[Federal Register Volume 83, Number 188 (Thursday, September 27, 2018)]
[Proposed Rules]
[Pages 48733-48737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20880]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-84225; File No. S7-21-18]
RIN 3235-AM47


Amendment to Single Issuer Exemption for Broker-Dealers

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Commission is proposing an amendment to the exemption 
provisions in the broker-dealer annual reporting rule under the 
Securities Exchange Act of 1934 (``Exchange Act''). The amendment would 
provide that a broker-dealer is not required to engage an independent 
public accountant to certify the broker-dealer's annual reports if, 
among other things, the securities business of the broker-dealer has 
been limited to acting as broker (agent) for a single issuer in 
soliciting subscriptions for securities of that issuer.

DATES: Comments should be received on or before October 29, 2018.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to [email protected]. Please include 
File Number S7-21-18 on the subject line.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-21-18. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's internet website (http://www.sec.gov/rules/proposed.shtml). Comments are also available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. All comments received will be posted without 
change. Persons submitting comments are cautioned that the Commission 
does not redact or edit personal identifying

[[Page 48734]]

information from comment submissions. You should submit only 
information that you wish to make publicly available.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the Commission's website. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate 
Director, at (202) 551-5525; Thomas K. McGowan, Associate Director, at 
(202) 551-5521; Randall W. Roy, Deputy Associate Director, at (202) 
551-5522; Timothy C. Fox, Branch Chief, at (202) 551-5687; or Rose 
Russo Wells, Senior Counsel, at (202) 551-5527, Office of Financial 
Responsibility, Division of Trading and Markets, Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

I. Background

    Most broker-dealers registered with the Commission must file annual 
reports with the Commission.\1\ The annual reports must include a 
financial report and either a compliance report or an exemption 
report.\2\ In addition, the annual reports generally must include 
reports prepared by an independent public accountant covering the 
financial report and, as applicable, the compliance or exemption 
report.\3\ The independent public accountant must be registered with 
the Public Company Accounting Oversight Board (``PCAOB'') if required 
by the Sarbanes-Oxley Act of 2002.\4\ In addition, the accountant's 
reports must be prepared in accordance with standards of the PCAOB.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78q(a)(1); 15 U.S.C. 78q(e)(1)(A); 17 CFR 240.17a-
5(d). See also 17 CFR 240.17a-5(d)(1)(iii) and (iv) (setting forth 
the limited circumstances under which the annual reports need not be 
filed).
    \2\ See 17 CFR 240.17a-5(d)(1). The financial report must 
include a statement of financial condition, a statement of income, a 
statement of cash flows, a statement of changes in stockholders' or 
partners' or sole proprietor's equity, a statement of changes in 
liabilities subordinated to claims of general creditors, and certain 
supporting schedules. 17 CFR 240.17a-5(d)(2). A broker-dealer that 
does not claim it was exempt from 17 CFR 240.15c3-3 (``Rule 15c3-
3'') throughout the most recent fiscal year must file the compliance 
report, and a broker-dealer that does claim it was exempt from Rule 
15c3-3 throughout the most recent fiscal year must file the 
exemption report. 17 CFR 240.17a-5(d)(1)(i)(B)(1) and (2). The 
compliance report must contain statements about the broker-dealer's 
internal controls over, and compliance with, certain financial 
responsibility rules. 17 CFR 240.17a-5(d)(3). The exemption report 
must contain statements about the broker-dealer's exemption from 
Rule 15c3-3. 17 CFR 240.17a-5(d)(4).
    \3\ 17 CFR 240.17a-5(d)(1)(i)(C).
    \4\ Public Law 107-204, 116 Stat. 745 (2002). See 17 CFR 
240.17a-5(f)(1).
    \5\ 17 CFR 240.17a-5(g).
---------------------------------------------------------------------------

    However, a broker-dealer is not required to engage an independent 
public accountant to provide the accountant's reports if, since the 
date of the registration of the broker-dealer with the Commission or of 
the previous annual reports filed with the Commission, the securities 
business of the broker-dealer ``has been limited to acting as broker 
(agent) for the issuer in soliciting subscriptions for securities of 
the issuer, the broker has promptly transmitted to the issuer all funds 
and promptly delivered to the subscriber all securities received in 
connection with the transaction, and the broker has not otherwise held 
funds or securities for or owed money or securities to customers[.]'' 
\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 240.17a-5(e)(1)(i)(A) (emphasis added).
---------------------------------------------------------------------------

    The Commission first adopted the exemption in 1957.\7\ At that 
time, the pertinent rule text provided that the exemption was available 
to a broker-dealer if ``his or its securities business has been limited 
to acting as broker (agent) for the issuer in soliciting subscriptions 
for securities of such issuer, said broker has promptly transmitted to 
such issuer all funds . . .'' \8\ The Commission stated in the adopting 
release that the ``exemption is available to a broker who, from the 
date of his previous report, has limited his securities business to 
soliciting subscriptions as an agent for issuers, has transmitted funds 
and securities promptly and has not otherwise held funds or securities 
for or owed money or securities to customers (i.e. one who would have 
been exempt during that entire period from the Commission's aggregate-
indebtedness-net-capital Sec.  240.15c3-1 (Rule 15c3-1) by reason of 
paragraph (b)(1) thereof).'' \9\
---------------------------------------------------------------------------

    \7\ See Registration of Brokers and Dealers; Preservation of 
Records and Reports of Certain Stabilizing Activities, 22 FR 6492 
(Aug. 14, 1957).
    \8\ Id. at 6493.
    \9\ Id.
---------------------------------------------------------------------------

    In 1975, as part of a set of comprehensive amendments to broker-
dealer reporting rules, the Commission amended the text of the 
exemption to provide, in pertinent part, that the exemption was 
available if ``the securities business of such broker or dealer has 
been limited to acting as broker (agent) for the issuer in soliciting 
subscriptions for securities of such issuer . . .''.\10\ The Commission 
did not explain the purpose of the amendment. In 1977, the Commission 
again amended the text of the exemption to modify the phrase ``has been 
limited to acting as broker (agent) for the issuer'' to ``has been 
limited to acting as broker (agent) for an issuer.'' \11\ Although the 
Commission did not explain the purpose of the amendment in the adopting 
release, the Commission later clarified that the exemption applies only 
to a broker-dealer acting as an agent for a single issuer.\12\
---------------------------------------------------------------------------

    \10\ See Announcement of the Adoption of the FOCUS Report, a 
Program to Streamline the Financial and Operational Reporting of 
Brokers and Dealers, Including Amendments to Rule 17a-4, Rule 17a-5 
and Related Form X-17a-5, Rule 17a-10 and Related Form X-17a-10, 
Rule 17a-11 and Related Form X-17a-11, and Rule 17a-20 and Related 
Form X-17a-20 Under the Securities Exchange Act Of 1934, and the 
Approval of Plans Submitted Pursuant to Rule 17a-5, Rule 17a-10 and 
Rule 17a-20, Exchange Act Release No. 11935, Dec. 17, 1975, 40 FR 
59706 (Dec. 30, 1975). See also Proposal to Adopt the FOCUS Report, 
a Program to Streamline the Financial and Operational Reporting of 
Brokers and Dealers, Including Amendments to Rule 17a-4, Rule 17a-5 
and Related Form X-17a-5, Rule 17a-10 and Related Form X-17a-10, 
Rule17a-11 and Related Form X-17a-11, and Rule 17a-20 and Related 
Form X-17a-20 Under the Securities Exchange Act Of 1934, Exchange 
Act Release No. 11748 (Oct. 16, 1975), 40 FR 51060 (Nov. 3, 1975).
    \11\ See FOCUS Reporting System, Exchange Act Release No. 13462 
(Apr. 22, 1977), 42 FR 23786, 23788 (May 10, 1977) (emphasis added).
    \12\ See In the Matter of the Application of First Nevada 
Securities., Inc., Exchange Act Release No. 30774, at n.6 (June 4, 
1992).
---------------------------------------------------------------------------

    While the 1977 amendment was published in the Federal Register, an 
error was made when printing the amended rules in the Code of Federal 
Regulations. In particular, the Code of Federal Regulations continued 
to describe the exemption as limited to a broker that acts as an agent 
``for the issuer.'' \13\
---------------------------------------------------------------------------

    \13\ See, e.g., In the Matter of the Application of Sharemaster, 
Exchange Act Release No. 83138 (Apr. 30, 2018) (``Sharemaster'').
---------------------------------------------------------------------------

    Finally, in 2013, the exemption provision was amended again, but 
solely to modernize certain terms in the rule text.\14\ However, in 
making these amendments, the release used the rule text as then 
published in the Code of Federal Regulations and, therefore, 
inadvertently re-introduced the language of the exemption as it existed 
prior to 1977 (i.e., amended the exemption provision to provide that 
the exemption applied if the broker solicited subscriptions for ``the 
issuer'' rather than ``an issuer''). Today, the Commission is proposing 
an amendment to correct that error and to

[[Page 48735]]

clarify that the exemption applies to a broker-dealer whose securities 
business has been limited to acting as broker (agent) for a single 
issuer in soliciting subscriptions for securities of that issuer.
---------------------------------------------------------------------------

    \14\ See Broker-Dealer Reports, Exchange Act Release No. 70073 
(Jul. 30, 2013), 78 FR 51910, 51943 (Aug. 21, 2013). For example, 
the amendment replaced the phrase ``such broker or dealer'' with 
``the broker or dealer.''
---------------------------------------------------------------------------

II. Proposed Amendment to Rule 17a-5

    Section 17(e)(1)(A) of the Exchange Act, among other things, 
requires a registered broker-dealer to file certain audited financial 
statements annually with the Commission.\15\ Section 17(e)(1)(C) of the 
Exchange Act provides that the Commission may exempt any registered 
broker-dealer from any provision of Section 17(e)(1) ``if the 
Commission determines that the exemption is consistent with the public 
interest and the protection of investors.'' \16\ The Commission adopted 
Rule 17a-5 under the Exchange Act (``Rule 17a-5''), in part, under 
these provisions.
---------------------------------------------------------------------------

    \15\ See 15 U.S.C. 78q(e)(1)(A).
    \16\ See 15 U.S.C. 78q(e)(1)(C).
---------------------------------------------------------------------------

    The Commission is proposing to amend the exemption provision in 
paragraph (e)(1)(i)(A) of Rule 17a-5 to clarify in the rule text that 
the exemption is limited to a broker-dealer that acts as an agent for a 
single issuer. Specifically, the Commission is proposing to replace the 
phrase ``has been limited to acting as broker (agent) for the issuer in 
soliciting subscriptions for securities of the issuer'' with the phrase 
``has been limited to acting as broker (agent) for a single issuer in 
soliciting subscriptions for securities of that issuer.''
    Broker-dealers serve an important capital formation role by 
performing numerous services. These services include, among others, 
underwriting securities issuances, facilitating purchases and sales of 
securities on behalf of customers, making markets in securities, 
participating in private placements of securities, and providing 
investment research and recommendations. The annual reports broker-
dealers file with the Commission are used by the Commission and the 
broker-dealer's designated examining authority to monitor the financial 
and operational condition of the broker-dealer. The annual reports also 
are one of the primary means of monitoring compliance with the 
Commission's broker-dealer financial responsibility rules. The 
requirement that the annual reports be certified by an independent 
public accountant is intended to enhance the reliability of the 
information filed by the broker-dealer, including information relevant 
to its financial condition and ability to continue as a going concern. 
This also benefits investors who are customers or potential customers 
of the broker-dealer and who do not have access to the same level of 
information about the financial condition and operations of the broker-
dealer as the independent public accountant performing the audit. These 
investors rely on the independent public accountant to audit this 
information, which--as noted above--is relevant to the broker-dealer's 
financial condition and ability to continue as a going concern.
    This very limited exemption to the requirement that a broker-
dealer's annual reports be certified by an independent public 
accountant is consistent with the objectives of the rule. In 
particular, the exemption applies when the broker-dealer's sole reason 
for being registered with the Commission as a broker-dealer is to act 
as an agent to solicit subscriptions for the securities of a single 
issuer--typically an affiliate of the broker-dealer.\17\ In this case, 
the issuer is the broker-dealer's only customer. Due to this special 
relationship, the issuer likely has the ability to access sufficient 
information about the financial condition and operations of the broker-
dealer to make an informed decision about continuing to use the broker-
dealer to effect transactions in its securities.\18\ Therefore, 
requiring that an independent public accountant audit this information 
would not provide the single customer of the broker-dealer (i.e., the 
issuer) a meaningful benefit. The risk of harm from not requiring that 
an independent public accountant audit the information would be 
mitigated by the single customer's ability to access any necessary 
information regarding the broker-dealer's operational and financial 
condition, as noted above. Moreover, any harm would be limited to the 
broker-dealer's single customer. Further, based on the annual reports 
broker-dealers filed with the Commission, it appears that only three 
broker-dealers have relied on the exemption in the past year.
---------------------------------------------------------------------------

    \17\ See also 17 CFR 240.3a4-1 (which provides a limited safe 
harbor from the requirement to register as a broker-dealer for 
certain associated persons of an issuer that participate in the sale 
of the securities of the issuer under certain enumerated 
conditions).
    \18\ See Sharemaster at 10 (``It is the limited nature of the 
business of a broker that solicits subscriptions for a single issuer 
and the relationship between the broker and that issuer, such as 
when the broker is engaged only in underwriting the issues of its 
parent that renders an audit requirement on the broker-dealer 
unnecessary.'').
---------------------------------------------------------------------------

III. Request for Comment

    The Commission generally requests comment on all aspects of the 
proposal. This request for comment is limited to the proposed rule 
amendment; the Commission is not requesting comment on any other aspect 
of Rule 17a-5.

IV. Paperwork Reduction Act

    The proposed rule amendment would clarify the scope of an existing 
exemption available to certain broker-dealers from the requirement to 
engage an independent public accountant to provide the reports required 
under paragraph (d)(1)(i)(C) of Rule 17a-5.\19\ The proposed rule 
amendment does not create any new, or revise any existing, collection 
of information pursuant to the Paperwork Reduction Act of 1995.\20\ 
Accordingly, no information has been submitted to the Office of 
Management and Budget for review.
---------------------------------------------------------------------------

    \19\ See 17 CFR 240.17a-5(d)(1)(i)(C).
    \20\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Commission requests comment on the assertion that the proposed 
rule amendment will not create any new, or revise any existing, 
collection of information pursuant to the Paperwork Reduction Act.

V. Economic Analysis

    The Commission is mindful of the costs imposed by, and the benefits 
obtained from, its rules. Whenever the Commission engages in rulemaking 
and is required to consider or determine whether an action is necessary 
or appropriate in the public interest, Section 3(f) of the Exchange Act 
requires the Commission to consider whether the action would promote 
efficiency, competition, and capital formation, in addition to the 
protection of investors. Further, when engaged in rulemaking under the 
Exchange Act, Section 23(a)(2) of the Exchange Act requires the 
Commission to consider the impact such rules would have on competition. 
Section 23(a)(2) of the Exchange Act also prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. The following analysis considers the potential economic effects 
that may result from the proposed rule amendment, including the 
benefits and costs to market participants as well as the broader 
implications of the proposal for efficiency, competition, and capital 
formation.
    As noted above, broker-dealers serve an important role in capital 
formation by performing numerous services, including with respect to 
the

[[Page 48736]]

distribution of securities. Broker-dealer annual reports are one of the 
primary means of monitoring compliance with the Commission's broker-
dealer financial responsibility rules, and the requirement that the 
annual reports be certified by an independent public accountant is 
intended to help enhance the reliability of the information filed by 
the broker-dealer. The exemption in paragraph (e)(1)(i)(A) of Rule 17a-
5 is designed to streamline regulatory compliance for certain broker-
dealers by permitting broker-dealers that underwrite offerings by a 
single issuer--typically an affiliate of the broker-dealer--to do so 
without needing to meet this requirement.
    With respect to the baseline, broker-dealers rarely rely on the 
very limited exemption in paragraph (e)(1)(i)(A) of Rule 17a-5. Staff 
analysis of annual reports filed by broker-dealers revealed that only 
three broker-dealers--out of approximately 4,000 registered with the 
Commission--relied on the exemption in the last year. The low level of 
use suggests that broker-dealers generally do not avail themselves of 
the existing exemption to compete with one another or to improve the 
efficiency of their underwriting activities.
    The Commission recognizes the value of requiring that broker-dealer 
annual reports be certified by an independent public accountant. 
However, when a broker-dealer is acting solely as an agent for a single 
issuer's securities, typically an affiliate, the issuer is likely to 
have sufficient information about the broker-dealer's financial and 
operational condition. In that case, there would be minimal benefit in 
a requirement that the broker-dealer-dealer's annual reports be 
certified by an independent public accountant. At the same time, a 
broker-dealer required to obtain certification for its annual reports 
could bear significant costs to do so.\21\
---------------------------------------------------------------------------

    \21\ According to one broker-dealer, the requirement for an 
audit prepared by a PCAOB-registered accountant was $2,800 in 2010. 
See Sharemaster, at n. 4. Adjusting this amount for inflation yields 
approximately $3,200 in 2018 (inflation calculator available at 
https://www.bls.gov/data/inflation_calculator.htm).
---------------------------------------------------------------------------

    In cases where a broker-dealer is acting solely as an agent for a 
single unaffiliated issuer, the benefits of certification are likely to 
be higher because the larger degree of information asymmetry between 
the broker-dealer and the unaffiliated issuer makes third-party 
certification more valuable. The Commission believes the likelihood of 
such a narrow arrangement between a broker-dealer and a single 
unaffiliated issuer is low because for such a broker-dealer, the costs 
of certification are likely lower than the expected benefits from 
acting as an agent for additional unaffiliated issuers.
    The Commission expects the amendment to benefit issuers that rely 
on broker-dealers to underwrite securities offerings by providing 
increased regulatory certainty about a broker-dealer's obligation to 
have its annual reports certified by an independent public accountant 
when the broker-dealer acts as an agent for multiple issuers. This will 
benefit issuers by helping ensure that broker-dealers do not 
inappropriately rely on the exemption in paragraph (e)(1)(i)(A) of Rule 
17a-5. When the broker-dealer is not acting solely as an agent for a 
single affiliate's securities, the benefits of certification are likely 
to be more substantial because the issuers are less likely to have 
sufficient information about the broker-dealer's financial condition.
    The Commission acknowledges that, to the extent this proposal 
limits use of the exemption, broker-dealers that would no longer be 
able to use the exemption in the future could bear costs as a result of 
the proposed amendment. For such a broker-dealer, the Commission 
believes the cost of a small broker-dealer obtaining certification of 
its annual reports by an independent public accountant in accordance 
with paragraph (d)(1)(i)(C) of Rule 17a-5 could be approximately $3,200 
per year.\22\ Based on the low reliance on the exemption currently, and 
the expectation that the number of broker-dealers relying on the 
exemption will not materially increase or decrease as a result of the 
amendment, the overall economic impact of the proposal is likely to be 
small.
---------------------------------------------------------------------------

    \22\ Id.
---------------------------------------------------------------------------

    The Commission expects the proposed amendment to have only a 
marginal impact on efficiency, competition, and capital formation. This 
assessment is primarily based on the belief that the amendment does not 
revise the scope of the exemption or change current practice and that 
the exemption is claimed by only a few broker-dealers. The Commission 
nevertheless acknowledges that the proposed amendment may marginally 
impair capital formation if it prompts broker-dealers to reduce 
underwriting activity or to increase the price of underwriting 
activities for potential issuers.
    The Commission considered several alternatives in terms of the 
scope of the exemption. First, the Commission considered broadening the 
scope of the exemption to include broker-dealers whose securities 
business is limited to acting as an agent for multiple issuers. Staff 
analysis of information provided by broker-dealers indicates that a 
substantial number of registered broker-dealers underwrite corporate 
securities or are selling group participants for corporate securities 
and may otherwise be eligible to take advantage of the exemption if its 
scope were broadened in this way.\23\
---------------------------------------------------------------------------

    \23\ Commission staff analysis of Form BD data indicates that 
971 registered broker-dealers reported engaging in, or expecting to 
engage in, the underwriting of securities at the end of 2017.
---------------------------------------------------------------------------

    Rule 17a-5 provides only two exemptions from the requirement that 
broker-dealer annual reports be certified by an independent public 
accountant.\24\ The Commission has provided for only these very limited 
exemptions from the requirement that annual reports of broker-dealers 
be audited due to the importance of reliable financial and operational 
information concerning registered broker-dealers for investor 
protection and the integrity of the capital markets. Broadening the 
exemption could benefit broker-dealers by no longer requiring them to 
engage independent public accountants when they act as an agent for 
multiple issuers in soliciting subscriptions for securities and thereby 
reducing their costs. However, an alternative that broadens these 
exceptions could impose costs on issuers to the extent that making the 
certification by the independent public accountant voluntary for 
broker-dealers that serve multiple issuers reduces the reliability of 
these broker-dealers' annual reports.
---------------------------------------------------------------------------

    \24\ One exemption is the ``single issuer'' exemption provided 
for in paragraph (e)(1)(i)(A) of Rule 17a-5. The other exemption is 
contained in paragraph (e)(1)(i)(B) of Rule 17a-5. The second 
exemption applies to broker-dealers whose securities business is 
``limited to buying and selling evidences of indebtedness secured by 
mortgage, deed of trust, or other lien upon real estate or leasehold 
interests, and the broker or dealer has not carried any margin 
account, credit balance, or security for any securities customer.'' 
Staff analysis of annual reports filed by broker-dealers revealed 
that only one broker-dealer claimed this exemption in the last year.
---------------------------------------------------------------------------

    Given the significance of the verification of a broker-dealer's 
financial and operational information by an independent public 
accountant, the Commission is not proposing to broaden the scope of the 
exemption to include broker-dealers whose securities business is 
limited to acting as an agent for multiple issuers. When a broker-
dealer acts as an agent on behalf of an issuer, the financial condition 
of the broker-dealer is important to the issuer because if a broker-
dealer is financially constrained, it may be less able to bear the 
risks associated with underwriting

[[Page 48737]]

activities, such as holding securities in inventory. If a broker-dealer 
acts as an agent on behalf of multiple issuers, its financial condition 
is important to capital formation for multiple issuers, and so the 
benefits of certification are likely higher for the broker-dealer. 
Moreover, the Commission notes that the benefits to broker-dealers from 
such an alternative may be limited by competitive effects, because an 
issuer that is concerned about the reliability of a broker-dealer's 
financial statements may choose to hire a broker-dealer with certified 
annual reports to act as its agent.
    Second, the Commission considered eliminating the exemption. While 
the Commission is mindful of the significance of broker-dealer audits, 
as explained above, the Commission believes that the cost of this 
alternative to broker-dealers who are now eligible to take advantage of 
the exemption does not justify the benefits that would accrue to the 
broker-dealer's single customer, typically an affiliate of the broker-
dealer, as a result of an audit. Therefore, the Commission 
preliminarily believes the exemption should continue to be available 
only where a broker-dealer is acting as an agent for a single issuer in 
soliciting subscriptions for securities of that issuer.
    Finally, the Commission considered further specifying that the 
limited exemption in paragraph (e)(1)(i)(A) of Rule 17a-5 would apply 
only if the broker-dealer were engaged in underwriting the securities 
of an affiliate. While this alternative would narrow the limited 
exemption, based on its observation of broker-dealers' use of this 
exemption to date, the Commission does not believe the benefits yielded 
by narrowing the exemption would be substantial.

VI. Regulatory Flexibility Act Certification

    Section 3(a) of the Regulatory Flexibility Act requires the 
Commission to undertake an initial regulatory flexibility analysis of 
the impact of the proposed rule on small entities unless the Commission 
certifies that the amendments, if adopted, would not have a significant 
economic impact on a substantial number of small entities. As discussed 
above, the proposed rule would not change the status quo in terms of 
the broker-dealers that would or would not qualify for the exemption 
from paragraph (d)(1)(i)(C) of Rule 17a-5.\25\ For additional 
discussion of the impact of the proposal (including on small entities), 
please see section V above. The Commission hereby certifies, pursuant 
to 5 U.S.C. 605(b), that the proposed amendment to Rule 17a-5, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.17a-5(d)(1)(i)(C).
---------------------------------------------------------------------------

    The Commission encourages written comments regarding this 
certification. The Commission solicits comment as to whether the 
proposed amendments could have an effect that the Commission has not 
considered and requests that commenters describe the nature of any 
impact on small entities and provide empirical data to support the 
extent of the impact.

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\26\ a rule is ``major'' if it has resulted, or is likely 
to result, in:
---------------------------------------------------------------------------

    \26\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     a major increase in costs or prices for consumers or 
individual industries; or
     significant adverse effects on competition, investment, or 
innovation.
    The Commission requests comment on the potential impact of the 
proposed rule on the economy on an annual basis. The Commission 
requests that commenters provide empirical data and other factual 
support for their views.

VIII. Statutory Authority

    The Commission is proposing an amendment to Rule 17a-5 under the 
Exchange Act (17 CFR 240.17a-5) pursuant to the authority conferred by 
Exchange Act Sections 17(e)(1)(A), 17(e)(1)(C), and 36.\27\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q(e)(1)(A); 15 U.S.C. 78q(e)(1)(C); 15 U.S.C. 
78mm.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Part 240

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of Proposed Rules

    In accordance with the foregoing, the Commission proposes that 
Title 17, Chapter II of the Code of Federal Regulation be amended as 
follows.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
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, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and 
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602, 
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec.  240.17a-5 by revising paragraph (e) to read as follows.


Sec.  240.17a-5  Reports to be made by certain brokers and dealers.

* * * * *
    (e) Nature and form of reports.
    (1)(i) The broker or dealer is not required to engage an 
independent public accountant to provide the reports required under 
paragraph (d)(1)(i)(C) of this section if, since the date of the 
registration of the broker or dealer under section 15 of the Act (15 
U.S.C. 78o) or of the previous annual reports filed under paragraph (d) 
of this section:
    (A) The securities business of the broker or dealer has been 
limited to acting as broker (agent) for a single issuer in soliciting 
subscriptions for securities of that issuer, the broker has promptly 
transmitted to the issuer all funds and promptly delivered to the 
subscriber all securities received in connection with the transaction, 
and the broker has not otherwise held funds or securities for or owed 
money or securities to customers; or
* * * * *

    By the Commission.

    Dated: September 20, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-20880 Filed 9-26-18; 8:45 am]
 BILLING CODE 8011-01-P