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pdfSupporting Statement
for the Paperwork Reduction Act Information Collection Submission for
Rule 17a-3
OMB Control No. 3235-0033
A.
JUSTIFICATION
1.
Information Collection Necessity
All brokers and dealers in the ordinary course of their businesses need to maintain certain
books and records reflecting, among other things, income and expenses, assets and liabilities,
daily trading activity and the status of customer and firm accounts. These books and records are,
for the most part, standard and would be kept by any prudent individual engaging in a securities
business.
The Securities and Exchange Commission (“Commission” or “SEC”) is statutorily
authorized by Sections 17(a) 1 and 23(a) 2 of the Securities Exchange Act of 1934 (“Exchange
Act”) to promulgate rules and regulations regarding the maintenance and preservation of books
and records of exchange members, brokers and dealers (“broker-dealers”). Exchange Act
Section 17(a)(1) provides in pertinent part:
“[all members of a national securities exchange and registered brokers and dealers] shall
make and keep for prescribed periods such records...as the Commission, by rule,
prescribes as necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the [Exchange Act].”
To standardize recordkeeping practices throughout the industry, the Commission, in
1939, adopted Rule 17a-3, 3 which established minimum standards with respect to business
records that broker-dealers must create. 4 Rule 17a-3 requires broker-dealers to make and keep
current certain records relating to their financial condition, communications, customer
information, and employees.
The Commission adopted certain Amendments to Rule 17a-3 on October 25, 2001 (the
“2001 Amendments”), in part as a response to the National Securities Market Improvement Act
of 1996 ("NSMIA"). 5 NSMIA prohibits any State from establishing books and records rules for
broker-dealers that differ from, or are in addition to, the Commission's rules, and also requires
the Commission to consult periodically with the States concerning the adequacy of the
Commission’s books and records rules. 6 The 2001 Amendments expanded the types of records
that broker-dealers must create to include additional records necessary for State examiners to
1
15 U.S.C. § 78q(a).
2
15 U.S.C. § 78w(a).
3
17 CFR 240.17a-3.
4
Exchange Act Release No. 2304 (Nov. 13, 1939).
5
Pub.L.No. 104-290, 110 Stat. 3416 (1996).
6
Exchange Act Section 15(h), 15 U.S.C. § 78o(h).
1
review for sales practice violations at office locations, and were designed to assist regulators,
particularly State securities regulators, in conducting effective examinations. 7
On June 5, 2019, the Commission adopted Rule 151-1 under the Securities Exchange Act
of 1934 (“Exchange Act”) establishing a standard of conduct for broker-dealers and natural
persons who are associated persons of a broker-dealer (unless otherwise indicated, together
referred to as “broker-dealer” or “BD”) when making a recommendation of any securities
transaction or investment strategy involving securities to a retail customer (“Regulation Best
Interest”). 8 At the same time, the Commission adopted Exchange Act Rule 17a-14 (CFR
240.17a-14) and Form CRS (17 CFR 249.640) under the Exchange Act. 9 As part of new Rule
17a-14 and Form CRS and Regulation Best Interest, the Commission amended Rule 17a-3 by
adding new paragraphs (a)(24) and (a)(35), respectively.
On September 19, 2019, The Commission amended its recordkeeping requirements for
broker-dealers in Rule 17a-3 to implement the new recordkeeping requirements mandated under
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 201) 10 (the “Dodd-Frank
Act”) for broker-dealer SBSDs and broker-dealer MSBSPs, and to account for the security-based
swap and swap activities of stand-alone broker-dealers. 11
7
See Exchange Act Release No. 37850 (October 22, 1996), 61 FR 55593 (October 28, 1996) (“Proposing
Release”).
8
See Securities Exchange Act Release No. 86031 (Jun. 5, 2019), 84 FR 33669 (July 12, 2019); see also
Securities Exchange Act Release No. 83062 (Apr. 18, 2018), 83 FR 21574 (May 9, 2018) (“Regulation
Best Interest Adopting Release”).
9
See Form CRS Relationship Summary; Amendments to Form ADV Exchange Act Release No. 86032,
Advisers Act Release No. 5247, File No. S7-08-18 (June 5, 2019), 84 FR 33492 (July 12, 2019). See also
Release No. 34-83063, IA-4888, File No. S7-08-18 (Apr. 18, 2018), 83 FR 23848 (May 23, 2018).
10
Pub. L. 111–203, 124 Stat. 1376 (2010). Title VII of the Dodd-Frank Act (“Title VII”) established a new
regulatory framework for the over-the-counter derivatives markets. Title VII was enacted, among other
reasons, to provide for the registration and regulation of security-based swap dealers (“SBSDs”) and major
security-based swap participants (“MSBSPs”), and create recordkeeping and reporting regimes for such
entities. Section 764 of the Dodd-Frank Act added Section 15F to the Exchange Act, which directs the
Commission to adopt rules governing reporting and recordkeeping for SBSDs and MSBSPs.
Additionally, Section 17(a)(1) of the Securities Exchange Act of 1934 provides the Commission with
authority to adopt rules requiring broker-dealers – which would include broker-dealer security-based swap
dealers (“broker-dealer SBSDs”) and broker-dealer major security-based swap participants (“broker-dealer
MSBSPs”) – to make and keep for prescribed periods such records, furnish such copies thereof, and make
and disseminate such reports as the Commission, by rule, prescribes as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange
Act. See 15 U.S.C. 78q(a)(1).
11
See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based
Swap Participants, and Broker-Dealers; Final Rules, Exchange Act Release No. 34-87005(Sep. 19, 2019),
84 FR 68550 (Dec. 16, 2019).
2
2.
Information Collection Purpose and Use
The purpose of requiring broker-dealers, broker-dealer SBSDs, and broker-dealer MSBSPs
to create the records specified in Rule 17a-3 is to enhance regulators’ ability to protect investors.
These records and the information contained therein will be and are used by examiners and other
representatives of the Commission, State securities regulatory authorities, and the self-regulatory
organizations (e.g., FINRA, CBOE, etc.) (“SROs”) to determine whether broker-dealers are in
compliance with the Commission’s antifraud and anti-manipulation rules, financial responsibility
program, and other Commission, SRO, and State laws, rules, and regulations.
If broker-dealers, broker-dealer SBSDs, and broker-dealer MSBSPs were not required to
create these records, Commission, SRO, and state examiners would be unable to conduct
effective and efficient examinations to determine whether broker-dealers were complying with
relevant laws, rules, and regulations.
3.
Consideration Given to Information Technology
The Commission believes that improvements in telecommunications and data processing
technology may reduce any burdens that result from Rule 17a-3. Broker-dealers are not
prevented by Rule 17a-3 from using computers or other mechanical devices to generate the
records required under the Rule.
4.
Duplication
Rule 17a-3 was drafted and amended to codify SRO record-keeping requirements and the
record-keeping practices of prudent broker-dealers. Because most broker-dealers already create
many of the records required by Rule 17a-3 either voluntarily or pursuant to SRO requirements,
no duplication of such information is apparent.
5.
Effect on Small Entities
The books and records required under Rule 17a-3 are normally created by small brokerdealers. Since small broker-dealers utilize processes that are more manual in nature, while large
broker-dealers use more automated processes, the Commission has estimated some of the time
factors for small broker-dealers to be higher, as described below.
With respect to the amendments associated with the rulemaking implementing the
recordkeeping requirements mandated under the Dodd-Frank Act with respect to broker-dealer
SBSDs and broker-dealer MSBSPs, and to account for the security-based swap and swap activities of
stand-alone broker-dealers, the Commission does not anticipate that the amendments will have any
impact on small broker-dealers as most of these firms generally do not hold positions in securitybased swaps.
3
6.
Consequences of Not Conducting Collection
The information required to be collected and recorded under Rule 17a-3 allows the
Commission, State securities regulatory authorities, and the SROs to determine whether brokerdealers, broker-dealer SBSDs, and broker-dealer MSBSPs are in compliance with Commission,
State, and SRO anti-fraud and anti-manipulation rules, financial responsibility rules, and other
rules and regulations. If a broker-dealer, broker-dealer SBSD, or broker-dealer MSBPS does not
make these records, or it makes these records less frequently, the level of investor protection will
be reduced. The records a broker-dealer, broker-dealer SBSD, and broker-dealer MSBSP is
required to make under Rule 17a-3 are, for the most part, essential to the successful operation of
a securities firm, and failure to make the records on a current basis would likely cause the
broker-dealer to experience operational difficulties.
7.
Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
There are no special circumstances. This collection is consistent with the guidelines in
with 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 gifts or payments will be given to respondents.
10.
Confidentiality
The records required by Rule 17a-3 are available only to the examination staffs of the
Commission, State regulatory authorities, and the SROs. Subject to the provisions of the
Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”) 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
Rule 17a-3 establishes record keeping requirements for broker-dealers related to their
security-based swap accounts and swap activities. The information collected may include PII of
broker-dealers customers. The broker-dealers will maintain the records within their records and
systems. The SEC will not collect and maintain the broker-dealers records pursuant to Rule 17a3. Therefore a PIA is not required. Subsequent SEC requests for the broker-dealer records to
carry out an SEC function will be assessed for a PIA separately under the specific SEC program
making the request. To provide notice to members of the public of how their information
4
collected under Rule 17a-3 may be maintained and disclosed by the SEC, the SEC has published
SORN SEC-03, Division of Trading and Markets Records
12.
Information Collection Burden
All registered broker-dealers are subject to Rule 17a-3. Rule 17a-3 establishes certain
records that must be made by all broker-dealers, while other records must be made only by
certain broker-dealers. All of these burdens are recordkeeping burdens.
As of December 31, 2021, there were 3,528 broker-dealers registered with the Commission.
The Commission estimates that the aggregate hour burden of the requirements associated with Rule
17a-3 is approximately 8,342,195 hours per year, calculated as follows:
Records to be Made by All Broker-Dealers
Rule 17a-3 - Records to be made by certain exchange members, brokers and dealers
While recordkeeping requirements will vary based on the size and complexity of the brokerdealer, the Commission estimates that one hour a day is the average amount of time needed by a
broker-dealer to comply with the overall requirements of Rule 17a-3, in addition to the separate
burdens described below. The number of working days is 249, 12 and as a result the total
estimated burden for broker-dealers with respect to Rule 17a-3 generally is 878,472 hours per
year. 13 These hours are recordkeeping burdens.
Rule 17a-3(a)(12, 19)
In addition to the hour burden estimate for Rule 17a-3 generally, the Commission also
believes that paragraphs (a)(12) and (19) of Rule 17a-3 will impose specific burdens on brokerdealers. Paragraphs (a)(12) and (a)(19) of Rule 17a-3 require that a broker-dealer create certain
records regarding its associated persons. 14 The Commission estimates that each broker-dealer
spends, on average, approximately 30 minutes each year to ensure that it is in compliance with
these requirements, resulting in a total annual burden of about 1,764 hours. 15 These hours are
recordkeeping burdens.
12
There were 261 non-weekend days and 12 federal holidays in 2021. 261 non-weekend days – 12 federal
holidays = 249 business days.
13
3,528 (the number of broker-dealers as of December 31, 2021) multiplied by 1 hour per day multiplied by
249 working days equals 878,472 hours.
14
These records that a broker-dealer is required to make regarding the broker-dealer’s associated persons
include: 1) all agreements pertaining to the associated person’s relationship with the broker-dealer and a
summary of each associated person’s compensation arrangement (17 CFR 240.17a-3(a)(19)(ii)), 2) a record
delineating all identification numbers relating to each associated person (17 CFR 240.17a-3(a)(12)(ii)), 3) a
record of the office at which each associated person regularly conducts business (17 CFR 240.17a3(a)(12)(iii)), and 4) a record as to each associated person listing transactions for which that person will be
compensated (17 CFR 240.17a-3(a)(19)(i)).
15
(3,528 broker-dealers x 30 minutes) / 60 minutes.
5
Rule 17a-3(a)(20-22)
Paragraphs (a)(20)–(22) of Rule 17a-3 require broker-dealers to make, among other
things, records documenting the broker-dealer’s compliance, or that the broker-dealer has
adopted policies and procedures reasonably designed to establish compliance, with applicable
federal regulations and SRO rules that require approval by a principal of the broker-dealer of any
advertisements, sales literature or other communications with the public. Moreover, these rules
require broker-dealers to create a record of the personnel responsible for establishing compliance
policies and procedures and of the personnel capable of explaining the types of records the
broker-dealer. 16 The Commission estimates that, on average, each broker-dealer will spend 10
minutes each year to ensure compliance with these requirements, yielding a total burden of about
588 hours per year. 17 These are recordkeeping burdens.
Rule 17a-3(a)(17)
Estimating the paperwork burden associated with paragraph (a)(17) requires a more
complicated formula to calculate the compliance burden because it is based on the number of
customer accounts for which a broker-dealer must collect this information as opposed to the
number of broker-dealers. In addition, the Commission understands that large broker-dealers
have more automated processes to collect and create these records than smaller broker-dealers,
and has factored this into its estimates.
As of the end of 2021, 3,528 registered broker-dealers that filed the FOCUS Schedule I
Reports on December 31, 2021 reported that they maintained a total of 240,576,070 customer
accounts. Forty-nine (49) of those broker-dealers reported that they maintained over 100,000
accounts each (for purposes of this Supporting Statement, the “Large Broker-Dealers”), and the
remaining 3,479 broker-dealers maintained less than 100,000 customer accounts each (for
purposes of this Supporting Statement, the “Small Broker-Dealers”). The Large Broker-Dealers
reported that they held a total of 238,170,309 customer accounts (or 99% of the total customer
accounts reported), with the Small Broker-Dealers holding the remaining 2,405,761 customer
accounts (or 1% of the total customer accounts reported). The Commission estimates that
approximately 27.7% of the 240,576,070 total customer accounts would be excluded from the
provisions of 17a-3(a)(17) because the accounts are either (i) not accounts of natural persons, (ii)
inactive, or (iii) accounts for which the broker-dealer does not have a suitability requirement. 18
Accordingly, the total number of active customer accounts regarding which broker-dealers would
need to provide customers with account information is approximately 173,936,499 (172,197,134,
or 99%, held by Large Broker-Dealers and 1,739,365, or 1%, held by Small Broker-Dealers).
16
17 CFR 240.17a-3(a)(20); 17 CFR 240.17a-3(a)(21); and 17 CFR 240.17a-3(a)(22).
17
(3,528 broker-dealers x 10 minutes) / 60 minutes.
18
See Rule 17 CFR 240.17a-3(a)(17)(i)(D). The Commission arrived at this number using estimates provided
by the firms (in their comment letters and otherwise) as to how many of their accounts would fit in to one
or more of these categories.
6
Rule 17a-3(a)(17)(i)(B)(1) – Large BD; and Rule 17a-3(a)(17)(i)(B)(1) – Small BD
The Commission estimates that broker-dealers will be required to provide customer
account information to approximately 57,978,833 customers per year to comply with paragraph
(a)(17)(i)(B)(1). 19 Approximately 57,399,045 will be customers of Large Broker-Dealers, 20 and
approximately 579,788 will be customers of Small Broker-Dealers. 21 Further, the Commission
estimates that this will take Large Broker-Dealers an average of 1½ minutes per account, or a
total of 1,434,976 hours per year for all Large Broker-Dealers, 22 and that it will take Small
Broker-Dealers an average of 7 minutes per account, or a total of 67,642 hours per year for all
Small Broker-Dealers. 23 Thus, the estimated total burden on the industry to comply with the
paragraph (a)(17)(i)(B)(1) requirement to provide account information to customers when an
account is opened and periodically thereafter is 1,502,618 hours per year. 24 These hours are
recordkeeping and third party disclosure burdens, with an assumption that the burden is split
evenly between the two burden types.
Rule 17a-3(a)(17)(i)(B)(2) + (3) – Large BD; and Rule 17a-3(a)(17)(i)(B)(2) + (3) –
Small BD
If a customer provides a broker-dealer with updated account record information, the
broker-dealer must, pursuant to paragraphs (a)(17)(i)(B)(2) and (3), update the customer’s
account information and send the revised account information to the customer to verify its
accuracy. 25 The Commission estimates that approximately 20% of the customers from whom
information is requested will update their account records, resulting in 11,595,767 updated
account records each year. 26 In addition, the Commission estimates that 5% of active customer
accounts, or 8,696,825, 27 will initiate changes to their account records on a yearly basis, just as
they do now, with no prompting from any account record mailing. The total number of updates,
therefore, will be approximately 20,292,592. 28 The Commission estimates that it would take, on
average, 5 minutes for Large Broker-Dealers to update each account and 10 minutes 29 for Small
19
(173,936,499 x (1 every 3 years), or, in other words, (173,936,499 / 3) because the broker-dealer must send
each customer a copy of his or her account record information once every three years.
20
57,978,833 account records x 99% = 57,399,045 account records, or 759,953.0444 account records per
Large Broker-dealer (34,197,887 account records / 45).
21
57,978,833 account records x 1% = 579,788, or approximately 93 account records per Small Broker-dealer
(345,433 / 3,719).
22
(57,399,045 x 1.5 minutes / 60 minutes) = 1,434,976 hours per year.
23
(579,788 x 7 minutes / 60 minutes) = 67,642 hours per year.
24
(1,434,976 hours + 67,642 hours) = 1,502,618 hours.
25
17 CFR 240.17a-3(a)(17)(B)(2) and (3).
26
(57,978,833 x 20%) = 11,595,767.
27
(173,936,499 x 5%) =8,696,825.
28
(11,595,767 + 8,696,825) = 20,292,592.
29
This estimate takes into account the 1½ and 7 minutes it would take Large and Small Broker-dealers,
respectively, to provide this updated account information to customers, and the 3.5 minutes and 3 minutes it
would take Large and Small Broker-dealers, respectively, to receive the returned data and input any
7
Broker-Dealers to update each account, resulting in an additional aggregate burden of
approximately 1,707,960 hours per year (1,674,139 for all Large Broker-Dealers and 33,821 for
all Small Broker-Dealers) to update account record information and provide the new account
information to customers as required by paragraphs (a)(17)(i)(B)(2) and (3). 30 These hours are
recordkeeping and third party disclosure burdens, with an assumption that the burden is split
evenly between the two burden types.
Rule 17a-3(a)(23) Part I
Paragraph (a)(23) of Rule 17a-3, requires certain broker-dealers to make and keep current
a record documenting credit, market, and liquidity risk management controls established and
maintained by the broker-dealer to assist it in analyzing and managing the risks associated with
its business activities. The Commission estimates that a broker-dealer spends, on average,
approximately 100 hours of employee resources to comply with this requirement to ensure its
market, credit, and liquidity risk controls are documented. Based on FOCUS Report data, as of
December 31, 2021, the Commission estimates there are approximately 512 broker-dealers that
are subject to paragraph (a)(23). 31 Therefore, the Commission estimates that the total one-time
recordkeeping burden to all broker-dealers will be approximately 51,200 hours, or 17,067 hours
per year when amortized over three years. 32
Rule 17a-3(a)(23) Part II
In addition to the one-time hour burden, based on similar collections of information
requiring the documentation of risk management controls, broker-dealers required to comply
with paragraph (a)(23) likely will incur annual hour burdens. 33 The Commission estimates that a
broker-dealer spends approximately 45 hours per year to ensure its compliance with Paragraph
(a)(23), for a total annual recordkeeping burden on the industry of 23,040 hours. 34
changes into the account record. The estimated total minutes for updating and providing this information to
customers of 5 minutes for Large Broker-dealers and 10 minutes for Small Broker-dealers were taken from
a comment letter to the 2001 Amendments.
30
((20,292,592 account records x 99%) x (5 minutes / 60 minutes)) + ((20,292,592 account records x 1%) x
(10 minutes / 60 minutes)).
31
This estimate is based on the number of firms that have $1,000,000 in credits or $20,000,000 in capital as
of December 31, 2021.
32
512 broker-dealers x 100 hours = 51,200 hours. For purposes of this supporting statement, the one-time
burden annualized over the three year approval period is 17,067 (51,200/3), with an average hour burden
per firm of 33.33 hours (17,067/512 firms).
33
See Risk Management Controls for Brokers or Dealers with Market Access; Final Rule, Exchange Act
Release No. 63241 (Nov. 3, 2010), 75 FR 69792, 69815 (Nov. 15, 2010). See also Capital, Margin, and
Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants
and Capital Requirements for Broker-Dealers, Exchange Act Release 68071, 77 FR at 70295 and 70297.
34
512 broker-dealers x 45 hours = 23,040 hours. The 45 per hour annual estimate is based on a similar
collection of information. See Risk Management Controls for Brokers or Dealers with Market Access;
Final Rule, Exchange Act Release No. 63241 (Nov. 3, 2010), 75 FR 69792, 69815 (Nov. 15, 2010).
8
Rule 17a-3(a)(16)
Paragraph (a)(16) of Rule 17a-3 requires any broker-dealer that sponsors an internal brokerdealer system to make and keep current certain records relating to such system. The Commission
estimates that paragraph (a)(16) of Rule 17a-3 imposes an annual burden of 27 hours per year per
internal broker-dealer system to create the requisite records. The Commission estimates that there
are approximately 200 internal broker-dealer systems,35 resulting in a total annual recordkeeping
burden of approximately 5,400 hours. 36
Records to be Made by Certain Broker-Dealers: Rules 17a-3(a)(24) and 17a-3(a)(35)
Based on prior estimates based on data obtained from Form BR, the Commission
preliminarily believes that approximately 73.5% of registered broker-dealers, or 2,593 brokerdealers, have retail customers and therefore would likely be subject to Rules 17a-3(a)(24) and
17a-3(a)(35),
Rule 17a-3(a)(24)
Rule 17a-3(a)(24) requires certain SEC-registered broker-dealers to make a record
indicating the date that a Form CRS was provided to each customer and to each prospective
customer.
The Commission estimates that it would take each broker-dealer from 0.1 hours to 0.5 hours to
create the records required by paragraph (a)(24) of rule 17a-3. The incremental hour burden for
broker-dealers to create the records required by paragraph (a)(24) of rule 17a-3 as adopted will
therefore be approximately 1,297 hours per year. 37
Rule 17a-3(a)(35)
Rule 17a-3(a)(35) requires a broker-dealer to make a record of all information collected
from and provided to the retail customer pursuant to Regulation Best Interest, as well as the
identity of each natural person who is an associated person of a broker or dealer, if any,
responsible for the account. This requirement applies with respect to each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is provided. The burdens associated with each component of this rule are estimated as follows:
35
The Commission believes that most over-the-counter (“OTC”) market makers maintain an internal brokerdealer system. In 2010, the Commission estimated that there are approximately 200 OTC market makers
responsible for more than 1% of the trading volume in an exchange-traded security. See See Disclosure of
Order Handling Information, Exchange Act Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19,
2018).
36
27 hours x 200 internal broker-dealer systems = 5,400 hours.
37
2,593 broker-dealers x 0.5 hours annually = 1,297 annual hours for recordkeeping
9
Rule 17a-3(a)(35): Record of Information Collected From and Provided to the Retail Customer
Pursuant to Regulation Best Interest
The Commission understands that broker-dealers currently make records of relevant
customer investment profile information, and therefore the Commission believes that no
additional record-making obligations would arise as a result of broker-dealers’ or their registered
representatives’ collection of information from retail customers. 38
Rule 17a-3(a)(35): Record of Identity of Associate Person Responsible for Account/ Firm
Burden
In addition, Rule 17a-3(a)(35) requires a broker-dealer, “for each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is or will be provided,” to make a record of the “identity of each natural person who is an
associated person, if any, responsible for the account.” The Commission assumes, for purposes
of compliance with Rule 17a-3(a)(35), that broker-dealers will need to create a record, or modify
an existing record, to identify the associated person, if any, responsible for the account in the
context of Regulation Best Interest. For small broker-dealers, the use of outside counsel would
result in a cost burden, which is discussed in Item 13 below. For large broker-dealers, 39 the
Commission estimates that the initial burden will be 2 hours for each broker-dealer (1 hour for
compliance personnel and 1 hour for legal personnel). The Commission therefore estimates the
aggregate initial one-time burden for large broker-dealers to be approximately 2,910 burden
hours. 40 When annualized over three years, this equates to 970 hours per year.
Rule 17a-3(a)(35): Record of Identity of Associated Person Responsible for Account/ Individual
Burden
As noted above, Rule 17a-3(a)(35) requires a broker-dealer, “for each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is or will be provided,” to make a record of the “identity of each natural person who is an
associated person, if any, responsible for the account.” The Commission estimates that for the
first year after Regulation Best Interest is in effect, registered representatives associated with
each of the 2,593 broker-dealer respondents will spend an additional 0.04 hours (or 0.0133333
hours per year when annualized over three years) per each of its retail customer accounts to fill
out the information in the account disclosure document. The Commission estimates that each
broker-dealer will incur this burden for approximately 68,261 accounts per year. 41 The
Commission continues to believe that there are no ongoing costs and burdens associated with this
record-keeping requirement of Rule 17a-3(a)(35). As a result, the total annual estimated
38
The Commission estimates, for the purposes of this rule, that there are 1,455 large broker-dealers.
Consequently, the Commission estimates that the remaining 1,138 broker-dealers are small broker-dealers.
40
This estimate is based on the following calculation: (2 burden hours per broker-dealer) x (1,455 large
broker-dealers) = 2,910 aggregate burden hours per year.
41
For the purposes of this rule, the Commission assumes that each broker-dealer has 68,261 retail customer
accounts (i.e., (177 million retail customer accounts) / (2,593 broker-dealers).
10
recordkeeping burden associated with the Identity of Associated Person Responsible for the
Account requirement is approximately 2,360,004 hours for all broker-dealer respondents. 42
Rule 17a-3(a)(35): Record of Oral Disclosure
In cases where broker-dealers choose to meet part of the Disclosure Obligation orally
under the circumstances outlined in Section II.C.1 of the Regulation Best Interest Adopting
Release, the Commission believes the requirement to maintain a record of the fact that oral
disclosure was provided to the retail customer will trigger a record-making obligation under
paragraph (a)(35) and the Commission estimates that this would take place among 52% of a
broker-dealer’s retail customer accounts (and thus 52% of a registered representative’s retail
customer accounts) annually. The Commission estimates that there are currently 177 million
customer accounts. Consequently, the Commission estimates the total hour burden associated
with the record of oral disclosure requirement of Rule 17a-3(a)(35) to be 1,840,823 hours per
year. 43
Burdens Associated with Rule 17a-3 Related to Security-Based Swap Activities
Security-Based Swap Activities – Paragraphs (a)(1), (a)(3), (a)(5), (a)(6), (a)(7), (a)(8),
(a)(9), (a)(26), and (a)(27): Paragraphs (a)(1), (a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9), (a)(26), and
(a)(27) of Rule 17a–3 include a provision requiring broker-dealers to make and keep current various
records for security-based swaps. 44 The Commission estimates that the provisions of paragraphs
(a)(1), (a)(3), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9), (a)(26), and (a)(27) of Rule 17a–3 related to
security-based swaps impose on each broker-dealer that engages in security-based swap activities an
initial burden of approximately 70 hours in the first year (approximately 23.33 hours per year when
annualized over three years) and an ongoing burden of approximately 10 minutes per business day,
or about 43.5 hours per year (including the first year). 45 The Commission estimates that there are 20
respondents—6 broker-dealer SBSDs, 13 non-SBSD/MSBSP broker-dealers that are engaged in
security-based swap activities, and 1 broker-dealer MSBSP that the Commission believes could
42
(2,593 broker-dealers) x (0.0133333) x (68,261 retail customer accounts) = 2,360,004 hours.
43
For the purposes of this rule, the Commission assumes that each broker-dealer has 68,261 retail customer
accounts (i.e., (177 million retail customer accounts) / (2,593 broker-dealers). The Commission further
assumes that 52% of the 68,261 retail customer accounts per broker-dealer would trigger the record-making
obligation, or (0.52 x 68,261) = 35,496 retail customer accounts per broker-dealer. Thus, the Commission
estimates the burden to be: (35,496 affected retail customer accounts) x (0.02 hours for recording each oral
disclosure relating to a retail customer’s account) x (2,593 broker-dealers) = 1,840,823 hours.
44
The requirements for securities other than security-based swaps largely mirror existing requirements. See
paragraphs (a)(1), (a)(3), (a)(5)(i), (a)(6)(i), (a)(7)(i), (a)(8)(i), and (a)(9)(i)-(iii) of Rule 17a-3, as amended.
The adopted requirements relating to security-based swap activity are tailored to such activity. See
paragraphs (a)(1), (a)(3), (a)(5)(ii), (a)(6)(ii), (a)(7)(ii), (a)(8)(ii), and (a)(9)(iv) of Rule 17a-3, as amen
45
(10 minutes / 60 minutes) x (261 business days / year) = 43.5 hours / year. There are 261 non-weekend
days in 2021. For the purposes of this rule, the Commission does not include U.S. public holidays in
estimating the number of business days per year, given that many broker-dealers trading security-based
swaps operate internationally.
11
register in the future. 46 Thus, these provisions add to the industry an average of approximately 1,337
burden hours per year (23.33 + 43.5 = 66.83, and 66.83 x 20 = 1,336.6 rounded up to 1,337).
Broker-Dealer SBSDs and Broker-Dealer MSBSPs – Paragraphs (a)(25), (a)(28), and
(a)(30): Paragraphs (a)(25), (a)(28), and (a)(30) require three additional types of records to be made
and kept current by broker-dealer SBSDs and broker-dealer MSBSPs. 47 The Commission estimates
that paragraphs (a)(25), (a)(28), and (a)(30) of Rule 17a–3 impose an initial burden of 60 hours per
firm in the first year (20 hours per firm per year when annualized over three years) and an ongoing
annual burden of approximately 75 hours per firm in each year (including the first year). The
Commission estimates that there are 7 respondents (6 broker-dealer SBSDs and 1 broker-dealer
MSBSP). Thus, these provisions add to the industry an average of approximately 665 burden hours
per year (20 + 75 = 95 and 95 x 7 = 665).
Broker-Dealer SBSDs Only – Paragraph (a)(29): Paragraph (a)(29) of Rule 17a-3 requires
certain records relating to political contributions to be made and kept current by broker-dealer
SBSDs. 48 The Commission estimates that paragraph (a)(29) of Rule 17a–3, as amended, imposes an
initial burden of approximately 20 hours per firm in the first year (approximately 6.67 hours per firm
per year when annualized over three years) and an ongoing annual burden of approximately 25 hours
per firm in each year (including the first year). The Commission estimates that there are 6 brokerdealer SBSDs. Thus, this paragraph adds to the industry an average of approximately 190 burden
hours per year (6.67 + 25 = 31.67 and 31.67 x 6 = 190).
In summary, the aggregate annual hour burden attributed to Rule 17a-3 is approximately
8,342,195 hours broken down as set forth in the following table:
Summary of Hour Burdens
Name of Information Collection
Type of Burden
Number of
Respondents
Annual
Responses per
Respondent
Hourly
Burden per
Response
Annual
Burden for
all
Respondents
Rule 17a-3; Records to be Made
by Certain Exchange Members,
Brokers and Dealers
Recordkeeping
3,528
249
1
878,472
Rule 17a-3(a)(12) & (19)
Recordkeeping
3,528
1
0.50
1,764
Rule 17a-3(a)(20-22)
Recordkeeping
3,528
1
0.1666
588
Rule 17a-3(a)(17)(i)(B)(1) - Large
BD
Recordkeeping &
Third Party
Disclosure
49
1,171,409
0.0250
1,434,976
46
6 broker-dealer SBSDs + 1 broker-dealer MSBSP + 13 non-SBSD/MSBSP broker-dealers engaged in
security-based swap activities = 20 broker-dealers engaged in security-based swap activities.
47
See Rule 17a-3, as amended (recordkeeping requirements for Rule 18a–3 calculations (paragraph (a)(25)),
unverified transactions (paragraph (a)(28)), and compliance with business conduct requirements (paragraph
(a)(30)
48
See paragraph (a)(29) of Rule 17a-3, as amended (political contributions).
12
Recordkeeping &
Third Party
Disclosure
3,479
166.65
0.11667
67,642
Recordkeeping &
Third Party
Disclosure
49
409993.18
0.083333333
1,674,139
3,479
58.3288
0.166666
33,821
Small BD
Recordkeeping &
Third Party
Disclosure
Rule 17a-3(a)(23) Part I
Recordkeeping
512
1
33.334
17,067
Rule 17a-3(a)(23) Part II
Recordkeeping
512
1
45
23,040
Rule 17a-3(a)(16)
Recordkeeping
200
1
27
5,400
Rule 17a-3(a)(24): Record of
Date Form CRS Provided to Each
Customer and Prospective
Customer (ongoing burden)
Recordkeeping
2,593
1
0.5
1,297
Rule 17a-3(a)(35): Record of
Identity of Associate Person
Responsible for Account - Large
Broker-Dealers (initial one-time
burden)
Recordkeeping
1,455
1
0.667
970
Rule 17a-3(a)(35): Record of
Identity of Associate Person
Responsible for
Account/Individual Burden (initial
one-time burden)
Recordkeeping
2,593
68,261
0.0133333
2,360,004
Rule 17a-3(a)(35): Record of Oral
Disclosure (ongoing burden)
Recordkeeping
2,593
35,496
.02
1,840,823
Security-based swap activities:
Paragraphs (a)(1), (a)(3),
(a)(5),(a)(6), (a)(7), (a)(8), (a)(9),
(a)(26), and (a)(27)
Recordkeeping
20
1
66.83
1,337
Broker-dealer SBSDs and brokerdealer MSBSPs: Paragraphs
(a)(25), (a)(28), and (a)(30)
Recordkeeping
7
1
95
665
Broker-dealer SBSDs only:
Paragraph (a)(29)
Recordkeeping
6
1
31.67
190
TOTAL
8,342,195
Rule 17a-3(a)(17)(i)(B(1) - Small
BD
Rule 17a-3(a)(17)(i)(B)(2) & (3)
- Large BD
Rule 17a-3(a)(17)(i)(B(2) & (3) -
13.
Costs to Respondents
The Commission estimates that the aggregate cost burden of the information collection
requirements associated with Rule 17a-3 is approximately $105,320,999 per year, calculated as
follows:
13
Rule17a-3(a)(17) – providing updated information to customers
Ongoing operation and maintenance costs include the cost of postage to provide
customers with account information, and costs for equipment and systems development. The
Commission estimates that under Rule 17a-3(a)(17), approximately 78,271,425 customers
(57,978,833 account records 49 + 11,595,767 updated account records 50 + 8,696,825 updated
account records for customers that will initiate changes to their account records on a yearly basis,
with no prompting from any account record mailing 51) will need to be provided with information
regarding their account on a yearly basis. Firms may include this information with other
communications sent to customers, for instance in customer account statements. In response to
requests for comment relating to the 2001 Amendments, those firms that provided estimates of
postage costs indicated that postage costs to provide customers with account record information
would be about $0.244 per item mailed. 52 However, postage costs have increased since that
time. The current estimate for postage costs is $0.41. 53 Consequently, the Commission
estimates that the postage costs associated with providing 78,271,425 customers with copies of
their account record information would be approximately $32,091,284 per year (78,271,425 x
$0.41). These costs are recordkeeping and third party disclosure burdens, with an assumption
that the burden is split evenly between the two burden types.
Ongoing Cost for Equipment and Systems Development
At the time of the 2001 Amendments, Large Broker-Dealers that provided cost
information estimated that their ongoing, yearly costs for equipment and systems development
resulting from Rule 17a-3 would be approximately $0.25 per customer account. The
Commission believes that the additional cost for smaller broker-dealers is included in the
increased hourly burden costs delineated above. 54 However costs for equipment and systems
development have increased since 2001. Consequently, the Commission believes that the total
ongoing equipment and systems development costs relating to Rule 17a-3 for the industry would
be about $72,322,796 per year (172,197,134 active customer accounts held by the 49 Large
49
This figure is based on the number of active customer accounts (173,936,499) divided by 3 since the
broker-dealer must send each customer a copy of his or her account record information once every three
years.
50
This figure is based on the number of active customer accounts that receive their account record
(57,978,833) times .20, since the Commission estimates that 20% of customers that receive their account
record will update their account record information.
51
This figure is based on the number of active customer accounts (173,936,499) times 0.05, since 5% of
customers update their account record information each year.
52
See Morgan Stanley Dean Witter comment letter submitted by J. Higgins in response to the 2001
Amendments; See Merrill Lynch comment letter to the 2001 Amendments.
53
The CPI has increased by about 67% since the end of 2001. ($0.244 x 1.67) = $0.41. In addition, postage
costs have increased. Therefore, the Commission is increasing the estimate to $0.41.
54
Smaller broker-dealers are not as automated, and their processes tend to be more manual in nature. In
addition, no smaller broker-dealers provided information regarding any increased equipment or systems
development costs at the time of the 2001 Amendments.
14
Broker-Dealers x $0.42 55), or an annual cost burden of approximately $1,475,975.43 for each of
the 49 Large Broker-Dealers. This cost is a recordkeeping burden.
Rule 17a-3(a)(23) Part 1
With respect to paragraph (a)(23) of Rule 17a-3, a broker-dealer is required to document
its liquidity, credit, and market risk management controls, if it has established such controls.
These broker-dealers may incur one-time startup costs to hire outside counsel to review the
documented controls to ensure the broker-dealer is meeting the requirements of the rule. Based
on staff experience with similar reviews, the Commission estimates that 512 broker-dealers
would incur $2,000 in legal costs, 56 or $1,024,000, in the aggregate, initial one-time
recordkeeping burden to review and comment on the documented risk management controls. 57
For purposes of this supporting statement, the one-time cost of $1,024,000 annualized over the
three-year approval period is approximately $341,333, 58 with an average cost per respondent of
approximately $666.67. 59
Rule 17a-3(a)(35): Record of Identity of Associate Person Responsible for Account/
Firm Burden
To meet the requirement under Rule 17a-3(a)(35) to make a record of the “identity of each
natural person who is an associated person, if any, responsible for the account,” the Commission
believes that small broker-dealers will require, on average, approximately 1 hour per year for
outside legal counsel, at an updated average rate of $497/hour, for an average annual cost of
$497 for each small broker-dealer to update an account disclosure document. The projected
aggregate annual cost for small broker-dealers is therefore estimated to be $565,586 per year, or
(1,138 x $497).
55
The CPI has increased by about 67% since the end of 2001. ($0.25 x 1.67) = $0.42.
56
The Commission staff estimates that the review of the documented controls would require 5 hours of
outside counsel time at a cost of $400 per hour.
57
$2,000 x 512 broker-dealers = $1,024,000.
58
$1,024,000 / 3 years = $341,333.333 rounded down to $341,333.
59
$341,333 / 512 firms = $666.666016 rounded up to 666.67.
15
In summary, the total cost burden associated with Rule 17a-3 is approximately
$105,320,999 per year, broken down as indicated below. 60
Summary of Cost Burdens
Name of Information
Collection
Type of Burden
Number of Respondents
Annual Cost Burden per
Respondent
Annual Cost for all
Respondents
Rule 17a-3 - providing updated
information to customers
Recordkeeping
& Third Party
Disclosure
3,528
$9,096.16893
$ 32,091,284
Ongoing cost for equipment &
systems development
Recordkeeping
49
$1,475,975.43
$ 72,322,796
Rule 17a-3(a)(23) Part 1
Recordkeeping
512
$666.666667
$341,333
Rule 17a-3(a)(35): Record of
Identity of Associate Person
Responsible for Account/ Firm
Burden
-Small Broker-dealers
Recordkeeping
1,138
$497
$565,586
TOTAL
$ 105,320,999
14.
Costs to Federal Government
There will be no additional costs to the Federal Government.
15.
Changes in Burden
The annual hour burden has changed primarily due to an increase in the number of customer
accounts held by broker-dealers (from 143,333,276 to 240,576,070). While the number of
broker-dealers registered with the Commission decreased from 3,764 to 3,528, the reduced
burdens associated with rules based on the number of registered broker-dealers did not outweigh
the increase in burdens associated with rules based on the number of accounts. The net result has
been an increase in the annual hour burden from approximately 5,322,107 hours to
approximately 8,342,195 hours, a change of 3,020,088 hours per year. The annual cost burden
increased due to inflation, increases in postage costs, and increase in the number of customer
accounts. The overall impact of these changes has been an increase in the cost burden of
60
This includes annual postage costs of $32,091,284 and ongoing equipment and systems development costs
of $72,322,796.30 per year.
16
$50,872,862, going from $54,448,137 to $105,320,999 per year. These changes are summarized
in the tables below.
Changes in Hour Burdens
Name of Information
Collection
Rule 17a-3; Records to
be Made by Certain
Exchange Members,
Brokers and Dealers
Annual Industry
Burden
Annual Industry Burden
Previously Reviewed
Change in Burden
Reason for Change
878,472
937,236
(58,764)
Reduction in the number of
registered broker-dealers
1,764
1882
(118)
Reduction in the number of
registered broker-dealers
588
627
(39)
Reduction in the number of
registered broker-dealers
1,434,976
854,947
580,029
Increase in the number of
customer accounts
67,642
40,301
27,341
Increase in the number of
customer accounts
1,674,139
997,518
676,621
Increase in the number of
customer accounts
33,821
20,142
13,679
Increase in the number of
customer accounts
Rule 17a-3(a)(23) Part I
17,067
15,200
1,867
Increase in the number of
registered broker-dealers
subject to this rule
Rule 17a-3(a)(23) Part II
23,040
20,520
2,520
Increase in the number of
registered broker-dealers
subject to this rule
1,297
1,383
(86)
Decrease in the number of
registered broker-dealers
970
1,341
(371)
Decrease in the number of
broker-dealers subject to
this rule
Rule 17a-3(a)(12) &
(19)
Rule 17a-3(a)(20-22)
Rule 17a3(a)(17)(i)(B)(1) - Large
BD
Rule 17a3(a)(17)(i)(B(1) - Small
BD
Rule 17a3(a)(17)(i)(B)(2) & (3)
- Large BD
Rule 17a3(a)(17)(i)(B(2) & (3) Small BD
Rule 17a-3(a)(24)
Rule 17a-3(a)(35):
Record of Identity of
Associate Person
Responsible for Account
- Large Broker-Dealers
(initial one-time burden)
17
Rule 17a-3(a)(35):
Record of Identity of
Associate Person
Responsible for
Account/Individual
Burden (initial one-time
burden)
2,360,004
1,359,983
1,000,021
Increase in the number of
customer accounts
Rule 17a-3(a)(35):
Record of Oral
Disclosure (ongoing
burden)
1,840,823
1,060,761
780,062
Increase in the number of
customer accounts
Security-Based Swap
Activities Paragraphs
(a)(1), (a)(3), (a)(5),
(a)(6), (a)(7),
(a)(8),(a)(9), (a)(26),
and (a)(27)
1,337
2,744
(1,407)
Reduction in the number of
security-based swap
dealers, and broker-dealers
engaged in security-based
swap activity
Broker-dealer SBSDs
and broker-dealer
MSBSPs: Paragraphs
(a)(25), (a)(28), and
(a)(30)
665
1,615
(950)
Reduction in the number of
security-based swap dealers
Broker-dealer SBSDs
only: Paragraph (a)(29)
190
507
(317)
Reduction in the number of
broker-dealers involved in
security-based swap
activity
18
Changes in Cost Burdens
Name of Information
Collection
Rule 17a-3 - providing
updated information to
customers
Annual Industry Cost
$ 32,091,284
Annual Industry Cost
Previously Reviewed
$16,321,719
Change in Cost
Reason for Change
$ 15,769,565
Increase in the number
of customer accounts
and increase in the
cost of postage
$ 72,322,796
$ 37,446,686
$ 34,876,110
Increase in the costs of
equipment and
systems due to
inflation
Rule 17a-3(a)(23) Part 1
$341,333
$ 304,000
$ 37,333
Increase in the number
of broker-dealers
subject to this rule
Rule 17a-3(a)(35):
Record of Identity of
Associate Person
Responsible for Account/
Firm Burden
-Small Broker-dealers
$ 565,586
$ 375,732
$ 189,854
Increase in the number
of broker-dealers
subject to this rule
Ongoing cost for
equipment & systems
development
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.
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.
19
| File Type | application/pdf |
| File Modified | 2022-07-26 |
| File Created | 2022-07-26 |