DGL REVISED 2021 Rule 11a1-1(T) - Suppporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 11a1-1(T) - Transactions yielding priority, parity, and precedence
OMB Control No. 3235-0478
A.

JUSTIFICATION
1.

Necessity of Information Collection

In the Securities Act Amendments of 1975, Section 11(a) of the Securities Exchange Act
of 1934 (“Exchange Act”) was amended to prohibit any member of a national securities
exchange from effecting transactions on such exchange for its own account, the account of an
associated person, or an account with respect to which it or an associated person thereof
exercises investment discretion, subject to certain exceptions. Section 11(a) was intended to
displace Exchange Act Rule 19b-2, which required each national securities exchange to adopt a
rule or rules specifying that every member of the exchange must have, as the principal purpose
of its exchange membership, the conduct of a public securities business. Under Rule 19b-2, an
exchange member would be deemed to have such a purpose if at least 80% of the volume of its
exchange securities transactions effected by it during the preceding six calendar months were
effected for or with persons other than affiliates or were effected pursuant to types of
transactions specified in Rule 19b-2.
Section 11(a)(1)(G) exempts from the operation of Section 11(a)(1) transactions of
certain exchange members that are effected in compliance with rules of the Commission. These
rules must, at a minimum, assure that the transaction is consistent with the maintenance of fair
and orderly markets and yields priority, parity, and precedence in execution to orders for the
account of persons who are not members or associated with members of the exchange. 1 The
Commission adopted Rule 11a1-1(T) (17 CFR 240.11a1-1(T)), the “proprietary trading rule,”
pursuant to Section 11(a)(1)(G) under the Act. See Exchange Act Release No. 12055 (January
27, 1976) (adopting the Rule).
Rule 11a1-1(T) provides that a transaction effected on a national securities exchange for
the account of a member which meets the requirements of Exchange Act Section 11(a)(1)(G)(i) 2
shall be deemed, in accordance with Exchange Act Section 11(a)(1)(G)(ii), to be not inconsistent
with the maintenance of fair and orderly markets and to yield priority, parity, and precedence in
the execution of an order for the account of a person who is not a member or associated with
members of the exchange if such transaction is effected in compliance with certain disclosure
requirements.
1

Section 11(a)(1)(G)(ii).

2

Section 11(a)(1)(G)(i) requires that the member for whose account transactions are being
effected be primarily engaged in the business of underwriting and distributing securities
issued by other persons, selling securities to customers, and acting as broker, or any one or
more of such activities. These members’ gross income also normally must be derived
principally from such business and related activities.

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In particular, an exchange member must disclose that a bid or offer for its account is for
its account to any member with whom such bid or offer is placed or to whom it is communicated
(Rule 11a1-1(T)(a)(1)). Moreover, any such member through whom that bid or offer is
communicated must disclose to others participating in effecting the order that it is for the account
of a member (Rule 11a1-1(T)(a)(1)). Finally, immediately before executing the order, a member
(other than the specialist in such security) presenting any order for the account of a member on
the exchange must clearly announce or otherwise indicate to the specialist and to other members
then present for the trading in such security on the exchange that he is presenting an order for the
account of a member (Rule 11a1-1(T)(a)(2)).
2.

Purpose and Use of Information Collection

The information required by Rule 11a1-1(T) is necessary for exchange members to make
transactions for their own accounts under a specific exemption from the general prohibition of
such transactions under Section 11(a) of the Exchange Act. This general prohibition is part of the
Commission’s mandate under the Exchange Act to promote fair and orderly markets and ensure
that exchange members have, as the principal purpose of their exchange memberships, the
conduct of a public securities business. Without these requirements, it would not be possible for
the exchanges and the Commission to monitor compliance with the preference requirements of
the Rule.
3.

Consideration Given to Information Technology

The compilation of this information must be done on a transaction-by-transaction basis.
Thus, improved information technology would not reduce the burden.
4.

Duplication

Not applicable; there is no duplication of information. The compilation of this
information must be done on a transaction-by-transaction basis.
5.

Effect on Small Entities

The Rule requirements are not unduly burdensome on smaller broker-dealers.
6.

Consequences of Not Conducting Collection

Compliance with Rule 11a-1(T) under the Exchange Act is necessary for exchange
members to make transactions for their own accounts under a specific exemption from the
general prohibition of such transactions under Section 11(a) of the Exchange Act. The
information is collected as each transaction warrants, and, therefore, there is no way to require
less frequent collection without undermining the purposes of the Rule.

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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

Not applicable.
10.

Confidentiality

No assurances of confidentiality are provided in the Rule.
11.

Sensitive Questions

The information collection does not collect personally identifiable information. The
agency has determined that a PIA and SORN are not required in connection with the collection
of information.
12.

Information Collection Burden

There are approximately 538 respondents that require an aggregate total of approximately
15 hours per year to comply with this Rule. Each of these approximately 538 respondents makes an
estimated 20 annual responses, for an aggregate of 10,760 responses per year. Each response takes
approximately 5 seconds to complete. Thus, the total compliance burden per year is approximately
15 hours (10,760 x 5 seconds/60 seconds per minute/60 minutes per hour = 15 hours). The
approximate internal cost of compliance per hour is $355,3 resulting in a total internal cost of
compliance of approximately $5,325 (15 hours @ $355) per year.

3

SIFMA’s Management & Professional Earnings in the Securities Industry 2012 estimates
the salary for a floor broker on the NYSE was $312/hour. The $355/hour figure in 2021
is based on the 2012 figure, adjusted for inflation using the Consumer Price Index, and
modified by Commission staff to account for an 1800-hour work-year and multiplied by
5.35 to account for bonuses, firm size, employee benefits, and overhead.

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Rule

Burden
Type

Rule 11a1- Third Party
Disclosure
1(T)
Total Aggregate Burden

13.

Number of
Respondents

Number of Annual Time Per
Reponses Per
Response
Respondent
(Hours)

538

20

0.00139
(5 sec.)

Total
Compliance
Burden Per
Year (Hours)
15
15

Cost to Respondents

Not applicable; (a) it is not anticipated that respondents will have to incur any capital or
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 to comply with the Rule.
14.

Cost to Federal Government

None.
15.

Changes in Burden

The estimated time burden has decreased because the estimated number of respondents
has decreased. It was previously estimated that there would be approximately 592 respondents
that would require an aggregate total of approximately 17 hours per year to comply with this
Rule. The revised estimate of approximately 15 hours per year is based on a revised estimated
number of respondents. There are approximately 538 members of floor based exchanges
estimated to potentially respond pursuant to the Rule, which is a decrease of 54 estimated
respondents (592 -538). It is estimated that each respondent makes 20 annual responses. This
figure remains unchanged, but as a result of a decrease in the estimated number of respondents,
the annual estimated number of responses decreased by 1,080 (10,760 – 11,840 = -1,080
responses). It is estimated that each response takes approximately 5 seconds to complete; this
figure remains unchanged.
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.

COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.