2019_Supporting Statement -- Rule 6h-1

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 6h-1
A.

JUSTIFICATION
1.

Necessity of Information Collection

The Securities Exchange Act of 1934, as amended (“Exchange Act”), 1 provides a
framework for self-regulation under which various entities involved in the securities business,
including national securities exchanges and national securities associations, have primary
responsibility for regulating their members or participants. The role of the Securities and
Exchange Commission (“Commission”) in this framework is primarily one of oversight; the
Exchange Act charges the Commission with the responsibility for assuring that each of these
self-regulatory organizations (“SROs”) complies with and advances the policies of the Exchange
Act.
The Commodity Futures Modernization Act of 2000 (“CFMA”) 2 amended the Exchange
Act by allowing the trading of futures on individual securities or on narrow-based security
indexes (collectively, “security futures products”) and providing a framework for the joint
regulation of trading in security futures products by the Commission and the Commodity Futures
Trading Commission.
Section 6(h) of the Exchange Act 3 provides that, prior to trading security futures
products, a national securities exchange or national securities association must file with the
Commission under Section 19(b) of the Exchange Act 4 listing standards for such security futures
products. The Exchange Act, as amended by the CFMA, provides that such listing standards
must require, among other things, that: (1) trading in security futures products not be readily
susceptible to price manipulation, 5 and (2) the market on which a security futures product trades
has in place procedures to coordinate trading halts with the listing market for the security or
securities underlying the security futures product. 6 To further these statutory mandates, Rule 6h1 under the Exchange Act 7 requires that: (1) the final settlement price of cash-settled security
futures products fairly reflect the opening price of the underlying security or securities, rather
than the closing price, on the grounds that settlement based on the closing price creates greater
volatility and more opportunity for price manipulation; and (2) the rules of an SRO that trades
1

15 U.S.C. 78a et seq.

2

Pub. L. No. 106-554, 114 Stat. 2763 (2000) (codified in scattered sections of 7 U.S.C.).

3

15 U.S.C. 78f(h).

4

15 U.S.C. 78s(b).

5

See 15 U.S.C. 78f(h)(3)(H).

6

See 15 U.S.C. 78f(h)(3)(K).

7

17 CFR 240.6h-1.

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security futures products must provide that trading of a securities futures product will be halted
at all times that a regulatory halt has been instituted for the underlying security, in the case of a
security futures product based on a single security, or for one or more underlying securities that
constitute 50% or more of the market capitalization of the underlying narrow-based security
index, in the case of a security futures product based on a narrow-based security index.
2.

Purpose and Use of the Information Collection

Rule 6h-1 results in proposed rule changes being filed by an SRO that is a national
securities exchange or national securities association that wishes to trade security futures
products with the Commission pursuant to Section 19(b) of the Exchange Act. 8 The
Commission reviews these rule changes to ascertain whether the SRO’s security futures product
listing standards are in compliance with the listing requirements for security futures products set
forth in the Exchange Act. Moreover, any listing standards established by an SRO must be
published in the Federal Register, thereby providing the public with the opportunity to review
and offer input on the SRO’s proposed rule changes.
3.

Consideration Given to Information Technology

SROs file proposed rule changes pursuant to Section 19(b) of the Exchange Act
electronically with the Commission through SRTS. The preparation and filing of the proposed
rule changes relating to listing standards for security futures products, and the extent to which
such proposed rule changes involve the use of information technology, reflects the complexity of
the SRO’s business. Improved technology, therefore, would not reduce the respondents’ burden
in making these filings.
4.

Duplication

The Commission does not believe that SROs’ compliance with the relevant provisions of the
Exchange Act would entail any duplicative filing requirements.
5.

Effect on Small Entities

Not applicable. No small business entities are involved.
6.

Consequences of Not Conducting Collection

If an SRO did not file its listing standards for security futures products with the
Commission, the Commission would not be able to publish them in the Federal Register, and the
public would be denied a principal means by which to review and offer input on SRO rules.

8

15 U.S.C. 78s(b).

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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. No payments or gifts are required to be made or are made to respondents.
10.

Confidentiality

Not applicable. Any SRO rule filing would be published in the Federal Register.
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

A national securities exchange or national securities association that lists or trades
security futures products would incur a one-time burden to comply with the collection of
information request contained in Rule 6h-1 at the time it seeks to list or trade security futures
products. The Commission estimates that there will be one respondent to the collection of
information request per year. There are currently three futures markets that are registered as
national securities exchanges under Section 6(g) of the Exchange Act 9 and one futures
association (collectively, “Futures Markets”) that must already comply with Rule 6h-1 to the
extent they list or trade securities futures products. These existing Futures Markets will incur no
new collection of information burden pursuant to Rule 6h-1. In addition, a designated contract
market not already registered as a national securities exchange under Section 6(g) of the
Exchange Act may register with the Commission to list and trade security futures products.
Accordingly, the Commission estimates that one such entity will seek to list or trade security
futures products each year and thereby incur a one-time burden to comply with the collection of
information request contained in Rule 6h-1.
The Commission believes that respondents would have to devote some professional
resources to review Rule 6h-1 and to ensure that their listing standards (and the rule filings to
implement them) are consistent with Rule 6h-1. The Commission estimates that this annual
reporting burden, per respondent, would be as follows:
9

15 U.S.C. 78f(g).

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10 hours of legal work at $401/hour 10 =

$4,010

The Commission estimates that the total hourly reporting burden for all respondents
would be 10 hours per year (10 hours/respondent x 1 respondent). The Commission estimates
that the resultant total internal cost of compliance associated with this hourly burden for the
respondents would be $4,010 ($4,010/respondent x 1 respondent). The Commission believes
that these are one-time burdens that would not recur.
Rule

Burden
Type

Number of
Respondents

6h-1 Reporting
1
Total Aggregate Burden
13.

1

Number of
Annual
Responses Per
Respondent

Time Per
Response
(Hours)
10

Total Burden
Per Burden
Type (Hours)
10
10

Costs to Respondents

Not applicable. The Commission does not anticipate that respondents would have to incur
any capital or start-up costs, nor any additional operational or maintenance costs (other than as
provided in Item 12), to comply with the collection of information requirements associated with
Rule 6h-1.
14.

Costs to Federal Government

The Commission does not believe that Rule 6h-1 would result in any cost to the federal
government that has not already been accounted for in the Paperwork Reduction Act Information
Collection submission for Form 19b-4. 11 Even in the absence of Rule 6h-1, any SRO that wishes
to trade security futures products would have to submit to the Commission a proposed rule
change under Section 19(b) of the Exchange Act 12 to establish listing standards for such
products. Rule 6h-1 may affect the content of these filings, but not their number or length.
15.

Changes in Burden

There is no change in the hourly burden associated with this information collection or to the
number of respondents affected by this information.

10

$401/hour figure for an Attorney is from SIFMA’s Management & Professional Earnings
in the Securities Industry 2013, modified by Commission staff to account for an 1,800hour work-year and multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead. This figure is also adjusted for inflation.

11

See OMB Control No. 3235-0045 (Aug. 19, 2016), 81 FR 57946 (Aug. 24, 2016)
(Request to OMB for Extension of Rule 19b-4 and Form 19b-4 PRA).

12

15 U.S.C. 78s(b).

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16.

Information Collection Planned for Statistical Purposes

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.