
[Federal Register Volume 77, Number 165 (Friday, August 24, 2012)]
[Notices]
[Pages 51586-51587]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-20827]


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SECURITIES AND EXCHANGE COMMISSION


Submission for OMB Review; Comment Request

Upon Written Request Copies Available From: Securities and Exchange 
Commission, Office of Investor Education and Advocacy, Washington, DC. 
20549-0213.

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

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.) (``PRA''), the Securities and Exchange 
Commission (``Commission'') has submitted to the Office of Management 
and Budget (``OMB'') a request for approval of extension of the 
previously approved collection of information provided for in Rule 204 
(17 CFR 242.204) under the Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.).
    Rule 204 requires that, subject to certain limited exceptions, if a 
participant of a registered clearing agency has a fail to deliver 
position at a registered clearing agency it must immediately close out 
the fail to deliver position by purchasing or borrowing securities by 
no later than the beginning of regular trading hours on the settlement 
day following the day the participant incurred the fail to deliver 
position. Rule 204 is intended to help further the Commission's goal of 
reducing fails to deliver by maintaining the reductions in fails to 
deliver achieved by the adoption of temporary Rule 204T, as well as 
other actions taken by the Commission. In addition, Rule 204 is 
intended to help further the Commission's goal of addressing 
potentially abusive ``naked'' short selling in all equity securities.
    The information collected under Rule 204 will continue to be 
retained and/or provided to other entities pursuant to the specific 
rule provisions and will be available to the Commission and self-
regulatory organization (``SRO'') examiners upon request. The 
information collected will continue to aid the Commission and SROs in 
monitoring compliance with these requirements. In addition, the 
information collected will aid those subject to Rule 204 in complying 
with its requirements. These collections of information are mandatory.
    Several provisions under Rule 204 will impose a ``collection of 
information'' within the meaning of the Paperwork Reduction Act.
    I. Allocation Notification Requirement: As of December 31, 2011, 
there were 4,695 registered broker-dealers. Each of these broker-
dealers could clear trades through a participant of a registered 
clearing agency and, therefore, become subject to the notification 
requirements of Rule 204(d). If a broker-dealer has been allocated a 
portion of a fail to deliver position in an equity security and after 
the beginning of regular trading hours on the applicable close-out 
date, the broker-dealer has to determine whether or not that portion of 
the fail to deliver position was not closed out in accordance with Rule 
204(a), we estimate that a broker-dealer will have to make such 
determination with respect to approximately 2.09 equity securities per 
day.\1\ We estimate a total of 2,472,762 notifications in accordance 
with Rule 204(d) across all broker-dealers (that were allocated 
responsibility to close out a fail to deliver position) per year (4,695 
broker-dealers notifying participants once per day \2\ on 2.09 
securities, multiplied by 252 trading days in a year). The total 
estimated annual burden hours per year will be approximately 395,642 
burden

[[Page 51587]]

hours (2,472,762 multiplied by 0.16 hours/notification).
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    \1\ As stated in the adopting release for Interim Final 
Temporary Rule 204T, the Commission's Office of Economic Analysis 
(``OEA'') estimates that there are approximately 9,809 fail to 
deliver positions per settlement day. Across 4,695 broker-dealers, 
the number of securities per broker-dealer per day is approximately 
2.09 equity securities. During the period from January to July 2008, 
approximately 4,321 new fail to deliver positions occurred per day. 
The National Securities Clearing Corporation (``NSCC'') data for 
this period includes only securities with at least 10,000 shares in 
fails to deliver. To account for securities with fails to deliver 
below 10,000 shares, the figure is multiplied by a factor of 2.27. 
The factor is estimated from a more complete data set obtained from 
NSCC during the period from September 16, 2008 to September 22, 
2008. It should be noted that these numbers include securities that 
were not subject to the close-out requirement of Rule 203(b)(3) of 
Regulation SHO. Exchange Act Release No. 58733 (Oct. 14, 2008), 73 
FR 61706, 61718 n.107 (Oct. 17, 2008) (``Rule 204T Adopting 
Release'').
    \2\ Because failure to comply with the close-out requirements of 
Rule 204(a) is a violation of the rule, we believe that a broker-
dealer would make the notification to a participant that it is 
subject to the borrowing requirements of Rule 204(b) at most once 
per day.
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    II. Demonstration Requirement for Fails to Deliver on Long Sales: 
As of January 31, 2012, there were 191 participants of NSCC, the 
primary registered clearing agency responsible for clearing U.S. 
transactions that were registered as broker-dealers.\3\ If a 
participant of a registered clearing agency has a fail to deliver 
position in an equity security at a registered clearing agency and 
determines that such fail to deliver position resulted from a long 
sale, we estimate that a participant of a registered clearing agency 
will have to make such determination with respect to approximately 35 
securities per day.\4\ We estimate a total of 1,684,620 demonstrations 
in accordance with Rule 204(a)(1) across all participants per year (191 
participants checking for compliance once per day on 35 securities, 
multiplied by 252 trading days in a year). The total approximate 
estimated annual burden hour per year will be approximately 269,540 
burden hours (1,684,620 multiplied by 0.16 hours/documentation).
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    \3\ Those participants not registered as broker-dealers include 
such entities as banks, U.S.-registered exchanges, and clearing 
agencies. Although these entities are participants of a registered 
clearing agency, generally these entities do not engage in the types 
of activities that will implicate the close-out requirements of the 
rule. Such activities of these entities include creating and 
redeeming Exchange Traded Funds, trading in municipal securities, 
and using NSCC's Envelope Settlement Service or Inter-city Envelope 
Settlement Service. These activities rarely lead to fails to deliver 
and, if fails to deliver do occur, they are small in number and are 
usually closed out within a day.
    \4\ OEA estimates approximately 68% of trades are long sales and 
applies this percentage to the number of fail to deliver positions 
per day. OEA estimates that there are approximately 9,809 fail to 
deliver positions per settlement day. Across 191 broker-dealer 
participants of the NSCC, the number of securities per participant 
per day is approximately 51 equity securities. 68% of 51 securities 
per day is approximately 35 securities per day. The 68% figure is 
estimated as 100% minus the proportion of short sale trades found in 
the Regulation SHO Pilot Study. See http://www.sec.gov/news/studies/2007/regshopilot020607.pdf.
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    III. Pre-Borrow Notification Requirement: As of January 31, 2012, 
there were 191 participants of NSCC, the primary registered clearing 
agency responsible for clearing U.S. transactions that were registered 
as broker-dealers.\5\ If a participant of a registered clearing agency 
has a fail to deliver position in an equity security and after the 
beginning of regular trading hours on the applicable close-out date, 
the participant has to determine whether or not the fail to deliver 
position was closed out in accordance with Rule 204(a), we estimate 
that a participant of a registered clearing agency will have to make 
such determination with respect to approximately 51 equity securities 
per day.\6\ We estimate a total of 2,454,732 notifications in 
accordance with Rule 204(c) across all participants per year (191 
participants notifying broker-dealers once per day on 51 securities, 
multiplied by 252 trading days in a year). The total estimated annual 
burden hours per year will be approximately 392,758 burden hours 
(2,454,732 @ 0.16 hours/documentation).
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    \5\ See supra note 3.
    \6\ OEA estimates that there are approximately 9,809 fail to 
deliver positions per day. Across 191 broker-dealer participants of 
the NSCC, the number of securities per participant per day is 
approximately 51 equity securities. During the period from January 
to July 2008, approximately 4,321 new fail to deliver positions 
occurred per day. The NSCC data for this period includes only 
securities with at least 10,000 shares in fails to deliver. To 
account for securities with fails to deliver below 10,000 shares, 
the figure is grossed-up by a factor of 2.27. The factor is 
estimated from a more complete data set obtained from NSCC during 
the period from September 16, 2008 to September 22, 2008. It should 
be noted that these numbers include securities that were not subject 
to the close-out requirement of Rule 203(b)(3) of Regulation SHO.
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    IV. Certification Requirement: If the broker-dealer determines that 
it has not incurred a fail to deliver position on settlement date in an 
equity security for which the participant has a fail to deliver 
position at a registered clearing agency or has purchased securities in 
accordance with the conditions specified in Rule 204(e), we estimate 
that a broker-dealer will have to make such determinations with respect 
to approximately 2.09 securities per day. As of December 31, 2011, 
there were 4,695 registered broker-dealers. Each of these broker-
dealers may clear trades through a participant of a registered clearing 
agency. We estimate that on average, a broker-dealer will have to 
certify to the participant that it has not incurred a fail to deliver 
position on settlement date in an equity security for which the 
participant has a fail to deliver position at a registered clearing 
agency or, alternatively, that it is in compliance with the 
requirements set forth in Rule 204(e), 2,472,762 times per year (4,695 
broker-dealers certifying once per day on 2.09 securities, multiplied 
by 252 trading days in a year). The total approximate estimated annual 
burden hour per year will be approximately 395,642 burden hours 
(2,472,762 multiplied by 0.16 hours/certification).
    V. Pre-Fail Credit Demonstration Requirement: If a broker-dealer 
purchases or borrows securities in accordance with the conditions 
specified in Rule 204(e) and determines that it has a net long position 
or net flat position on the settlement day on which the broker-dealer 
purchases or borrows securities we estimate that a broker-dealer will 
have to make such determination with respect to approximately 2.09 
securities per day.\7\ As of December 31, 2011, there were 4,695 
registered broker-dealers. We estimate that on average, a broker-dealer 
will have to demonstrate in its books and records that it has a net 
long position or net flat position on the settlement day for which the 
broker-dealer is claiming credit, 2,472,762 times per year (4,695 
broker-dealers checking for compliance once per day on 2.09 securities, 
multiplied by 252 trading days in a year). The total approximate 
estimated annual burden hour per year will be approximately 395,642 
burden hours (2,472,762 multiplied by 0.16 hours/demonstration).
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    \7\ See supra note 1.
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    The total aggregate annual burden for the collection of information 
undertaken pursuant to all five provisions is thus 1,849,224 hours per 
year (395,642 + 269,540 + 392,758 + 395,642 + 395,642).
    The Commission may not conduct or sponsor a collection of 
information unless it displays a currently valid OMB control number. No 
person shall be subject to any penalty for failing to comply with a 
collection of information subject to the PRA that does not display a 
valid OMB control number.
    Background documentation for this information collection may be 
viewed at the following Web site: www.reginfo.gov. Comments should be 
directed to: (i) Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Office of 
Management and Budget, Room 10102, New Executive Office Building, 
Washington, DC 20503, or by sending an email to: Shagufta_Ahmed@omb.eop.gov; and (ii) Thomas Bayer, Director/Chief Information 
Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 
6432 General Green Way, Alexandria, VA 22312 or send an email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of 
this notice.

    Dated: August 20, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20827 Filed 8-23-12; 8:45 am]
BILLING CODE 8011-01-P


