DGL REVISED 2020 Rule 17a-13 Supporting Statement Version A

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 17a-13 -Quarterly security counts to be made by certain exchange members, brokers, and dealers
A.

JUSTIFICATION
1.

Necessity of Information Collection

In the period between 1967 and 1970, the securities industry was in the midst of a
prolonged and severe operational crisis. An increase in trading volume clogged the inadequate
machinery for the control and delivery of securities. As a result, many broker-dealers were
unable to locate securities belonging to customers. Others found themselves with substantial
quantities of securities in their possession without knowing to whom they belonged. The chaotic
state of affairs in many back offices of broker-dealers created the climate for the theft of
securities by back office personnel.
In response, on November 8, 1971, the Securities and Exchange Commission (the
“Commission”) adopted Rule 17a-13 under the Securities Exchange Act of 1934 (15 U.S.C. 78o
and 78q) (“Exchange Act”). Rule 17a-13 generally requires that at least once each calendar
quarter, all registered broker-dealers physically examine and count all securities held and
account for all other securities not in their possession, but subject to the broker-dealer’s control
or direction. Any discrepancies between the broker-dealer’s securities count and the firm’s
records must be noted and, within seven days, the unaccounted for difference must be recorded
in the firm’s records. Rule 17a-13 provides that under specified conditions, the securities count,
examination, and verification of a broker-dealer’s entire list of securities may be conducted on a
cyclical basis rather than on a certain date. Although Rule 17a-13 does not require a brokerdealer to file a report with the Commission, discrepancies between a broker-dealer’s records and
its securities count may be required to be reported, for example, as a loss on Form X-17A-5,
which must be filed with the Commission under Exchange Act Rule 17a-5. Rule 17a-13
exempts broker-dealers that limit their business to the sale and redemption of securities of
registered investment companies or interests or participation in an insurance company separate
account and those who solicit accounts for federally insured savings and loan associations,
provided that such persons promptly transmit all funds and securities and hold no customer funds
and securities. Rule 17a-13 also does not apply to certain broker-dealers required to register only
because they effect transactions in securities futures products.
Rule 17a-13 requires the recording of only those differences in the broker-dealer’s
records that remain unresolved seven business days after the date of the examination, count, and
verification. The Commission or the self-regulatory organization (“SRO”) designated as the
broker-dealer’s examining authority may examine these recorded discrepancies in a brokerdealer’s records to determine whether they are the result of the firm’s inability to maintain
control of its business.
The Commission is statutorily authorized to promulgate Rule 17a-13 by virtue of
Exchange Act Sections 15(c)(3) and 17(a). These sections authorize the Commission to provide

safeguards with respect to the financial responsibility and related practices of broker-dealers,
including the acceptance of custody and the use of customer securities. These sections also
authorize the Commission to require the making and preservation of such records as the
Commission deems appropriate for the protection of investors and in the public interest. Further
statutory authority is found in Exchange Act Section 23(a) (15 U.S.C. 78w).
2.

Purpose and Use of the Information Collection

The information is used as an inventory control device to monitor a broker-dealer’s
ability to account for all securities held in transfer, in transit, pledged, loaned, borrowed,
deposited, or otherwise subject to the firm’s control or direction. Any discrepancies between the
security count and the broker-dealer’s records alert the Commission and the SROs to those firms
experiencing back-office operational issues. Without Rule 17a-13, the Commission and
applicable SROs would lose this important warning device to inform them when a broker-dealer
might be having problems accounting for the securities for which it is responsible.
3.

Consideration Given to Information Technology

Since Rule 17a-13 provides that firms must reconcile their books and records with their
physical inventory and inventory in transit, improved information technology would not reduce
the burden.
4.

Duplication

Some SROs, of which a broker-dealer may be a member, require the broker-dealer to
make similar counts of securities in the firm’s possession or control. These counts, however, are
used for different purposes.
5.

Effect on Small Entities

To the extent that broker-dealers covered by Rule 17a-13 are small entities, these entities
would be impacted. The impact would, however, be mitigated because most small entities do not
hold securities.
6.

Consequences of Not Conducting Collection

If the security counts were conducted less frequently, investors would not have the
protection that the federal securities laws require. As discussed above, between 1967 and 1970,
a number of broker-dealers became insolvent because of their inability to account for the
securities that their records showed they possessed or controlled.
7.

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

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There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting comments
on this collection of information was published. No public comments were received.
9.

Payment or Gift

No payments or gifts were provided to respondents.
10.

Confidentiality

The records required to be made by Rule 17a-13 are available only to Commission
examination staff, state securities authorities, and applicable SROs. Subject to the provisions of the
Freedom of Information Act, 5 U.S.C. § 522, and the Commission’s rules thereunder (17 CFR
200.80(b)(4)(iii)), the Commission does not generally publish or make available information
contained in any reports, summaries, analyses, letters, or memoranda arising out of, in anticipation
of, or in connection with an examination or inspection of the books and records of any person or any
other investigation.
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 telephone
number. However, the agency has determined that the information collection does not constitute
a system of record 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
conducted a Privacy Impact Assessment (PIA) of the EDGAR system, in connection with this
collection of information. The EDGAR PIA, published on January 29, 2016, is provided as a
supplemental document and is also available at https://www.sec.gov/privacy.
12.

Information Collection Burden

As of June 30, 2019, there are approximately 3,744 active broker-dealers registered with
the Commission. However, given the variability in their businesses, it is difficult to quantify
how many hours per year each broker-dealer spends complying with Rule 17a-13. As noted,
Rule 17a-13 requires a broker-dealer to account for all securities in its possession or subject to its
control or direction. Many broker-dealers hold few, if any, securities, while others hold large
quantities. Therefore, the time burden of complying with Rule 17a-13 will depend on
respondent-specific factors, including size, number of customers, and proprietary trading
activity. The staff estimates that the average time spent per respondent is 100 hours per year on
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an ongoing basis to maintain the records required under Rule 17a-13. This estimate takes into
account the fact that more than half of the 3,744 respondents – according to financial reports
filed with the Commission – may spend little or no time complying with Rule 17a-13, given that
they do not do a public securities business or do not hold inventories of securities. For these
reasons, the staff estimates that the total recordkeeping burden per year is 374,400 hours (3,744
respondents x 100 hours/respondent).
Summary of Hourly Burdens

Name of
Information
Collection

Type of
Burden

Number
of
Entities
Impacted

Annual
Responses
per Entity

Rule 17a-13

Recordkeeping

3,744

1

13.

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

0.00

0.00

100.00

100.00

100.00

374,400.00

0.00

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

374,400.00

Costs to Respondents

Not applicable: (a) it is not anticipated that respondents will have to incur any capital and start-up
cost to comply with Rule 17a-13; and (b) it is not anticipated that respondents will have to incur any
additional operational or maintenance cost (other than provided for in Item 12) to comply with Rule 17a13.
14.

Costs to Federal Government

Not applicable. The staff does not anticipate the federal government incurring any
significant expense in reviewing documents filed in compliance with Rule 17a-13.
15.

Changes in Burden

The change in the recordkeeping burden is due to the change in the estimated number of
broker-dealers subject to Rule 17a-13. The estimated number of broker-dealers decreased from
4,067 to 3,744. Therefore, the compliance burden decreased from 406,700 hours (4,067
respondents x 100 hours/respondent) to 374,400 hours (3,744 respondents x 100
hours/respondent), resulting in a burden change of 32,300 less hours.
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 Commission is not seeking approval to omit the expiration date.
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18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

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