Rule 204-2 (Books and Records Rule) - Supporting Statement (T+1) DRAFT

OMB CONTROL NUMBER: 3235-0278
SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Amendments to Rule 204-2 under the Investment Advisers Act of 1940
A. JUSTIFICATION
1.

Necessity for the Information Collection

Section 204 of the Investment Advisers Act of 1940 (the “Advisers Act”)
provides that investment advisers required to register with the Securities and
Exchange Commission (the “Commission” or “SEC”) must make and keep certain
records for prescribed periods, and make and disseminate certain reports. 1 Advisers
Act rule 204-2 sets forth mandatory requirements for maintaining and preserving
specified books and records. 2 The records that an adviser must keep in accordance
with rule 204-2 must generally be retained for not less than five years. 3 These
requirements constitute a mandatory “collection of information,” within the
meaning of the Paperwork Reduction Act.
On February 9, 2022, the Commission proposed rules to shorten the standard
settlement cycle for most broker-dealer transactions from two business days after the
trade date (“T+2”) to one business day after the trade date (“T+1”). 4 To facilitate a
T+1 standard settlement cycle, the Commission also proposed new requirements for
the processing of institutional trades by broker-dealers, investment advisers, and

1

15 U.S.C. 80b-4.

2

17 CFR 275.204-2.

3

See id., at 275.204-2(e). The standard retention period required for books and records under rule
204-2 is five years, in an easily accessible place, the first two years in an appropriate office of the
investment adviser.

4

Shortening the Securities Settlement Transaction Cycle, Investment Advisers Act Release No.
5957 (Feb. 9, 2022) [87 FR 10436 (Feb. 24, 2022)] available at
https://www.sec.gov/rules/proposed/2022/34-94196.pdf (“Proposing Release”).

certain clearing agencies. First, the Commission proposed to amend rule 15c6-1
under the Securities Exchange Act of 1934 (“Exchange Act”) (“rule 15c6-1”) 5 to
shorten the standard settlement cycle for most broker-dealer transactions from T+2
to T+1 and to repeal the T+4 standard settlement cycle for firm commitment
offerings priced after 4:30 p.m. Second, the Commission proposed new rule 15c6-2
under the Exchange Act (“rule 15c6-2”) to prohibit broker-dealers from entering into
contracts with their institutional customers unless those contracts require that the
parties complete allocations, confirmations, and affirmations by the end of the trade
date, a practice the securities industry has commonly referred to as “same-day
affirmation”. 6 Third, the Commission proposed to amend rule 204-2 under the
Advisers Act to require registered investment advisers that are parties to contracts
under rule 15c6-2 to make and keep records of their allocations, confirmations, and
affirmations described in rule 15c6-2. Fourth, the Commission proposed rule 17Ad27 under the Exchange Act to require a clearing agency that is a central matching
service provider to establish policies and procedures to facilitate straight-through
processing. 7
Under proposed rule 15c6-2, a broker-dealer would be prohibited from
entering into a contract on behalf of a customer for the purchase or sale of certain
securities unless it has entered into a written agreement with the customer that
requires the allocation, confirmation, affirmation, or any combination thereof to be

5

17 CFR 240.15c6-1.

6

Proposed rule 17 CFR 240.15c6-2.

7

Proposed rule 17 CFR 240.17Ad-27.

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completed no later than the end of the day on trade date in such form as may be
necessary to achieve settlement in compliance with proposed rule 15c6-1(a). 8
Investment advisers, as customers of a broker or dealer, may become a party to such
an agreement. 9 Accordingly, the Commission proposed an amendment to rule 204-2
that is designed to ensure that registered investment advisers that are parties to
contracts under proposed rule 15c6-2 retain records of confirmations received, and
keep records of the allocations and affirmations sent to a broker or dealer. 10
Specifically, the Commission proposed to amend rule 204-2 by adding a
requirement in paragraph (a)(7)(iii) that advisers maintain records of each
confirmation received, and any allocation and each affirmation sent, with a date and
time stamp for each allocation (if applicable) and affirmation that indicates when the
allocation or affirmation was sent to the broker or dealer if the adviser is a party to a
contract under proposed rule 15c6-2. 11 As with other records required under rule 2042(a)(7), advisers would be required to keep originals of confirmations, and copies of
allocations and affirmations, described in the proposed rule, but may maintain
records electronically if they satisfy certain conditions.
We believe that requiring these records and requiring a time and date stamp
of all affirmations and any applicable allocations (but not confirmations) would help
advisers establish that they have timely met contractual obligations under proposed

8

See Proposing Release, supra note 4, at Section III.B.

9

See id., at Section III.C.

10

See id.

11

See proposed rule 204-2(a)(7)(iii).

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rule 15c6-2 and ultimately help ensure that trades involving such advisers would
timely settle on T+1. 12 In addition, we believe the proposed requirement would aid
the Commission staff in preparing for examinations of investment advisers and
assessing adviser compliance. 13 The information generally is kept confidential subject
to the applicable law. 14
The collection has been previously approved and subsequently extended under
Office of Management and Budget (“OMB”) control number 3235-0278 (expiring
October 31, 2022), and it is found at 17 CFR 275.204-2. An agency may not conduct
or sponsor, and a person is not required to respond to, a collection of information
unless it displays a currently valid OMB number.
2.

Purpose and Use of the Information Collection

The purpose of the information collection in rule 204-2 is to assist the
Commission’s examination and oversight program. Requiring the creation,
maintenance and retention of the above records as part of rule 204-2 would help the
Commission staff in preparing for examinations of investment advisers and assessing
adviser compliance. In addition, it would help advisers establish that they have
timely met contractual obligations under proposed rule 15c6-2 and ultimately help
ensure that trades involving such advisers would timely settle on T+1.

12

See Proposing Release, supra note 4, at Section III.C.

13

See id.

14

See section 210(b) of the Advisers Act (15 U.S.C. 80b-10(b)).

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The respondents to the rule are investment advisers registered with the
Commission. Responses provided to the Commission in the context of its
examination and oversight program are generally kept confidential subject to the
applicable law. 15 This collection of information is found at 17 CFR 275.204-2 and is
mandatory.
3.

Consideration Given to Information Technology

The Commission’s use of computer technology in connection with this
information collection, which has been previously approved by OMB, would not
change. The Commission currently permits advisers to maintain records required by
the rule through electronic media. 16
4.

Duplication

The collection of information requirements of the rule, including the
amendments, are not duplicated elsewhere. The Commission periodically evaluates
rule-based reporting and recordkeeping requirements for duplication, and reevaluates
these requirements whenever it adopts amendments to its rules.
5.

Effect on Small Entities

The requirements of the rule are the same for all investment advisers registered
with the Commission, including those that are small entities. The requirements of the
proposed amendment to rule 204-2 would not distinguish between small entities and
other investment advisers because the protections of the Advisers Act are intended to

15

See section 210(b) of the Advisers Act [15 U.S.C. 80b-10(b)].

16

See Electronic Recordkeeping by Investment Companies and Investment Advisers, Investment
Advisers Act Release No. 1945 (May 24, 2001) [66 FR 29224 (May 30, 2001)].

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apply equally to retail investor clients of both large and small firms. OMB has
previously approved the effect of this collection on all investment advisers in general,
including advisers that are small entities. Moreover, it would defeat the purpose of
the rule to exempt small entities from these requirements. The Commission reviews
all rules periodically, as required by the Regulatory Flexibility Act, to identify
methods to minimize recordkeeping or reporting requirements affecting small
businesses.
6.

Consequences of Not Conducting Collection

Less frequent information collection will be incompatible with the objectives of
the rule and would hinder the Commission’s oversight and examination program for
investment advisers and thereby reduce the protection to investors.
7.

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

The collection requirements under rule 204-2 generally require advisers to
maintain documents for five years, and in some cases longer. The retention period
will not be affected by the amendments to the rule. Although this period exceeds the
three-year guideline for most kinds of records under 5 CFR 1320.5(d)(2)(iv), OMB
has previously approved the collection with this retention period. The retention
periods in rule 204-2 are warranted because the recordkeeping requirements in rule
204-2 of the Advisers Act are designed to contribute to the effectiveness of the
Commission’s examination and inspection program. Because the period between
examinations may be as long as, or longer than, five years, it is important that the
Commission have access to records that cover the entire period between
examinations.

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8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management
participate in an ongoing dialogue with representatives of the investment
management industry through public conferences, meetings, and informal
exchanges. These various forums provide the Commission and staff with a means of
ascertaining and acting upon paperwork burdens confronting the industry. In
addition, the Commission has requested public comment on the proposed
amendment to rule 204-2, including the collection of information requirements
resulting from the proposed amendment. Before adopting this amendment, the
Commission will receive and evaluate public comments on the proposed amendment
and their associated collection of information requirements.
9.

Payment or Gift

None.
10.

Confidentiality

Responses provided to the Commission pursuant to rule 204-2 in the context of
the Commission’s examination and oversight program are generally kept confidential
subject to the applicable law. 17
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be
required under this collection of information. The information collection collects
basic Personally Identifiable Information (PII) that may include names, job titles,
work addresses, and phone numbers. However, the agency has determined that the

17

See section 210(b) of the Advisers Act [15 U.S.C. 80b-10(b)].

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information collection does not constitute a system of record for purposes of the
Privacy Act. Information is not retrieved by a personal identifier.
12.

Estimate of Hour and Cost Burden of Information Collection

The following estimates of average burden hours and costs are made solely for
purposes of the Paperwork Reduction Act of 1995 18 and are not derived from a
comprehensive or even representative survey or study of the cost of Commission
rules and forms.
The respondents to this collection of information are investment advisers
registered or required to be registered with the Commission. All such advisers will be
subject to the proposed amendments to rule 204-2. As of December, 2020, there were
approximately 13,804 advisers registered with the Commission. 19 The Commission
further estimates that 2,521 of these registered advisers would not be required to
make and keep the proposed required records because they do not have any
institutional advisory clients. 20 Therefore, the remaining 11,283 of these advisers, or
81.74% of the total registered advisers that are subject to rule 204-2, would enter a
contract with a broker or dealer under proposed rule 15c6-2 and therefore be subject
to the related proposed recordkeeping amendment.
Based on staff experience, the Commission expects that many advisers already
have recordkeeping processes in place to retain records of confirmations received,

18

44 U.S.C. 3501 et seq.

19

Based on data from Form ADV as of December, 2020.

20

See Proposing Release, supra note 4, at Section VI.A.

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and allocations and affirmations sent to brokers or dealers. 21 The Commission
expects that while these are customary and usual business practices for many
advisers, some small and mid-size advisers do not currently retain these records.
Further, the Commission estimates that the vast majority of these books and records
are kept in electronic fashion in a trade order management or other recordkeeping
system, through system logs of file transfers, email archiving or as part of DTC’s
Institutional Trade Processing services, but that some advisers maintain paper
records (e.g., confirmations) and/or communicate allocations by telephone. In
addition, we estimate that up to 70% of institutional trades are affirmed by
custodians, and therefore advisers may not retain or have access to the affirmations
these custodians sent to brokers or dealers. 22 Also, based on staff experience, the
Commission expects that many advisers send allocations and affirmations
electronically to brokers or dealers, and therefore these records are already date and
time stamped in many instances. 23 Nevertheless, the proposed amendments would
explicitly add a new requirement to date and time stamp allocations and affirmations
(but not confirmations), and thus increase this collection of information burden. The
Commission estimates that the associated increase in burden would be included in
our estimate described in the chart below for advisers that we expect do not
electronically send allocations and affirmations to their brokers or dealers.

21

See id., at Section III.C.

22

See id., at footnote Error! Bookmark not defined. (discussion of DTCC ITP Forum Remarks).

23

See id., at Section III.C.

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We describe the estimated burdens associated with the proposed recordkeeping
amendment below. These estimated changes from the currently approved burden are
due to the estimated increase in the internal hour and internal time cost burden that
would be due to the proposed amendment, and the increase in the number of
registered investment advisers (an increase of 80 advisers).

Table 1: Summary of burden estimates for the proposed amendment to Rule 204-2.
Advisers

220 small and midsize advisers that
have institutional
clients, that we expect
do not currently
maintain the
proposed records4
113 advisers that
have institutional
clients that staff
estimates do not send
allocations or
affirmations
electronically to
brokers or dealers
(e.g., they
communicate with
them by telephone)6
7,898 advisers with
institutional clients
that the staff
estimates make
institutional trades
that are affirmed by
custodians, and
therefore do not
maintain the
proposed
affirmations8

Initial
internal
hour
burden
2 hours
per
adviser5

2 hours
per
adviser7

2 hours
per
adviser9

Total estimated burden per adviser
per year resulting from the proposed
amendment
Currently approved aggregate
burden
Estimated revised aggregate burden
Notes:

Annual internal hour
burden1

Wage
rate2

Internal time cost per
year

2 hours, amortized
over a 3 year period,
for an annual ongoing
internal burden of
0.667 hours per year
(220 advisers x 0.667
hours each = 146.74
aggregate annual
hours)
2 hours, amortized
over a 3 year period,
for an annual ongoing
internal burden of
0.667 hours per year
(113 advisers x 0.667
hours each = 75.37
aggregate annual
hours)

$69.36
per
hour

0.667 hour x $69.36
per hour = $43.60 per
adviser per year.
$69.36 x 146.74
aggregate hours =
$10,159.16
aggregate cost per
year.

$69.36
per
hour

0.667 hour x $69.36
per hour = $43.60 per
adviser per year.
$69.36 per hour x
75.37 aggregate hours
= $5,227.67
aggregate cost per
year.

$0

2 hours, amortized
over a 3 year period,
for an annual ongoing
internal burden of
0.667 hours per year
(7,898 advisers x
0.667 hours each =
5,267.97 aggregate
hours)

$69.36
per
hour

0.667 hour x $69.36
per hour = $43.60 per
adviser per year.
$69.36 per hour x
5,267.97 aggregate
hours = $365,386.40
Aggregate cost per
year.

$0

5,490.08 aggregate
hours per year,10 or 0.4
blended hours per year
per adviser11

$380,791.95 per year (5,490.08
aggregate hours per year x
$69.36 per hour)

$0

2,764,563 aggregate
hours per year
2,786,199 hours12

$175,980,426

$0

$193,250,787.6013

$0

10

Annual
external
cost
burden3
$0

1. We expect that the estimated internal hour burdens associated with the proposed amendment would be one-time
initial burdens, and we amortize these burdens over three years.
2. As with our estimates relating to the previous amendments to Advisers Act rule 204-2, the Commission expects that
performance of these functions would most likely be allocated between compliance clerks and general clerks, with
compliance clerks performing 17% of the function and general clerks performing 83% of the function. Data from
SIFMA's Office Salaries in the Securities Industry 2013, modified by Commission staff to account for an 1800-hour
work-year and inflation, and multiplied by 2.93 to account for bonuses, firm size, employee benefits and overhead,
suggest that costs for these position are $76 and $68, respectively. A blended hourly rate is therefore: (.17 x $76) +
(.83 x $68) = $69.36 per hour.
3. Under the currently approved PRA for rule 204-2, there is no cost burden other than the cost of the hour burden
described herein, and we expect that the proposed amendment would not result in any cost burden other than the cost of
the hour burden.
4. Based on staff experience, we estimate that approximately 50% of small and mid-sized registered investment
advisers that have institutional clients, do not currently maintain the proposed records. Based on Form ADV data as of
December 2020, we estimate that there are 199 and 241 mid-sized and small entity RIAs, respectively, that would be
required to retain the proposed new records, for a total of 440 advisers (these are advisers that report the following on
Form ADV Part 1A as of December 2020: (i) having any clients that are registered investment companies in response
to Item 5.D, (ii) having any institutional separately managed accounts in Item 5.D., or separately managed account
exposures in Section 5.K.(1) of Schedule D, or (iii) advising any reported hedge funds as per Section 7.B.(1) of
Schedule D). The categories of mid-size and small entity advisers are based on responses to the following Items of
Form ADV Part 1A: Item 2.a.(2) (mid-size RIA) and Items 5.F. and 12 (small entity). 50% of 440 advisers = 220
advisers.
5. We estimate an initial burden of 2 hours per adviser, to update procedures and instruct personnel to retain the
proposed required records in the advisers’ electronic recordkeeping systems, including any confirmations that they may
receive in paper format and do not currently retain. We expect that these advisers already have recordkeeping systems
to accommodate these records, which would include, at a minimum, spreadsheet formats and email retention systems
which have an ability to capture a date and time stamp. For those advisers maintaining date and time stamped
electronic records already, we estimate no incremental compliance costs.
6. We estimate that only a small number of advisers, or 1% of advisers that have institutional clients, do not send
allocations or affirmations electronically to brokers or dealers (e.g., they communicate with them by telephone). 1% of
11,283 RIAs with institutional clients = 112.83 advisers (rounded to 113). For new large advisers, we estimate that
there would be no incremental cost associated with this proposed amendment, as we expect these advisers would
implement electronic systems as part of their initial compliance with rule 204-2, and that these electronic systems
would have an ability to capture a date and time stamp.
7. We estimate that these advisers would incur an initial burden of 2 hours of updating their procedures and training
their personnel to send these communications through their existing electronic systems (such as, at a minimum, their
current spreadsheet formats and current email and electronic retention system to maintain electronic records with date
and time stamps). Because these email and electronic retention systems would provide date and time stamps, we
estimate there would be no incremental compliance costs in connection with the proposed date and time stamp
requirement.
8. As noted above, we estimate that 70% of institutional trades are affirmed by custodians, and therefore advisers may
not retain or have access to the affirmations these custodians sent to brokers or dealers. We expect that some of these
advisers themselves, however, sometimes send affirmations to brokers or dealers. Because we do not know the number
of advisers that correlate to these trades, we estimate for purposes of this collection of information that 70% of advisers
with institutional clients make institutional trades that are affirmed by custodians. This estimate equals 7,898.1
advisers, rounded to 7,898 advisers (70% of 11,283 RIAs with institutional clients = approximately 7,898 advisers).
9. We estimate that the proposed amendments to rule 204-2 would result in an initial increase in the collection of
information burden estimate by 2 hours for these advisers, to direct their institutional clients’ custodians to
electronically copy the adviser on any affirmations sent through email or for the adviser to use its systems to issue
affirmations.
10. 146.74 hours + 75.37 hours + 5,267.97 hours = 5,490.08 hours.
11. 5,490.08 aggregate hours per year / 13,804 total RIAs that are subject to rule 204-2 = a blended average of 0.4
hours per adviser per year.
12. The currently approved collection of information burden is 2,764,563 aggregate hours for 13,724 advisers, or
201.44 hours per adviser. The proposed new collection of information burden would add approximately 0.4 blended
hours per adviser per year, for a total estimate of 201.84 blended hours per adviser per year, or 2,786,199 aggregate

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hours under amended rule 204-2 for all registered advisers subject to the rule (201.84 blended hours per adviser x
13,804 RIAs subject to rule 204-2 = 2,786,199 aggregate burden hours for RIAs).
13. (201.84 estimated revised burden hours per adviser x $69.36 per hour) x 13,804 RIAs = $193,250,787.60 revised
aggregate annual cost of the hour burden for rule 204-2.

13.

Cost to Respondents

Cost burden is the cost of goods and services purchased to meet the requirements
of rule 204-2, such as for the services of outside counsel. The cost burden does not
include the hour burden discussed in Item 12 above. Estimates are based on staff’s
experience.
As summarized in Table 1 above, we estimate that the annual external cost
associated with the proposed amendment to rule 204-2 is $0.
14.

Cost to the Federal Government

There are no additional costs to the federal government directly attributable to
rule 204-2.
15.

Change in Burden

We estimate that the proposed amendment to rule 204-2, along with an
increase in the number of registrants subject to the entire rule 204-2, will result in a
revised annual aggregate burden of 2,786,199 hours per year, with a monetized value
of $193,250,787.60. This would be an aggregate increase of 21,636 hours, and
$17,270,361.60 in the monetized value of the hour burden, from the currently
approved annual aggregate burden estimates. The changes are due to proposed
amendments and updated data. The external cost burden associated with rule 204-2
($0) has not changed.
16.

Information Collection Planned for Statistical Purposes

None.
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17.

Approval to Omit OMB Expiration Date

Not Applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act
Submission

Not Applicable.
B. COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
The collection of information will not employ statistical methods.

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