DGL REVISED 2020 17f-2(d) Supporting Statement (004)

SUPPORTING STATEMENT
for the Paperwork Reduction Act New Information Collection Submission for
Rule 17f-2(d)
OMB Control #: 3235-0028
A. JUSTIFICATION
1. Necessity of Information Collection
Congress added Section 17(f) to the Securities Exchange Act of 1934 (“Act”) 1 in 1975 as
part of the Securities Acts Amendments of 1975 2 in order to respond to a large number of
securities thefts that occurred in the late 1960s. Testimony before the Senate Permanent
Subcommittee of Investigations between 1971 and 1974 indicated that the trafficking in stolen
securities certificates was profitable for organized crime and that the failure to have available to
the financial community a means of easily identifying security-risk personnel was a contributing
factor to that problem. Specifically, Section 17(f)(2) requires every member of a national
securities exchange, broker, dealer, registered transfer agent, and registered clearing agency to
require that each of its partners, directors, officers, and employees be fingerprinted and submit
such fingerprints to the U.S. Attorney General for identification and processing. This section also
authorized the Commission to exempt, by rule, from the provisions of this paragraph any class of
partners, directors, officers, and employees of any such member, broker, dealer, registered
transfer agent, and registered clearing agency.
On March 16, 1976, the Commission adopted Rule 17f-2 under the Exchange Act. The
general purposes of Rule 17f-2 are: (1) to identify security-risk personnel (i.e., persons with
criminal history records for serious offenses); (2) to provide criminal record information so that
employers can make fully informed employment decisions; and (3) to deter persons with a
criminal record from seeking employment or association with covered entities. The rule attempts
to achieve these purposes primarily by requiring, subject to certain exceptions, every partner,
director, officer, and employee (“covered persons”) of every member of a national securities
exchange, broker, dealer, registered transfer agent, and registered clearing agency (“covered
entities” or “respondents”) to be fingerprinted and submit such fingerprints to the U.S. Attorney
General or its designee.
Rule 17f-2(d)(1) requires covered entities to maintain and preserve the processed fingerprint
card or any appropriate substitute record together with any information received from the Attorney
General for the duration of a covered person’s employment or relationship with the entity and for a
period of not less than three years after termination of a covered person’s employment or
relationship with the entity. However, subparagraph (2) of the rule permits a self-regulatory
organization (“SRO”) that is also the designated examining authority for a member of a national
securities exchange, broker, or dealer to maintain and preserve the records required to be kept by
this rule. Subparagraph (3) permits the required records to be maintained on microfilm.
1

15 U.S.C. 78q(f).

2

Pub. L. No. 94-29, 89 Stat. 97 (June 4, 1975).

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2. Purpose and Use of the Information Collection
Retention of fingerprint records by covered entities enables the Commission or other
examining authority to ascertain whether all covered persons are being fingerprinted and whether
proper procedures regarding fingerprinting are being followed. Retention of these records for a
period of not less than three years after termination of a covered person’s employment or
relationship with a covered entity ensures that law enforcement officials will have easy access to
fingerprint cards on timely basis. This in turn acts as an effective deterrent to employee misconduct.
3. Consideration Given to Information Technology
Subparagraphs (2) and (3) of the rule authorize SROs to maintain and preserve fingerprint
cards that they submit on behalf of covered entities and permits them to do so using microfilm.
4.

Duplication

Rule 17f-2(b) provides that if fingerprint cards have already been taken pursuant to any
other federal or state law or regulation and are submitted to the U.S. Attorney General or its
designee, the requirements of Section 17(f)(2) of the Act are satisfied.
5.

Effect on Small Entities

Because the rule permits the designated examining authority for a member of a national
securities exchange, broker, or dealer to maintain and preserve records on behalf of that member,
broker or dealer, such small entities will receive the benefit of economies of scale.
6.

Consequences of Not Conducting Collection

If information were collected less frequently, the Commission’s ability to ascertain
whether all covered persons are being fingerprinted and whether proper procedures regarding
fingerprinting are being followed would be weakened.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)

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

There were no payments or gifts to respondents.

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10.

Confidentiality

No assurance of confidentiality is provided by Rule 17f-2(d); information collected will
otherwise be kept private to the extent protected by law.
11.

Sensitive Questions

The information collection neither collects personally identifiable information, nor is
information collected and stored by the Commission. The agency has determined that a SORN
and PIA are not required in connection with the collection of information.
12.

Burden of Information Collection

Rule 17f-2(d) requires covered entities to retain fingerprint records for the duration of a
covered person’s employment or relationship with the entity and for a period of not less than three
years after termination of a covered person’s employment or relationship with a covered entity.
Therefore, the nature of the burden is an ongoing recordkeeping burden.
There are approximately 3,900 respondents that are subject to the recordkeeping
requirements of the rule, including 91 registered transfer agents. Each respondent maintains an
approximate average of 68 new records per year, each of which takes approximately 2 minutes to
maintain. Therefore, the average annual hourly burden per respondent is approximately 2.2666667
hours (68 records times 2 minutes) and the total annual hourly burden for all respondents is
approximately 8,840 hours (3,900 respondents times 2.2666667 hours). We note that FINRA
maintains and preserves the records on behalf of many covered entities; many such entities therefore
bear minimal, if any, direct burden.
Number of Respondents
3,900

Average Annual Hourly
Burden Per Respondent
2.2666667

Total Annual Hourly
Burden

8,840

13. Costs to Respondents
The total annual cost for respondents to comply with Rule 17f-2(d) reflects the cost to
maintain and preserve fingerprint records that were returned to the respondent by the FBI. Again,
we note that because FINRA maintains and preserves the records on behalf of many covered
entities, the direct burden such entities bear is minimal, if any. Such records may be preserved in
paper or microfilm format. The physical requirements associated with such record retention (e.g.,
file cabinets in designated records storage areas) are commonplace in an office environment.
We estimate that 10% of the respondents (390 respondents) retain third party storage
vendors to preserve the required records offsite. Storage vendors’ pricing structures vary (e.g.,
differences in pickup, retrieval, monthly maintenance, contract termination, and storage fees) and it
is difficult to distill accurate cost estimates of the marginal cost of Rule 17f-2(d) records.

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Nevertheless, we estimate the yearly third party offsite storage cost for the required records is
approximately $100 per year because the volume of 17f-2(d) records is fairly low (about 1 cubic
foot). Thus, we estimate that the total cost to these respondents is approximately $39,000 (390
respondents times $100).

Number of Respondents
that Retain Third-Party
Storage
390

Cost of Retaining ThirdParty Storage
$100

Total Cost

$39,000

14. Costs to Federal Government
The costs to the federal government to administer Rule 17f-2(c) are zero. First, the
fingerprint cards are retained by SROs or the covered entities themselves. Second, while the
Commission periodically reviews the covered entities’ fingerprinting retention policies and
practices, the cost to the federal government is composed solely of staff time to review such
plans. For purposes of the Paperwork Reduction Act burden, this cost is considered zero.
15. Changes in Burden
The overall burden decreased due to the decrease in the number of entities subject to the
recordkeeping requirements of the Rule 17f-2(d) (4200 to 3900).
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
This collection does not involve statistical methods.

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