3235-0462_Supporting_Statement_-_Rule_604_(April 2021)

SUPPORTING STATEMENT
Paperwork Reduction Act Information Collection Submission for Rule 604
OMB Control Number 3235-0462
Reinstatement with Change
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

Section 11A of the Securities Exchange Act of 1934 (“Exchange Act”) charges the
Securities and Exchange Commission (“Commission”) with the responsibility to assure that the
national market system develop and operate in accordance with specific goals and objectives. 1
Among the national market system’s goals and objectives are the public availability of quotation
information, fair competition, market efficiency, best execution and disintermediation.
The Commission adopted Rule 11Ac1-4 (“Limit Order Display Rule”) in furtherance of
these such goals by requiring specialists and market makers to publish customer limit orders that
are priced superior to the bids or offers being displayed by each such specialist or market
maker. 2 Customer limit orders that match the bid or offer being displayed by a specialist or
market maker must be published if the limit price also matches the national best bid or offer
(“NBBO”) and the size of the customer limit order is more than de minimis (i.e., more than 10%
of the specialist’s or market maker’s displayed size). This rule was later re-numbered as Rule
604 with the adoption of Regulation NMS, but the information collection requirements of the
rule remained the same: 3
a.

Display of Customer Limit Orders. For all NMS stocks, each member of a
national securities exchange that is registered by that exchange as a specialist, or
is authorized by that exchange to perform functions substantially similar to that of
a specialist, shall publish immediately a bid or offer that reflects 4 the price and the
full size of each customer limit order held by the specialist that is at a price that
would improve the bid or offer of such specialist in such security 5; and the full

1

See 15 U.S.C. 78k-1.

2

See Securities Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290
(September 12, 1996).

3

See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37570
(June 29, 2005).

4

See 17 CFR 242.604(a)(1).

5

See 17 CFR 242.604(a)(1)(i).

size of each customer limit order held by the specialist that 6 is priced equal to the
bid or offer of such specialist for such security7; is priced equal to the national
best bid or national best offer 8; and represents more than a de minimis change in
relation to the size associated with the specialist's bid or offer. 9 Similarly, for all
NMS stocks, each registered broker or dealer that acts as an OTC market maker
shall publish immediately a bid or offer that reflects 10 the price and the full size of
each customer limit order held by the OTC market maker that is at a price that
would improve the bid or offer of such OTC market maker in such security 11; and
the full size of each customer limit order held by the s OTC market maker that 12 is
priced equal to the bid or offer of such OTC market maker for such security 13; is
priced equal to the national best bid or national best offer 14; and represents more
than a de minimis change in relation to the size associated with the OTC market
maker's bid or offer. 15
b.

Exceptions. The requirements above do not apply to any customer limit order that
is executed upon receipt of the order 16; is placed by a customer who expressly
requests, either at the time that the order is placed or prior thereto pursuant to an
individually negotiated agreement with respect to such customer's orders, that
the order not be displayed 17; that is an odd-lot order 18; is a block size order, unless
a customer placing such order requests that the order be displayed 19; that is
delivered immediately upon receipt to a national securities exchange or national
securities association-sponsored system, or an electronic communications network
that complies with the requirements of § 242.602(b)(5)(ii) with respect to

6

See 17 CFR 242.604(a)(1)(ii).

7

See 17 CFR 242.604(a)(1)(ii)(A).

8

See 17 CFR 242.604(a)(1)(ii)(B).

9

See 17 CFR 242.604(a)(1)(ii)(C).

10

See 17 CFR 242.604(a)(2).

11

See 17 CFR 242.604(a)(2)(i).

12

See 17 CFR 242.604(a)(2)(ii).

13

See 17 CFR 242.604(a)(2)(ii)(A).

14

See 17 CFR 242.604(a)(2)(ii)(B).

15

See 17 CFR 242.604(a)(2)(ii)(C).

16

See 17 CFR 242.604(b)(1).

17

See 17 CFR 242.604(b)(2).

18

See 17 CFR 242.604(b)(3).

19

See 17 CFR 242.604(b)(4).
2

that order 20; that is delivered immediately upon receipt to another exchange
member or OTC market maker that complies with the requirements of this section
with respect to that order 21; that is an “all or none” order. 22
c.

Exemptions. The Commission may exempt from the provisions of Rule 604,
either unconditionally or on specified terms and conditions, any responsible
broker or dealer, electronic communications network, national securities
exchange, or national securities association if the Commission determines that
such exemption is consistent with the public interest, the protection of investors
and the removal of impediments to and perfection of the mechanism of a national
market system. 23

Although described in more detail in this submission, these information collection requirements
were previously submitted and approved in connection with Rule 11Ac1-4 under OMB Control
Number 3235-0462. Commission staff inadvertently and mistakenly discontinued this OMB
Control Number on June 26, 2007, following the re-numbering of Rule 11Ac1-4 as Rule 604,
even though the information collection requirements imposed by Rule 604 remained in place and
unchanged from those imposed by Rule 11Ac1-4. Accordingly, the Commission is requesting,
on an emergency basis, a reinstatement of the previously approved information collection
requirements associated with OMB Control Number 3235-0462.
2.

Purpose and Use of the Information Collection

The information collected pursuant to Rule 604 is necessary to further the abovedescribed statutory directive to facilitate the establishment of a national market system for
securities. 24 The Limit Order Display Rule benefits investors because the publication of trading
interests that improve specialists’ and market makers’ quotes presents investors with improved
execution opportunities and improved access to the best available prices when they buy or sell
securities.
3.

Consideration Given to Improved Information Technology

Improved information technology, such as the increased speed of electronic order
handling systems, facilitates the dissemination of quotation information in an accurate and timely
fashion. The Commission believes that improved information technology minimizes the burden
of collecting and disseminating information because such technology enables specialists and
market makers to publish customer limit orders automatically and instantaneously.
20

See 17 CFR 242.604(b)(5).

21

See 17 CFR 242.604(b)(6).

22

See 17 CFR 242.604(b)(7).

23

See 17 CFR 242.604(c).

24

See notes Error! Bookmark not defined.-Error! Bookmark not defined. and
associated text supra.
3

4.

Duplication

The Commission has sought to effect the dissemination of customer limit orders through
existing channels. The rules of the various SROs generally do not require specialists and market
makers to publish customer limit orders. Rule 604 requires that they publish such orders in
certain circumstances. Rule 604 does not create duplicative reporting requirements for the
specialists or market makers.
5.

Effects on Small Entities

The Limit Order Display Rule impacts small businesses proportionately with other
entities. No methods are used to minimize the burden on small businesses.
6.

Consequences of Not Conducting Collection

The information collected pursuant to Rule 604 is necessary to further the abovedescribed statutory directive to facilitate the establishment of a national market system for
securities. 25 If the required dissemination procedures are not adhered to, or adhered to
inconsistently, the goals of the national market system will not be advanced. In the absence of
Rule 604, there would be a lack of transparency regarding trading interests that improve
specialists’ and market makers’ quotes, which could adversely investors by minimizing favorable
execution opportunities and diminishing access to the best available prices when they buy or sell
securities.
7.

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

The specialists and market makers are required by law to retain the records and
information that are collected pursuant to Rule 604 for a period of not less than 3 years, the first
2 years in an easily accessible place. 26 Rule 604 does not affect this existing requirement.
There are no other special circumstances, and this collection is otherwise consistent with
the guidelines in 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The Commission and staff participate in ongoing dialogue with representatives of
various market participants through public conferences, meetings, and informal exchanges.
However, because the Commission is requesting a reinstatement of a previously approved
information collection on an emergency basis, the Commission has not yet specifically solicited
comments on this information collection. If reinstatement is granted, the Commission will
25

See notes Error! Bookmark not defined.-Error! Bookmark not defined. and
associated text supra.

26

See 17 CFR 240.17a-4(b).
4

publish a notice soliciting comments in the Federal Register prior to seeking an extension of the
term of the information collection.
9.

Payment or Gift

Not applicable. No payment or gift is provided to respondents.
10.

Confidentiality

Not Applicable. The information is disseminated to the public for the benefit of public
investors.
11.

Sensitive Questions

Not applicable. No information of a sensitive nature, including Personally Identifiable
Information (PII), is required under this collection of information.
12.

Burden of Information Collection

Rule 604 requires specialists and market makers to change their published quote to reflect
the price and/or size of a customer limit order that would improve their published bid or offer.
The likely respondents to the collection and dissemination of customer limit order information
are approximately 318 specialists and market makers. They will respond to the collection and
dissemination requirements each time they receive a displayable customer limit order. However,
the amount of times each respondent must update his quote is dependent on the number of
customer limit orders that he receives and his public quote at the time and whether he
immediately executes the customer limit order or delivers it to another market participant
pursuant to a permissible exception to the Limit Order Display Rule. The estimate of how often
a respondent receives a customer limit order is, on average, 15,136.767 times per trading day
with an estimate average time of 0.1 second per quote update. Accordingly, assuming 252 days
in a trading year, an average 105.957 hours per year per respondent is spent on updating
quotations pursuant to Rule 604. This would result in an average aggregated annual burden of
approximately 33,694 hours.27
Name of
Number of
Type of
Information Respondents Burden
Collection
Rule 604

27

318

3rd Party
Disclosure

Number of
Annual
Responses
Per
Respondent
3,814,465.409

Burden
Per
Response
(Seconds)

Annual
Burden Per
Respondent
(Hours)

0.1 second 105.957

105.957 burden hours * 318 Participants = approximately 33,694 burden hours.
5

Total
Annual
Industry
Burden
(Hours)
33,694

13.

Costs to Respondents

The Commission does not estimate any costs to respondents.
14.

Cost to Federal Government

Not applicable.
15.

Changes in Burden

The decrease in the estimated annual hour burden is attributable to a decrease in the total
number of respondents due to consolidation in the industry. The total number of respondents
(318) reflects the estimated number of specialists and market makers. In addition, due to
advances in technology, it is estimated that it should only take a specialist or market maker 0.1
second to update a quotation, rather than 1 second, as previously estimated.
There is a change in the total number of hours per respondent, annual responses, and
annual hours requested. The explanation for these changes are due to the availability of more
accurate data to calculate the average number of responses per day. This is the first submission
for which the use of the Rule 11Ac1-4 information is available. There is also an increase in
speed, from 1 second to 0.1 second of the amount of time it takes a respondent to update the
quotes, a process that has been almost completely automated. There is also a decrease in the
number of respondents from 585 to 318, as well as an increase in the estimate of how often a
respondent receives a customer limit order is, on average, from 5,598 times per trading day to
15,136.767 times per trading day,. Since its last submission of an information collection request
for Rule 604, the Commission has revised its burden estimates, as summarized in this chart:

Type of Burden or
Cost

Annual
Industry
Burden or
Cost

Annual Industry
Burden or Cost
Previously
Approved

Change in
Burden or
Cost

Reason for
Change

Total Reporting
Burdens

33,694

228,735

195,041
Hours

Change in
Agency
Estimate

6

16.

Information Collection Planned for Statistical Purposes

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

OMB Expiration Date Display Approval

The Commission is not seeking approval to not display the OMB approval expiration
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

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.

7