DGL REVISED 2020 15c1-7 Supporting Statement

SUPPORTI NG STATEM ENT
for the Paperwork Reduction Act I nformation Collection Submission for
Rule 15c1-7
OMB Control No. 3235-0134
A. JUSTIFICATION
1.

Necessity of Information Collection

The Commission adopted Rule l5c1-7 in 1937 (17 CFR 240.l5c1-7) to protect the public
from broker-dealers that transact unauthorized trades. The rule provides that any act of a
broker-dealer designed to effect securities transactions with or for a customer account over which
the broker-dealer (directly or through an agent or employee) has discretion will be considered a
fraudulent, manipulative, or deceptive practice under the federal securities laws, unless a record
is made of the transaction immediately by the broker-dealer. The record must include (a) the
name of the customer, (b) the name, amount, and price of the security, and (c) the date and time
when such transaction took place.
The Commission is statutorily authorized by Section 15 of the Securities Exchange Act of
1934 (‘‘Exchange Act’’) 15 U.S.C. 78o(c)(2) to adopt rules and regulations that define and
prescribe means reasonably designed to prevent such acts and practices as are fraudulent,
deceptive, or manipulative. Further statutory authority is found in Section 23(a) of the Exchange
Act, 15 U.S.C. 78w.
2.

Purpose and Use of the Information Collection

The information required by the rule is necessary for the execution of the Commission' s
mandate under the Exchange Act to prevent fraudulent, manipulative, and deceptive acts and
practices by broker-dealers. This is used by the Commission and the various self-regulatory
organizations in compliance examinations to determine whether such trades have occurred.
3.

Consideration Given to Information Technology

The compilation of this information must be done on an individual basis for each
potential investor. Thus, improved information technology would not reduce the burden.
4.

Duplication

While similar information is required by Rule l7a-3 (17 CFR 240.l7a-3), the staff has
determined that it is neither desirable nor feasible at this time to eliminate the record-making
function of Rule 15c1-7 and rely instead on Rule 17a-3 for such information.
5.

Effect on Small Entities

The rule requirements are not unduly burdensome on smaller broker-dealers. Most small
broker-dealers do not have discretionary accounts, and thus would not be subject to the rule.
6.

Consequences of Not Conducting Collection

Failure to collect the information may limit the Commission’s ability to prevent
fraudulent, manipulative, and deceptive acts and practices by broker-dealers.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting comments
on this collection of information was published. No public comments were received.
9.

Payment or Gift to Respondents

No payments or gifts were provided to respondents.
10.

Confidentiality

Because the information is gathered by the Commission during compliance examinations,
it is accorded confidential treatment pursuant to Regulation 200.80(b)(7) under the Freedom of
Information Act, 17 CFR 200.80(b)(7).
11.

Sensitive Questions

No information of a sensitive nature will be required under this collection of information
and the Commission does not store the information collected. Therefore, the agency has
determined that a SORN and PIA are not required in connection with the collection of
information.
12.

Information Collection Burden

As of August 1, 2020, there are 3,618 registered broker-dealers. Of the 3,618 registered
broker-dealers, approximately 10% (or 362 registered broker-dealers) would need to comply
with the rule. It takes approximately 5 minutes per transaction to comply with the rule. The
staff estimates that approximately 400,000 transactions are effected in discretionary accounts
annually, or approximately 1,105 transactions per respondent (400,000 transactions divided by
362 respondents = 1,104.97238 rounded up to 1,105). Thus, it is estimated that respondents
incur an aggregate annual total of approximately 33,333 hours (approximately 92.1 hours per
respondent per year) to comply with the rule.

Burden Type

Number of
Number of
Respondents Transactions
Per
Respondent

Recordkeeping 362

1,104.97238

Time Per
Response
for
Respondent
(Minutes)
5

Total Burden
(Minutes)

Total Burden
(Hours)

2,000,000

Approximately
33,333
33,333 hours

Total Burden

The approximate internal cost per hour of complying with the collection of information
imposed by Rule 15c1-7 is $100, resulting in a total cost of compliance for all respondents of
$3,333,400, (33,334 hours @ $100). This is, however, solely a monetization of the hour burden
and not a cost burden. This a recordkeeping rule.
13.

Cost to Respondents

There is no cost burden imposed by the collection of information.
14.

Costs to Federal Government

There is no estimated cost to the Federal Government.
15.

Changes in Burden

There is a small decrease in the overall time burden from 33,338 to 33,333 hours per
year due to the correction of rounding errors contained in the previous submission. The
estimated number of total transactions remains the same at 400,000 but the estimated number of
transactions per respondent and the estimated number of burden hours per respondent of
collecting information pursuant to Rule 15c1-7 has increased because the number of registered
broker-dealers subject to the rule has decreased from 394 to 362.

16.

Information Collection Planned for Statistical Purposes

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

Approval to Omit OMB Expiration Date

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

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable. The information collection is not used for statistical purposes.