2019 Rule 15a-6 - Supporting Statement DGL REVISED

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission
for Rule 15a-6
A.

Justification
1.

Necessity of Information Collection

The world’s securities markets rapidly are becoming international in scope.
Multinational offerings have become commonplace, linkages are developing between trading
markets, and U.S. and foreign broker-dealers are developing an international business,
establishing offices throughout the world. Investor interest in trading in world financial markets
has become widespread. Institutional investors, such as investment companies, pension funds,
and major commercial banks, in particular, are active on an international basis.
As U.S. institutions increasingly invest in securities whose primary market is outside the
United States, the ability of these institutions to obtain ready access to foreign markets has
grown in importance. Foreign broker-dealers may offer valuable services to these U.S.
investors. Foreign broker-dealers often provide opportunities to execute trades quickly in a wide
range of foreign securities markets. Foreign broker-dealers also make available research reports
concerning foreign companies, industries, and market environments that are major sources of
information for U.S. institutional investors.
Notwithstanding the important services that may be provided by foreign broker-dealers,
the Commission continues to believe that broker-dealer registration is generally necessary for
foreign entities engaging in securities transactions directly with U.S. persons in U.S. markets.
Registration of market professionals is a key element in the federal statutory scheme and plays a
significant role in protecting investors. It promotes a baseline level of integrity among brokerdealers and their personnel dealing with investors.
In some circumstances, however, for policy reasons, the Commission believes that it is
not necessary for a foreign broker-dealer effecting transactions on behalf of U.S. investors to
register with the Commission. It is for this reason that the Commission adopted Rule 15a-6. The
rule was adopted pursuant to the Commission’s exemptive authority under Section 15(a)(2) of
the Securities Exchange Act of 1934 (“Exchange Act”), which authorizes the Commission to
issue exemptions from the broker-dealer registration requirement contained in Section 15(a)(1).
2.

Purpose and Use of the Information Collection

Paragraph (a)(3) of Rule 15a-6 provides an exemption to allow an unregistered foreign
broker-dealer to effect transactions in securities with or for certain U.S. institutional investors
through a U.S. registered broker-dealer, and to solicit such transactions, provided that several
conditions are complied with. Among these conditions, Rule 15a-6(a)(3)(iii)(C) requires the
U.S. registered broker-dealer to obtain and keep a record of the information specified in Rule
17a-3(a)(12) under the Exchange Act with respect to each individual associated with the foreign
broker-dealer who will be in contact with U.S. institutional investors. This requirement is

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intended to insure that the U.S. registered broker-dealer will receive notice of the identity of, and
has reviewed the background of, foreign personnel who will contact U.S. institutional investors.
In addition, under Rule 15a-6(a)(3)(iii)(D), the U.S. registered broker-dealer must obtain written
consents to service of process from the foreign broker-dealer and each foreign individual in
contact with U.S. institutional investors, for any civil action by or proceeding before the
Commission or a self-regulatory organization. Finally, Rule 15a-6(a)(3)(iii)(E) requires the U.S.
registered broker-dealer to maintain written records of the information and consents required by
the foregoing provisions, and of the trading activities of U.S. institutional investors involving the
foreign broker-dealer, in an office of the registered broker-dealer located in the United States,
and to make such records available to the Commission on request.
3.

Consideration Given to Information Technology

Not applicable.
4.

Duplication

The information requested from the U.S. registered broker-dealer through which a
foreign broker-dealer effects transactions with or for U.S. institutional investors is not
duplicative, because the foreign broker-dealer is not registered as a broker-dealer with the
Commission.
5.

Effect on Small Entities

The rule is one of general applicability that does not depend on the size of a brokerdealer. Because the exemption is designed to apply to all registered broker-dealers that enter
into arrangements with foreign broker-dealers of the type specified by the rule, the rule must
apply in the same manner to small, as well as large, broker-dealers. In addition, small brokerdealers are subject to the same regulatory and recordkeeping requirements under the federal
securities laws as large broker-dealers. Accordingly, the burden on small broker-dealers cannot
be minimized.
6.

Consequences of Not Conducting Collection

A more flexible standard of recordkeeping by U.S. registered broker-dealers who use the
rule’s exemption could jeopardize the fundamental protections that the federal securities laws
provide. Moreover, because of its supervisory responsibility for the U.S. institutional investor’s
account, the U.S. registered broker-dealer is responsible for taking reasonable steps to assure
itself that all transactions pursuant to the rule are solicited and effected in a manner consistent
with U.S. securities laws. In this regard, for example, the U.S. registered broker-dealer is
responsible for taking reasonable steps to assure itself that there is a reasonable basis for any
recommendation made by the foreign broker-dealer or its personnel.
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

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CFR § 1320.5(d)(2).
8.

Consultations outside the Agency

The required Federal Register notice with a 60-day comment period soliciting comments
on the collection of information was published. No public comments were received.
9.

Payment or Gift

Not applicable.
10.

Confidentiality

No assurances of confidentiality have been provided to U.S. registered broker-dealers. In
fact, the rule would require that the U.S. registered broker-dealer maintain a written record of the
information and consents in the United States and make such records available to the
Commission upon request.
11.

Sensitive Questions

No questions of a sensitive nature are asked. The information collection does not collect
any Personally Identifiable Information (PII).
12.

Burden of Information Collection

Because U.S. registered broker-dealers are currently required by Rule 17a-3(a)(12) under
the Exchange Act to maintain similar records with regard to their own registered personnel, the
rule imposes minimal additional costs on U.S. registered broker-dealers. In addition, not every
U.S. registered broker-dealer will choose to enter an arrangement with a foreign broker-dealer as
contemplated by the rule. Commission staff estimates that approximately 2,000 U.S. registered
broker-dealers are affected by the rule’s requirements, and that each affected U.S. registered
broker-dealer expends an average of 3 burden hours per year in its efforts at compliance for a
total of 6,000 annual burden hours.
The estimated total internal labor costs of compliance to U.S. registered broker-dealers
are approximately $818,000. Specifically, Commission staff estimates that the approximately
2,000 U.S. registered broker-dealers will be required to spend an average of two hours of clerical
staff time and one hour of managerial staff time per year obtaining the information required by the
rule. Assuming an hourly cost of $63 1 for a compliance clerk and $2832 for a compliance manager,
1

The hourly rate used for a compliance clerk was from SIFMA’s Office Salaries in the Securities Industry 2013,
modified by Commission staff to account for an 1,800 hour work-year and multiplied by 2.93 to account for
bonuses, firm size, employee benefits and overhead.
2

The hourly rate used for a compliance manager was from SIFMA’s Management & Professional Earnings in
the Securities Industry 2013, modified by Commission staff to account for an 1,800 hour work-year and multiplied
by 5.35 to account for bonuses, firm size, employee benefits and overhead.

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the resultant total internal labor cost of compliance for the respondents is $818,000 per year (2,000
entities X ((2 hours/entity X $63/hour) + (1 hour per entity X $283/hour)) = $818,000).
Alternatively, if foreign broker-dealers desired to engage in securities transactions with
U.S. persons without complying with the rule, those foreign entities could be required to comply
with the broker-dealer registration requirements under the Exchange Act, resulting in significant
cost to the foreign entity.
SUMMARY OF ANNUAL TIME BURDEN

Rule
Rule 15a-6
(17 CFR
240.15a-6)

Burden Type

Number of
Annual
Number of Reponses Per
Respondents Respondent

Recordkeeping

2,000

1

Time Per
Response
(Hours)

Total Burden
Per Burden
Type (Hours)

3

6,000

Total Aggregate Burden
13.

6,000

Costs to Respondents

Not applicable. It is not anticipated that respondents will have to incur any capital and
start-up costs, nor any additional operational or maintenance costs (other than as provided in
Item 12), to comply with the collection of information.
14.

Costs to Federal Government

Not applicable. Rule 15a-6 would not result in any costs to the federal government
beyond normal full-time employee labor costs, nor does the rule require the Commission to hire
any new employees or reallocate existing employees to ensure compliance with the rule.
Specifically, the Commission already examines and inspects U.S. registered broker-dealers, and
inspection for compliance with the recordkeeping requirements of this rule is part of the overall
broker-dealer inspection.
15.

Explanation of Changes in Burden

Not applicable. There is no change in burden.
16.

Information Collections Planned for Statistical Purposes

Not applicable because the information is not used for statistical purposes.

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17.

Approval to Omit OMB Expiration Date

Not applicable. The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification

Not applicable. This collection complies with the requirements in 5 CFR 1320.9.
B.

Collections of Information Employing Statistical Methods
Not applicable because the collection of information does not employ statistical methods.