Rule 611 PRA Update Supporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 611
A.

JUSTIFICATION
1.

Information Collection Necessity

On June 9, 2005, the Commission adopted Rule 611 as part of Regulation NMS. 1 Rule
611 is designed to limit the incidence of trade executions at prices inferior to a price displayed
on another market. To achieve this goal, Rule 611 requires any national securities exchange,
national securities association, alternative trading system, exchange market maker, over-thecounter market maker, and any other broker-dealer that executes orders internally by trading as
principal or crossing orders as agent, to establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the execution of a transaction in its market at a price
that is inferior to a protected bid or offer displayed in another market at the time of execution (a
“trade-through”).
Rule 611 contains one collection of information. This collection of information is found
in Rule 611(a). Rule 611(a) requires any national securities exchange or national securities
association that operates an SRO trading facility, alternative trading system, exchange market
maker, over-the-counter market maker, and any other broker-dealer that executes orders
internally by trading as principal or crossing orders as agent, to establish and maintain written
policies and procedures reasonably designed to prevent the execution of a trade-through in its
market, absent an applicable exception and, if relying on an exception, that are reasonably
designed to assure compliance with the terms of the exception.
2.

Information Collection Purpose and Use

The purpose of the collection of information is to help ensure that national securities
exchanges, national securities associations, alternative trading systems, exchange market makers,
over-the-counter market makers, and other broker-dealers that execute orders internally and their
customers, subscribers, members, and employees, as applicable, generally avoid trade-throughs,
as contemplated by Rule 611. Without this collection of information, respondents would not
have a means to enforce compliance with the Commission’s intention to prevent trade-throughs
pursuant to the Rule 611.

1

See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005).

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3.

Consideration Given to Information Technology

Improved information technology would not reduce the burden because each respondent
would still be required to establish policies and procedures reasonably designed to prevent tradethroughs suited to any available technology.
4.

Duplication

Not applicable; there is no duplication of information.
5.

Effect on Small Entities

The rule’s requirements are not be unduly burdensome on smaller broker-dealers. No
other small entities are affected by the rule.
6.

Consequences of Not Conducting Collection

No collection of information under Rule 611 would undermine the purpose of the rule.
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.
10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No questions of a sensitive nature are asked. The information collection does not collect
any Personally Identifiable Information (“PII”).

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12.

Information Collection Burden

The Commission staff estimates that it would take approximately 60 hours annually per
respondent to ensure that the policies and procedures established are up-to-date and remain in
compliance with the Commission’s rule: two hours per month of internal legal time and three
hours per month of internal compliance time. The annual aggregate burden for all respondents
combined for this collection of information is estimated to be 18,240 hours [304 respondents 2 x
60 hours annually]. The estimated cost for an in-house attorney is $396 per hour, and the estimated
cost for an assistant compliance director in the securities industry is $349 per hour. Therefore, the
estimated total internal cost of compliance for the annual hour burden is as follows: [(2 legal hours x
12 months x $396) x 304 + [(3 compliance hours x 12 months x $349) x 304] = $6,708,672. 3
13.

Costs to Respondents

The annual cost burden will be zero.4
14.

Costs to Federal Government

Not applicable.
15.

Changes in Burden

With respect to the estimated annual hour burden, the number of respondents reflects a
decrease in the number of firms that were registered equity market makers or specialists at yearend 2015.
16.

Information Collections Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.

2

This estimate includes twelve national securities exchanges and one national securities
association that trade NMS stocks. The estimate also includes the approximately 255 firms that
were registered equity market makers or specialists at year-end 2015, as well as 36 alternative
trading systems that operate trading systems that trade NMS stocks.

3

The total cost of compliance for the annual hour burden has been revised to reflect updated
estimated cost figures for an in-house attorney and an assistant compliance director. These
figures are from SIFMA’s Management & Professional Earnings in the Securities Industry 2017,
modified by Commission staff for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits, and overhead.

4

The cost burden originally consisted of one-time startup costs that are no longer applicable.

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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.