DGL REVISED 2013 10b-10 SS

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
“Rule 10b-10”
A.

JUSTIFICATION
1.

Necessity of Information Collection

Rule 10b-10 under the Securities Exchange Act of 1934 (“Exchange Act”) requires
broker-dealers to disclose basic trade information to customers regarding their securities
transactions. The information required by rule 10b-10 includes: the date and time of the
transaction, the identity and number of shares bought or sold, and the trading capacity of the
broker-dealer. In addition, depending on the trading capacity of the broker-dealer, the Rule
requires the disclosure of commissions and, under specified circumstances, mark-up and markdown information. For transactions in debt securities (other than U.S. savings bonds and
municipal securities) the Rule requires the disclosure of redemption and yield information. For
transactions in securities futures products in a futures account, the Rule permits alternative
information disclosure requirements. This alternative information includes, the date the
transaction was executed; the identity and number of shares bought or sold; the price, the
delivery month, and the exchange on which the transaction was executed; the source and amount
of broker remuneration; whether the broker received payment for order flow; and, the fact that
other specified information about the execution of the transaction will be available upon written
request.
Rule 10b-10 also requires broker-dealers to inform their customers if they are not members
of the Securities Investor Protection Corporation (“SIPC”). The purpose of this disclosure is to
ensure that customers are not led to believe that their accounts are subject to SIPC protection when
they are not. In addition, the Rule requires broker-dealers to state on confirmations whether they
receive payment for order flow.
The confirmation has become a customary tool in the industry, and it serves several
functions: firms use it as a billing statement; it serves as a customer invoice; it informs customers
of the details of a transaction allowing them to check for errors or misunderstandings; it provides
consumer information, allowing investors to evaluate the cost and quality of the services provided
by broker-dealers; it discloses possible conflicts of interest that may arise between the investor and
broker-dealer; and it safeguards against fraud by helping the customer to detect problems associated
with a transaction.
2.

Purpose and Use of the Information Collection

The purpose of Rule 10b-10 is to ensure that investors are given the necessary information
to evaluate their securities transactions and the broker-dealers effecting those transactions. In the
absence of the rule’s requirements, investors may not be fully informed of important information
relating to their securities transactions.

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3.

Consideration Given to Information Technology

Most customer confirmations are generated by automated systems, which allow
confirmations to be generated in a fraction of the time it would take to generate a confirmation
manually. The Commission staff estimates the costs of producing and sending a paper
confirmation, including postage to be approximately 54 cents. The Commission staff also estimates
that the cost of producing and sending a wholly electronic confirmation is approximately 39 cents.
Based on informal discussions with industry participants as well as no-action positions taken in this
area, the staff estimates that broker-dealers used electronic confirmations for approximately 35
percent of transactions.
4.

Duplication

Not applicable; there is no duplication of information.
5.

Effect on Small Entities

The requirements of Rule 10b-10 are not unduly burdensome on smaller broker-dealers.
6.

Consequences of Not Conducting Collection

One of the primary purposes of Rule 10b-10 is to provide customers with immediate written
notification of their securities transactions so that they can monitor the trading activity in their
accounts. Less frequent dissemination of trade information to customers would substantially lessen
the rule’s investor protection functions.
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

Not applicable.
10.

Confidentiality

Not applicable; respondents provide information to their customers about their own
transactions.
11.

Sensitive Questions

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Not applicable; no information of a sensitive nature is required under the rule.
12.

Burden of Information Collection

Rule 10b-10 potentially applies to all of the approximately 5,178 broker-dealers registered
with the Securities and Exchange Commission that effect transactions for customers. It is
important to note, however, that the confirmation is a customary document used by the industry for
business reasons and is a matter of good business practices.
Based on information provided by registered broker-dealers to the Commission in FOCUS
Reports, the Commission staff estimates that on average, registered broker-dealers process
approximately 1.4 billion order tickets per month for transactions on behalf of customers. Each
order ticket representing a transaction effected on behalf of a customer results in one confirmation.
Therefore, the Commission staff estimates that approximately 16.8 billion confirmations are sent to
customers annually. 1
The number of confirmations sent and the cost of the confirmations vary from firm to firm
as smaller firms send fewer confirmations than larger firms because they effect fewer transactions.
The Commission staff estimates from information provided by industry participants that it takes
about thirty seconds to generate and send a confirmation. As a result, the Commission staff
estimates that the annual burden to brokers-dealers to comply with the confirmation delivery
requirements of Rule 10b-10 would be approximately 140 million hours. 2 This is an ongoing,
third-party disclosure burden.
13.

Costs to Respondents

Since 1996, the Commission has permitted broker-dealers to comply with Rule 10b-10 by
means of electronic communications. Informal discussions with securities industry
representatives as well as exemptive and no-action letters issued in this area lead us to believe
that broker-dealers use electronic confirmations as their sole confirmations for approximately 35
percent of transactions. For the remaining 65 percent of transactions, we believe that brokerdealers continue to send paper confirmations.
The Commission staff calculates that, as a result, approximately 10,920,000,000 paper
confirmations are mailed to customers each year. 3 According to information previously provided
by industry participants, the Commission staff estimates that the average cost for paper

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(1.4 billion confirmations/month x 12 months/year = 16.8 billion confirmations.)

2

(16.8 billion confirmations at 0.5 minutes per confirmation = 8.4 billion minutes; 8.4 billion
minutes/60 minutes per hour = 140 million hours.)

3

(65 percent of 16.8 billion is 10,920,000,000.)

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confirmations, including postage, for a one-page confirmation is 54 cents. 4 Based on these
calculations, the Commission staff estimates that the total annual cost associated with generating
and mailing paper confirmations would be $5,896,800,000. 5
As explained above, the Commission staff estimates that approximately 35 percent of
confirmations generated are sent by electronic means alone. This means that approximately
5,880,000,000 wholly electronic confirmations are sent each year. 6 The Commission staff
estimates that the cost of each wholly electronic confirmation is 39 cents. Based on these
calculations, the Commission staff estimates that the total annual cost associated with generating
and sending wholly electronic confirmations is $2,293,200,000. 7
Based upon discussions with industry participants, the Commission staff estimates that
the total annual cost associated with generating and delivering to investors the information
required under Rule 10b-10 would be $8,190,000,000. 8
14.

Costs to Federal Government

Rule 10b-10 does not require that any documents be submitted to the Federal government,
thus no costs to the Federal government are imposed directly by the Rule. Costs to the Federal
government are attributable to ensuring compliance with and enforcing the Rule. The cost to the
Federal government attributable to the operation of Rule 10b-10 is estimated at $20,000 per year
(500 reviews at one hour at a cost of $40.00 per hour, including overhead). It should be noted that
the Financial Industry Regulatory Authority, Inc. conducts its own examinations to determine
compliance with confirmation rules.
15.

Changes in Burden

In December 2012, the Commission staff revised its burden estimate because since the last
time the burden was estimated in 2010, the estimated time per response and average costs per
response decreased, and the percentage of cheaper responses provided electronically increased, as
detailed in items 12 and 13 above. Commission staff believes that these changes are attributable
largely to time and cost savings from improvements in information technology and wider use of
electronic means of delivering and receiving confirmations by broker-dealers and their customers.
There have been no further changes to the burden estimate since the December 2012 revisions.
4

This estimate includes the one-cent increase in the price for mailing a domestic, one-ounce, First-Class Mail
single-piece letter, to 46 cents, that went into effect on January 27, 2013.

5

(10,920,000,000 paper confirmations at 54 cents per confirmation is $5,896,800,000.)

6

(35 percent of 16.8 billion is 5,880,000,000.)

7

(5,880,000,000 confirmations at 39 cents per confirmation is $2,293,200,000.)

8

($5,896,800,000 + $2,293,200,000 = $8,190,000,000.)

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16.

Information Collections Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification

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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