3235-0749 (Rule 18a-7) Supporting Statement - Adopted Release

3235-0749 (Rule 18a-7) Supporting Statement - Adopted Release.pdf

Rule 18a-7 – Reports to be Made by Certain Security-Based Swap Dealers and Major Security-Based Swap Participants

OMB: 3235-0749

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2023-04-19 - Revision of a currently approved collection

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SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 18a-7
3235-0749
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

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) into law. 1 Section 764 of the Dodd-Frank Act
added section 15F to the Securities Exchange Act of 1934 (the “Exchange Act”), which provides
that the Commission shall adopt rules governing recordkeeping and reporting for security-based
swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”), 2 and section
15F(f)(1)(A) provides that SBSDs and MSBSPs shall make such reports as are required by the
Commission, by rule or regulation, regarding the transactions and positions and financial
condition of the SBSD or MSBSP. 3
Accordingly, on September 19, 2019, the Commission adopted amendments to its
recordkeeping and reporting rules for broker-dealers as well as new recordkeeping and reporting
rules for SBSDs and MSBSPs (the “SBS Recordkeeping Release”). 4 More specifically, new
Exchange Act Rule 18a-7 establishes reporting requirements applicable to stand-alone SBSDs,
stand-alone MSBSPs, bank SBSDs, and bank MSBSPs. 5 New Rule 18a-7 is modeled on
Exchange Act Rule 17a-5, which applies to broker-dealers, but Rule 18a-7 does not include a
parallel requirement for every requirement in Rule 17a-5 because some of the requirements in
Rule 17a-5 relate to activities that are not expected or permitted of SBSDs and MSBSPs.
Under Rule 18a-7, as adopted, non-bank SBSDs and MSBSPs are required to periodically
file the FOCUS Report Part II, while bank SBSDs and bank MSBSPs are required to file the
FOCUS Report Part IIC. 6 Moreover, under Rule 18a-7 stand-alone SBSDs and stand-alone

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

See 15 U.S.C. 78o-10.

See 15 U.S.C. 78o-10(f)(1)(A).

See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based
Swap Participants, and Broker-Dealers; Final Rules, Exchange Act Release No. 87005 (Sept. 19, 2019),
84 FR 68550 (Dec. 16, 2019).

See id.

See paragraphs (a)(1)-(2) of Rule 18a-7, as adopted. Nonbank SBSDs and nonbank MSBSPs are required
to file the FOCUS Report Part II on a monthly basis, whereas bank SBSDs and bank MSBSPs would be
required to file FOCUS Report Part IIC on a quarterly basis.

MSBSPs are required to make available to customers an audited statement of financial condition
with appropriate notes on their public website. 7
2.

Purpose and Use of the Information Collection

The purpose of requiring stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and
bank MSBSPs to report the information specified in Rule 18a-7 is to enhance regulators’ ability
to protect investors. These records and the information contained therein are used by examiners
and other representatives of the Commission to determine whether stand-alone SBSDs, standalone MSBSPs, bank SBSDs, and bank MSBSPs are in compliance with the Commission’s antifraud and anti-manipulation rules, financial responsibility program, and other laws, rules, and
regulations. If stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs were
not required to report these records, examiners would be unable to conduct effective and efficient
examinations to determine whether stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and
bank MSBSPs were complying with relevant laws, rules, and regulations.
3.

Consideration Given to Information Technology

The data required in the FOCUS Report part II and Part IIC are tailored to the complexity
of the firm’s business. The burden is therefore commensurate with the type of business in which
the firm engages. The Commission expects that most, if not all, required reports will be filed
electronically.
4.

Duplication

There is no duplication anticipated with respect to stand-alone SBSDs and stand-alone
MSBSPs, because they currently are not required to report the information in the FOCUS Part II
or Part IIC. Additionally, the Commission has provided SBSDs with an alternative method of
compliance with certain requirements of Rule 18a-6, as adopted, which may result in lower costs
and hour burdens, especially with respect to initial compliance burdens, than would result under
the standard compliance requirements. Specifically, the Commission has adopted Rule 18a-10 8
which provides an alternative compliance mechanism under which an SBSD that is also
registered with the CFTC as a swap dealer may comply with relevant recordkeeping
requirements of the Commodity Exchange Act and the rules promulgated thereunder in lieu of
complying with the recordkeeping requirements of Rule 18a-7, as amended, provided that certain
requirements are met.
5.

Effect on Small Entities

Based on feedback from industry participants about the security-based swap market,
entities that would qualify as SBSDs or MSBSPs will likely exceed the thresholds defining

17 CFR 240.18a-10.

“small entities.” 9 Thus, it is unlikely that the requirements under proposed new Rule 18a–7 will
have a significant economic impact on a small entity.
6.

Consequences of Not Conducting Collection

The required reports are used by Commission to monitor the financial and operational
condition of stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs. If the
required reports were not made, the ability of the Commission to monitor the financial and
operational condition of these firms would be impaired potentially affecting regulators’
capability to protect customers. Further, if the required collections were conducted less
frequently, the information in the reports would become outdated.
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 Commission requested comment on the collection of information requirements in
the proposing release in April 2014. 10 The Commission received no comments regarding the
collection of information requirements.
9.

Payment or Gift

No payment or gift is provided to respondents.
10.

Confidentiality

Annual reports filed by nonbank SBSDs and nonbank MSBSPs under paragraph (c) of
proposed Rule 18a-7 are not confidential, except that if the Statement of Financial Condition is
bound separately from the balance of the annual reports, and each page of the balance of the
annual reports is stamped “confidential,” then the balance of the annual reports shall be deemed
confidential to the extent permitted by law. 11 With respect to the other information collected
under proposed Rule 18a-7, the covered firm can request the confidential treatment of the

Section 601(b) of the Regulatory Flexibility Act (“RFA”) defines the term “small entity,” The statute,
however, permits agencies to formulate their own definitions. The Commission has adopted definitions for
the term “small entity” for the purposes of Commission rulemaking in accordance with the RFA. Those
definitions, as relevant to this rulemaking, are set forth in 17 CFR 240.0-10. See Statement of Management
on Internal Accounting Control, Exchange Act Release No. 18451 (Jan. 28, 1982), 47 FR 5215 (Feb. 4,
1982).

See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based
Swap Participants, and Broker-Dealers; Capital Rule for Certain Security-Based Swap Dealers; Proposed
Rule, Exchange Act Release No. 71958 (Apr. 17, 2014), 79 FR 25193 (May 2, 2014).

See paragraph (d)(1) of Rule 18a-7.

information. 12 If such a confidential treatment request is made, the information will be treated as
confidential to the extent permitted by law. 13
Subject to the provisions of the Freedom of Information Act, 5 U.S.C. § 552, and the
Commission’s rules thereunder (17 CFR 200.80(b)(4)(iii)), the Commission generally does not
publish or make available information contained in reports, summaries, analyses, letters, or
memoranda arising out of, in anticipation of, or in connection with an examination or inspection
of the books and records of any person or any other investigation.
11.

Sensitive Questions

The information collection collects personally identifiable information that may include a name,
job title, and work address. However, this information collection does not constitute a system of records
for purposes of the Privacy Act, because information is not retrieved by a personal identifier. The
EDGAR PIA will cover this information collection.

12.

Burden of Information Collection

Rule 18a-7, as adopted, establishes reporting requirements applicable to stand-alone
SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs. 14 The rule will impose a onetime initial burden and an ongoing burden on the industry, although actual reporting
requirements are expected to vary depending on the size and complexity of the firm.
Reports for Model Stand-Alone SBSDs: Paragraph (a)(3) of Rule 18a–7, as adopted,
requires stand-alone SBSDs that are authorized to use models to compute capital to periodically
file certain additional reports relating to their use of internal models to calculate net capital. 15
The Commission estimates that paragraph (a)(3) of proposed Rule 18a–7 would impose no initial
burden and an annual burden of 120 hours per ANC stand-alone SBSD (including the first
year). 16 The Commission estimates that there are four model stand-alone SBSDs, resulting in an
industry-wide estimated ongoing burden of 480 hours per year. 17
Customer Statements: Paragraph (b) of Rule 18a–7, as adopted, would require standalone SBSDs and stand-alone MSBSPs to disclose certain financial statements on their Internet

See 17 CFR 200.83. Information regarding requests for confidential treatment of information submitted to
the Commission is available at http://www.sec.gov/foia/howfo2.htm#privacy.

See, e.g., 15 U.S.C. 78x (governing the public availability of information obtained by the Commission);
5 U.S.C. 552 et seq.

See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based
Swap Participants, and Broker-Dealers; Capital Rule for Certain Security-Based Swap Dealers; Proposed
Rules, Exchange Act Release No. 71958 (Apr. 17, 2014), 79 FR 25193 (May 2, 2014).

See paragraph (a)(3) of Rule 18a-7, as adopted.

(4 hours/monthly report x 12 months/year + 8 hours/quarterly report x 4 quarters/year + 40 hours/annual
report) = 120 hours per year.

120 hours per year × 4 ANC stand-alone SBSDs = 480 hours per year.

websites. 18 The Commission estimates that paragraph (b) of Rule 18a–7, as adopted, imposes an
initial burden of 10 hours per firm and an annual burden of one hour per firm (including the first
year). The Commission estimates that there are 10 respondents (six stand-alone SBSDs and four
stand-alone MSBSPs), resulting in an industry-wide initial burden of 100 hours 19 and an
industry-wide ongoing burden of 10 hours per year (including the first year). 20 Over a three
year period, the total estimated industry burden would be 130 hours, 21 or about 43 hours
per year when annualized. 22
Annual Reports for Stand-Alone MSBSPs: Paragraph (c) of Rule 18a–7, as adopted,
requires stand-alone SBSDs and stand-alone MSBSPs to file with the Commission an annual
report consisting of certain financial reports. 23 In addition, paragraph (d) of Rule 18a–7, as
adopted, requires the filing firm to attach Part III of Form X–17A–5 to the annual report. 24 Part
III must include an oath or affirmation, which implicitly requires a senior officer or a trusted
delegate to review the annual report. The Commission estimates that paragraphs (c) and (d) of
proposed Rule 18a–7 would impose on stand-alone MSBSPs an annual burden of 10 hours
(including the first year). The Commission estimates that there are four stand-alone MSBSPs,
resulting in an industry-wide estimated ongoing burden of 40 hours per year (including the
first year). 25
Annual Reports for Stand-Alone SBSDs: Stand-alone SBSDs not exempt from Rule
18a-4 are required to include a compliance report with their annual reports. 26 The Commission
estimates that each compliance report takes approximately 60 hours to prepare. 27 Therefore,
paragraphs (c) and (d) of Rule 18a–7 would impose an estimated annual burden of 70 hours per
stand-alone SBSD (including the first year). The Commission estimates that there are no standalone SBSDs that will file a compliance report, resulting in an industry-wide estimated
ongoing burden of 0 hours per year (including the first year). 28

See paragraph (b) of proposed Rule 18a–7.

10 hours × 10 stand-alone SBSDs and stand-alone MSBSPs = 100 hours.

1 hour per year × 10 stand-alone SBSDs and stand-alone MSBSPs = 10 hours per year.

(100 hours + 10 hours) + 10 hours + 10 hours = 130 hours.

130 hours / 3 years = 43.33 hours per year.

See paragraph (c) of Rule 18a–7, as adopted.

See paragraph (d) of Rule 18a–7, as adopted.

10 hours per year × 4 stand-alone MSBSPs = 40 hours per year.

See paragraph (c)(1)(i)(B) of Rule 18a–7.

See Supporting Statement for the Paperwork Reduction Act Information Collection Submission for Rule
17a-5 (May 26, 2017), available at
https://www.reginfo.gov/public/do/DownloadDocument?objectID=74209001.

70 hours per year × 0 stand-alone SBSDs = 210 hours per year. These internal hours likely would be
performed by a senior accountant

Stand-alone SBSDs exempt from Rule 18a-4 are required to include an exemption report
with their annual reports. 29 The Commission estimates that each exemption report takes
approximately 7 hours to prepare, 30 The Commission further estimates that paragraphs (c) and
(d) of Rule 18a-7 will impose an annual burden of 17 hours per stand-alone SBSD (including the
first year) that files an exemption report. The Commission estimates that there are six standalone SBSDs that will file an exemption report, resulting in an industry-wide estimated
ongoing burden of 102 hours (including the first year). 31
Statement Regarding Independent Public Accountant: Paragraph (e) of Rule 18a–7
would require stand-alone SBSDs and stand-alone MSBSPs to file a statement regarding the
independent public accountant engaged to audit the firm’s annual reports. 32 The Commission
estimates that paragraph (e) of Rule 18a–7, as adopted, would impose an initial burden of 10
hours per firm and an annual burden of two hours per firm (including the first year). The
Commission estimates that there are 10 respondents (six stand-alone SBSDs and four stand-alone
MSBSPs), resulting in an estimated industry-wide initial burden of 100 hours 33 and an estimated
industry-wide ongoing burden of 20 hours per year (including the first year). 34 Over a three
year period, the total estimated industry burden would be 160 hours, 35 or about 53 hours
per year when annualized. 36
Notice of Change in Fiscal Year: Paragraph (j) of Rule 18a–7 requires stand-alone
SBSDs and stand-alone MSBSPs to notify the Commission of a change in fiscal year. 37 The
Commission estimates that each financial notice takes approximately one hour to prepare and file
with the Commission.38 The Commission estimates that paragraph (j) of proposed Rule 18a–7
would impose a burden of one hour per firm planning to change its fiscal year. The Commission
estimates that each year, one firm will change its fiscal year, such that the estimated burden on
the industry would be one hour per year (including the first year). 39

See paragraph (c)(1)(i)(B) of Rule 18a-7

17 hours/year x 6 stand-alone SBSDs = 102 hours/year. These internal hours likely would be performed by
a senior accountant.

See paragraph (e) of Rule 18a–7, as adopted.

10 hours × 10 stand-alone SBSDs and stand-alone MSBSPs = 100 hours.

2 hours per year × 10 stand-alone SBSDs and stand-alone MSBSPs = 20 hours per year.

(100 hours + 20 hours) + 20 hours + 20 hours = 160 hours.

160 hours / 3 years = 53.33 hours per year.

See paragraph (j) of Rule 18a–7, as adopted.

See Commission, Supporting Statement for the Paperwork Reduction Act Information Collection
Submission for Rule 17a–11 (June 29, 2012), available at
http://www.reginfo.gov/public/do/DownloadDocument?documentID=332313&version=1.

1 hour per year x 1 stand-alone SBSD or stand-alone MSBSP = 1 hour per year.

FOCUS Report Part II for Stand-Alone SBSDs: Rule 18a–7 requires stand-alone
SBSDs to file FOCUS Report Part II, as amended, on a monthly basis. 40 FOCUS Report Part II,
as amended, includes 11 sections and four schedules applicable to stand-alone SBSDs. 41 Standalone SBSDs dually registered as FCMs would be required to complete five additional sections,
all of which the CFTC already requires or has proposed to require FCMs to file as part of Form
1–FR–FCM. 42 In consideration of these additional requirements, the Commission estimates that
the requirement for stand-alone SBSDs to file FOCUS Report Part II, as amended, every month
would impose an initial burden of 160 hours per firm and an ongoing annual burden of 192 hours
per firm (including the first year). The Commission estimates that there are six stand-alone
SBSDs, resulting in an estimated industry-wide initial burden of 960 hours 43 and an estimated
industry-wide ongoing burden of 1,152 hours per year (including the first year). 44 Over a three
year period, the total estimated industry burden would be 4,416 hours, 45 or 1,472 hours per
year when annualized. 46
FOCUS Report Part II for Stand-Alone MSBSPs: Rule 18a–7 requires stand-alone
MSBSPs to file FOCUS Report Part II, as amended, on a monthly basis. 47 FOCUS Report Part
40

See paragraph (a)(1) of Rule 18a–7, as adopted.

Stand-alone SBSDs are required to complete the following sections and schedules: (1) Statement of
Financial Condition; (2) either Computation of Net Capital (Filer Authorized to Use Models) or
Computation of Net Capital (Filer Not Authorized to Use Models); (3) Computation of Minimum
Regulatory Capital Requirements (Non-Broker-Dealer); (4) Statement of Income (Loss); (5) Capital
Withdrawals; (6) Capital Withdrawals—Recap; (7) Financial and Operational Data; (8) Financial and
Operational Data—Operational Deductions from Capital—Note A; (9) Financial and Operational Data—
Potential Operational Charges Not Deducted from Capital—Note B; (10) Computation for Determination
of the Amount to be Maintained in the Special Account for the Exclusive Benefit of Security-Based Swap
Customers—Rule 18a–4, Appendix A; (11) Possession or Control for Security-Based Swap Customers;
(12) Schedule 1—Aggregate Securities, Commodities, and Swaps Positions; (13) Schedule 2—Credit
Concentration Report for Fifteen Largest Exposures in Derivatives; (14) Schedule 3—Portfolio Summary
of Derivatives Exposures by Internal Credit Rating; and (15) Schedule 4 –Geographic Distribution of
Derivatives Exposures for Ten Largest Countries.

Stand-alone SBSDs also registered as FCMs are required to file the following sections: (1) Computation of
CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in
Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps
Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f)
of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for
Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate
Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7. The
Commission does not estimate a burden for these 5 sections, since the CFTC already requires FCMs to file
these five sections on a monthly basis (17 CFR 1.10(b)(i)), and therefore, the hourly burden is already
accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission
does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the
Commission’s FOCUS Report Part II, as amended.

160 hours × 6 stand-alone SBSDs = 960 hours.

192 hours per year × 6 stand-alone SBSDs = 1,152hours per year.

(960 hours + 1,152 hours) + 1,152 hours + 1,152 hours = 4,416 hours.

4,416 hours / 3 years = 1,472 hours per year.

See paragraph (a)(1) of Rule 18a–7, as adopted.

II, as amended, includes three sections and four schedules applicable to stand-alone MSBSPs. 48
Stand-alone MSBSPs dually registered as FCMs would be required to complete five additional
sections, all of which the CFTC already requires or has proposed to require FCMs to file as part
of Form 1–FR–FCM. 49 In consideration of these additional requirements, the Commission
estimates that the requirement for stand-alone MSBSPs to file FOCUS Report Part II every
month would impose an initial burden of 40 hours per firm and an ongoing annual burden of 48
hours per firm. The Commission estimates that there are four stand-alone MSBSPs, resulting in
an estimated industry-wide initial burden of 160 hours 50 and an estimated industry-wide ongoing
burden of 192 hours per year. 51 Over a three year period, the total estimated industry burden
would be 736 hours,52 or 245 hours per year when annualized. 53
FOCUS Report Part IIC for Bank SBSDs: Rule 18a–7 requires bank SBSDs to file
new FOCUS Report Part IIC on a quarterly basis. 54 New FOCUS Report Part IIC includes five
sections and one schedule applicable to bank SBSDs. 55 The Commission does not expect
proposed new FOUCS Report Part IIC to impose a significant burden on bank SBSDs, because
two of the five sections require the firm to file calculations already computed in accordance with
Rule 18a-3, and the other three sections either mirror or are scaled down versions of schedules to
FFIEC Form 031, which banks are already required to file with their prudential regulator
48

Stand-alone MSBSPs are required to complete the following sections and schedules: (1) Statement of
Financial Condition; (2) Computation of Tangible Net Worth; (3) Statement of Income (Loss); (4)
Schedule 1—Aggregate Securities, Commodities, and Swaps Positions; (5) Schedule 2—Credit
Concentration Report for Fifteen Largest Exposures in Derivatives; (6) Schedule 3—Portfolio Summary of
Derivatives Exposures by Internal Credit Rating; and (7) Schedule 4 –Geographic Distribution of
Derivatives Exposures for Ten Largest Countries.

Stand-alone MSBSPs also registered as FCMs are required to file the following sections: (1) Computation
of CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in
Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps
Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f)
of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for
Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate
Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7. The
Commission does not estimate a burden for these 5 sections, since the CFTC already requires FCMs to file
these 5 sections on a monthly basis (17 CFR 1.10(b)(i)), and therefore, the hourly burden is already
accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission
does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the
Commission’s FOCUS Report Part II, as amended.

40 hours × 4 stand-alone MSBSPs = 160 hours.

48 hours per year × 4 stand-alone MSBSPs = 192 hours per year.

(160 hours + 192 hours) + 192 hours + 192 hours = 736 hours.

736 hours / 3 years = 245.33 hours per year.

See paragraph (a)(2) of Rule 18a–7, as adopted.

Bank SBSDs are required to complete the following sections and schedules: (1) Balance Sheet (Information
as Reported on FFIEC Form 031—Schedule RC); (2) Regulatory Capital (Information as Reported on
FFIEC Form 031— Schedule RC–R); (3) Income Statement (Information as Reported on FFIEC Form
031—Schedule RI); (4) Computation for Determination of Security-Based Swap Customer Reserve
Requirements; (5) Possession or Control for Security-Based Swap Customers; and (6) Schedule 1 –
Aggregate Security-Based Swap and Swap Positions.

(although they would need to transpose this information from FFIEC Form 031 to the FOCUS
Report Part IIC). Although bank SBSDs dually registered as FCMs would be required to
complete 5 additional sections, the CFTC already requires or has proposed to require FCMs to
file these schedules on Form 1–FR– FCM. 56 In consideration of these additional requirements,
the Commission estimates that the requirement for bank SBSDs to file FOCUS Report Part IIC
quarterly would impose an initial burden of 36 hours per firm and an ongoing annual burden of
16 hours per firm per year. The Commission estimates that there are 25 bank SBSDs, resulting
in an estimated industry-wide initial burden of 900 hours 57 and an estimated industry-wide
ongoing burden of 400 hours per year. 58 Over a three year period, the total estimated
industry burden would be 2,100 hours, 59 or 700 hours per year when annualized.60
FOCUS Report Part IIC for Bank MSBSPs: Rule 18a–7 requires bank MSBSPs to file
new FOCUS Report Part IIC on a quarterly basis. 61 New FOCUS Report Part IIC includes three
sections and one schedule applicable to bank MSBSPs. 62 Bank MSBSPs dually registered as
FCMs are required to complete five additional sections, all of which the CFTC already requires
or has proposed to require FCMs to file as part of Form 1–FR–FCM. 63 However, the
56

Bank SBSDs also registered as FCMs are required to file the following sections: (1) Computation of CFTC
Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in Segregation for
Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps Customer Segregation
Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f) of the Commodity
Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for Customers’ Dealer
Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate Accounts for
Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7. The Commission
does not estimate a burden for these 5 sections, since the CFTC already requires FCMs to file these 5
sections on a monthly basis (17 CFR 1.10(b)(i)), and therefore, the hourly burden is already accounted for
in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission does not
anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the Commission’s new
FOCUS Report Part IIC.

36 hours × 25 bank SBSDs = 900 hours.

16 hours per year × 25 bank SBSDs = 400 hours per year.

(900 hours + 400 hours) + 400 hours + 400 hours = 2,100 hours.

2,100 hours / 3 years = 700 hours per year.

See paragraph (a)(2) of Rule 18a–7, as adopted.

Bank MSBSPs would be required to complete the following sections and schedules: (1) Balance Sheet
(Information as Reported on FFIEC Form 031—Schedule RC); (2) Regulatory Capital (Information as
Reported on FFIEC Form 031—Schedule RC–R); (3) Income Statement (Information as Reported on
FFIEC Form 031—Schedule RI); and (4) Schedule 1 – Aggregate Security-Based Swap and Swap
Positions.

Bank MSBSPs also registered as FCMs are required to file the following sections: (1) Computation of
CFTC Minimum Capital Requirement; (2) Statement of Segregation Requirements and Funds in
Segregation for Customers Trading on U.S. Commodity Exchanges; (3) Statement of Cleared Swaps
Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under Section 4d(f)
of the Commodity Exchange Act; (4) Statement of Segregation Requirements and Funds in Segregation for
Customers’ Dealer Options Accounts; and (5) Statement of Secured Amounts and Funds Held in Separate
Accounts for Foreign Futures and Foreign Options Customers Pursuant to CFTC Regulation 30.7. The
Commission does not estimate a burden for these 5 sections, since the CFTC already requires FCMs to file
these 5 sections on a monthly basis (17 CFR 1.10(b)(i)), and therefore, the hourly burden is already
accounted for in the PRA estimate for the CFTC’s Rule 1.10 (1 CFR 1.10). In addition, the Commission

Commission does not expect any banks to register with the Commission as MSBSPs and
therefore does not anticipate these requirements to impose an additional burden. 64
Total Industry Hour Burden: Thus, the Commission estimates that the total initial
industry hour burden attributable to proposed Rule 18a-7 is 2,220 hours 65 and the total annual
industry hour burden attributable to proposed Rule 18a-7 is hours per year (including the first
year). 66 Over a three year period, the total estimated industry burden would be 9,411
hours, 67 or about 3,137 hours per year when annualized. 68 These burdens are reporting
burdens.
Summary of Hourly Burdens

Name of Information
Collection

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

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

Total Industry
Burden

Small
Business
Entities
Affected

[ D + E]

[F * B]

[G * A]

[A * 0 %]

[C ÷ 3 years]
Reports for Model
Stand-Alone SBSDs

Reporting

0.00

120.00

480.00

Customer Statements

Reporting

10.00

3.33

1.00

4.33

43.33

Reporting

0.00

10.00

40.00

Reporting

17.00

102.00

Statement Regarding
Independent Public
Accountant

Reporting

10.00

3.33

2.00

5.33

53.33

Notice of Change in
Fiscal Year

Reporting

0.00

1.00

FOCUS Report Part II
for Stand-Alone SBSDs

Reporting

13.33

4.44

16.00

20.44

245.33

1,472.00

FOCUS Report Part II
for Stand-Alone
MSBSPs

Reporting

1.11

5.11

61.33

245.33

FOCUS Report Part IIC
for Bank SBSDs

Reporting

9.00

3.00

4.00

7.00

28.00

700.00

Annual Reports for
Stand-Alone MSBSPs
Annual Reports for
Stand-Along SBSDs
Exempt From Rule 18a4

does not anticipate that FCMs will be required to file both the CFTC’s Form 1–FR–FCM and the
Commission’s new FOCUS Report Part IIC.
64

The Commission estimates that the requirement for bank MSBSPs to file proposed new FOCUS Report
Part IIC quarterly would impose an initial burden of 36hours per firm and an ongoing annual burden of 16
hours per firm.

100 hours + 100 hours + 960 hours + 160 hours + 900 hours = 2,220 hours.

480 hours + 10 hours + 40 hours + 102 hours + 20 hours + 1 hour + 1,152hours + 192 hours + 400 hours =
2,397 hours.

(2,220 hours in first year + 2,397 hours in first year) + 2,397 hours in second year + 2,397 hours in third
year = 9,411 hours.

13,056 hours / 3 years = 4,352 hours per year.

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

13.

3,137

Costs to Respondents

The Commission estimates that Rule 18a-7, as adopted, will cause a stand-alone SBSD or
a stand-alone MSBSP to incur no initial dollar cost, but will cause an annual dollar cost to meet
the reporting requirements of the annual report, statement regarding accountant, engagement of
accountant, and notice of change in fiscal year. Rule 18a-7, as adopted, is not expected to
increase the initial or annual dollar costs that bank SBSDs and bank MSBSPs incur to meet the
reporting requirements, because banks are already subject to reporting requirements by the
prudential regulators. 69 Those requirements that are expected to impose an annual cost to the
industry are discussed below.
Website and Toll-Free Number: The Commission does not anticipate a dollar cost to
establish a website and a toll-free number under paragraph (b) of Rule 18a-7, as adopted,
because the Commission believes firms that are large enough to register as an SBSD or MSBSP
already maintain a toll-free number for their customers and already have an Internet website.
Annual Report for Stand-Alone SBSDs and Stand-Alone MSBSPs: The Commission
estimates that postage costs to comply with paragraphs (c) and (d) of Rule 18a–7, as adopted,
imposes on stand-alone SBSDs that are exempt from rule 18a-4 and stand-alone MSBSPs an
annual dollar cost of $7.70 per firm. 70 The Commission estimates that there are 10 respondents
(six stand-alone SBSDs and four stand-alone MSBSPs), resulting in an estimated industry-wide
cost for the stand-alone SBSDs of $46.20 per year, 71 and an estimated industry-wide cost for the
four stand-alone MSBSPs of $30.80 per year. 72
Statement Regarding Accountant: The Commission estimates that postage costs to
comply with paragraph (e) of Rule 18a–7, as adopted, imposes an annual dollar cost of 55 cents
per firm. 73 The Commission estimates that there are 10 respondents (nine stand-alone SBSDs
and four stand-alone MSBSPs), resulting in an industry-wide cost of $5.50 per year. 74
Engagement of Accountant for Stand-Alone SBSDs and Stand-Alone MSBSPs:
Paragraph (f) of Rule 18a–7, as adopted, requires stand-alone SBSDs and stand-alone MSBSPs
to engage an independent public accountant to provide reports covering the firm’s annual

See, e.g., 12 CFR 12.3 (Department of Treasury); 12 CFR 219.21 et seq. (Federal Reserve); 12 CFR 344.4
(FDIC).

As of February 2021, a priority mail flat rate envelope cost $7.70, based on costs obtained on the U.S.
Postal Service website at www.usps.gov.

$7.70 per firm x 6 stand-alone SBSDs = $46.20

$7.70 per firm x 4 stand-alone MSBSPs = $30.80 per year.

As of February 2021, it cost 55cents to send a one ounce retail domestic first-class letter through the U.S.
Postal Service.

$0.55 per firm x 10 stand-alone SBSDs and stand-alone MSBSPs = $5.50 per year.

reports. 75 The Commission previously estimated that it would cost each carrying firm $300,000
to retain an independent public accountant to audit its financial statements and $150,000 to
examine its compliance report. 76 However, since only stand-alone SBSDs are required to file a
compliance report, 77 only they (and not stand-alone MSBSPs) would be required to retain an
independent public accountant to review their compliance reports.
Therefore, Commission estimates that paragraph (f) of Rule 18a–7, as adopted, would
impose an annual cost of $300,000 on each stand-alone MSBSP. The Commission estimates that
there are four stand-alone MSBSPs, resulting in an industry-wide ongoing burden of
$1,200,000 per year. 78
The Commission estimates that paragraph (f) of proposed Rule 18a–7 would impose on
stand-alone SBSDs that are exempt from Rule 18a-4 an annual cost of $303,000 per firm, 79 since
both their financial statements and exemption report would need to be audited. The Commission
estimates that there are six stand-alone SBSDs, resulting in an industry-wide ongoing burden
of $1,818,000 per year. 80 The Commission estimates that paragraph (f) of Rule 18a-7 will
impose on stand-alone SBSDs not exempt from Rule 18a-4 an annual cost of $450,000 per
firm, 81 since both their financial statements and compliance report will need to be audited. The
Commission estimates that there will be no stand-alone SBSDs not exempt from Rule 18a-4.
Notice of Change of Fiscal Year: The Commission estimates that postage cost to
comply with paragraph (j) of Rule 18a–7, as adopted, imposes an annual dollar cost of 55 cents
per firm planning to change its fiscal year. 82 The Commission estimates that each year, one firm
will change its fiscal year, such that the estimated cost burden on the industry would be 55
cents per year. 83

See paragraph (f) of proposed Rule 18a–7.

See Broker-Dealer Reports; Final Rule, Exchange Act Release No. 70073 (July 30, 2013), 78 FR 51910,
51963 (Aug. 21, 2013).

See paragraph (c)(1)(i)(B) of proposed Rule 18a-7.

$300,000 per year x 4 stand-alone MSBSPs = $1,200,000 per year.

$300,000 per year (financial statements) + $3,000 per year (exemption report) = $303,000 per year.

$303,000 per year x 6 stand-alone SBSDs = $1,818,000 per year.

$300,000/year (financial statements) + $150,000/year (compliance report) = $450,000/year.

As of February 2021, it cost 55 cents to send a one ounce retail domestic first-class letter through the U.S.
Postal Service.

$0.55 per year x 1 stand-alone SBSD or stand-alone MSBSP = $0.55 per year.

Total Industry Costs Burden: Therefore, the total industry-wide dollar cost of proposed
Rule 18a-7 is estimated to be $3,018,083 per year. 84
Summary of Dollar Costs

Name of Information
Collection

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Initial Cost
per Entity
per
Response

Initial Cost
Annualized
per Entity per
Response

Ongoing
Cost per
Entity per
Response

Annual Cost
Per Entity
per Response

Total Annual
Cost Per
Entity

Total Industry Cost

Small
Business
Entities
Affected

[ D + E]

[F * B]

[G * A]

[A * 0 %]

[C ÷ 3 years]
Annual Reports for
Stand-Alone MSBSPs

Reporting

$0.00

$7.70

$30.8

Annual Reports for
Stand-Alone SBSDs

Reporting

$0.00

$7.70

$46.20

Statement Regarding
Independent Public
Accountant

Reporting

$0.00

$0.55

$0.550

$0.55

$5.50

Engagement of
Accountant for StandAlone MSBSPs

Reporting

$0.00

$300,000.00

$1,200,000.00

Reporting

$0.00

$303,000

$1,818,000.00

Reporting

$0.00

$0.55

$055

$0.55

TOTAL HOURLY COST FOR ALL RESPONDENTS

$3,018.083.05

Engagement of
Accountant for StandAlone SBSDs exempt
from 18a-4
Notice of Change in
Fiscal Year

14.

Cost to Federal Government

Rule 18a-7 is not expected to result in costs to the federal government due to contracting,
information technology, development, hiring one or more new employees, or reallocating
existing employees.
15.

Changes in Burden

Generally, the annual burdens decreased as a result of the burden estimate being revised
to reflect a reduction in the number of respondents. The Commission has reduced the number of
estimated respondents from the number estimated at the proposing stage because of certain
amendments to Rule 18a-10. Rule 18a-10 sets forth an alternative compliance mechanism for
security-based swap dealers that are registered as swap dealers with the Commodity Futures
Trading Commission (“CFTC”). The Commission amended Rule 18a-10 to permit stand-alone

$46.20 + $30.80 + $5.50 + $0 + $1,200,000 + 1,818,000 + $.55 = $3,018,083.05.

SBSDs that are registered as swap dealers with the CFTC to comply with the reporting
requirements of the CFTC in lieu of Rule 18a-7.
For the purposes of this Paperwork Reduction Act analysis, the Commission estimates
that three security-based swap dealers will avail themselves of the alternative compliance
mechanism in Rule 18a-10. The estimated number of SBSD respondents has been reduced by
this number to reflect this.
Certain cost estimates have increased as a result of an increase in the cost of postage. To
the extent that the number of respondents associated with a particular cost estimate have
decreased, the cost estimate has decreased notwithstanding the increase in postage.
The changes in the estimated burdens and costs are summarized in the tables below:
Summary of Changes in Burden Hours
Name of Information
Collection Previously
Reviewed

Annual
Industry
Burden

Annual Industry
Burden Previously
Reviewed

Change in
Burden

Reason for Change in Burden

Reports for Model StandAlone SBSDs (Previously
referred to as Additional
ANC Reports)

480

792

(312)