18a-8 Supporting Statement

18a-8 Supporting Statement.pdf

Rule 18a-8 – Notification Provisions for Security-Based Swap Dealers and Major Security-Based Swap Participants

OMB: 3235-0750

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SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 18a-8
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 July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) into law. 1 Section 764 of the Dodd-Frank Act
added section 15F to the Securities Exchange Act of 1934 (the “Exchange Act”), which provides
that the Commission shall adopt rules governing recordkeeping and reporting for security-based
swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”). 2 More
specifically, section 15F(f)(1)(A) provides that SBSDs and MSBSPs shall make such reports as
are required by the Commission, by rule or regulation, regarding the transactions and positions
and financial condition of the SBSD or MSBSP. 3
Accordingly, on April 17, 2014, the Commission proposed amendments to its
recordkeeping and reporting rules for broker-dealers as well as new recordkeeping and reporting
rules for SBSDs and MSBSPs (the “SBS Recordkeeping Release”). 4 More specifically,
proposed new Exchange Act Rule 18a-8 specifies the circumstances under which stand-alone
SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs must notify the Commission
about its financial or operational condition, as well as the form that the notice must take. 5
Proposed Rule 18a-8 is modeled on Exchange Act Rule 17a-11, as proposed to be amended,
which applies to broker-dealers, but proposed Rule 18a-8 does not include a parallel requirement
for every requirement in Rule 17a-11 because some of the Rule 17a-11 notices relate to
calculations that would not be relevant to stand-alone SBSDs, stand-alone MSBSPs, bank
SBSDs, and bank MSBSPs. 6

See Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111-203, 124 Stat.
1376 (2010).

See 15 U.S.C. 78o-10.

See 15 U.S.C. 78o-10(f)(1)(A).

See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based
Swap Participants, and Broker-Dealers; Capital Rule for Certain Security-Based Swap Dealers; Proposed
Rules, Exchange Act Release No. 71958 (Apr. 17, 2014), 79 FR 25193 (May 2, 2014).

See, e.g., 17 CFR 240.17a-11(b)(2) and (c)(1).

Proposed Rule 18a-8 would establish a number of new collections of information, as
summarized in the table below. 7
ANC stand-alone
SBSDs
Net capital below minimum Rule 18a-8(a)(1)(i)
Tentative net capital below
Rule 18a-8(a)(1)(ii)
minimum
Tangible net worth below
minimum
Early warning of net capital Rule 18a-8(b)(1)
Early warning of tentative
Rule 18a-8(b)(2)
net capital
Early warning of tangible net
worth
Backtesting exception
Rule 18a-8(b)(4)
Notice of adjustment of
reported capital category
Failure to make and keep
Rule 18a-8(d)
current books and records
Material weakness
Rule 18a-8(e)
Insufficient liquidity reserves Rule 18a-8(f)
Failure to make a required
Rule 18a-8(g)
reserve deposit

Non-model standalone SBSDs
Rule 18a-8(a)(1)(i)

Bank SBSDs

Stand-alone MSBSPs

Rule 18a-8(a)(2)
Rule 18a-8(b)(1)

Rule 18a-8(b)(3)

Rule 18a-8(c)
Rule 18a-8(d)

Rule 18a-8(d)

Rule 18a-8(e)
Rule 18a-8(g)

Rule 18a-8(g)

Purpose and Use of the Information Collection

The information obtained under Rule 18a-8 is used to monitor the financial and
operational condition of stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank
MSBSPs. This information alerts the Commission of the need to increase surveillance of the
firm’s financial and operational condition. No similar information is already available to use or
modify for purposes of complying with Rule 18a-8 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 monitor stand-alone SBSDs, stand-alone MSBSPs, bank
SBSDs, and bank MSBSPs experiencing financial or operational difficulties.
3.

Consideration Given to Information Technology

Under paragraph (h) of Rule 18a-8, as currently proposed, firms would be required to
give or transmit such notice by facsimile transmission. Reports required by Rule 18a-8 may be
transmitted by overnight delivery.
4.

Duplication

Duplication of information is not a concern because the reporting requirements are only
applicable to those stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs
triggering the early warning mechanisms of Rule 18a-8.
7

Effect on Small Entities

Based on feedback from industry participants about the security-based swap market,
entities that would qualify as SBSDs or MSBSPs will likely exceed the thresholds defining
“small entities”. Thus, it is unlikely that the requirements under proposed new Rule 18a–8
would have a significant economic impact on a small entity.
6.

Consequences of Not Conducting Collection

In the absence of Rule 18a-8, the Commission and, if applicable, the CFTC, might not be
promptly alerted to a stand-alone SBSD, stand-alone MSBSP, bank SBSD, or bank MSBSP’s
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 the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The Commission has issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens. A copy of the SBS
Recordkeeping Release is attached. Comments on Commission releases are generally received
from registrants, investors, and other market participants. In addition, the Commission and staff
participate in ongoing dialogue with representatives of various market participants through
public conferences, meetings and informal exchanges. Any comments received on this proposed
rulemaking will be posted on the Commission’s public website, and made available through
http://www.sec.gov/rules/proposed.shtml. The Commission will consider all comments received
prior to publishing the final rule, and will explain in any adopting release how the final rule
responds to such comments, in accordance with 5 C.F.R. 1320.11(f).
9.

Payment or Gift

No payments or gifts were provided to respondents.
10.

Confidentiality

The reports required by Rule 18a-8 are available only to the staff of the Commission and
if applicable, the CFTC. Subject to the provisions of the Freedom of Information Act, 5 U.S.C.
§ 552, and the Commission’s rules thereunder (17 CFR 200.80(b)(8)), the Commission generally
would not publish or make available to any person notices or reports received pursuant to Rule
18a-8. The Commission believes that information obtained under Rule 18a-8 would relate to a
condition report prepared for the use of the Commission and other federal governmental
authorities responsible for the regulation or supervision of stand-alone SBSDs, stand-alone
MSBSPs, bank SBSDs, and bank MSBSPs.

11.

Sensitive Questions

As discussed above in Item 10, the collection of information will not include publicly
available information. Furthermore, we do not believe that the collection of information will
contain Personally Identifiable Information (“PII”). 8
12.

Burden of Information Collection

Proposed Rule 18a–8 would require non-broker-dealer SBSDs and non-broker-dealer
MSBSPs to notify the Commission of certain indicia of their financial condition. 9
The Commission estimates that each Rule 18a-8 notice would take approximately 55
minutes to prepare and file, in contrast to its estimate that a Rule 17a-11 notice would take one
hour to prepare and file, because stand-alone SBSDs and stand-alone MSBSPs do not have a
DEA with which to file a copy of the Rule 18a-8 notice and bank SBSDs and bank MSBSPs are
not required to file the Rule 18a-8 notice with their prudential regulator.
The Commission estimates that it would receive approximately five Rule 18a-8 notices
per year, based on the substantially smaller pool of possible respondents, as compared with Rule
17a-11. Therefore, the Commission estimates that Rule 18a-8 would result in an industry-wide
annual burden of 4.6 hours per year (including the first year). 10 These burdens are reporting
burdens.
Summary of Hourly Burdens

Name of Information
Collection

Type of
Burden

Number
of Entities
Impacted

Annual
Responses
per Entity

Initial
Burden per
Entity per
Response

Initial Burden
Annualized
per Entity per
Response

Ongoing
Burden per
Entity per
Response

Annual
Burden Per
Entity per
Response

Total Annual
Burden Per
Entity

Total Industry
Burden

Small
Business
Entities
Affected

[ D + E]

[F * B]

[G * A]

[A * 0%]

[C ÷ 3 years]

Rule 18a-8 Notice

Reporting

0.00

0.92

4.60

TOTAL HOURLY BURDEN FOR ALL RESPONDENTS

4.60

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.

55 minutes / 60 minutes = .92 hours per notice x 5 notices per year = 4.6 hours per year.

0.00

13.

Costs to Respondents

The Commission does not anticipate that proposed Rule 18a-8 will impose capital and
start-up costs or operation, maintenance, and purchase of services costs.
14.

Costs to Federal Government

Rule 18a-7 is not expected to result in costs to the federal government due to contracting,
information technology, development, hiring one or more new employees, or reallocating
existing employees.
15.

Changes in Burden

Because stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs are
currently not regulated by the Commission, the estimated change in burden represents the entire
estimated industry-wide burden. More specifically, the annual ongoing burden of 4.6 hours
reflects a 4.6 hour increase from the current OMB inventory of 0 hours.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

OMB Expiration Date Display Approval

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

Exceptions to Certification for PRA 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.

File Type	application/pdf
File Modified	2016-09-09
File Created	2016-09-09