Rule 17a-11 Supporting Statement 2023 DGL REVISED

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 17a-11 – Notification Provisions for Brokers and Dealers
OMB Control No. 3235-0085
A.

JUSTIFICATION
1.

Necessity of Information Collection

In response to an operational crisis in the securities industry between 1967 and 1970, the
Securities and Exchange Commission (“Commission”) adopted Rule 17a-11 (17 CFR 240.17a11) under the Securities Exchange Act of 1934 (“Exchange Act”) on July 11, 1971. Rule 17a-11
applies to a broker-dealer, including an over-the-counter (“OTC”) derivatives dealer; a brokerdealer, other than an OTC derivatives dealer, that is also a security-based swap dealer (“SBSD”);
and a broker-dealer, including an OTC derivatives dealer, that is also a major-security-based
swap participant (“MSBSP”). The Rule requires broker-dealers that are experiencing financial
or operational difficulties to provide notice to the Commission, the broker-dealer’s designated
examining authority (“DEA”) and the Commodity Futures Trading Commission (“CFTC”) if the
broker-dealer is registered with the CFTC as a futures commission merchant. Rule 17a-11 is an
integral part of the Commission’s financial responsibility program, which enables the
Commission, a broker-dealer’s DEA, and the CFTC to increase surveillance of a broker-dealer
experiencing difficulties and to obtain any additional information necessary to gauge the brokerdealer’s financial or operational conditon.
Paragraph (a)(1) of Rule 17a-11 requires broker-dealers whose net capital declines below
the minimum amount required under Exchange Act Rule 15c3-1 to give notice that same day. In
addition, paragraph (a)(2) of Rule 17a-11 requires an OTC derivatives dealer or a broker-dealer
that computes net capital under Appendix E to Rule 15c3-1 (“ANC broker-dealer”) to provide
notice if its tentative net capital declines below the minimum amount required per Rule 15c3-1.
Paragraph (b) of Rule 17a-11 requires broker-dealers to give notice within 24 hours (1) if
an aggregate indebtedness computation shows that aggregate indebtedness is greater than
1,200% of its net capital; (2) if a net capital computation made by an ANC broker-dealer shows
that its net capital is less than 5% of aggregate debit items computed in accordance with Exhibit
A to Rule 15c3-3; (3) if a net capital computation made by a broker-dealer shows that its total net
capital is less than 120% of its required minimum net capital, or a tentative net capital
computation made by an OTC derivatives dealer shows that its total tentative net capital is less
than 120% of its required minimum tentative net capital; (4) the occurrence of the fourth and
each subsequent back testing exception by an ANC broker-dealer; (5) if certain computations by
broker-dealers engaged in securities lending or repurchase activities show that the total money
payable against all securities loaned, subject to a reverse repurchase agreement or the contract
value of all securities borrowed or subject to a repurchase agreement, exceeds 2,500% of
tentative net capital. Alternatively, the firm may report monthly their securities lending and
repurchase activities to their DEA in a form acceptable to their DEA.
Paragraph (c) of Rule 17a-11 requires a broker-dealer to provide notice that same day if it

fails to comply with the books and records requirements of Exchange Act Rule 17a-3 and to
transmit a report within 48 hours of the notice stating what it has done or is doing to correct the
situation.
Paragraph (d) of Rule 17a-11 requires the broker-dealer to give notice within 24 hours
when it discovers or is notified by an independent public accountant of the existence of a
material inadequacy or material weakness and to transmit a report within 48 hours stating what
the firm has done or is doing to correct the situation.
Paragraph (f) of Rule 17a-11 requires broker-dealers engaged in security-based swap
activities to immediately notify the Commission if they fail to make a deposit required under
paragraph (p) of Rule 15c3-3.
Paragraph (g) of Rule 17a-11 requires every national securities exchange (“NSE”) or
national securities association (“NSA”) to immediately notify the Commission if it learns that a
broker-dealer failed to provide a notice required under Rule 17a-11.
The Commission promulgated Rule 17a-11 under Sections 15(c)(3), and 17(a), and 23(a)
of the Exchange Act (15 U.S.C. 78o(c)(3) et seq., 15 U.S.C. 78q(a) et seq.), and (15 U.S.C.
78w(a) et seq.).
2.

Purpose and Use of Information Collection

The information obtained under Rule 17a-11 is used to monitor the financial and
operational condition of a broker-dealer, including a broker-dealer SBSD and a broker-dealer
MSBSP, by the Commission staff, by the broker-dealer’s DEA, and, if applicable, by the CFTC.
This information alerts the Commission, the DEA, and the CFTC of the possible need to increase
surveillance of the broker-dealer’s financial and operational condition and to assist the brokerdealer to comply with the Commission’s rules. No similar information is already available to use
or modify for purposes of complying with Rule 17a-11 because the disclosures required by the
rule are unobtainable until the early warning mechanisms are triggered. Only the most up-to-date
information will help the Commission, DEAs, and the CFTC to monitor broker-dealers,
including broker-dealer SBSDs and broker-dealer MSBSPs, experiencing financial or operational
difficulties.
The monthly report related to the broker-dealer’s securities borrowed and loaned or
securities repurchase/reverse repurchase activity may be filed by a broker-dealer in lieu of the
filing of the required notice under Rule 17a-11(b)(5). The monthly report is designed to enhance
the monitoring of these securities activities by securities regulators.
3.

Consideration Given to Information Technology

Broker-dealers required to provide notice under Rule 17a-11 may give or transmit such
notice by telegraphic notice or facsimile transmission. Certain DEAs have developed systems that
enable them to receive these notices electronically.

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4.

Duplication

Duplication of information is not a concern because the reporting requirementsare only
applicable to those broker-dealers triggering the notice requirements of Rule17a-11.
5.

Effect on Small Entities

To the extent that some broker-dealers that are required to give notice under the Rule are
small entities, the Rule will impact these entities. However, information is collected from small
broker-dealers only when they are required to provide notice under the Rule.
6.

Consequences of Not Conducting Collection

Only broker-dealers, including broker-dealer SBSDs and broker-dealer MSBSPs, having
financial or operational problems must give notice under the Rule. Less frequent notification
would result in the Commission, self-regulatory organizations and the CFTCnot receiving
notification of broker-dealers’ financial or operational problems.
7.

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

There are no special circumstances. This collection is consistent with theguidelines 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
of this collection of information was published. No public comments were received.
9.

Payment or Gift

No gifts or payments are provided to respondents.
10.

Confidentiality

The Commission will generally not publish or make available to any person notices or
reports received pursuant to Rule 17a-11. The Commission believes that information obtained
under Rule 17a-11 relates to a condition report prepared for the use of the Commission, other
federal governmental authorities, and securities industry SROs responsible for the regulation or
supervision of financial institutions.
11.

Sensitive Questions

The information collection has basic elements of Personally Identifiable Information
(“PII”) which is stored by the Commission on the Division of Trading and Market’s SharePoint
site, and which is covered by the existing 2012 Collaboration SharePoint (“CSP”) PIA pursuant
to Section 208 of the E-Government Act of 2002. As information will not be retrieved by a

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personal identifier, the system does not constitute a system of records and a SORN is not
required.
12.

Information Collection Burden

Rule 17a-11(a)-(e) Notices to Commission: In 2022, the Commission received 86
notices from broker-dealers under paragraphs (a) through (e) of Rule 17a-11 (except for notices
under paragraph (b)(5), which is addressed separately below), which includes OTC derivatives
dealers and ANC broker-dealers. The Commission estimates that it will take approximately one
hour to prepare and transmit each notice, resulting in an industry-wide annual reporting
burden of approximately 86 hours.1
Paragraph (b)(5) of Rule 17a-11—Securities Lending/Borrowing Report to DEA: The
Commission estimates that six broker-dealers will submit the monthly stock loan/borrow report
to the DEA each year. The Commission estimates each firm will spend, on average, approximately
one hour per month (or twelve hours per year) to prepare and transmit the report to its DEA,
resulting in an industry-wide annual reporting burden of approximately 72 hours. 2

Rule 17a-11(f) – Notice of Failure to Deposit in Rule 15c3-3(p) Account: This
requirement to was added as part of amendments to Rule 17a-11 related to security-based swap
activities adopted in September 2019. 3 The Commission estimates that 100 notices will be filed
each year under paragraph (f) of Rule 17a-11. The Commission estimates that each required
notice will take, on average, approximately one hour to prepare and transmit, resulting in an
estimated industry-wide annual reporting burden of approximately 100 hours. 4
Rule 17a-11(g) – Notices Filed by National Securities Exchanges and Associations
with respect to paragraphs (a) through (e) of Rule 17a-11: A broker-dealer’s national
securities exchange (“NSE”) or national securities association (“NSA”) must notify the
Commission if it learns that the broker-dealer failed to provide a notice required under any
paragraph of Rule 17a-11. There are 24 NSEs and NSAs. 5 The Commission typically receives
between six and eleven Rule 17a-11 notices with respect to paragraph (a) through (e) of Rule
17a-11 from NSEs and NSAs each year. Therefore, the Commission estimates that it wil receive
eleven notices from them each year notifying it that a member broker-dealer has failed to send
the Commission a notice or transmit a report required under paragraphs (a) through (e) of Rule
17a-11. The Commission estimates it will take approximately one hour to prepare and transmit
each notice, resulting in an industry-wide annual reporting burden of approximately eleven
1

86 notices x 1 hour per notice = 86 hours.

2

6 broker-dealers x 12 hours per year = 72 hours.

3

See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based
Swap Participants, and Broker-Dealers; Final Rule, Exchange Act Release No. 87005(Sep. 19, 2019, 84
FR 68550 (Dec. 16, 2019).
100 notices x 1 hour per notice = 100 hours.

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5

See SEC, National Securities Exchanges, available at https://www.sec.gov/fastanswers/divisionsmarketregmrexchangesshtml.html.

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hours. 6
Rule 17a-11(g) – Notices Filed by National Securities Exchanges and Associations
with respect to paragraph (f) of Rule 17a-11: A broker-dealer’s NSE or NSA must notify the
Commission if it learns that a member broker-dealer failed to provide a notice required under
paragraph (f) of Rule 17a-11. The Commission estimates that each required notice will take one
hour to prepare and file. Based on Commission experience with the number of notices currently
filed by NSEs and NSAs, the Commission estimates that five notices will be filed by NSEs and
NSAs notifying the Commission that a member broker-dealer has failed to send the Commission
a notice required under paragraph (f) of Rule 17a-11, resulting in an estimated industry-wide
annual reporting burden of approximately five hours. 7
The annual burden is summarized in the table below.
Summary of Hour Burdens
Name of Information Collection

Type of
Burden

Number of
Entities
Impacted

Annual
Responses
per Entity

Ongoing Burden per
Entity per Response

Rule 17a-11(a)-(e) – Notification
Provisions for Broker and Dealers

Reporting

86

1

1

86

Rule 17a-11(b)(5) – Monthly
Stock Loan/Borrow Reports

Reporting

6

12

1

72

Reporting

100

1

1

100

Reporting

11

1

1

11

Reporting

5

1

1

5

Rule 17a-11(f) – Notice of
Failure to Deposit in Rule 15c33(p) Account
Rule 17a-11(g) –Notices Filed by
National Securities Exchanges and
Associations with respect to
paragraphs (a)-(e) of Rule 17a-11
Rule 17a-11(g) –Notices Filed by
National Securities Exchanges and
Associations with respect to
paragraph (f) of Rule 17a-11

TOTAL HOUR BURDEN FOR ALL RESPONDENTS

13.

Total Industry
Burden

274

Costs to Respondents

As the notices are filed electronically, Rule 17a-11 does not impose any costs other than
labor costs associated with the burden described in Item 12 above.
14.

Costs to Federal Government

None. Review of notices is done by existing Commission staff as part of their regular duties.

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11 notices x 1 hour per notice = 11 hours.

7

5 notices x 1 hour per notice = 5 hours.

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15.

Change in Burden

The estimated total hour burden decreased from 531 hours per year to 274 hours per year
because the Commission staff's estimate of the number of entities impacted by the Rule 17a11(a)-(e) notification provisions for broker-dealers decreased from 343 to 86. The change in
burden is summarized in the table below.
Name of Information Collection

Current
Annual
Industry
Burden

Revised
Annual
Industry
Burden

Change in
Burden

Reason for
Change

Rule 17a-11(a)-(e) –Notification
Provisions for Broker-Dealers

343

86

Rule 17a-11(b)(5)-Monthly Stock
Loan/Borrow Reports

72

72

0

n/a

100

100

0

n/a

11

11

0

n/a

5

5

0

n/a

Rule 17a-11(f) – Notice of Failure
to Deposit in Rule 15c3-3(p)
Account
Rule 17a-11(g) –Notices Filed by
National Securities Exchanges and
Associations with respect to
paragraphs (a)-(e) of Rule 17a-11
Rule 17a-11(g) –Notices Filed by
National Securities Exchanges and
Associations with respect to
paragraph (f) of Rule 17a-11

(257)

TOTAL CHANGE IN BURDEN

16.

Change in staff estimate of
entities impacted.

(257)

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.

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