Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054 Page: 46,998
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46998 Federal Register/Vol. 76, No. 149/Wednesday, August 3, 2011 /Rules and Regulations
procedures pursuant to the proposed
safe harbor provision would be
$3,982,800.399 The Commission
estimated that the ongoing cost would
be $1,215,000.400 The Commission
believed that the proposed safe harbor
would reduce the costs associated with
the monitoring requirements of the
proposed rule on registered broker-
dealers. Among other things, it would
limit the broker-dealer's obligations to
only those Unidentified Large Traders
that should be readily identifiable and
apparent to the broker-dealer and would
require the broker-dealer to inform such
persons of their obligations to file
proposed Form 13H and disclose their
large trader status to the Commission.
As noted above in the PRA section,
one commenter stated that the
Commission's broker-dealer estimate of
300 broker-dealers was underestimated.
This commenter believed that the
number of broker-dealers affected by the
monitoring requirements might be
closer to 1,500 to the extent that
carrying broker-dealers require their
introducing broker correspondents to
establish policies and procedures under
the safe harbor to collect the
information on Unidentified Large
Traders required by the Rule to help the
clearing firm comply with the
requirements of the Rule that are
applicable to them.401 The commenter
based its estimate on the fact that
approximately 1,657 FINRA members
have been assigned MPIDs as of June
2010.402 As such, this commenter
argued that the Commission's ongoing
burden estimate of 4,500 burden hours/
year403 (equivalent to $1,215,000/
year404) should really be 111,000
burden hours/year-3,000,000 burden
hours/year 405 (equivalent to about
$30,000,000-$750,000,000/year).
As discussed above, the commenter
based its analysis on the safe harbor
399 The Commission derived the total estimated
one-time cost from the following: ((Sr. Programmer
(10 hours) at $292 per hour) + (Compliance
Manager (10 hours) at $258 per hour) +
(Compliance Attorney (10 hours) at $270 per hour)
+ (Compliance Clerk (20 hours) at $63 per hour) +
(Sr. Systems Analyst (10 hours) at $244 per hour)
+ (Director of Compliance (2 hours) at $388 per
hour) + (Sr. Computer Operator (8 hours) at $75 per
hour)) x (300 potential respondents) = $3,982,800.
400 The Commission derived the total estimated
ongoing cost from the following: (Compliance
Attorney at (15 hours) x $270 per hour) x (300
potential respondents) = $1,215,000.
4ol See Financial Information Forum Letter at 6.
402 See id.
403 Compliance Attorney at 15 hours x 300
potential respondents = 4,500 burden hours.
4o4 Compliance Attorney at 15 hours at $270 per
hour x 300 potential respondents = $1,215,000.
4o5 Compliance Attorney at 370 hours x 300
potential respondents = 111,000 burden hours;Compliance Attorney at 2,000 hours x 1,500
potential respondents = 3,000,000 burden hours.provisions of the proposed rule and was
concerned with the reference to "other
readily available information"
contained in the proposed safe harbor.
The commenter's estimate was based on
a belief that, though the Rule itself
would not specifically require it,
carrying broker-dealers might, in turn,
require their introducing broker
correspondents to establish policies and
procedures to collect information on
Unidentified Large Traders required by
the Rule to assist the clearing firms in
complying with the requirements of the
Rule that are applicable to them.406 As
adopted, however, the safe harbor
provision of the Rule makes clear the
intended scope of "other identifying
information" that a broker-dealer would
need to consider, which is narrower
than what the commenter assumed. As
adopted, the safe harbor policies and
procedures would need to be reasonably
designed to identify Unidentified Large
Traders based on accounts at the broker-
dealer. In assessing which accounts to
consider, the Rule, as adopted, clarifies
that the broker-dealer's policies and
procedures should consider account
name, tax identification number, or
other identifying information "available
on the books and records of such broker-
dealer." As discussed above, the safe
harbor policies and procedures would
not need to take into account
information on the books and records of
another broker-dealer. Accordingly, the
scope of the provision cited by the
commenter is not as extensive as the
commenter thought might be intended,
and the revised Rule text has now
clarified the intended scope.
Further, also as described with
respect to the PRA, the Commission
believes that large traders, whose
aggregate NMS securities transactions
equal or exceed the identifying activity
level, require sophisticated trade-
processing capacities.407 The
Commission believes it is unlikely that
all broker-dealers that have been
assigned an MPID would likely either
carry accounts for or effect transactions
on behalf of a large trader. Accordingly,
all such entities are not expected to be
impacted by the monitoring provisions
of Rule 13h-1(f), and the Commission
continues to believe that its initial
estimate of 300 affected broker-dealers
is appropriate.408
406 See Financial Information Forum Letter at 6.
407 See supra text accompanying note 281 (noting
one commenter, a large investment management
firm and likely large trader, that reported that it
currently has approximately 250 broker-dealers on
its approved list for executing equity transactions).
408 To the extent that a broker-dealer that issubject to the monitoring requirements requires, by
contract or otherwise, an entity that is not otherwiseVI. Consideration of Burden on
Competition, and Promotion of
Efficiency, Competition, and Capital
Formation
Section 3(f) of the Exchange Act
requires the Commission, whenever it
engages in rulemaking and is required to
consider or determine whether an action
is necessary or appropriate in the public
interest, to consider, in addition to the
protection of investors, whether the
action would promote efficiency,
competition, and capital formation.409
In addition, Section 23(a)(2) of the
Exchange Act requires the Commission,
when making rules under the Exchange
Act, to consider the impact such rules
would have on competition.410
Exchange Act Section 23(a)(2) prohibits
the Commission from adopting any rule
that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
The Commission is adopting Rule
13h-1 pursuant to its authority under
Sections 13(h) and 23(a) of the Exchange
Act. Section 13(h)(2) requires the
Commission, when engaging in
rulemaking pursuant to that authority
that would require every registered
broker-dealer to make and keep for
prescribed periods such records as the
Commission by rule or regulation
prescribes, to consider whether such
rule is "necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of [the Exchange Act]."411
In the Proposing Release, the
Commission requested comment on
whether proposed Rule 13h-1 would
place a burden on competition, as well
as the effect of the proposal on
efficiency, competition, and capital
formation. While the Commission did
receive comment letters that discussed
the overall number of respondents that
would be affected by the proposed
rule,412 as well as the Commission's cost
and burden estimates,413 the
Commission only received one
comment that specifically addressed
whether Rule 13h-1 would burden
subject to the Rule's monitoring requirements to
nevertheless perform a monitoring function, the
Commission's estimate does not account for that
situation.
409 15 U.S.C. 78c(f).
41o 15 U.S.C. 78w(a)(2).
411 The Commission is adopting new Rule 13h-
1(b) relating to identification requirements for large
traders pursuant to Section 13(h)(1) of the Exchange
Act, which does not require the Commission to
consider the factors identified in Section 3(f), 15
U.S.C. 78c(f). Analysis of the effects, including the
considerations under Section 23(a), of new Rule
13h-1(b) is discussed above in Sections IV and V.412 See supra Section IV.C.
413 See supra Sections IV.D and V.B.
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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/m1/410/?rotate=90: accessed April 18, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.