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pdfSUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 606 of Regulation NMS
A.
Justification
1.
Necessity of Information Collection
This information collection is required under Rule 606 and Section 17(a) of the Securities
Exchange Act of 1934 (“Exchange Act”). The Commission adopted Rule 606 f/k/a Rule
11Ac1-6 as part of Regulation NMS. 1 The order routing information required by Rule 606 is
necessary to further the national market system objectives. These objectives include the
economically efficient execution of orders, fair competition among broker-dealers and among
markets, the availability to broker-dealers and investors of information with respect to
transactions in securities, and the practicability of broker-dealers executing investors’ orders in
the best market.
On July 13, 2016, the Commission proposed amendments to Rule 606 of Regulation
NMS to require new disclosures by broker-dealers relating to their handling of institutional
orders and enhancements to existing disclosures with respect to retail orders. 2
As proposed, the amendments to Rule 606 would require collections of information, as
summarized in the table below.
Information Item
Rule
Customer-Specific Disclosures on Institutional
Order Handling
Quarterly Aggregated Public Disclosures on
Institutional Order Handling
Assignment and Documentation of Institutional
Order Routing Strategies
Existing Disclosures on Retail Order Handling
Amendments to Disclosures on Retail Order
Handling
606(b)(3)
606(c)
606(b)(3)(v)
606(a)(1),
606(b)(1)
606(a)(1),
606(b)(1)
Existing or
New
Collection
New
New
New
Existing
New
1
See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29,
2005).
2
See Securities Exchange Act Release No. 78309 (July 13, 2016), 81 FR 49431 (July 27,
2016) (“Proposing Release”).
2.
Purpose and Use of the Information Collection
The purpose of the information collection is to make information about order routing
practices available to individual investors and the public. The information disclosed by Rule 606
is used by investors and broker-dealers. Investors use the information in selecting a brokerdealer and in determining whether the broker-dealers they have chosen are making sound orderrouting decisions. Broker-dealers use the information to compete on the basis of order routing
services.
Currently, Rule 606 requires disclosures relating to retail orders. The proposed
amendments to Rule 606 extend the required disclosures to include institutional orders and also
enhance the existing retail order disclosures. Generally, the order routing disclosures required
under the proposed amendments to Rule 606 would provide detailed information to both
institutional and retail customers that would enable them to evaluate how their orders were
routed by their broker-dealers, assess conflicts of interest facing their broker-dealers in providing
order routing services, and have the ability to engage in informed discussions with their brokerdealers about the broker-dealer’s order routing practices. The proposed order routing disclosures
could inform future decisions on whether to retain a broker-dealer’s order routing services or
engage the order routing services of a new broker-dealer. In addition, broker-dealers may use the
public disclosures to compete on the basis of order routing services.
3.
Consideration Given to Information Technology
Current Rule 606 requires broker-dealers to prepare and disseminate quarterly retail order
routing reports. Much of the information needed to generate these reports already should be
collected by broker-dealers in connection with their periodic evaluations of their order routing
practices. Broker-dealers must conduct such evaluations to fulfill the duty of best execution that
they owe their customers under agency law. To comply with the Rule, however, broker-dealers
would incur additional burdens in preparing the reports and disseminating them on a free Internet
Web site (and responding to requests for written copies of the reports).
Amended Rule 606 would require a broker-dealer that receives institutional orders in
NMS stocks to, upon request, provide customer-specific reports on their institutional order
handling and to also make publicly available on a quarterly basis a report that aggregates
information on institutional order handling. The proposal also enhances existing disclosures on
retail order handling. The Commission preliminarily believes that many broker-dealers that route
institutional and retail orders already create and retain the order handling information required by
the proposed amendments to Rule 606. 3 However, to comply with the proposed amendments to
the Rule, some broker-dealers would incur additional burdens to update their systems to create
and retain the information required by the proposal, and most broker-dealers would incur
additional burdens to update their systems to respond to requests for customer-specific order
3
See Proposing Release, supra note 2, 49469, 49474.
2
handling disclosures.
The Commission believes that broker-dealers whose systems do not currently support
creating and retaining the proposed information will upgrade their systems either in-house or via
a third-party service provider. 4 The Commission has solicited comment on whether there are
ways to minimize the burden of collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of information technology. 5
The Commission is also proposing that the public retail order routing reports required by
current Rule 606(a)(1) and customer-specific retail order routing reports required by current Rule
606(b)(1) be made available using an XML schema and associated PDF renderer to be published
on the Commission’s website. 6 The Commission preliminarily believes that retail customers
would have a similar interest as institutional customers in receiving the reports in a format that
would allow them to use software applications to automatically recognize and process the
information rather than having to manually enter the data to perform a comparison across brokerdealers.
Broker-dealers are not prohibited from using any technology that facilitates consumer
understanding and that permits review, as appropriate, by the Commission or other appropriate
regulatory authorities.
4.
Duplication
Duplication of information is currently not a concern; the reported information is not
duplicated elsewhere.
5.
Effect on Small Entities
Under the standard for determining whether a broker-dealer is a small entity in Exchange
Act Rule 0-10(b), the Commission estimates that no broker-dealers subject to current or proposed
Rule 606 is a small entity.
6.
Consequences of Not Conducting Collection
The quarterly disclosures required by Rule 606 allow customers periodically to evaluate
and monitor their broker-dealer’s order routing decisions. A less frequent collection would limit
investors’ opportunities to undertake this critical evaluation.
4
See id.
5
See id. at 49477.
6
Proposed Rules 606(a)(1) and (b)(1).
3
The quarterly and customer-specific disclosures on institutional order routing proposed in
the amendments to Rule 606 would allow customers to evaluate and monitor their brokerdealer’s order routing decisions on both a periodic and ad-hoc basis. A less frequent collection
would limit investors’ opportunities to undertake this critical evaluation.
7.
Inconsistencies with Guidelines in 5 CFR Part 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 solicited comments on the proposed new collection of information
requirements and associated paperwork burdens. 7 A copy of the Proposing Release is attached.
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).
In addition, the Commission and staff participate in ongoing dialogue with
representatives of various market participants through public conferences, meetings and informal
exchanges.
9.
Payment or Gift
Not applicable.
10.
Confidentiality
Not applicable.
11.
Sensitive Questions
No information of a sensitive nature, will be required under this collection of information.
The information collection does not collect personally identifiable information (PII). The
agency has determined that a system of records notice (SORN) and privacy impact assessment
(PIA) are not required in connection with the collection of information.
12.
Burden of Information Collection
A.
7
Current Burden of Rule 606
See Proposing Release, supra note 2, at 49477.
4
The collection of information obligations of Rule 606 apply to broker-dealers that route
non-directed customer orders in covered securities. As of the most recent PRA renewal in 2016,
the Commission estimates that there are 266 broker-dealers (185 clearing brokers and 81
introducing brokers) that are potentially subject to the collection of information obligations of
Rule 606. 8 Each of these respondents (if engaged in the business of routing non-directed orders
on behalf of customers) is required to respond to the collection of information on a quarterly
basis with respect to the Rule’s reporting obligations, and on an ongoing basis with respect to the
Rule’s requirement to respond to customer requests for order routing information.
The Commission staff estimates that each firm significantly involved in order routing
practices will incur an average burden of 40 hours to prepare and disseminate a quarterly report
required by Rule 606, or a burden of 160 hours per year. With an estimated 266 broker-dealers
significantly involved in order routing practices, the total industry-wide burden per year to
comply with the quarterly reporting requirement in Rule 606 is estimated to be 42,560 hours (160
x 266).
Rule 606 also requires broker-dealers to respond to individual customer requests for
information on orders handled by the broker-dealer for that customer. Clearing brokers generally
bear the burden of responding to these requests. The Commission staff estimates that an average
clearing broker will incur an annual burden of 400 hours (2000 responses x 0.2 hours/response)
to prepare, disseminate, and retain responses to customers required by Rule 606. With an
estimated 185 clearing brokers subject to the Rule, the total industry-wide burden per year to
comply with the customer response requirement in Rule 606 is estimated to be 74,000 hours (185
x 400).
B.
Burden of Proposed Amendments to Rule 606
The collection of information obligations of the proposed amendments to Rule 606 also
apply to broker-dealers that route non-directed customer orders in covered securities. The
Commission estimates that there are 266 broker-dealers (185 clearing brokers and 81 introducing
brokers) that are potentially subject to the collection of information obligations of Rule 606. 9
The Commission estimates that all 266 broker-dealers are involved in routing retail orders and
200 broker-dealers are involved in routing institutional orders. 10
a.
Customer-Specific Disclosures on Institutional Order Handling –
Proposed Rule 606(b)(3)
8
2014 Form BD and Form Custody data.
9
See Proposing Release, supra note 2, at 49469, 49474.
10
See id. at 49469. “Institutional order” and “retail order” are defined by proposed
amendments to Rule 600. See id. at 49444-45, 49466.
5
i.
Initial Reporting and Recordkeeping Burden
Proposed Rule 606(b)(3) would establish new recordkeeping requirements applicable to
broker-dealers that route institutional orders and enhance existing recordkeeping requirements
for broker-dealers that route retail orders. The Commission preliminarily believes that many
broker-dealers that route institutional orders already create and retain the order handling
information required by proposed Rule 606(b)(3), either through proprietary in-house systems or
through third-party service providers. Accordingly, the Commission has provided two estimates
for the initial reporting and recordkeeping burden imposed by proposed Rule 606(b)(3) – one for
broker-dealers that route institutional orders whose systems do not currently support creating and
retaining the information required by Rule 606(b)(3) who will upgrade their systems either inhouse or via a third-party service provider, and another for broker-dealers that route institutional
orders whose systems currently do create and retain such information, including those that use a
third-party service provider whose systems currently obtain such information.
The Commission estimates that the initial burden to implement the requirements of
proposed Rule 606(b)(3) would be 2,000 hours 11 for broker-dealers with systems that do not
capture the information required by the proposed rule to perform the necessary system upgrades
in-house to both capture the information and produce the report required by the proposed rule.
The Commission estimates that the total burden for broker-dealers with systems that already
capture the information required by the proposed rule to upgrade their systems in-house to
produce the report required by the proposed rule would be 5,000 hours. 12
The Commission estimates that the initial burden to implement the requirements of
proposed Rule 606(b)(3) would be 750 hours 13 for broker-dealers with systems that do not
capture the information required by the proposed rule to engage a third party to perform the
necessary system upgrades to both capture the information and produce the report required by the
proposed rule. The Commission estimates that the total burden for broker-dealers with systems
11
200 hours x 10 broker-dealers that will perform the necessary upgrades in-house. The
associated monetized burden is $604,200: 10 broker-dealers x $60,420 (Sr. Programmer
for 100 hours at $303 per hour) + (Sr. Database Administrator for 40 hours at $312 per
hour) + (Sr. Business Analyst for 40 hours at $251 per hour) + (Attorney for 20 hours at
$380 per hour).
12
40 hours x 125 broker-dealers that will produce the report in-house. The associated
monetized burden is $1,510,500: 125 broker-dealers x 12,084 (Sr. Programmer for 20
hours at $303 per hour) + (Sr. Database Administrator for 8 hours at $312 per hour) + (Sr.
Business Analyst for 8 hours at $251 per hour) + (Attorney for 4 hours at $380 per hour).
13
50 hours x 15 broker-dealers that will engage a third party to perform the necessary
upgrades. The associated monetized burden is $226,875: 15 broker-dealers x $15,125
(Sr. Business Analyst for 15 hours at $251 per hour) + (Compliance Manager for 20
hours at $283 per hour) + (Attorney for 15 hours at $380 per hour).
6
that already capture the information required by the proposed rule to engage a third party to
upgrade their systems to produce the report required by the proposed rule would be 1,000
hours. 14
Therefore, the estimated total initial burden to comply with proposed Rule 606(b)(3) is
8,750 hours 15 or 2,916.67 hours per year when annualized over three years. 16
ii.
Annual Reporting and Recordkeeping Burden
The Commission estimates that for broker-dealers that will respond in-house to individual
customer requests for information on institutional order handling under proposed Rule 606(b)(3),
the annual burden will be 54,000 hours. 17 The annual burden for broker-dealers that will engage
a third party to respond to individual customer requests will be 13,000 hours. 18
Therefore, the estimated total annual burden to comply with proposed Rule 606(b)(3) is
67,000 hours. 19
14
20 hours x 50 broker-dealers that that will engage a third party to produce the report. The
associated monetized burden is $286,300: 50 broker-dealers x $5,726 (Sr. Business
Analyst for 4 hours at $251 per hour) + (Compliance Manager for 14 hours at $283 per
hour) + (Attorney for 2 hours at $380 per hour).
15
2,000 hours + 5,000 hours + 750 hours + 1,000 hours = 8,750 hours. The associated
monetized burden is $2,627,875 = $604,200 + $1,510,500 + $226,875 + $286,300.
16
8,750 hours / 3 years = 2,916.67 hours. The associated monetized burden is $875,958.33
per year ($2,627,875 annualized over three years).
17
135 broker-dealers x 400 hours annually (the Commission estimates there will be 200
requests annually, each of which will take an average of 2 hours to respond). The
associated monetized burden is $51,300: 200 requests x 135 broker-dealers x $380
(Programmer Analyst for 1 hour at $220 per hour) + (Jr. Business Analyst for 1 hour at
$160 per hour).
18
65 broker-dealers x 200 hours annually (the Commission estimates there will be 200
requests annually, each of which will take an average of 1 hour to respond). The
associated monetized burden is $18,395: 200 requests x 65 broker-dealers x $283
(Compliance Manager for 1 hour at $283 per hour).
19
54,000 hours + 13,000 hours = 67,000 hours. The associated monetized burden is
$69,695 = $51,300 + $18,395.
7
b.
Quarterly Aggregated Public Disclosures on Institutional Order
Handling – Proposed Rule 606(c)
i.
Initial Reporting and Recordkeeping Burden
The Commission believes that some broker-dealers will format the quarterly public
aggregated institutional order handling reports required by proposed Rule 606(c) in-house while
other broker-dealers will use a third-party service provider to format the reports. For brokerdealers that format the reports in-house, the Commission estimates that the initial burden will be
2,700 hours. 20 For broker-dealers that engage a third party to format the reports, the initial
burden will be 325 hours. 21
Therefore, the estimated total initial burden to comply with proposed Rule 606(c) is 3,025
hours or 1008.33 hours per year when annualized over three years. 23
22
ii.
Annual Reporting and Recordkeeping Burden
For broker-dealers that prepare the quarterly public institutional handling reports inhouse, the Commission estimates that the annual burden will be 5,400 hours. 24 For brokerdealers that will engage a third party to prepare the quarterly reports, the Commission estimates
that the annual burden will be 5,400 hours. 25
Therefore, the estimated total annual burden to comply with proposed Rule 606(c) is
20
135 broker-dealers x 20 hours = 2,700 hours. The associated monetized burden is
$673,650: 135 broker-dealers x $4,990 (Programmer for 10 hours at $248 per hour) + (Sr.
Business Analyst for 10 hours at $251 per hour).
21
65 broker-dealers x 5 hours = 325 hours. The associated monetized burden is $91,975:
65 broker-dealers x $1,415 (Compliance Manager for 5 hours at $283 per hour).
22
2,700 hours + 325 hours = 3,025 hours. The associated monetized burden is $765,625 =
$673,650 + $91,975
23
3,025 hours / 3 years = 2,916.67 hours. The associated monetized burden is $255,208.33
per year ($765,625 annualized over three years).
24
135 broker-dealers x 10 hours x 4 quarterly reports annually = 5,400 hours. The
associated monetized burden is $864,000: 4 quarterly reports x 135 broker-dealers x
$1,600 (Jr. Business Analyst for 10 hours at $160 per hour).
25
65 broker-dealers x 2 hours x 4 quarterly reports annually = 520 hours. The associated
monetized burden is $115,180: 4 quarterly reports x 65 broker-dealers x $443 (Jr.
Business Analyst for 1 hours at $160 per hour) + (Compliance Manager for 1 hours at
$283 per hour).
8
5,920 hours. 26
c.
Assignment and Documentation of Institutional Order Routing
Strategies – Proposed Rule 606(b)(3)(v)
i.
Initial Reporting and Recordkeeping Burden
The Commission estimates that the initial burden for broker-dealers that route
institutional orders to categorize their own current routing strategies and establish and document
specified methodologies for categorizing order routing strategies, as required by proposed Rule
606(b)(3)(v), will be 5,400 hours. 27 The initial burden for broker-dealers to engage a third party
to do so is 650 hours. 28
Therefore, the estimated total initial burden to comply with proposed Rule 606(b)(3)(v) is
6,050 hours 29 or 2,016.67 hours per year when annualized over three years. 30
ii
Annual Reporting and Recordkeeping Burden
For broker-dealers that categorize their institutional order routing strategies in-house, the
Commission estimates that the annual burden will be 2,025 hours. 31 The initial burden for
broker-dealers to engage a third party to do so is 325 hours. 32
26
5,400 hours + 520 hours = 5,920 hours. The associated monetized burden is $979,180 =
$864,000 + $115,180.
27
135 broker-dealers x 40 hours = 5,400 hours. The associated monetized burden is
$1,703,700: 135 broker-dealers x $12,620 (Sr. Business Analyst for 20 hours at $251 per
hour) + (Attorney for 20 hours at $380 per hour).
28
65 broker-dealers x 10 hours annually = 520 hours. The associated monetized burden is
$188,240: 65 broker-dealers x $2,896 (Sr. Business Analyst for 4 hours at $251 per hour)
+ (Compliance Manager for 4 hours at $283 per hour) + (Attorney for 2 hours at $380 per
hour).
29
5,400 hours + 650 hours = 6,050 hours. The associated monetized burden is $1,891,940 =
$1,703,700 + $188,240.
30
6,050 hours / 3 years = 2,016.67 hours. The associated monetized burden is $630,646.67
per year ($1,891,940 annualized over three years).
31
135 broker-dealers x 15 hours annually = 2,025 hours. The associated monetized burden
is $472,500: 135 broker-dealers x $3,500 (Jr. Business Analyst for 10 hours at $160 per
hour) + (Attorney for 5 hours at $380 per hour).
32
65 broker-dealers x 5 hours annually = 325 hours. The associated monetized burden is
$104,585: 65 broker-dealers x $1,609 (Compliance Manager for 3 hours at $283 per
hour) + (Attorney for 2 hours at $380 per hour).
9
Therefore, the estimated total annual burden to comply with proposed Rule 606(c) is
2,350 hours. 33
d.
Amendments to Disclosures on Retail Order Handling – Proposed
Rules 606(a)(1) and 606(b)(1)
i.
Initial Reporting and Recordkeeping Burden
For broker-dealers that route retail orders, the Commission believes, similarly as with the
implementation of the proposed rules on institutional order routing discussed above, that some
broker-dealers have systems that already create and retain the order handling information
required by the proposed amendments to the existing Rule 606 retail order disclosures, either
through proprietary systems or through third-party service providers. Accordingly, the
Commission has also provided one estimate for each such category of broker-dealer and further
broken down those estimates by whether the broker-dealer will upgrade its systems in-house or
via a third-party service provider.
For broker-dealers that route retail orders and do not currently capture information
required by proposed Rule 606(a)(1) to perform the necessary system updates in-house to both
capture the information and produce the report 34 required by the proposed rule, the Commission
estimates that the initial burden will be 1,900 hours. 35 For broker-dealers that currently capture
information required by the proposed Rules and that format the data in-house into their existing
reports, the initial burden would be 2,160 hours. 36
For broker-dealers that route retail orders and do not currently capture information
33
2,025 hours + 325 hours = 2,350 hours. The associated monetized burden is $577,085 =
$472,500 + $104,585.
34
This estimate includes the burden of making both the enhanced disclosure required by
proposed Rule 606(a)(1) and the current disclosure required by proposed Rule 606(b)(1)
available using the most recent versions of the XML schema and the associated PDF
renderer, as published on the Commission’s Web site, as required by both proposed Rule
606(a)(1) and 606(b)(1). See Proposing Release, supra note 2, at 49475.
35
25 broker-dealers x 76 hours = 1,900 hours. The associated monetized burden is
$566,200: 25 broker-dealers x $22,648 (Sr. Programmer for 40 hours at $303 per hour) +
(Sr. Database Administrator for 16 hours at $312 per hour) + (Sr. Business Analyst for 16
hours at $251 per hour) + (Attorney for 4 hours at $380 per hour).
36
108 broker-dealers x 20 hours= 2,160 hours. The associated monetized burden is
$537,300: 108 broker-dealers x $4,975 (Programmer for 15 hours at $248 per hour) + (Sr.
Business Analyst for 5 hours at $251 per hour).
10
required by proposed Rule 606(a)(1) to engage a third party to perform the necessary system
updates to both capture the information and produce the report required by the proposed rule, the
Commission estimates that the initial burden will be 500 hours. 37 For broker-dealers that
currently capture information required by the proposed Rules and will engage a third party to
format the data into their existing reports, the initial burden would be 864 hours. 38
For all 266 broker-dealers required to provide reports on retail order routing, the initial
burden to review, assess, and disclose their payment for order flow arrangements and profitsharing relationships would be 2,660 hours. 39
Therefore, the estimated total initial burden to comply with proposed Rules 606(a)(1) and
(b)(1) is 8,084 hours 40 or 2,694.67 hours per year when annualized over three years. 41
ii.
Annual Reporting and Recordkeeping Burden
For all 266 broker-dealers required to provide reports on retail order routing, the
Commission estimates that the annual burden to monitor payment for order flow and profitsharing relationships and potential self-regulatory organization rule changes that could impact
their order routing decisions and incorporate any new information into their reports will be 2,660
hours. 42 The Commission estimates that the annual burden for all broker-dealers to describe and
37
25 broker-dealers x 20 hours = 500 hours. The associated monetized burden is $149,625:
25 broker-dealers x $5,985 (Sr. Business Analyst for 5 hours at $251 per hour) +
(Compliance Manager for 10 hours at $283 per hour) + (Attorney for 5 hours at $380 per
hour).
38
108 broker-dealers x 8 hours= 864 hours. The associated monetized burden is $275,940:
108 broker-dealers x $2,555 (Compliance Manager for 5 hours at $283 per hour) +
(Attorney for 3 hours at $380 per hour).
39
266 broker-dealers x 10 hours annually = 2,660 hours. The associated monetized burden
is $839,230: 266 broker-dealers x $3,155 (Sr. Business Analyst for 5 hours at $251 per
hour) + (Attorney for 5 hours at $380 per hour).
40
1,900 hours + 2,160 hours + 500 hours + 864 hours + 2,660 hours = 8,084 hours. The
associated monetized burden is $2,368,295 = $566,200 + $537,300 + $149,625 +
$275,940 + $839,230.
41
8,084 hours / 3 years = 2,694.67 hours. The associated monetized burden is $789,431.67
per year ($2,368,295 annualized over three years).
42
266 broker-dealers x 10 hours annually = 2,660 hours. The associated monetized burden
is $839,230: 266 broker-dealers x $3,155 (Sr. Business Analyst for 5 hours at $251 per
hour) + (Attorney for 5 hours at $380 per hour).
11
update any terms of payment for order flow arrangements and profit-sharing relationships with a
Specified Venue that may influence their order routing decisions pursuant to proposed Rule
606(a)(1)(iv) will be 3,990 hours. 43
Therefore, the estimated total annual burden to comply with proposed Rule 606(c) is
6,650 hours. 44
43
266 broker-dealers x 25 hours annually = 3,990 hours. The associated monetized burden
is $931,000: 266 broker-dealers x $3,500 (Jr. Business Analyst for 10 hours at $160 per
hour) + (Attorney for 5 hours at $380 per hour).
44
2,660 hours + 3,990 hours = 6,650 hours. The associated monetized burden is
$1,770,230 = $839,230 + $931,000.
12
Total Annual Hourly Burden for Respondents: 207,116.34 hours
A.
Name of
Information
Collection
Type of Burden
Burden
Description
Number of
Entities
Impacted
B.
C.
D.
E.
F.
G.
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
[ D + E]
[F * B]
[G * A]
[C / 3 years]
Customer-Specific
Disclosures on
Institutional Order
Handling –
Proposed Rule
606(b)(3)
Quarterly
Aggregated Public
Disclosures on
Institutional Order
Handling –
Proposed Rule
606(c)
Assignment and
Documentation of
Institutional Order
Routing Strategies
– Proposed Rule
606(b)(3)(v)
Amendments to
Disclosures on
Retail Order
Handling –
Proposed Rules
606(a)(1) and
606(b)(1)
Existing Disclosures
on Retail Order
Handling
Recordkeeping/Third party
disclosure – New
information collection
Recordkeeping/Third party
disclosure – New
information collection
Recordkeeping – New
information collection
Recordkeeping/Third party
disclosure – New
information collection
Third party disclosure –
Existing information
collection
Update data
capture systems
and create
reports in house
Engage third
party to update
data capture
systems and
create reports
Create reports in
house
Engage third
party to create
reports
Respond to
customer
requests in
house
Engage third
party to respond
to customer
requests
Create and issue
quarterly report
in house
Engage third
party to create
and issue
quarterly report
Document
strategies in
house
Engage third
party to
document
strategies
Update data
capture systems
and create
reports in house
Engage third
party to update
data capture
systems and
create reports
Create reports in
house
Engage third
party to create
reports
Assess payment
for order flow
and profitsharing
relationships
Create and issue
quarterly report
Respond to
customer
requests
Total
Annual
Burden
Small
Business
Entities
Affected
10
1
200 hours
66.67 hours
0 hours
66.67 hours
66.67 hours
666.67 hours
0
15
1
50 hours
16.67 hours
0 hours
16.67 hours
16.67 hours
250 hours
0
125
1
40 hours
13.33 hours
0 hours
13.33 hours
13.33 hours
1,666.67
hours
0
50
1
20 hours
6.67 hours
0 hours
6.67 hours
6.67 hours
333.33 hours
0
135
200
0 hours
0 hours
2 hours
2 hours
400 hours
54,000 hours
0
65
200
0 hours
0 hours
1 hour
1 hour
200 hours
13,000 hours
0
5 hours
(20 hours / 4
responses)
1.67 hours
10 hours
11.67 hours
46.67 hours
6,300 hours
0
135
4
65
4
1.25 hours
(5 hours / 4
responses)
0.417 hours
2 hours
2.417 hours
9.67 hours
628.33 hours
135
1
40 hours
13.33 hours
15 hours
28.33 hours
28.33 hours
3,825 hours
0
65
1
10 hours
3.33 hours
5 hours
8.33 hours
8.33 hours
541.67 hours
0
25
1
76 hours
25.33 hours
0 houra
25.33 hours
25.33 hours
633.33 hours
0
25
1
20 hours
6.67 hours
0 houra
6.67 hours
6.67 hours
166.67 hours
0
108
1
20 hours
6.67 hours
0 houra
6.67 hours
6.67 hours
720 hours
0
108
1
8 hours
2.67 hours
0 houra
2.67 hours
2.67 hours
288 hours
0
266
1
10 hours
3.33 hours
25 hours
28.33 hours
28.33 hours
7,536.67
hours
0
266
4
0 hours
0 hours
40 hours
40 hours
160 hours
42,560 hours
0
185
2,000
0 hours
0 hours
0.2 hours
0.2 hours
400 hours
74,000 hours
0
TOTAL:
13
207,116.34
hours
0
13.
Costs to Respondents
A.
Current Cost of Rule 606
As of the most recent PRA renewal in 2016, there are no applicable costs associated with
the rule: (a) it is not anticipated that respondents will have to incur any capital and start-up cost
to comply with the rule; (b) it is not anticipated that the respondents will have to incur any
additional operational or maintenance cost (other than provided for in item no. 12) to comply
with the rule.
B.
Cost of Proposed Amendments to Rule 606
a.
Customer-Specific Disclosures on Institutional Order Handling –
Proposed Rule 606(b)(3)
i.
Initial Reporting and Recordkeeping Costs
The Commission estimates that the initial cost for broker-dealers that route institutional
orders with systems that do not capture the information required by the proposed rule to engage a
third party to perform the necessary system upgrades to both capture the information and produce
the report required by the proposed rule would be $525,000. 45 For broker-dealers whose systems
already capture the information required by the proposed rule to engage a third party to produce
the report required by the proposed rule, the total cost would be $250,000. 46 The Commission
estimates that the initial cost for broker-dealers that do not currently have systems in place and
will need to purchase hardware and software upgrades to fulfill the requirements of the proposed
rule would be $150,000. 47
Therefore, the estimated total initial cost to comply with proposed Rule 606(b)(3) is
$925,000 48 or $308,333.33 per year when annualized over three years. 49
i.
Annual Reporting and Recordkeeping Costs
For broker-dealers that route institutional orders and are anticipated to use third-party
service providers to respond to individual customer requests for information on institutional
45
15 broker-dealers x $35,000 to engage a third party service provider = $525,000.
46
50 broker-dealers x $5,000 to engage a third party service provider = $250,000.
47
10 broker-dealers x $15,000 to purchase hardware and software upgrades = $150,000.
48
$525,000 + $250,000 + $150,000 = $925,000.
49
$925,000 / 3 years = $308,333.33.
14
orders, the total annual cost will be $1,300,000. 50
b.
Quarterly Aggregated Public Disclosures on Institutional Order
Handling – Proposed Rule 606(c)
i.
Initial Reporting and Recordkeeping Costs
For broker-dealers that engage a third party to format the quarterly public aggregated
institutional order handling reports required by proposed Rule 606(c), the Commission estimates
that the total initial cost will be $162,500 51 or $54,166.67 per year when annualized over three
years. 52
ii.
Annual Reporting and Recordkeeping Costs
For broker-dealers that engage a third party to issue the quarterly public aggregated
institutional order handling reports, the total annual cost is estimated to be $130,000. 53
c.
Assignment and Documentation of Institutional Order Routing
Strategies – Proposed Rule 606(b)(3)(v)
i.
Initial Reporting and Recordkeeping Costs
The Commission estimates that the total initial cost for broker-dealers that route
institutional orders and engage a third party to categorize their current order routing strategies
and establish and document specified methodologies for assigning order routing strategies as
required by proposed Rule 606(b)(3)(v), will be $325,000 54 or $108,333.33 per year when
annualized over three years. 55
ii.
Annual Reporting and Recordkeeping Costs
For broker-dealers that engage a third party to categorize their institutional order routing
50
65 broker-dealers x 200 annual requests x $100 per request to engage a third party service
provider = $1,300,000.
51
65 broker-dealers x $2,500 to engage a third party service provider = $162,500.
52
$162,500 / 3 years = $54,166.67.
53
65 broker-dealers x 4 quarterly reports annually x $500 per report to engage a third party
service provider = $130,000.
54
65 broker-dealers x $5,000 to engage a third party service provider = $325,000.
55
$325,000 / 3 years = $108,333.33.
15
strategies, the total annual cost is estimated to be $65,000. 56
d.
Amendments to Disclosures on Retail Order Handling – Proposed
Rules 606(a)(1) and 606(b)(1)
i.
Initial Reporting and Recordkeeping Burden
The Commission estimates that the initial cost of making available customer-specific
reports on retail order routing pursuant to proposed Rule 606(a)(1) will be $250,000 for brokerdealers that do not currently capture information required by the proposed rule and that perform
the necessary system updates by engaging a third-party service provider. 57 For broker-dealers
that currently capture information required by the proposed rule and engage a third-party service
provider to format the data into its existing reports, the initial cost would be $216,000. 58
Therefore, the estimated total initial cost to comply with proposed Rules 606(a)(1) and
(b)(1) is $466,000 59 or $155,333.33 per year when annualized over three years. 60
ii.
Annual Reporting and Recordkeeping Costs
The Commission estimates no annual reporting or recordkeeping costs to comply with
proposed Rules 606(a)(1) and (b)(1).
56
65 broker-dealers x $1,000 to engage a third party service provider = $65,000.
57
25 broker-dealers x $10,000 to engage a third party service provider = $250,000.
58
108 broker-dealers x $2,000 to engage a third party service provider = $216,000.
59
$250,000 + $216,000 = $466,000.
60
$466,000 / 3 years = $155,333.33. These estimates include the costs to broker-dealers of
upgrading their systems to produce both the customer-specific and public quarterly retail
order routing reports in the proposed format. See supra note 34.
16
Total Annual Cost for Respondents: $2,121,166.67
Summary of Dollar Costs
A.
Name of
Information
Collection
Type of Burden
Burden
Description
Number of
Entities
Impacted
B.
C.
D.
E.
F.
G.
Annual
Responses
per Entity
Initial Cost
per Entity
per
Response
Initial Cost
Annualized per
Entity per
Response
Ongoing
Cost per
Entity per
Response
Annual Cost
Per Entity
per Response
Total Annual
Cost Per
Entity
Total Annual
Industry Cost
[ D + E]
[F * B]
[G * A]
[A * 0 %]
[C ÷ 3 years]
CustomerSpecific
Disclosures on
Institutional
Order
Handling –
Proposed Rule
606(b)(3)
Quarterly
Aggregated
Public
Disclosures on
Institutional
Order
Handling –
Proposed Rule
606(c)
Assignment
and
Documentation
of Institutional
Order Routing
Strategies –
Proposed Rule
606(b)(3)(v)
Amendments
to Disclosures
on Retail
Order
Handling –
Proposed
Rules
606(a)(1) and
606(b)(1)
Engage third
party to update
data capture
systems and
create reports
15
Engage third
party to create
reports
50
Update data
capture systems
and create
reports in house
Small
Business
Entities
Affected
$35,000.00
$11,666. 67
$0.00
$11,666.67
$11,666.67
$175,000.00
0
1
$5,000.00
$1,666.67
$0.00
$1,666.67
$1,666.67
$83,333.33
0
10
1
$15,000
$5,000.00
$0.00
$5,000.00
$5,000.00
$50,000.00
0
Engage third
party to respond
to customer
requests
65
200
$0.00
$0.00
$100.00
$100.00
$20,000.00
$1,300,000.00
0
Recordkeeping/Third
party disclosure –
New information
collection
Engage third
party to create
and issue
quarterly report
65
4
$625
$208.33
$500.00
$708.33
$2,833.32
$184,166.67
0
Recordkeeping – New
information collection
Engage third
party to
document
strategies
65
1
$5,000.00
$1,666.67
$1,000.00
$2,666.67
$2,666.67
$173,333.33
0
Engage third
party to update
data capture
systems and
create reports
25
1
$10,000.00
$3,333.33
$0.00
$3,333.33
$3,333.33
$83,333.33
0
Engage third
party to create
reports
108
1
$2,000.00
$666.67
$0.00
$666.67
$666.67
$72,000.00
0
Recordkeeping/Third
party disclosure –
New information
collection
Recordkeeping/Third
party disclosure –
New information
collection
1
TOTAL:
14.
$2,121,166.67
Costs to Federal Government
Not applicable.
15.
Changes in Burden
The total annual hourly and cost burden will increase, as the proposed amendments are
enhancing the current disclosure requirements for retail order routing and adding new
requirements for customer-specific and quarterly reports on institutional order routing.
17
16.
Information Collections Planned for Statistical Purposes
These are disclosures from brokers to the general public and to specific consumers who
request certain information. The Commission is not collecting data. The Commission has no
information to publish and no plans to publish any data for statistical or other purposes.
17.
Approval to Omit OMB Expiration Date
Not applicable. The Commission is not seeking approval to omit the expiration date.
18.
Exceptions to Certification for Paperwork Reduction Act Submissions
Not applicable. This collection complies with the requirements in 5 CFR 1320.9.
B.
Collection of Information Employing Statistical Methods.
Not applicable.
18
| File Type | application/pdf |
| File Modified | 2018-03-08 |
| File Created | 2018-03-08 |