FINAL DGL REVISED 2019 10b-10 SS draft 3 BP (with BP revisions to respond to omb questions about response 3 and 5 - clean)

FINAL FINAL DGL REVISED 2019 10b-10 SS draft 3 BP (with BP revisions to respond to omb questions about response 3 and 5 - clean).pdf

Rule 10b-10 Confirmation of Securities Transactions (17 C.F.R. 240.10b-10)

OMB: 3235-0444

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SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 10b-10
A.

JUSTIFICATION
1. Necessity of Information Collection

Rule 10b-10 under the Securities Exchange Act of 1934 (“Exchange Act”) 1 requires
broker-dealers to disclose specified information to customers regarding their securities
transactions. The information required by the rule includes the date and time of the transaction,
the identity and number of shares bought or sold, and whether the broker-dealer acts as agent for
the customer or as principal for its own account. In addition, depending on whether the brokerdealer acts as agent for the customer or as principal for its own account, the rule requires the
disclosure of commissions and, under specified circumstances, mark-up and mark-down
information. For transactions in debt securities (other than U.S. savings bonds and municipal
securities) the rule requires the disclosure of redemption and yield information. For transactions
in securities futures products in a futures account, the rule permits the disclosure of alternative
information. This alternative information includes: the date the transaction was executed; the
identity and number of shares bought or sold; the price, the delivery month, and the exchange on
which the transaction was executed; the source and amount of any remuneration received or to be
received by the broker-dealer in connection with the transaction; whether the broker receives
payment for order flow for such transactions; and the fact that other specified information,
including whether the broker-dealer is acting as agent or principal, will be available upon written
request.
Rule 10b-10 also requires broker-dealers to inform their customers if they are not members
of the Securities Investor Protection Corporation (“SIPC”). The purpose of this disclosure is to
ensure that customers are not led to believe that their accounts are subject to SIPC protection when
they are not. In addition, for transactions in any NMS stock, the rule requires broker-dealers to state
whether they receive payment for order flow for transactions in such securities and that the source
and nature of the compensation received in connection with particular transactions will be furnished
upon written request.
The confirmation has long been a customary document in the securities industry, and it
serves several functions, which include: broker-dealers use it as a billing statement; it serves as a
customer invoice; it informs customers of the details of transactions and facilitates their checking
for errors or misunderstandings; it provides information that helps investors evaluate the cost and
quality of services provided by broker-dealers; it discloses conflicts of interest that may arise

1

17 CFR 240.10b-10 (the “rule”).

1

between investors and broker-dealers; and it safeguards against fraud by helping customers detect
problems with transactions.
2. Purpose and Use of the Information Collection
The purpose of Rule 10b-10 is to ensure that investors are given the necessary information
to evaluate their securities transactions and the broker-dealers effecting those transactions. In the
absence of the rule’s requirements, investors may not be fully informed of important information
relating to their securities transactions and the cost and quality of services they receive from brokerdealers.
3. Consideration Given to Information Technology
Most customer confirmations are generated by automated systems, which allow
confirmations to be generated in a fraction of the time it would take to generate a confirmation
manually. The Commission staff estimates the costs of producing and sending a paper
confirmation, including postage, to be approximately 63 cents. The Commission staff also
estimates that the cost of producing and sending a wholly electronic confirmation is approximately
39 cents. Based on informal discussions with industry participants as well as no-action positions
taken in this area, the staff estimates that broker-dealers use electronic confirmations for
approximately 35 percent of transactions.
It appears that broker-dealers use paper confirmations for approximately 65 percent of
transactions because many of their customers prefer to receive paper confirmations rather than
electronic confirmations. Some broker-dealers have given their customers incentives to agree to
receive electronic rather than paper confirmations, including by charging a fee, currently in the
range of approximately two to five dollars, for each paper confirmation while not charging for
electronic confirmations, but many customers choose to continue to receive paper confirmations.
The Commission staff has sought to help respondents reduce the rule’s information collection
burden through technology by issuing no-action letters to broker-dealers seeking to rely on
electronic trade confirmations generated by and delivered through an electronic platform to satisfy
their confirmation delivery obligations under the rule. 2
4. Duplication
Not applicable; there is no duplication of information.

2

See, e.g., Letter re: Bloomberg L.P. (Nov. 24, 2015); Letter re: Omgeo LLC (Nov. 19, 2010) (citing Use of
Electronic Media by Broker-Dealers, Transfer Agents and Investment Advisers for Delivery of Information,
Exchange Act Release No. 37182 (May 9, 1996), 61 FR 24644, 46-47 (May 15, 1996) (stating that broker-dealers
may deliver confirmations electronically with the informed consent of the customer, provided they meet the basic
requirements of notice, access, and evidence of delivery)).

2

5. Effect on Small Entities
The requirements of Rule 10b-10 are not unduly burdensome on smaller broker-dealers.
Broker-dealers routinely use confirmations for billing purposes, and would send their customers
some type of written memorialization of the material terms of securities transactions and potential
conflicts of interest regardless of the requirements of the rule, based on commercial considerations
and requirements of the law of agency, the statute of frauds, and other applicable requirements of
the securities laws and the rules of self-regulatory organizations. For example, Section 11(d)(2) of
the Exchange Act has since 1934 generally required every broker-dealer to disclose whether it has
acted as a dealer for its own account or as a broker for the customer or some other person in
effecting the transaction.
The number of confirmations sent and the cost of the confirmations vary from firm to firm.
Smaller firms send fewer confirmations than larger firms because they effect fewer transactions.
Nonetheless, the Commission has considered and rejected the possibility of exempting smaller
broker-dealers from requirements of Rule 10b-10. For example, in adopting amendments to the
rule in 1985 to require disclosure of trade prices and mark-ups for principal transactions in reported
securities, the Commission noted that it had requested comment on exempting certain small brokerdealers that transact a limited number of transactions from the requirements of the amendment, but
determined not to create such an exemption because the Commission agreed with the National
Association of Securities Dealers’ conclusion that such an exemption was not warranted because
competitive considerations require that similar transactions be reported in similar fashion by all
broker-dealers, and because no smaller firms had suggested that the amendments would place a
disproportionate burden on them. 3
6. Consequences of Not Conducting Collection
One of the primary purposes of Rule 10b-10 is to provide customers with immediate written
notification of their securities transactions so that they can monitor the trading activity in their
accounts. Less frequent dissemination of trade information to customers would substantially lessen
the rule’s investor protection functions.
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).

3

See Confirmation Disclosure for Reported Securities, Exchange Act Release No. 22397 (Sept. 11, 1985), 50
F.R. 37648, 37653 (Sept. 17, 1985).

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.
10. Confidentiality
Not applicable; respondents provide information to their customers about their own
transactions.
11. Sensitive Questions
Rule 10b-10 is a third-party disclosure rule and the SEC does not have a program or
information system for collecting, processing, or storing the third-party disclosures required by the
rule. No information of a sensitive nature, including Social Security numbers, will be required
under this collection of information. The information collection does not collect personally
identifiable information (PII). The agency has determined that a system of records notice (SORN)
and privacy impact assessment (PIA) are not required in connection with the collection of
information.
12. Burden of Information Collection
Rule 10b-10 potentially applies to all of the approximately 3,750 broker-dealers that are
registered with the Securities and Exchange Commission and that effect transactions for or with
customers. It is important to note, however, that the confirmation is a customary document used by
the industry as a matter of good business practice, as well as for purposes under the laws of agency
and contract.
Based on information provided by registered broker-dealers to the Commission in annual
Form X-17a-5 Schedule I FOCUS Reports filed from January 1, 2018 to December 31, 2018, in
response to items 16a, 16b, and 16c on the form, the Commission staff estimates that on average,
registered broker-dealers process approximately 18,843,624,843 order tickets per year for
transactions for or with customers in (a) equity securities transactions effected on a national
securities exchange, (b) equity securities transactions effected other than on a national securities
exchange, and (c) commodity, bond, option, and other transactions effected on or off a national
securities exchange. Each order ticket representing a transaction effected for or with a customer
generally results in one confirmation. Therefore, the Commission staff estimates that
approximately 18,843,624,843 confirmations are sent to customers annually.
The number of confirmations sent and the cost of the confirmations vary from firm to firm
as smaller firms send fewer confirmations than larger firms because they effect fewer transactions.
The Commission staff estimates from information provided by industry participants that it takes
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about thirty seconds to generate and send a confirmation. As a result, the Commission staff
estimates that the annual burden to brokers-dealers to comply with the confirmation delivery
requirements of Rule 10b-10 would be approximately 157,030,207 hours. 4 This is an ongoing,
third-party disclosure burden.
SUMMARY OF ANNUAL TIME BURDEN
Burden Type

Number of Annual
Responses

Time Per Response
(Hours)

Total Annual Burden Per
Burden Type (Hours)

Third-party
disclosure

18,843,624,843

0.00833333333

157,030,207

13. Costs to Respondents
Since 1996, the Commission has permitted broker-dealers to comply with Rule 10b-10 by
means of electronic communications. Informal discussions with securities industry
representatives, as well as representations made in requests for exemptive and no-action letters,
lead us to believe that broker-dealers use electronic confirmations as their sole confirmations for
approximately 35 percent of transactions. For the remaining 65 percent of transactions, we
believe that broker-dealers continue to send paper confirmations.
The Commission staff calculates that, as a result, approximately 12,248,356,148 paper
confirmations are mailed to customers each year.5 According to information previously provided
by industry participants, the Commission staff estimates that the average cost for paper
confirmations, including postage, for a one-page confirmation is 63 cents. 6 Based on these
calculations, the Commission staff estimates that the total annual cost associated with generating
and mailing paper confirmations would be approximately $7,716,464,373. 7
As explained above, the Commission staff estimates that approximately 35 percent of
confirmations generated are sent by electronic means alone. This means that approximately
4

18,843,624,843 confirmations at 0.5 minutes per confirmation = 9,421,812,421.5 minutes; 9,421,812,421.5
minutes/60 minutes per hour = 157,030,207.025 hours, rounded down to 157,030,207 hours.

5

65 percent of 18,843,624,843 is 12,248,356,147.95, rounded up to 12,248,356,148.

6

This estimate includes a six-cent increase in the cost of postage stamp for mailing a domestic, one-ounce,
First-Class Mail single-piece letter, from 49 cents, as of January 26, 2014, to 55 cents, as of January 27,
2019.

7

12,248,356,148 paper confirmations at 63 cents per confirmation is $7,716,464,373.24, rounded down to
$7,716,464,373.

5

6,595,268,695 wholly electronic confirmations are sent each year. 8 The Commission staff
estimates that the cost of each wholly electronic confirmation is 39 cents. Based on these
calculations, the Commission staff estimates that the total annual cost associated with generating
and sending wholly electronic confirmations is approximately $2,572,154,791. 9
Based upon discussions with industry participants, the Commission staff estimates that
the total annual cost associated with generating and delivering to investors the information
required under Rule 10b-10 would be $10,288,619,164. 10
SUMMARY OF COSTS TO RESPONDENTS
Type of Cost to
Respondents

Number of Annual
Reponses

Cost Per Response

Annual Cost Per
Burden Type

Paper third-party
disclosure

12,248,356,148

0.63

$7,716,464,373

Electronic third-party
disclosure

6,595,268,695

0.39

$2,572,154,791

Total Annual Costs

$10,288,619,164

14. Costs to Federal Government
Rule 10b-10 does not require that any information be submitted to the Federal government,
and thus no costs to the Federal government are imposed by the rule’s requirement that brokerdealers disclose information to their customers. 11

8

35 percent of 18,843,624,843 is 6,595,268,695.05, rounded down to 6,595,268,695.

9

6,595,268,695 electronic confirmations at 39 cents per confirmation is $2,572,154,791.05, rounded down to
$2,572,154,791.

10

$7,716,464,373 + $2,572,154,791 = $10,288,619,164.

11

Broker-dealers maintain copies of the customer confirmations required by the rule, in compliance with their
record-keeping obligations under other rules. These records may be reviewed by Commission staff
occasionally, but only on an as-needed basis in connection with the regular duties of staff working on a
discrete examination, investigation, or enforcement matter.

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15. Changes in Burden
The estimated total annual hour burden associated with Rule 10b-10 increased by
approximately 18,680,989 hours because, while the estimated time per response remained 30
seconds (or 0.5 minutes) per response, and the number of respondents decreased from
approximately 4,138 to approximately 3,750, the estimated total number of responses per year
increased by approximately 2,241,718,635, from approximately 16,601,906,208 in 2016 to
approximately 18,843,624,843 in 2019. 12
The estimated total annual cost to respondents associated with generating and delivering to
investors the information required under Rule 10b-10 increased by approximately $1,871,452,717,
from $8,417,166,447 to $10,288,619,164. 13 This increase is attributable to the estimated average
cost of mailing a confirmation increasing from 57 cents in 2016 (including 49 cents for postage) to
63 cents in 2019 (including 55 cents for postage); to the estimated number of paper confirmations
mailed to customers each year increasing by 1,457,117,113, from 10,791,239,035 to
12,248,356,148, 14 which means the estimated annual cost of mailing paper confirmations increased
by approximately $1,565,458,123, from $6,151,006,250 to $7,716,464,373; 15 and to the estimated
number of electronic confirmations sent to customers each year increasing by 784,601,522, from
5,810,667,173 to 6,595,268,695, 16 which means the estimated annual cost of sending electronic
confirmations increased by approximately $305,994,594, from $2,266,160,197 to
$2,572,154,791. 17 The increase of $1,565,458,123 for the annual cost of sending paper
confirmations and the increase of $305,994,594 for the annual cost of sending electronic

12

18,843,624,843 responses per year in 2019 – 16,601,906,208 responses per year in 2016 = 2,241,718,635
more responses per year; 2,241,718,635 more responses per year x 0.5 minutes per response =
1,120,859,317.5 more minutes per year; 1,120,859,317.5 more minutes per year / 60 minutes per hour =
18,680,988.625 more hours per year, rounded up to 18,680,989 more hours per year.

13

($10,288,619,164 in 2019 – $8,417,166,447 in 2016 = $1,871,452,717.

14

12,248,356,148 paper confirmations per year in 2019 – 10,791,239,035 paper confirmations per year in
2016 = 1,457,117,113 more paper confirmations per year.

15

10,791,239,035 paper confirmations per year in 2016 x $0.57 = $6,151,006,249.95, rounded up to
$6,151,006,250; 12,248,356,148 paper confirmations per year in 2019 x $0.63 = $7,716,464,373.24, rounded
down to $7,716,464,373; $7,716,464,373 – $6,151,006,250 = $1,565,458,123 more for mailing paper
confirmations.

16

6,595,268,695 electronic confirmations per year in 2019 – 5,810,667,173 paper confirmations per year in
2016 = 784,601,522 more electronic confirmations per year.

17

5,810,667,173 electronic confirmations per year in 2016 x $0.39 = $2,266,160,197.47, rounded down to
$2,266,160,197; 6,595,268,695 electronic confirmations per year in 2019 x $0.39 = $2,572,154,791.05,
rounded down to $2,572,154,791; $2,572,154,791 – $2,266,160,197 = $305,994,594.

7

confirmations caused the total annual cost of providing both paper and electronic confirmations to
increase by approximately $1,871,452,717. 18

16. Information Collections Planned for Statistical Purposes
Not applicable.
17. Approval to Omit OMB Expiration Date
The Commission is not seeking approval to omit the expiration date.
18. Exceptions to Certification
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.

18

$1,565,458,123 more for mailing paper confirmations + $305,994,594 more for sending electronic confirmations =

$1,871,452,717 total increase.

8


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