Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054 Page: 46,996
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46996 Federal Register/Vol. 76, No. 149/Wednesday, August 3, 2011 /Rules and Regulations
Affiliates have an account. In light of
these modifications from the proposal,
the Commission continues to believe
that its estimate of initial and ongoing
costs is appropriate. The initial cost
estimate was based on the
understanding that large traders know
and can readily identify their brokerage
account numbers. As noted by
commenters, particularly investment
advisers, this may not be the case for all
large traders, at least not in a form that
would be conducive to reporting on
Form 13H. One commenter
recommended an alternative approach
to requiring large traders to disclose a
list of the broker-dealers that the large
trader is authorized to use.381 This
commenter noted that many investment
advisers maintain an approved list of
broker-dealers and have processes for
adding and deleting broker-dealers as
well as reviewing trades with a broker-
dealer not on the approved list.382 The
Commission has considered this
alternative, and believes it is
appropriate to focus the reporting
burden on a list of broker-dealers at
which the large trader maintains an
account, rather than a list of accounts
held at those broker-dealers. The
Commission believes, based on the
comments it received from investment
advisers on this topic, that this new
requirement will reduce the potential
costs for certain large traders,
particularly investment advisers.
The adopted Rule also limits the
scope of information that must be
reported on bank and insurance
regulators and focuses the identification
requirement on affiliates that trade,
rather than merely beneficially own,
NMS securities. However, the
Commission does not anticipate that
these changes from the proposal will
materially affect the Commission's
initial cost estimates. In particular, the
prominence and scope of those items on
the Form, relative to the other
disclosure requirements, were minor
and the fact that they were not adopted
should not materially affect the cost
estimates. Further, the Form, as
adopted, now includes additional items
such as the requirement to provide an
organizational chart and to identify any
affiliates that file separately and any
affiliates that have been assigned an
LTID suffix. The Commission carefully
considered the changes to the Form in
light of the comments received on the
Form and the initial cost estimates, and
believes that the removal of certain
required information balances the
381 See Wellington Management Letter at 4 andInvestment Company Institute Letter at 8-9.
382 See Investment Company Institute Letter at 9.addition of new requirement
information of a similar scope so as to
not affect the overall reporting burdens.
Accordingly, the balanced modifications
to the Rule and additional guidance on
the intended scope of the Rule result in
changes that are in line with the
Commission's original estimates.
2. Registered Broker-Dealers
The Commission anticipated that the
three primary costs to registered broker-
dealers from the proposal were: (1)
Recordkeeping requirements; (2)
reporting requirements; and (3)
monitoring requirements.
a. Recordkeeping
The Rule will require registered
broker-dealers to keep records of
transactions for large traders and
Unidentified Large Traders.383 The Rule
also will require brokers and dealers to
furnish transaction records of large
traders and Unidentified Large Traders
to the Commission upon request. While
most of the data required to be kept
pursuant to Rule 13h-1 is already
required under Rule 17a-25 and
reported via the EBS system, the large
trader reporting rule will contain two
additional fields of information, notably
the LTID number(s) and execution time
of the transaction. The Rule will require
records to be kept for a period of three
years, the first two in an accessible
place, in accordance with Rule 17a-4(b)
under the Exchange Act.384
In the Proposing Release, the
Commission estimated that the one-
time, initial costs for each registered
broker-dealer for development of
enhancements to its EBS infrastructure,
including re-programming and testing of
the systems, would be approximately
$106,060.385 The Commission also
believed that there would be minimal
additional costs associated with the
operation and maintenance of the large
trader reporting rule because it would
383 See new Rule 13h- 1(a)(9) (defining
"Unidentified Large Trader").
38417 CFR 240.17a-4.
385 The Commission derived the total estimated
one-time cost from the following: (Computer Ops
Dept. Mgr. (30 hours) at $335 per hour) + (Sr.
Database Administrator (25 hours) at $281 per hour)
+ (Sr. Programmer (150 hours) at $292 per hour) +
(Programmer Analyst (100 hours) at $193 per hour)
+ (Compliance Manager (20 hours) at $258 per
hour) + (Compliance Attorney (10 hours) at $270
per hour) + (Compliance Clerk (20 hours) at $63 per
hour) + (Sr. Systems Analyst (50 hours) at $244 per
hour) + (Director of Compliance (5 hours) at $388
per hour) + (Sr. Computer Operator (35 hours) at
$75 per hour) = $106,060. As noted above, the
Commission acknowledged that, in some instances,
multiple LTIDs may be disclosed to a registered
broker-dealer for a single account. Therefore, the
cost estimate factored in the cost that registeredbroker-dealers would need to develop systems
capable of tracking multiple LTIDs.utilize the existing EBS system.
Accordingly, the Commission estimated
the total start-up, operating, and
maintenance cost burden for registered
broker-dealers to be $31,818,000.386 As
previously noted, this figure was based
on the estimated number of hours for
development and implementation of
enhancements to the firm's EBS
systems, including software
development, taking into account the
fact that two new data elements were
required to be captured and that data
would be required to be available for
reporting to the Commission on the
morning following the day on which the
transactions were effected. Because
broker-dealers already capture most of
the data required to be captured under
Rule 13h-1 pursuant to Rule 17a-25,
the Commission did not expect broker-
dealers to have to incur any additional
hardware costs.
In response to the Commission's
recordkeeping burden estimates, as
previously discussed in the PRA section
above, one commenter stated that one of
its member firms estimated it would
cost $3,000,000-$4,000,000 to build out
its EBS system in a manner required by
the proposed rule, though the
commenter did not provide any basis for
the estimate or assumptions that were
made with regards to the collection,
reporting, and monitoring requirements
of the Rule.387 This figure, which is an
estimate of one affected entity that
represents a single data point, is
significantly higher than the
Commission's estimate of $106,060 for
the initial one-time costs of
implementing the system changes
required by the Rule as adopted. The
commenter noted that one potential
major cost of implementing the
recordkeeping requirement is that some
broker-dealers do not have access to
execution times in a manner that is
readily reportable under the EBS
infrastructure.388 These broker-dealers,
the commenter stated, would need to
devote considerable resources to
updating EBS to gather, process, and
transmit such information.389
The Commission notes that
commenters did not express particular
concern with the proposed requirement
to record and report LTIDs, but rather
focused on the transmission of
execution time from the execution-
facing systems to the clearing-facing
systems which traditionally are utilized
in the EBS process. The Commission
386 300 affected broker-dealers x $106,060 =
$31,818,000.
387 See SIFMA Letter at 6.
388 See id. at 13.389 See id.
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United States. Office of the Federal Register. Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054, periodical, August 3, 2011; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc52326/m1/408/: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.