DGL REVISED 2019 Rule 31 PRA supporting stmt

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 31 and Form R31 under the Exchange Act

A.

Justification
1.

Necessity of Information Collection

Pursuant to Section 31 of the Securities Exchange Act of 1934 (“Exchange Act”), 1 the
Securities and Exchange Commission (“SEC”) is required to collect fees and assessments from
national securities exchanges and national securities associations (collectively, “self-regulatory
organizations” or “SROs”) based on the volume of their securities transactions. To collect the
proper amounts, the SEC in 2004 adopted Rule 31 and Form R31 under the Exchange Act
whereby each SRO must report to the SEC the volume of its securities transactions and the SEC,
based on those data, calculates the amount of fees and assessments that each SRO owes pursuant
to Section 31. Rule 31 and Form R31 require each SRO to provide these data on a monthly
basis.
2.

Purpose and Use of the Information Collection

Rule 31 implements the requirements of Section 31 of the Exchange Act by requiring
each SRO to provide trade data that, in turn, enable the SEC to calculate accurately the amount
of fees and assessments owed by the SRO pursuant to Section 31. Without this rule, the SEC
would not be able to satisfy its obligations under Section 31.
3.

Consideration Given to Information Technology

Much of the information required on Form R31 consists of data that are already compiled
by respondents in electronic form. Therefore, there is only limited scope for information
technology to reduce the respondents’ burden.
4.

Duplication

The SEC does not believe that Rule 31 and Form R31 require any duplicative filing
requirements.
5.

Effects on Small Entities

Rule 31 and Form R31 have no effect on any small entity. Currently, Rule 31 and Form
R31 impose duties on 22 national securities exchanges, one security futures exchange, one
national securities association, and two registered clearing agencies (which are required to
provide certain data in their possession needed by the SROs to complete Form R31). Based on
1

15 U.S.C. 78ee.

past experience, the SEC estimates that three new exchanges will register and become subject to
Rule 31 and Form R31 during the authorization period. Of the 26 current and three expected
new respondents, none is a small entity.
6.

Consequences of Not Conducting Collection

Obtaining monthly data on all sales of securities and transactions in security futures that
are subject to Section 31 enables the SEC to calculate and book on its financial statement a
monthly receivable for Section 31 fees and assessments. The SEC believes that it is appropriate
to recognize and record, on its financial statement, accounts receivable for Section 31 fees and
assessments on a monthly basis. Generally accepted accounting principles require federal
government agencies to follow accrual-based accounting. One principle of accrual-based
accounting is that an entity must recognize and match revenue and expenses in the same period
that those revenues are earned and expenses are incurred. Thus, any less frequent collection
could render the SEC unable to fulfill its obligations under the Accountability of Tax Dollars of
2002 (“Accountability Act”).
7.

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

5 CFR 1320.5(d)(2) states that, unless an agency is able to demonstrate, in its submission
for OMB clearance, that such characteristic of the collection of information is necessary to
satisfy statutory requirements or other substantial need, OMB will not approve a collection of
information that has any one of eight characteristics. Rule 31 has two of these characteristics.
Nevertheless, the SEC believes that these characteristics are justified by “statutory requirements
or other substantial need.” The eight characteristics are set forth below:
(i) requiring respondents to report information to the agency more often than quarterly;
Under Rule 31, each respondent is required to submit a completed Form R31 on a
monthly basis. This permits the SEC to calculate the fees and assessments owed by each
SRO every month, even though they are due only twice per year (on or before March 15
and September 30 of each year). The Accountability Act requires the SEC to produce
audited financial statements. The SEC believes that it is appropriate to recognize and
record, on its financial statement, accounts receivable on a monthly basis. Generally
accepted accounting principles require federal government agencies to follow accrualbased accounting. One principle of accrual-based accounting is that an entity must
recognize and match revenue and expenses in the same period that those revenues are
earned and expenses are incurred.
(ii) requiring respondents to prepare a written response to a collection of information in
fewer than 30 days after receipt of it;
Rule 31 requires each respondent to submit a completed Form R31 in fewer than 30 days
after receiving the data that must be reported on the form. However, the SEC believes
that this requirement is justified by statutory requirements or other substantial need.

The first billing cycle established under Section 31(e) of the Exchange Act 2 is from
January 1 to August 31; the due date for fees and assessments incurred in that period is
September 30. Thus, the first billing cycle allows only 30 days between the close of the
billing period (August 31) and the date on which each SRO must pay fees and
assessments based on securities transactions occurring in that period (September 30). For
the SEC to bill an SRO the correct amount, issue the bill before the September 30 due
date, and give the SRO reasonable time to pay the bill, the SEC must obtain the data on
the SRO’s securities transactions in fewer than 30 days after August 31.
In addition, requiring each respondent to submit a completed Form R31 in fewer than 30
days after receiving the data to be reported allows the SEC to better carry out its
responsibilities under Section 31(j)(2) of the Exchange Act. 3 Section 31(j)(2) requires
the SEC to adjust the rate at which it levies fees on sales of securities if the SEC makes
certain findings relating to the estimated volume of securities transactions in the fiscal
year by every March 1st. Obtaining data on these transactions in less than 30 days after
the respondents receive such data helps the SEC to make determinations regarding fee
rate adjustments within the time frame stipulated in Section 31(j)(2).
(iii) requiring respondents to submit more than an original and two copies of any
document;
Not applicable
(iv) requiring respondents to retain records, other than health, medical, government
contract, grant-in-aid, or tax records, for more than three years;
Not applicable
(v) in connection with a statistical survey, that is not designed to produce valid and
reliable results that can be generalized to the universe of study;
Not applicable
(vi) requiring the use of a statistical data classification that has not been reviewed and
approved by OMB;
Not applicable
(vii) that includes a pledge of confidentiality that is not supported by authority
established in statute or regulation, that is not supported by disclosure and data security
policies that are consistent with the pledge, or which unnecessarily impedes sharing of
data with other agencies for compatible confidential use; or
2

15 U.S.C. 78ee(e).

3

15 U.S.C. 78ee(j)(2).

Not applicable
(viii) requiring respondents to submit proprietary, trade secret, or other confidential
information unless the agency can demonstrate that it has instituted procedures to protect
the information's confidentiality to the extent permitted by law.
Not applicable
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. The information to be collected on Form R31 is not confidential.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, is required under
this collection of information. The information collection collects basic Personally Identifiable
Information (PII) that may include name, job title, work address, telephone number, and e-mail
address. However, the agency has determined that the information collection does not constitute
a system of record for purposes of the Privacy Act. Information is not retrieved by a personal
identifier. In accordance with Section 208 of the E-Government Act of 2002, the agency has
determined that the information collection does not trigger the Privacy Impact Assessment (PIA)
requirement. The information collection is collected and maintained in paper.
12.

Burden of Information Collection

As stated in item #5, there are currently 26 respondents with obligations under Rule 31:
22 national securities exchanges, one security futures exchange, one national securities
association, and two registered clearing agencies. Of these 26 respondents, 24 are required to
file Form R31 on a monthly basis; the two registered clearing agencies are required to provide
certain data in their possession needed by the SROs to complete Form R31, although these two
entities are not themselves required to complete and submit Form R31. The SEC estimates that the
annual compliance burden of Rule 31 on the 26 current respondents collectively will be 390 staff
hours, or 32.5 hours per month. This estimate is derived as follows:
FINRA (the only respondent national securities association)

•

concerning FINRA (the one national securities association), the SEC estimates
that FINRA will incur a compliance burden of 2 staff hours per month for an
annual aggregate of 24 hours;
Two registered clearing agencies

•

concerning NSCC (one of the two registered clearing agencies), the SEC
estimates that NSCC will incur a compliance burden of 6 staff hours per month
for an annual aggregate of 72 hours to provide data to the exchanges for which
NSCC currently serves, and is expected to serve over the authorization period, as
the designated clearing agency;

•

concerning OCC (one of the two registered clearing agencies), the SEC estimates
that OCC will incur a compliance burden of 4 staff hours per month for an annual
aggregate of 48 hours to provide data to the exchanges for which OCC currently
serves, and is expected to serve over the authorization period, as the designated
clearing agency;
Existing national securities and security futures exchanges

•

an exchange’s compliance burden will depend on whether it trades NSCC-settled
products (i.e., equities), OCC-settled products (i.e., options or security futures), or
both;

•

concerning the existing 11 OCC-only exchanges, the SEC estimates that each will
each incur a compliance burden of 0.5 hour per month for an aggregate of 66
hours per year (11 respondents x 12 responses/year x 0.5 hours/response);

•

concerning the existing 6 NSCC-only exchanges, the SEC estimates that each will
incur a compliance burden of 1.0 hour per month for an aggregate of 72 hours per
year (6 respondents x 12 responses/year x 1.0 hour/response);

•

concerning the existing 6 dual exchanges, the SEC estimates that each will incur a
compliance burden of 1.5 hours per month for an aggregate of 108 hours per year
(6 respondents x 12 responses/year x 1.5 hours/response).

The SEC also estimates that three new national securities exchanges will register and
become subject to the reporting requirements of Rule 31 over the course of the authorization period
(i.e., on average, one new exchange per year). The SEC estimates that one of these exchanges will
trade only OCC-settled products, one will trade only NSCC-settled products, and one will be a dual
exchange. However, it is not clear exactly when these additional respondents will become
registered as national securities exchanges; therefore, for purposes of estimating their reporting
burden, the Commission amortizes evenly the rate at which they are expected to commence
activities over the next 3 years (i.e., the Commission expects on average that each new
respondents will become active one and a half years into the three-year authorization period).
Taking into account such amortization, the number of annual responses for each new respondent

will be only 6 per year instead of 12 per year because each will, on average, be reporting only for
18 out of the 36 months in the authorization period. The estimated total annual burden for the
three new respondents will be 18 hours total, derived as follows:
•

concerning the one expected OCC-only exchange, the SEC estimates that this
exchange will incur a compliance burden of 0.5 hour per response multiplied by 6
responses per year for an annual aggregate of 3 hours;

•

concerning the one expected dual exchange, the SEC estimates that this exchange
will incur a compliance burden or 1.5 hours per response multiplied by 6 responses
per year for an annual aggregate of 9 hours; and

•

concerning the one expected NSCC-only exchange, the SEC estimates that this
exchange will incur a compliance burden of 1.0 hour per response multiplied by 6
responses per year for an annual aggregate of 6 hours.

Based on the above, the SEC estimates that Rule 31 and Form R31 will cause the 26
existing respondents to incur an annual burden of 390 staff hours, and the three expected new
respondents to incur an average annual burden of 18 staff hours, for a total annual burden for all
respondents of 408 staff hours.
Below is a chart summarizing the burden calculations related to Rule 31 and Form R31.

Respondent
Type

Number of
Respondents

Number of
Annual Reponses
Per Respondent

Time Per
Response
(Hours)

Total Annual
Burden (Hours)

FINRA

1

12

2

24

NSCC

1

12

6

72

OCC

1

12

4

48

Existing OCC
Only Exchanges

11

12

.5

66

Existing NSCC
Only Exchanges

6

12

1

72

Existing Dual
Exchanges

6

12

1.5

108

Annual Burden for Existing Respondents:

390

New OCC Only
Exchange

1

6*

.5

3

New Dual
Exchange

1

6*

1.5

9

New NSCC Only
Exchange

1

6*

Annual Burden for New Respondents:
Total Annual Burden for All Respondents (Hours)

1

6
18
408

* As explained above, the SEC estimates that the new exchanges will become active one and a
half years into the three-year authorization period, meaning that they will only be filing half of
the responses during the three-year authorization period that they otherwise would if they were
active for the entire three-year period. Therefore, the number of annual responses per respondent
for these three exchanges is reduced to 6 from 12 to account for 18 months of reporting instead
of 36.
13.

Costs to Respondents

Not applicable. The SEC does not believe that the 26 existing or 3 expected new
respondents will have to incur any capital or start-up costs, or any additional operational or
maintenance costs (other than as provided in Item 12), to comply with the collection of
information requirements imposed by Rule 31 and Form R31.
14.

Costs to Federal Government

The SEC estimates that its operational cost to review each Form R31 submission is
$60.34, representing 17 minutes of staff time (5 minutes of clerical time costing $6.10 plus 12
minutes of economist time costing $54.24). These figures were derived as follows:
•
•

5 minutes of clerical work at $73 an hour ($1.22 per minute) equals $6.10; and
12 minutes of work by economists at $271 an hour ($4.52 per minute) equals $54.24.

The SEC estimates that it will process 306 submissions per year. These figures were
derived as follows:
•
•
•
•
•
•

12 submissions from FINRA;
132 total submissions from the 11 existing OCC-only exchanges;
72 total submissions from the 6 existing NSCC-only exchanges;
72 total submissions from the 6 existing dual exchanges;
18 submission from the estimated 3 new exchanges;
as stated in item 12, NSCC and OCC do not file Form R31 but simply provide
information to SROs that are required to file Form R31.

The total estimated cost to the SEC equals $60.34 per submission multiplied by 306
submissions equals $18,464.04.
15.

Changes in Burden

The total burden hours of 408 did not change. However, the number of respondents has
increased (due to new exchanges completing registration during the past three years) and the
classification type of certain current respondents (i.e., OCC-only exchange, NSCC-only
exchange, or dual exchange) has changed due to previously incorrect classifications being
corrected.
16.

Information Collection Planned for Statistical Purposes

Not applicable. This information is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

The SEC requests authorization to omit the expiration date on the electronic version of
the form. Including the expiration date on the electronic version of the form will result in
increased costs, because the need to make changes to the form may not follow the application’s
scheduled version release dates. The OMB control number will be displayed.
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 Method
Not applicable. This collection does not involve statistical methods.