SUPPORTING STATEMENT 18A-1 Final Rule

SUPPORTING STATEMENT for the Paperwork Reduction Act Information Collection
Submission for Rule 18a-1 – Net capital requirements for security-based swap dealers for
which there is not a prudential regulator
3235-0701
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.

JUSTIFICATION
1.

Necessity of Information Collection

On June 21, 2019, in accordance with Section 764 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), 1 which added section 15F to the
Securities Exchange Act of 1934 (the “Exchange Act”), 2 the Securities and Exchange
Commission (the “Commission”) has adopted Rule 18a-1 to establish net capital requirements
for nonbank security-based swap dealers that are not also broker-dealers registered with the
Commission (“stand-alone SBSDs”). 3 The rule establishes a number of new collections of
information requirements. First, under paragraphs (a)(2) and (d) of Rule 18a-1, as adopted, a
stand-alone SBSD needs to apply to the Commission to be authorized to use internal models to
compute net capital. As part of the application process, a stand-alone SBSD is required to
provide the Commission staff with, among other things: (1) a comprehensive description of the
firm’s internal risk management control system; (2) a description of the value-at-risk (“VaR”)
models the firm will use to price positions and compute deductions for market risk; (3) a
description of the firm’s internal risk management controls over the VaR models, including a
description of each category of person who may input data into the models; and (4) a description
of the back-testing procedures that that firm will use to review the accuracy of the VaR models.
In addition, under Rule 18a-1, a stand-alone SBSD authorized to use internal models must
review and update the models it uses to compute market and credit risk, as well as backtest the
models.
Second, under paragraph (f) of Rule 18a-1, as adopted, a stand-alone SBSD is required to
comply with certain requirements of Rule 15c3-4 (17 CFR 240.15c3-4). Rule 15c3-4 requires
OTC derivatives dealers and firms subject to its provisions to establish, document, and maintain
a system of internal risk management controls to assist the firm in managing the risks associated
with business activities, including market, credit, leverage, liquidity, legal, and operational risks.
Third, for purposes of calculating “haircuts” on credit default swaps, paragraph
(c)(1)(vi)(B)(1)(iii)(A)Rule 18a-1, as adopted, requires stand-alone SBSDs that are not using

1

See Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111-203, 124 Stat.
1376 (2010).

2

See 15 U.S.C. 78o-10(e)(2)(B).

3

See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 86175.

1

internal models to use an industry sector classification system that is documented and reasonable
in terms of grouping types of companies with similar business activities and risk characteristics.
Fourth, under paragraph (h) of Rule 18a-1, as adopted, stand-alone SBSDs are required to
provide the Commission with certain written notices with respect to equity withdrawals.
Fifth, under paragraph (c)(5) of Rule 18a-1, as adopted, stand-alone SBSDs are required
to file with the Commission two copies of any proposed subordinated loan agreement (including
nonconforming subordinated loan agreements) at least 30 days prior to the proposed execution
date of the agreement. The rule also requires an SBSD to file with the Commission a statement
setting forth the name and address of the lender, the business relationship of the lender to the
SBSD, and whether the SBSD carried an account for the lender effecting transactions in securitybased swaps at or about the time the proposed agreement was filed.
Finally, under paragraph (c)(1)(ix)(C)(3) of Rule 18a-1, as adopted, nonbank SBSD may
treat collateral held by a third-party custodian to meet an initial margin requirement of a securitybased swap or swap customer as being held by the nonbank SBSD for purposes of the capital in
lieu of margin charge provisions of the rule if certain conditions are met. Two of these
conditions include: (1) the execution of an account control agreement governing the terms under
which the custodian holds and releases collateral pledged by the counterparty as initial margin;
and (2) that the nonbank SBSD obtains a written opinion from outside counsel that the account
control agreement is legally valid, binding, and enforceable in all material respects, including in
the event of bankruptcy, insolvency, or a similar proceeding.
2.

Purpose and Use of the Information Collection

The requirements in Rule 18a-1, as adopted, are an integral part of the Commission’s
financial responsibility program for stand-alone SBSDs. The program is designed to ensure that
stand-alone SBSDs maintain sufficient liquidity at all times to meet all unsubordinated
obligations of their customers and counterparties and, should a nonbank SBSD fail, that there are
sufficient resources for an orderly liquidation. These information collections facilitate the
monitoring of the financial condition of nonbank SBSDs by the Commission.
Furthermore, the program is designed to protect the financial stability of the U.S.
financial and banking system from the failure of a given stand-alone SBSD. The information
collections under Rule 18a-1, as adopted, provide the Commission with visibility into the
liquidity and market risk profiles of stand-alone SBSDs, as well as meaningful plans on how
stand-alone SBSDs intend to manage risks.
3.

Consideration Given to Information Technology

The information collections do not require that respondents use any specific information
technology system. The other information collections involve written notices, agreements, plans,
and procedures, and do not benefit from specialized information technology.
4.

Duplication

This information collection does not duplicate any existing information collection.
2

5.

Effect on Small Entities

The information collections required under Rule 18a-1 do not place burdens on small
entities. The stand-alone SBSDs subject to the information collections under the rule are not
expected to be small entities.
6.

Consequences of Not Conducting Collection

If the required information collections are not conducted or are conducted less frequently,
the protection afforded to investors and the U.S. financial system would be diminished.
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 Commission requested comment on the collection of information requirements in the
proposing release in October 2012. 4 In addition, in 2018, the Commission reopened the
comment period and requested additional comment on the proposed rules and amendments
(including potential modifications to proposed rule language). 5 While the Commission did not
receive specific comments with respect to the proposed collection of information with respect to
Rule 18a-1, as proposed to be adopted, the Commission received a number of comment letters in
response to the 2012 proposal. 6 In response to comments received regarding Rule 18a-1, as
proposed to be adopted, the Commission has modified the language in the final rule, as discussed
below. These comments and their impact on PRA estimates are discussed below.
In addition, in the SBSD Adopting Release, the Commission stated that, based on
comments it received, it is not adopting the proposed liquidity stress test requirements that would
have applied to standalone SBSDs. 7 Therefore, the proposed collections of information with
respect to the liquidity stress test and the written contingency funding plan are not included in
this final collection of information.

4

See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 68071
(Oct. 18, 2012), 77 FR 70213, 70299 (Nov. 23, 2012) (“Capital, Margin, and Segregation Proposing
Release”).

5

See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 84409
(Oct. 11, 2018), 83 FR 53007 (Oct. 19, 2018) (“Capital, Margin, and Segregation Comment Reopening”).

6

Comments available at https://www.sec.gov/comments/s7-08-12/s70812.shtml.

7

See SEC Proposed Capital, Margin, and Segregation Requirements for SBSDs and MSBSPs, 77 FR at
70252-70254.

3

9.

Payment or Gift

No payment or gift is provided to respondents.
10.

Confidentiality

The information collected by the Commission under Rule 18a-1, as adopted, is kept
confidential to the extent permitted by the Freedom of Information Act (5 U.S.C. § 552 et seq).
11.

Sensitive Questions

The collections of information do not expressly include Personally Identifiable
Information (“PII”). 8 At the same time, however, Commission staff understands that there may
be instances when certain information (including, but not limited to, a person’s name, email, or
phone number) could be provided by a respondent in response to one of the collections of
information. However, Commission staff does not envision any circumstance in which a social
security number would be provided pursuant to any of the collections of information. As such,
we believe that the treatment of any PII with the collection of information associated with this
rule is not likely to implicate the Federal Information Security Management Act of 2002 or the
Privacy Act of 1974.
12.

Burden of Information Collection

The staff estimates that the Rule 18a-1 will require in total, on an industry-wide basis, a
total of 53,090.10 hours. 9
VaR Models (Rule 18a-1(a))
The staff estimates that 4 stand-alone SBSDs that elect to use internal models to compute
net capital must first have an internal VaR model and submit information relating to the model
along with its application to the Commission pursuant to Rule 18a-1. 10 Based on past experience
with broker-dealers that applied to use internal models under Rule 15c3-1 and related Appendix
E, the Commission staff estimates that stand-alone SBSDs will spend approximately 750 hours
to create its model and risk control systems, as well as compiling its application for approval to

8

The term “Personally Identifiable Information” refers to information which can be used to distinguish or
trace an individual’s identity, such as their name, social security number, biometric records, etc. alone, or
when combined with other personal or identifying information which is linked or linkable to a specific
individual, such as date and place of birth, mother’s maiden name, etc.

9

19,720 hours + 5,500.02 hours + 2 hours + 3 hours + 100.02 hours + 1,200 hours + 20.01 hours =
53,090.10 hours.

10

This estimate has been reduced from six in the proposing release to four to account for the adoption of Rule
18a-10, which will enable stand-alone SBSDs to elect an alternative compliance mechanism and comply
with capital, margin, and segregation requirements of the Commodity Exchange Act and the U.S.
Commodity Futures Trading Commission’s rules in lieu of Rule 18a-1. See Capital, Margin, and
Segregation Release, 77 FR at 70293.

4

use the model, resulting in a one-time hour burden of 750 recordkeeping hours per stand-alone
SBSD, 11 and an industry one-time hours burden of 3,000. 12
The staff estimates that these firms will then spend 4,200 hours per year reviewing and
updating its VaR models, and also 480 hours per year backtesting those models against available
data. That results in a total annual industry-wide hour burden of 19,720 recordkeeping
hours. 13
Risk Management Control System (Rule 18a-1(g))
Rule 18a-1 requires that all registered nonbank SBSDs comply with Rule 15c3-4.
Currently, there are 9 firms expected to register as stand-alone SBSDs, but only 6 firms are
expected to be subject to Rule 18a-1, as the Commission estimates that three firms will elect the
alternative compliance mechanism under Rule 18a-10. The Commission staff estimates that
these 6 firms will bear a one-time burden of 2,000 hours to initially set up risk management
control systems, 14 and an annual burden of 250 hours per year. 15 This will result in an estimated
industry-wide one-time internal hour burden of approximately 12,000 recordkeeping hours, 16 and
an estimated industry-wide annual internal hour burden of approximately 1,500 recordkeeping
hours per year, for a total annualized recordkeeping burden of 5,500 hours. 17
Industry Sector Classification (Rule 18a-1(c))
With respect to documenting an industry sector classification system with respect to
credit default swap haircuts, the Commission staff expects that 2 stand-alone SBSDs will have to
bear internal hours burdens. 18 The Commission expects that these firms will utilize external
11

These one-time costs are annualized over three years resulting in 250 recordkeeping hours per respondent
(750 hours/3 = 250). The Commission staff estimates that the hours will be used to: (1) develop and submit
models and the description of risk management control systems to the Commission; (2) to create and
compile the various documents to be included with the application; and (3) to work with the Commission
staff through the application process. The hours burden also includes approximately 100 hours for an inhouse attorney to complete a review of the application.

12

These one-time costs are annualized over three years resulting in 1,000 recordkeeping hours for the
industry (3,000 hours/3 = 1,000).

13

Accordingly, the total annualized industry-wide recordkeeping burden is 19,720 hours ((750 one-time
hours annualized over 3 years + 4,200 hours + 480 hours) x 4 stand-alone SBSDs).

14

This amount will be annualized over three years, which results an annual burden of 666.67 recordkeeping
hours.

15

The one-time estimate of 2,000 hours and the annual estimate of 250 hours is based on the estimates for
OTC derivatives dealer burdens to implement the same controls under Rule 15c3-1. See OTC Derivatives
Dealers, 62 FR 67940.

16

6 stand-alone SBSDs x 2,000 hours = 12,000 hours. This results in an annual burden of 4,000 hours
(12,000 hours/3 = 4,000).

17

6 stand-alone SBSDs x 250 hours/year = 1,500 hours/year. The total annualized recordkeeping burden is
5,500 hours (12,000 one-time hours annualized over 3 years + 2,250 hours).

18

In the proposing release, the Commission estimated that 3 stand-alone SBSDs would not apply to use
models. See Capital, Margin, and Segregation Proposing Release, 77 FR at 70293. This estimate has been

5

classifications systems because of reduced costs and ease of use as a result of the common usage
of several of these classification systems in the financial services industry. The Commission
staff estimates that these firms will spend approximately 1 hour per year documenting the
industry sectors. This results in an estimated industry-wide annual internal hour burden of
approximately 2 recordkeeping hours per year. 19
Commission Notices (Rule 18a-1(h))
Rule 18a-1 requires that stand-alone SBSDs file written notices with the Commission
when certain amounts of equity are withdrawn from the firm. Based on the staff’s experience
with similar withdrawal notices filed by broker-dealers under Rule 15c3-1, the staff estimates
that the 6 stand-alone SBSDs will file an average of 2 notices per year. It requires an estimated
30 minutes to file these notices, for an annual industry-wide hour burden of 3 reporting
hours. 20
Subordinated Loan Agreements under Rule 18a-1 21
Rule 18a-1 requires stand-alone SBSDs to file subordinated loan agreements with the
Commission. The staff estimates that each of the 6 stand-alone SBSDs will spend 20 hours of
internal employee resources drafting or updating its agreement templates, resulting in a one-time
industry-wide hour burden of 120 reporting hours. 22 Based on its experience with broker-dealers
submitting such loan agreements under a similar requirement under Rule 15c3-1, the staff
estimates that each firm will file 1 subordinated loan agreement per year and that it will take
approximately 10 hours to prepare and file the agreement, resulting in an annual industry-wide
hour burden of 60 reporting hours, for a total annualized industry hour burden of 100.02
hours. 23
Account Control Agreements (Rule 18a-1(c))
Finally, as a result of comments received, 24 under the final amendments under Rule 18a1, a nonbank SBSD may treat collateral held by a third-party custodian to meet an initial margin
modified from 3 firms to 2 firms to account for the nonbank SBSDs that will elect the alternative
compliance mechanism under Rule 18a-10.
19

2 non-model stand-alone SBSDs x 1 hour/year = 1 hours/year.

20

6 stand-alone SBSDs x 30 minutes/year = 3 hours/year.

21

Note that this hour burden was included in the supporting statement for Rule 18a-1, as proposed, but
inadvertently not entered into ROCIS.

22

6 stand-alone SBSDs x 20 hours = 120 hours. This amount annualized on an industry-wide basis is 60
hours (180 hours/3 = 60) and is 6.67 hours per respondent (60 hours/9 stand-alone SBSDs = 6.667, rounded
to 6.67).

23

6 stand-alone SBSDs x 10 hours/year = 60 hours/year. The total annualized industry-wide hour reporting
burden is 100.02 hours (120 hours annualized over 3 years) + 60 hours).

24

If a stand-alone dealer or nonbank SBSD delivers initial margin to a counterparty, it must take a deduction
from net worth in the amount of the posted collateral. See paragraphs (c)(2)(i) through (xiv) of Rule 15c31. The Commission recognizes that the imposition of this deduction could increase transaction costs for
stand-alone broker-dealers and nonbank SBSDs. Consequently, the Commission sought comment on

6

requirement of a security-based swap or swap customer as being held by the broker-dealer for
purposes of the capital in lieu of margin charge provisions of the rule if certain conditions are
met. More specifically, Rule 18a-1, as adopted, requires the execution of an account control
agreement governing the terms under which the custodian holds and releases collateral pledged
by the counterparty as initial margin if the nonbank SBSD intends to treat collateral held by a
third-party custodian to meet an initial margin requirement of a security-based swap or swap
customer as being held by the nonbank SBSD for purposes of the capital in lieu of margin charge
provisions of the rule if certain conditions are met. Based on staff experience with the net capital
and customer protection rules, the Commission estimates that the 6 stand-alone SBSDs will enter
into approximately 100 account control agreements per year with security-based swap customers
and that it will take approximately 2 hours to execute each account control agreement, resulting
in an annual hour burden under Rule 18a-1 of 1,200 third-party hours for all these 6
entities. 25
Commission staff also estimates 6 stand-alone SBSDs will need to maintain written
documentation of their legal analysis of the account control agreement. Based on staff
experience, the Commission estimates that stand-alone SBSDs will meet this requirement split
evenly between obtaining a written opinion of outside legal counsel or through the firm’s own
“in house” analysis. The Commission estimates that it will take a stand-alone SBSD
approximately 20 hours to conduct a written “in house” analysis, resulting in an industry-wide
one-time burden of 60 hours, or 20.01 hours on an annualized basis. 26
Summary of Hourly Burdens

Name of
Information
Collection

Rule 18a-1(a)
(VaR Models)
Rule 18a-1(g)
(Risk
Management
Control System)
Rule 18a-1(c)
Industry Sector
Classification

Type of
Burden

Number
of
Entities
Impacted

Annual
Responses
per Entity

Initial
Burden
per Entity
per
Response

Initial
Burden
Annualized
per Entity
per
Response

Ongoing
Burden
per Entity
per
Response

Annual
Burden Per
Entity per
Response

Total
Annual
Burden
Per Entity

Total Industry
Burden

Small
Business
Entities
Affected

Recordkeeping

4

1

750.00

250.00

4,680.00

4,930.00

4,930.00

19,720.00

0

Recordkeeping

6

1

2,000.00

666.67

250.00

916.67

916.67

5,500.02

0

Recordkeeping

2

1

0

0

1.00

1.00

1.00

2.00

0

whether it should provide a means for a firm to post initial margin to counterparties without incurring the
deduction with respect to Rule 15c3-1 under specified conditions. Several commenters expressed support
for this general approach. See, e.g., Letter from Kenneth E. Bentson, Jr., President and CEO, Securities
Industry and Financial Markets Association (Nov. 19, 2018); Letter from Sebastian Crapanzano and SooMi Lee, Managing Directors, Morgan Stanley (Nov. 19, 2018).
25

6 stand-alone SBSDSs x 100 account control agreements x 2 hours = 1,200 hours.

26

(3 stand-alone SBSDs) x 20 hours = 60 hours. On an annual basis, this burden would be 20.01 hours ((20
hours/3) x 3 stand-alone SBSDs = 20.01 hours).

7

Rule 18a-1(h)
(Commission
Notices)

Reporting

6

2

0

0

0.25

0.25

0.50

3.00

0

Rule 18a-1
(Subordinated
Loan Agreements)

Reporting

6

1

20.00

6.67

10.00

16.67

16.67

100.02

0

Third-Party

6

100

0

0

2.00

2.00

200.00

1,200.00

0

Recordkeeping

3

1

20

6.67

0

6.67

6.67

20.01

0

Rule 18a-1

26,545.05

Rule 18a-1(c)
(Account Control
Agreements,
Opinion of
Counsel)
Rule 18a-1(c)
(Account Control
Agreements,
Legal Analhysis)

13.

Costs to Respondents

VaR Models (Rule 18a-1(a)) 27
With respect to the external costs for respondents associated with developing VaR
models and applying to the Commission for approval to use them, the staff estimates that, based
upon previous experience with broker-dealers that developed internal models, 25% of these tasks
will be handled by outside consultants. This results in 250 hours per respondent. The outside
consultants are estimated to charge at a rate of $400 per hour. This will result in a one-time
external recordkeeping cost of $100,000 per respondent 28 or one-time industry-wide external
cost of $400,000. 29 With respect to the external costs associated with reviewing, backtesting,
and updating VaR models, the staff estimates that, based on previous experience with brokerdealers that developed internal models, 25% of these tasks will be handled by outside
consultants. The outside consultants are estimated to charge at a rate of $400 per hour resulting
in a recordkeeping cost of $624,000 per respondent. This will result in an annual industry-wide
external cost of $2,496,000. 30 Taken together, the annualized recordkeeping cost burden is
$2,628,333.34. 31
VaR Models (Rule 18a-1(d)) 32

27

Note that the two cost burdens for VaR Models (Rule 18a-1(a), as adopted, and Rule 18a-1(d), as adopted),
were previously contained in one cost burden in ROCIS but have been separated for clarity.

28

250 hours x $400/hour = $100,000. This amount annualized over three years is $33,333.33 per respondent
($100,000/3 = $33,333.33).

29

4 stand-alone SBSDs x 250 hours x $400 = $400,000. This amount annualized over three years is
$133,333.34 ($400,000/3 = $133,333.333, rounded up to $133.333.34).

30

The total industry-wide recordkeeping cost is $2,496,000 (4 stand-alone SBSDs x $624,000).

31

$133,333.34 + $2,496,000 = $2,629,333.34.

32

See supra note 31.

8

Stand-alone SBSDs electing to file an application with the Commission to use a VaR
model will incur start-up costs including information technology costs to comply with Rule 18a1. Based on past experience with broker-dealers that applied to use internal models under Rule
15c3-1 and related Appendix E, it is expected that a stand-alone SBSD will incur an average of
approximately $8.0 million to modify its information technology systems to meet the VaR
requirements of Rule 18a-1, for a total one-time industry-wide cost of $32 million, or
$10,666,666.67 on an annualized basis. 33 NOTE: This cost burden was included in the notice of
proposed rulemaking but was inadvertently left out of the 2013 Supporting Statement and OMB
submission for the proposed rule. The notice of proposed rulemaking estimated that each respondent
would incur an initial one-time cost of $8,000,000, which resulted in an industry cost of
$48,000,000 for 6 respondents (See 77 FR 70213, footnote 847 and accompanying text).
Amortized over three years this resulted in an annual industry burden of $16,000,000. The
Commission did not receive any comments on this estimate, and the estimated cost per respondent
in the final rule is unchanged. However, the number of respondents in the final rule has been
reduced to from 6 to 4 due to the adoption of a new rule (Rule 18a-10) in the SBSD Adopting
Release. This resulted in a lower annual industry burden of $10,666,666.67 in the final rule as
compared to $16,000,000 in the proposed rule.
Risk Control Management System (Rule 18a-1(g))
Nonbank SBSDs may need to incur start-up information technology external costs with
respect to setting up a risk control management system. Based on the estimates for similar
collections of information, it is expected that a nonbank SBSDs will incur an average of
approximately $16,000 for initial hardware and software expenses, while the average ongoing
cost will be approximately $20,500 per nonbank SBSD. This will result in a one-time industrywide external cost of $32,000 annualized over three years, 34 and an ongoing industry-wide
external cost of $123,000 per year, for a total annualized cost of $155,000. 35
Account Control Agreement Opinion of Counsel (Rule 18a-1(c))
As a result of comments received, 36 under Rule 18a-1, as adopted in the SBSD Adopting
Release, a stand-alone SBSD may treat collateral held by a third-party custodian to meet an
initial margin requirement of a security-based swap or swap customer as being held by the
nonbank SBSD for purposes of the capital in lieu of margin charge provisions of the rule if
certain conditions are met. More specifically, the final rule requires that a nonbank SBSD obtain
33

4 stand-alone SBSDs x $8 million = $32 million. This cost annualized is $10,666,666.67 million industrywide ($32 million/3 = $10,666.67 million) and $2,666,666.67 per firm ($10,666.67 million/4 SBSDs =
$2,666,666.667, rounded to $2,666,666.67).

34

6 nonbank SBSDs x $16,000 = $96,000. This cost annualized is $32,000 industry-wide ($96,000/ 3 years =
$32,000) and $5,333.33 per firm ($32,000/6 nonbank SBSDs = $5,333.33).

35

6 nonbank SBSDs x $20,500/year = $123,000. The total annualized industry-wide recordkeeping cost is
$154,999.98 (6 nonbank SBSDs x ($16,000 annualized over 3 years +$20,500), which has been rounded to
$155,000.

36

See supra note 24.

9

a written opinion from outside counsel that the account control agreement is legally valid,
binding, and enforceable in all material respects, including in the event of bankruptcy,
insolvency, or a similar proceeding. The Commission staff estimates that 6 stand-alone SBSDs
entities will engage outside counsel to draft and review the account control agreement at a cost of
$400 per hour for an average of 20 hours per respondent, resulting in a one-time cost burden of
$48,000 for these 6 entities, or $16,000 on an annualized basis. 37
Account Control Agreement Legal Analysis (Rule 18a-1(c))
The Commission estimates that 6 stand-alone SBSDs will need to maintain written
documentation of their legal analysis of the account control agreement. Based on staff
experience, the Commission estimates that stand-alone broker-dealers will meet this requirement
split evenly between obtaining a written opinion of outside legal counsel or through the firm’s
own “in-house” analysis. The Commission estimates that the approximate cost to obtain an
opinion of counsel will be $8,000, resulting in a one-time cost burden of $24,000 for these 3
entities, or $8,000 on an annualized basis. 38
Summary of Dollar Costs

Type of
Burden

Number
of
Entities
Impacte
d

Annual
Respons
es per
Entity

Initial Cost
per Entity
per
Response

Rule 18a1(a) (VaR
Models)

Recordkeeping

4

1

$100,000.00

$33,333.33

$624,000.00

$657,333.33

$657,333.33

$2,629,333.32

0

Rule 18a1(d) (VaR
Models)

Recordkeeping

4

1

$8,000,000

$2,666,666.
67

0

$2,666,666.67

$2,666,666.67

$10,666,666.68

0

Rule 18a1(g) (Risk
Control
Managemen
t System)

Recordkeeping

6

1

$16,000.00

$5,333.33

$20,500.00

$25,833.33

$25,833.33

$155,,000.00

0

Rule 18a1(c)
(Account
Control
Agreement
Opinion of
Counsel)

Recordkeeping

6

1

$8,000.00

$2,666.67

0

$2,666.67

$2,666.67

$16,000.02

0

Rule 18a1(c)

Recordkeeping

3

1

$8,000.00

$2,666.67

0

$2,666.67

$2,666.67

$8,000.01

0

Name of
Informatio
n Collection

Initial Cost
Annualized
per Entity
per
Response

Ongoing
Cost per
Entity per
Response

Annual Cost
Per Entity per
Response

Total Annual
Cost Per
Entity

Total Industry
Cost

Small
Business
Entities
Affected

37

6 stand-alone SBSDSs x $400 per hour x 20 hours = $48,000. This cost annualized is $16,000 industrywide ($48,000/3 = $16,000) and $2,666.67 per firm ($16,000/6 stand-alone SBSDs = $2,666.667, rounded
to $2,666.67).

38

3 stand-alone SBSDs x $8,000 = $24,000. The annualized amount per year/ per respondent would be
$8,000/3 = $2,666.67, or a total of $8,000 ($2,666.67 x 3 stand-alone SBSDs).

10

(Account
Control
Agreement
Legal
Analysis)
TOTAL COST FOR ALL RESPONDENTS

14.

$13,475,000.01

Cost to Federal Government

The staff does not anticipate this information collection to impose additional costs to the
Federal Government.
15.

Changes in Burden

Name of Information
Collection

Liquidity Stress Test

Rule 18a-1(a) (VaR
Models)

Rule 18a-1(g) (Risk
Control Management
System)

Rule 18a-1(c) (Industry
Sector Classification)

Rule 18a-1(h)
(Commission Notices)

Rule 18a-1
(Subordinated Loan
Agreements)

Annual
Industry
Burden

0

19,720.00

5,500.02

2.00

3.00

100.02

Annual Industry
Burden
Previously
Reviewed

4,000

29,580.00

8,250.03

3.00

4.50

150.03

Change in
Burden

Reason for Change

(4,000)

Previously proposed, but not
adopted in the amendments to Rule
18a-1 described in the SBSD
Adopting Release based on
comments received.

(9,860)

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release.

(2,750.01)

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release.

(1.00)

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release.

(1.50)

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release.

(50.01)

11

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release. Note that
this burden was included in the

supporting statement for Rule 18a1, as proposed, but inadvertently
not entered into ROCIS.
Rule 18a-1(c) (Account
Control Agreement
Opinion of Counsel)

Rule 18a-1(c) (Account
Control Agreement
Legal Analysis)

Rule 18a-1(a) (VaR
Models)

Rule 18a-1(d) (VaR
Models)

Rule 18a-1(g) (Risk
Control Management
System)

Rule 18a-1(c) (Account
Control Agreement
Opinion of Counsel)

1,200.00

20.01

$2,629,333.32

$10,666,666.68

$155,000

$16,000.02

0

0

$3,943,999.98

$0

$232,499.97

$0

12

1,200.00

New provision adopted in new Rule
18a-1 as described in the SBSD
Adopting Release, based on
comments received.

20.01

New provision adopted in new Rule
18a-1 as described in the SBSD
Adopting Release, based on
comments received.

($1,314,666.66)

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release. Note
that the two cost burdens for VaR
Models (Rule 18a-1(a), as adopted,
and Rule 18a-1(d), as adopted),
were previously contained in one
cost burden in ROCIS but have
been separated for clarity.

$10,666,666.68

This cost burden was included in
the notice of proposed rulemaking
but was inadvertently left out of the
Supporting Statement and OMB
submission for the proposed rule.
Furthermore, the number of
respondents has been reduced from
6 to 4 due to the adoption of a new
rule (Rule 18a-10) in the SBSD
Adopting Release. new IC

($77,499.97)

Reduction in the number of entities
impacted due to the adoption of a
new rule (Rule 18a-10) in the
SBSD Adopting Release.

$16,000.02

New provision adopted in new Rule
18a-1 as described in the SBSD
Adopting Release, based on
comments received.

Rule 18a-1(c) (Account
Control Agreement
Legal Analysis)

16.

$8,000.01

$0

$8,000.01

New provision adopted in new Rule
18a-1 as described in the SBSD
Adopting Release, based on
comments received.

Information Collected Planned for Statistical Purposes

Not applicable. The information collection would is not used for statistical purposes.
17.
date.

OMB Expiration Date Display Approval

The Commission is not seeking approval to not display the OMB approval expiration
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.

13