August 2019 Supporting Statement

August 2019 SUPPORTING STATEMENT Rule 15c3-1 (3235-0200) Final Rule.pdf

Rule 15c3-1; Net Capital Requirements for Brokers and Dealers

August 2019 Supporting Statement

OMB: 3235-0200

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SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 15c3-1 – Net Capital Requirements for Brokers or Dealers
3235-0200
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq. This Supporting Statement includes new collections of
information related to a rulemaking that amended this Rule 15c3-1 (OMB No. 32350200). The collections of information that were previously in Rule 15c3-1, and that were
not part of the rulemaking notice and comment process, are included in this Supporting
Statement but are not being revised.
A.

JUSTIFICATION
1.

Necessity of Information Collection

Rule 15c3-1 1 under the Securities Exchange Act of 1934 (“Exchange Act”) 2 is intended
to ensure that broker-dealers registered with the Securities and Exchange Commission
(“Commission”) at all times have sufficient liquid capital to protect the assets of customers and
to meet their responsibilities to other broker-dealers. 3 Rule 15c3-1 generally defines the term
“net capital” as a broker-dealer’s net worth (assets minus liabilities), plus certain subordinated
liabilities, less certain assets that are not readily convertible into cash (e.g., fixed assets), and less
a percentage (haircut) of certain other liquid assets (e.g., securities). 4
Rule 15c3-1 is an integral part of the Commission’s financial responsibility program for
broker-dealers. In particular, Rule 15c3-1 facilitates the monitoring of the financial condition of
broker-dealers by the Commission and the broker-dealer’s designated examining authority
(“DEA”). If the information were not required to be collected, the Commission and the DEAs
would not be able to monitor the financial condition of broker-dealers, exposing their customers
and counterparties to increased risk.
2019 Amendments. On June 21, 2019, in accordance with Section 764 of the DoddFrank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), 5 the
Commission adopted amendments to Rule 15c3-1 to set forth net capital requirements for
broker-dealers that also register as nonbank security-based swap dealers (“broker-dealer
SBSDs”), along with other changes that would apply to broker-dealers, including a special class
of broker-dealer that are approved to use internal models to compute net capital (“ANC broker-

1

17 CFR 240.15c3-1.

2

15 U.S.C. § 78 et seq.

3

See Net Capital Rule, Exchange Act Release No. 39455 (Dec. 17, 1997), 62 FR 67996 (Dec. 30, 1997).

4

See 17 CFR 240.15c3-1(c)(2).

5

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

dealers”). 6 The Commission adopted amendments to Rule 15c3-1 to increase net capital
requirements for ANC broker-dealers, and prescribe certain capital requirements for brokerdealers that are not SBSDs to the extent they engage in security-based swap and swap activity.
This supporting statement describes the new collections of information due to the adopted
amendments in the SBSD Adopting Release. The existing collections of information that were
already in Rule 15c3-1 were not part of the notice and comment process in the SBSD Adopting
Release and are not being revised.
2.

Purpose and Use of the Information Collection

Rule 15c3-1 is intended to help ensure that broker-dealers maintain at all times sufficient
liquid resources to meet all liabilities, particularly the claims of customers, by requiring that
broker-dealers maintain a minimum amount of net capital. A broker-dealer’s minimum net
capital requirement is the greater of: (1) a fixed minimum amount set forth in Rule 15c3-1 based
on the types of business that the broker-dealer conducts; 7 or (2) a financial ratio. 8 Exchange Act
Section 15(c)(3) and Rule 15c3-1 promulgated thereunder prohibit a broker-dealer from effecting
transactions in securities while not in compliance with its minimum net capital requirement.
Various provisions of Rule 15c3-1 require that broker-dealers provide written notification
to the Commission and/or their DEA under certain circumstances. For example, a broker-dealer
carrying the account of an options market maker must file a notice with the Commission and the
DEA of both the carrying firm and the market maker prior to effecting transactions in the
account. 9 In addition, the carrying firm must notify the Commission and the appropriate DEA if
a market maker fails to deposit the required equity with the carrying broker-dealer relating to the
market maker’s account within the prescribed time period or if certain deductions and other
amounts relating to the carrying firm’s market maker accounts computed in accordance with
Rule 15c3-1 exceeds 1,000% of the carrying broker-dealer’s net capital. 10 In addition, a brokerdealer electing to compute its net capital using the alternative method under paragraph (a)(1)(ii)
of Rule 15c3-1 must notify its DEA of the election in writing, and thereafter must continue to
compute its net capital in this manner unless a change is approved upon application to the
Commission. 11
There are also certain recordkeeping requirements under Rule 15c3-1. For example, a
broker-dealer must keep a record of who is acting as an agent in a securities loan transaction and
records with respect to obtaining DEA approval prior to withdrawing capital within one year of a

6

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
(“SBSD Adopting Release”).

7

See 17 CFR 240.15c3-1(a)(2)–(9).

8

See 17 CFR 240.15c3-1(a)(1)(i)–(iii).

9

See 17 CFR 240.15c3-1(a)(6)(vi).

10

See 17 CFR 240.15c3-1(a)(6)(iv)(B); 17 CFR 240.15c3-1(a)(6)(v).

11

See 17 CFR 240.15c3-1(a)(1)(ii).

2

contribution. 12 These records help the Commission and its staff, as well as DEAs, facilitate the
monitoring of the financial condition of broker-dealers.
Appendix C to Rule 15c3-1 requires broker-dealers that consolidate their financial
statements with a subsidiary or affiliate, under certain circumstances, to submit to their DEA an
opinion of counsel. 13 The opinion of counsel must state, among other things, that the brokerdealer may cause that portion of the net assets of a subsidiary or affiliate related to its ownership
interest in the entity to be distributed to the broker-dealer within 30 calendar days. 14
Appendix E to Rule 15c3-1 provides an alternative method for determining certain net
capital charges for certain broker-dealers (“alternative net capital firms” or “ANC firms”). 15
Appendix G to Rule 15c3-1 requires the holding company of an ANC firm that has a principal
regulator to file certain periodic reports with the Commission, preserve certain records, and
notify the Commission of certain events. The notification provisions of Appendix G are
designed to give the Commission advance warning of situations that may pose material financial
and operational risks to the broker-dealer and its holding company. These provisions are integral
to Commission supervision of broker-dealers that use Appendix E.
2019 Amendments. The amendments to Rule 15c3-1 in the SBSD Adopting Release
are integral parts of the Commission’s financial responsibility program for broker-dealers,
broker-dealer SBSDs, and ANC broker-dealers. The collections of information in the
amendments to Rule 15c3-1 facilitate the monitoring of the financial condition of broker-dealers
by the Commission and its staff.
3.

Consideration Given to Information Technology

The method of computing net capital varies by size and complexity of a broker-dealer.
Most large broker-dealers subject to Rule 15c3-1, including the SBSD entities subject to the
2019 Amendments described in the SBSD Adopting Release, utilize automated systems for
computing their net capital and minimum requirements. Smaller broker-dealers with simple
balance sheets may compute their net capital on a manual basis. The information collections
however do not require that respondents use any specific information technology system either to
prepare or submit information collections under Rule 15c3-3, as amended.
4.

Duplication

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

Effects on Small Entities

12

See 17 CFR 240.15c3-1(c)(2)(iv)(B); 17 CFR 240.15c3-1(c)(2)(i)(G)(2).

13

See 17 CFR 240.15c3-1c(b)(1).

14

See 17 CFR 240.15c3-1c(b)(2).

15

See 17 CFR 240.15c3-1e.

3

Small entities may be affected to the extent they are required to maintain a minimum
amount of net capital under Rule 15c3-1. However, there are different requirements for small
entities subject to Rule 15c3-1. Most of these entities are not affected by the information
collection provisions of Rule 15c3-1. In addition, the information collections required pursuant
to the adopted amendments to Rule 15c3-1 described in the SBSD Adopting Release do not
place burdens on small entities. The broker-dealer 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 activities were not required to be collected, or were required to be
conducted less frequently, the Commission and the DEAs would not be able to monitor the
financial condition of broker-dealers, exposing their customers and counterparties to increased
risk and lessening the protection afforded to the public.
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

2019 Amendments. The Commission requested comment in the proposing release on
the included PRA analysis in October 2012. 16 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). 17 While the Commission did not
receive specific comments on the proposed collection of information, we received a number of
comments on other aspects of the proposed rule. 18 In response to certain of these comments, 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 ANC broker-dealers. 19 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.

16

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).

17

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”).

18

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

19

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

4

9.

Payment or Gift

No payments or gifts have been provided to respondents.
10.

Confidentiality

The Commission regards information obtained pursuant to the filings and notices
required by Rule 15c3-1 to be confidential. Such information is of a financial nature and
generally is not disclosed to the public. The statutory basis for the Commission’s refusal to
disclose such information to the public is the exemption contained in section (b)(4) of the
Freedom of Information Act, 5 U.S.C. 552, which provides that the requirement of public
dissemination does not apply to commercial or financial information which is privileged or
confidential.
11.

Sensitive Questions

The collections of information do not expressly include Personally Identifiable
Information (“PII”). 20 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 circumstances 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 the 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 existing hour burdens in the rule were not part of the notice and comment process for
the 2019 Amendments and, therefore, are not being revised at this time. The description of the
existing hour burdens is from the most-recent extension in 2017. A discussion of the new hour
burdens in the recent rulemaking is further below.
Existing Hour Burdens
Based on experience with the industry, the Commission estimates that broker-dealers
annually file approximately 902 notices under Rule 15c3-1 and that a broker-dealer will spend
approximately 30 minutes preparing and filing these notices. Therefore, the Commission
estimates a total annual reporting burden of 451 hours. 21
Paragraph (c)(2)(iv)(B) of Rule 15c3-1 requires a broker-dealer to make disclosures to,
and obtain certain agreements from, securities lending principals in situations where the firm
20

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.

21

902 notices x (30 minutes / 60 minutes) = 451 hours.

5

participates in the settlement of a securities lending transaction but wants to be deemed an agent
for purposes of Rule 15c3-1. The Commission estimates that 5% of the 122 broker-dealers, or
approximately 6 firms, engaged in securities lending will need to modify their standard
agreements. The Commission estimates each of these firms will spend approximately 20 hours
of employee resources updating their standard agreement template. Therefore, the Commission
estimates that the total one-time recordkeeping burden will be approximately 120 hours. 22
Paragraph (c)(2)(i)(G)(2) of Rule 15c3-1 requires that a broker-dealer treat as a liability
any capital contribution that is intended to be withdrawn within one year of its contribution. The
amendment also includes the presumption that capital withdrawn within one year of contribution
is presumed to have been intended to be withdrawn within one year, unless the broker-dealer
receives permission in writing for the withdrawal from its DEA. The Commission estimates that
90 broker-dealers will seek to obtain permission from their DEA in writing to withdraw capital
within one year of its contribution, and that it will take a broker-dealer approximately one hour
to prepare and submit the request to its DEA to withdraw capital. Therefore, the Commission
estimates that the total annual reporting burden will be approximately 90 hours. 23
With respect to Appendices E and G of Rule 15c3-1, the following estimates are based on
the assumption that 10 broker-dealers will ultimately compute deductions for market risk under
Appendix E. Currently, there are 5 ANC firms, and the Commission expects that 5 additional
firms will apply to compute deductions for market risk under Appendix E. 24 The Commission
estimates that each broker-dealer that applies will incur a one-time recordkeeping burden of
approximately 1,000 hours to create and compile the various documents to be included with the
application and to work through the application process, with an aggregate one-time
recordkeeping burden of 5,000 hours or an annualized burden of 1,666.65 per year. 25
The Commission estimates that an ANC firm using Appendices E and G to Rule 15c3-1
spends approximately 5,600 hours per year to review and update the models it uses to assess
market and credit risk and approximately 160 hours each quarter, or approximately 640 hours per
year, to back test the models. Consequently, the Commission estimates that the total annual
recordkeeping burden associated with reviewing and back testing mathematical models for the 5
ANC firms will be approximately 31,200 hours, 26 and approximately 20,800 hours 27 for the 5

22

6 broker-dealers x 20 hours per firm = 120 hours. The three-year annualized number for this one time
burden is 40 hours (120 hours / 3 years = 40), or 6.67 hours per firm.

23

90 broker-dealers x 1 hour = 90 hours.

24

The Commission expects that these 5 firms will register as ANC firms over the next three years. However,
until their registrations are complete, these firms will not be subject to the annual burdens discussed
throughout Item 12. Therefore, the Commission has taken this fact into consideration in its calculations.

25

The three-year annualized number for this one-time burden is 333.33 per firm (1,000 hours / 3 years =
333.33), or 1,666.65 hours for the industry (333.33 hours x 5 firms).

26

(5,600 hours + 640 hours) x 5 broker-dealers = 31,200 hours.

27

(Y1: 0 hours) + (Y2: 5,600 hours + 640 hours = 6,240 hours) + (Y3: 5,600 hours + 640 hours = 6,240
hours) = 12,480 hours / 3 years = 4,160 x 5 ANC broker-dealers = 20,800 hours.

6

broker-dealers expected to become ANC firms, resulting in an aggregate annual recordkeeping
burden of 52,000 hours. 28
The Commission estimates that the average amount of time necessary to prepare and file
the monthly reports required by Appendix G will be approximately 8 hours per month, or 96
hours per year. The Commission estimates that the average amount of time necessary to prepare
and file the quarterly reports will be approximately 16 hours per quarter, or 64 hours per year.
The Commission estimates that the average amount of time necessary to prepare and file the
annual audit reports will be approximately 200 hours per year. Consequently, the Commission
estimates that the total annual reporting burden of Appendix G for the 5 ANC firms will be
approximately 1,800 hours, 29 and the total annual reporting burden for the 5 broker-dealers
expected to become ANC firms will be approximately 1,200 hours, 30 resulting in an aggregate
annual reporting burden of 3,000 hours. 31
The Commission expects that any additional burden associated with the requirements of
Appendix G relating to preserving records will be minimal because a prudent firm that manages
risk on a group-wide basis will make and preserve these records in the ordinary course of its
business. The Commission estimates that the average one-time burden of making and preserving
these records will be approximately 40 hours and that the average annual burden will be
approximately 290 hours. Consequently, the Commission estimates that the annual
recordkeeping burden for the 5 ANC firms will be approximately 1,450 hours. 32 The
Commission estimates that the total one-time and annual recordkeeping burden for the 5 brokerdealers expected to become ANC firms will be approximately 200 hours 33 and 966.65 hours, 34
respectively. Therefore, Commission estimates an aggregate annualized recordkeeping burden
of approximately 2,483.65 hours. 35
The Commission estimates that ANC firms will spend a total of approximately one hour
per year to comply with the notification provisions of Appendix G, resulting in a total annual

28

31,200 hours + 20,800 hours = 52,000 hours.

29

(96 hours + 64 hours + 200 hours) x 5 ANC broker-dealers = 1,800 hours.

30

(Y1: 0 hours) + (Y2: 96 hours + 64 hours + 200 hours = 360 hours) + (Y3: 96 hours + 64 hours + 200 hours
= 360 hours) = 720 hours / 3 years = 240 hours x 5 broker-dealers = 1,200 hours.

31

1,800 hours + 1,200 hours = 3,000 hours.

32

290 hours x 5 broker-dealers = 1,450 hours.

33

40 hours x 5 broker-dealers = 200 hours. The three-year annualized number for this one-time burden is
66.666, rounded to 66.67 hours (200 hours / 3 years = 66.666, rounded to 66.67 hours).

34

(Y1: 0 hours) + (Y2: 290 hours) + (Y3: 290 hours) = 580 hours / 3 years = 193.33 hours x 5 broker-dealers
= 966.65 hours.

35

1,450 hours (5 ANC firms) + 67 hours (5 broker-dealers expected to become ANC firms) + 966.65 hours (5
broker-dealers expected to become ANC firms) = 2,483.65 hours.

7

reporting burden of 5 hours 36 for the 5 ANC firms, and 3.35 hours 37 for the 5 broker-dealers
expected to become ANC firms, resulting in an aggregate reporting burden of 8.35 hours. 38
The Commission also estimates that each broker-dealer will spend approximately 250
hours per year reviewing and updating its risk management control system, resulting in an
aggregate annual recordkeeping burden of 1,250 for the 5 ANC firms, 39and 833.35 for the 5
broker-dealers expected to become ANC firms 40 totaling 2,083.35 hours. 41
Therefore, the total annual hour burden for Appendices E and G to Rule 15c3-1 is
61,241.65 hours. 42
A broker-dealer is required to take a 15% haircut on its proprietary positions in
commercial paper, nonconvertible debt, and preferred stock unless the broker-dealer establishes,
documents, maintains, and enforces written policies and procedures for determining
creditworthiness. 43 The staff estimates that approximately 351 broker-dealers will establish,
document, maintain, and enforce policies and procedures that are reasonably designed to
determine whether a security or a money market instrument has a minimal amount of credit
risk. 44 If the security or money market instrument has a minimal amount of credit risk, the
broker-dealer can take haircuts on the security or money market instrument pursuant to
paragraphs (c)(2)(vi)(E), (c)(2)(vi)(F)(1), (c)(2)(vi)(F)(2) and (c)(2)(vi)(H) of Rule 15c3-1. The
staff estimates that, on average, broker-dealers will spend 25 hours developing policies and
procedures or revising their current policies and procedures for evaluating creditworthiness for

36

1 hour x 5 broker-dealers = 5 hours.

37

(Y1: 0 hours) + (Y2: 1 hour) + (Y3: 1 hour) = 2 hours / 3 years = .67 hours x 5 broker-dealers = 3.35 hours.

38

5 hours (5 ANC firms) + 3.35 hours (5 broker-dealers expected to become ANC firms) = 8.35 hours.

39

250 hours x 5 broker-dealers = 1,250 hours.

40

(Y1: 0 hours) + (Y2: 250 hours) + (Y3: 250 hours) = 500 hours / 3 years = 166.67 hours x 5 broker-dealers
= 833.35 hours.

41

1,250 hours (5 ANC firms) + 833.5 hours (5 broker-dealers expected to become ANC firms) = 2,083.5
hours.

42

1,666.65 + 52,000 + 3,000 + 2,483.3 + 8.35 + 2,083.35 = 61,241.65 hours.

43

Removal of Certain References to Credit Ratings under the Securities Exchange Act of 1934, Exchange Act
Release No. 71194 (Dec. 27, 2013), 79 FR 1522 (Jan. 8, 2014).

44

The number of 351 broker-dealers was obtained by reviewing broker-dealer Financial and Operational
Combined Single (or “FOCUS”) Reports for the third-quarter of 2016 and then calculating how many firms
reported holding proprietary debt positions. For FOCUS Part II filers, the balances examined were
“Bankers Acceptances” (line item 370) and “Corporate Obligations” (line item 400). For FOCUS CSE
filers, the balances examined were: “Money Market Instruments” (line item 8240), “Private Label
Mortgage Backed Securities” (line item 8250), “Other Asset Backed Securities” (line item 8260) and
“Corporate Debt” (line item 8270). For Part IIA filers, the balance examined was “Debt Securities” (line
item 419). Broker-dealers that hold preferred stock also may hold positions in debt securities. However,
because preferred stock is not a separate line item on the FOCUS Report, broker-dealers that hold only
preferred stock and no other debt securities are not included in this estimate.

8

the purposes of Rule 15c3-1, resulting in an aggregate one-time recordkeeping burden of 8,775
hours. 45
The staff also estimates that, on average, each broker-dealer will spend an additional 10
hours a year reviewing and adjusting its own standards for evaluating creditworthiness.
Therefore, the Commission estimates that the total annualized recordkeeping burden to the
industry will be approximately 3,510 annual hours. 46 Consequently, the Commission estimates
that the total annual burden associated with evaluating creditworthiness under Rule 15c3-1 will
be approximately 4,092.66 hours. 47
Therefore, the total annual hour burden for these information collections in Rule 15c3-1
is 65,915.31 hours. 48

Total
Number of
Responses
Per Year

Initial
Burden Per
Response Per
Year Per
Respondent

Ongoing
Burden Per
Response
Per Year Per
Respondent

Total
Annualized
Burden Per
Year Per
Respondent

Total
Annualized
Reporting
Burden For
All
Respondents

Small
Business
Entities
Affected

Nature of Information Collection
Burden

Type of
Burden

Total Number
of
Respondents

Rule 15c3-1: Notices

Reporting

902

1

0

0.5

0.5

451

290

Paragraph (c)(2)(iv)(B): Disclosures and
Agreements

Recordkeeping

6

1

6.67

0

6.67

40

0

Paragraph (c)(2)(i)(G)(2): Capital
Withdrawal Liability

Reporting

90

1

0

1

1

90

29

Appendix E computations for ANC firms

Recordkeeping

5

1

333.33

0

333.33

1,666.65

0

Reviewing and back testing models for
existing ANC firms

Recordkeeping

5

1

0

6,240

6,240

31,200

0

Reviewing and back testing models for new
ANC firms

Recordkeeping

5

1

0

4,160

4,160

20,800

0

Appendix G monthly reports for existing
ANC firms

Reporting

5

12

0

8

96

480

0

Appendix G quarterly reports for existing
ANC firms

Reporting

5

4

0

16

64

320

0

Appendix G annual reports for existing
ANC firms

Reporting

5

1

0

200

200

1,000

0

Appendix G monthly reports for new ANC
firms

Reporting

5

12

0

5.33

64

320

0

45

351 broker-dealers x 25 hours = 8,775 hours.

46

351 broker-dealers x 10 hours = 3,510 hours. The Commission estimates that broker-dealers will use a
controller to do this work.

47

See supra note 40. 2,923.83 hours + 1,168.83 hours = 4,092.66 hours.

48

451 +40 + 90 + 61,241.65 = 61,822.65; 61,822.65 hours + 4,092.66 hours = 65,915.31 hours.

9

Appendix G quarterly reports for new ANC
firms

Reporting

5

4

0

10.67

42.67

213.35

0

Appendix G annual reports for new ANC
firms

Reporting

5

1

0

133.33

133.33

666.65

0

Appendix G recordkeeping for existing
ANC firms

Recordkeeping

5

1

0

290

290

1,450.00

0

Appendix G recordkeeping for new ANC
firms (initial)

Recordkeeping

5

1

13.33

0

13.33

66.65

0

Appendix G recordkeeping for new ANY
firms (ongoing)

Recordkeeping

5

1

0

193.33

193.33

966.65

0

Appendix G notification provision for
existing ANC firms

Reporting

5

1

0

1

1

5

0

Appendix G notification provision for new
ANC firms

Reporting

5

1

0

0.67

0.67

3.35

0

Appendix G updating risk management
profile for existing ANC firms

Recordkeeping

5

1

0

250

250

1,250

0

Appendix G updating risk management
profile for new ANC firms

Recordkeeping

5

1

0

166.67

166.67

833.35

0

Creating procedures to determine
creditworthiness to avoid 15% haircut

Recordkeeping

351

1

25

8.33

8.33

2,923.83

139

Reviewing procedures to determine
creditworthiness to avoid 15% haircut

Recordkeeping

351

1

10

3.33

3.33

1,168.83

139

Totals

65,915.31

2019 Amendments
The adopted amendments to Rule 15c3-1 described in the SBSD Adopting Release will
set forth net capital requirements for broker-dealer SBSDs, along with other changes that would
apply to broker-dealers, including ANC broker-dealers. 49 These amendments impose additional
one-time hour burdens or additional annual hour burdens to the industry and are summarized in
the following chart and discussed below.

Total
Number of
Responses
Per Year

Initial
Burden Per
Response Per
Year Per
Respondent

Ongoing
Burden Per
Response
Per Year Per
Respondent

Total
Annualized
Burden Per
Year Per
Respondent

Total
Annualized
Reporting
Burden For
All
Respondents

Small
Business
Entities
Affected

Nature of Information Collection
Burden

Type of
Burden

Total Number
of
Respondents

NEW: Rule 15c3-4: Risk management
control system

Recordkeeping

6

1

666.67

250

916.67

5,500

0

NEW: 15c3-1(c)(2)(vi)(O)(l)(iii): Industry
sector classification

Recordkeeping

6

1

0

1

1

6

0

NEW: 15c3-1(c)(2)(xiv): Account control
agreements – Outside Counsel Review

Third-Party

16

100

0

2

200

3,200

0

49

See supra note 5. The collection of information for Rule 18a-1, as adopted, is contained in a separate
supporting statement.

10

NEW: 15c3-1(c)(2)(xiv): Account control
agreements – Opinion of Counsel

Recordkeeping

8

1

20

0

Totals

6.67

53.36

0

8,759.36

Risk Management Control System. The amendments to Rule 15c3-1 will require that all
broker-dealer SBSDs comply with certain requirements of Rule 15c3-4. 50 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.
Currently, there are 10 ANC broker-dealers expected to register as broker-dealer SBSDs, and 6
additional broker-dealers are expected to register as SBSDs that do not use models. Because
ANC broker-dealers are currently subject to Rule 15c3-4, only those 6 broker-dealer SBSDs not
expected to use internal models to compute net capital will have additional hour burdens and
costs associated with complying with Rule 15c3-4. The Commission staff estimates that each of
these firms will spend 2,000 hours to establish a risk management control system, and 250 hours
per year to review and update that system. 51 This results in an estimated industry-wide one-time
hour burden of approximately 12,000 recordkeeping hours, 52 and an estimated industry-wide
annual hour burden of approximately 1,500 recordkeeping hours per year. 53 Therefore, the
Commission estimates an aggregate annualized recordkeeping burden of approximately
5,500 hours. 54
Industry Sector Classification. With respect to documenting an industry sector
classification system with respect to credit default swap haircuts under paragraph
(c)(2)(vi)(P)(1)(iii) of Rule 15c3-1, as amended, the Commission staff expects that 6 brokerdealer SBSDs not using models will each spend 1 hour per year complying with this
requirement. 55 This results in an industry-wide total annual recordkeeping hour burden of 6
hours. 56

50

See paragraph (a)(10)(ii) of Rule 15c3-1, as amended.

51

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.

52

6 non-model broker-dealer SBSDs x 2,000 hours = 12,000 hours. For purposes of this supporting statement,
this one-time burden annualized over the three-year approval period is 4,000 hours (12,000 / 3 = 4,000),
with an average hour burden per broker-dealer of 666.67 hours (4,000 / 6 broker-dealers = 666.67). Also
note that this number is incremental to the current collection of information for Rule 15c3-1 with regard to
complying with the provisions of Rule 15c3-4 and, therefore, excludes the 10 respondents included in the
collection of information for that provision of the rule.

53

6 non-model broker-dealer SBSDs x 250 hours/year = 1,500 hours/year.

54
55

4,000 hours + 1,500 hours = 5,500 hours.
The Commission staff expects that these firms would utilize third party systems, resulting in reduced hours
and costs.

56

6 non-model broker-dealer SBSDs x 1 hour/year = 6 hours/year.

11

Account Control Agreements
Outside Counsel Review. Finally, as a result of comments received, 57 under the
amendments under Rule 15c3-1, as adopted in the SBSD Adopting Release, a broker-dealer and
a broker-dealer/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 brokerdealer for purposes of the capital in lieu of margin charge provisions of the rule if certain
conditions are met. 58 More specifically, Rule 15c3-1, as amended, 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 broker-dealer intends to 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 broker-dealer 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 16
broker-dealer 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. This results in an annual third-party hour burden of 3,200
hours. 59
Opinion of Counsel. Furthermore, the Commission staff estimates 16 broker-dealer
SBSDs will need to maintain written documentation of their legal analysis of the account control
agreement. Based on staff experience, the Commission estimates that broker-dealer 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
broker-dealer SBSD approximately 20 hours to conduct a written “in house” analysis, resulting
in an industry-wide one-time burden of 160 hours. 60 Therefore, the Commission estimates an
aggregate annualized recordkeeping burden of approximately 53.33 hours. 61
Total Industry Annual Hour Burden with 2019 Amendments
Thus, the total annual industry hour burden attributable to the SBSD Adopting Release
will be 8,759.36 hours per year. 62 Therefore, the resulting estimated total yearly ongoing hour
57

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
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).

58

See paragraph (c)(2)(xv)(C)(3) of Rule 15c3-1, as amended.

59

16 broker-dealer SBSDs x 100 agreements x 2 hours = 3,200 hours.

60

(8 broker-dealer SBSDs) x 20 hours = 160 hours.

61

(20 hours/3) x 8 broker-dealer SBSDs = 53.33.

62

5,500 + 6 + 3,200 + 53.36 = 8,759.36 hours.

12

burden to comply with Rule 15c3-1, as amended by the SBSD Adopting Release, will be
approximately 76,958.61. 63
13.

Costs to Respondents

The existing cost burdens in the rule were not part of the recent rulemaking’s notice and
comment process and, therefore, are not being revised at this time. The description of the
existing cost burdens is from the most-recent extension in 2017. A discussion of the new cost
burdens in the recent rulemaking is further below.
Existing Cost Burdens
Approximately 81 broker-dealers file consolidated financial reports, of which
approximately 20 obtain an opinion of counsel under Appendix C of Rule 15c3-1. The
Commission estimates that the approximate cost to broker-dealers to obtain an opinion of
counsel to file the consolidated financial reports as required under Appendix C of Rule 15c3-1
will be $8,000. This figure is based on an estimate of 20 hours per opinion for an outside
counsel at $400 per hour. 64 The total costs for all respondents will be $160,000. 65

Nature of Information Collection Burden

Type of
Burden

Total Number
of
Respondents

Total
Number of
Responses
Per Year

Initial
Burden Per
Response Per
Year Per
Respondent

Ongoing
Burden Per
Response
Per Year Per
Respondent

Total
Annualized
Burden Per
Year Per
Respondent

Total
Annualized
Reporting
Burden For
All
Respondents

Small
Business
Entities
Affected

Opinion of counsel to file consolidated
financial reports under Appendix C

Reporting

20

1

$0.00

$8,000.00

$8,000.00

$160,000.00

0

Totals

$160,000.00

2019 Amendments
The amendments to Rule 15c3-3 added new collections of information cost burdens. The
new collections of information are summarized in the chart below and explained in the following
discussion.

Nature of Information Collection Burden

Type of
Burden

Total Number
of
Respondents

Total
Number of
Responses
Per Year

Initial
Burden Per
Response Per
Year Per
Respondent

Ongoing
Burden Per
Response
Per Year Per
Respondent

Total
Annualized
Burden Per
Year Per
Respondent

Total
Annualized
Reporting
Burden For
All
Respondents

Small
Business
Entities
Affected

63

65,915.31 (existing ICs) + 8,759.36 (2019 amendment ICs) = 74,674.67 hours.

64

$400 x 20 hours = $8,000. See PRA Analysis in Financial Responsibility Rules for Broker-Dealers,
Exchange Act Release No. 70072 (July 30, 2013), 78 FR 51823 (Aug. 21, 2013) (citing PRA Analysis in
Product Definitions Adopting Release, 77 FR at 48334 (providing an estimate of $400 an hour to engage an
outside attorney)). See also Crowdfunding; Final Rule, Exchange Act Release No. 76324 (Oct. 30, 2015),
80 FR 71387 (Nov. 16, 2015). The Commission recognizes that the costs of retaining outside professionals
may vary depending on the nature of the professional services, but for purposes of this PRA analysis, the
Commission estimates that such costs will be an average of $400 per hour.

65

20 opinions x $8,000 = $160,000.

13

NEW: 15c3-1 Risk Management Control
System

Recordkeeping

6

1

$5,333.33

$20,500.00

$25,833.33

$155,000.00

0

NEW: 15c3-1 Account Control Agreements
– Outside Counsel Review

Recordkeeping

16

1

$2,666.67

$0.00

$2,666.67

$42,666.72

0

NEW: 15c3-1 Account Control Agreements
– Opinion of Counsel

Recordkeeping

8

1

$2,666.67

$0.00

$2,666.67

$21,333.36

0

Totals

$219,000.08

Risk Management Control System 66
As described in the proposing release that preceded the 2019 amendments in the SBSD
Adopting Release, nonbank SBSDs may incur start-up costs to comply with the provisions of
Rule 15c3-4 incorporated into the amendments to Rule 15c3-1, including information technology
costs. The information technology systems of broker-dealer SBSDs that are not ANC brokerdealers may be in varying stages of readiness to enable these firms to meet the requirements of
the new rules so the cost of modifying their information technology systems could vary
significantly. Based on the estimates for similar collections of information, 67 it is expected that a
broker-dealer SBSD that is not an ANC broker-dealer will incur an average of approximately
$16,000 for initial hardware and software expenses, and an average ongoing cost of $20,500, for
a total industry-wide initial cost of $96,000, and ongoing cost of $123,000. 68 These estimates
for the initial and ongoing costs result in total costs for all respondents of $155,000. 69
Account Control Agreements
Outside Counsel Review. Finally, discussed in Item 12 above, as a result of comments
received, 70 under the final amendments under Rule 15c3-1, a broker-dealer/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 broker-dealer 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 broker-dealer 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. The Commission staff estimates
that 16 broker-dealer SBSDs 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. This results in a
one-time cost burden of $128,000 for the 16 broker-dealer/SBSDs, annualized to $42,666.72

66

This cost burden was included in the proposing release for the 2019 amendments, but was inadvertently left
out of the supporting statement for Rule 15c3-1, as proposed.

67

See e.g., Risk Management Controls for Brokers or Dealers with Market Access, Exchange Act Release
No. 63421 (Nov. 3, 2010), 75 FR 69792, 69814 (Nov. 15, 2010).

68

(16 broker-dealer SBSDS – 10 ANC broker-dealers) x $16,000 = $96,000. The annualized amount per
year/ per respondent would be $16,000/3 = $5,333.33; 6 non-broker-dealer/non- ANC SBSDs x $20,500 =
$123,000.

69

($5,333.33 x 6 broker-dealer SBSDs) + $123,000 = $154,999.98, rounded to $155,000.

70

See supra note 57.

14

per year. 71
Opinion of Counsel. In addition, the Commission estimates that 16 broker-dealer SBSDs
will need to maintain written documentation of their legal analysis of the account control
agreement. Based on staff experience, the Commission estimates that SBSD 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
$64,000 for these 8 entities. This results in an annualized cost of $21,333.36 for the
industry. 72
Total Industry Annual Cost Burden with 2019 Amendments
Thus, the total annual industry cost burden attributable to the SBSD Adopting Release
will be $219,000.08 per year. 73 Therefore, the resulting estimated total yearly ongoing cost
burden to comply with Rule 15c3-1, as amended by the SBSD Adopting Release, will be
approximately $379,000.08. 74
14.

Costs to Federal Government

Not applicable. Rule 15c3-1 would not result in any costs to the federal government
beyond normal full-time employee labor costs, nor does Rule 15c3-1 require the Commission to
hire any new employees or reallocate existing employees to ensure compliance with the rule.
15.

Changes in Burden

The increase in the annual hour burden of 8,759.36 hours is attributable to the
amendments in the SBSD Adopting Release, described in paragraph 12 above. The increase in
the cost estimate of $219,000.08 is also attributable to the amendments in the SBSD Adopting
Release.

Name of Information
Collection

Annual
Industry
Burden

Annual Industry
Burden
Previously
Reviewed

Change in
Burden

Reason for Change

Liquidity Stress Test

0

6,000

(6,000)

Previously proposed, but not
adopted in the amendments to Rule

71

16 broker-dealer SBSDs x $400 per hour x 20 hours = $128,000. The annualized amount per year/ per
respondent would be $8,000/3 = $2,666.67, or a total of $42,666.72 ($2,666.67 x 16 broker-dealer SBSDs).

72

8 broker-dealer SBSDs x $8,000 = $64,000. The annualized amount per year/ per respondent would be
$8,000/3 = $2,666.67, or a total of $21,333.36 ($2,666.67 x 8 broker-dealer SBSDs).

73

$155,000 + $42,666.72 + $21,333.36 = $219,000.08.

74

$160,000 (existing IC) + $219,000.08 (2019 amendment ICs) = $379,000.08.

15

15c3-1 described in the SBSD
Adopting Release based on
comments received.
NEW: Rule 15c3-4:
Risk management
control system

5,500

5,500

0

No change from proposal.

NEW: 15c31(c)(2)(vi)(O)(l)(iii):
Industry sector
classification

6

6

0

No change from proposal.

NEW: 15c31(c)(2)(xiv): Account
control agreements –
outside counsel review

3,200

0

3,200

NEW: 15c31(c)(2)(xiv): Account
control agreements –
opinion of counsel

53.36

0

53.36

NEW: Risk
Management Control
System (cost burden)

NEW: Account Control
Agreements – outside
counsel review (cost
burden)

NEW: Account Control
Agreements – opinion of
counsel (cost burden)

16.

$155,000.00

$42,666.72

21,333.36

0

0

0

New provision adopted in the
amendments to Rule 15c3-1
described in the SBSD Adopting
Release, based on comments
received (see footnote 57).
New provision adopted in the
amendments to Rule 15c3-1
described in the SBSD Adopting
Release, based on comments
received (see footnote 57).

$155,000.00

Described in the proposing release
to the 2019 amendments, but
inadvertently left out of the
supporting statement for the
proposed rule.

$42,666.72

New provision adopted in the
amendments to Rule 15c3-1
described in the SBSD Adopting
Release, based on comments
received (see footnote 57).

21,333.36

New provision adopted in the
amendments to Rule 15c3-1
described in the SBSD Adopting
Release, based on comments
received (see footnote 57).

Information Collection Planned for Statistical Purposes

Not applicable. The information collection 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

16

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.

17


File Typeapplication/pdf
File TitleRule 15c3-1 Supporting Statement - SBSB Proposing Release - Final 3-23-16
File Modified2019-08-13
File Created2019-08-13

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