PAB accounts. The Commission further estimates that, on average, a
firm will spend approximately 10 hours of employee resources drafting or updating a standard
notice template, for a total one-time recordkeeping burden of 620 hours. 13 The Commission also
estimates that there are approximately 1,037 existing PAB customers 14 and approximately 5% of
those customers will be affected by this requirement as they have not yet received the required
written notice from their broker-dealer. 15 Therefore, broker-dealers will have to send
approximately 52 written notices, spending approximately 10 minutes per account sending out
the required written notice, for a total one-time disclosure burden of 8.67 hours. 16
Further, the Commission estimates that the 62 firms that carry PAB accounts will have to
amend or update their standard PAB agreement template. The Commission estimates a firm will
spend, on average, approximately 20 hours of employee resources on this task, for a total onetime recordkeeping burden of 1,240 hours. 17
Paragraph (f) of Rule 15c3-3 prescribes that a broker-dealer required to maintain a
Special Reserve Bank Account must obtain and retain a written notification from each bank in
which it has a Special Reserve Bank Account to evidence the bank’s acknowledgement that
assets deposited in the account are being held by the bank for the exclusive benefit of the brokerdealer’s customers. 18 As stated above, 224 broker-dealers are estimated to be fully subject to
Rule 15c3-3. In addition, 122 broker-dealers operate in accordance with the exemption provided
in paragraph (k)(2)(i), 19 which also requires that a broker-dealer maintain a special reserve
12

62 broker-dealers x 11 accounts x 20 hours = 13,640 hours. For purposes of this supporting statement, the
total annualized burden over the three year approval period will be 4,547 hours (13,640 / 3 = 4,546.666,
rounded to 4,546.67), with an average of 73 hours per respondent (4,546.67 / 62 broker-dealers = 73.333,
rounded to 73.33).

13

62 firms x 10 hours = 620 hours. For purposes of this supporting statement, this one-time burden
annualized over the three year approval period is 206.67 hours (620 / 3 = 206.666, rounded to 206.67
hours), with an average per 62 broker-dealers of 3 hours (206.67 / 62 = 3.333, rounded to 3.33).

14

This estimate is based on the number of firms that, as of June 30, 2016, have account numbers on either
lines 418, 419, 420, or 424 of Part IIA of the FOCUS report.

15

1,037 PAB account holders x 5% = 51.85 PAB account holders, rounded to 52 PAB account holders.

16

52 PAB account holders x 10 minutes = 520 minutes. 520 minutes / 60 minutes = 8.666, rounded to 8.67
hours.

17

62 firms x 20 hours = 1,240 hours. For purposes of this supporting statement, this one-time burden
annualized over the three-year approval period is 413.33 hours (1,240 / 3 = 413.333, rounded to 413.33),
with an average hour burden of 6.67 hours per broker-dealer (413.33 / 62 = 6.666, rounded to 6.67).

18

17 CFR 240.15c3-3(f).

19

This estimate is based on the number of firms that, as of June 30, 2016, indicated on line 4560 of Part II or
Part II CSE of their FOCUS reports that they are subject to the Rule 15c3-3(k)(2)(i) exemption.

5

account. Broker-dealers generally maintain longstanding relationships with banks where they
hold their Special Reserve Bank Accounts and thus do not need to obtain these letters frequently.
The Commission estimates that of the total number of broker-dealers that must comply with Rule
15c3-3, only 25%, or approximately 87 broker-dealers, 20 must obtain one new letter each year. 21
The Commission estimates that it will take a broker-dealer approximately one hour to obtain this
written notification from a bank regarding a Special Reserve Bank Account. 22 Therefore, the
Commission estimates a total annual recordkeeping burden of approximately 87 hours to obtain
these written notifications. 23
Paragraph (f) of Rule 15c3-3 requires a broker-dealer to immediately notify the
Commission and its DEA if it fails to make a required deposit in its Special Reserve Bank
Account. 24 We anticipate broker-dealers will file approximately 29 such notices each year. 25
The Commission estimates that it will take a broker-dealer approximately 30 minutes to file the
required notice, resulting in a total annual reporting burden of approximately 14.5 hours. 26
Paragraph (j)(1) of Rule 15c3-3 includes a condition that a broker-dealer must establish
adequate procedures that will impose a paperwork burden if a broker-dealer wishes to accept or
use any free credit balance from the account of any customer of the broker-dealer. The
requirement that broker-dealers establish adequate procedures with regard to free credit balances
will result in one-time and annual hours burdens for broker-dealers subject to the requirements of
paragraph (j)(1) to Rule 15c3-3 for the 159 broker-dealers that carry free credit balances. 27 Most
firms already have such procedures in place. Therefore, the Commission estimates that a brokerdealer will spend approximately 10 hours per year reviewing and updating its procedures, for an
annual recordkeeping burden of hours. 28
Paragraph (j)(2) of Rule 15c3-3 requires a broker-dealer to obtain written affirmative
consent from a new customer before including a customer’s free credit balances in a Sweep
Program, as defined in paragraph (a)(17), as well as to provide certain disclosures and notices to
all customers with regard to the broker-dealer’s Sweep Program. These requirements will result
in one-time and annual burdens to broker-dealers subject to its provisions. However, these
requirements apply only to firms that carry customer free credit balances and opt to have the
20

(224 +122) x 25% = 86.5, rounded to 87 broker-dealers.

21

The Commission notes that a broker-dealer will need to obtain a letter from its bank regarding its Special
Reserve Bank Account because either the broker-dealer changed the type of business it does and became
subject to paragraph (e)(3) or (k)(2)(i) of Rule 15c3-3 or the broker-dealer established a new Special
Reserve Bank Account.

22

The language in these letters is largely standardized.

23

87 broker-dealers x 1 hour = 87 hours.

24

17 CFR 240.15c3-3(i).

25

Broker-dealers filed 29 such notices with the Commission in 2015.

26

29 notices x 0.5 hours = 14.5 hours.

27

This estimate is based on the number of firms that, as of June 30, 2016, had free credit balances on line
4340 of Part II or Part II CSE of their FOCUS reports.

28

159 broker-dealers x 10 hours = 1,590 hours.

6

ability to change how their customers’ free credit balances are treated. The Commission is
including all 159 broker-dealers that carry free credit balances in its estimate to reflect the fact
that these firms may have to update their systems to comply with these requirements. The
Commission further estimates that these firms will spend, on average, approximately 200 hours
of employee resources per firm updating their current systems (including processes for
generating customer account statements) to comply with the rule. Therefore, the Commission
estimates that the total one-time recordkeeping burden to broker-dealers arising from this
requirement will be approximately 31,800 hours. 29
With respect to the annual burden associated with paragraph (j)(2) of Rule 15c3-3, the
Commission estimates that there are 126,458,378 customer accounts 30 of which 5% will be
impacted each year. 31 The Commission further estimates that a broker-dealer will spend, on
average, four minutes of employee resources to process a written affirmative consent for new
customers, as well as disclosures required under paragraph (j) to Rule 15c3-3. Therefore, the
Commission estimates that the annual recordkeeping burden to broker-dealers 32 arising from the
requirement will be approximately 421,527.93 hours. 33
Paragraph (o)(2)(i) of Rule 15c3-3 requires a broker-dealer that effects transactions for
customers in SFPs to provide each customer that engages in SFP transactions with a disclosure
document containing certain information. The Commission estimates that 8% of the accounts
held by broker-dealers that are also registered as FCMs, or 1,270,616 accounts, may engage in
SFP transactions. 34 The Commission estimates that it will take approximately 3 minutes to
create each record. 35 Thus, the total annual disclosure burden associated with the requirements
of paragraph (o)(2)(i) will be approximately 63,530.80 hours. 36
Paragraph (o)(3) of Rule 15c3-3 requires a broker-dealer that effects transactions in SFPs
for customers to make a record of each change in account type and to provide certain customers
29

159 broker-dealers x 200 hours per firm = 31,800 hours. For purposes of this supporting statement, this
one-time burden annualized over the three-year approval period is 10,600 hours (31,800 / 3 = 10,600), with
an average hour burden per broker-dealer of 66.67 hours (10,600 / 159 broker-dealers = 66.666, rounded to
66.67).

30

This estimate is based on the total number of public customer accounts listed on line 8080 of firms’
FOCUS reports, as of December 2015.

31

The Commission estimates approximately 6,322,919 accounts (126,458,378 x 5% = 6,322,918.9, rounded
to 6,322,919) will be impacted annually.

32

This annual burden will affect the 159 broker-dealers that carry free credit balances.

33

(6,322,919 accounts x 4 minutes per account) / 60 minutes = 421,527.933, rounded to 421,527.93 hours.
For purposes of this supporting statement, the Commission divided the total annual hour burden by 159
respondents for average annual burden per firm of 2,651.12 hours (421,527.93 / 159 = 2,651.119, rounded
to 2,651.12).

34

15,882,696 accounts x 8% = 1,270,615.68, rounded to 1,270,616 accounts. The Commission derived its
8% estimate from the number of active options accounts and conversations with industry representatives.

35

The Commission estimates that most firms will have this process automated. To the extent that no person
need be involved in the generation of this record, the burden will be very minimal.

36

1,270,616 accounts x (3 minutes/60 minutes) = 63,530.80 hours

7

with disclosure documents containing certain information about SFP products. 37 The
Commission estimates that broker-dealers that were also registered as futures commission
merchants (“FCMs”) maintained approximately 15,882,696 customer accounts. 38 The
Commission estimates that 8% of these customers may engage in SFP transactions, 39 and that of
that 8%, 20% per year may change account type, requiring a broker-dealer to promptly notify the
customer in writing on the date that change became effective. 40 Thus, broker-dealers may be
required to create these records for approximately 254,123 accounts. 41 The Commission
estimates that it will take approximately 3 minutes to create each record. 42 Thus, the total annual
recordkeeping and disclosure burden associated with the requirements of paragraph (o)(3) will be
approximately 12,706.15 hours. 43
A broker-dealer that is determining whether a registered clearing or derivatives
organization meets the requirements of Note G to Exhibit A to Rule 15c3-3 may not rely on the
credit rating of that organization to determine whether the broker-dealer can keep customer’s
positions in security future products with the organization for purposes of the reserve
computation. Thus, broker-dealers that previously relied on ratings for the purposes of Note G
use another method for assessing the creditworthiness of registered clearing or derivatives
organizations. The Commission believes that approximately 72 broker-dealers will be required
to change or update how they assess the creditworthiness of registered clearing or derivatives
organizations under Note G. 44 The Commission believes that broker-dealers will spend .25
hours determining whether a clearing or derivatives organization meets the requirements of Note
G, resulting in an annual recordkeeping burden of 18 hours. 45 The Commission further believes
37

More specifically, a broker-dealer that changes the type of account in which a customer’s SFPs are held
must create a record of each change in account type that includes the name of the customer, the account
number, the date the broker-dealer received the customer’s request to change the account type, and the date
the change in account type took place.

38

This estimate is based on the number of accounts that, as of December 2015, were listed on line 8080 of
Schedule 1 of firms’ FOCUS reports provided that those firms also had a dollar amount greater than 0
listed on line 7465 of their Part II CSEs of their FOCUS reports.

39

15,882,696 accounts x 8% = 1,270,615.68, rounded to 1,270,616 accounts. The Commission derived its
estimate from the number of active options accounts and conversations with industry representatives.

40

Broker-dealers that engage in an SFP business may choose not to allow customers to change account type
because it may be costly to facilitate such conversions. In addition, once a customer has researched the
issue and made a choice as to account type, it may be unlikely for the customer to change his or her account
type.

41

1,270,616 accounts x 20% = 254,123.2, rounded to 254,123 accounts.

42

The Commission estimates that most firms will have this process automated. To the extent that no person
need be involved in the generation of this record, the burden will be very minimal.

43

254,123 accounts x (3min / 60min) = 12,706.15 hours.

44

The number 72 comes from reviewing the members of the Options Clearing Corporation (“OCC”) listed in
the member directory on the OCC’s website, available at
http://www.optionsclearing.com/membership/member-information/. Of the list of 228 members, the
Commission looked only at those who trade in single stock futures. Of the list of members that trade in
single stock futures, the Commission deleted any members who had the exact same firm name but different
firm numbers.

45

72 broker-dealers x .25 hours = 18 hours.

8

that broker-dealers will spend one hour changing or reviewing their methods for determining
whether a clearing or derivatives clearing organization meets the requirements of Note G,
resulting in a one-time recordkeeping burden of 72 hours. 46
Consequently, the Commission estimates that the total annualized hour burden for the
total collection under Rule 15c3-3 is 555,604 hours. 47

46

72 broker-dealers x 1 hour = 72 hours. For purposes of this supporting statement, this one-time burden
annualized over the three-year approval period is 24 hours (72 / 3 = 24), with an average hour burden per
broker-dealer of .33 hours (24/72 broker-dealers = .33). The staff believes that broker-dealers will be
subject to a one-time cost associated with reviewing the standards a broker-dealer uses to determine
whether a registered clearing or derivatives organization meets the requirements of Note G.

47

7,500 hours + 21,060 hours + 1,500 hours + 930 hours + 7,410 hours + 60 hours + 1,875 hours + 4,546.67
hours + 206.66 hours + 3.47 hours + 413.54 hours + 87 hours + 14.50 hours + 1,590 hours + 10,600.53
hours + 421,527.93 hours + 63,530.80 hours + 12,076.15 hours + 41.76 hours = 555,604.01 hours.

9

Summary of Hourly Burdens

Initial
Burden
per Entity
per
Response

Initial Burden
Annualized
per Entity per
Response

Ongoing
Burden per
Entity per
Response

Annual
Burden Per
Entity per
Response

Total
Annual
Burden Per
Entity

250

0.00

0.00

2.50

2.50

625.00

7,500.00

0

162

52

0.00

0.00

2.50

2.50

130.00

21,060.00

0

Recordkeeping

50

12

0.00

0.00

2.50

2.50

30.00

1,500.00

5

Recordkeeping

31

1

30.00

10.00

0.00

10.00

10.00

930.00

0

Recordkeeping

57

52

0.00

0.00

2.50

2.50

130.00

7,410.00

0

Recordkeeping

2

12

0.00

0.00

2.50

2.50

30.00

60.00

0

Name of
Information
Collection

Rule 15c3-3(e)(3) –
daily computations
Rule 15c3-3(e)(3) –
weekly computations
Rule 15c3-3(e)(3)
monthly computations
Rule 15c3-3(e) updates
Rule 15c3-3(e) –
weekly computations
Rule 15c3-3(e) monthly computations
Rule 15c3-3(e) - daily
computations

Type of
Burden

Number of
Entities
Impacted

Annual
Responses
per Entity

Recordkeeping

12

Recordkeeping

Total Industry
Burden

Small
Business
Entities
Affected

Recordkeeping

3

250

0.00

0.00

2.50

2.50

625.00

1,875.00

0

Recordkeeping

62

11

20.00

6.667

0.00

6.667

73.37

4,546.67

0

Recordkeeping

62

1

10.00

3.33

0.00

3.33

3.33

206.66

0

Third-Party

62

0.84

0.17

0.06

0.00

0.06

0.06

3.47

0

Recordkeeping

62

1

20.00

6.67

0.00

6.67

6.67

413.54

0

Recordkeeping

346

0.25

0.00

0.00

1.00

1.00

1.00

87.00

0

Reporting

346

0.083

0.00

0.00

0.50

0.50

0.50

14.50

0

Recordkeeping

159

1

0

0.00

10.00

10.00

10.00

1,590.00

5

Recordkeeping

159

1

200.00

66.67

0.00

66.67

66.67

10,600.53

0

Recordkeeping

159

39,766

0.00

0.00

0.0667

0.0667

0.0667

421,527.93

0

Rule 15c3-3(o)(2)(i)

Third-Party

159

7,991.3

0.00

0.00

0.05

0.05

0.05

63,530.80

0

Rule 15c3-3(o)(3)

Third-Party

159

1,598

0.00

0.00

0.05

0.05

0.05

12,706.15

0

Rule 15c3-3, Note G

Recordkeeping

72

1

1.00

0.33

0.25

0.58

0.58

41.76

0

Rule 15c3-3(a)(16)
Rule15c3-3(b)(5) –
drafting/updating
notice
Rule15c3-3(b)(5) –
notices to affected
customers
Rule15c3-3(b)(5) –
amend/updatet
agreement
Rule 15c3-3(f) obtain new letter
Rule 15c3-3(f) notice
Rule 15c3-3(j)(1) annual
Rule 15c3-3(j)(2) initial
Rule 15c3-3(j)(2) annual

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

13.

555,604.01

Costs to Respondents

Paragraph (b)(5) of Rule 15c3-3 will require a broker-dealer to incur postage costs when
sending out the required written notice to customers. The Commission estimates that there are
approximately 1,037 existing PAB customers and approximately 5% of those customers will be
affected by this requirement as they have not yet received the required written notice from their
broker-dealer. 48 Therefore, broker-dealers will have to send approximately 52 written notices. .
These carrying broker-dealers will likely use the least expensive method to comply with this
requirement and may include this notification with other mailings sent to PAB account holders.
The Commission, however, conservatively estimates that the postage cost or each notification,
using the current price of first class postage, will be approximately $0.49 per document sent.

48

1,037 PAB account holders x 5% = 51.85 PAB account holders, rounded to 52 PAB account holders.

10

Therefore, the Commission estimates that the total disclosure cost associated with sending the
required written notification to PAB account holders will be approximately $25.48. 49
Additionally, the Commission estimates that the 62 broker-dealers carrying PAB
accounts likely will engage outside counsel to review the required notice, as well as the standard
PAB template agreement under the final rule amendments to Rule 15c3-3. As a result, the
Commission estimates that these 62 broker-dealers will likely incur $2,000 in legal costs, 50 for a
total recordkeeping cost to the industry of $124,000 51 to review and comment on these materials.
The Commission also estimates that broker-dealers will consult with outside counsel in
making system changes, particularly with respect to the language in the disclosures and notices
under paragraph (j)(2) to Rule 15c3-3 related to the treatment of free credit balances. As a result,
the Commission estimates that the average one-time recordkeeping cost to a broker-dealer will
be approximately $20,000 52 and the average one-time recordkeeping cost to broker-dealers will
be approximately $3,180,000. 53
Rule 15c3-3(o)(2)(i) requires a broker-dealer that effects transactions for customers in
SFPs to provide each customer that engages in SFP transactions with a disclosure document
containing certain information. The costs of printing and sending the disclosure document to
customers will be based on the number of customer accounts that will be opened by customers to
effect transactions in SFPs. As applied in section 12 above, the Commission estimates that 8%
of the accounts held by broker-dealers that are also registered as FCMs, or 1,270,616 accounts,
may engage in SFP transactions. 54 The Commission also estimates that the cost of printing and
sending each disclosure document will be approximately $.49 per document sent, based on the
price of first class postage. Therefore, the Commission estimates that the annual recordkeeping
and disclosure cost burden associated with this rule requirement to be approximately
$622,601.84. 55
Rule 15c3-3(o)(3)(ii) requires a broker-dealer that changes the type of account in which a
customer’s SFPs are held to promptly notify the customer in writing of the date that change
49

52 notices x $0.49 = $25.48, or about $8.50 annualized over three years.

50

5 hours x $400 per hour = $2,000. The Commission estimates the review of the notice and standard PAB
template will require 5 hours of outside counsel time, which is the same estimate used for outside counsel
review in another recent release. Based on Commission experience with the PAIB Letter and the
application of Rule 15c3-3, the Commission estimates the outside counsel review related to the PAB
amendments will take a comparable amount of time.

51

62 firms x $2,000 legal cost = $124,000.

52

$400 per hour x 50 hours = $20,000. The Commission estimates that the average hourly cost for an outside
counsel will be approximately $400 per hour. The Commission used the estimate of $400 per hour for
legal services provided by outside counsel, which is the same estimate used by the Commission in other
recent releases.

53

159 broker-dealers x $20,000 = $3,180,000, or $1,060,000 annualized over three years.

54

15,882,696 accounts x 8% = 1,270,615.68, rounded to 1,270,616 accounts. The Commission derived its
8% estimate from the number of active options accounts and conversations with industry representatives.

55

1,270,616 accounts x $.49 = $622,601.84.

11

became effective. The Commission estimates that 254,123 accounts 56 may change account type
per year, thus broker-dealers will be required to send this notification to 254,123 customers. The
Commission notes that firms will likely use the least expensive method to comply with these
requirements, and may include this notification with other mailings, such as customer account
statements, sent to the customer. Therefore, the Commission estimates that the cost of printing
and posting each notification will be approximately $.49 per document sent, resulting in an
annual recordkeeping and disclosure burden of $124,520.27. 57
Consequently, the Commission estimates that the total annual cost associated with Rule
15c3-3 is approximately $1,848,464.68. 58

Summary of Dollar Costs

Initial Cost
per Entity
per
Response

Initial Cost
Annualized
per Entity per
Response

$0.49

$0.16

1

$2,000.00

159

1

159
159

Name of Information
Collection

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Rule 15c3-3(b)(5)

Third-party
disclosure

62

0.8387

Rule 15c3-3(b)(5)

Recordkeeping

62

Rule 15c3-3(j)(2)

Recordkeeping
Third-party
disclosure
Third-party
disclosure

Rule 15c3-3(o)(2)(i)
Rule 15c3-3(o)(3)(ii)

14.

Ongoing
Cost per
Entity per
Response

Small
Business
Entities
Affected

Annual Cost
Per Entity
per Response

Total Annual
Cost Per
Entity

0

$0.16

$0.16

$8.50

0

$666.67

0

$666.67

$666.67

$41,333.54

0

$20,000.00

$6,666.67

0

$6,666.67

$6,666.67

$1,060,000.53

0

7991.3

$0.00

$0.00

$0.49

$0.49

$0.49

$622,601.84

0

1,598

$0.00

$0.00

$0.49

$0.49

$0.49

$124,520.27

0

TOTAL COST FOR ALL RESPONDENTS

$1,848,464.68

Total Industry
Cost

Costs to Federal Government

The staff does not anticipate this information collection to impose additional costs to the
Federal Government.
15.

Changes in Burden

The overall hour burden increased primarily due to the increased number of broker-dealer
customer accounts estimated in this collection (126,458,378) versus the estimate in the prior
collection (110,493,215). In addition, this collection included a more detailed estimate of the
burden associated with broker-dealers’ security futures product activity, which resulted in a
higher overall hour burden estimate.

56

1,270,616 accounts x 20% = 254,123.2 accounts, rounded to 254,123 accounts.

57

254,123 accounts x $.49 = $124,520.27.

58

$8.50 + $41,333.54 + $1,060,000.53 + $622,601.84 + $124,520.27 = $1,848,464.68.

12

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
This collection does not involve statistical methods.

13