[Federal Register Volume 84, Number 161 (Tuesday, August 20, 2019)]
[Notices]
[Pages 43254-43256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17935]
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SECURITIES AND EXCHANGE COMMISSION
Submission for OMB Review; Comment Request
Upon Written Request, Copies Available From: Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736
Extension:
Exchange Act Rule 3a71-3; SEC File No. 270-655, OMB Control No.
3235-0717
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'') has submitted to the Office of Management
and Budget (``OMB'') a request for approval of extension of the
previously approved collection of information provided for in Rule
3a71-3 under the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.).
Rule 3a71-3 is adopted and in effect, but the compliance date for
Rule 3a71-3 has not yet passed. The representations contemplated by
Rule 3a71-3 will be relied upon by counterparties to determine whether
such transaction is a ``transaction conducted through a foreign
branch'' of a counterparty, as defined in Rule 3a71-3(a)(3)(i), as well
as to verify whether a security-based swap counterparty is a ``U.S.
person.'' Counterparties to
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security-based swap transactions may voluntarily give such
representations to one another to reduce operational costs and allow
each party to ascertain whether such transaction is subject to certain
Title VII requirements. Because any representations provided to
counterparties under Rule 3a71-3 will constitute voluntary third-party
disclosures, the Commission will not typically receive these
disclosures.
The Commission believes that the representations contemplated by
Rule 3a71-3 will, in most cases, be made through amendments to the
parties' existing trading documentation (e.g., the schedule to a master
agreement). The Commission believes that, because trading relationship
documentation is established between two counterparties, whether a
counterparty is able to represent that it is entering into a
``transaction conducted through a foreign branch'' or that it does not
meet the criteria of the ``U.S. person'' definition will not change on
a transaction-by-transaction basis and, therefore, such representations
will generally be made in the schedule to a master agreement, rather
than in individual confirmations. Because these representations relate
to new regulatory requirements, the Commission anticipates that
counterparties may elect to develop and incorporate these
representations in trading documentation soon after the effective date
of the Commission's security-based swap regulations, rather than
incorporating specific language on a transactional basis. The
Commission believes that counterparties will be able to adopt, where
appropriate, standardized language across all of their security-based
swap trading relationships. The Commission believes that this
standardized language may be developed by individual respondents or
through a combination of trade associations and industry working
groups.
a. Representations Regarding a ``Transaction Conducted Through a
Foreign Branch''
Pursuant to Rule 3a71-3, parties to security-based swaps are
permitted to rely on certain representations from their counterparties
when determining whether a transaction falls within the definition of a
``transaction conducted through a foreign branch.'' The Commission
staff estimates that a total of 50 entities will incur burdens under
this collection of information, whether solely in connection with the
business conduct requirements or also in connection with the
application of the de minimis exception. These estimates are based on
our understanding of the over-the-counter (``OTC'') derivatives
markets, including the size of the market, the number of counterparties
that are active in the market, and how market participants currently
structure security-based swap transactions.
The Commission estimates the one-time third-party disclosure burden
associated with developing representations under this collection of
information will be, for each U.S. bank counterparty that will make
such representations, no more than five hours, and up to $2,000 for the
services of outside professionals, for an estimate of approximately 250
hours \1\ or 83.33 hours \2\ per year when annualized over three years,
across all security-based swap counterparties that will make such
representations.\3\ This estimate assumes little or no reliance on
standardized disclosure language.
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\1\ 50 (total number of entities) * 5 hours = 250 hours.
\2\ 250 hours (total hours to develop representations) / 3 years
= 83.33 hours.
\3\ See Business Conduct Adopting Release at 30096.
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The Commission expects that the majority of the burden associated
with the new disclosure requirements will be experienced during the
first year as language is developed and trading documentation is
amended. After the new representations are developed and incorporated
into trading documentation, the Commission continues to believe that
the ongoing third-party disclosure burden associated with this
requirement will be 10 hours per U.S. bank counterparty for verifying
representations with existing counterparties, for a total of
approximately 500 hours \4\ across all applicable U.S. bank
counterparties.\5\
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\4\ 50 (total number of entities) * 10 hours = 500 hours.
\5\ The Commission staff estimates that this burden will consist
of 10 hours of in-house counsel time for each security-based swap
market participant that will make such representations. See Business
Conduct Adopting Release, at 30097, note 1581.
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The Commission believes that some of the entities that will have to
comply with Rule 3a71-3 will seek outside counsel to help them develop
new representations contemplated by Rule 3a71-3. For PRA purposes, the
Commission assumes that all 50 respondents will seek outside counsel
for the first year only and will, on average, consult with outside
counsel for a cost of up to $2,000. The Commission also assumes that
none of the 50 respondents will seek outside legal services for year
two or year three. Thus, the Commission expects the cost over the
three-year period will be $100,000 \6\ or $33,333 \7\ per year when
annualized over three years, across all security-based swap
counterparties that will make such representations. The Commission
expects the total labor cost per respondent will be approximately
$666.67 \8\ when annualized over three years.
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\6\ 50 (estimated number of entities) * $2,000 (cost of outside
counsel) = $100,000.
\7\ $100,000 (total cost to seek outside counsel over three
years) / 3 years = $33,333.33.
\8\ $33,333 (total labor cost to seek outside counsel per year)
/ 50 (estimated number of entities that will seek outside counsel to
help them develop new representations contemplated by Rule 3a71-
3(a)(3)(ii)) = $666.67.
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b. Representations Regarding U.S.-Person Status
Pursuant to Rule 3a71-3(a)(4)(iv), persons may rely on
representations from a counterparty that the counterparty does not
satisfy the criteria defining U.S. person set forth in Rule 3a71-
3(a)(4)(i), unless such person knows or has reason to know that the
representation is not accurate. Commission staff has estimated, based
on its understanding of OTC derivatives markets, including the
domiciles of counterparties that are active in the market, that up to
2,400 entities will provide representations that they do not meet the
criteria necessary to be U.S. persons.
As with representations regarding whether a transaction is
conducted through a foreign branch, the Commission estimates the
maximum total third-party disclosure burden associated with developing
new representations will be, for each counterparty that will make such
representations, no more than five hours and up to $2,000 for the
services of outside professionals, for a maximum of approximately
12,000 hours or 4,000 hours per year when annualized over three years,
across all security-based swap counterparties that will make such
representations. This estimate assumes little or no reliance on
standardized disclosure language.
The Commission expects that the majority of the burden associated
with the new disclosure requirements will be experienced during the
first year as language is developed and trading documentation is
amended. After the new representations are developed and incorporated
into trading documentation, the Commission believes that the annual
third-party disclosure burden associated with this requirement will be
no more than approximately 10 hours per counterparty for verifying
representations with existing
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counterparties and onboarding new counterparties, for a maximum of
approximately 24,000 hours \9\ across all applicable security-based
swap counterparties.
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\9\ 2,400 (total number of entities) * 10 hours = 24,000 hours.
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The Commission believes that some of the entities that will have to
comply with Rule 3a71-3 will seek outside counsel to help them develop
new representations contemplated by Rule 3a71-3. For PRA purposes, the
Commission assumes that all 2,400 respondents will seek outside legal
for the first year only and will, on average, consult with outside
counsel for a cost of up to $2,000. The Commission also assumes that
none of the 2,400 respondents will seek outside legal services for year
two or year three. Thus, the Commission expects the cost over the
three-year period will be $4,800,000 \10\ or $1,600,000 \11\ per year
when annualized over three years, across all security-based swap
counterparties that will make such representations. The Commission
expects the total labor cost per respondent will be approximately
$666.67 \12\ when annualized over three years.
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\10\ 2,400 (total number of entities) * $2,000 = $4,800,000.
\11\ $4,800,000 (total cost over three years) / 3 years =
$1,600,000.
\12\ $1,600,000 (total labor cost to seek outside counsel per
year) / 2,400 (estimated number of entities that will seek outside
counsel to help them develop new representations contemplated by
Rule 3a71-3(4)(iv)) = $666.67.
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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.
The public may view background documentation for this information
collection at the following website: www.reginfo.gov. Comments should
be directed to: (i) Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Office of
Management and Budget, Room 10102, New Executive Office Building,
Washington, DC 20503, or by sending an email to:
[email protected]; and (ii) Charles Riddle, Acting Director/
Chief Information Officer, Securities and Exchange Commission, c/o
Candace Kenner, 100 F Street NE, Washington, DC 20549, or by sending an
email to: [email protected]. Comments must be submitted to OMB within
30 days of this notice.
Dated: August 15, 2019.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17935 Filed 8-19-19; 8:45 am]
BILLING CODE 8011-01-P