DGL REVISED 2019 Rule 6a-4 and Form 1-N Justification (3)

DGL REVISED 2019 Rule 6a-4 and Form 1-N Justification (3).pdf

Rule 6a-4 under the Securities Exchange Act of 1934 and Form 1-N under the Securities Exchange Act of 1934

OMB: 3235-0554

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SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 6a-4 and Form 1-N
A.

Justification
1.

Information Collection Necessity

The Securities Exchange Act of 1934 (“Exchange Act”) provides a framework for selfregulation under which various entities involved in the securities business, including national
securities exchanges, have primary responsibility for regulating their members or participants.
The role of the Securities and Exchange Commission (“SEC” or “Commission”) in this
framework is primarily one of oversight: the Exchange Act charges the SEC with supervising
the national securities exchanges and assuring that each complies with and advances the policies
of the Exchange Act.
The Exchange Act was amended by the Commodity Futures Modernization Act of 2000
(“CFMA”), which allows the trading of futures on individual stocks or on narrow-based stock
indexes (collectively, “security futures products”). Under the CFMA, markets that wish to trade
security futures products are regulated jointly by the SEC and the Commodity Futures Trading
Commission (“CFTC”). The Exchange Act, as amended by the CFMA, provides that futures
exchanges that meet certain criteria and that wish to trade security futures products must file
notice with the SEC to become a “Security Futures Product Exchange.” 1
Rule 6a-4 sets out procedures for filing such notices with the SEC on Form 1-N. Form 1N calls for information regarding: how the futures exchange operates, its rules and procedures,
corporate governance, its criteria for membership, its subsidiaries and affiliates, and the security
futures products it intends to trade. Rule 6a-4 also requires existing Security Futures Product
Exchanges to file: (1) amendments to Form 1-N in the event of material changes to the
information provided in the initial Form 1-N; (2) annual and three-year updates of certain
information provided in the initial Form 1-N; (3) certain information that is provided to the
exchange’s members; and (4) a monthly report summarizing the exchange’s trading of security
futures products.
2.

Information Collection Purpose and Use

The information obtained under Rule 6a-4 and Form 1-N provides the SEC with basic
information about exchanges that trade security futures products. This information assists the SEC
to ascertain that such exchanges’ activities do not conflict with the Exchange Act and, thus, assists
the SEC’s efforts to protect investors and the public interest. An entity that is not already registered
with the SEC and that does not comply with proposed Rule 6a-4 by filing the Form 1-N is not
permitted to trade security futures products.

1

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

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3.

Consideration Given to Information Technology

Because much of the information requested by Form 1-N consists of copies of existing
documents, the SEC does not expect information technology to reduce respondents’ burden in
any meaningful way. However, Rule 6a-4 permits respondents to make certain information
available on the Internet and to notify the Commission of its web location. The Internet has
developed the potential to ease compliance burdens for respondents and increase the speed,
accuracy, and availability of information, generating benefits to investors and financial markets.
4.

Duplication

Because the CFTC shares jurisdiction with the SEC to regulate the markets for security
futures products, much of the information collected by the SEC also is collected by the CFTC. The
Exchange Act, as amended by the CFMA, provides that, if a futures exchange has filed documents
with the CFTC, to the extent that such documents contain information satisfying the SEC’s
informational requirements, copies of such documents may be filed with the SEC in lieu of the
SEC’s required written notice.2 In addition, Rule 6a-4 provides that, in lieu of providing hard
copies for certain information, a Security Futures Product Exchange may simply provide the SEC
with the location of the website where such information may be found.
5.

Effect on Small Entities

Not applicable. None of the entities that will file notice to become Security Futures Product
Exchanges and trade security futures products is a small business entity.
6.

Consequences of Not Conducting Collection

To become a Security Futures Product Exchange, an entity must file a single Form 1-N.
Therefore, less frequent collection is not feasible. After an entity files the initial Form 1-N and
becomes a Security Futures Product Exchange, Rule 6a-4 requires the entity to file:
(1) amendments to Form 1-N in the event of material changes to the information provided in the
initial Form 1-N; (2) periodic updates of certain information provided in the initial Form 1-N; (3)
certain information that is provided to the exchange’s members; and (4) a monthly report
summarizing the exchange’s trading of security futures products. Any less frequent collection of
information would deprive the SEC of up-to-date information that is necessary to regulate
Security Futures Product Exchanges in accordance with the Exchange Act.
7.

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

There are no special circumstances. This collection of information is consistent with the
guidelines in 5 CFR 1320.5(d)(2).

2

See 15 U.S.C. 78f(g)(2)(A).

3
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. Rule 6a-4 and Form 1-N do not contemplate providing payments or gifts to
respondents.
10.

Confidentiality

Not applicable. Information provided on Form 1-N is publicly available.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection collects basic Personally
Identifiable Information (PII) that may include name, job title, work address, and work phone
number. However, the agency has determined that the information collection does not constitute
a system of records 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.

Information Collection Burden
a. Total Burden

The SEC estimates that the total annual burden for all Security Futures Product Exchanges
to comply with Rule 6a-4 after initial filing is 171 hours. This hour burden is comprised of: (1) 60
hours for four respondents combined to prepare and submit periodic amendments to Form 1-N
required under Rule 6a-4(b)(1); (2) 60 hours for four respondents combined to prepare annual
amendments to Form 1-N required under Rule 6a-4(b)(3); (3) 27 hours for four respondents
combined to prepare and submit 3-year amendments to Form 1-N required under Rule 6a-4(b)(4);
and (4) 24 hours for four respondents combined to prepare and submit supplementary materials
and monthly reports. 3
b. Periodic Amendments
Rule 6a-4(b)(1) requires existing Security Futures Product Exchanges to file an amendment
to Form 1-N whenever material information supplied in the initial Form 1-N changes and to update

3

SEC believes that initial filings will be infrequent, if ever. Therefore, we estimate the burden for
initial Form 1-N filings is 0 hours.

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certain information on a periodic basis. The SEC estimates the burden associated with these
periodic amendments to be 60 hours.
In its most recent Paperwork Reduction Act submission for Form 1, the SEC estimates that
each exchange will file one amendment or periodic update per year at an average burden of 25
hours per response. The Commission believes that Security Futures Product Exchanges will file
one amendment or update per year, but, because Form 1-N will be a less comprehensive filing than
Form 1, the SEC estimates that the average burden for filing each amendment or update to Form 1N will be 15 hours per response. Therefore, the SEC estimates that each respondent will incur a
burden of 15 hours in association with this requirement, for a total burden of 60 hours for four
exchanges.4
The Commission estimates compliance per amendment to consist of: 10 hours of in-house
professional work + 5 hours of in-house clerical work x 1 response = 15 hours. The internal cost of
compliance per amendment, therefore, will be approximately $4,575 ((10 hours x $417) + (5
hours x $81) x 1 response) and the total internal cost of compliance for all four periodic
amendments will be approximately $18,300 per year.
c. Annual Amendments
Additionally, Rule 6a-4(b)(3) requires existing Security Futures Product Exchanges to
file an amendment to Form 1-N at certain mandatory intervals. Every year, a Security Futures
Product Exchange shall file, as an amendment to Form 1-N, Exhibits F, H, and I. The SEC
estimates the average burden for each annual filing will be 15 hours, for a total burden of 60
hours for all four respondents.
The Commission estimates compliance per amendment to consist of: 10 hours of in-house
professional work + 5 hours of in-house clerical work x 1 response = 15 hours. The cost of
compliance per amendment, therefore, will be approximately $4,575 ((10 hours x $417) + (5 hours
x $81) x 1 response) and the total internal cost of compliance for all amendments will be
approximately $18,300 per year.
d. Three-Year Amendments
As discussed above, Rule 6a-4(b)(4) requires existing Security Futures Product
Exchanges to file an amendment to Form 1-N at certain mandatory intervals. In addition to the
annual amendments discussed above, a Security Futures Product Exchange shall file, as an
amendment to Form 1-N, Exhibits A, B, C, and E every three years. The SEC estimates the
burden for each Three-Year Amendments to be 20 hours. Since we expect four respondents to
file every three years, we expect 1.33 filings on an annual basis. Thus, the Commission
estimates the total annualized burden for complying with the three-year amendments to be 27
hours.

4

The Commission notes that while there are currently five Security Futures Product Exchanges,
one of those exchanges, NQLX, is dormant.

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The Commission estimates compliance per amendment to consist of: 15 hours of in-house
professional work + 5 hours of in-house clerical work x 1 response = 20 hours. The cost of
compliance per amendment, therefore, will be approximately $6660 (15 hours x $417) + (5 hours
x $81).
e. Supplemental Materials
Finally, Rule 6a-4(c) requires each existing Security Futures Product Exchange to
provide the SEC with copies of certain supplemental materials sent to the exchange’s members,
and to file monthly reports concerning security futures products traded on the exchange. 5 The
SEC estimates that the preparation and filing of amendments generally involves photocopying
existing documents and would usually take less than one-half hour per response. The
Commission estimates that each active exchange will make approximately 12 such filings
annually. The SEC estimates that each exchange will incur an annual burden of 6 hours, for a total
burden across four exchanges of 24 hours.
The Commission estimates compliance per filing to consist of 0.5 hours of in-house clerical
work. The cost of compliance per filing, therefore, is approximately $41.
Summary of Hourly Burdens
Rule

Burden Type

Rule 6a-4
(b)(1)
Rule 6a-4
(b)(3)
Rule 6a-4
(b)(4)
Rule 6a-4 (c)

Periodic
Amendments
Annual
Amendments
3-Year
Amendments
Supplemental
Materials
Total Aggregate Burden

13.

Number of
Respondents
4

Number of
Annual
Reponses Per
Respondent
1

Time Per
Response
(Hours)

Total Burden
Per Burden
Type (Hours)

15

60

4

1

15

60

1.33

1

20

27

4

12

0.5

24
171

Costs to Respondents

The SEC estimates that the total annual cost burden for all Security Futures Product
Exchanges after filing Form 1-N is $1216, calculated as follows: (1) $400 in miscellaneous clerical
expenses for four respondents combined to prepare and submit periodic amendments to Form 1-N
required under Rule 6a-4(b)(1); (2) $400 in miscellaneous clerical expenses for four respondents
combined to prepare and submit annual amendments under Rule 6a-4(b)(3); $176 in miscellaneous
clerical expenses for four respondents combined to prepare and submit three-year amendments to
5

Existing Rule 6a-3 imposes a similar requirement on securities exchanges registered under Form
1.

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Form 1-N required under Rule 6a-4(b)(4); and (4) $240 in miscellaneous clerical expenses for four
respondents combined to prepare and submit supplementary materials and monthly reports.
Summary of Cost Burden
Rule

Burden Type

Rule 6a-4
(b)(1)
Rule 6a-4
(b)(3)
Rule 6a-4
(b)(4)
Rule 6a-4 (c)

Periodic
Amendments
Annual
Amendments
3-Year
Amendments
Supplemental
Materials
Total Aggregate Burden

14.

Number of
Respondents
4

Number of
Annual
Reponses Per
Respondent
1

Cost per
Response
(Dollars)

Total Cost Per
Burden Type
(Dollars)

$100

$400

4

1

$100

$400

1.33

1

$176

$176

4

12

$5

$240
$1216

Costs to Federal Government

The cost to the Federal Government in administering Rule 6a-4 is $13,226, which results
from appropriate regulatory staff time and related overhead costs devoted to reviewing the filings
submitted by respondents.
The SEC estimates that its aggregate annual costs to review amendments and updates to
Form 1-N filings will be $10,496 (four respondents x one amendment or update per year per
respondent x $2,624/amendment). The SEC estimates that it will devote approximately 8 hours
of professional time to review amendments and updates to Form 1-N which, at $280/hour, has a
related cost of $2,320 (($280 x 8 hours) + ($10 (miscellaneous clerical expenses) x 8)). The SEC
also estimates that it will devote approximately 4 hours of administrative time to review each
Form 1-N which, at $76/hour, has a related cost of $304. The total cost to review amendments
and updates to each Form 1-N is $2,624. If the SEC receives four amendments to Forms 1-N,
one from each respondent as estimated above, the total estimated cost to review these forms is
$10,496.
In addition, the SEC estimates that its total operational cost to review periodic information
updates and monthly reports required by Rule 6a-4 will be approximately $2,730 per year. This
amount was based on our computation of the value of staff time devoted to reviewing similar filings
made under existing Rule 6a-3 on a regular basis and the related overhead value at 35 percent of the
value of such staff time ($162.50 to review 1 Rule 6a-3 filing x .35 x 48 responses). Therefore, the
total cost to the Federal Government in administering Rule 6a-4 is $13,226.
15.

Changes in Burden

No applicable. The burdens have not changed.

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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 SEC 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.


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