DGL REVISED FINAL CLEAN Rule 15c3-3 2020 Supporting Statement v (004)

DGL REVISED FINAL FINAL CLEAN Rule 15c3-3 2020 Supporting Statement v (004).pdf

Rule 15c3-3; Customer Protection - Reserves and Custody of Securities (17 CFR 240.15c3-3)

OMB: 3235-0078

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SUPPORTING STATEMENT for the Paperwork Reduction Act Information Collection
Submission for Rule 15c3-3 – Customer Protection—Reserves and Custody of Securities
3235-0078
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
that were previously proposed in Rule 18a-4 (OMB No. 3235-0700) and that are being moved to
this Rule 15c3-3 (OMB No. 3235-0078) based on comments received during the rulemaking
process. The collections of information that were already in Rule 15c3-3, and that were not part
of the rulemaking notice and comment process, are included in this Supporting Statement and are
being extended as well.
A.

JUSTIFICATION
1.

Necessity of Information Collection

During the “Paperwork Crisis” of 1967–1970, many brokers-dealers mishandled and
misused customer funds and securities because they had inadequate and inefficient record
keeping and segregation systems. Furthermore, the 1969–1970 “bear market” caused many
firms that lacked sufficient capital to utilize customer funds and securities to obtain financing for
their continued operation. In order to rectify these problems, the Securities and Exchange
Commission (“Commission”) adopted Rule 15c3-3 under the Securities Exchange Act of 1934
(“Exchange Act”) to provide increased protection for the funds and securities of customers. 1
Rule 15c3-3 requires all broker-dealers that hold securities or cash belonging to
customers to obtain and maintain possession or control of all the fully-paid and excess margin
securities of their customers. 2 In addition, these broker-dealers must make a periodic
computation (“reserve computation”) to ascertain the amount of money being held that
constitutes customer funds or funds obtained from the use of customer securities. If this amount
– known as “customer credits” – exceeds the amount of money customers owe the firm
(“customer debits”), the broker-dealer must deposit the excess in a special reserve bank account
for the exclusive benefit of the firm’s customers (“Special Reserve Bank Account”). 3 In this
way, Rule 15c3-3 protects customer assets by requiring firms to maintain possession or control
of customer securities, and by permitting firms to use customer money only to the extent
necessary to finance customer-related business.
Rule 15c3-3 requires broker-dealers to make the reserve computation on either a weekly
or monthly basis. Broker-dealers are also required to: (1) maintain a description of the
procedures utilized to comply with the possession and control requirements of Rule 15c3-3; (2)
maintain a written notification from the bank where the Special Reserve Bank Account is located
1

See Broker-dealers; Maintenance of Certain Basic Reserves, Exchange Act Release No. 9856 (Nov. 10,
1972), 37 FR 25224 (Nov. 29, 1972).

17 CFR 240.15c3-3.

For purposes of this Paperwork Reduction Act (“PRA”) submission, the term “Special Reserve Bank
Account” includes accounts set up in accordance with both paragraph (e)(1) and (k)(2)(i) of Rule 15c3-3.

that all assets in the account are for the exclusive benefit of the broker-dealer’s customers; and
(3) give telegraphic notice to the Commission, and the appropriate designated examining
authority (“DEA”), if they fail to make a required deposit in the Special Reserve Bank Account.
In addition, paragraph (o) of Rule 15c3-3 requires that a broker-dealer that effects
transactions for customers in security futures products (“SFP”) must: (1) establish written
policies and procedures for determining whether customer SFPs will be placed in a securities
account or a futures account, and, if applicable, the process by which a customer may elect the
type of account in which SFPs will be held; (2) provide each customer that plans to effect SFP
transactions with a disclosure document containing certain information; (3) make a record of
each change in account type; and (4) send each SFP customer notification of any change of
account type.
In accordance with Section 764 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (“Dodd-Frank Act”),4 which added section 15F to the Exchange Act, 5 on June 21,
2019, 6 the Commission adopted amendments to Rule 15c3-3 to establish segregation and notice
requirements for broker-dealers, including broker-dealer security-based swap dealers (“SBSDs”),
that are parallel to the requirements in Rule 18a-4 7 applicable to SBSDs that are not brokerdealers (“2019 amendments”). Specifically, the Commission is adding new paragraph (p) to
Rule 15c3-3 to establish segregation and notice requirements for broker-dealers with respect to
their security-based swap activity. 8 The Commission is codifying the security-based swap
segregation requirements for broker-dealers in Rule 15c3-3, as amended, rather than in Rule 18a4, as adopted, in order to consolidate broker-dealer customer protection requirements in Rule
15c3-3. 9 Therefore, the associated information collection burdens related to security-based swap
segregation and notice requirements for broker-dealer SBSDs (specifically, those information
collections that relate to special accounts, customer reserve computation, counterparty notice,
and subordination agreements) have been moved from Rule 18a-4 to Rule 15c3-3. 10
4

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

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

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.

OMB No. 3235-0700. This rule was submitted to OMB for its review at the proposing stage.

See paragraph (p) to Rule 15c3-3, as amended.

The hour burdens for the collection of information related to Rule 15c3-3, as amended, in the final rule
release were included in the collection of information for Rule 18a-4, as proposed to be adopted, in the
proposing release. See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers
and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers; Proposed
Rule, Exchange Act Release No. 68071, 77 FR 70214 (Nov. 23, 2012). These hours were moved to the
existing collection of information in Rule 15c3-3, as amended, as a result of changes made to the final rule
in response to comments to require that broker-dealers comply with the segregation requirements of
paragraph (p) to Rule 15c3-3, as amended, with respect to their security-based swap activities (rather than
the requirements of Rule 18a-4, as adopted). For more information about the comments, see infra note 15.

There are other burdens in Rule 18a-4, however, that remain applicable to other entities and have not been
moved to Rule 15c3-3. As discussed in more detail in the supporting statement for Rule 18a-4, Rule 18a-4

Purpose and Use of the Information Collection

Rule 15c3-3 is an integral part of the Commission’s financial responsibility program for
broker-dealers. Its purpose is to protect the rights of customers to promptly obtain their property
from a broker-dealer. Rule 15c3-3’s reserve and notice requirements facilitate the process by
which the Commission and the various DEAs monitor how broker-dealers are fulfilling their
custodial responsibilities to investors. With the exception of the telegraphic notice requirement,
governmental agencies do not regularly receive any of the information described above. Instead,
the information is stored by the broker-dealer and made available to the various securities
regulatory authorities as required to facilitate examinations and investigations. If broker-dealers
were not required to create and maintain this information, the Commission’s ability to fulfill its
statutory directive to protect investors would be diminished.
Rule 15c3-3 also requires that a broker-dealer provide each customer that wishes to
engage in SFP activities with a disclosure document and notification of any change of account
type. Without these disclosures and notifications, in the event of a liquidation, customers may be
uncertain or confused as to which regulatory scheme is applicable to their account.
2019 Amendments. The 2019 amendments to Rule 15c3-3 are integral to the
Commission’s financial responsibility program for broker-dealers and broker-dealer/SBSDs as
they are designed to protect the rights of security-based swap customers and their ability to
promptly obtain their property from a broker-dealer. The collection of information requirements
in the rule facilitates the process by which the Commission and its staff monitor how brokerdealers are fulfilling their custodial responsibilities to security-based swap customers. The 2019
amendments to Rule 15c3-3 also require that a broker-dealer provide certain notices to its
counterparties. 11 These notices alert counterparties to the alternatives available to them with
respect to segregation of non-cleared security-based swaps. The Commission and its staff will
use this collection of information in the 2019 amendments to confirm registrants are providing
the requisite notice to counterparties.
3.

Consideration Given to Information Technology

Rule 15c3-3 does not prevent a broker-dealer from using computers or other mechanical
devices to generate, obtain, disclose or maintain the records and information required under the
rule. Currently, most firms utilize automated systems to comply with Rule 15c3-3. The
Commission is not aware of any technical or legal obstacle to reducing the burden through the
use of improved information technology.
4.

Duplication

There are no similar rules that are duplicative of Rule 15c3-3. Copies of notices required
to be filed with the Commission under paragraph (i) of Rule 15c3-3 must also be filed with the
was adopted to establish largely parallel segregation requirements applicable to stand-alone and bank
SBSDs, as well as notification requirements for nonbank SBSDs.
11

See paragraphs (p)(1) and (p)(3) of Rule 15c3-3, as amended.

regulatory authority that examines the broker-dealer for compliance with financial responsibility,
helping to avoid duplication.
5.

Effects on Small Entities

Paragraph (k) of Rule 15c3-3 has the effect of exempting most small broker-dealers from
the rule’s requirements. Small broker-dealers that are not exempt from Rule 15c3-3 can make
the required computation monthly as long as they have aggregate indebtedness not exceeding
800% of net capital and carry aggregate customer funds not exceeding $1,000,000. The
Commission estimates that, as of 2019 year end, approximately 3 broker-dealers were small
entities that performed a customer reserve computation pursuant to Rule 15c3-3. In addition, the
information collections required under the 2019 amendments 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 information were not conducted or were conducted less frequently, the
level of protection afforded to the counterparties and the U.S. financial system by Rule 15c3-3
would be diminished.
7.

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

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

Consultations Outside the Agency

The 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 of gifts have been provided to respondents.
10.

Confidentiality

The information collected by the Commission under Rule 15c3-3, as amended, is kept
confidential to the extent permitted by the Freedom of Information Act (5 U.S.C. § 552 et seq.).
11.

Sensitive Questions

The information collection does not collect personally identifiable information (PII). 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 that the aggregate annual hour burden associated with Rule
15c3-3 is approximately 722,091 hours calculated as described below. 12
Existing Hour Burdens
The Commission estimates that, as of December 31, 2019, there were approximately 216
broker-dealers fully subject to Rule 15c3-3 (i.e., broker-dealers that cannot claim any of the
exemptions enumerated in paragraph (k)), of which approximately 12 made daily, 163 made
weekly, and 41 made monthly, reserve computations. 13 Paragraph (e)(3) of Rule 15c3-3 requires
each broker-dealer to make a record of each such computation. 14 Based on staff experience, the
Commission estimates that it takes between one and five hours to make a record of each reserve
computation, and that the average time spent across all the firms is 2.5 hours. Accordingly, the
Commission estimates that the aggregate annual recordkeeping burden for all daily, weekly, and
monthly reserve computations is approximately 29,920 hours (7,500 hours for daily
computations + 21,190 hours for weekly computations + 1,230 for hours for monthly
computations). 15
Furthermore, paragraph (e) of Rule 15c3-3 requires a PAB 16 reserve computation that
will result in a one-time and annual burden. The Commission estimates that approximately 61
broker-dealers perform a PAB reserve computation. 17 The Commission estimates that, of these
61 firms, approximately 31 firms will spend, on average, approximately 30 hours of employee
resources per firm updating their systems to comply with the rule. Therefore, the Commission
estimates that the total one-time recordkeeping burden to broker-dealers arising from updating
their systems will be approximately 930 hours, or 310 hours on an annualized basis. 18 The
12

625,490 existing IC requirement hours + 96,601 new IC requirement hours = 722,091 hours.

This estimate is based on the number of firms that, as of December 31, 2019, indicated on either Part II or
Part II CSE of their FOCUS reports (OMB Control Number 3235-0123) that they make their 15c3-3
computations daily (line 4332), weekly (line 4333), or monthly (line 4334).

17 CFR 240.15c3-3(e)(3). 25 broker-dealers did not indicate the frequency with which they calculated
their customer reserve requirement. The Commission assumes for this supporting statement that these
firms make the calculation on a weekly basis.

(2.5 hours x 250 computations annually x 12 respondents that calculate daily) + (2.5 hours x 52
computations annually x 163 respondents that calculate weekly) + (2.5 hours x 12 computations annually x
41 respondents that calculate monthly) = 29,920 hours.

The term PAB account means a proprietary securities account of a broker or dealer (which includes a
foreign broker or dealer, or a foreign bank acting as a broker or dealer) other than a delivery-versuspayment account or a receipt-versus-payment account. The term does not include an account that has been
subordinated to the claims of creditors of the carrying broker or dealer. 15c3-3(a)(16)

This estimate is based on the number of brokers-dealers that have, as of December 31, 2019, either
aggregate credit items (line 2170) or debit items (line 2230) on either Part II or Part II CSE of their FOCUS
Reports.

31 broker-dealers x 30 hours per firm = 930 hours. On an annualized basis, this would be 310 hours (930 /
3 = 310) and 10 hours per broker-dealer (310 / 31 = 10).

Commission also estimates that of the 61 broker-dealers estimated to perform a PAB reserve
computation, approximately 56 of the current PAB filers will perform the PAB reserve
computation on a weekly basis, 2 broker-dealers will perform it on a monthly basis, and 3
broker-dealers will perform the PAB reserve computation on a daily basis. The Commission
estimates that a broker-dealer will spend, on average, approximately 2.5 hours to complete the
PAB reserve computation in order to make a record of such computation pursuant to paragraph
(e) of Rule 15c3-3. Therefore, the Commission estimates that the aggregate annual
recordkeeping burden to broker-dealers from this PAB computation requirement will be
approximately 9,215 hours (7,280 hours for weekly computations + 60 hours for monthly
computations + 1,875 hours for daily computations). 19
Paragraph (a)(16) of Rule 15c3-3 excludes from its definition of “PAB account,” an
account that “has been subordinated to the claims of creditors of the carrying broker or dealer.” 20
The Commission understands that most PAB account holders that enter into a subordinated loan
agreement with a broker-dealer that maintains custody of customer securities and cash (“carrying
broker-dealer”) in order to not be treated as PAB accounts under paragraph (a)(16) likely will be
affiliates of the broker-dealer. The Commission estimates that the 61 broker-dealers that carry
PAB accounts will enter into an average of 11 subordination agreements under paragraph (a)(16)
and it will take a carrying broker-dealer approximately 20 hours to draft a subordination
agreement. Therefore, the Commission estimates that the total one-time recordkeeping burden
will be approximately 13,420 hours, or approximately 4,473 hours per year on an annualized
basis. 21
Paragraph (b)(5) of Rule 15c3-3 requires carrying broker-dealers to provide PAB account
holders with written notice that the account holder’s non-margin securities may be used in the
ordinary course of its business. As noted above, the Commission estimates that approximately
61 broker-dealers carry PAB accounts. The Commission further estimates that, on average, a
firm will spend approximately 10 hours of employee resources drafting or updating a standard
notice template, for a total one-time recordkeeping burden of approximately 610 hours, or
approximately 203 hours per year on an annualized basis. 22 The Commission also estimates that
there are approximately 1,056 existing PAB customers 23 and approximately 5% of those
customers (approximately 53 customers) will be affected by this requirement as they have not yet
19

(56 weekly filers x 52 weeks x 2.5 hours per computation) + (2 monthly filers x 12 months x 2.5 hours per
computation) + (3 daily filers x 250 business days per year x 2.5 hours per computation) = 9,215 total
hours.

For purposes of this supporting statement, the term “PAB account” references accounts held at carrying
broker-dealers that hold the proprietary securities and cash of other broker-dealers.

61 broker-dealers x 11 accounts x 20 hours = 13,420 hours. For purposes of this supporting statement, the
total annualized burden over the three year approval period will be 4,473 hours (13,420 / 3 = 4,473.333,
rounded down to 4,473), with an average of 73 hours per respondent (4,473.33 / 61 broker-dealers =
73.333, rounded down to 73).

61 firms x 10 hours = 610 hours. For purposes of this supporting statement, this one-time burden
annualized over the three year approval period is 203.33 hours (610 / 3 = 203.333, rounded down to 203
hours), with an average per 61 broker-dealers of 3 hours (203.33 / 61 = 3.333, rounded down to 3).

This estimate is based on the number of firms that, as of December 31, 2019, have account numbers on
either lines 418, 419, 420, or 424 of Part IIA of the FOCUS report.

received the required written notice from their broker-dealer. 24 Therefore, broker-dealers will
have to send approximately 53 written notices, spending approximately 10 minutes per account
sending out the required written notice, for a total one-time disclosure burden of 8.83 hours, or
approximately 3 hours per year on an annualized basis. 25
Further, the Commission estimates that the 61 firms that carry PAB accounts will have to
amend or update their standard PAB agreement template. The Commission estimates a firm will
spend, on average, approximately 20 hours of employee resources on this task, for a total onetime recordkeeping burden of approximately 1,220 hours, or approximately 407 hours per year
on an annualized basis. 26
Paragraph (f) of Rule 15c3-3 prescribes that a broker-dealer required to maintain a
Special Reserve Bank Account must obtain and retain a written notification from each bank in
which it has a Special Reserve Bank Account to evidence the bank’s acknowledgement that
assets deposited in the account are being held by the bank for the exclusive benefit of the brokerdealer’s customers. 27 As stated above, 216 broker-dealers are estimated to be fully subject to
Rule 15c3-3. In addition, 138 broker-dealers operate in accordance with the exemption provided
in paragraph (k)(2)(i), 28 which also requires that a broker-dealer maintain a special reserve
account. Broker-dealers generally maintain longstanding relationships with banks where they
hold their Special Reserve Bank Accounts and thus do not need to obtain these letters frequently.
The Commission estimates that of the total number of broker-dealers that must comply with Rule
15c3-3, only 25%, or approximately 89 broker-dealers, 29 must obtain one new letter each year. 30
The Commission estimates that it will take a broker-dealer approximately one hour to obtain this
written notification from a bank regarding a Special Reserve Bank Account. 31 Therefore, the
Commission estimates a total annual recordkeeping burden of approximately 89 hours to obtain
these written notifications. 32

1,056 PAB account holders x 5% = 52.8 PAB account holders, rounded up to 53 PAB account holders.

53 PAB account holders x 10 minutes = 530 minutes. 530 minutes / 60 minutes = 8.833, rounded to 8.83
hours. For purposes of this supporting statement, the one-time burden annualized over the three-year
approval period is 2.94 hours (8.83 / 3 = 2.943, rounded up to 3 hours).

61 firms x 20 hours = 1,220 hours. For purposes of this supporting statement, this one-time burden
annualized over the three-year approval period is 406.67 hours (1,220 / 3 = 406.666, rounded up to 407),
with an average hour burden of 6.67 hours per broker-dealer (406.67 / 61 = 6.666, rounded to 6.67).

17 CFR 240.15c3-3(f).

This estimate is based on the number of firms that, as of December 31, 2019, indicated on line 4560 of Part
II or Part II CSE of their FOCUS reports that they are subject to the Rule 15c3-3(k)(2)(i) exemption.

(216 +138) x 25% = 88.5, rounded up to 89 broker-dealers.

The Commission notes that a broker-dealer will need to obtain a letter from its bank regarding its Special
Reserve Bank Account because either the broker-dealer changed the type of business it does and became
subject to paragraph (e)(3) or (k)(2)(i) of Rule 15c3-3 or the broker-dealer established a new Special
Reserve Bank Account.

The language in these letters is largely standardized.

89 broker-dealers x 1 hour = 89 hours.

Paragraph (f) of Rule 15c3-3 requires a broker-dealer to immediately notify the
Commission and its DEA if it fails to make a required deposit in its Special Reserve Bank
Account. 33 We anticipate broker-dealers will file approximately 15 such notices each year. 34
The Commission estimates that it will take a broker-dealer approximately 30 minutes to file the
required notice, resulting in a total annual reporting burden of approximately 8 hours. 35
Paragraph (j)(1) of Rule 15c3-3 includes a condition that a broker-dealer must establish
adequate procedures that will impose a paperwork burden if a broker-dealer wishes to accept or
use any free credit balance from the account of any customer of the broker-dealer. The
requirement that broker-dealers establish adequate procedures with regard to free credit balances
will result in one-time and annual hours burdens for broker-dealers subject to the requirements of
paragraph (j)(1) to Rule 15c3-3 for the 161 broker-dealers that carry free credit balances. 36 Most
firms already have such procedures in place. Therefore, the Commission estimates that a brokerdealer will spend approximately 10 hours per year reviewing and updating its procedures, for an
annual recordkeeping burden of approximately 1,610 hours. 37
Paragraph (j)(2) of Rule 15c3-3 requires a broker-dealer to obtain written affirmative
consent from a new customer before including a customer’s free credit balances in a Sweep
Program, as defined in paragraph (a)(17), as well as to provide certain disclosures and notices to
all customers with regard to the broker-dealer’s Sweep Program. These requirements will result
in one-time and annual burdens to broker-dealers subject to its provisions. However, these
requirements apply only to firms that carry customer free credit balances and opt to have the
ability to change how their customers’ free credit balances are treated. The Commission is
including all 161 broker-dealers that carry free credit balances in its estimate to reflect the fact
that these firms may have to update their systems to comply with these requirements. The
Commission further estimates that these firms will spend, on average, approximately 200 hours
of employee resources per firm updating their current systems (including processes for
generating customer account statements) to comply with the rule. Therefore, the Commission
estimates that the total one-time recordkeeping burden to broker-dealers arising from this
requirement will be approximately 32,200 hours, or approximately 10,733 hours per year on an
annualized basis. 38

17 CFR 240.15c3-3(i).

Broker-dealers filed 15 such notices with the Commission, on average, in 2018 and 2019.

15 notices x 0.5 hours = 7.5 hours rounded up to 8.

This estimate is based on the number of firms that, as of December 31, 2019, had free credit balances on
line 4340 of Part II or Part II CSE of their FOCUS reports.

161 broker-dealers x 10 hours = 1,610 hours.

161 broker-dealers x 200 hours per firm = 32,200 hours. For purposes of this supporting statement, this
one-time burden annualized over the three-year approval period is approximately 10,733 hours (32,200 / 3
= 10,733.3333, rounded down to 10,733.), with an average hour burden per broker-dealer of approximately
66.67 hours (10,733.3333 / 161 broker-dealers = 66.6666667, rounded up to 66.67).

With respect to the annual burden associated with paragraph (j)(2) of Rule 15c3-3, the
Commission estimates that there are 161,644,654 customer accounts 39 of which 5%
(approximately 8,082,233) will be impacted each year. 40 This equates to an average of
approximately 50,200 accounts per broker-dealer. 41 The Commission further estimates that a
broker-dealer will spend, on average, four minutes of employee resources to process a written
affirmative consent for new customers, as well as disclosures required under paragraph (j) to
Rule 15c3-3. Therefore, the Commission estimates that the annual recordkeeping burden to
broker-dealers 42 arising from the requirement will be approximately 538,816 hours. 43
Paragraph (o)(2)(i) of Rule 15c3-3 requires a broker-dealer that effects transactions for
customers in SFPs to provide each customer that engages in SFP transactions with a disclosure
document containing certain information. The Commission estimates that 8% of the accounts
held by broker-dealers that are also registered as FCMs, or 494,701 accounts, may engage in SFP
transactions. 44 This equates to an average of approximately 3,072.7 accounts per brokerdealer. 45The Commission estimates that it will take approximately 3 minutes to create each
record. 46 Thus, the total annual disclosure burden associated with the requirements of paragraph
(o)(2)(i) will be approximately 24,735 hours. 47
Paragraph (o)(3) of Rule 15c3-3 requires a broker-dealer that effects transactions in SFPs
for customers to make a record of each change in account type and to provide certain customers
with disclosure documents containing certain information about SFP products. 48 The
Commission estimates that broker-dealers that were also registered as futures commission

This estimate is based on the total number of public customer accounts listed on line 8080 of firms’
FOCUS reports, as of December 2019.

The Commission estimates approximately 8,082,233 accounts (161,644,654 x 5% = 8,082,232.7, rounded
up to 8,082,233) will be impacted annually.

8,082,233 ÷ 161 = 50,200.205 rounded down to 50,200.

This annual burden will affect the 161 broker-dealers that carry free credit balances.

(8,082,233 accounts x 4 minutes per account) / 60 minutes = 538,815.53, rounded up to 538,816 hours. For
purposes of this supporting statement, the Commission divided the total annual hour burden by 161
respondents for an average annual burden per firm of approximately 3,347 hours (538,815. / 161 =
3,346.677, rounded up to 3,347).

6,183,764 accounts x 8% = 494,701.12, rounded down to 494,701 accounts. The Commission derived its
8% estimate from the number of active options accounts and conversations with industry representatives.

494,701 ÷ 161 = 3,072.67702 rounded up to 3,072.7.

The Commission estimates that most firms will have this process automated. To the extent that no person
need be involved in the generation of this record, the burden will be very minimal.

494,701 accounts x (3 minutes/60 minutes) = 24,735.05 hours rounded down to 24,735.

More specifically, a broker-dealer that changes the type of account in which a customer’s SFPs are held
must create a record of each change in account type that includes the name of the customer, the account
number, the date the broker-dealer received the customer’s request to change the account type, and the date
the change in account type took place.

merchants (“FCMs”) maintained approximately 6,183,764 customer accounts. 49 The
Commission estimates that 8% of these customers may engage in SFP transactions, 50 and that of
that 8%, 20% per year may change account type, requiring a broker-dealer to promptly notify the
customer in writing on the date that change became effective. 51 Thus, broker-dealers may be
required to create these records for approximately 98,940 accounts. 52 This equates to an average
of approximately 614.5 accounts per broker-dealer. 53 The Commission estimates that it will take
approximately 3 minutes to create each record. 54 Thus, the total annual recordkeeping and
disclosure burden associated with the requirements of paragraph (o)(3) will be approximately
4,947 hours. 55
A broker-dealer that is determining whether a registered clearing or derivatives
organization meets the requirements of Note G to Exhibit A to Rule 15c3-3 may not rely on the
credit rating of that organization to determine whether the broker-dealer can keep customer’s
positions in security future products with the organization for purposes of the reserve
computation. Thus, broker-dealers that previously relied on ratings for the purposes of Note G
use another method for assessing the creditworthiness of registered clearing or derivatives
organizations. The Commission believes that approximately 35 broker-dealers will be required
to change or update how they assess the creditworthiness of registered clearing or derivatives
organizations under Note G. 56 The Commission believes that broker-dealers will spend
approximately .25 hours determining whether a clearing or derivatives organization meets the
requirements of Note G, resulting in an annual recordkeeping burden of approximately 9 hours. 57
The Commission further believes that broker-dealers will spend approximately one hour
changing or reviewing their methods for determining whether a clearing or derivatives clearing
organization meets the requirements of Note G, resulting in a one-time recordkeeping burden of
49

This estimate is based on the number of accounts that, as of December 2019, were listed on line 8080 of
Schedule 1 of firms’ FOCUS reports provided that those firms also had a dollar amount greater than 0
listed on line 7465 of their Part II CSEs of their FOCUS reports.

6,183,764 accounts x 8% = 494,701.12, rounded to 494,701 accounts. The Commission derived its
estimate from the number of active options accounts and conversations with industry representatives.

Broker-dealers that engage in an SFP business may choose not to allow customers to change account type
because it may be costly to facilitate such conversions. In addition, once a customer has researched the
issue and made a choice as to account type, it may be unlikely for the customer to change his or her account
type.

494,701 accounts x 20% = 98,940.2, rounded down to 98,940 accounts.

98,940 ÷ 161 = 614.534 rounded down to 614.5.

The Commission estimates that most firms will have this process automated. To the extent that no person
need be involved in the generation of this record, the burden will be very minimal.

98,940 accounts x (3min / 60min) = 4,947 hours.

The number 35 comes from reviewing the members of the Options Clearing Corporation (“OCC”) listed in
the member directory on the OCC’s website, available at
http://www.optionsclearing.com/membership/member-information/. Of the list of 185 members, the
Commission looked only at those who trade in single stock futures. Of the list of members that trade in
single stock futures, the Commission deleted any members who had the exact same firm name but different
firm numbers.

35 broker-dealers x .25 hours = 8.75 hours rounded up to 9.

approximately 35 hours, or approximately 12 hours per year on an annualized basis. 58 The
aggregate Note G related recordkeeping burden is thus approximately 21 hours per year (9+12).
Consequently, the Commission estimates that the total annual hour burden for these
existing collections under Rule 15c3-3 is 625,490 hours. 59
Summary of Hourly Burdens

Name of
Information
Collection

Rule 15c3-3(e)(3) –
daily computations
Rule 15c3-3(e)(3) –
weekly computations
Rule 15c3-3(e)(3)
monthly computations
Rule 15c3-3(e) updates
Rule 15c3-3(e) –
weekly computations
Rule 15c3-3(e) monthly computations
Rule 15c3-3(e) - daily
computations
Rule 15c3-3(a)(16)
Rule15c3-3(b)(5) –
drafting/updating
notice
Rule15c3-3(b)(5) –
notices to affected
customers
Rule15c3-3(b)(5) –
amend/update
agreement
Rule 15c3-3(f) obtain new letter
Rule 15c3-3(f) notice
Rule 15c3-3(j)(1) annual
Rule 15c3-3(j)(2) initial
Rule 15c3-3(j)(2) annual

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

250

0.00

2.50

625.00

7,500

163

0.00

2.50

130.00

21,190

Recordkeeping

0.00

2.50

30.00

1,230

Recordkeeping

30.00

10.00

0.00

10.00

310

Recordkeeping

0.00

2.50

130.00

7,280

Recordkeeping

0.00

2.50

30.00

Recordkeeping

250

0.00

2.50

625.00

1,875

Recordkeeping

20.00

6.666

0.00

6.666

73.00

4,473

Recordkeeping

10.00

3.33

0.00

3.33

203

Third-Party

0.87

0.17

0.0566

0.00

0.0566

Recordkeeping

20.00

6.67

0.00

6.67

407

Recordkeeping

354

0.25

0.00

1.00

Reporting

354

0.04237

0.00

0.50

Recordkeeping

161

0.00

10.00

1,610

Recordkeeping

161

200.00

66.6666667

0.00

66.6666667

66.66666667

10,733

Type of
Burden

Number of
Entities
Impacted

Annual
Responses
per Entity

Recordkeeping

Total Industry
Burden

Small
Business
Entities
Affected

Recordkeeping

161

50,200.205

0.00

0.066666666

538,816

Rule 15c3-3(o)(2)(i)

Third-Party

161

3,072.677

0.00

0.05

24,735

Rule 15c3-3(o)(3)

Third-Party

161

614.534

0.00

0.05

4,947

Recordkeeping

0.25

Recordkeeping

0.333

Rule 15c3-3, Note G
(annual)
Rule 15c3-3, Note G
(initial)

1.00

0.333

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

625,490

35 broker-dealers x 1 hour = 35 hours. 35 ÷ 3 = 11.667 rounded up to 12. The average hour burden per
broker-dealer is approximately 333 hours (11.67/35 broker-dealers = .333). The staff believes that brokerdealers will be subject to a one-time cost associated with reviewing the standards a broker-dealer uses to
determine whether a registered clearing or derivatives organization meets the requirements of Note G.

7,500 hours + 21,190 hours + 1,230 hours + 310 hours + 7,280 hours + 60 hours + 1,875 hours + 4,473
hours + 203 hours + 3 hours + 407 hours + 89 hours + 8 hours + 1,610 hours + 10,733 hours + 538,816
hours + 24,735 hours + 4,947 hours + 9 hours + 12 hours = 625,490 hours.

Hour Burdens Associated with 2019 Amendments
As discussed above, on June 21, 2019, the Commission added paragraph (p) to Rule
15c3-3. Paragraph (p) of Rule 15c3-3, as amended, establishes segregation requirements for
registered broker-dealers and broker-dealer SBSDs with respect to their security-based swap
activities and notifications requirements for broker-dealers that are either SBSDs or MSBSPs.
The amendments to Rule 15c3-3 added three new collections of information with
recordkeeping burdens and five new collections of information with third-party disclosure
burdens. The new collections of information are summarized in the chart below and explained in
the following discussion.
Summary of Hourly Burdens

Name of Information
Collection

NEW Rule 15c33(p)(1) (Special
Accounts)
NEW Rule 15c33(p)(1) (Special
Accounts)
NEW Rule 15c33(p)(3)(iii) (Customer
Reserve Computation)
NEW Rule 15c33(p)(4)(i) (Counterparty
Notice)
NEW Rule 15c33(p)(4)(i) (Counterparty
Notice)
NEW Rule 15c33(p)(4)(ii)
(Subordination
Agreements)
NEW Rule 15c33(p)(4)(ii)
(Subordination
Agreements)
NEW Rule 15c33(p)(4)(ii)
(Subordination
Agreements)

Initial
Burden per
Entity per
Response

Initial Burden
Annualized
per Entity per
Response

30.00

10.00

0.00

10.00

60.00

2,460

0.00

30.00

90.00

900

Recordkeeping

0.00

2.50

130.00

5,330

Third-Party

1,000

0.16666667

0.05555556

0.00

0.05555556

55.55

944

Third Party

200

0.00

0.16666667

33.35

567

Third-Party

200.00

66.67

0.00

66.67

1,067

Third-Party

500

20.00

6.66666667

0.00

6.66666667

3,333.3

53,333

Third-Party

100

0.00

20.00

2,000.00

32,000

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

96,601

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Recordkeeping

Ongoing
Burden per
Entity per
Response

Annual
Burden Per
Entity per
Response

Total Annual
Burden Per
Entity

Total Industry
Burden

Special Accounts (Rule 15c3-3(p)(1))
SBSDs are required to establish special accounts with banks and obtain written
acknowledgements from, and enter into written contracts with, the banks. These special
accounts include: (1) the qualified clearing agency account; 60 (2) the qualified SBSD account; 61
and (3) the special account for the exclusive benefit of security-based swap customers. 62 Based
60

Paragraph (p) (1)(iii) of Rule 15c3-3, as amended.

Paragraph (p) (1) (iv) of Rule 15c3-3, as amended.

Paragraph (p)(1)(vii) of Rule 15c3-3, as amended.

Small
Business
Entities
Affected

on staff experience with Rule 15c3-3, the Commission staff estimates that there are 16 brokerdealer SBSDs, 25 broker-dealers engaged in security-based swap activities but not required to
register as an SBSD or MSBSP, and 1 broker-dealer MSBSP. Staff further estimates that each of
the 16 broker-dealer SBSDs and 25 broker-dealers establishes 6 special accounts at banks (2 for
each type of special account). Further, based on staff experience with Rule 15c3-3, the
Commission staff estimates that each SBSD and broker-dealer will spend approximately 30
hours to draft and obtain the written acknowledgement and agreement for each account. These
estimates result in an industry-wide one-time hour burden of approximately 7,380 hours, or
approximately 2,460 hours per year on an annualized basis. 63
The Commission staff estimates that 25 percent 64 of the 16 broker-dealer SBSDs and 25
broker-dealers (a total of approximately 10) will establish a new special account each year
because, for example, they change their banking relationship, for each type of special account.
Therefore, the Commission staff estimates an industry-wide ongoing annual hour burden of
approximately 900 recordkeeping hours. 65
Customer Reserve Computation (Rule 15c3-3(p)(3)(iii))
Paragraph (p)(3) of Rule 15c3-3 requires broker-dealer SBSDs and broker-dealers
engaged in security-based swap activities to maintain a special account for the exclusive benefit
of security-based swap customers and have on deposit in the account at all times an amount of
cash and/or qualified securities determined through a computation using the formula in Exhibit B
to Rule 15c3-3. Paragraph (p)(3)(iii) of Rule 15c3-3 provides that the computations necessary to
determine the amount required to be maintained in the special bank account must be made on a
weekly basis. 66 Variation in size and complexity between these SBSDs and broker-dealers
makes it very difficult to develop a meaningful figure for the amount of time required to
calculate each reserve computation. Based on experience with the Rule 15c3-3 reserve
computation PRA burden hours and with the OTC derivatives industry, the Commission staff
estimates that it will take between 1 and 5 hours to compute each reserve computation, and that
the average time spent across all the broker-dealer SBSDs will be approximately 2.5 hours.
63

(16 broker-dealer SBSDs + 25 broker-dealers engaged in security-based swap activities but not required to
register as an SBSD or MSBSP) x 6 special accounts x 30 hours = 7,380 hours. For purposes of this
supporting statement, this one-time burden annualized over the three-year approval period is 2,460 hours
(7,380 / 3 = 2,460), with an average hour burden per respondent of 60 hours (2,460 / 41 respondents = 60).

This number is based on the currently approved PRA collection for Rule 15c3-3. See Commission,
Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule 15c3-3.

10 broker-dealer SBSDs x 3 types of special accounts x 30 hours = 900 hours.

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

Accordingly, the Commission staff estimates that the resulting annual recordkeeping hour burden
for paragraph (p)(3)(iii) of Rule 15c3-3 is approximately 5,330 hours. 67
Counterparty Notice (Rule 15c3-3(p)(4)(i))
Paragraph (p)(4)(i) of Rule 15c3-3 requires that broker-dealer SBSDs and broker-dealer
MSBSPs are required to provide a notice to a counterparty pursuant to section 3E(f) of the
Exchange Act prior to the execution of the first non-cleared security-based swap transaction with
the counterparty occurring after the compliance date of the new rule. 68 The number of notices
sent in the first year the rule is effective will depend on the number of counterparties with which
each broker-dealer SBSD or broker-dealer MSBSP engages in security-based swap transactions.
The number of counterparties an SBSD and MSBSP has will vary depending on the size and
complexity of the firm and its operations. The Commission staff estimates that each of the 16
broker-dealer SBSDs and 1 broker-dealer MSBSP would have approximately 1,000
counterparties at any given time. 69 Therefore, the Commission staff estimates that
approximately 17,000 notices will be sent in the first year the rule is effective. 70 The
Commission staff estimates that each of the 16 broker-dealer SBSDs and 1 broker-dealer
MSBSP will spend approximately 10 minutes sending out the notice. These estimates result in
an industry-wide one-time third-party hour burden of approximately 2,834 hours, or
approximately 944 71 hours per year on an annualized basis. 72
The Commission staff further estimates that the 16 broker-dealer SBSDs and 1 brokerdealer MSBSP will establish account relationships with 200 new counterparties per year.
Therefore, the Commission staff estimates that approximately 3,400 notices will be sent
annually. 73 These estimates result in an industry-wide annual third-party hour burden of
approximately 567 hours. 74
67

(16 broker-dealer SBSDs + 25 broker-dealers engaged in security-based swap activities but not required to
register as an SBSD or MSBSP) x 52 weeks x 2.5 hours/week = 5,330 hours.

See paragraph (p)(4)(i) of Rule 15c3-3, as amended.

The Commission previously estimated that there are approximately 10,900 market participants in securitybased swap transactions. See Business Conduct Release, 81 FR at 30089. Based on the 10,900 market
participants and Commission staff experience relative to the securities and OTC derivatives industry, the
Commission staff estimates that each broker-dealer SBSD and MSBSP will have 1,000 counterparties at
any given time. The number of counterparties may widely vary depending on the size of the SBSD or
MSBSP. A large firm may have thousands or counterparties at one time, while a smaller firm may have
substantially less than 1,000. The Commission staff also estimates, based on staff experience, that these
entities will establish account relationships with approximately 200 new counterparties a year, or
approximately 20 percent of a firm’s existing counterparties.

(16 broker-dealer SBSDs + 1 broker-dealer MSBSP) x 1,000 counterparties = 17,000 notices.

944.4 rounded down to 944.

(17,000 notices x 10 minutes) / 60 minutes = 2,833.33 hours. For purposes of this supporting statement,
this one-time burden annualized over the three-year approval period is approximately 944 hours (2,833.33/
3 = 944.443, rounded down to 944), with an average hour burden per respondent of approximately 55.55
hours (944.44 / 17 respondents = 55.555)..

(16 broker-dealer SBSDs + 1 broker-dealer MSBSP) x 200 counterparties = 3,400 notices.

(3,400 notices x 10 minutes) / 60 minutes = 566.67 hours, rounded to 567 hours.

Subordination Agreements (Rule 15c3-3(p)(4)(ii))
Under paragraph (p)(4)(ii) of Rule 15c3-3, a broker-dealer SBSD is required to obtain
agreements from counterparties that do not choose to require segregation of funds or other
property pursuant to Section 3E(f) of the Exchange Act or paragraph (p)(3)(iii) of Rule 15c3-3,
as amended, in which the counterparty agrees to subordinate all of its claims against the brokerdealer to the claims of customers and security-based swap customers of the broker-dealer. 75 The
Commission staff estimates that a broker-dealer SBSD will spend, on average, approximately
200 hours to draft and prepare standard subordination agreements. These estimates result in an
industry-wide one-time third-party hour burden of approximately 3,200 hours, or approximately
1,067 hours per year on an annualized basis. 76
As discussed above, the Commission staff estimates that each of the 16 broker-dealer
SBSDs would have approximately 1,000 counterparties at any given time. The Commission
staff further estimates that approximately 50 percent of these counterparties will either elect
individual segregation or waive segregation altogether. 77 The Commission staff estimates that a
broker-dealer SBSD will spend 20 hours per counterparty to enter into a written subordination
agreement. These estimates result in an industry-wide one-time hour burden of approximately
160,000 hours, or approximately 53,333 hours per year on an annualized basis. 78
Further, as discussed above, the Commission staff estimates that each of the 16 brokerdealer SBSDs will establish account relationships with 200 new counterparties per year. The
Commission staff further estimates that 50 percent or 100 of these counterparties will either elect
individual segregation or waive segregation altogether. These estimates result in an industrywide annual third-party hour burden of approximately 32,000 hours. 79
Consequently, the Commission estimates that the total annual hour burden for these
collections associated with the 2019 amendments under Rule 15c3-3 is 96,601 hours. 80
75

See paragraph (p)(4)(ii) of Rule 15c3-3, as amended.

200 hours x 16 broker-dealer SBSDs = 3,200 hours. For purposes of this supporting statement, this onetime burden annualized over the three-year approval period is approximately 1,067 hours per year (3,200/
3 = 1,066.66667, rounded up to 1,067), with an average hour burden per broker-dealer SBSD of
approximately 66.67 hours (1,066.67 / 16 broker-dealer SBSDs = 66.667, rounded to 66.67).

Based on discussions with market participants, the Commission staff understands that many large buy-side
financial end users currently ask for individual segregation and the Commission staff assumes that many of
these end users will continue to do so. However, Commission staff believes that some smaller end users
may not choose to incur additional cost that may come with individual segregation. Therefore, the
Commission staff estimates that approximately 50 percent of counterparties will either elect individual
segregation or waiver segregation altogether.

16 broker-dealer SBSDs x 500 counterparties x 20 hours = 160,000 hours. For purposes of this supporting
statement, this one-time burden annualized over the three-year approval period is approximately 53,333
hours (160,000/ 3 = 53,333.33 rounded down to 53,333), with an average hour burden per broker-dealer
SBSD of approximately 3,333.33 hours (53,333.33 / 16 broker-dealer SBSDs = 3,333.33).

16 broker-dealer SBSDs x 100 counterparties x 20 hours = 32,000 hours.

2,460 hours + 900 hours + 5,330 hours + 944 hours + 567 hours + 1,067 hours + 53,333 hours + 32,000

13.

Costs to Respondents

The Commission estimates that the aggregate annual cost burden associated with Rule
15c3-3 is approximately $1,505,847 calculated as described below. 81
Existing Cost Burdens
Paragraph (b)(5) of Rule 15c3-3 will require a broker-dealer to incur postage costs when
sending out the required written notice to customers. The Commission estimates that there are
approximately 1,056 existing PAB customers and approximately 5% of those customers will be
affected by this requirement as they have not yet received the required written notice from their
broker-dealer. 82 Therefore, broker-dealers will have to send approximately 53 written notices.
These carrying broker-dealers will likely use the least expensive method to comply with this
requirement and may include this notification with other mailings sent to PAB account holders.
The Commission, however, conservatively estimates that the postage cost or each notification,
using the current price of first class postage, will be approximately $0.55 per document sent.
Therefore, the Commission estimates that the total one-time third party disclosure cost associated
with sending the required written notification to PAB account holders will be approximately
$29.15, or approximately $10 per year on an annualized basis. 83
Additionally, the Commission estimates that the 61 broker-dealers carrying PAB
accounts likely will engage outside counsel to review the required notice, as well as the standard
PAB template agreement under the final rule amendments to Rule 15c3-3. As a result, the
Commission estimates that each of these 61 broker-dealers will likely incur approximately
$2,000 in one-time legal costs, 84 for a total one-time recordkeeping cost to the industry of
approximately $122000, or approximately $40,667 per year on an annualized basis, 85 to review
and comment on these materials.
The Commission also estimates that broker-dealers will consult with outside counsel in
making system changes, particularly with respect to the language in the disclosures and notices
under paragraph (j)(2) to Rule 15c3-3 related to the treatment of free credit balances. As a result,
the Commission estimates that the average one-time recordkeeping cost to a broker-dealer will
hours = 96,601 hours.
81

$1,440,513 + $65,334 = $1,505,847.

1,056 PAB account holders x 5% = 52.8 PAB account holders, rounded to 53 PAB account holders.

53 notices x $0.55 = $29.15, or about $9.72 annualized over three years rounded up to 10.

5 hours x $400 per hour = $2,000. The Commission estimates the review of the notice and standard PAB
template will require 5 hours of outside counsel time, which is the same estimate used for outside counsel
review in another recent release. Based on Commission experience with the PAIB Letter and the
application of Rule 15c3-3, the Commission estimates the outside counsel review related to the PAB
amendments will take a comparable amount of time.

61 firms x $2,000 legal cost = $122,000. This is $40,666.67 on an annualized basis ($122,00 / 3 =
$40,666.666, rounded to $40,667).

be approximately $20,000 86 and the average one-time recordkeeping cost to all broker-dealers
will be approximately $3,220,000, or approximately $1,073,333 per year on an annualized
basis. 87
Rule 15c3-3(o)(2)(i) requires a broker-dealer that effects transactions for customers in
SFPs to provide each customer that engages in SFP transactions with a disclosure document
containing certain information. The costs of printing and sending the disclosure document to
customers will be based on the number of customer accounts that will be opened by customers to
effect transactions in SFPs. As applied in section 12 above, the Commission estimates that 8%
of the accounts held by broker-dealers that are also registered as FCMs, or 494,701 accounts,
may engage in SFP transactions. 88 This equates to an average of approximately 3,072.7 accounts
per broker-dealer. 89 The Commission also estimates that the cost of printing and sending each
disclosure document will be approximately $.55 per document sent, based on the price of first
class postage. Therefore, the Commission estimates that the annual recordkeeping and
disclosure cost burden associated with this rule requirement is approximately $272,086. 90
Rule 15c3-3(o)(3)(ii) requires a broker-dealer that changes the type of account in which a
customer’s SFPs are held to promptly notify the customer in writing of the date that change
became effective. The Commission estimates that 98,940 accounts 91 may change account type
per year, thus broker-dealers will be required to send this notification to 98,940 customers. This
equates to an average of approximately 614.5 accounts per broker-dealer. 92 The Commission
notes that firms will likely use the least expensive method to comply with these requirements,
and may include this notification with other mailings, such as customer account statements, sent
to the customer. Therefore, the Commission estimates that the cost of printing and posting each
notification will be approximately $.55 per document sent, resulting in an annual recordkeeping
and disclosure burden of approximately $54,417. 93
Consequently, the Commission estimates that the total annual cost associated with these
existing collections under Rule 15c3-3 is approximately $1,440,513. 94
86

$400 per hour x 50 hours = $20,000. The Commission estimates that the average hourly cost for an outside
counsel will be approximately $400 per hour. The Commission used the estimate of $400 per hour for
legal services provided by outside counsel, which is the same estimate used by the Commission in other
recent releases.

161 broker-dealers x $20,000 = $3,220,000, or $1,073,333.33 annualized over three years rounded down to
$1,073,333.

6,183,764 accounts x 8% = 494,701.12, rounded to 494,701 accounts. The Commission derived its 8%
estimate from the number of active options accounts and conversations with industry representatives.

494,701 ÷ 161 = 3,072.67702 rounded up to 3,072.7.

494,701 accounts x $.55 = $272,085.55 rounded up to $272,086.

494,701 accounts x 20% = 98,940.2 accounts, rounded to 98,940 accounts.

98,940 ÷ 161 = 614.534 rounded down to 614.5.

98,940 accounts x $.55 = $54,417.

$10 + $40,667 + $1,073,333 + $272,086 + $54,417 = $1,440,513

Summary of Dollar Costs

Initial Cost
per Entity
per
Response

Initial Cost
Annualized
per Entity per
Response

$0.55

$0.18

$2,000.00

$666.67

161

$20,000.00

161

3,072.68

$0.00

161

614.534

$0.00

Name of Information
Collection

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Rule 15c3-3(b)(5)

Third-party
disclosure

0.87

Rule 15c3-3(b)(5)

Recordkeeping

Rule 15c3-3(j)(2)

Recordkeeping
Third-party
disclosure
Third-party
disclosure

Rule 15c3-3(o)(2)(i)
Rule 15c3-3(o)(3)(ii)

Ongoing
Cost per
Entity per
Response

Small
Business
Entities
Affected

Annual Cost
Per Entity
per Response

Total Annual
Cost Per
Entity

$0.18

$10

$666.67

$40,667

$6,666.67

$1,073,333

$0.00

$0.55

$272,086

$0.00

$0.55

$54,417

TOTAL COST FOR ALL RESPONDENTS

$1,440,513

Total Industry
Cost

Cost Burdens Associated with 2019 Amendments
The amendments to Rule 15c3-3 added two new collections of information with thirdparty disclosure cost burdens. The new collections of information are summarized in the chart
below and explained in the following discussion.
Summary of Dollar Costs

Name of Information
Collection

NEW Rule 15c33(p)(4)(i) (Counterparty
Notice)
NEW Rule 15c33(p)(4)(ii)
(Subordination
Agreements)

Initial Cost
per Entity
per
Response

Initial Cost
Annualized
per Entity per
Response

$4,000.00

$1,333.33

$8,000.00

$2,666.67

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Third-Party

Ongoing
Cost per
Entity per
Response

Total Annual
Cost Per
Entity

$1,333.33

$22,667

$2,666.67

$42,667

TOTAL COST FOR ALL RESPONDENTS

$65,334

Total Industry
Cost

Counterparty Notice (Rule 15c3-3(p)(4)(i))
Paragraph (p)(4)(i) of Rule 15c3-3, as amended, requires that broker-dealer SBSDs and
broker-dealer MSBSPs are required to provide a notice to a counterparty pursuant to section
3E(f) of the Exchange Act prior to the execution of the first non-cleared security-based swap
transaction with the counterparty occurring after the compliance date of the new rule. 95 All
broker-dealer SBSDs and broker-dealer MSBSPs are required to provide these notices to their
counterparties. The Commission staff estimates that the 16 broker-dealer SBSDs and 1 brokerdealer MSBSP will engage outside counsel to draft and review the notice at a cost of $400 per
hour for an average of 10 hours per respondent. These estimates result in a one-time third-party
cost burden of approximately $68,000 for all of these 17 entities, or approximately $22,667 per
95

See paragraph (p)(4)(i) of Rule 15c3-3, as amended.

Small
Business
Entities
Affected

Annual Cost
Per Entity
per Response

year on an annualized basis. 96
Subordination Agreements (Rule 15c3-3(p)(4)(ii))
Under paragraph (p)(4)(ii) of Rule 15c3-3, a broker-dealer SBSD is required to obtain
agreements from counterparties that do not choose to require segregation of funds or other
property pursuant to Section 3E(f) of the Exchange Act or paragraph (p)(3)(iii) of Rule 15c3-3,
as amended, in which the counterparty agrees to subordinate all of its claims against the brokerdealer to the claims of customers and security-based swap customers of the broker-dealer. 97
Because the broker-dealer SBSD will enter into these agreements with security-based swap
customers after the broker-dealer SBSD prepares a standard subordination agreement in-house,
the Commission staff also estimates that a broker-dealer SBSD will have outside counsel review
the standard subordination agreements and that the review will take approximately 20 hours at a
cost of approximately $400 per hour. As a result, the Commission staff estimates that each
broker-dealer SBSD will incur one-time third-party costs of approximately $8,000. 98 These
estimates result in an industry-wide one-time third-party cost of approximately $128,000, or
approximately $42,667 per year on an annualized basis. 99
Consequently, the Commission estimates that the total annual cost burden for these
collections associated with the 2019 amendments under Rule 15c3-3 is $65,334 ($22,667 +
$42,667).
14.

Costs to Federal Government

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

Changes in Burden

As specified in the chart below, changes in burden are due to a variety of factors
including a change in the number of broker-dealers and customer accounts subject to particular
burdens, amortization of certain one-time burdens not previously annualized over three years,
and the addition of new burdens associated with the 2019 amendments to Rule 15c3-3.
96

(16 broker-dealer SBSDs + 1 broker-dealer MSBSP) x $400 per hour x 10 hours = $68,000. The
Commission expects that these functions will likely be performed by outside counsel with an expertise in
financial services law to help ensure that counterparties are receiving the proper notice under the statutory
requirement. The Commission is annualizing the one-time costs over the three year approval period to
reflect an annualized cost of approximately $22,667 per year ($68,000/3 = $22,666.667, rounded up to
$22,667), or approximately $1,333.33 per respondent ($22,666.667/17 = $1,333.333)).

See paragraph (p)(4)(ii) of Rule 15c3-3, as amended.

$400 x 20 hours = $8,000.

$8,000 x 16 broker-dealer SBSDs = $128,000. The Commission is annualizing the one-time costs over the
three year approval period to reflect an annualized cost of $42,666.67 per year ($128,000/3 = $42,666.667,
rounded up to $42,667), or approximately $2,666.67 per respondent ($42,666.67/16 = $2,666.667, rounded
to $2,666.67).

Name of Information
Collection

Rule 15c3-3(e)(3) –
weekly computations –
Hour Burden

Annual Industry Burden

Annual
Industry
Burden
Previously
Reviewed

Change in
Burden

21,190

21,060

130

1,230

1,500

(270)

Rule 15c3-3(e) updates - Hour Burden

310

930

(620)

Rule 15c3-3(e) –
weekly computations –
Hour Burden

7,280

7,410

(130)

Rule 15c3-3(a)(16) –
Hour Burden

4,473

4,547

(74)

Rule15c3-3(b)(5) –
drafting/updating
notice – Hour Burden

203

206

(3)

Rule15c3-3(b)(5) –
notices to affected
customers – Hour
Burden

Rule 15c3-3(e)(3)
monthly computations
– Hour Burden

Rule15c3-3(b)(5) –
amend/update
agreement – Hour
Burden

407

414

(7)

Rule 15c3-3(f) - obtain
new letter – Hour
Burden

Rule 15c3-3(f) –
notice – Hour Burden

(7)

Rule 15c3-3(j)(1) –

1,610

1,590

Reason for Change

Based on updated numbers as
of December 31, 2019, (1)
additional broker-dealer
performing a weekly
computation pursuant to Rule
15c3-3(e)(3).
Based on updated numbers as
of December 31, 2019, (9)
fewer broker-dealers
performing a monthly
computation pursuant to Rule
15c3-3(e)(3).
No change in one-time
burden, but previously
reported burden had not been
annualized over three years.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden, but there are
additional PAB customers.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden.
Based on updated numbers as
of December 31, 2019, (8)
additional broker-dealers
subject to this burden.
Based on updated numbers as
of December 31, 2019, fewer
such notices are being filed
with the Commission.
Based on updated numbers as
of December 31, 2019, (2)

annual – Hour Burden
Rule 15c3-3(j)(2) initial – Hour Burden

10,733

10,600

133

Rule 15c3-3(j)(2) –
annual – Hour Burden

538,816

421,520

117,296

Rule 15c3-3(o)(2)(i) –
Hour Burden

24,735

63,531

(38,796)

Rule 15c3-3(o)(2)(i) –
Hour Burden

4,947

12,706

(7,759)

Rule 15c3-3, Note G –
Hour Burden

(21)

Rule 15c3-3(p)(1)
(Special Accounts) –
Hour Burden

2 distinct hour burdens as
shown in the summary
chart above, totaling 3,360
(2,460+900)

3,360

Rule 15c3-3(p)(3)(iii)
(Customer Reserve
Computation) – Hour
Burden

5,330.00

Rule 15c3-3(p)(4)(i)
(Counterparty Notice)
– Hour Burden

2 distinct hour burdens, as
shown in the summary
chart above, totaling 1,511
(944+567)

1,511

Rule 15c3-3(p)(4)(ii)
(Subordination

3 distinct hour burdens, as
shown in the summary

86,400

additional broker-dealers
subject to this burden.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden, and
additional customer accounts
that would require this notice.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden, but
overall fewer accounts that
would require this notice.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden, but
fewer accounts overall that
would require this notice.
Based on updated 2020
numbers, fewer broker-dealers
that were listed as members of
the OCC who only trade in
single stock futures.
Burden proposed in the
information collection for
Rule 18a-4 (OMB No. 32350700), but based on comments
received, burden has been
moved to Rule 15c3-3.
Burden proposed in the
information collection for
Rule 18a-4 (OMB No. 32350700), but based on comments
received, burden has been
moved to Rule 15c3-3.
Furthermore, provision altered
to require weekly rather than
daily customer reserve
calculation (and burden
therefore reduced) based on
comments received.
Burden proposed in the
information collection for
Rule 18a-4 (OMB No. 32350700), but based on comments
received, burden has been
moved to Rule 15c3-3.
Burden proposed in the
information collection for

Agreements) – Hour
Burden

chart above, totaling
86,400
(1,067+53,333+32,000)

Rule 15c3-3(b)(5) –
Cost Burden (Third
Party disclosure)

$10

Rule 15c3-3(b)(5) –
Cost Burden
(Recordkeeping)

$40,667

$41,334

($667)

Rule 15c3-3(j)(2) –
Cost Burden

$1,073,333

$1,060,000

$13,333

Rule 15c3-3(o)(2)(i) Cost Burden

$272,086

$622,602

($350,516)

Rule 15c3-3(o)(3)(ii) Cost Burden

$54,417

$124,520

($70,103)

Rule 15c3-3(p)(4)(i)
(Counterparty Notice)
– Cost Burden

$22,667

Rule 15c3-3(p)(4)(ii)
(Subordination
Agreements) – Cost
Burden

$42,667

16.

Rule 18a-4 (OMB No. 32350700), but based on comments
received, burden has been
moved to Rule 15c3-3.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden, but the number of
PAB customers who need
such notice has increased and
cost of postage has increased.
Based on updated numbers as
of December 31, 2019, (1) less
broker-dealer subject to this
burden.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden, but
fewer accounts subject to the
notice, and cost of postage has
increased.
Based on updated numbers as
of December 31, 2019, (2)
additional broker-dealers
subject to this burden, but
fewer accounts subject to the
notice, and cost of postage has
increased.
Burden proposed in the
information collection for
Rule 18a-4 (OMB No. 32350700), but based on comments
received, burden has been
moved to Rule 15c3-3.
Burden proposed in the
information collection for
Rule 18a-4 (OMB No. 32350700), but based on comments
received, burden has been
moved to Rule 15c3-3.

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.
22

18.

Exceptions to Certification for Paperwork Reduction Act Submissions

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

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

File Type	application/pdf
File Title	Extension of Rule 15c3-3
File Modified	2020-05-12
File Created	2020-05-12