DGL REVISED 2022_15c3-1f (Appendix_F)_Supporting_Statement (1-31-22)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Appendix F to Rule 15c3-1
OMB Control Number 3235-0496
A. JUSTIFICATION
1. Necessity of Information Collection
Appendix F to Rule 15c3-1 1 under the Securities Exchange Act of 1934 (“Exchange Act”)
is one of several Commission rules that apply to certain of the broker-dealers known as over-thecounter (“OTC”) derivatives dealers.
Rule 15c3-1 is the Commission’s net capital rule for broker-dealers. 2 Under Appendix F,
an OTC derivatives dealer that is not a security-based swap dealer may apply to the Commission
for authorization to compute net capital charges for market and credit risk in accordance with
Appendix F in lieu of computing securities haircuts under paragraph (c)(2)(vi) of Exchange Act
Rule 15c3-1. 3 The application must contain, among other things, a description of the methods
used for computing market and credit risk, including a description of all statistical models used
for pricing OTC derivative instruments and for computing value-at-risk (“VAR”), a description
of controls over those models, and a statement regarding whether the firm has developed its own
internal VAR models. The application must also contain a description of the firm’s internal risk
management systems and how those systems meet certain requirements in Exchange Act Rule
15c3-4. 4
In addition, if the OTC derivatives dealer materially amends its VAR model or internal
risk management control system, the firm must file an application describing the changes, which
must be approved by the Commission before the changes may be implemented.
In addition to obtaining Commission approval of its application, the VAR models of OTC
derivatives dealers must meet certain enumerated qualitative and quantitative requirements. For
example: the OTC derivatives dealer must conduct backtesting by comparing each of its most
recent 250 business days’ actual net trading profit or loss with the corresponding daily VAR
measures generated for determining market risk, and once each quarter the firm must identify the
number of business days for which the actual daily net trading loss exceeded the corresponding
daily VAR measure; the firm must conduct stress tests of VAR model and develop appropriate
procedures to follow in response to the results of those tests; and the firm must provide the
Commission with evidence that its VAR model takes account of specific risk if the firm intends
to use the model to compute capital charges for equity price risk.
1
2
3

4

17 CFR 240.15c3-1f.
17 CFR 240.15c3-1. An OTC derivatives dealer that is also registered as a security-based swap dealer is
subject to the net capital provisions of Exchange Act Rule 18a-1 (17 CFR 240.18a-1).
An OTC derivatives dealer that is also registered as a security-based swap dealer may apply to the
Commission for authorization to compute deductions for market and credit risk using models under
paragraph (d) of Rule 18a-1.
17 CFR 240.15c3-4.

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Under paragraph (a)(5) of Rule 15c3-1, a broker-dealer for which the Commission has
granted its application to compute capital charges in accordance with Appendix F is required to
maintain tentative net capital of not less than $100 million and net capital of not less than $20
million.
2. Purpose and Use of Information Collection
Appendix F to Rule 15c3-1 is an integral part of the Commission’s financial
responsibility program for OTC derivatives dealers. The purpose of Appendix F is to provide
certain OTC derivatives dealers an alternative method for computing net capital charges for
market and credit risk, while ensuring that these firms have, on hand at all times, sufficient liquid
resources to meet their obligations and liabilities.
3. Consideration Given to Information Technology
Firms subject to Appendix F use automated systems for computing their capital
requirements. Because there are relatively few OTC derivatives dealers, it is not economically
feasible for the Commission to develop a system which would allow for electronic filing of OTC
derivatives dealers’ applications under Appendix F.
4. Duplication
OTC derivatives dealers are not otherwise required to obtain, maintain, and report the
information required by Appendix F, so no duplication exists.
5. Effect on Small Entities
Appendix F does not affect small entities because OTC derivatives dealers using
Appendix F must maintain tentative net capital of not less than $100 million and net capital of
not less than $20 million.
6. Consequences of Not Conducting Collection
Collecting the required information less frequently would lessen the protection afforded to
the public.
7. Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8. Consultations Outside the Agency
The required Federal Register notice with a 60-day comment period soliciting comments
on this collection of information was published. No public comments were received.

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9. Payment or Gift
No gifts or payments will be given to respondents.
10. Confidentiality
Under paragraph (a)(4) of Appendix F, applications for authorization to use appendix F and
applications to amend VAR models or the broker-dealer’s internal risk management system shall be
deemed to be confidential.
11. Sensitive Questions
No questions of a sensitive nature are asked. The information collection does not collect
personally identifiable information. The agency has determined that neither a PIA nor a SORN
are required in connection with the collection of information.
12. Information Collection Burden
At present, three OTC derivatives dealers have been approved to use Appendix F, no
additional OTC derivatives dealers have applied to use Appendix F, and the staff does not expect
that any additional OTC derivatives dealer will apply to use Appendix F during the next three
years.
The Commission estimates that the three OTC derivatives dealers will spend an average
of approximately 1,000 hours each per year reporting information concerning their VAR models
and internal risk management systems, for a total annual burden of approximately 3,000 hours. 5

Rule

Burden
Type

Rule 15c3-1
Reporting
(Appendix F)
Total Aggregate Burden

5

Number of
Number of
Respondents Annual
Reponses
Per
Respondent
3
1

Three (3) OTC derivatives dealers x 1,000 hours = 3,000 hours.

Time Per Total Annual
Response Burden (Hours)
(Hours)
1,000

3,000
3,000

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13. Costs to Respondents
The Commission believes that there are no reporting costs associated with the rule.
14. Costs to Federal Government
There are no costs to the Federal Government.
15. Changes in Burden
The estimated time burden has decreased from approximately 6,000 hours per year to
approximately 3,000 hours per year because the estimated number of respondents has decreased
from 6 to 3. The Commission now estimates that three OTC derivatives dealers are approved to
use Appendix F and that there are no pending applications or anticipated applicants. The
Commission previously estimated that a total of six OTC derivatives dealers would be approved
to use Appendix F at the end of three years, consisting of three current OTC derivatives dealers,
two broker-dealers with pending applications, and one anticipated applicant.

IC

IC Title

Annual No. of Responses

3

(2)

Previously
approved
5,000

1

0

(1)

New Registrant Maintenance

1

0

Total for all ICs

6

3

IC1

Existing Dealer Maintenance

IC2

New Registrant Start-up

IC3

Previously
approved
5

Requested

Annual Time Burden (Hrs.)

Change

Requested

Change

3,000

(2,000)

333

0

(333)

(1)

667

0

(667)

(3)

6,000

3,000

(3,000)

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 OMB expiration date.
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.