Download:
pdf |
pdfSUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 606 of Regulation NMS
(OMB Control No. 3235-0541)
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”). 1 The Commission adopted Rule 606 f/k/a Rule
11Ac1-6 as part of Regulation NMS. 2 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 November 2, 2018, the Commission adopted amendments to Rule 606 of Regulation
NMS to require disclosure by broker-dealers of (1) a quarterly aggregated public report on the
handling of orders in NMS stocks that are submitted on a held basis and orders in NMS
securities that are option contracts with a market value less than $50,000 (“Quarterly Public
Disclosure on Routing of Held Orders and Options Contracts”); (2) a report, upon request of a
customer, on the routing of that customer’s orders in NMS stocks that are submitted on a held
basis, orders in NMS stocks that are submitted on a not held basis and do not qualify for two de
minimis exceptions, and orders in NMS securities that are option contracts, containing certain
information on the broker-dealer’s routing of such orders for that customer for the prior six
months (“Customer-Specific Disclosure on Routing of Held Orders, Exempt Not Held Orders,
and Options Contracts”); and (3) a report, upon request of a customer that places with the brokerdealer, directly or indirectly, NMS stock orders of any size that are submitted on a not held basis
(subject to two de minimis exceptions), containing certain information on the broker-dealer’s
handling of such orders for that customer for the prior six months (“Customer-Specific
Disclosure on Handling of Non-Exempt Not Held Orders”).
3
1
OMB No. 3235-0541.
2
See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29,
2005).
3
See Securities Exchange Act Release No. 84528 (November 2, 2018), 83 FR 58338
(November 19, 2018).
The collections of information required by Rule 606 are summarized below:
•
•
•
2.
Rule 606(a)(1) - Quarterly Public Disclosure on Routing of Held Orders and
Options Contracts
Rule 606(b)(1) - Customer-Specific Disclosure on Routing of Held Orders,
Exempt Not Held Orders, and Options Contracts
Rule 606(b)(3) - Customer-Specific Disclosure on Handling of Non-Exempt Not
Held Orders
Purpose and Use of the Information Collection
The purpose of the information collection is to make information about order handling
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 order
handling decisions. Broker-dealers use the information to compete on the basis of order
handling services.
The order handling disclosures required under Rule 606(b)(1) and (b)(3) provide detailed
information that would investors to evaluate how their orders were handled by their brokerdealers, assess conflicts of interest facing their broker-dealers in providing order routing services,
and have the ability to engage in informed discussions with their broker-dealers about the brokerdealer’s order handling practices. These disclosures could inform future decisions on whether to
retain a broker-dealer’s order handling services or engage the order handling services of a new
broker-dealer. In addition, broker-dealers may use the public disclosures to compete on the basis
of order handling services.
3.
Consideration Given to Information Technology
Rule 606 requires broker-dealers to prepare and disseminate quarterly order routing
reports and, upon request, customer-specific order handling reports. The information needed to
generate these reports should already be collected by broker-dealers to comply with the 2018
amendments after incurring one-time hour and cost burdens to update their systems to create and
retain the information and disseminate the disclosures required by the amended Rule. However,
to comply with the Rule on an ongoing basis, broker-dealers would incur additional burdens in
(1) preparing the quarterly public reports and making them publically available and (2)
responding to requests for customer-specific disclosures.
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
2
Duplication of information is currently not a concern; the reported information is not
available 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 Rule 606 is a small
entity.
6.
Consequences of Not Conducting Collection
The quarterly and customer-specific disclosures on order handling required by Rule 606
would allow customers to evaluate and monitor their broker-dealer’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 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
Not applicable.
11.
Sensitive Questions
The information collection does not collect personally identifiable information. The
agency has determined that neither a PIA nor a SORN are required in connection with the
collection of information.
3
12.
Burden of Information Collection
The Total annual time burden associated with rule 606 is approximately 190,240 hours
per year calculated as described below.
A. Rule 606(a)(1)
The collection of information obligations of Rule 606(a)(1) apply to broker-dealers that
route non-directed customer orders in covered securities. The Commission estimates that there
are approximately 264 broker-dealers that are potentially subject to the collection of information
obligations of Rule 606. 4 Each of these respondents (if engaged in the business of routing nondirected 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. The Commission believes,
however, that clearing brokers primarily bear the burden of complying with the reporting and
recordkeeping requirements of the Rule on behalf of small to mid-sized introducing firms. There
currently are approximately 186 clearing brokers. 5 In addition, there are approximately 78
introducing brokers that receive funds or securities from their customers. 6 Because at least some
of these firms also may have greater involvement in determining where customer orders are
routed for execution, they have been included, along with clearing brokers, in estimating the total
burden.
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 264 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(a)(1) is estimated to be 42,240
hours (160 x 264).
For each of the 264 broker-dealers subject to disclosure requirements of Rule 606(a)(1),
the Commission estimates the annual burden under Rule 606(a)(1)(iv) to monitor payment for
order flow and profit-sharing relationships and potential self-regulatory organization rule
changes that could impact their order routing decisions and incorporate any new information into
their reports to be 10 hours and the annual burden for each broker-dealers to describe and update
any terms of payment for order flow arrangements and profit-sharing relationships with a
Specified Venue that may influence their order routing decisions to be 15 hours, for a total
annual burden of 6,600 hours (25 x 264).
Therefore, the estimated total annual burden to comply with Rule 606(a)(1) is 48,840
4
5
6
2021 Form BD and Form Custody data.
Id.
Id.
4
hours (42,240 hours + 6,600 hours). 7
B. Rule 606(b)(1)
Rule 606(b)(1) 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 186 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 74,400 hours (186
x 400).
C. Rule 606(b)(3)
Rule 606(b)(3) requires broker-dealers to produce, upon request of a customer, a
Customer-Specific Disclosure on Handling of Non-Exempt Not Held Orders. The Commission
estimates that approximately 200 broker-dealers are involved in routing orders subject to the
disclosure requirements of Rule 606(b)(3). The Commission believes that some such brokerdealers will respond to requests for customer-specific reports in house, while others will engage
a third-party service provider to do so. The Commission estimates that approximately 135
broker-dealers will respond in-house to individual customer requests for information on order
handling under Rule 606(b)(3), and that for each, the individual annual burden will be 400 hours
(200 responses x 2 hours/response), with a total annual burden of 54,000 hours (400 x 135). The
Commission estimates that approximately 65 broker-dealers will engage a third party to respond
to individual customer requests, and that for each, the individual annual burden will be 200 hours
(200 responses x 1 hour/response), with a total annual burden of 13,000 hours (200 x 65).
hours.
7
Therefore, the estimated total annual burden to comply with Rule 606(b)(3) is 67,000
Broker-dealers incurred a number of initial one-time only hour burdens to comply with
the 2018 amendments to Rule 606. As these are no longer ongoing burdens, they are
reflected in the summary chart at the end of this item with values of 0.
5
Total Annual Hour Burden for Respondents: 190,240 hours
Name of
Information
Collection
Burden
Description
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
Annual
Burden
[ D + E]
[F * B]
[G * A]
[C / 3 years]
Update Compliance
Manuals
Rule 606(a)(1)
Rule 606(b)(1)
Rule 606(b)(3)
Revise
compliance
manuals in
house
Update data
capture systems
and create
reports in house
Engage third
party to update
data capture
systems and
create reports
Assess payment
for order flow
and profitsharing
relationships
Create and issue
quarterly report
Update systems
in-house to
apply existing
disclosure
requirements to
updated order
categories
Engage third
party to update
systems to apply
existing
disclosure
requirements to
updated order
categories
Respond to
customer
requests
Update data
capture systems
and create
reports in house
Engage third
party to update
data capture
systems and
create reports
Respond to
customer
requests in
house
Engage third
party to respond
to customer
requests
Small
Business
Entities
Affected
0
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
0
0
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
0
0
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
0
264
1
0 hours
0 hours
25 hours
25 hours
25 hours
6,600.00
hours
0
264
4
0 hours
0 hours
40 hours
40 hours
160 hours
42,240 hours
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
0
0
0
0
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
0
186
2,000
0 hours
0 hours
0.2 hours
0.2 hours
400 hours
74,400 hours
0
0
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
0
0
0
0 hours
0 hours
0 hours
0 hours
0 hours
0 hours
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
6
0
13.
Costs to Respondents
The Total annual cost burden associated with rule 606 is approximately $1,300,000 per
year calculated as described below.
There are no applicable costs associated with compliance with the information collection
requirements of Rule 606(a)(1), (b)(1), and (b)(3) for those broker-dealers subject to the
requirements of Rule 606(b)(3) that will respond to customer-specific disclosure requests in
house: (a) it is not anticipated that respondents will have to incur any capital or startup costs 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.
As discussed in Item 12, the Commission estimates that approximately 65 broker-dealers
subject to the requirements of Rule 606(b)(3) will engage a third party to respond to individual
customer requests. The total annual cost burden associated with engaging such third parties is
approximately $1,300,000 (65 x 200 annual requests x $100 per request to engage a third-party
service provider). 8
8
Broker-dealers incurred a number of initial one-time only cost burdens to comply with
the 2018 amendments to Rule 606. As these are no longer ongoing burdens, they are
reflected in the summary chart at the end of this item with values of 0.
7
Total Annual Cost Burden for Respondents: $1,300,000.00
Summary of Dollar Costs
A.
Name of
Information
Collection
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
Small
Business
Entities
Affected
[ D + E]
[F * B]
[G * A]
[A * 0 %]
[C ÷ 3 years]
Rule 606(a)(1)
Rule 606(b)(1)
Rule 606(b)(3)
Engage third
party to update
data capture
systems and
create reports
0
0
0
0
$0.00
0
$0.00
$0.00
0
0
0
0
0
$0.00
0
$0.00
$0.00
0
Engage third
party to update
data capture
systems and
create reports
0
0
0
0
$0.00
0
$0.00
$0.00
0
Update data
capture systems
and create
reports in house
(hardware and
software)
0
0
0
0
$0.00
0
$0.00
$0.00
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
Engage third
party to update
data capture
systems and
create reports
14.
Costs to Federal Government
Not applicable.
15.
Changes in Burden
The total annual hour burden decreased from approximately 229,782 hours to
approximately 190,240 hours. As detailed below, the reduction is attributed to (1) a decrease in
the estimated number of Rule 606(a)(1) respondents from 292 to 264 and a decrease in the
number of Rule 606(b)(1) respondents from 217 to 186, and (2) the obsolescence of certain onetime only hour burdens imposed by the 2018 amendments. The total annual cost burden
decreased from approximately $5,591,667 to approximately $1,300,000 due to the obsolescence
of certain one-time only cost burdens imposed by the 2018 amendments (as detailed below).
8
Respondents
2018
Individual
burden
Annual
burden
Respondents
Rule 606(a)(1)
292
97
195
292
292
195
160 hours/year
annualized
burden to issue
quarterly
reports
80 hours/year
annualized
initial burden to
implement
amendments inhouse.
6.67 hours/year
annualized
initial burden to
implement
amendments
using third
party.
3.33 hours/year
annualized
initial burden to
assess payment
for order flow
and profitsharing
relationships
25 hours/year
annualized
burden to
assess payment
for order flow
and profitsharing
relationships
$10,666.67/yea
r annualized
initial cost to
implement
amendments
using third
party.
46,720 hours
264
7,760 hours
0
1,300 hours
0
973.33 hours
7,300 hours
$2,080,000
0 hours/year
annualized initial
burden to
implement
amendments inhouse.
0 hours/year
annualized initial
burden to
implement
amendments
using third party.
0 hours/year
annualized initial
burden to assess
payment for
order flow and
profit-sharing
relationships
0
25 hours/year
annualized
burden to assess
payment for
order flow and
profit-sharing
relationships
264
97
195
217
195
$1,666.67/year
annualized
initial cost to
implement
776 hours
195 hours
Annual
burden
42,240
hours
0
Hourly burden
0 hours/year
annualized initial
burden to update
systems in-house
to apply existing
disclosure
requirements to
updated order
categories
0
0
86,800 hours
186
0
9
Change
Individual
burden
Annual
burden
0 hours/year
-4,480 hours
0 hours
-97
-80
hours/year
-7,760 hours
0 hours
-195
-6.67
hours/year
-1,300 hours
0 hours
-292
-3.33
hours/year
-973.33 hours
6,600
hours
-28
0 hours/year
-700 hours
$0
-195
-$10,666.67/
year
-$2,080,000
-97
-8 hours/year
-776 hours
-195
-1 hour/year
-31
0 hours/year
-12,400 hours
-195
-$1,666.67/
year
-$325,000
0 hours
0 hours/year
annualized initial
burden to engage
third party to
update systems to
apply existing
disclosure
requirements to
updated order
categories
0 hours
400 hours/year
annualized
burden to
respond to
customer requests
74,400
hours
Cost burden
$0/year
annualized initial
cost to implement
amendments
$325,000
Respondents
-28
Cost burden
$0/year
annualized initial
cost to implement
amendments
using third party.
Rule 606(b)(1)
8 hours/year
annualized
initial burden to
update systems
in-house to
apply existing
disclosure
requirements to
updated order
categories
1 hour/year
annualized
initial burden to
engage third
party to update
systems to
apply existing
disclosure
requirements to
updated order
categories
400 hours/year
annualized
burden to
respond to
customer
requests
2021
Individual
burden
Hourly burden
160 hours/year
annualized
burden to issue
quarterly reports
$0
-195 hours
amendments
using third
party.
using third party.
Rule 606(b)(3)
Hourly burden
67
133
135
65
67
133
65
86.67
hours/year
annualized
initial burden to
implement
amendments inhouse.
16.67
hours/year
annualized
initial burden to
implement
amendments
using third
party.
400 hours/year
annualized
burden to
respond to
customer
requests inhouse
200 hours/year
annualized
burden to
respond to
customer
requests using
third party
$5,000.00/year
annualized
initial cost for
hardware/softw
are upgrades
$11,666.67/yea
r annualized
initial cost to
implement
amendments
using third
party.
$20,000.00/
year annualized
cost to respond
to customer
requests using
third party
0
0 hours/year
annualized initial
burden to
implement
amendments inhouse.
0 hours
-67
-86.67
hours/year
-5,806.67
hours
2,216.67
hours
0
0 hours/year
annualized initial
burden to
implement
amendments
using third party.
0 hours
-133
-16.67
hours/year
-2,216.67
hours
54,000 hours
135
400 hours/year
annualized
burden to respond
to
customer
requests in-house
54,000
hours
0
0 hours/year
0 hours
65
200 hours/year
annualized
burden to
respond to
customer requests
using third party
13,000
hours
0
0 hours/year
0 hours
$0
-67
-$5,000/
year
-$335,000
$0
-133
-$11,666.67/
year
$1,551,666.67
$1,300,00
0
0
$0
/year
$0
0 hours
-4,405
-0.67 hours
-2,936.67
hours
5,806.67
hours
13,000 hours
$335,000
0
$1,551,666.6
7
0
$1,300,000
Cost burden
$0/year
annualized initial
cost for
hardware/softwar
e upgrades
$0/year
annualized initial
cost to implement
amendments
using third party.
65
Update Compliance Manuals
Hourly burden
4,405
16.
$20,000.00/year
annualized cost
to respond to
customer requests
using third party
0.67 hours/year
annualized
initial burden to
update
compliance
manuals
2,936.67
hours
0 hours/year
annualized initial
burden to update
compliance
manuals
0
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
10
Not applicable. This collection complies with the requirements in 5 CFR 1320.9.
B.
Collection of Information Employing Statistical Methods.
Not applicable.
11
| File Type | application/pdf |
| File Modified | 2021-12-15 |
| File Created | 2021-12-15 |