3235-0743 (Rule 15b9-1) Supporting Statement

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 15b9-1 – Exemption for Certain Exchange Members
3235-0743
Adopted Amendments
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 for the Information Collection

Section 15(b)(8) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) 1
requires any broker or dealer registered with the Securities and Exchange Commission
(“Commission”) to become a member of a registered national securities association
(“Association”) unless the broker or dealer effects transactions in securities solely on an
exchange of which it is a member. This statutory provision sets forth a complementary selfregulatory organization (“SRO”) oversight structure pursuant to which exchange SROs
historically have overseen their own exchanges and The Financial Industry Regulatory
Authority, Inc. (“FINRA”) (the only Association currently) historically has overseen crossexchange and off-exchange securities trading activity. Section 15(b)(9) of the Exchange Act 2
provides the Commission with authority to exempt any broker or dealer from Section 15(b)(8), if
that exemption is consistent with the public interest and the protection of investors.
On August 23, 2023, the Commission adopted amendments that will require a broker or
dealer to join an Association if it effects transactions in securities elsewhere than on an exchange
to which it belongs as a member, unless it can rely upon one of the amended rule’s narrow,
contemporary-market-appropriate exceptions from Section 15(b)(8). 3 Conversely, a broker or
dealer would not need to become a member of an Association if it effects securities transactions
only on an exchange of which it is a member.
Specifically, the de minimis allowance, including the proprietary trading exclusion, has
been rescinded, and amended Rule 15b9-1 permits an exemption from Association membership
only where a broker or dealer that does not carry customer accounts effects securities
transactions otherwise than on a national securities exchange of which it is a member that: (1)
result solely from orders that are routed by a national securities exchange of which the broker or
dealer is a member to comply with Rule 611 of Regulation NMS or the Options Order Protection
1

15 U.S.C. 78o(b)(8).

2

15 U.S.C. 78o(b)(9).

3

See Securities Exchange Act Release No. 98202, (August 23, 2023), 88 FR 61850
(September 7, 2023) (“Adopting Release"). See also, Securities Exchange Act Release
No. 95388 (July 29, 2022), 87 FR 49930 (August 12, 2022) (“Re-Proposal”).

and Locked/Crossed Market Plan; or (2) are solely for the purpose of executing the stock leg of a
stock-option order (“stock-option order exemption”).
For purposes of relying on the stock-option order exemption provided by Rule 15b91(c)(2), a broker or dealer must establish, maintain and enforce written policies and procedures
reasonably designed to ensure and demonstrate that such transactions are solely for the purpose
of executing the stock leg of a stock-option order. The broker or dealer is required to preserve a
copy of its policies and procedures in a manner consistent with 17 CFR 240.17a-4 until three
years after the date the policies and procedures are replaced with updated policies and
procedures. These requirements associated with the stock-option order exemption constitute
“collection of information requirements” within the meaning of the Paperwork Reduction Act of
1995 (“PRA”).
2.

Purpose of the Information Collection

Options exchanges define the term “stock-option order” in their rules. For purposes of
relying on the exemption provided by Rule 15b9-1(c)(2), a broker or dealer should adhere to the
stock-option order definition of the options exchange where the stock-option order is handled
and of which the broker or dealer is a member. Specifically, the broker or dealer could rely on
that definition to determine whether, for purposes of amended Rule 15b9-1(c)(2), an order is in
fact a stock-option order and a stock order is in fact the stock leg of a stock-option order.
Indeed, in addition to the Commission, the options exchange of which the broker or dealer is a
member and where the stock-option order is handled would be able to enforce compliance with
the stock-option order exemption.
The Commission believes that the exchange’s oversight capabilities will be enhanced,
consistent with the public interest and protection of investors, by requiring written policies and
procedures in connection with the stock-option exemption in paragraph (c)(2) of the amended
rule. This requirement would help facilitate exchange SRO supervision of brokers and dealers
relying on the stock-option order exemption because it would provide an efficient and effective
way for the relevant options exchange to assess compliance with the exemption. In the context
of routine examinations of its members, the options exchange generally would review the
adequacy of its members’ written policies and procedures and assess whether its members’ offmember-exchange transactions comply with those written policies and procedures as well as the
terms of the exemption itself, as set forth in amended Rule 15b9-1. Moreover, the Commission
believes that requiring brokers and dealers to develop written policies and procedures would
provide sufficient flexibility to accommodate potentially varying business models of brokers and
dealers that effect stock-option orders and may seek to rely on this exemption.
3.

Role of Improved Information Technology

The policies and procedures required by the amendments to Rule 15b9-1 do not require
the use of information technology in the collection of information. However, the Commission
anticipates that brokers or dealers relying on the stock-option order exemption would utilize
information technology in the monitoring of their trading activity, as may exchange SROs in
ensuring compliance with the policies and procedures required by the rule.
2

4.

Efforts to Identify Duplication

The amendments exempt certain broker-dealers from the Exchange Act Association
membership requirement. As a result, broker-dealers complying with the rule could avoid
potentially duplicative regulation by an Association and one or more exchange SROs.
In addition, with respect to a broker or dealer that is a member of more than one SRO
(“common member”), Exchange Act Section 17(d)(1) authorizes the Commission, by rule or
order, to relieve an SRO of the responsibility to receive regulatory reports, to examine for and
enforce compliance with the applicable statutes, rules, and regulations, or to perform other
specified regulatory functions. 4 Without this relief, the statutory obligation of each SRO would
result in duplicative examinations and oversight of common members. Exchanges have entered
into 17d-2 plans that allocate to FINRA examination and enforcement responsibility relating to
compliance by common members with Federal securities laws, Commission rules, and common
exchange and FINRA rules, allowing the exchanges to focus on trading on their own markets.
Most exchanges and FINRA also have entered into regulatory services agreements, which are
privately negotiated agreements between two SROs whereby one SRO agrees to perform
regulatory services on behalf of another SRO in exchange for compensation.
5.

Effect on Small Entities

The Commission examined recent FOCUS data for the approximately 3,500 active
brokers and dealers overseen by the Commission and estimates that there are 786 brokers and
dealers that have net capital of $500,000 or less and are not affiliates of larger organizations and
would be considered small entities. The Commission estimates that of these 786 brokers and
dealers, not more than three would be required to become FINRA members as a result of the rule
(unless they could rely on and comply with an exemption in the amended rule, such as the stockoption order exemption and its attendant information collection requirements). As a result, the
Commission believes that Rule 15b9-1 would not, if adopted, have a significant economic
impact on a substantial number of small entities.
6.

Consequences of Less Frequent Collection

The Commission believes that the collection of information less frequently than the initial
creation of the policies and procedures (i.e., not requiring the creation of policies and
procedures) is not possible as it would frustrate both the ability of an options exchange to
supervise those broker-dealers relying on the stock-option order exemption and the ability of
broker-dealers subject to the rule to ensure that their trading activities continue to comply with
the requirements of the rule.
A broker or dealer seeking to rely on the stock-option order exemption would be required
to preserve a copy of its policies and procedures in a manner consistent with Rule 17a-4 under
4

15 U.S.C. 78q(d)(1).
3

the Exchange Act until three years after the date the policies and procedures are replaced with
updated policies and procedures. 5 Accordingly, a broker or dealer would be required to keep the
policies and procedures relating to its use of this exemption as part of its books and records while
they are in effect, and for three years after they are updated.
7.

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

5 CFR 1320.5(d)(2) requires an agency to demonstrate, in its submission for OMB
clearance, that the reporting of information more often than quarterly is necessary to satisfy
statutory requirements or other substantial need. Rule 15b9-1 requires a broker-dealer relying on
the stock-option order exemption to establish, maintain and enforce written policies and
procedures reasonably designed to ensure and demonstrate that the stock legs of stock-option
orders are solely for the purpose of executing the stock leg of a stock-option order. The rule
does not require the broker-dealer to report information more often than quarterly. As a result,
Rule 15b9-1 is not inconsistent with the guidelines of 5 CFR 1320.5(d)(2).
8.

Consultation Outside the Agency

The Commission has consulted with FINRA and the other members of the Inter-Agency
Working Group on Treasury Market Surveillance members, including the U.S. Department of
the Treasury, the Federal Reserve Board of Governors, the Federal Reserve Bank of New York,
and the Commodity Futures Trading Commission about the use of TRACE for U.S. Treasury
securities data in adopting amendments to Rule 15b9-1.
The Commission also considered the comments on the 2022 Re-Proposal. 6
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

The information collected pursuant to Rule 15b9-1 would not be widely available as it is
information related to the internal operations of those broker-dealers complying with the stockoption order exemption. To the extent that the Commission receives confidential information
pursuant to Rule 15b9-1, such information will be kept confidential, subject to the provisions of
the Freedom of Information Act.
11.

Sensitive Questions

5

See, e.g., 17 CFR 240.17a-4(e)(7).

6

See supra n.3.
4

The collection of information does not include Personally Identifiable Information. 7
12.

Estimate of Hourly Information Collection Burden

The Commission estimates that the total initial reporting burden for those broker-dealers
that may rely upon the stock-option order exemption provided for under Rule 15b9-1 would be
approximately 18.67 hours per year (annualized over a three-year period) and the total ongoing
reporting burden would be approximately 336 hours per year. The Commission estimates that 17
non-FINRA brokers or dealers would rely on the stock-option order exemption. This burden is
broken down in more detail below.
Establishing Policies and Procedures
The Commission estimates that it would take a broker or dealer approximately 8 hours to
establish written policies and procedures as required under Rule 15b9-1. 8 This figure is based on
the estimated number of hours to develop a set of written policies and procedures, including
review and approval by appropriate legal personnel. The Commission notes that the policies and
procedures required by the rule are limited to those transactions that are solely for the purpose of
executing the stock leg of a stock-option order.
Annualized over a three-year period, this amounts to an initial burden of approximately
2.67 hours per broker or dealer, per year 9 and an aggregate, initial burden of approximately
45.39 hours per year. 10
Maintaining and Enforcing Policies and Procedures
The Commission estimates that the ongoing burden of maintaining and enforcing such
policies and procedures, and ensuring that such policies and procedures are reasonably designed
to ensure and demonstrate that such transactions are solely for the purpose of executing the stock
7

The term “Personally Identifiable Information” refers to information which can be used
to distinguish or trace an individual’s identity, such as their name, social security number,
biometric records, etc. alone, or when combined with other personal or identifying
information which is linked or linkable to a specific individual, such as date and place of
birth, mother’s maiden name, etc.

8

This figure is based on the following: (Compliance Manager at 5 hours) + (Compliance
Attorney at 2.5 hours) + (Director of Compliance at 0.5 hour) = 8 burden hours per
broker or dealer.

9

This figure is based on the following: (8 burden hours per broker or dealer) / (3 years) =
2.67 initial burden hours per broker or dealer, per year.

10

This figure is based on the following: (2.67 burden hours per broker or dealer) x (17
brokers and dealers) = 45.39 aggregate initial burden hours per year.
5

leg of a stock-option order would be approximately 48 hours for each broker or dealer per year. 11
This figure includes an estimate of hours related to reviewing existing policies and procedures,
making necessary updates, conducting ongoing training, maintaining relevant systems and
internal controls, performing necessary testing and monitoring of stock-leg transactions as they
relate to the broker’s or dealer’s activities and maintaining copies of the policies and procedures
for the period of time required by the amended rule.
Based on an estimated annual burden of 48 hours per broker or dealer, the Commission
estimates that the aggregate, ongoing burden to maintain and enforce written policies and
procedures as required under Rule 15b9-1 would be 816 hours per year. 12 As a result, the total
industry burden, including the initial burden and the ongoing burden, would be approximately
861.39 hours per year. 13
The estimated initial and ongoing burdens associated with Rule 15b9-1 are shown in the
table below:
Total
Number of
Respondents

Ongoing
or
Initial
Burden

Total
Number of
Responses
Per Year
Per
Respondent

Initial
Burden
Per
Response
Per Year

Annualized
Burden Per
Year Per
Respondent

Ongoing
Burden Per
Response
Per Year
Per
Respondent

Total
Burden
Hours For
All
Respondents

Collection of
Information

Type of
Burden

Small
Business
Entities
Affected

Establishing
Written
Policies and
Procedures

Hourly
Information
Collection

Not more
than 3

17

Initial

1

2.67

2.67

0

45.39

Maintaining
and
Enforcing
Written
Policies and
Procedures

Hourly
Information
Collection

Not more
than 3

17

Ongoing

1

0

0

48

816

11

This figure is based on the following: (Compliance Manager at 30 hours) + (Compliance
Attorney at 12 hours) + (Director of Compliance at 6 hours) = 48 burden hours per broker
or dealer. In estimating these burden hours, the Commission also examined the estimated
initial and ongoing burden hours imposed on registered security-based swap dealers
under Regulation SBSR—Reporting and Dissemination of Security-Based Swap
Information. See Exchange Act Release No. 74244 (February 11, 2015) 80 FR 14564,
14683 (March 19, 2015) (“Regulation SBSR”). Regulation SBSR requires registered
security-based swap dealers to establish, maintain, and enforce written policies and
procedures that are reasonably designed to ensure compliance with any security-based
swap transaction reporting obligations. Id. The estimated initial and ongoing compliance
burden on registered security-based swap dealers under Regulation SBSR were 216
burden hours and 120 burden hours, respectively. Id. The policies and procedures under
Rule 15b9-1 are much more limited in nature.

12

This figure is based on the following: (48 burden hours per broker or dealer) x (17 nonFINRA brokers and dealers) = 816 aggregate, ongoing burden hours per year.

13

This figure is based on the following: (45.39 aggregate, initial burden hours) + (816
aggregate, ongoing burden hours) = 861.39 total burden hours per year.
6

Collection of
Information

Type of
Burden

Small
Business
Entities
Affected

Total
Number of
Respondents

Ongoing
or
Initial
Burden

Total
Number of
Responses
Per Year
Per
Respondent

Initial
Burden
Per
Response
Per Year

Annualized
Burden Per
Year Per
Respondent

Ongoing
Burden Per
Response
Per Year
Per
Respondent

Total
Burden
Hours For
All
Respondents

Total Annual Industry Burden

13.

816.39

Estimate of Total Annual Cost Burden

The Commission does not believe there are any cost burdens for the amendments.
14.

Estimate of Cost to the Federal Government

The Commission does not believe there are any costs to the Federal Government related
to Rule 15b9-1.
15.

Explanation of Changes in Burden

The amendments to Rule 15b9-1, as adopted, will increase the burdens from the burden
estimates previously submitted to OMB for the 2022 Re-Proposal. The estimated burdens per
respondents have not changed from the amounts previously submitted, but the number of
respondents has increased because Commission now believes that 17 non-FINRA brokers or
dealers will be subject to the collection of information requirements associated with the proposed
stock-option order exemption.
A summary of the changes in the estimated burdens, as previously filed with OMB, are
shown in the table below:
Name of
Information
Collection
Establishing
Written
Policies and
Procedures

14

Previously
Proposed
Estimated
Burden
18.67
aggregate
initial burden
hours per
year 14

Final
Estimated
Burden

Change in
Estimated
Burden

45.39 aggregate
initial burden hours
per year

Increase in
estimated aggregate
initial burden hours
of 26.72 per year
(i.e., 45.39 – 18.67)

Reason for the Change
The Commission now estimates that 17 nonFINRA brokers or dealers will be required to
establish, maintain and enforce the required
policies and procedures rather than the 7 nonFINRA brokers or dealers previously
estimated.

This figure is based on the following: ((8 burden hours per broker or dealer) / (3 years)) x
(7 non-FINRA brokers and dealers) = 18.67 aggregate initial burden hours per year.
7

Maintaining
and Enforcing
Written
Policies and
Procedures

16.

336 aggregate,
ongoing
burden hours
per year 15

816 aggregate,
ongoing burden
hours per year

Increase in
estimated aggregate,
ongoing burden
hours of 480 per
year (i.e., 816 –
336)

The Commission now estimates that 17 nonFINRA brokers or dealers will be required to
establish, maintain and enforce the required
policies and procedures rather than the 7 nonFINRA brokers or dealers previously
estimated.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to not Display Expiration Date

Not applicable.
18.

Exceptions to Certification Statement

Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

15

This figure is based on the following: (48 burden hours per broker or dealer) x (7 nonFINRA brokers or dealers) = 336 aggregate, ongoing burden hours.
8