SUPPORTING STATEMENT 18A-4 (3235-0700) Final Rule.v2

SUPPORTING STATEMENT 18A-4 (3235-0700) Final Rule.v2.pdf

Rule 18a-4 Segregation requirements for security-based swap dealers and major security-based swap participants.

OMB: 3235-0700

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2022-10-12 - Extension without change of a currently approved collection

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SUPPORTING STATEMENT for the Paperwork Reduction Act Information Collection
Submission for Rule 18a-4 – Segregation requirements for security-based swap dealers and
major security-based swap participants.
3235-0700
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 763 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (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-4 to set forth segregation requirements
for security-based swap dealers (“SBSDs”) and major security-based swap participants
(“MSBSPs”) that are not registered as broker-dealers. 3 The rule establishes a number of new
collections of information requirements.
Rule 18a-4, as adopted, establishes segregation requirements for cleared and non-cleared
security-based swap transactions, which applies to non-broker-dealer SBSDs (i.e., bank SBSDs
and nonbank stand-alone SBSDs), as well as notification requirements for non-broker-dealer
SBSDs and MSBSPs. 4 The rule requires non-broker-dealer SBSDs to open and maintain special
accounts with banks and obtain written acknowledgements from, and enter into written contracts
with, the banks. Non-broker-dealer SBSDs are also required to at all times maintain in a special
account, through deposits into the account, cash and/or qualified securities in amounts computed
1

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

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

The Commission has also adopted amendments to Rule 15c3-3 under the Exchange Act to establish
segregation requirements for broker-dealers, including broker-dealer SBSDs that are parallel to the
requirements in Rule 18a-4 applicable to SBSDs that are not broker-dealers. See OMB No. 3235-0078.
The hour burdens for the collection of information related to Rule 15c3-3, as amended, in the final rule
release were included in the collection of information for Rule 18a-4, as proposed to be adopted, in the
proposing release. See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers
and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers; Proposed
Rule, Exchange Act Release No. 68071, 77 FR 70214 (Nov. 23, 2012). These hours were moved to the
existing collection of information in Rule 15c3-3, as amended, as a result of changes made to the final rule
in response to comments to require that broker-dealers comply with the segregation requirements of
paragraph (p) to Rule 15c3-3, as amended, with respect to their security-based swap activities (rather than
the requirements of Rule 18a-4, as adopted). There are other burdens in Rule 18a-4, however, that remain
applicable to other entities and have not been moved to Rule 15c3-3. As discussed in more detail herein,
Rule 18a-4 was adopted to establish largely parallel segregation requirements applicable to stand-alone and
bank SBSDs, as well as notification requirements for nonbank SBSDs.

in accordance with the formula set forth in Exhibit A to Rule 18a-4, as adopted. The rule also
requires that the computations necessary to determine the amount required to be maintained in
the special bank account must be made on a daily basis.
In addition, the rule requires that both non-broker-dealer SBSDs and MSBSPs provide
notice to a counterparty pursuant to Section 3E(f) of the Exchange Act prior to the execution of
the first non-cleared security-based swap transaction with the counterparty occurring after the
effective date of the adopted rule. The rule also requires non-broker-dealer SBSDs to obtain
agreements from counterparties that do not choose to require segregation of funds or other
property pursuant to Section 3E(f) of the Exchange Act or paragraph (c)(3) of Rule 18a-4, as
adopted, in which the counterparty agrees to subordinate all of its claims against the SBSD to the
claims of security-based swap customers of the SBSD. Finally, Rule 18a-4 also requires all
registered foreign SBSDs that enter into security-based swaps to provide counterparties that are
not U.S. persons certain disclosures regarding the potential treatment of their collateral and the
role of U.S. and foreign law in any insolvency proceedings. 5
As originally proposed, all SBSDs were subject to the segregation and notice
requirements of Rule 18a-4. However, due to industry comments received by the Commission
on Rule 18a-4, as proposed to be adopted, the Commission codified the security-based swap
segregation requirements for broker-dealers in Rule 15c3-3 (OMB No. 3235-0033), as amended,
rather than in Rule 18a-4, as adopted, in order to consolidate broker-dealer customer protection
requirements in Rule 15c3-3. 6 As a result, the collections of information for the segregation and
notice requirements for broker-dealers now fall under Rule 15c3-3, and the Commission has
prepared an amended Supporting Statement for Rule 15c3-3 (and reduced the estimates for the
collections of information in this rule) accordingly.
2.

Purpose and Use of the Information Collection

Rule 18a-4, as adopted, is integral to the Commission’s financial responsibility program
for SBSDs as they are designed to protect the rights of security-based swap customers and their
ability to promptly obtain their property from an SBSD. The collection of information
requirements in the rule facilitates the process by which the Commission and its staff monitor
how SBSDs are fulfilling their custodial responsibilities to security-based swap customers. Rule
18a-4 also requires that an SBSD provide certain notices to its counterparties. 7 These notices
alert counterparties to the alternatives available to them with respect to segregation of non5

See paragraph (e) of Rule 18a-4, as adopted.

The hour and cost burdens for broker-dealer SBSDs were included in the collection of information for Rule
18a-4, as proposed to be adopted, in the proposing release. See Capital, Margin, and Segregation
Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital
Requirements for Broker-Dealers; Proposed Rule, Exchange Act Release No. 68071, 77 FR 70214 (Nov.
23, 2012). These hour and cost burdens were moved to the existing collection of information in Rule 15c33, as amended, as a result of changes made to the final rule in response to comments to require that brokerdealers comply with the segregation requirements of paragraph (p) to Rule 15c3-3, as amended, with
respect to their security-based swap activities (rather than the requirements of Rule 18a-4, as adopted).
These information collections are under the headings of “2019 Amendments” in the supporting statement
for Rule 15c3-3. See OMB No. 3235-0078.

See paragraphs (a) and (c) of Rule 18a-4, as adopted.

cleared security-based swaps. The Commission and its staff will use this new collection of
information to confirm registrants are providing the requisite notice to counterparties.
3.

Consideration Given to Information Technology

The information collections do not require that respondents use any specific information
technology system either to prepare or submit information collections under Rule 18a-4, as
adopted.
4.

Duplication

This information collection does not duplicate any existing information collection.
5.

Effect on Small Entities

The information collections required under Rule 18a-4, as adopted, do not place burdens
on small entities. The information collections are relevant only to market participants whose
security-based swap market activity exceeds certain thresholds of notional amounts so as to
trigger registration requirements with the Commission, such that small market participants are
exempted.
6.

Consequences of Not Conducting Collection

If the required information collections are not conducted or are conducted less frequently,
the protection afforded to counterparties 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. 8 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). 9 While the Commission did not
receive specific comments with respect to the proposed collection of information with respect to
Rule 18a-4, as proposed to be adopted, the Commission received a number of comment letters in

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).

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”).

response to the 2012 proposal. 10 In response to comments received regarding Rule 18a-4, as
proposed to be adopted, the associated information collection burdens related to security-based
swap segregation requirements for broker-dealers have been moved from Rule 18a-4 to Rule
15c3-3. 11
9.

Payment or Gift

No payment or gift is provided to respondents.
10.

Confidentiality

The information collected by the Commission under Rule 18a-4, 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”). 12 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

Special Accounts (Rule 18a-4(a))
Rule 18a-4, as adopted, requires non-broker-dealer SBSDs to establish certain special
accounts with banks and obtain written acknowledgements from, and enter written agreements
10

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

For example, in response to the request for comments on Rule 18a-4, as proposed to be adopted, the
Commission received a comment that Rule 15c3-3 should be amended to take into account margin that is
posted at a clearing agency by broker-dealers not registered as SBSDs for the purposes of determining the
broker-dealers omnibus segregation requirements. See Letter from Kathleen M. Cronin, Senior Managing
Director, General Counsel, CME Group Inc. (Feb. 22, 2013). The Commission agreed with the
commenter and, in the 2019 amendments, adopted amendments to Rule 15c3-3 to establish segregation
requirements for broker-dealers, including broker-dealer SBSDs that parallel the requirements in Rule 18a4 applicable to SBSDs that are not broker-dealers. These new segregation requirements have
corresponding hour and cost burdens, as discussed in the supporting statement for Rule 15c3-3, as
amended. See OMB No. 3235-0078.

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.

with, those banks. These special accounts include qualified clearing agency accounts, qualified
SBSD accounts, and special accounts for the exclusive benefit of security-based swap customers
(collectively, the “special accounts”). The staff estimates that there will be three non-brokerdealer SBSDs that will have to open an average of 6 special accounts (2 for each type of special
account). Based on the Commission staff’s experience with similar requirements under Rule
15c3-3, the staff estimates that each non-broker-dealer SBSD will spend approximately 30 hours
drafting and obtaining the written acknowledgement and agreement for each account. This will
result in a one-time industry-wide hours burden of 540 recordkeeping hours, or 180 hours
on an annualized basis. 13
The staff also estimates that 25% of non-broker-dealer SBSDs (or 1 SBSD) will, in any
given year, establish a new account for each type of special account totaling 3 special accounts a
year (and it takes 30 hours to draft and obtain the written acknowledgment and agreement for
each account) because, for example, they changed their banking relationships. This will result
in an ongoing annual industry-wide hours burden of 90 recordkeeping hours. 14
Customer Reserve Computation (Rule 18a-4(c))
Rule 18a-4 requires SBSDs to perform daily computations of the customer reserve
amount, and ensure that the relevant special accounts hold sufficient cash and/or qualified
securities to meet that amount. Based on the staff’s experience with similar computations
performed by broker-dealers under Rule 15c3-3, the staff estimates that non-broker-dealer
SBSDs will spend on average 2.5 hours per week for each computation. 15 This will result in a
burden of 130 recordkeeping hours per non-broker-dealer SBSD and an annual industrywide hours burden of 390 recordkeeping hours. 16
Counterparty Notice (Rule 18a-4(d)(1))
Both non-broker-dealer SBSDs and MSBSPs are required under Rule 18a-4 to give
counterparties notice that they may elect segregation of their collateral, as required by the DoddFrank Act. This notice is given once, prior to the counterparty’s first trade with the non-broker13

3 non-broker-dealer SBSDs x 6 special accounts x 30 hours = 540 hours. This amount annualized is 180
recordkeeping hours per year and 60 hours per SBSD per year (6 special accounts x 30 hours/3 years).

1 non-broker-dealer SBSD x 3 special accounts x 30 hours = 90 hours. Annualized each SBSD would
spend 90 hours (3 special accounts x 30 hours).

A commenter requested that the Commission require a weekly SBS Customer Reserve Account
computation rather than a daily computation. The commenter stated that calculating the reserve account
formula is an onerous process that is operationally intensive and requires a significant commitment of
resources. The commenter further stated that the Commission can achieve its objective of decreasing
liquidity pressures on SBSDs while limiting operational burdens by requiring weekly computations and
permitting daily computations. See Letter from Kenneth E. Bentsen, Jr., Executive Vice President,
Securities Industry and Financial Markets Association (Feb. 22, 2013). In response to comments, the
Commission modified its final rules to require a weekly SBS Customer Reserve Account computation. The
final rules further provide that stand-alone broker-dealers or SBSDs may perform daily computations if
they choose to do so.

1 non-broker-dealer SBSDx x 52 weeks x 2.5 hours/week = 130 hours. 3 non-broker-dealer SBSDs x 130
hours = 390 hours.

dealer SBSD or MSBSP. All non-broker-dealer SBSDs and MSBSPs are subject to this
requirement, and the staff estimates that there will be 38 such firms. The staff estimates that
these firms will have an average of 1,000 counterparties to which they would have to send
notices, spending an average of ten minutes per counterparty. This will result in an initial, onetime industry-wide internal hours burden of 6,333.33 third party disclosure hours, or
approximately 2,280 when annualized. 17
The staff estimates that, on average, non-broker-dealer SBSDs and MSBSPs will initiate
security-based swap trading with 200 new counterparties per year. This will result in an annual
industry-wide hours burden of 1,292 third party disclosure hours. 18
Subordination Agreements (Rule 18a-4(d)(2))
Rule 18a-4, as adopted, will require that non-broker-dealer SBSDs obtain subordination
agreements from counterparties that elect to either require individual segregation with a thirdparty or waive segregation. The staff estimates that an SBSD will spend on average 200 hours
internally to draft and prepare standard subordination agreements, resulting in an initial, onetime industry-wide internal hours burden of 600 recordkeeping hours, or 200 hours when
annualized. 19
As discussed above, the staff estimates that non-broker-dealer SBSDs will on average
have approximately 1,000 counterparties at any given time. The staff further estimates that half
of these counterparties will either elect individual segregation or waive segregation altogether.
The staff estimates that non-broker-dealer SBSDs will spend an average of 20 hours per
counterparty to enter into a written subordination agreement, 20 resulting in an initial, one-time
industry-wide hours burden of 30,000 third-party disclosure hours, or 10,000 hours when
annualized. 21
The staff also estimates that half of the estimated 200 new counterparties non-brokerdealer SBSDs are expected to add per year will either elect individual segregation or waive

38 firms x 1,000 counterparties x 1/6 hour = 6,333.33 hours. Each firm has a one-time internal hours
burden of 166.67 hours (6,333.33 hours/38 = 166.666, rounded to 166.67). This amount annualized is
55.56 hours (166.67 hours/3 = 55.556, rounded to 55.56) and an annualized total industry-wide
recordkeeping burden of 2,280 hours. For purposes of calculating the annual burden, each respondent
would have to give notice to 533.33 counterparties (1000 counterparties averaged over three years (333.33)
+ 200 new counterparties each year).

38 firms x 200 counterparties x 1/6 hour = 1,292 hours.

3 non-broker-dealer SBSDs x 200 hours = 600 hours. This one-time burden annualized is 66.67 hours per
firm (600 hours/3 = 200; 200/3 non-broker-dealer SBSDs = 66.667 hours, rounded to 66.67) and 200 hours
industry-wide (600 hours/3 = 200 hours).

For purposes of calculating the annual burden, this would average out to 10 hours per counterparty.

3 non-broker-dealer SBSDs x 20 hours x 500 counterparties = 30,000 hours. The annualized industry-wide
burden is 10,000 hours per year (30.000 hours /3 = 10,000 hours) and 3,333.33 hours per firm (10,000
hours/3 non-broker dealer SBSDs = 3,333.33 hours).

segregation altogether. This will result in an annual industry-wide hours burden of 6,000
third-party disclosure hours. 22
Disclosures to U.S. Counterparties (Rule 18a-4(e)(3)) 23
Rule 18a-4, as adopted, requires registered foreign SBSDs to provide disclosures to their
U.S. counterparties regarding the potential treatment of segregated assets in insolvency
proceedings. The staff estimates that there will be up to 30 potential jurisdictions in which trade
associations or industry working groups may be able to develop standard disclosure forms that
can be adopted by foreign SBSDs with little or no modification. The Commission estimates that
each notice will require 5 hours of in-house counsel time for each agreement jurisdiction.
Therefore, the Commission estimates that there will be a one-time industry burden of 3,300
third-party hours, or 1,100 hours when annualized. 24
The Commission estimates that there are 22 foreign SBSDs and that each foreign SBSD
will have 50 active non-U.S. counterparties. The Commission further estimates that the total
paperwork burden associated with incorporating new disclosure language into each foreign
SBSD’s trading documentation will require 10 hours of-in house counsel time for each of the
firm’s 50 active non-U.S. counterparties, resulting in 500 third-party hours per foreign SBSD
and 11,000 third-party hours across the industry, or 3,666.67 (rounded to 3,667) hours
when annualized. 25
The Commission also estimates that each of the 22 foreign SBSDs will not need to spend
more than 5 hours a year updating these disclosures. This will cause an annual third-party
burden of 110 hours per year. 26
Exemptions (Rule 18a-4(f))
Finally, based on comments received, 27 the Commission modified the language in Rule
18a-4 to add paragraph (f) to the rule to exempt a stand-alone or bank SBSD from the
22

3 non-broker-dealer SBSDs x 20 hours x 100 counterparties = 6,000 hours. The annual industry-wide
burden is 2,000 hours and the annual burden per respondent is 666.67.

5 hours x 30 jurisdictions x 22 foreign SBSDs = 3,300 hours. This one-time burden annualized is 1,100
hours industry-wide (3,300 hours/3 = 1,100) and 50 hours per firm (1,100/22 firms = 50).

500 hours x 22 foreign SBSDs = 11,000 hours. 500 hours/3 years x 22 foreign SBSDs = 3,666.67 hours.

5 hours x 22 foreign SBSDs = 110 hours.

In adopting Rule 18a-4, the Commission is persuaded by comments stating that it would be appropriate to
exempt from the omnibus segregation requirements stand-alone and bank SBSDs that do not clear securitybased swaps for other persons. If the stand-alone or bank SBSD does not clear security-based swaps for
other persons then there is no need for the omnibus segregation requirements with respect to those
positions. Moreover, with respect to non-cleared security-based swaps, the omnibus segregation
requirements provide an alternative to the statutory options available to counterparties to request individual
segregation or to waive segregation. Thus, counterparties will have the option of protecting their initial

requirements of 18a-4, if certain conditions are met. These conditions include that the SBSD
must provide notice to the counterparty regarding the right to segregate initial margin at an
independent third-party custodian, and makes certain disclosures in writing regarding collateral
received by the SBSD. The commission estimates that the total paperwork burden associated
with developing new disclosure language under paragraph (f)(3) of Rule 18a-4, as adopted will
require each of the 31 SBSDs (25 bank SBSDs and 6 stand-alone nonbank SBSDs) to spend 5
hours of in-house counsel time. This would create a total one-time third-party industry
burden of 155 hours, or 51.67 (rounded to 52) hours when annualized. 28 This estimate
assumes little or no reliance on standardized disclosure language.
In addition, the Commission estimates that the average SBSD will have approximately
1,000 counterparties at any given time. Accordingly, the Commission staff estimates the cost of
incorporating new disclosure language into the trading documentation of an average SBSD
would be 10,000 third party disclosure hours per SBSD 29 and approximately 310,000 third
party disclosure hours for all 31 SBSDs, or 103,333.33 30 when annualized. 31
Furthermore, the Commission expects that the majority of the paperwork burden
associated with the new disclosure requirements under paragraph (f)(3) of Rule 18a-4, as
adopted, will be experienced during the first year as language is developed. After the new
disclosure language is developed and incorporated into trading documentation, the Commission
believes that the ongoing burden associated with paragraph (f)(3) will be limited to periodically
updating the disclosures. The Commission estimates that this ongoing paperwork burden
will be approximately 5 hours per SBSD per year, and therefore creates an ongoing thirdparty burden of 155 hours per year for all 31 SBSDs. 32

margin for non-cleared security-based swaps by exercising their statutory right to individual segregation.
This modification from the proposed rule is designed to mitigate commenters’ concerns that the proposed
omnibus segregation requirements may conflict with bank liquidation or resolution schemes. See, e.g.,
Letter from Richard M. Whiting, Executive Director and General Counsel, The Financial Services
Roundtable (Feb. 22, 2013); Letter from Kenneth E. Bentsen, Jr., Executive Vice President, Securities
Industry and Financial Markets Association (Feb. 22, 2013).
28

31 SBSDs x 5 in-house counsel hours = 155 hours. This one-time burden annualized 51.67 hours industrywide (155 hours/3 = 51.667, rounded to 51.67) and 1.67 hours per firm (51.67 hours/31 firms = 1.667,
rounded to 1.67).

10 in-house counsel hours x 1,000 counterparties = 10,000 hours.

This number (103,333.33) is different from the number that is represented in the summary of hourly burden
chart (103,230) because of a different order of operations and rounding in arriving at the final hour burden.

31 SBSDs x 10,000 hours = 310,000 hours. This one-time burden annualized is 103,333.33 hours industrywide (310,000 hours/3 = 103,333.33) and 3,333.33 hours per firm (103,333.33 hours/31 firms = 3,333.33.

31 SBSDs x 5 hours per SBSD = 155 hours.

Summary of Hourly Burdens 33

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

Rule 18a-4(a) (Special
Accounts)—Initial
Burden

Recordkeeping

30.00

10.00

60.00

180

Rule 18a-4(a) (Special
Accounts)—Ongoing
Burden

Recordkeeping

30.00

90.00

Rule 18a-4(c)
(Customer Reserve
Computation)—
Ongoing Burden

Recordkeeping

2.50

130.00

390

Rule 18a-4(d)(1)
(Counterparty
Notice)—Initial Burden

Third-Party

1,000

.17

.06

2,280

Rule 18a-4(d)(1)
(Counterparty
Notice)—Ongoing
Burden

Third-Party

200

0.17

34.00

1292

Rule 18a-4(d)(2)
(Subordinations
Agreements,
Drafting)—Initial
Burden

Recordkeeping

200

66.67

200

Rule 18a-4(d)(2)
(Subordination
Agreements, Entering
Into)—Initial Burden

Third-Party

500

6.67

3,335.00

10,000

Rule 18a-4(d)(2)
(Subordination
Agreements)—Ongoing
Burden

Third-Party

100

20.00

2,000.00

6,000

Rule 18a-4(e)(3)
(Disclosures to U.S.
Counterparties,
Developing Forms)—
Initial Burden

Third-Party

1.67

50.10

1,100

Rule 18a-4(e)(3)
(Disclosures to U.S.
Counterparties,
Incorporating New
Language)—Initial
Burden

Third-Party

3.33

166.50

3,667

Rule 18a-4(e)(3)
(Disclosures to U.S.
Counterparties)—
Ongoing Burden

Third-Party

110

Rule 18a-4(f)
(Exemptions,
Developing Disclosure
Language)—Initial
Burden

Third-Party

1.67

Rule 18a-4(f)
(Exemptions,

Third-Party

1,000

3.33

3,333.33

103,333

Name of Information
Collection

Total Industry
Burden

The hour burdens in this chart have been separated out by both type of burden (e.g., recordkeeping,
reporting, or third-party/disclosure), and whether the burden is an initial burden or an ongoing one. These
burdens have been collapsed in ROCIS.

Small
Business
Entities
Affected

Incorporating
Disclosure
Language)—Initial
Burden
Rule 18a-4(f)
(Exemptions)—
Ongoing Burden

Third-Party

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

13.

155.00

128,849

Costs to Respondents

Counterparty Notice (Rule 18a-4(d)(1))
The staff estimates that SBSDs and MSBSPs will engage outside counsel for 10 hours to
draft and review the template counterparty notice regarding segregation, resulting in a one-time
industry-wide external hours burden of 380 hours. 34 The staff predicts that firms will hire an
outside counsel to draft the template counterparty notice regarding segregation, at a cost $400
per hour resulting in an industry-wide one-time third party disclose cost of $152,000. This
results in a one-time industry-wide external third party disclosure cost of about $152,0000,
or $50,666.67 when annualized over 3 years. 35
Subordination Agreements (Rule 18a-4(d)(2))
The staff also estimates that non-broker-dealer SBSDs are likely to hire an outside
counsel to review the template subordination agreement, requiring on average a total of 20 hours,
or a one-time industry-wide external hours burden of 60 hours. 36 This results in a one-time
industry-wide external recordkeeping cost of $24,000, or $8,000 when annualized over 3
years. 37
Summary of Dollar Costs

Initial Cost
per Entity
per
Response

Initial Cost
Annualized
per Entity per
Response

$4,000.00

$1,333.33

$8,000.00

$2,666.67

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Rule 18a-4(d)(1)
(Counterparty Notice,
Outside Counsel
Review)—Initial Cost

Third-Party

Rule 18a-4(d)(2)
(Subordination
Agreements, Outside

Recordkeeping

Name of Information
Collection

Ongoing
Cost per
Entity per
Response

Small
Business
Entities
Affected

Annual Cost
Per Entity
per Response

Total Annual
Cost Per
Entity

$0.00

$1,333.33

$50,666.54

$0.00

$2,666.67

$8,000.00

Total Industry
Cost

38 firms x 10 hours = 380 hours.

380 hours x $400/hour / 3 years = $50,666.67. The cost per firm annualized is $1,333.33 ($50,666.67/38 =
$1,333.33).

3 non-broker-dealer SBSDs x 20 hours = 60 hours.

60 hours x $400/hour = $24,000. $24,000/ 3 years = $8,000. This also results in a one-time cost of $8,000
per non-broker-dealer SBSD ($24,000/ 3 non-broker-dealer SBSDs), which results in an annual cost of
$2,666.67 per entity ($8,000/3 = 2,666.667, rounded to 2,666.67).

Counsel Review)—
Initial Cost
TOTAL COST FOR ALL RESPONDENTS

14.

$58,666.54

Cost to Federal Government

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

Name of
Information
Collection

Rule 18a-4(a)
(Special Accounts)

Rule 18a-4(c)
(Customer Reserve
Computation)

Changes in Burden

Annual Industry Burden

2 distinct hour burdens as
shown in the summary chart
above, totaling 270

Annual
Industry
Burden
Previously
Reviewed

4,170

Change in Burden

Reason for Change

(3,990)

Number of entities
impacted has been
reduced because
broker-dealer SBSDs
and MSBSPs entities
were moved to the
information collection
for Rule 15c3-3
(OMB No. 32350033) and new
paragraph (f) to Rule
18a-4, as adopted
(Exemptions) reduces
number of entities
impacted by 6 standalone nonbank
SBSDs.

(180+90)

390

31,250

(30,860)

Provision altered to
require weekly rather
than daily customer
reserve calculation
(and burden therefore
reduced) pursuant to
the adoption of Rule
18a-4 in the SBSD
Adopting Release,
based on comments
received. Also,

number of entities
impacted has been
reduced because
broker-dealer SBSD
and MSBSP entities
were moved to the
information collection
for Rule 15c3-3
(OMB No. 32350033) and new
paragraph (f) to Rule
18a-4, as adopted
(Exemptions) reduces
number of entities
impacted by 25 bank
SBDSs and 6 standalone nonbank
SBSDs.

Rule 18a-4(d)(1)
(Counterparty
Notice)

Rule 18a-4(d)(2)
(Subordination
Agreements)

2 distinct hour burdens, as
shown in the summary chart
above, totaling 3,572

4,889

(1,317)

(2,280+1,292)

3 distinct hour burdens, as
shown in the summary chart
above, totaling 16,200

270,000

(200+10,000+6,000)

(253,800)

Number of entities
impacted has been
reduced because
broker-dealer SBSDs
and MSBSPs entities
were moved to the
information collection
for Rule 15c3-3
(OMB No. 32350033). Any further
differences can be
explained by
rounding differences
due to separate
calculations.
Number of entities
impacted has been
reduced because
broker-dealer SBSDs
and MSBSPs entities
were moved to the
information collection
for Rule 15c3-3
(OMB No. 32350033) and new
paragraph (f) to Rule
18a-4, as adopted
(Exemptions) reduces
number of entities

impacted by 25 bank
SBDSs and 6 standalone nonbank
SBSDs.

Rule 18a-4(e)(3)
(Disclosures to
U.S.
Counterparties)

Rule 18a-4(f)
(Exemptions)

Rule 18a-4(d)(1)
(Counterparty
Notice) – Cost
Burdens

Rule 18a-4(d)(2)
(Subordination
Agreements) –
Cost Burdens

3 distinct hour burdens, as
shown in the summary chart
above, totaling 4,877

4,877

(1,100+3,667+110)

3 distinct hour burdens, as
shown in the summary chart
above, totaling 103,437

103,437

(52+103,230+155)

$50,666.54

$8,000

$73,333

$133,334

($22,666.46)

($125,334)

Although not
discussed in the
supporting statement
for Rule 18a-4, as
proposed, the
Commission
proposed disclosure
requirements for
foreign SBSDs
because the treatment
of security-swap
customers in a
liquidation
proceeding may vary
depending on the
foreign SBSD’s status
and the insolvency
laws applicable to the
foreign SBSD.
New provision
adopted in the
adoption of Rule 18a4 described in the
SBSD Adopting
Release, based on
comments received.
Number of entities
impacted has been
reduced because
broker-dealer SBSDs
and MSBSPs entities
were moved to the
information collection
for Rule 15c3-3
(OMB No. 32350033).
Number of entities
impacted has been
reduced because
broker-dealer SBSDs
and MSBSPs entities

were moved to the
information collection
for Rule 15c3-3
(OMB No. 32350033) and new
paragraph (f) to Rule
18a-4, as adopted
(Exemptions) reduces
number of entities
impacted by 25 bank
SBDSs and 6 standalone nonbank
SBSDs.

16.

Information Collected Planned for Statistical Purposes

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

OMG 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.

File Type	application/pdf
File Title	Rule 18a-4 Supporting Statement
Author	Sheng, Teen
File Modified	2019-10-24
File Created	2019-10-24

SUPPORTING STATEMENT 18A-4 (3235-0700) Final Rule.v2