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pdfSUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 18a-3 under
the Exchange Act –Non-cleared security-based swap margin requirements for securitybased swap dealers and major security-based swap participants for which there is not a
prudential regulator
OMB Control Number 3235-0702
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.
JUSTIFICATION
1.
Necessity of Information Collection
On June 21, 2019, in accordance with Section 764 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank Act”), 1 which added Section 15F to
the Securities Exchange Act of 1934 (the “Exchange Act”), 2 the Securities and Exchange
Commission (the “Commission”) adopted Rule 18a-3 to establish minimum margin
requirements for nonbank security-based swap dealers (“SBSDs”) and nonbank major securitybased swap participants (“MSBSPs”) for non-cleared security-based swaps. 3 The rule
established a new collection of information requirement with respect to nonbank SBSDs.
Specifically, under Rule 18a-3(e) nonbank SBSDs are required to monitor the risk of
each account that holds non-cleared security-based swaps for a counterparty and to
establish, maintain, and document procedures and guidelines for monitoring the risk of
accounts as part of its risk management control system required under Exchange Act Rule
15c3-4. In addition, the rule requires nonbank SBSDs to review, in accordance with written
procedures and at reasonable periodic intervals, its non-cleared security-based swap activities
for consistency with such risk monitoring procedures and guidelines. Nonbank SBSDs are
also required to determine whether information and data necessary to apply the risk
monitoring procedures and guidelines are accessible on a timely basis and whether
information systems are available to adequately capture, monitor, analyze, and report
relevant data and information. Finally, the rule requires that the monitoring procedures and
guidelines must include, at a minimum, procedures and guidelines for:
•
•
Obtaining and reviewing account documentation and financial information
necessary for assessing the amount of current and potential future exposure to a
given counterparty permitted by the SBSD;
Determining, approving, and periodically reviewing credit limits for each
counterparty, and across all counterparties;
1
See Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376
(2010).
2
See 15 U.S.C. 78o-10(e)(2)(B).
3
See Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 86175.
•
•
•
•
•
•
Monitoring credit risk exposure to the SBSD from non-cleared security-based
swaps, including the type, scope, and frequency of reporting to senior
management;
Using stress tests to monitor potential future exposure to a single counterparty and
across all counterparties over a specified range of possible market movements
over a specified time period;
Managing the impact of credit exposure related to non-cleared security-based
swaps on the SBSD’s overall risk exposure;
Determining the need to collect collateral from a particular counterparty, including
whether that determination was based upon the creditworthiness of the
counterparty and/or the risk of the specific non-cleared security-based swap
contracts with the counterparty;
Monitoring the credit exposure resulting from concentrated positions with a single
counterparty and across all counterparties, and during periods of extreme
volatility; and
Maintaining sufficient equity in the account of each counterparty to protect against
the largest individual potential future exposure of a non-cleared security-based
swap carried in the account of the counterparty as measured by computing the
largest maximum possible loss that could result from the exposure.
In addition, Rule 18a-3(d)(2) provides that a nonbank SBSD seeking approval to use a
model to calculate initial margin will be subject to an application process consistent with
Exchange Act Rule 15c3-1e and Exchange Act Rule 18a-1(d), as applicable, governing the use
of internal models to compute net capital. The nonbank SBSD will need to submit sufficient
information to allow the Commission to make a determination regarding the performance of the
nonbank SBSD’s initial margin methodology. 4
2.
Purpose and Use of the Information Collection
Information collections under Rule 18a-3 are integral to the Commission’s financial
responsibility program for nonbank SBSDs. The program is designed to ensure that nonbank
SBSDs effectively manage counterparty risk by monitoring their financial exposures to noncleared security-based swap counterparties. These information collections will facilitate the
collection of adequate levels of margin assets by nonbank SBSDs to protect them against
counterparty default on both current and potential future exposures.
Under Rule 18a-3, a nonbank SBSD is required to establish and implement risk
monitoring procedures with respect to counterparty accounts. The purpose of the rule is to limit
risks to individual firms and systemic risk arising from non-cleared security-based swaps.
Firms’ records relating to the collection of collateral required by Rule 18a-3 assist examiners in
evaluating whether SBSDs are in compliance with requirements in the rule. 5
4
While Rule 18a-3 contains requirements that apply to both nonbank SBSDs and MSBSPs, the particular
requirements that constitute a collection of information relate only to nonbank SBSDs.
5
The records required to be made and maintained, and the retention requirements for nonbank SBSDs are set
forth in Rules 18a-5 (17 CFR 240.18a-5) and 18a-6 (17 CFR 240.18a-6).
2
3.
Consideration Given to Information Technology
The information collections will not require that respondents use any specific
information technology system either to prepare or submit information collections under Rule
18a-3.
4.
Duplication
This information collection does not duplicate any existing information collection.
5.
Effect on Small Entities
The information collections required under Rule 18a-3 would not place burdens on small
entities. The nonbank SBSDs subject to the information collections under the rule are not
expected to be small entities.
6.
Consequences of Not Conducting Collection
If the required information collections are not conducted or are conducted less
frequently, the protection afforded to counterparties and the U.S. financial system would be
diminished.
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.
9.
Payment or Gift
No payment or gift is provided to respondents.
10.
Confidentiality
The information collected by the Commission under Rule 18a-3 is kept confidential to
the extent permitted by the Freedom of Information Act (5 U.S.C. § 552 et seq.).
11.
Sensitive Questions
The Information Collection does not collect information about individuals, therefore, a
PIA, SORN, and PAS are not required.
12.
Information Collection Burden
The total annual hour burden associated with Rule 18a-3 is approximately 1,030 hours
3
calculated as follows:
Counterparty Risk Monitoring Procedures (Rule 18a-3(e))
The Commission staff estimates that there are 13 nonbank SBSDs that are subject to
Rule 18a-3. The staff previously estimated that each of the nonbank SBSDs would spend an
average of approximately 210 hours establishing and documenting their Rule 18a-3
counterparty risk monitoring procedures. As this initial burden has already been incurred by
the nonbank SBSDs, it is no longer applicable with respect to the determination of the hourly
burden for Rule 18a-3(e).
With respect to ongoing burdens, the staff estimates that each nonbank SBSD would
spend an average of approximately 60 hours per year reviewing risks associated with its
counterparties, for an annual industry-wide burden of approximately 780 recordkeeping hours. 6
Consequently, the annual hour burden for the total industry is approximately 780 hours
per year.
Initial Margin Model (Rule 18a-3(d))
A nonbank SBSD may use a model to calculate initial margin, if the use of the model
has been approved by the Commission. A nonbank SBSD seeking approval to use a margin
model will be subject to an application process and ongoing conditions in Rule 15c3-1e and
Rule 18a-1(d) governing the use of internal models to compute net capital. A nonbank SBSD
seeking approval to use a margin model will need to submit sufficient information to allow the
Commission to make a determination regarding the performance of the nonbank SBSD’s
margin methodology. With respect to one-time burdens, based on staff experience, the
Commission previously estimated that it will take a nonbank SBSD approximately 50 hours to
prepare and submit an application to the Commission to seek authorization to use an internal
model to calculate initial margin. This initial burden has already been incurred by the nonbank
SBSDs, and as a result is no longer applicable with respect to the determination of the hourly
burden for Rule 18a-3(e).
With respect to ongoing burdens, the Commission estimates that each nonbank SBSD
will spend approximately 250 hours per year reviewing, updating, and back testing their initial
margin model. Based on current data, the Commission estimates that one nonbank SBSD has
elected to use a model to calculate initial margin, resulting in a total industry-wide annual hour
burden of approximately 250 recordkeeping hours. 7 In total, the Commission estimates an
annual hour burden of approximately 250 hours per year.
6
13 nonbank SBSDs x 60 hours = 780 hours.
7
1 nonbank SBSDs x 250 hours = 250 hours.
4
Summary of Hour Burdens
Rule 18a-3(e)
(Counterparty Risk
Monitoring
Procedures)
Rule 18a-3(d)
(Initial Margin
Model)
13.
Initial
Burden
per
Entity
per
Response
Type of
Burden
Number
of
Entities
Impacted
Annual
Responses
per Entity
Recordkeeping
13
1
0.00
Recordkeeping
1
1
0.00
Name of
Information
Collection
Initial
Burden
Annualized
per Entity
per
Response
Ongoing
Burden
per Entity
per
Response
Annual
Burden
Per Entity
per
Response
Total
Annual
Burden
Per Entity
0.00
60.00
60.00
60.00
780
0
0.00
250.00
250.00
250.00
250
0
TOTAL HOURLY BURDEN FOR ALL RESPONDENTS
1,030
Total
Industry
Burden
Small
Business
Entities
Affected
Costs to Respondents
The Commission estimates that there are no costs associated with Rule 18a-3. The
Commission previously estimated that the total one-time cost burden associated with Rule 18a-3
was approximately $3,333. The Commission based this estimate on the 7 respondents
previously estimated to be subject to the collection of information incurring start-up costs in
order to comply with the collection of information. As those one-time start-up costs have
already been incurred, they are no longer applicable to determining the costs to respondents
related to Rule 18a-3.
14.
Cost to Federal Government
The staff does not anticipate this information collection to impose additional costs to
the Federal Government.
15.
Changes in Burden
The changes in burden result from an increase in the estimated number of respondents
from 7 to 13, as well as from a reduction in the estimated initial one-time burdens. A chart
summarizing the changes in burdens and costs is below.
Name of Information
Collection
Current
Annual
Industry
Burden
Rule 18a-3(e)
(Counterparty Risk
Monitoring Procedures)
910
Rule 18a-3(d) (Initial
Margin Model)
1,333
Rule 18a-3 (Cost
Burden)
$3,333
Revised Annual
Industry Burden
780
250
$0
5
Change in
Burden
Reason for Change
(130)
Change in staff estimate of entities
impacted and reduction in one-time
initial costs
(1,083)
Change in staff estimate of entities
impacted and reduction in one-time
initial costs
($3,333)
Change in staff estimate of entities
impacted.
16.
Information Collected Planned for Statistical Purposes
Not applicable. The information collection is not used for statistical purposes.
17.
date.
OMB Expiration Date Display Approval
The Commission is not seeking approval to not display the OMB approval expiration
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.
6
File Type | application/pdf |
Author | Jane Wetterau |
File Modified | 2025-05-06 |
File Created | 2025-05-06 |