[Federal Register Volume 80, Number 108 (Friday, June 5, 2015)]
[Notices]
[Pages 32192-32193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13875]



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SECURITIES AND EXCHANGE COMMISSION

[Extension: Rule 204; SEC File No. 270-586, OMB Control No. 3235-0647]


Proposed Collection; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 
20549-2736.

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (``PRA'') (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (``Commission'') is soliciting comments on the 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.). The Commission 
plans to submit this existing collection of information to the Office 
of Management and Budget (``OMB'') for extension and approval.
    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, 2014, 
there were 4,184 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 2.44 equity securities per 
day.\1\ We estimate a total of 2,572,657 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 (4,184 
broker-dealers notifying participants once per day \2\ on 2.44 
securities, multiplied by 252 trading days in a year). The total 
estimated annual burden hours per year will be approximately 411,625 
burden hours (2,572,657 multiplied by 0.16 hours/notification).
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    \1\ The Commission's Division of Economic and Risk Analysis 
(``DERA'') estimates that there are approximately 10,208 fail to 
deliver positions per settlement day as of January 2015. Across 
4,184 broker-dealers, the number of securities per broker-dealer per 
day is approximately 2.44 equity securities.
    \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 December 31, 2014, there were 175 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 38 
securities per day.\4\ We estimate a total of 1,675,800 demonstrations 
in accordance with Rule 204(a)(1) across all participants per year (175 
participants checking for compliance once per day on 38 securities, 
multiplied by 252 trading days in a year). The total approximate 
estimated annual burden hour per year will be approximately 268,128 
burden hours (1,675,800 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\ DERA estimates approximately 65.1% of trades are long sales 
and applies this percentage to the number of fail to deliver 
positions per day as of March 2014. DERA estimates that there are 
approximately 10,208 fail to deliver positions per settlement day as 
of January 2015. Across 175 broker-dealer participants of the NSCC, 
the number of securities per participant per day is approximately 58 
equity securities. 65.1% of 58 securities per day is approximately 
38 securities per day.
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    III. Pre-Borrow Notification Requirement: As of December 31, 2014, 
there were 175 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 58 equity securities 
per day.\6\ We estimate a total of 2,557,800 notifications in 
accordance with Rule 204(c) across all participants per year (175 
participants notifying broker-dealers once per day on 58 securities, 
multiplied by 252 trading days in a year). The total estimated annual 
burden hours per year will be approximately 409,248 burden hours 
(2,557,800 @0.16 hours/documentation).
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    \5\ See supra note 3.
    \6\ DERA estimates that there are approximately 10,208 fail to 
deliver positions per day as of January 2015. Across 175 broker-
dealer participants of the NSCC, the number of securities per 
participant per day is approximately 58 equity securities.
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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

[[Page 32193]]

approximately 2.44 securities per day. As of December 31, 2014, there 
were 4,184 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), 2,572,657 times per year (4,184 broker-dealers 
certifying once per day on 2.44 securities, multiplied by 252 trading 
days in a year). The total approximate estimated annual burden hour per 
year will be approximately 411,625 burden hours (2,572,657 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 2.44 
securities per day.\7\ As of December 31, 2014, there were 4,184 
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, 2,572,657 times per year (4,184 
broker-dealers checking for compliance once per day on 2.44 securities, 
multiplied by 252 trading days in a year). The total approximate 
estimated annual burden hour per year will be approximately 411,625 
burden hours (2,572,657 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 1,912,251 hours per 
year (411,625 + 268,128 + 409,248 + 411,625 + 411,625).
    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimates of the burden of the proposed collection of information; (c) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; and (d) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques or other forms of information technology. 
Consideration will be given to comments and suggestions submitted in 
writing within 60 days of this publication.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    Please direct your written comments to: Pamela Dyson, Director/
Chief Information Officer, Securities and Exchange Commission, c/o Remi 
Pavlik-Simon, 100 F Street NE. Washington, DC 20549 or send an email 
to: [email protected].

    Dated: June 2, 2015.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-13875 Filed 6-4-15; 8:45 am]
 BILLING CODE 8011-01-P