[Federal Register Volume 64, Number 132 (Monday, July 12, 1999)]
[Rules and Regulations]
[Pages 37586-37622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17459]
[[Page 37585]]
_______________________________________________________________________
Part II
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Parts 240 and 249
Broker-Dealer Registration and Reporting; Final Rule
Federal Register / Vol. 64, No. 132 / Monday, July 12, 1999 / Rules
and Regulations
[[Page 37586]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240 and 249
[Release No. 34-41594; File No. S7-16-99]
RIN 3235-AH73
Broker-Dealer Registration and Reporting
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission is amending Form BD,
the uniform broker-dealer registration form, and related rules under
the Securities Exchange Act of 1934. The amendments modify the version
of Form BD that was adopted in 1996 but never implemented. The primary
purpose of the amendments is to support electronic filing in the new,
Internet-based Central Registration Depository system. This computer
system, which is operated by the National Association of Securities
Dealers, Inc., maintains registration information regarding broker-
dealers and their registered personnel. The changes adopted today
direct how broker-dealers will make the transition to the new system,
as well as how they will comply with their filing obligations on an
ongoing basis.
EFFECTIVE DATE: July 30, 1999.
FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Chief Counsel or
Barbara A. Stettner, Special Counsel, (202) 942-0073, Office of Chief
Counsel, Division of Market Regulation, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-1001.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Securities and Exchange Commission (``Commission'') is adopting
amendments to Form BD, the uniform application for broker-dealer
registration, and related rules under the Securities Exchange Act of
1934 (``Exchange Act'').\1\ The amendments modify the version of Form
BD that was adopted in 1996 but never implemented (``1996 Form
BD'').\2\ As we described more fully in our release proposing
amendments to Form BD and related rules (``Proposing Release''),\3\
these amendments are mainly technical and formatting changes needed to
accommodate ``Web CRD,'' the new, Internet-based Central Registration
Depository (``CRD'') system.\4\ Web CRD will replace the current CRD
system (``Legacy CRD''), which was created in 1981 as a cooperative
effort with the North American Securities Administrators Association
(``NASAA''), in order to facilitate the ``one-stop'' filing process for
broker-dealers and their associated persons.\5\ Web CRD should help
regulators to more efficiently gather the information needed to make
informed registration and licensing decisions. It should also help
regulators to process registration-related filings more efficiently and
effectively and significantly enhance their ability to use the system
for regulatory purposes. In addition, Web CRD should make it easier for
registrants to comply with their filing obligations. Moreover, by
utilizing the Internet, Web CRD is expected to streamline the
procedures to process and respond to requests from the public for
information about particular broker-dealers and their associated
persons.
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\1\ 17 CFR 240.15b1-1; 17 CFR 249.501; 15 U.S.C. Secs. 78a et
seq.
\2\ Securities Exchange Act Release No. 37431 (July 12, 1996);
61 FR 139 (July 18, 1996). 1996 Form BD was not implemented until
today because of the shift from ``Redesigned CRD,'' a network-based
system upon which 1996 Form BD was based, to Web CRD. See Proposing
Release, part II. Background (discussing the rationale behind the
shift from Redesigned CRD to Web CRD).
\3\ Securities Exchange Act Release No. 41351 (April 29, 1999);
64 FR 25153 (May 10, 1999).
\4\ The CRD is operated and maintained by the National
Association of Securities Dealers, Inc. (``NASD'') and is used by
the Commission, self-regulatory organizations (``SROs''), and state
securities regulators in connection with registering and licensing
broker-dealers and their registered personnel. For purposes of this
release, the term ``NASD'' will be used to encompass both the NASD
and NASD Regulation, Inc. (``NASDR'') unless specified otherwise.
The NASDR is the regulatory subsidiary of the NASD and is
responsible for the operation of the CRD system.
\5\ Applicants seeking broker-dealer registration with the
Commission, the NASD, the Chicago Board Options Exchange (``CBOE''),
and the various states currently file a single Form BD with the
NASD. The NASD manually enters the information into the CRD system,
which then makes the information available (electronically) to the
Commission and the appropriate states for review. Applicants may
also seek registration with SROs other than the NASD and the CBOE
through Form BD, but they may also be required to submit a copy of
the paper Form BD to those SROs that do not participate in the CRD
system. The NASD anticipates more SROs to become full participants
in Web CRD after the system is operational.
The 1996 Form BD amendments were based upon expected changes to the
CRD that were being developed at that time. Because Web CRD differs
significantly from the approach anticipated then, 1996 Form BD cannot
be implemented without the changes we adopt today. Specifically, the
amendments to Form BD are intended to elicit the same level of
disclosure required by 1996 Form BD, but in a different format. Other
changes to the form are intended to clarify the form's requirements, to
update references, or to streamline the registration process. The
amendments to Exchange Act Rules 15b3-1, 15Ba2-2, and 15Ca2-1 are
necessary to implement Web CRD, both initially and on an ongoing basis.
Web CRD is scheduled to be operational beginning August 16, 1999.
In the Proposing Release, we requested comment on the specific
changes proposed for Form BD and whether those changes would provide
more meaningful information to regulators without increasing the
regulatory burden on broker-dealers. The Commission also requested
comment on the rule changes needed to implement the new form. The
Commission received three comment letters.\6\ The commenters
essentially supported the proposed amendments, as well as the shift to
electronic filing that will be possible with Web CRD. However, the
commenters also all raised issues concerning Web CRD's phase-in period,
and particularly the Form BD re-filing requirement.\7\ In response to
these concerns, the staff of the Division of Market Regulation is
expanding its no-action position discussed in the Proposing Release.\8\
In addition, we are modifying the Temporary Filing Instructions
proposed under Exchange Act Rules 15b3-1, 15Ba2-2, and 15Ca2-1.\9\ With
the exception of a few additional formatting changes and corrections,
the amendments to the form itself are being adopted as proposed.
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\6\ See Letters from Marie Montagnino, President, Association of
Registration Management (``ARM'') (June 8, 1999); Michael B. Radest,
Director, Credit Suisse First Boston (``CSFB'') (June 9, 1999); and
Derek W. Linden, Senior Vice President, NASD (June 15, 1999). These
letters are available for inspection and copying in File No. S7-16-
99, located in the Commission's Public Reference Room, 450 5th
Street, N.W., Washington, D.C. 20549.
\7\ See infra text accompanying notes 39-44.
\8\ See discussion infra part III.A.2.b.(i).
\9\ See discussion infra part III.A.2.b.(ii).
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II. Amendments to Form BD
The amendments to 1996 Form BD adopted today will modify the form's
general filing instructions and terms, its Disclosure Reporting Pages
(``DRPs'') and Schedule E.\10\ The amendments correct oversights,
replace outdated information, and clarify instructions. They also
replace Legacy CRD references with Web CRD references, establish
certain information fields as
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``read-only,'' \11\ and make conforming changes based on the
reorganization of the NASD manual in 1996 \12\ throughout Form BD. In
addition, one change is intended to help eliminate incorrect succession
filings by requiring broker-dealers to discuss these filings with CRD
personnel prior to submission.\13\
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\10\ As explained below, the version of Form BD currently in use
does not incorporate the DRPs or Schedule E that were adopted in
1996. To distinguish these documents from the ones currently in use,
we will refer to the versions adopted in 1996 but never implemented
as the ``1996 DRPs'' and ``1996 Schedule E,'' respectively.
\11\ Read-only fields may not be altered by registrants.
\12\ See NASD Notice to Members 96-26.
\13\ See Appendix A, part D. Item 5.
While the changes we are adopting today amend 1996 Form BD, we
stress that registrants have never actually used that form. Rather,
during the past year, registrants have used ``Interim Form BD,'' which
the Commission adopted on March 16, 1998 \14\ after the NASD decided to
abandon its original plan to modernize CRD and proceed instead with Web
CRD.\15\ Interim Form BD requires registrants to file the same
disclosure information called for by the 1996 Form BD amendments in a
format that is compatible with the Legacy CRD system.\16\ Interim Form
BD incorporated all of the substantive changes of the 1996 Form BD
amendments relating to disclosure of disciplinary history, but did not
incorporate the formatting changes, the 1996 DRPs, or the 1996
Schedules (including Schedule E).\17\ Interim Form BD will remain in
effect until the amendments adopted today are implemented on July 30,
1999.\18\
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\14\ Securities Exchange Act Release No. 39677 (February 18,
1998), 63 FR 9413 (February 25, 1998).
\15\ See Proposing Release, part II. Background (discussing the
different stages of Web CRD development).
\16\ One of the principal goals of Redesigned CRD, and the 1996
amendments to Form BD, was to make certain information regarding
broker-dealers and their associated persons, that is required to be
reported on the applicable registration forms, more readily
available to the public. Accordingly, pending the implementation of
Web CRD, Interim Form BD incorporated the enhanced disclosure
elicited by 1996 Form BD Question 11 into the existing Form BD
Question 7. Specifically, Interim Form BD Question 7, requested
information about the disciplinary history of the applicant and its
control affiliates, including information relating to statutory
disqualifications, other relevant history, and the applicant's
financial soundness. In order to make the disclosures more organized
and complete, Question 7 was divided into broad categories:
criminal, civil, regulatory, and financial.
\17\ The new disclosure question (Question 11) and the
``Explanation of Terms'' were the only items incorporated by Interim
Form BD from 1996 Form BD because they could be made compatible with
Legacy CRD. The 1996 DRPs and 1996 Schedule E, which did not become
part of Interim Form BD, elicit more specific information than was
required from the 1993 version of Form BD used in the Legacy CRD
system.
\18\ See discussion infra note 30 (regarding the change in the
effective date of Form BD).
The amendments to the 1996 DRPs, which must be completed when an
applicant answers ``Yes'' to one of the disclosure questions in Item 11
of Form BD, correspond to formatting changes to the DRPs that were
recently approved in connection with amendments to Forms U-4 and U-
5.\19\ While more amendments are being made to the DRPs than to the
main part of Form BD, the amendments primarily involve restructuring
and reformatting which will permit electronic filing in Web CRD.\20\
The only substantive change intended in the DRPs is in Question 13 of
the Civil Judicial DRP. This question now requires an applicant to
indicate whether any portion of a penalty assessed against it was
waived.\21\
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\19\ Securities Exchange Act Release No. 41560 (June 25, 1999);
File No. SR-NASD-98-96.
\20\ The DRPs adopted today eliminate the practical problems
posed by the NASD's first attempt to redesign CRD by using improved
formatting. See Proposing Release, part III. ``Proposed Amendments
to Form BD'' (discussing DRP formatting differences between the
Redesigned and Web CRD systems).
\21\ See Appendix A, part 3.c (part II. 16, 17, 18, 19, 20 and
21).
1996 Schedule E, which must be completed by an applicant to
register or report a branch office, is also being amended. The
amendments reflect the current numbering scheme for NASD Rules.\22\
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\22\ The NASD Manual was reformatted in 1996. See NASD Notice to
Members 96-25. See also Appendix A, part E.4.
A detailed textual description of the amendments to Form BD, its
instructions and terms, the DRPs, and Schedule E (collectively,
``Appendix A'') will be available on the Commission's Web site at
http:\\www.sec.gov \23\ or may be obtained from Barbara A. Stettner,
Special Counsel, Office of Chief Counsel, Division of Market
Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1001; (202) 942-0073.\24\ Form BD as amended
today is attached as Appendix B to this document.
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\23\ See Current SEC Rulemaking; Final Rules; Release No. 34-
41594, File No. S7-16-99 on the SEC Web site at <http://
www.sec.gov>.
\24\ Appendix A will not be published in the Federal Register.
Appendix B (Form BD) is the only appendix to this release that will
be published in the Federal Register. Both Appendix A and Appendix B
are attached as appendices to this release electronically on the
Commission's Web site at <http://www.sec.gov> and in paper format
from the Commission's Publications Office at (202) 942-4040.
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III. Amendments to Related Rules
The Commission is also amending Rules 15b3-1, 15Ba2-2, and 15Ca2-1
under the Exchange Act. Rules 15b3-1 and 15Ca2-1 both contain
``Temporary Filing Instructions'' for Form BD that are now outdated.
These amendments delete the outdated instructions in those rules and
add new ``Temporary Re-Filing Instructions'' for Form BD to all three
rules.
A. Electronic Filing and Re-Filing Requirements
Web CRD is intended to expedite the electronic filing of
registration and licensing information for broker-dealers and their
associated persons. While initial applications for broker-dealer
registration on Form BD will continue to be filed on paper, the
amendments require all subsequent changes and updates to the Form to be
made electronically through Web CRD.\25\ The amendments also require
registered broker-dealers to electronically re-file certain information
in Web CRD that is already filed in Legacy CRD.\26\ The key dates and
events associated with the transition from Legacy CRD to Web CRD,
including the Web CRD filing and re-filing requirements for broker-
dealer applicants and registered broker-dealers, are described below.
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\25\ The NASD expects, however, that all filings for both
broker-dealers and their associated persons will eventually be
submitted exclusively through electronic means.
\26\ See infra notes 29, 37-38 and accompanying text. See also
part IX infra (Temporary Filing Instructions for Exchange Act Rules
15b3-1, 15Ba2-2, and 15Ca2-1).
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1. Key Dates
July 30, 1999 Through August 15, 1999
As the NASD moves from Legacy CRD to Web CRD, there will be a 17-
day period beginning July 30, 1999 and ending August 15, 1999 (``System
Transition Period''), during which neither system will process Form BD
filings and amendments, or Form BDW filings.\27\ At the time we
published the Proposing Release, we expected the System Transition
Period to extend from July 31, 1999 through August 15, 1999. The NASD
has advised us, however, that the System Transition Period needs to be
extended slightly to ensure that it has sufficient time to complete
inputting data from paper forms and converting that data to the new
system.
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\27\ Registrants that participate in the Firm Access Query
System (``FAQS''), however, may electronically file Schedule E
amendments through July 30, 1999. See infra note 30 and accompanying
text.
Initial filings of Form BD received during the System Transition
Period will be accepted by the CRD and entered into Web CRD by the NASD
beginning on August 16, 1999. Amendments to Form BD received by the CRD
during this period will be returned with instructions to re-submit the
amendments electronically on or after August 16, 1999. Forms BDW
seeking withdrawal from registration with all
[[Page 37588]]
jurisdictions and SROs that are received during this period will be
held by the CRD until August 16, 1999, then entered into Web CRD by the
NASD.\28\ Forms BDW seeking withdrawal from registration with only some
jurisdictions or SROs that are received by the CRD during this period
will be returned with instructions to re-submit the filing
electronically on or after August 16, 1999. During the System
Transition Period, the NASD will also transfer certain information from
Legacy CRD to Web CRD.\29\
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\28\ The NASD will also accept a paper-filed Form BDW seeking
withdrawal from registration in all jurisdictions and SROs on or
after August 16, 1999 if it is the first filing made by a broker-
dealer after implementation of the Web CRD system.
\29\ Since March 1998, the NASD has been converting the
following broker-dealer information from Legacy CRD to Web CRD: Base
information (i.e., the broker-dealer's general CRD record
information including the broker-dealer's CRD number, name,
Commission number, IRS number, NASD district assignment, CRD
contact, and related telephone number), Registration Status, Current
Address (main and mailing), Types of Business (e.g., municipal
securities dealer, corporate debt securities broker), and Form U-6
Disclosure (e.g., Commission and NASD actions). This initial
conversion was done to accommodate the NASD's Public Disclosure
Program on the Internet. During the System Transition Period, the
NASD will transfer any remaining data described above. In addition,
it will convert the following information: Name Change History
(i.e., old name, new name, effective date of change), Mass Transfer
History (e.g., firm name and CRD number, pre-and post-merger,
acquisition), and Branch Information (Schedule E). Firms will have
to re-file the information that will not be transferred by the NASD
from Legacy CRD. See infra part IX (Temporary Filing Instructions).
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July 30, 1999
The amendments to Form BD adopted today will become effective on
July 30, 1999. Any filings submitted on Interim Form BD after July 30,
1999 will be returned by CRD.\30\
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\30\ The effective date of Form BD has changed from the proposed
date of August 1, 1999 to July 30, 1999 because the NASD will not
accept any filings on Interim Form BD after July 29, 1999 (See
discussion supra part III.A.1. ``Key Dates--July 30, 1999 through
August 15, 1999''). This change provides the NASD with two
additional days needed to manually enter information from filings
submitted on Interim Form BD. One exception applies to FAQS users,
who will be allowed to continue filing Schedule E amendments
electronically through July 30, 1999. Because FAQS filings are
electronic, the NASD does not need as much time to process these
amendments.
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August 16, 1999
It is anticipated that Web CRD will be operational on August 16,
1999, at which time registered broker-dealers may begin entering
information not already transferred from Legacy CRD into their
respective Forms BD.\31\ The requirements for broker-dealer applicants
filing initial Forms BD, for registered broker-dealers filing
amendments to Form BD, or for currently registered broker-dealers re-
filing certain information in Web CRD on or after August 16, 1999, are
described below. The issues raised by the comment letters are also
discussed below in Part B.2.b, ``Re-filing and Amendments to Form BD by
Registered Broker-Dealers.''
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\31\ Firms can take certain steps now to avoid timing problems
in connection with their re-filing obligations later. For example,
broker-dealers may opt to begin entering their re-filing information
into their own word processing programs. This will enable them to
save, and then subsequently ``cut and paste,'' their data into Web
CRD beginning August 16, 1999. Web CRD is equipped to accept textual
inserts from all versions of word processing programs such as
Microsoft Word and WordPerfect. In addition, the NASD will be
providing a template in a standard graphics format (i.e., .pdf
format) at <http://www.nasdr.com/3400__web.htm>. This will allow
broker-dealers to enter re-filing data into sections that correspond
with sections on Form BD. Firms may also ``cut and paste'' the data
saved on their respective templates into Web CRD on August 16, 1999.
The template is compatible with Microsoft Word version 6.0, and
higher, and WordPerfect version 6.1 (Windows), and higher.
Therefore, broker-dealers are now able to begin the collection and
recording of re-filing information rather than waiting to begin this
process on August 16, 1999.
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2. Filings on or After August 16, 1999
a. Initial Filings of Form BD by Broker-Dealer Applicants
Broker-dealer applicants must continue to obtain the paper version
of Form BD from the Commission \32\ or from the NASD.\33\ They must
also continue to mail the completed initial Form BD to the NASD, which
will manually enter the information into the Web CRD system. This
manual process will allow the NASD to establish a base record of
information on broker-dealer applicants as well as begin the process of
establishing a unique Web CRD user account for each broker-dealer. This
account will allow broker-dealers to access their own records and file
subsequent amendments to their Forms BD.
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\32\ Applicants may request the Form BD Registration Package
from the Commission's Publications Office at (202) 942-4040 or from
any of the Commission's Regional or District Offices listed at
<http://www.sec.gov/asec/secaddr.htm>. In addition, Form BD will be
available from the Commission's Web site at <http://www.sec.gov>
(under ``Current SEC Rulemaking; Final Rules; Release No. 34-41594,
File No. S7-16-99'').
\33\ Form BD will also be available from the NASD's Publications
Office at (301)590-6201 or can be downloaded from NASD's Web site at
<http://www.nasdr.com>.
Before a broker-dealer may access Web CRD, however, it will first
need to designate an ``account administrator.'' This person, who may be
someone within the firm or a third-party,\34\ will serve as the point-
of-contact between the broker-dealer and Web CRD. The NASD will
establish a user account \35\ for the broker-dealer's account
administrator and send a letter of confirmation to the broker-dealer
containing the account administrator's user name and initial password.
Among other things, the account administrator is responsible for
identifying any additional persons who need access to Web CRD \36\ to
submit filings on the firm's behalf. Designated persons will then be
given passwords and the authorization to use Web CRD as determined by
the account administrator.
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\34\ Broker-dealers have the option to designate a third party
(e.g., a service bureau or clearing firm) as its account
administrator. However, if a broker-dealer opts for a third-party
account administrator, it must acknowledge that the broker-dealer is
responsible for filings made by those designated persons on behalf
of the firm.
\35\ Information packages on how to establish a Web CRD user
account are available from the NASD at (301) 212-8181.
\36\ The account administrator is responsible for determining
who has access to Web CRD and may limit such access in any manner.
For example, a person responsible for Form U-4 filings might not
have access to Form BD on Web CRD. In addition, the account
administrator may choose to allow read-only access to many
individuals within the firm.
The NASD will manually input the information from the broker-
dealer's initial Form BD into Web CRD. It will then disseminate the
information to the Commission, SROs, and state securities regulators
with which the broker-dealer is requesting registration. Thus, except
for the establishment of an account and account administrator, the
processing of the initial Form BD will not significantly differ from
the filing procedures currently in place under Legacy CRD.
b. Re-Filing and Amendments to Form BD by Registered Broker-Dealers
As discussed above, the amendments adopted today also require
registered broker-dealers to establish Web CRD accounts to accommodate
both the transfer of existing Form BD information from Legacy CRD to
Web CRD and the electronic filing of Form BD amendments in Web CRD.
Beginning August 16, 1999, all Form BD amendments and re-filings must
be submitted electronically through the NASD's Web site at https://
crd.nasdr.com/crdmain.
As discussed in the Proposing Release, due to technical issues
identified by the NASD, certain broker-dealer information currently
contained in Legacy CRD will not be transferred by the NASD to Web
CRD.\37\ Therefore,
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beginning on August 16, 1999, broker-dealers will be required to re-
file the following Form BD information: Item 11 Disclosure (Schedule
DRP), Direct/Indirect Owners (Schedules A and B), Control/Financial
Information (i.e., direct owners, executive officers, and indirect
owners), Industry Arrangements (e.g., custodial arrangements, holding
company status), and Affiliated Firms. The amendments require a
registered broker-dealer to re-file this information when it files its
first amendment in Web CRD but, in any event, no later than December
15, 1999.\38\
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\37\ Large portions of Form BD data are currently stored as text
fields in Legacy CRD. It is not technologically possible for the
NASD to convert this data to the counterpart text fields of Web CRD.
(See also note 29 supra)
\38\ The December 15, 1999 date was chosen to ensure that re-
filings will take place prior to the annual shutdown of CRD for
renewals and to have the re-filing complete before the Year 2000.
In their letters commenting on the Proposing Release, ARM and CSFB
both expressed concerns about this re-filing obligation. In particular,
ARM and CSFB asserted that broker-dealers will require more time than
was contemplated in the Proposing Release to comply with their
respective re-filing obligations.\39\ In response, the NASD provided
additional perspective on the practical application of the suggestions
provided by ARM and CSFB.\40\
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\39\ See ARM and CSFB letters supra note 6.
\40\ See NASD letter supra note 6.
In the Proposing Release, we acknowledged that broker-dealers may
have difficulty complying with the requirement in Exchange Act Rules
15b3-1, 15Ba2-2, and 15Ca2-1 41 to promptly file amendments
because (1) they will not be able to file amendments to their Forms BD
during the System Transition Period, and (2) they must re-file certain
information from their Forms BD in Web CRD at the same time they are
required to file their first amendment in Web CRD. Therefore, the staff
of the Division of Market Regulation proposed to consider broker-
dealers as having met this requirement if they filed an amendment that
should have been filed during the System Transition Period no later
than September 14, 1999 (i.e., 30 days from August 16,
1999).42 In addition, the staff proposed that during the
period from August 16 to December 15, 1999, it would not recommend
enforcement action for filings of any amendment to Form BD that would
also trigger the re-filing obligation, if the amendment was filed
within 30 days from when the disclosable event occurred. ARM and CSFB
both stated that the 30-day no action position would not be sufficient
for firms to meet their Form BD re-filing obligations.
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\41\ Exchange Act Rule 15Ca2-2 directs government securities
brokers and dealers to file Form BD, in accordance with its
instructions, to the CRD. The rule does not, however, contain
language directing them to ``promptly'' amend Form BD when the
information therein becomes inaccurate. Unlike broker-dealers that
are registered under Exchange Act Sections 15(b) or 15B, government
securities broker-dealers must comply with Treasury Rule 400.5 which
directs them to file an amendment to Form BD within 30 days from the
time the information becomes inaccurate. The staff's no-action
position will apply to all registered broker-dealers, including
government securities broker-dealers.
\42\ The Commission has not defined what constitutes ``prompt''
filing for purposes of Rule 15b3-1 because whether a filing is
deemed ``promptly filed'' needs to be determined on a facts-and-
circumstances basis. Moreover, the concept of ``promptness'' changes
with the evolution of technology. In the Proposing Release, the
Commission stated that in no event would filing an amendment after
30 days be considered ``prompt'' at a time other than during the
System Transition Period. See Proposing Release, note 35 and
accompanying text.
These commenters contended that several factors may contribute to a
broker-dealer requiring more time to complete its re-filing. For
example, ARM maintained that the revised DRPs and Schedule E elicit a
higher degree of specificity than the current versions used with
Interim Form BD.43 In ARM's view, this will create
additional burdens on firms to research, collect, and report
information not currently required by Interim Form BD.44
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\43\ See supra notes 16-17 and accompanying text.
\44\ CSFB also stated that the accurate disclosure of this
information may require firms, especially larger firms, to conduct
extensive research.
ARM also noted that the shutdown of the CRD system during the
System Transition Period may cause some firms to experience a
significant backlog of Form U-4, U-5, and BD filings. This backlog,
coupled with the likely occurrence of a disclosable event (i.e., an
event that would require an amendment to Form BD, thus triggering the
re-filing obligation) within the first week of Web CRD's
implementation, may inhibit a firm's ability to amend and complete its
re-filing of Form BD within the proposed 30-day time period. Both
commenters indicated that this situation was most likely to arise in
connection with a Schedule E event (i.e., the obligation of the firm to
disclose the opening or closing of a branch office), within the initial
weeks of Web CRD's implementation. ARM also added that many larger
firms' Forms BD may be affected when one or more of their respective
broker-dealer control affiliates' Forms BD are amended. In addition,
ARM commented that the training of selected staff on Web CRD Internet
navigation and usage will be another time constraint for broker-
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dealers.
In light of their concerns, ARM suggested that all firms should be
allowed to wait until December 15, 1999 before completing the re-filing
of their respective Forms BD. ARM also suggested, however, that firms
should be permitted to input Form BD amendments into Web CRD prior to
this time. As ARM noted, this would require disengaging the
``completeness checks 45 that are built into the Web CRD
system to prohibit the submission of an incomplete re-filing of Form
BD. For similar reasons, CSFB requested a safe harbor for the good-
faith failure of firms to file amendments to Form BD on a timely basis.
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\45 \Completeness checks ensure that a firm fully completes Form
BD before it submits the form to Web CRD. If certain informational
fields are left blank, the completeness check will immediately
prompt the firm to complete the field. The firm will be unable to
re-file its new Form BD in Web CRD until these informational fields
are completed.
We have considered the issues raised by each of the commenters.
While we are sympathetic to the concerns expressed by ARM and CSFB, we
are also mindful of the need to ensure that Web CRD is fully
implemented no later than mid-December 1999.46 We have
determined to adopt the amendments to Rules 15b3-1, 15Ba2-2, and 15Ca2-
1 as proposed, with the following modifications:
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\46\ See discussion infra part III.A.2.b.(i) (regarding Y2K and
Form BD renewal requirements for firms).
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(i) The Staff's No-Action Position Under Exchange Act Rules 15b3-1,
15Ba2-2, and 15Ca2-1
The staff is extending its proposed 30-day no-action position to 60
days for disclosable events that occur during the System Transition
Period as well as during the period August 16, 1999 through August 31,
1999. This position takes into account the commenters' concerns over
the possibility of a backlog of filings during the System Transition
Period. It also takes into account their concerns that a disclosable
event may occur shortly after Web CRD becomes operational, thus
prompting the re-filing requirement at a time when firms may have a
backlog of filings. This no-action position should provide firms with
greater flexibility to meet their re-filing obligations without
unnecessarily delaying the time when the information in Web CRD is
complete and up-to-date.
In reaching this position, the staff considered CSFB's suggestion
for a subjective safe harbor for a firm that shows a good-faith delay
in re-filing its Form BD information. The staff does not, however,
believe that such a subjective standard would provide adequate guidance
for registrants. Instead, the objective standards adopted
[[Page 37590]]
today provide definitive dates by which registrants must complete their
filings.
The staff also considered ARM's request to allow all firms to have
until December 15, 1999 to complete their re-filing requirement,
regardless of disclosable events. This suggestion, however, does not
appear to be practical. As the NASD noted in its comment letter, if a
large percentage of the broker-dealer community delayed re-filing until
December, it could pose significant operational challenges to the
NASD's CRD/Public Disclosure Department (which is responsible for
reviewing and processing all form filings). That department is also
responsible for comparing the information from the Form BD re-filing to
the information currently in Legacy CRD. This comparison can only occur
after a broker-dealer re-files its Form BD. The NASD also noted that a
large percentage of firms submitting their Form BD re-filing in mid-
December could impair the flexibility of both the firms and the NASD to
complete final Y2K preparations. In addition, the NASD pointed out that
firms that delay re-filing until mid-December also will have to be
prepared to complete the annual renewal process for broker-dealers and
registered representatives at the same time.47 Finally, the
NASD commented that ARM's suggestion of disengaging the completeness
checks (and thereby avoiding the re-filing requirement upon the
occurrence of a disclosable event) is not a viable option.48
The staff has, therefore, modified the re-filing requirements to
address the difficulties to be faced by both the firms and the NASD.
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\47\ Each year, firms are required to complete the process of
filing renewal and termination requests for their respective
registered representatives no later than December 15.
\48\ According to the NASD, disengaging the completeness checks
would involve a major code change to the Web CRD application. Such a
change would require replacing code that has already been tested and
approved. This, in turn, could lead to further system problems which
would ultimately delay the deployment of Web CRD. Moreover, the NASD
contends that disabling the completeness checks would require
additional manual NASD staff review to ensure that all required
information was submitted on a particular filing, thereby
eliminating one of the significant advantages of Web CRD.
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July 30, 1999-August 15, 1999
As adopted, under Rules 15b3-1, 15Ba2-2, and 15Ca2-1,49
the staff of the Division of Market Regulation will not recommend
enforcement action if a firm files an amendment to Form BD that should
have been filed during the System Transition Period no later than
October 15, 1999 (i.e., 60 days from August 16, 1999). Therefore, a
firm will have a minimum of over 90 days in which to gather its re-
filing data, type it into a word processing program, and ``cut and
paste'' the data into Web CRD (i.e., approximately 20 days before Form
BD is effective on July 30, 1999, plus 17 days during the System
Transition Period, plus the 60-day no-action position, assuming a
disclosable event occurs as early as July 26, 1999).
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\49\ See supra note 41 regarding the application of the staff's
no-action position to government securities broker-dealers.
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August 16, 1999-August 30, 1999
The staff of the Division of Market Regulation will not recommend
enforcement action for filings of any amendment to Form BD that would
also trigger the re-filing obligation, if the amendment is filed within
60 days of a disclosable event that occurs during the period from
August 16, 1999 through August 30, 1999.
August 31, 1999-December 15, 1999
With respect to disclosable events that on or after August 31,
1999, the staff of the Division of Market Regulation will not recommend
enforcement action for filings of any amendment to Form BD that would
also trigger the re-filing obligation, if the amendment is filed within
30 days from when the disclosable event occurred. In any event,
however, all re-filings must be completed on or before December 15,
1999.
(ii) Schedule E Disclosable Events
We are also modifying the proposed Temporary Filing Instructions
under Exchange Act Rules 15b3-1, 15Ba2-2, and 15Ca2-1 by allowing firms
to submit all Schedule E amendments to the CRD on paper during the
period from August 16, 1999 through December 15, 1999.50 The
NASD has agreed to accept paper filings of Schedule E disclosable
events and manually enter them into Web CRD, thereby overriding the
completeness checks for this category of filings. Once a firm completes
its re-filing, however, all subsequent Schedule E amendments must be
submitted electronically in Web CRD.51 This will allow firms
to continue filing Schedule E amendments to Form BD on a timely basis
without triggering the re-filing requirement. This position takes into
account the commenters' concerns that the re-filing obligation may be
triggered soon after Web CRD's implementation when the firms may be
busy dealing with the backlog of filings generated during the System
Transition Period.
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\50 \The NASD, however, will not accept paper filings of
Schedule E during the System Transition Period or at any time
following December 15, 1999.
\51 \The NASD will return all paper submissions of Schedule E
amendments from any firm that has completed its re-filing.
While the Commission understands the concerns expressed by the
commenters, we believe that the accommodations outlined above will
allow firms to comply with their re-filing obligations without
incurring an undue burden.52
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\52 \Currently, there are tools available to firms to assist
them in complying in a timely manner with their re-filing
requirements. For example, firms have the option to begin training
their staff now, rather than waiting until August 16, 1999. For
example, broker-dealer staff members responsible for Web CRD input
have been able to review the proposed Form BD since May 10, 1999.
They may now also access a Web CRD Tutorial at <http://www.nasd.com/
crd__cbt/crd__1.htm>. In addition, during the month of July 1999, on
Tuesdays, Wednesdays, and Thursdays, the NASD will provide access to
the Web CRD system which will allow firm staff to ``practice'' using
the Web CRD system with mock data. This will enable staff to become
more familiar with Web CRD prior to its implementation. Firms will
not, however, be able to begin inputting its actual re-filing
information until August 16, 1999.
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B. Effective Date
Form BD, as amended today, as well as the amendments to Rules 15b3-
1, 15Ba2-2, and 15Ca2-1 under the Exchange Act, will become effective
on July 30, 1999. Section 553(d) of the Administrative Procedure Act
generally provides that, unless an exception applies, a substantive
rule may not be made effective less than 30 days after notice of the
rule has been published in the Federal Register.53 One
exception to the 30 day requirement is when an agency finds good cause
for providing a shorter notice period. We believe that good cause
exists in this situation.54
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\53\ 5 U.S.C. Sec. 553(d).
\54 \5 U.S.C. Sec. 553(d)(3).
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As discussed in Part I of this release, Web CRD, even more than
Legacy CRD, is expected to be a significant regulatory tool that will
benefit regulators, broker-dealers, and the public. In order to ensure
that the transition from Legacy CRD to Web CRD is orderly and complete,
the NASD needs an adequate System Transition Period. The NASD has made
a significant effort in preparing itself, its members broker-dealers,
and non-member broker-dealers for the shift from Legacy CRD to Web CRD
beginning August 16, 1999. If the NASD were to delay implementation of
Web CRD so as to allow new Form BD and the related rules to become
effective 30 days after publication in the Federal Register, a
significant amount of confusion could result among industry
participants, with little or no benefit to anyone from the delay.
Indeed, substantial costs could be incurred by
[[Page 37591]]
broker-dealers and the NASD, all of which have been preparing for the
System Transition Period and for Web CRD's implementation on August 16,
1999.
Because the System Transition Period will commence at the end of
July 1999, Web CRD should be operational on August 16, 1999. As a
practical matter, although Form BD and the related rules will be
effective beginning July 30, 1999, Web CRD will not be implemented
until August 16, 1999. Thus, firms will effectively have notice of the
new forms and rules for over 30 days before compliance with them is
required. Most initial filers on new Form BD will have been in contact
with the staff at the NASD prior to their actual filing and will, as a
consequence of that contact, have actual notice of the substance of the
new Form BD.
Additionally, not delaying the System Transition Period should help
ensure that firms have adequate time to complete their re-filing
obligations before Year 2000. In addition, not delaying the System
Transition Period will allow the NASD sufficient time before Year 2000
to capture the data submitted on paper forms during the System
Transition Period.
The Commission hereby finds that there is good cause for making the
amendments to Form BD and Exchange Act Rules 15b3-1, 15Ba2-2, and
15Ca2-1 effective on July 30, 1999, even if this date is less than 30
days after notice of the amendments has been published in the Federal
Register.
IV. Cost Benefit Analysis
We expect that the benefits of Web CRD to the industry will
outweigh the costs associated with the one-time re-filing requirement
55 for registered broker-dealers. In the Proposing Release,
we stated our preliminary view that when Web CRD is fully implemented,
it would minimize future regulatory burdens on broker-dealers for
filing Form BD and related amendments. No commenters addressed this
aspect of the Proposing Release except to state that the benefits of
Web CRD are welcomed by the industry. Furthermore, industry
representatives told us that they expect their costs involving postage,
duplication, and staff time to be reduced by using the Internet to file
Form BD amendments. We estimate that broker-dealers filed approximately
15,350 Form BD amendments in Legacy CRD for fiscal year 1998. Industry
representatives estimate that each amendment in Legacy CRD typically
requires $.60 for duplication costs (i.e., $.05 per page at
approximately 12 pages), $180 for postage (i.e., $12 x approximately
15 next-day mailings to the CRD, SROs, and relevant states), and $140
of staff time required to fill out the amendment to Form BD and submit
it to the appropriate regulators (i.e., 4 hours of staff time per
amendment x an average compensation rate of $35 per hour). Thus, the
total annual cost burden to the industry to amend Form BD in Legacy CRD
is approximately $4,921,210 (i.e., [$.60 + $180 + $140] x a yearly
average of 15,350 amendments).
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\55 \See discussion infra in part VII (Paperwork Reduction
Analysis) regarding the burden hours for the one-time re-filing of
certain information on Form BD.
In contrast, industry representatives estimate that the average
time necessary to complete an amendment on Web CRD will be
approximately 20 minutes (i.e., 5 minutes for simple amendments and up
to 30 minutes for more complicated amendments). Therefore, we estimate
that the annual cost burden to the industry to amend Form BD under Web
CRD will be approximately $177,293 (i.e., .33 hours x a yearly
average of 15,350 amendments x an average compensation rate of $35
per hour).56 This will result in a total annual cost savings
of over $4.5 million for all broker-dealers amending Form BD.
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\56 \Broker-dealers that employ third-party filers account for
approximately 3,009 of the Form BD amendments (i.e., an approximate
cost burden of $34,754). See discussion infra notes 66-67 and
accompanying text (regarding the hour and cost burdens on these
broker-dealers).
Because the form will still be filed initially on paper, the
amendments will not alter the current burden on initial filers of Form
BD. In addition, the amendments requiring broker-dealers to designate
an account administrator and establish an account with an Internet
Service Provider (``ISP'') 57 are not expected to
significantly alter the current burden on broker-dealers. As described
above, the account administrator will be the point-of-contact between
the broker-dealer and the CRD. According to industry representatives,
the account administrator will most likely be the person who already
performs filing and reporting functions for the firm (either internally
or as a third-party filer). It is anticipated, therefore, that this
person will continue to be the point-of-contact with the CRD and
continue to perform similar reporting and administrative tasks for the
firm.
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\57 \A broker-dealer will also need access to an Internet
browser (e.g., Netscape, Internet Explorer) in order to submit
filings over the Internet. Internet browsers typically are provided
by the ISP or can be downloaded free of charge from the Internet.
With respect to ISP accounts, we are of the view that the
requirement that broker-dealers have Internet access (either internally
or through a third-party filer) will not significantly alter the
current burden on broker-dealers. Most broker-dealers already have
Internet access and, for those that do not, the cost of obtaining an
ISP account averages approximately $20 per month. In addition, many
broker-dealers use the Internet for other business purposes such as
sending and receiving e-mail, maintaining a Web site, or delivering
documents. For these broker-dealers, the additional burden to file
amendments to Form BD through the Internet will be only a fraction of
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their total costs associated with their use of the Internet.
We also believe that Web CRD will benefit regulators and the public
by streamlining the capture of relevant information pertaining to
broker-dealers and their associated persons. Precise information
regarding a broker-dealer's activities and disciplinary history is
needed for investigations and examinations by regulators. It also is a
valuable informational resource for investors in deciding whether to
entrust their financial assets to a particular broker-dealer.\58\ While
it is impossible to quantify these benefits, we expect that they will
exceed the recordkeeping and reporting burden imposed on broker-
dealers.
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\58\ The NASD receives approximately 525,000 inquiries each year
from the public requesting information about broker-dealers or their
associated persons.
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V. Consideration of Competition, Efficiency, and Capital Formation/
Impact on Competition
In addition, Section 3 of the Exchange Act as amended by the
National Securities Markets Improvement Act of 1996, provides that
whenever the Commission is engaged in rulemaking and is required to
consider whether an action is necessary or appropriate in the public
interest, the Commission shall consider, in addition to the protection
of investors, whether the action will promote efficiency, competition,
and capital formation. Section 23(a)(2) of the Exchange Act \59\
requires the Commission, in adopting rules under the Exchange Act, to
consider the anticompetitive effects of such rules, if any, and to
refrain from adopting a rule that will impose a burden on competition
not necessarily or appropriate in furthering the purpose of the
Exchange Act.
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\59\ 15 U.S.C. 78w(a)(2).
As noted above, the form revisions and related rule amendments
adopted
[[Page 37592]]
today should reduce the regulatory burden on broker-dealers by
facilitating electronic filing over the Internet, which will be a more
efficient and cost-effective means for broker-dealers to meet their
regulatory and reporting obligations. No commenters suggested
otherwise. The amendments to Form BD and the related rules under the
Exchange Act therefore will not result in any new burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Exchange Act. No commenters suggested otherwise.
VI. Regulatory Flexibility Analysis
We have prepared a Final Regulatory Flexibility Analysis
(``FRFA''), pursuant to the requirements of the Regulatory Flexibility
Act,60 regarding the amendments to Form BD. We did not
receive any comments on our Initial Regulatory Flexibility Analysis
(``IRFA'').61 As noted above and in the FRFA, the revisions
to Form BD and related rules are intended to respond to the shift from
the network-based architecture and proprietary software approach
anticipated in the 1996 CRD system to the Internet-based Web CRD. The
revisions to Form BD not only should provide benefits to securities
regulators in the retrieval of information, but should also ease the
burden of registration by future registrants, including small
businesses. The FRFA also indicates that, except for the one-time re-
filing requirement on registered broker-dealers, the revisions to Form
BD will reduce aggregate cost and time burdens on broker-dealers,
including small entity broker-dealers, who are required to file, or
make amendments to, Form BD. The FRFA further indicates that because
the amendments generally are intended to lessen the burden of
registration, small broker-dealers will be affected in the same manner
as other registrants. Thus, exempting small broker-dealers from Form BD
disclosures would be unwarranted.
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\60 \5 U.S.C. 603.
\61 \A summary of the IRFA was included in the Proposing Release
at part X.
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A copy of the FRFA may be obtained from Barbara A. Stettner,
Special Counsel, Office of Chief Counsel, Division of Market
Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1001; (202) 942-0073.
VII. Paperwork Reduction Act Analysis
Certain provisions of the amendment to Form BD contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (44 U.S.C. Section 3501 et seq.). The Commission
submitted the proposal to the Office of Management and Budget (``OMB'')
for review in accordance with PRA requirements in effect at this time.
The title for this collection of information: ``Application for
Registration as a Broker or Dealer.'' OMB has approved the amendments
to Form BD and has assigned Form BD OMB control Number 3235-0012 with
an expiration date of March 31, 2001. The information required by Form
BD is mandatory and the responses are not kept confidential. An agency
may not sponsor, conduct, or require response to an information
collection unless a currently valid OMB control number is displayed.
The amendments to Form BD are expected to provide securities
regulators with better information about a registrant's disciplinary
history by grouping disciplinary information into related categories
and by customizing the corresponding DRPs used to disclose details of
the registrant's disciplinary history. The amendments also are intended
to elicit more precise information about the business activities of
broker-dealer applicants.62
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\62 \The Commission uses the information disclosed by applicants
in Form BD to: (i) determine whether broker-dealer applicants meet
the standards for registration set forth in the provisions of the
Exchange Act; (ii) develop and maintain a central information
resource where members of the public may obtain relevant, current
information about broker-dealers, municipal securities dealers, and
government securities brokers or government securities dealers, and
where the Commission and other securities regulators may obtain
information for investigatory purposes; and (iii) develop
statistical information concerning broker-dealers, municipal
securities dealers, and government securities brokers or government
securities dealers.
As discussed above, the amendments to Form BD respond to certain
recommended changes to the CRD system that have led to its redesign as
an Internet-based system. Web CRD is expected to be more useful to
securities regulators. It will also allow broker-dealers to file
amendments to Form BD and other uniform registration forms
electronically. Because Web CRD is intended to operate in an electronic
environment, paper amendments to Form BD will no longer be submitted by
broker-dealers. Rather, broker-dealers will be able to access and
update their respective Forms BD through the NASD's Web site. This
should result in cost-savings related to copying, postage, and staff
time. Under Web CRD, broker-dealers will not have to obtain dedicated
computer systems or proprietary software as would have been required
under Redesigned CRD. Rather, a firm only needs access to the Internet
and an Internet browser through an account with an ISP to submit
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filings electronically.
Broker-dealers already are required pursuant to Rule 15b1-1
63 under the Exchange Act to file for registration on Form
BD and, pursuant to Rule 15b3-1(b),64 to promptly file an
amendment to Form BD if any information contained therein becomes
inaccurate.65 These amendments are intended to adapt Form BD
to Web CRD's Internet-based environment. Therefore, except for the one-
time re-filing requirement, the amendments to Form BD and the related
rules will not impose any significant additional recordkeeping,
reporting or other compliance requirement on broker-dealers. Initial
filings of Form BD will continue to be made on paper and the electronic
filing of Form BD amendments is expected to reduce time and cost
burdens on broker-dealers.
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\63 \17 CFR 240.15b1-1.
\64 \17 CFR 240.15b3-1(b).
\65 \As noted above, Exchange Act Rule 15Ba2-2 also requires
municipal securities dealers to promptly file an amendment to Form
BD if any information contained therein becomes inaccurate. Treasury
Rule 400.5 requires government securities brokers and dealers to
file such an amendment within 30 days from the time information in
their Forms BD become inaccurate. See also note 41 supra.
With respect to the one-time re-filing requirement, we estimate
(based on discussions with industry representatives) that the average
time necessary to complete a re-filing will be as follows: (1)
Approximately 30 large firms (total capital of more than $500 billion)
will require approximately 40 hours each to re-file, (2) approximately
170 medium firms (total capital between $499 billion and $20 million)
will require approximately 24 hours each to re-file, and (3)
approximately 6,640 small firms 66 (total capital below $20
million) will require approximately 2 hours each to re-file. Thus, the
total burden hours for the re-filing of certain disclosure information
into Web CRD is estimated as 18,560 hours [30 large firms x 40
(1,200) + 170 medium firms
[[Page 37593]]
x 24 (4,080) + 6,640 small firms x 2 (13,280) = 18,560].
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\66 \The Commission estimates that approximately 20% of the
small broker-dealer population (i.e., 1,660 [.20 x 8,300 small
broker-dealers]) employ third parties to file information related to
their respective Forms BD with the CRD. These broker-dealers will
not incur an hour burden and, therefore, for purposes of the
Paperwork Reduction Act, are removed from the hour-burden
calculation for small broker-dealers (i.e., 8,300 total small
broker-dealers--1,660 small broker-dealers that employ third-party
filers = 6,640 small broker-dealers that will incur hour burdens).
As discussed below, however, the 1,660 broker-dealers will incur a
cost burden with respect to re-filing and Form BD amendments.
Broker-dealer applicants are also subject to Form BD's initial
reporting obligation. Form BD is only submitted once and is updated by
amendment (see discussion on Form BD amendments below). For fiscal year
1998, the Commission received approximately 790 Form BDs for an initial
or successor application for registration as a broker-dealer, non-bank
municipal securities dealer, or non-bank government securities broker-
dealer (pursuant to Rules 15b1-1, 15b1-3, 15b1-4, 15Ba2-2(a), 15Ba2-4,
15Ba2-5, 15Ca2-1, 15Ca2-3, and 15Ca2-4). Although the time necessary to
complete Form BD will vary depending on the nature and complexity of
the applicant's securities business, we estimate that the average time
necessary to complete the initial form is approximately 2.75 hours.
Thus, the Commission estimates that total annual burden hours required
for the initial filing of a Form BD is 2,173 hours (2.75 x 790). It
is important to note that the amendments adopted today do not alter the
current burden on initial filers of Form BD because a Form BD filed for
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the first time is still required to be filed on paper.
Under Web CRD, all amendments to Form BD will be filed
electronically. For fiscal year 1998, the Commission received
approximately 15,350 amendments. Of these 15,350 amendments,
approximately 3,009 were from broker-dealers that employ third-party
filers.67 Because these broker-dealers will incur cost
burdens rather than hour burdens, they will be removed from the total
annual hour burden calculation (see discussion regarding cost burdens
on broker-dealers that employ third-party filers below). Therefore, for
purposes of the annual hour burden calculation, the total annual number
of amendments to Form BD will be 12,341 (i.e., 15,350 total
amendments--3,009 amendments filed by third-party filers). The staff
estimates that the average time necessary to complete an amendment on
Web CRD will be approximately 20 minutes (i.e., 5 minutes for simple
amendments and up to 30 minutes for more complicated amendments). Thus,
the total annual burden hours for the filing of Form BD amendments is
4,073 hours (.33 hours x approximately 12,341 [15,350--3009] amendments
per year).
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\67 \Out of the approximate 15,350 amendments filed each year,
approximately 15,043 are filed by small broker-dealers (i.e., 8,300
small broker-dealers = 98% of the broker-dealer community; 15,350
x .98 = 15,043). As discussed above, approximately 1,660 (20%) of
small broker-dealers employ third-party filers and, therefore, will
be responsible for approximately 3,009 of the total annual
amendments to Form BD (i.e., 15,043 amendments by small broker-
dealer community x .20 = 3,009 amendments).
We estimate that the total annual filing burden for Form BD and
Form BD amendments is 6,246 hours (2,173 for initial filings of Form BD
+ 4,073 for amendments to Form BD). This is a reduction of
approximately 1,030 total burden hours from the annual regulatory
burden anticipated in Redesigned CRD. However, the total one-time re-
filing burden will be approximately 18,560 hours. Accordingly, for the
year when Web CRD is first implemented, the total hour burden will be
approximately 24,806 hours.
We also anticipate that the burden hours discussed above will apply
similarly to broker-dealers who rely on third-party filers. Instead of
incurring the cost of staff time, however, these broker-dealers will be
billed by third-party filers at an average compensation rate of $35 per
hour. Therefore, a small broker-dealer will pay a third-party filer $70
(2 hours for re-filing x $35 per hour) to comply with its one-time re-
filing obligation. This will amount to a total, one-time cost burden of
$58,100 ($70 x 1,660 small broker-dealers that employ third-party
filers).
Broker-dealers that employ third-party filers to file amendments to
Form BD will also incur a cost burden. As discussed above in Part VII
(Cost Benefit Analysis), the Commission estimates that approximately
15,350 amendments to Form BD are filed each year by broker-dealers. Of
these 15,350 amendments, approximately 3,009 are from broker-dealers
that employ third-party filers. The average time necessary to complete
an amendment on Web CRD is estimated to be approximately 20 minutes.
Therefore, the total annual cost burden to broker-dealers that employ
third-party filers to file amendments to Form BD will be approximately
$34,754 (i.e., .33 hours x 3,009 amendments x an average compensation
rate of $35 per hour). The staff estimates that the total annual cost
burden to these broker-dealers for re-filing and amending Form BD is
approximately $92,854 (i.e., $58,100 + $34,754).
With respect to ISP accounts, we are of the view that most broker-
dealers already have Internet access (either internally or through a
third-party filer), which they currently use to send and receive e-
mail, to maintain a Web site, or to deliver documents.68
Therefore, the use of their existing Internet accounts for filing in
Web CRD will be incremental and will not significantly alter their
current burden. As discussed above in Part VII (Cost Benefit Analysis),
for those broker-dealers that do not currently have access to the
Internet, the cost burden of obtaining an ISP account is approximately
$20 per month. The Commission estimates that approximately 5% of all
broker-dealers (approximately 425 broker-dealers) do not currently have
access to the Internet either directly or through the use of a third-
party filer. Therefore, the total annual cost burden for obtaining and
maintaining an Internet account will be approximately $102,000 [$20 x
12 months x (.05 x 8500)].
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\68 \In addition, NASD members are already required to have an
electronic mail account and to be able to access NASD Regulation's
Web site for the purpose of updating their Firm Contact
Questionnaire. See NASD By-Laws Article IV, Section 3.
Accordingly, for the year when Web CRD is first implemented, the
total cost burden will be $194,854 (i.e., $102,000 for ISP accounts +
$92,854 for broker-dealers employing third-party filers to amend and
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re-file Form BD).
It is important to note that regardless of whether a broker-dealer
employs a person internally or hires a third-party to file information
in CRD, ultimately the same costs will apply.
VIII. Statutory Basis
The foregoing amendments are adopted pursuant to the Exchange Act
and particularly to Sections 15(a), 15(b), 15B, 15C, and 23(a)
therein.69
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\69 \15 U.S.C. Secs. 78o(a), 78o(b), 78o-4(a)(2), 780-5(a)(2),
and 78w(a).
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IX. Lists of Subjects in 17 CFR Parts 240 and 249
Broker-dealers, Reporting and recordkeeping requirements,
Securities
Statutory Basis and Text of Final Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for Part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee,
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 78k,
78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d),
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and
80b-11, unless otherwise noted.
* * * * *
2. By amending Sec. 240.15b3-1 by removing paragraph (b),
redesignating
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paragraph (c) as paragraph (b), and adding a new paragraph (c) to read
as follows:
Sec. 240.15b3-1 Amendments to application.
* * * * *
(c) Temporary re-filing instructions. (1) Except as provided in
paragraph (c)(3) of this section, every registered broker-dealer shall
re-file with the Central Registration Depository, at the time the
broker-dealer submits its first amendment on or after August 16, 1999
but, in any event, no later than December 15, 1999, the following
information from its current Form BD (17 CFR 249.501):
(i) Question 8 (if answered ``Yes,'' the broker-dealer must also
complete relevant items in Section IV of Schedule D);
(ii) Question 9 (if answered ``Yes,'' the broker-dealer must also
complete relevant items in Section IV of Schedule D);
(iii) Question 10(a) (if answered ``Yes,'' the broker-dealer must
also complete relevant items in Section V of Schedule D);
(iv) Question 10(b) (if answered ``Yes,'' the broker-dealer must
also complete relevant items in Section VI of Schedule D);
(v) Question 11 (if any item in Question 11 is answered ``Yes,''
the broker-dealer must also complete the relevant DRP(s)); and
(vi) Schedules A and B.
(2) Every registered broker-dealer, at the time it re-files the
information required by paragraph (c)(1) of this section, shall review,
and amend as necessary, the information in Form BD that was transferred
by the National Association of Securities Dealers to the Central
Registration Depository prior to August 16, 1999.
(3) Every registered broker-dealer that has not completed the re-
filing requirements provided in paragraphs (c)(1) and (c)(2) of this
section, during the period from August 16, 1999 to December 15, 1999,
shall submit in paper format to the Central Registration Depository all
Schedule E amendments to Form BD. A Schedule E filed pursuant to this
paragraph (c) shall not be deemed an ``amendment'' for purposes of
paragraphs (a) and (b) of this section.
3. By amending Sec. 240.15Ba2-2 by adding paragraph (e) to read as
follows:
Sec. 240.15Ba2-2. Application for registration of non-bank municipal
securities dealers whose business is exclusively intrastate.
* * * * *
(e) Temporary re-filing instructions. (1) Except as provided in
paragraph (e)(3) of this section, every dealer that is registered in
accordance with this section shall re-file with the Central
Registration Depository, at the time the dealer submits its first
amendment on or after August 16, 1999 but, in any event, no later than
December 15, 1999, the following information from its current Form BD:
(i) Question 8 (if answered ``Yes,'' the broker-dealer must also
complete relevant items in Section IV of Schedule D);
(ii) Question 9 (if answered ``Yes,'' the broker-dealer must also
complete relevant items in Section IV of Schedule D);
(iii) Question 10(a) (if answered ``Yes,'' the broker-dealer must
also complete relevant items in Section V of Schedule D);
(iv) Question 10(b) (if answered ``Yes,'' the broker-dealer must
also complete relevant items in Section VI of Schedule D);
(v) Question 11 (if any item in Question 11 is answered ``Yes,''
the broker-dealer must also complete the relevant DRP(s)); and
(vi) Schedules A and B.
(2) Every dealer that is registered in accordance with this
section, at the time it re-files the information required by paragraph
(e)(1) of this section, shall review, and amend as necessary, the
information in Form BD that was transferred by the National Association
of Securities Dealers to the Central Registration Depository prior to
August 16, 1999.
(3) Every dealer that is registered in accordance with this section
but that has not completed the re-filing requirements provided in
paragraphs (c)(1) and (c)(2) of this section, during the period from
August 16, 1999 to December 15, 1999, shall submit in paper format to
the Central Registration Depository all Schedule E amendments to Form
BD. A Schedule E filed pursuant to this paragraph (e)(3) shall not be
deemed an ``amendment'' for purposes of paragraphs (e)(1) and (e)(2) of
this section.
4. By amending Sec. 240.15Ca2-1 by removing paragraph (b),
redesignating paragraph (c) as paragraph (b), and adding a new
paragraph (c) to read as follows:
Sec. 240.15Ca2-1 Application for registration as a government
securities broker or government securities dealer.
* * * * *
(c) Temporary re-filing instructions. (1) Except as provided in
paragraph (c)(3) of this section, every registered government
securities broker or government securities dealer shall re-file with
the Central Registration Depository, at the time the broker or dealer
submits its first amendment on or after August 16, 1999 but, in any
event, no later than December 15, 1999, the following information from
its current Form BD:
(i) Question 8 (if answered ``Yes,'' the broker-dealer must also
complete relevant items in Section IV of Schedule D);
(ii) Question 9 (if answered ``Yes,'' the broker-dealer must also
complete relevant items in Section IV of Schedule D);
(iii) Question 10(a) (if answered ``Yes,'' the broker-dealer must
also complete relevant items in Section V of Schedule D);
(iv) Question 10(b) (if answered ``Yes,'' the broker-dealer must
also complete relevant items in Section VI of Schedule D);
(v) Question 11 (if any item in Question 11 is answered ``Yes,''
the broker-dealer must also complete the relevant DRP(s)); and
(vi) Schedules A and B.
(2) Every registered government securities broker or dealer, at the
time it re-files the information required by paragraph (c)(1) of this
section, shall review, and amend as necessary, the information in Form
BD that was transferred by the National Association of Securities
Dealers to the Central Registration Depository prior to August 16,
1999.
(3) Every registered government securities broker or government
securities dealer that has not completed the re-filing requirements
provided in paragraphs (c)(1) and (c)(2) of this section, during the
period from August 16, 1999 to December 15, 1999, shall submit in paper
format to the Central Registration Depository all Schedule E amendments
to Form BD. A Schedule E filed pursuant to this paragraph (c)(3) shall
not be deemed an ``amendment'' for purposes of paragraphs (c)(1) and
(c)(2) of this section.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
10. The authority citation for Part 249 continues to read in part
as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
Appendix B--Form BD [Amended]
11. By revising Form BD (referenced in Sec. 249.501) to read as set
forth in appendix B.
By the Commission.
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Dated: July 2, 1999.
Margaret H. McFarland,
Deputy Secretary.
Note: The following Appendices will not appear in the Code of
Federal Regulations:
Appendix A
Appendix A will also not appear in the Federal Register but is
available in the Commission's Public Reference Room and on the
Commission's Web site at www.sec.gov.
Appendix B--Form BD
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[FR Doc. 99-17459 Filed 7-6-99; 3:47 pm]
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