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pdfSUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for the Rule 3a71-3
Security-Based Swap Dealer De Minimis Counting Exception for Certain Transactions
Arranged, Negotiated or Executed in the United States
OMB Control No. 3235-0771
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
Rule 3a71-3 under the Securities Exchange Act of 1934 (“Exchange Act”) currently
provides in part that, for purposes of determining whether they can avail themselves of the de
minimis exception to the “security-based swap dealer” definition, non-U.S. persons must count
certain dealing transactions with non-U.S. counterparties that have been “arranged, negotiated, or
executed” by personnel in the United States.
The Commission adopted Rule 3a71-3(d) 1 to provide an exception from that “arranged,
negotiated, or executed” counting requirement. There are collections of information associated
with the following conditions to the exception, all of which are intended to help protect the
policy goals associated with security-based swap dealer regulation:
•
A condition requiring a registered entity2 affiliated with the non-U.S. person relying on
the exception (“relying entity”) to disclose the limited applicability of Title VII in
connection with the transactions at issue.
•
A condition requiring the registered entity to comply with the following types of securitybased swap dealer requirements “as if” it were a counterparty to the transactions at issue:
(i) certain business conduct requirements; and (ii) trade acknowledgment and verification
requirements.
•
A condition requiring the registered entity to obtain from its non-U.S. affiliate, and
maintain for not less than three years following the “arranging, negotiating, or executing”
activity pursuant to the exception, the first two years in an easily accessible place, trading
relationship documentation regarding the non-U.S. affiliate and its counterparty.
•
A condition requiring the registered entity to obtain from its non-U.S. affiliate, and
maintain maintaining for not less than three years following the “arranging, negotiating,
or executing” activity pursuant to the exception, the first two years in an easily accessible
place,, consent to service of process.
•
A condition requiring the relying entity to be subject to the margin and capital
requirements of a “listed jurisdiction” designated by the Commission.
1
See Exchange Act Release No. 34-87780 (December 18, 2019).
2
That entity may be registered either as a security-based swap dealer or as a broker.
2
2.
•
A condition requiring the registered entity to obtain from its non-U.S. affiliate, and
maintain for not less than three years following the “arranging, negotiating, or executing”
activity pursuant to the exception, the first two years in an easily accessible place,
documentation regarding the non-U.S. affiliate’s compliance with the limitations on the
use of the exception for covered inter-dealer security-based swaps.
•
A condition requiring the registered entity to file with the Commission a notice that its
associated persons may conduct “arranging, negotiating, or executing” activity in the
United States.
•
A condition requiring the registered entity to establish internal risk management control
systems in accordance with Rule 15c3-4. 3
Purpose and Use of Information Collection
Disclosure of limited Title VII applicability. The condition requiring disclosure of this
information is intended to help guard against the non-U.S. counterparties to the transactions at
issue reasonably presuming that the involvement of U.S. personnel in an arranging, negotiating
or executing capacity as part of the transaction would be accompanied by the safeguards
associated with Title VII security-based swap dealer regulation applying to the non-U.S. person.
Business conduct condition – The condition requiring the registered entity’s “as if”
compliance with security-based swap dealer requirements for the disclosure of risks,
characteristics, incentives and conflicts is intended to assist the counterparty in assessing the
transaction by providing it with a better understanding of the expected performance of the
security-based swap, and provide additional transparency and insight into pricing. The condition
requiring the registered entity’s “as if” compliance with security-based swap dealer requirements
regarding the suitability of recommendations is intended to assist the registered entity in making
appropriate recommendations. The condition requiring the registered entity’s “as if” compliance
with security-based swap dealer requirements regarding fair and balanced communications is
intended to better equip the counterparty to make more informed investment decisions.
Trade acknowledgment and verification condition – The condition requiring the
registered entity’s “as if” compliance with security-based swap dealer trade acknowledgment and
verification requirements is intended to provide a written record by which the counterparties to
3
Because the amendment to Rule 3a71-3 requires the use of either a registered security-based swap
dealer or a registered broker in connection with the transactions at issue, the amendment also
implicates collections of information associated with security-based swap dealer or broker status
(apart from the collections associated with the specific conditions of the exception). Separate
collections of information address the registration of security-based swap dealers and brokers, as
well as the requirements associated with those registered entities as a matter of course, including
recordkeeping requirements applicable to such registered entities. The separate collections of
information associated with requirements of general applicability for registered security-based
swap dealers and brokers are not addressed here, but instead form part of the collections of
information associated with those separate requirements.
3
the transaction may memorialize the terms of a transaction, and ensure that this written record
accurately reflects the terms of the transaction as understood by the respective counterparties.
Trading relationship documentation condition – The condition requiring the registered
entity to obtain and maintain trading relationship documentation involving the relying entity and
its counterparty is intended to help the Commission obtain a full view of the associated dealing
activities, to avoid impediments to the Commission’s ability to identify fraud and abuse in
connection with those transactions.
Consent to service condition – The condition requiring the registered entity to obtain
consent to service of process from its non-U.S. affiliate relying on the exception it intended to
assist the Commission in efficiently taking action to address potential violations of the federal
securities laws in connection with the transactions at issue.
“Listed jurisdiction” condition – The use of information provided by applicants in
connection with “listed jurisdiction” applications is to assist the Commission in evaluating the
effectiveness of the financial responsibility requirements of jurisdictions regulating non-U.S.
persons taking advantage of the exception, to help avoid creating an incentive for persons
engaged in a security-based swap dealing business in the United States to book their transactions
into entities that solely are subject to the regulation of jurisdictions that do not effectively require
security-based swap dealers or comparable entities to meet certain financial responsibility
standards, and accordingly to help avoid providing an unwarranted competitive advantage to
non-U.S. persons that conduct security-based swap dealing activity in the United States without
being subject to strong financial responsibility standards. The condition also is consistent with
the view that applying financial responsibility requirements to the transactions at issue can help
mitigate the potential for financial contagion to spread to U.S. market participants and to the U.S.
financial system more generally.
Covered Inter-dealer conditions – The use of information provided by applicants in
connection with the notice and compliance documentation requirements associated with the use
of the conditional exception for covered inter-dealer security-based swaps is to assist the
Commission in evaluating compliance with the limitations on such use of the exception.
Risk Management Control Systems condition – Compliance with Rule 15c3-4 by the
registered entity engaged in arranging, negotiating, or executing activity in the United States is
intended to promote the establishment and maintenance of effective risk management control
systems by such entities.
3.
Consideration Given to Information Technology
Disclosure of limited Title VII applicability – The condition requiring the registered
entity to disclose the limited applicability of Title VII to the transactions at issue specifies that
the registered entity provide this information contemporaneously with, and in the same manner
as, the underlying arranging, negotiating or executing activity at issue to promote disclosure that
would be useful for the counterparty.
Business conduct condition – The underlying security-based swap dealer business
conduct requirements that are subject to “as if” compliance by the registered entity – relating to
4
(i) disclosure of risks, characteristics, incentives and conflicts; (ii) suitability; and (iii) fair and
balanced communications – do not prescribe particular forms or methods of compliance in
connection with the collections of information so as to allow flexibility with respect to new
technologies as they develop.
Trade acknowledgement and verification condition – The underlying security-based swap
dealer trade acknowledgment and verification requirement that is subject to “as if” compliance
by the registered entity requires that trade acknowledgments be provided electronically, and also
permits security-based swap dealers to rely on the services of a third party to provide electronic
acknowledgments on its behalf.
Trading relationship documentation and consent to service of process – The condition
requiring the registered entity to obtain from its non-U.S. affiliate, and maintain, copies of
trading relationship documentation and a consent to service of process, would implicate
underlying security-based swap dealer books and records requirements. Those underlying
requirements provide for the use of electronic storage in a non-rewritable, non-erasable format.
Listed jurisdiction condition – Applications for “listed jurisdiction” status – in connection
with the condition requiring the relying entity must be subject to the margin and capital
requirements of a listed jurisdiction – must be filed with the Commission consistent with
amendments to Exchange Act rule 0-13. Rule 0-13 provides for the electronic submissions of
applications.
Covered Inter-dealer conditions – A notice filed with the Commission associated with the
use of the conditional exception for covered inter-dealer security-based swaps must be submitted
by the registered entity to the electronic mailbox described on the Commission’s website at
www.sec.gov at the “ANE Exception Notices.” The registered entity must also obtain from its
non-U.S. affiliate, and maintain, copies of compliance documentation, which would implicate
underlying security-based swap dealer books and records requirements. Those underlying
requirements provide for the use of electronic storage in a non-rewritable, non-erasable format.
Risk Management Control Systems condition – This condition does not prescribe
particular forms or methods of compliance in connection with the collections of information so
as to allow flexibility with respect to new technologies as they develop.
4.
Duplication
The conditions do not impose any duplicative conditions on registered entities or the
relying entity. In this regard, we note that the collections at issue are connected with an
exception from a portion of the “security-based swap dealer” definition that effectively would
require certain non-U.S. persons count their security-based swap dealing transactions against the
applicable de minimis thresholds. As a result, certain of the collections associated with the
conditions – i.e., “as if” compliance with business conduct, trade acknowledgment requirements
– in practice would substitute for collections of information that the relying entity otherwise may
incur in connection with the counting requirement.
5
5.
Effect on Small Entities
The staff believes that none of the entities that may be subject to the conditions of the
exception are small entities. The amendment accordingly would impose no burden on small
entities.
6.
Consequences of Not Conducting Collection
The information is collected on a transaction basis or upfront as warranted, and therefore
there is no way to omit the information collection requirements or require less frequent collection
without undermining the purposes of the exception.
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 issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens. The Commission received a
number of comments that resulted in additional paperwork burdens, which are described in more
detail in Section 15 below. 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 rulemaking have been posted
on the Commission’s public website, and made available through
https://www.sec.gov/comments/s7-07-19/s70719.htm.
9.
Payment or Gift
Not applicable.
10.
Confidentiality
Disclosures required by the conditions of the exception would be provided to the nonU.S. counterparties of the relying entity; therefore, the Commission would not typically receive
confidential information as a result of this collection of information. To the extent that the
Commission receives records related to such disclosures from a registered entity through the
Commission’s examination and oversight program, or through an investigation, or some other
means, such information would be kept confidential, subject to the provisions of applicable law.
Any applications for listed jurisdiction status would be made public.
11.
Sensitive Questions
The Information Collection does not collect information about individuals but rather only
business contact information. Based on the business practice of handling the information collection, the
collection does not constitute a system of records under the Privacy Act and does not require a PIA per
the E-Government Act of 2002.
6
12.
Burden of Information Collection
The staff continues to estimate, based on available data, that up to 24 entities may seek to
rely on the exception to the de minimis counting requirement of Rule 3a71-3. In connection with
the conditions to the exception, each of those up to 24 entities would make use of an affiliated
registered security-based swap dealer or registered broker. In general, the registered entity
would be required to comply with the collections of information. Applications for “listed
jurisdiction” status may be submitted by the up to 24 relying entities, but the staff believes that
the greater portion of such applications will be submitted by foreign financial authorities.
The staff particularly continues to estimate that the amendment would be associated with
the certain hourly burdens, which are summarized in the following chart and described in more
detail below (the Commission adopted a conditional exception to provisions in an existing
Commission rule. Accordingly, the information collections are being designated as a program
change due to agency discretion):
Summary of Hourly Burdens
Name of Information
Collection
Type of
Burden
A.
B.
C.
D.
E.
F.
G.
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]
Title VII Disclosure
Requirement (Group A)
Third-Party
12
12,609
0.00
0.00
0.08
0.08
1,050.08
12,609
0
Title VII Disclosure
Requirement (Group B)
Third-Party
2
20,128
0.00
0.00
0.08
0.08
1,677.30
3,355
0
Title VII Disclosure
Requirement (Group C)
0.00
0.00
0.08
0.08
35.20
352
0
Third-Party
10
422
Title VII Disclosure
Policies/procedures
Recordkeeping
24
1
100.00
33.33
0.00
33.33
33.33
800
0
Transaction disclosures
Framework develop.
Recordkeeping
24
1
1,200.00
400.00
120.00
520.00
520.00
12,480
0
Transaction disclosures
System develop/maint.
Recordkeeping
24
1
8,000.00
2,666.67
4,000.00
6,666.67
6,666.67
160,000
0
Suitability
Swap market CPs
Recordkeeping
1,116
1
1.00
0.33
0.00
0.33
0.33
372
0
Suitability
Other CPs
Recordkeeping
498
1
2.50
0.83
0.00
0.83
0.83
415
0
Fair/balanced commun.
Internal review
Recordkeeping
24
1
6.00
2.00
0.00
2.00
2.00
48
0
Trade Acknowledgment
Requirement
Third-Party
24
3,152
0.11
0.04
0.14
0.18
554.33
13,304
0
Trade Acknowledgment
Policies/procedures
Recordkeeping
24
1
80.00
26.67
40.00
66.67
66.67
1,600
0
Trade relat. document.
Policies/procedures
Recordkeeping
24
1
20.00
6.67
0.00
6.67
6.67
160
0
Trade relat. document.
ID and conveyance
Recordkeeping
24
1
0.00
0.00
104.00
104.00
104.00
2,496
0
Trade relat. document.
Receipt/maintenance
Recordkeeping
24
1
0.00
0.00
52.00
52.00
52.00
1,248
0
Consent to service
Drafting/transfer
Recordkeeping
24
1
2.00
0.67
0.00
0.67
0.67
16
0
Listed jurisdiction
Application
Reporting
3
1
80.00
26.67
0.00
26.67
26.67
80
0
Notice of ANE activity
Reporting
24
1
0.50
0.17
0.00
0.17
0.17
4
0
Inter-dealer Compl.
Policies/Procedures
Recordkeeping
24
1
20.00
6.67
0.00
6.67
6.67
160
0
Inter-dealer Compl.
ID and convyeance
Recordkeeping
24
1
0.00
0.00
104.00
104.00
104.00
2,496
0
7
Inter-dealer Compl.
Receipt/maintenance
Recordkeeping
24
1
0.00
0.00
52.00
52.00
52.00
1,248
0
Risk Mgmt Control
Policies/procedures
Recordkeeping
24
1
2,000.00
666.66
0.00
666.66
666.66
16,000
0
Risk Mgmt Control
Maintenance/review
Recordkeeping
24
1
0
0
250
250
250
6,000
0
TOTAL HOURLY BURDEN FOR ALL RESPONDENTS
235,242.44
Disclosure of limited Title VII applicability
The staff continues believes that three categories of non-U.S. persons may seek to take
advantage of the exception:
Group A – Twelve U.S. entities may book transactions into non-U.S. affiliates to take
advantage of the exception. In the aggregate the staff continues to estimate that those twelve
entities will provide a total of 151,308 annual disclosures, 4 or 12,609 average annual disclosures
per entity. Based on our belief that the requisite disclosures will take no more than five minutes
each, the staff continues to estimate that in the aggregate those disclosures will amount to
1050.75 hours 5 annually for each of the twelve members of the group, or 12,609 hours
annually in the aggregate.
Group B – Two non-U.S. entities may fall below the applicable de minimis thresholds as
a result of the exception. In the aggregate the staff continues to estimate that registered affiliates
of those two entities will provide a total of 40,256 annual disclosures, 6 or 20,128 average annual
disclosures per entity. Based on our belief that the requisite disclosures will take no more than
five minutes each, the staff continues to estimate that it will take an average of 1,667.3
hours 7 annually for members of the group to provide the disclosures, or 3,355 hours
annually in the aggregate.
Group C – Ten non-U.S. entities may use the exception to help avoid incurring costs that
otherwise would be required to assess compliance with the de minimis counting rule. In the
aggregate the staff continues to estimate that registered affiliates of those ten entities will provide
a total of 4224 annual disclosures, 8 or 422 average annual disclosures per entity. Based on our
belief that the requisite disclosures will take no more than five minutes each, the staff continues
4
The estimate of 151,308 annual disclosures reflects data that indicated that there are six relevant
U.S. entities that in the aggregate annually engage in 37,827 annual transactions. That amount
was doubled to address growth in the market and data-related uncertainty, and doubled again to
account for disclosures that do not result in a transaction.
5
12,609 disclosures × five minutes per disclosures = 1050.75 hours.
6
The estimate of 40,256 annual disclosures reflects data that indicated that there is one relevant
non-U.S. entity that engages in 10,064 annual transactions. That amount was doubled to address
growth in the market and data-related uncertainty, and doubled again to account for disclosures
that do not result in a transaction.
7
20,128 disclosures × five minutes per disclosures = 1667.3 hours.
8
The estimate of 4224 annual disclosures reflects data that indicated that there are five relevant
non-U.S. entities that in the aggregate annually engage in 1056 annual transactions. That amount
was doubled to address growth in the market and data-related uncertainty, and doubled again to
account for disclosures that do not result in a transaction.
8
to estimate that it will take an average of 35.2 hours 9 annually for members of the group to
provide the disclosures, or 352 hours annually in the aggregate.
The staff continues to believe that each of the 24 total registered entities would initially
be required to spend 100 hours to help ensure that appropriate disclosures are provided, with a
total aggregate initial burden of 2400 hours. The staff continues to estimate that this will
result in an annual burden of 33.33 hours per entity, or 800 hours annually in the
aggregate. 10
Disclosure of risks, characteristics, incentives and conflicts
In connection with the requirement that the registered entity provide “as if” disclosure of
risks, characteristics, incentives and conflicts of interest, the staff continues to estimate that each
of those registered 24 entities would incur an initial burden of 1200 hours, or 28,800 hours in the
aggregate, for developing the implementation framework. Each of those 24 registered entities
further would incur an ongoing annual burden of 120 hours, or 2880 hours in the aggregate, for
re-evaluation and modification of the framework. The staff continues to estimate that this will
result in an annual burden of 520 hours per entity, or 12,480 hours annually in the
aggregate. 11
The staff further has estimated that each of those 24 registered entities will incur an initial
burden of 8000 hours, or 192,000 hours in the aggregate, related to system development,
programming and testing in connection with that requirement. Each of those 24 entities also will
incur an ongoing annual burden of 4000 hours, or 96,000 hours in the aggregate, for system
maintenance. The staff continues to estimate that this will result in an annual burden of
6,666.67 hours per entity, or 160,000 hours annually in the aggregate. 12
Suitability of recommendations
In connection with the requirement that the registered entity comply with security-based
swap dealer suitability requirements “as if” it were a counterparty to the transaction, the staff has
considered the burdens associated with the need of the registered entity to obtain representations
from those counterparties so it may comply with the institutional suitability provisions of the
suitability requirement. The suitability condition that the Commission has adopting lessens the
institutional counterparty suitability requirements, upon which this prior analysis was based, in
connection with transactions subject to the exception.
9
422.4 disclosures × five minutes per disclosures = 35.2 hours.
10
Annualized over three years, this initial burden would amount to an aggregate average of 800
hours per year (2400 hours ÷ three years), and a per-entity average of approximately 33.3 hours
(800 hours ÷ 24 entities).
11
Annualized over three years, those initial and ongoing burdens would amount to an aggregate
average of 12,480 hours per year (28,800 hours ÷ three years + 2880 hours), and a per-entity
average of 520 hours (12,480 hours ÷ 24 entities).
12
Annualized over three years, those initial and ongoing burdens would amount to an aggregate
average of 160,000 hours per year (192,000 hours ÷ three years + 96,000 hours), and a per-entity
average of approximately 6667 hours (160,000 hours ÷ 24 entities).
9
The staff continues to estimate that the 24 relying entities in the aggregate would have a
total of 1116 unique non-U.S. security-based swap counterparties that are also swap market
participants, and 498 unique non-U.S. security-based swap counterparties that are not also swap
market participants. 13 For the 1116 counterparties that are also swap market participants, most of
the requisite representations already have been drafted, and each market participant would
require one hour to assess the need for modifications and make any required modifications,
amounting to an aggregate initial burden of 1116 hours. The staff estimates that this will
result in an annual burden of 0.33 hours per entity, or 372 hours annually in the
aggregate. 14
Each of the 498 counterparties that are not also swap market participants would require
2.5 hours to review and agree to the relevant representations, amounting to an aggregate initial
burden of 1245 hours. The staff estimates that this will result in an annual burden of 0.83
hours per entity, or 415 hours annually in the aggregate. 15
Fair and balanced communications
In connection with the requirement that the registered entity comply with security-based
swap dealer fair and balanced communications requirements “as if” it were a counterparty to the
transactions at issue, the staff took the view that each of those 24 registered entities would incur
an initial burden of six hours for internal review of certain communications, or an initial burden
of 144 hours in the aggregate. The staff continues to estimate that this will result in an
annual burden of 2 hours per entity, or 48 hours annually in the aggregate. 16
13
Analysis of current data indicates that the six U.S. entities engaged in security-based swap
dealing activity above the de minimis thresholds in the aggregate have 161 unique non-U.S.
counterparties that are swap market participants, and 70 unique non-U.S. counterparties that are
not swap market participants. The one non-U.S. entity that may fall below the de minimis
threshold due to the exception has 391 unique non-U.S. counterparties that are swap market
participants, and 178 unique non-U.S. counterparties that are not swap market participants. The
five additional non-U.S. persons that would be expected to incur assessment costs in connection
with the “arranged, negotiated, or executed” counting standard in the aggregate have six unique
non-U.S. counterparties that are swap market participants, and one unique non-U.S. counterparty
that are not swap market participants. Adding together those continues to estimate and then
doubling them (in light of the uncertainty associated with the estimate and to account for potential
growth of the security-based swap market) produces a total estimate of 1116 unique non-U.S
counterparties that are swap market participants, and 498 that are not.
14
Annualized over three years, this initial burden would amount to an aggregate average of 372
hours per year (1116 hours ÷ three years), and a per-counterparty average of approximately 0.33
hours (372 hours ÷ 1116 counterparties).
15
Annualized over three years, this initial burden would amount to an aggregate average of 415
hours per year (1245 hours ÷ three years), and a per-counterparty average of approximately 0.83
hours (415 hours ÷ 498 counterparties).
16
Annualized over three years, this initial burden would amount to an aggregate average of 48
hours per year (144 hours ÷ three years), and a per-entity average of two hours (48 hours ÷ 24
entities).
10
Trade acknowledgment and verification
In connection with the requirement that the registered entity comply with security-based
swap dealer trade fair and balanced communications requirements “as if” it were a counterparty
to the transactions at issue, the staff took the view that each of those 24 registered entities would
engage in a total of 75,654 aggregate transactions annually, or an average of approximately 3152
annual transactions per entity.
The staff further estimated that each of those 24 registered entities would incur 355 hours
initially to develop an internal order and trade management system, or 8520 hours in the
aggregate. Each of those 24 registered entities also would incur 436 hours annually for day-today technical support as well as amortized annual burdens associated with system or platform
updates, or 10,464 hours in the aggregate. The staff continues to estimate that these initial
and ongoing burdens will result in an annual burden of 554 hours per entity, or 13,304
annually in the aggregate. 17
In addition, the staff continues to estimate that each of those 24 registered entities would
incur 80 hours initially for the preparation of written policies and procedures to obtain
verification of transaction terms, or 1920 hours in the aggregate. Each of those 24 registered
entities would incur 40 hours annually to maintain those policies and procedures, or 960 hours in
the aggregate. The staff continues to estimate that this will result in an annual burden of
66.7 hours per entity, or 1,600 hours annually in the aggregate. 18
Trading relationship documentation condition
In connection with the requirement that the registered entity obtain from its non-U.S.
affiliate, and maintain, trading relationship documentation, the staff continues to estimate that
each of the 24 registered entities and their non-U.S. affiliates jointly would require 20 hours to
develop policies and procedures, or 480 initial burden hours in the aggregate. 19 The staff
continues to estimate that this will result in an annual burden of 6.67 hours per entity, or
160 hours annually in the aggregate.
The staff also continues to estimate that each non-U.S. entity would incur an average of
104 hours per year (two hours per week) to identify and electronically convey such records. The
staff continues to estimate that this will result in an annual burden of 104 hours per entity,
or 2496 hours annually in the aggregate.
The staff further continues to estimate that each U.S. entity would incur an average of 52
hours per year (one hour per week) in connection with the receipt and maintenance of those
17
Annualized over three years, those initial and ongoing burdens would amount to an aggregate
average of 13,304 hours per year (8520 hours ÷ three years + 10,464 hours), and a per-entity
average of approximately 554 hours (13,304 hours ÷ 24 entities).
18
Annualized over three years, those initial and ongoing burdens would amount to an aggregate
average of 1600 hours per year (1920 hours ÷ three years + 960 hours), and a per-entity average
of approximately 66.7 hours (1600 hours ÷ 24 entities).
19
Annualized over three years, this initial burden would amount to an aggregate average of 160
hours per year (480 hours ÷ three years), and a per-entity average of approximately 6.67 hours
(160 hours ÷ 24 entities).
11
records. The staff continues to estimate that this will result in an annual burden of 52 hours
per entity, or 1248 hours annually in the aggregate.
Consent to service condition
In connection with the condition that the registered entity obtain consent to service of
process from its non-U.S. affiliate, the staff estimated that each of the 24 registered entities
and/or its non-U.S. affiliate jointly must initially expend 2 hours, or 48 hours in the aggregate in
connection with the creation and transfer of those consents. The staff continues to estimate
that this will result in an annual burden of 0.67 hours per entity, or 16 hours annually in
the aggregate. 20
“Listed jurisdiction” condition
In connection with the “listed jurisdiction” condition, the Commission estimated three
relying entities would file a listed jurisdiction application (with the remainder of such
applications being filed by foreign financial authorities). The Commission further estimated that
each of those three entities initially would incur 80 hours to prepare and submit those
applications, for an aggregate initial burden of 240 hours. The Commission continues to
estimate that this will result in an annual burden of 26.67 hours per entity, or 80 hours
annually in the aggregate. 21
Covered Inter-dealer Compliance documentation and Notice conditions
In connection with the requirement that the registered entity obtain from its non-U.S.
affiliate, and maintain, records confirming compliance with the covered inter-dealer threshold,
the staff to estimates that each of the 24 registered entities and their non-U.S. affiliates jointly
would require 20 hours to develop policies and procedures, or 480 initial burden hours in the
aggregate. 22 The staff estimates that this will result in an annual burden of 6.67 hours per
entity, or 160 hours annually in the aggregate.
The staff also estimates that each non-U.S. entity would incur an average of 104 hours
per year (two hours per week) to identify and electronically convey such records. The staff
estimates that this will result in an annual burden of 104 hours per entity, or 2496 hours
annually in the aggregate.
The staff further estimates that each U.S. entity would incur an average of 52 hours per
year (one hour per week) in connection with the receipt and maintenance of those records. The
20
Annualized over three years, this initial burden would amount to an aggregate average of 16
hours per year (48 hours ÷ three years), and a per-entity average of approximately 0.67 hours (16
hours ÷ 24 entities).
21
Annualized over three years, this initial burden would amount to an aggregate average of 80
hours per year (240 hours ÷ three years), and a per-entity average of approximately 26.7 hours
(80 hours ÷ three entities).
22
Annualized over three years, this initial burden would amount to an aggregate average of 160
hours per year (480 hours ÷ three years), and a per-entity average of approximately 6.7 hours
(160 hours ÷ 24 entities).
12
staff estimates that this will result in an annual burden of 52 hours per entity, or 1248
hours annually in the aggregate.
In connection with the requirement that the registered entity file with the Commission a
notice that its associated persons may conduct “arranging, negotiating, or executing” activity in
the United States, the staff estimates that that each of the 24 registered entities would require
would incur 0.5 hours to prepare and submit a notice, for an aggregate initial burden of 12 hours.
The Commission estimates that this will result in an annual burden of 0.17 hours per
entity, or 4 hours annually in the aggregate. 23
Risk Management Control Systems condition
In connection with the requirement that the registered entity establish risk management
control systems, the staff estimates that 24 registered entities will bear a one-time burden of
2,000 hours to initially set up risk management control systems, or 48,000 initial burden hours in
the aggregate. 24 The staff estimates that this will result in an annual burden of 666.67 hours
per entity, or 16,000 hours annually in the aggregate.
The staff further estimates that each U.S. entity would incur an average of 250 hours per
year in connection with the review and maintenance of those systems. The staff estimates that
this will result in an annual burden of 250 hours per entity, or 6000 hours annually in the
aggregate.
These estimates result in a total estimated hourly burden of 235,242.44 per year.
13.
Estimate of Cost to Respondents
The staff estimates that the amendment would be associated with certain costs, which are
summarized in the following chart and described in more detail below (the Commission adopted
a conditional exception to provisions in an existing Commission rule. Accordingly, the
information collections are being designated as a program change due to agency discretion):
Summary of Dollar Costs
Name of Information
Collection
Type of
Burden
A.
B.
C.
D.
E.
F.
G.
Number
of Entities
Impacted
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
Industry Cost
Small
Business
Entities
Affected
[ D + E]
[F * B]
[G * A]
[A * 0%]
[C ÷ 3 years]
Title VII Disclosure
Policies/procedures
Recordkeeping
24
1
$30,598.00
$10,199.33
$0.00
$10,199.33
$10,199.33
$244,784
23
Annualized over three years, this initial burden would amount to an aggregate average of 4 hours
per year (12 hours ÷ three years), and a per-entity average of approximately 0.17 hours (4 hours ÷
24 entities).
24
Annualized over three years, this initial burden would amount to an aggregate average of 16,000
hours per year (48,000 hours ÷ three years), and a per-entity average of approximately 666.67
hours (16,000 hours ÷ 24 entities).
0
13
Fair/balanced commun.
Statement drafting
Recordkeeping
24
1
$6,487.20
$2,162.40
$0.00
$2,162.40
$2,162.40
$51,897.60
0
Fair/balanced commun.
Legal costs
Recordkeeping
24
1
$9,082.00
$3,027.33
$0.00
$3,027.33
$3,027.33
$72,656.00
0
Listed jurisdiction
Application
Reporting
3
1
$86,496.00
$28,832.00
$0.00
$28,832.00
$28,832.00
$86,496.00
0
Risk Mgmt Control
information technology
Recordkeeping
24
1
$16,000.00
$5,333.33
$0.00
$5,333.00
$5,333.00
$128,000.00
0
Risk Mgmt Control
ongoing maintenance
Recordkeeping
24
1
$0.00
$0.00
$20,500.00
$20,500.00
$20,500.00
$492,000.00
0
TOTAL COST FOR ALL RESPONDENTS
$1,075,833.60
Disclosure of limited Title VII applicability
In connection with the requirement for disclosure of limited Title VII applicability, the
staff continues to estimate that each of the 24 registered entities would incur an initial cost of
$30,598, for an aggregate of $734,352. The staff estimates that this will result in an annual
burden of $10,199 per entity, or $244,784 annually in the aggregate. 25
Fair and balanced communications
In connection with the requirement that the registered entity comply with security-based
swap dealer fair and balanced communications requirements “as if” it were a counterparty to the
transactions at issue, the staff continues to estimate that each of those 24 registered entities
would incur an initial $6,487.20 in legal costs associated with the drafting or review of certain
marketing materials, amounting to $155,692 in the aggregate. The staff estimates that this will
result in an annual burden of $2,162.40 per entity, or $51,897.60 annually in the
aggregate. 26
As part of that condition requiring fair and balanced communications, the staff also
continues to estimate that each of those 24 registered entities would incur an initial $9,082 in
legal costs associated with the drafting or review of certain marketing materials, amounting to
$217,968 in the aggregate. The staff estimates that this will result in an annual burden of
$3,027.33 per entity, or $72,656 annually in the aggregate. 27
“Listed jurisdiction” condition
In connection with the “listed jurisdiction” condition, the Commission continues to
estimate that the three relying entities that would file a listed jurisdiction application each would
incur an initial $86,496 for the services of outside professionals, for an aggregate cost of
25
Annualized over three years, this initial cost would amount to an aggregate average of $244,784
per year ($734,352 ÷ three years), and a per-entity average of $10,199.33 ($244,784 ÷ 24
entities).
26
Annualized over three years, this initial cost would amount to an aggregate average of $51,897.60
per year ($155,692.80 ÷ three years), and a per-entity average of $2162.40 ($51,897.60 ÷ 24
entities).
27
Annualized over three years, this initial cost would amount to an aggregate average of $72,656
per year ($217,968 ÷ three years), and a per-entity average of $3027.33 ($72,656 ÷ 24 entities).
14
$259,488. The staff estimates that this will result in an annual burden of $28,832 per entity,
or $86,496 annually in the aggregate. 28
Risk Management Control Systems condition
In connection with the requirement that the registered entity establish risk management
control systems, a registered entity may need to incur start-up information technology external
costs with respect to setting up a risk control management system. The staff estimates that a
registered entity will incur an average of approximately $16,000 for initial hardware and
software expenses. The staff estimates that the initial burden will result in an annual
burden of $5,333.33 per entity, or $128,000 annually in the aggregate. 29
The staff also estimates that each registered entity would incur ongoing cost of
approximately $20,500 per registered entity. The staff estimate that this will result in an
annual burden of $20,500 per entity, or $492,000 annually in the aggregate.
These estimates result in a total estimated cost burden of $1,075,833.60 per year.
14.
Estimate of Cost to the Federal Government
Not applicable.
15.
Explanation of Changes in Burden
The Commission has revised its burden estimates for some of the information collections,
and identified new information collections, as summarized in this chart:
Name of
Information
Collection
Annual Industry
Burden
Annual Industry
Burden Previously
Reviewed
Change in Burden
Reason for Change
Suitability
Swap market CPs
372 hours
744 hours
(372 hours)
Change in Agency Estimate
Suitability
Other CPs
415 hours
830 hours
(415 hours)
Change in Agency Estimate
Portfolio reconciliation
initial reconciliation
0
10,020 hours
(10,020 hours)
Condition Not Adopted
Title VII Disclosure
Policies/procedures
$244,784
$237,720.00
$7,064.00
Inflation
Fair/balanced commun.
Statement drafting
$51,897.60
$50,400.00
$1,497.60
Inflation
Fair/balanced commun.
Legal costs
$72,656.00
$70,560.00
$2,096.00
Inflation
Listed jurisdiction
Application
$86,496.00
$84,000.00
$2,496.00
Inflation
Notice of ANE activity
4
0
4
New burden
28
Annualized over three years, this initial cost would amount to an aggregate average of $86,496
per year ($259,488 ÷ three years), and a per-entity average of approximately $28,832 ($86,496 ÷
three entities).
29
Annualized over three years, this initial cost would amount to an aggregate average of $128,000
per year ($25,833.33÷ three years), and a per-entity average of approximately $5,333.33
($128,000 ÷ 24 entities).
15
Inter-dealer Compl.
Policies/Procedures
160
0
160
New burden
Inter-dealer Compl.
ID and convyeance
2,496
0
2,496
New burden
Inter-dealer Compl.
Receipt/maintenance
1,248
0
1,248
New burden
Risk Mgmt Control
Policies/procedures
16,000
0
16,000
New burden
Risk Mgmt Control
Maintenance/review
6,000
0
6,000
New burden
Risk Mgmt Control
Information technology
$128,000.00
0
$128,000.00
New burden
Risk Mgmt Control
Ongoing maintenance
$492,000.00
0
$492,000.00
New burden
These changes in burden are discussed in more detail below.
a. Suitability condition
The Commission revised the estimate for the suitability condition down from 744 hours to
372 hours for swap market counterparties and from 830 hours to 415 hours for other
counterparties to account for a modification that provides an alternative means of
satisfying the counterparty-specific prong of the condition. The modification partially
addresses a suggestion by a commenter to reduce both prongs of the suitability condition
to a disclaimer when the registered entity does not have primary client responsibility for
the counterparty. 30
b. Portfolio Reconciliation Condition
The Commission eliminated the burden associated with the proposed portfolio
reconciliation condition because the Commission is persuaded by comments that the
burdens of compliance with the proposed condition would not justify its benefits, and is
therefore not adopting the proposed portfolio reconciliation condition. As a result of
elimination of the proposed portfolio reconciliation condition, the Commission is
eliminating the 10,200 hour burden associated with that proposed condition.
c. Title VII Disclosure condition, Fair and balanced communications condition, and “Listed
Jurisdiction” condition
The Commission revised the estimates upwards for the Title VII disclosure condition, fair
and balanced communications, and “Listed Jurisdiction” condition with respect to costs
for respondents to account for inflation.
d. Covered Inter-dealer Compliance documentation and Notice conditions
The Commission created new estimates for the costs of compliance documentation and
notice conditions associated with the use of the conditional exception in the covered
30
See letter from Briget Polichene, CEO, Institute of International Bankers, and Kenneth E.
Bentsen, President and CEO, Securities Industry and Financial Markets Association, dated July
23, 2019 at 13.
16
inter-dealer context. These conditions facilitate the implementation of the limits on the
availability of the exception in connection with certain covered inter-dealer securitybased swaps. The Commission is adopting the limits on the availability of the exception
in the covered inter-dealer context and the associated compliance documentation and
notice conditions to, among other reasons, help mitigate concerns expressed by
commenters that the conditional exception as proposed could allow firms to structure
large portions of their business to avoid Title VII while continuing to pose risks to the
U.S. financial system. 31
e. Risk Management Control Systems condition
The Commission created new estimates for costs of the risk management control systems
condition associated with the use of a broker as the registered entity for purposes of the
conditional exception. The risk management control systems condition is intended to help
reduce the potential for disparities between firms that make use of a registered broker for
purposes of the exception and those that make use of a registered security-based swap
dealer. Reducing the potential for such disparities should help mitigate a commenter’s
concern that the conditional exception could allow non-U.S. persons to exit the Title VII
regulatory regime without exiting the U.S. market. 32
16.
Information Collections Planned for Statistical Purpose
Not applicable.
17.
date.
18.
Explanation as to Why Expiration Date Will Not be Displayed
The Commission is not seeking approval to not display the OMB approval expiration
Exceptions to Certification
Not applicable.
B.
COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
The rules do not employ statistical methods.
31
See letter from Dennis Kelleher, President and CEO, Better Markets, dated July 23, 2019 at 1, 25;
letter from Americans for Financial Reform Education Fund, dated July 23, 2019 at 1-3.
32
See letter from Stephen Berger, Managing Director, Citadel, dated July 23, 2019 at 2.
| File Type | application/pdf |
| Author | ODP |
| File Modified | 2020-01-07 |
| File Created | 2020-01-07 |