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pdfSUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 10b-17- Untimely Announcements of Record Dates
OMB Control No. 3235-0476
A.
JUSTIFICATION
1.
Necessity of Information Collection
In 1971, the Securities and Exchange Commission (“Commission”) adopted Rule
10b-17 (17 CFR 240.10b-17) which, in pertinent part, states that it shall constitute a
“manipulative or deceptive device or contrivance as used in section 10(b)” of the Securities
Exchange Act of 1934 (the “Exchange Act”) for any issuer of a class of publicly traded
securities (“issuers”) to fail to provide specified advance notice, pursuant to paragraph (b)
of the rule, concerning impending actions, including, dividends or other distributions in cash
or in kind; planned splits or reverse splits; and rights or other subscription offerings
(“distributions”) to the National Association of Securities Dealers, Inc. (n/k/a the Financial
Industry Regulatory Authority, Inc., or FINRA), or an exchange on which the securities are
registered and which has substantially comparable procedures to those set forth in the rule. 1
The requirements of Rule 10b-17 do not apply to redeemable securities issued by open-end
investment companies and unit investment trusts registered with the Commission under the
Investment Company Act of 1940.
The Commission has found that failures of a publicly held company to provide a
timely announcement of the record date of these types of distributions has had a misleading
and deceptive effect on both the broker-dealer community and the investing public. As a
direct result of such failures, purchasers and their brokers may have entered into and settled
securities transactions without knowledge of the accrual of rights to these distributions and
were thus unable to take necessary steps to protect their interests. 2 The Commission has also
found that sellers who have received the distributions as record holders on the specified
record date, after having disposed of their securities, have also disposed of the cash or stock
dividends or other rights received as such record holders without knowledge of possible
claims of purchasers of the underlying security to those rights. 3 In addition, the Commission
has found that some issuers have made belated announcements of stock splits or dividends
apparently aware that such actions would have a manipulative effect on the market for their
securities. In these cases, “buy-in” transactions effected by purchasers to liquidate the
sellers’ obligations have had the effect of raising the price of the security. The Commission
noted that this effect has been particularly significant when the existing floating supply of
the security is limited. 4
See Timely Advance Notice of Record Dates for Publicly Traded Securities, Exchange Act Release No. 349192 (Jun. 7, 1971), 36 FR 11513 (Jun. 15, 1971).
1
2
See Id.
3
See Id.
4
See Id.
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2.
Purpose and Use of Information Collection
The Commission believes that the information required to be provided by issuers
pursuant to Rule 10b-17 is necessary to help prevent fraudulent, manipulative, and deceptive
acts and practices as used in section 10(b) of the Exchange Act. The Commission has found
that failures to provide timely announcement of the record date for the types of distributions
covered by Rule 10b-17 has led to a number of abuses detailed above. Timely notice of the
record date for these types of distributions provide investors with information necessary to
make an informed investment decision.
3.
Consideration Given to Information Technology
Continued improvements in telecommunication and data processing technology
since the rule’s adoption in 1971 have reduced any regulatory burdens placed on issuers as a
result of Rule 10b-17. The Commission is not aware of any technical or legal obstacles to
reducing the burden through the use of improved information technology.
4.
Duplication
The information required to be provided by issuers pursuant to Rule 10b-17 described
herein does not duplicate that required by any other federal regulation.
5.
Effect on Small Entities
The information required to be provided by issuers pursuant to Rule 10b-17 applies
equally to all issuers subject to the rule’s requirements. The Commission believes that the
requirements of Rules 10b-17 are not unduly burdensome on small entities.
6.
Consequences of Not Conducting Collection
As discussed above, the Commission has found that failures of a publicly held
company to provide a timely announcement of the record date of these types of distributions
has had a misleading and deceptive effect on both the broker-dealer community and the
investing public. Timely notice of the record date of these distributions provides brokerdealers and investors with information necessary to make informed investment decisions. In
addition, the Commission believes that the information required to be provided by issuers
pursuant to Rule 10b-17 is necessary to help prevent fraudulent, manipulative, and
deceptive acts and practices as used in section 10(b) of the Exchange Act.
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
2
comments on this collection of information was published. No public comments were
received.
9.
Payment or Gift
Not applicable. Rule 10b-17 does not involve any payments or gifts to respondents.
10.
Confidentiality
No assurance of confidentiality is provided.
11.
Sensitive Questions
This information collection relates to business entities, and no information of a
sensitive nature is required.
12.
Information Collection Burden
In part, Rule 10b-17 requires issuers of publically traded securities to give notice of
the following actions: (1) a dividend or other distribution in cash or in kind other than
interest payments on debt securities; (2) a stock split or reverse stock split; or (3) a rights or
other subscription offering. The Commission estimates that approximately 6,661 issuers
made approximately 27,651 dividend announcements covered by Rule 10b-17 in 2019. The
Commission also estimates that approximately 633 issuers made 707 split and/or reverse
split announcements in 2019. 5 In addition, the Commission estimates that approximately 47
issuers made 49 rights and other offering announcements in 2019. In total, the Commission
estimates that there were 7,341 respondents 6 with 28,407 responses 7 in 2019. The
Commission estimates that each response, which constitutes an ongoing third-party
disclosure burden, takes 10 minutes to complete and estimate that the total annual burden for
all respondents is approximately 4,735 hours. 8 We estimate that the average hourly internal
compliance cost to produce and file an announcement required under the rule is
approximately $73.59. 9 The aggregate annual internal compliance cost for complying with
this rule is thus estimated to be approximately $348,412. 10
The Commission estimates that 101 issuers made 101 stock split announcements in 2019. The Commission
estimates that 542 issuers made 606 reverse stock split announcements in 2019.
5
6
6,661 + 633 + 47 = 7,341 respondents.
7
27,651 + 707 + 49 = 28,407 responses.
8
(28,407 responses x 10 minutes) / 60 minutes = 4,734.5 hours rounded up to 4,735 hours.
9
In 2017, the Commission estimated that the average hourly cost to produce a Rule 10b-17 notice was $70.29.
Adjusted for inflation, the Commission estimates that the average hourly cost to produce a Rule 10b-17 notice in
2020 is $73.59.
10
4,734.5 hours x $73.59 = $348,411.85 rounded up to $348,412.
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Type of
information
Collection
Dividend
announcements
Burden
Type
Number of
Number of
Respondents Annual
Reponses
Third-party 6,661
27,651
disclosure
Time Per
Response
(minutes)
10
Total Burden Per
Burden Type (Hours)
Stock split or
reverse split
announcements
Third-party 633
disclosure
707
10
117.84
Rights or other
subscription
announcements
Third-party 47
disclosure
49
10
8.16
Total aggregate burden hours
13.
4,608.5
4,735
Costs to Respondents
It is not anticipated that respondents will incur any capital or start-up costs, or any
additional operational or maintenance costs (other than provided for in Item 12) to comply
with the collection of information.11
14.
Costs to Federal Government
The government does not experience any direct costs based on the third party reporting
required pursuant to Rule 10b-17.
15.
Changes in Burden
The change in the estimated burden is due to an increase in the estimated number of
responses. The Commission estimates that there were 27,144 responses in 2016 and 28,407
responses in 2019. Due to this increase, the Commission estimates that the total aggregate
burden hours will increase from approximately 4,524 hours per year to approximately 4,735
hours per year.
16.
Information Collection Planned for Statistical Purposes
Not applicable. The information collection is not used for statistical purposes.
17.
Approval to Omit OMB Expiration Date
The Commission is not seeking approval to omit the expiration date.
Rule 10b-17 does not require issuers to provide notice to the Commission. Instead, issuers must provide notice
to FINRA, or the exchange on which the security is registered, which may require issuers to complete a separate
form and pay an applicable fee.
11
4
18.
Exceptions to the Certification for Paperwork Reduction Act Submissions
This collection complies with the requirements in 5 CFR 1320.9.
B.
Collecting Information Employing Statistical Methods
This collection does not involve statistical methods.
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| File Type | application/pdf |
| File Modified | 2020-06-24 |
| File Created | 2020-06-24 |