DGL FINAL REVISED 15c3-1 Supporting Statement (v2 - VMD Draft)

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.
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.
On June 21, 2019, 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-dealers”). 5 These amendments increased net capital requirements for ANC
broker-dealers, and prescribed certain capital requirements for broker-dealers that are not SBSDs
to the extent they engage in security-based swap and swap activity.

1

17 CFR 240.15c3-1.

2

15 U.S.C. § 78a 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 Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital and Segregation Requirements for Broker-Dealers, Exchange Act
Release No. 86175 (June 21, 2019), 84 FR 43872 (Aug. 22, 2019).

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; 6 or (2) a financial ratio. 7 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. 8 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. 9 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.10
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
contribution. 11 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. 12 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. 13

6

See 17 CFR 240.15c3-1(a)(2)–(9).

7

See 17 CFR 240.15c3-1(a)(1)(i)–(iii).

8

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

9

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

10

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

11

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

12

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

13

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

2

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”). 14
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.
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 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 15c3-1, as amended.
4.

Duplication

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

Effects on Small Entities

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. 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

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.
14

See 17 CFR 240.15c3-1e.

3

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 in the amendments to Rule 15c3-1 facilitate the
monitoring of the financial condition of broker-dealers by the Commission and its staff. No
information of a sensitive nature, including social security numbers, will be required under this
collection of information. The information collection does not collect personally identifiable
information (PII). 15 The agency has determined that a system of records notice (SORN) and
privacy impact assessment (PIA) are not required in connection with the collection of
information.
12.

Burden of Information Collection

The Commission estimates the hour burdens of the requirements associated with Rule
15c3-1 as follows.
Notices: Based on the number of notices filed under Rule 15c3-1 in 2019, the
Commission estimates that broker-dealers annually file approximately 844 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 approximately
422 hours. 16
Disclosures and Agreements: Paragraph (c)(2)(iv)(B) of Rule 15c3-1 requires a brokerdealer to make disclosures to, and obtain certain agreements from, securities lending principals
in situations where the firm 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 111 broker-dealers, or approximately 6 firms, engaged in securities lending will need to
15

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.

16

844 notices x (30 minutes / 60 minutes) = 422 hours.

4

modify their standard agreements. 17 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 or 40 hours per year when annualized over three years. 18
Capital Withdrawal Liability: 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 84 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 84 hours. 19
Computations for ANC Firms: 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. 20 The Commission estimates that each new 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 approximately 5,000 hours or an
annualized burden of approximately1,667 hours per year. 21
Reviewing and Backtesting: 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
17

The number of 111 broker-dealers was obtained by reviewing broker-dealer Financial and Operational
Combined Single (or “FOCUS”) Reports for the third-quarter of 2019 and then calculating how many firms
reported a value greater than zero for securities loaned to or borrowed from brokers or dealers and clearing
organizations (line items 780, 1510, and 1520).

18

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.

19

84 broker-dealers x 1 hour = 84 hours.

20

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 by
assuming that, on average, these firms will not register until year two and will thus have no burdens in the
first of the next three years. Consequently, the average yearly burden for these new firms is reduced by 1/3
by multiplying the average yearly burden for existing firms by .66666667.

21

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 rounded up to 1,667 for the industry (333.33 hours x 5 firms).

5

back testing mathematical models for the 5 existing ANC firms will be approximately 31,200
hours, 22 and approximately 20,800 hours 23 for the 5 broker-dealers expected to become ANC
firms, resulting in an aggregate annual recordkeeping burden of approximately 52,000 hours. 24
Appendix G Monthly Reports: 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, for a total of 480 hours per year for all 5
existing ANC firms. 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, for a total of 320 hours per year for all 5 existing ANC firms. 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 for a total of 1000 hours per year for all 5 existing firms.
Consequently, the Commission estimates that the total annual reporting burden of Appendix G
for the 5 existing ANC firms will be approximately 1,800 hours. 25 The total annual reporting
burden for the 5 broker-dealers expected to become ANC firms will be approximately 1,200
hours (320+213+667), 26 resulting in an aggregate annual reporting burden of approximately
3,000 hours. 27
Appendix G Recordkeeping: 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 onetime 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 existing ANC firms will be
approximately 1,450 hours. 28 The Commission estimates that the total one-time and annual
recordkeeping burden for the 5 broker-dealers expected to become ANC firms will be
approximately 200 hours (approximately 67 hours per year when annualized over three years) 29

22

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

23

(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.

24

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

25

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

26

(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.

27

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

28

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

29

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 67 hours).

6

and 967 hours, 30 respectively. Therefore, Commission estimates an aggregate annualized
recordkeeping burden of approximately 2,484 hours. 31
Appendix G Notification Provision: 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 reporting burden of approximately 5 hours 32 for the 5
existing ANC firms, and approximately 3.35 hours rounded down to 3 33 for the 5 broker-dealers
expected to become ANC firms, resulting in an aggregate reporting burden of approximately 8
hours. 34
Appendix G Updating Risk Management Profile: 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
approximately 1,250 hours for the 5 existing ANC firms, 35and approximately 833 hours for the 5
broker-dealers expected to become ANC firms 36 totaling approximately 2,083 hours. 37
Creating Procedures to Determine Creditworthiness to Avoid 15% Haircut: 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. 38 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. 39 If the security or money market
30

(Y1: 0 hours) + (Y2: 290 hours) + (Y3: 290 hours) = 580 hours / 3 years = 193.33 hours x 5 broker-dealers
= 966.65 hours rounded up to 967.

31

1,450 hours (5 ANC firms) + 67 hours (5 broker-dealers expected to become ANC firms) + 967 hours (5
broker-dealers expected to become ANC firms) = 2,484hours.

32

1 hour x 5 broker-dealers = 5 hours.

33

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

34

5 hours (5 ANC firms) + 3.35 hours (5 broker-dealers expected to become ANC firms) = 8.35 hours
rounded down to 8.

35

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

36

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

37

1,250 hours (5 ANC firms) + 833.35 hours (5 broker-dealers expected to become ANC firms) = 2,083.35
hours rounded down to 2,083.

38

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).

39

The number of 351 broker-dealers was obtained by reviewing broker-dealer FOCUS Reports for the thirdquarter 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

7

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, brokerdealers will spend 25 hours developing policies and procedures or revising their current policies
and procedures for evaluating creditworthiness for the purposes of Rule 15c3-1, resulting in an
aggregate one-time recordkeeping burden of 8,775 hours or approximately 2,924 hours when
annualized over three years. 40
Reviewing Procedures to Determine Creditworthiness to Avoid 15% Haircut: 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 recordkeeping burden to the industry will be approximately
3,510 hours per year. 41 Consequently, the Commission estimates that the total annual burden
associated with evaluating creditworthiness under Rule 15c3-1 will be approximately 6,434
hours. 42
Risk Management Control System: All broker-dealer SBSDs must comply with certain
requirements of Rule 15c3-4. 43 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. 44 This results in an estimated industry-wide one-time hour
burden of approximately 12,000 recordkeeping hours, 45 and an estimated industry-wide annual
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.
40

351 broker-dealers x 25 hours = 8,775 hours. 25÷ 3 = 8.33. 351 x 8.33=2,923.83 rounded up to 2,924.

41

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

42

See supra note 40. 2,924 hours + 3,510 hours = 6,434 hours.

43

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

44

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.

45

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.

8

hour burden of approximately 1,500 recordkeeping hours per year. 46 Therefore, the Commission
estimates an aggregate annualized recordkeeping burden of approximately 5,500 hours. 47
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. 48 This results in an industry-wide total annual recordkeeping hour burden of
approximately 6 hours. 49
Account Control Agreements - Outside Counsel Review: 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 broker-dealer for
purposes of the capital in lieu of margin charge provisions of the rule if certain conditions are
met. 50 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 security-based swap or swap
customer as being held by the broker-dealer for purposes of the capital in lieu of margin charge
provisions of the rule if certain conditions are met. 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. 51
Account Control Agreements - 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. 52
Therefore, the Commission estimates an aggregate annualized recordkeeping burden of
approximately 53 hours. 53

46

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

47
48

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.

49

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

50

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

51

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

52

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

53

(20 hours/3) x 8 broker-dealer SBSDs = 53.33 rounded down to 53.

9

Total Industry Annual Hour Burden with 2019 Amendments: Therefore, the total
estimated yearly ongoing hour burden to comply with Rule 15c3-1 will be approximately 76,981
hours. 54

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

844

1

0

0.5

0.5

422

272

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

84

1

0

1

1

84

27

Appendix E computations for ANC firms

Recordkeeping

5

1

333.33

0

333.33

1,667

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

Appendix G quarterly reports for new ANC
firms

Reporting

5

4

0

10.67

42.67

213

0

Appendix G annual reports for new ANC
firms

Reporting

5

1

0

133.33

133.33

667

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

67

0

Appendix G recordkeeping for new ANC
firms (ongoing)

Recordkeeping

5

1

0

193.33

193.33

967

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

0

54

422 + 40 + 84 + 1,667 + 31,200 + 20,800 + 480 + 320 + 1,000 + 320 + 213 + 667 + 1,450 + 67 + 967 + 5 +
3+ 1,250 + 833 + 2,924 + 3,510 + 5,500 + 6 + 3,200 + 53 = 76,981 hours.

10

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

0

Creating procedures to determine
creditworthiness to avoid 15% haircut

Recordkeeping

351

1

25

8.33

8.33

2,924

139

Reviewing procedures to determine
creditworthiness to avoid 15% haircut

Recordkeeping

351

1

0

10

10

3,510

139

*Rule 15c3-4: Risk management control
system

Recordkeeping

6

1

666.67

250

916.67

5,500

0

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

Recordkeeping

6

1

0

1

1

6

0

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

Third-Party

16

100

0

2

200

3,200

0

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

Recordkeeping

8

1

20

0

6.67

53

0

Totals

76,981

* This burden was approved by OMB on December 9, 2019.

13.

Costs to Respondents

Opinion of Counsel: Approximately 41 broker-dealers file consolidated financial
reports, of which approximately 10 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. 55 The total costs for all respondents will be approximately
$80,000. 56
Risk Management Control System: 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 the six brokerdealer SBSDs that are not ANC broker-dealers 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, 57 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. 58 These estimates for the initial and ongoing costs result in total costs for all
55

$400 x 20 hours = $8,000.

56

10 opinions x $8,000 = $80,000.

57

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).

58

(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.

11

respondents of $155,000. 59
Account Control Agreements - Outside Counsel Review: Finally, as discussed in Item
12 above, 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
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 approximately $42,667 per year. 60
Account Control Agreements – 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 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 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 approximately $21,333 for the industry. 61
Total Industry Annual Cost Burden: Therefore, the resulting estimated total yearly
ongoing cost burden to comply with Rule 15c3-1 will be approximately $299,000. 62

59

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

60

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)
rounded up to $42,667.

61

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) rounded down to
$21,333.

62

$80,000 + $155,000 + $42,667 + $21,333= $299,000.

12

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

10

1

$0.00

$8,000.00

$8,000.00

$80,000.00

0

*15c3-1 Risk Management Control System

Recordkeeping

6

1

$5,333.33

$20,500.00

$25,833.33

$155,000.00

0

* 15c3-1 Account Control Agreements –
Outside Counsel Review

Recordkeeping

16

1

$2,666.67

$0.00

$2,666.67

$42,667

0

*15c3-1 Account Control Agreements –
Opinion of Counsel

Recordkeeping

8

1

$2,666.67

$0.00

$2,666.67

$21,333

0

Totals

$299,000

* This burden was approved by OMB on December 9, 2019.

14.

Costs to Federal Government

Not applicable. Rule 15c3-1 will 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 change in burden between this supporting statement and the supporting statement
uploaded on August 13, 2019 63 is due to the following: The estimated number of Rule 15c3-1
notices filed decreased from 902 to 844 and the estimated number of capital withdrawal requests
filed decreased from 90 to 84. This caused the burden associated with 15c3-1 notices to decrease
from 451 hours to 422 hours and the burden associated with capital withdrawal requests to
decrease from 90 hours to 84 hours. Additionally, fewer firms are filing consolidated financial
reports, resulting in the number of firms filing an opinion of counsel under Appendix C of Rule
15c3-1 decreasing from approximately 20 to approximately 10. This caused the cost burden
associated with opinions of counsel to decrease from $160,000 per year to $80,000 per year. The
burden associated with reviewing procedures to determine creditworthiness increased from 1,169
hours per year to 3,510 hours per year because this burden was erroneously annualized in prior
submissions. Therefore, the aggregate hour burden estimate increased from approximately
74,675 hours to approximately 76,981 hours and the aggregate cost burden estimate decreased
from approximately $379,000 to approximately $299,000.
16.

Information Collection Planned for Statistical Purposes

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

OMB Expiration Date Display Approval

The Commission is not seeking approval to omit the expiration date.
18.

63

Exceptions to Certification for Paperwork Reduction Act Submissions

See Rule 15c3-1 Supporting Statement (Aug. 13, 2019), available at
https://www.reginfo.gov/public/do/DownloadDocument?objectID=93994701.

13

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.

14