[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Notices]
[Pages 51586-51587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20827]
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SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request Copies Available From: Securities and Exchange
Commission, Office of Investor Education and Advocacy, Washington, DC.
20549-0213.
Extension:
Rule 204; SEC File No. 270-586; OMB Control No. 3235-0647.
Notice is hereby given that pursuant to the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501 et seq.) (``PRA''), the Securities and Exchange
Commission (``Commission'') has submitted to the Office of Management
and Budget (``OMB'') a request for approval of extension of the
previously approved collection of information provided for in Rule 204
(17 CFR 242.204) under the Securities Exchange Act of 1934 (15 U.S.C.
78a et seq.).
Rule 204 requires that, subject to certain limited exceptions, if a
participant of a registered clearing agency has a fail to deliver
position at a registered clearing agency it must immediately close out
the fail to deliver position by purchasing or borrowing securities by
no later than the beginning of regular trading hours on the settlement
day following the day the participant incurred the fail to deliver
position. Rule 204 is intended to help further the Commission's goal of
reducing fails to deliver by maintaining the reductions in fails to
deliver achieved by the adoption of temporary Rule 204T, as well as
other actions taken by the Commission. In addition, Rule 204 is
intended to help further the Commission's goal of addressing
potentially abusive ``naked'' short selling in all equity securities.
The information collected under Rule 204 will continue to be
retained and/or provided to other entities pursuant to the specific
rule provisions and will be available to the Commission and self-
regulatory organization (``SRO'') examiners upon request. The
information collected will continue to aid the Commission and SROs in
monitoring compliance with these requirements. In addition, the
information collected will aid those subject to Rule 204 in complying
with its requirements. These collections of information are mandatory.
Several provisions under Rule 204 will impose a ``collection of
information'' within the meaning of the Paperwork Reduction Act.
I. Allocation Notification Requirement: As of December 31, 2011,
there were 4,695 registered broker-dealers. Each of these broker-
dealers could clear trades through a participant of a registered
clearing agency and, therefore, become subject to the notification
requirements of Rule 204(d). If a broker-dealer has been allocated a
portion of a fail to deliver position in an equity security and after
the beginning of regular trading hours on the applicable close-out
date, the broker-dealer has to determine whether or not that portion of
the fail to deliver position was not closed out in accordance with Rule
204(a), we estimate that a broker-dealer will have to make such
determination with respect to approximately 2.09 equity securities per
day.\1\ We estimate a total of 2,472,762 notifications in accordance
with Rule 204(d) across all broker-dealers (that were allocated
responsibility to close out a fail to deliver position) per year (4,695
broker-dealers notifying participants once per day \2\ on 2.09
securities, multiplied by 252 trading days in a year). The total
estimated annual burden hours per year will be approximately 395,642
burden
[[Page 51587]]
hours (2,472,762 multiplied by 0.16 hours/notification).
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\1\ As stated in the adopting release for Interim Final
Temporary Rule 204T, the Commission's Office of Economic Analysis
(``OEA'') estimates that there are approximately 9,809 fail to
deliver positions per settlement day. Across 4,695 broker-dealers,
the number of securities per broker-dealer per day is approximately
2.09 equity securities. During the period from January to July 2008,
approximately 4,321 new fail to deliver positions occurred per day.
The National Securities Clearing Corporation (``NSCC'') data for
this period includes only securities with at least 10,000 shares in
fails to deliver. To account for securities with fails to deliver
below 10,000 shares, the figure is multiplied by a factor of 2.27.
The factor is estimated from a more complete data set obtained from
NSCC during the period from September 16, 2008 to September 22,
2008. It should be noted that these numbers include securities that
were not subject to the close-out requirement of Rule 203(b)(3) of
Regulation SHO. Exchange Act Release No. 58733 (Oct. 14, 2008), 73
FR 61706, 61718 n.107 (Oct. 17, 2008) (``Rule 204T Adopting
Release'').
\2\ Because failure to comply with the close-out requirements of
Rule 204(a) is a violation of the rule, we believe that a broker-
dealer would make the notification to a participant that it is
subject to the borrowing requirements of Rule 204(b) at most once
per day.
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II. Demonstration Requirement for Fails to Deliver on Long Sales:
As of January 31, 2012, there were 191 participants of NSCC, the
primary registered clearing agency responsible for clearing U.S.
transactions that were registered as broker-dealers.\3\ If a
participant of a registered clearing agency has a fail to deliver
position in an equity security at a registered clearing agency and
determines that such fail to deliver position resulted from a long
sale, we estimate that a participant of a registered clearing agency
will have to make such determination with respect to approximately 35
securities per day.\4\ We estimate a total of 1,684,620 demonstrations
in accordance with Rule 204(a)(1) across all participants per year (191
participants checking for compliance once per day on 35 securities,
multiplied by 252 trading days in a year). The total approximate
estimated annual burden hour per year will be approximately 269,540
burden hours (1,684,620 multiplied by 0.16 hours/documentation).
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\3\ Those participants not registered as broker-dealers include
such entities as banks, U.S.-registered exchanges, and clearing
agencies. Although these entities are participants of a registered
clearing agency, generally these entities do not engage in the types
of activities that will implicate the close-out requirements of the
rule. Such activities of these entities include creating and
redeeming Exchange Traded Funds, trading in municipal securities,
and using NSCC's Envelope Settlement Service or Inter-city Envelope
Settlement Service. These activities rarely lead to fails to deliver
and, if fails to deliver do occur, they are small in number and are
usually closed out within a day.
\4\ OEA estimates approximately 68% of trades are long sales and
applies this percentage to the number of fail to deliver positions
per day. OEA estimates that there are approximately 9,809 fail to
deliver positions per settlement day. Across 191 broker-dealer
participants of the NSCC, the number of securities per participant
per day is approximately 51 equity securities. 68% of 51 securities
per day is approximately 35 securities per day. The 68% figure is
estimated as 100% minus the proportion of short sale trades found in
the Regulation SHO Pilot Study. See http://www.sec.gov/news/studies/2007/regshopilot020607.pdf.
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III. Pre-Borrow Notification Requirement: As of January 31, 2012,
there were 191 participants of NSCC, the primary registered clearing
agency responsible for clearing U.S. transactions that were registered
as broker-dealers.\5\ If a participant of a registered clearing agency
has a fail to deliver position in an equity security and after the
beginning of regular trading hours on the applicable close-out date,
the participant has to determine whether or not the fail to deliver
position was closed out in accordance with Rule 204(a), we estimate
that a participant of a registered clearing agency will have to make
such determination with respect to approximately 51 equity securities
per day.\6\ We estimate a total of 2,454,732 notifications in
accordance with Rule 204(c) across all participants per year (191
participants notifying broker-dealers once per day on 51 securities,
multiplied by 252 trading days in a year). The total estimated annual
burden hours per year will be approximately 392,758 burden hours
(2,454,732 @ 0.16 hours/documentation).
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\5\ See supra note 3.
\6\ OEA estimates that there are approximately 9,809 fail to
deliver positions per day. Across 191 broker-dealer participants of
the NSCC, the number of securities per participant per day is
approximately 51 equity securities. During the period from January
to July 2008, approximately 4,321 new fail to deliver positions
occurred per day. The NSCC data for this period includes only
securities with at least 10,000 shares in fails to deliver. To
account for securities with fails to deliver below 10,000 shares,
the figure is grossed-up by a factor of 2.27. The factor is
estimated from a more complete data set obtained from NSCC during
the period from September 16, 2008 to September 22, 2008. It should
be noted that these numbers include securities that were not subject
to the close-out requirement of Rule 203(b)(3) of Regulation SHO.
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IV. Certification Requirement: If the broker-dealer determines that
it has not incurred a fail to deliver position on settlement date in an
equity security for which the participant has a fail to deliver
position at a registered clearing agency or has purchased securities in
accordance with the conditions specified in Rule 204(e), we estimate
that a broker-dealer will have to make such determinations with respect
to approximately 2.09 securities per day. As of December 31, 2011,
there were 4,695 registered broker-dealers. Each of these broker-
dealers may clear trades through a participant of a registered clearing
agency. We estimate that on average, a broker-dealer will have to
certify to the participant that it has not incurred a fail to deliver
position on settlement date in an equity security for which the
participant has a fail to deliver position at a registered clearing
agency or, alternatively, that it is in compliance with the
requirements set forth in Rule 204(e), 2,472,762 times per year (4,695
broker-dealers certifying once per day on 2.09 securities, multiplied
by 252 trading days in a year). The total approximate estimated annual
burden hour per year will be approximately 395,642 burden hours
(2,472,762 multiplied by 0.16 hours/certification).
V. Pre-Fail Credit Demonstration Requirement: If a broker-dealer
purchases or borrows securities in accordance with the conditions
specified in Rule 204(e) and determines that it has a net long position
or net flat position on the settlement day on which the broker-dealer
purchases or borrows securities we estimate that a broker-dealer will
have to make such determination with respect to approximately 2.09
securities per day.\7\ As of December 31, 2011, there were 4,695
registered broker-dealers. We estimate that on average, a broker-dealer
will have to demonstrate in its books and records that it has a net
long position or net flat position on the settlement day for which the
broker-dealer is claiming credit, 2,472,762 times per year (4,695
broker-dealers checking for compliance once per day on 2.09 securities,
multiplied by 252 trading days in a year). The total approximate
estimated annual burden hour per year will be approximately 395,642
burden hours (2,472,762 multiplied by 0.16 hours/demonstration).
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\7\ See supra note 1.
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The total aggregate annual burden for the collection of information
undertaken pursuant to all five provisions is thus 1,849,224 hours per
year (395,642 + 269,540 + 392,758 + 395,642 + 395,642).
The Commission may not conduct or sponsor a collection of
information unless it displays a currently valid OMB control number. No
person shall be subject to any penalty for failing to comply with a
collection of information subject to the PRA that does not display a
valid OMB control number.
Background documentation for this information collection may be
viewed at the following Web site: www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Office of
Management and Budget, Room 10102, New Executive Office Building,
Washington, DC 20503, or by sending an email to: [email protected]; and (ii) Thomas Bayer, Director/Chief Information
Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon,
6432 General Green Way, Alexandria, VA 22312 or send an email to: [email protected]. Comments must be submitted to OMB within 30 days of
this notice.
Dated: August 20, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20827 Filed 8-23-12; 8:45 am]
BILLING CODE 8011-01-P