[Federal Register Volume 83, Number 178 (Thursday, September 13, 2018)]
[Notices]
[Pages 46528-46530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19882]


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SECURITIES AND EXCHANGE COMMISSION

[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

Extension:
    Rule 204

    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(a) provides that a participant of a registered clearing 
agency must deliver securities to a registered clearing agency for 
clearance and settlement on a long or short sale in any equity security 
by settlement date, or if a participant of a registered clearing agency 
has a fail to deliver position at a registered clearing agency in any 
equity security for a long or short sale transaction in the equity 
security, the participant shall, by no later than the beginning of 
regular trading hours on the applicable close-out date, immediately 
close out its fail to deliver positions by borrowing or purchasing 
securities of like kind and quantity. For a short sale transaction, the 
participant must close out a fail to deliver by no later than the 
beginning of regular trading hours on the settlement day following the 
settlement date. If a participant has a fail to deliver that the 
participant can demonstrate on its books and records resulted from a 
long sale, or that is attributable to bona-fide market making 
activities, the participant must close out the fail to deliver by no 
later than the beginning of regular trading hours on the third 
consecutive settlement day following the settlement date. 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, 2017,

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there were 3,893 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 participant allocates a fail to 
deliver position to a broker or dealer pursuant to Rule 204(d), the 
broker or dealer that has been allocated the fail to deliver position 
in an equity security must determine whether or not such fail to 
deliver position was closed out in accordance with Rule 204(a). If such 
broker or dealer does not comply with the provisions of Rule 204(a), 
such broker or dealer must immediately notify the participant that it 
has become subject to the requirements of Rule 204(b). We estimate that 
a broker or dealer could have to make such determination and 
notification with respect to approximately 1.76 equity securities per 
day.\1\ We estimate a total of 1,719,772 potential notifications in 
accordance with Rule 204(d) across all registered broker-dealers (that 
could be allocated responsibility to close out a fail to deliver 
position) per year (3,893 registered broker-dealers notifying 
participants once per day \2\ on 1.76 equity securities, multiplied by 
251 trading days in 2017). The total estimated annual burden hours per 
year will be approximately 275,164 burden hours (1,719,772 multiplied 
by 0.16 hours/notification).
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    \1\ The Commission's Division of Economic and Risk Analysis 
(``DERA'') estimates that there were approximately 6,868 average 
daily fail to deliver positions during 2017. Across 3,893 registered 
broker-dealers, the number of securities per registered broker-
dealer per trading day is approximately 1.76 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 or 
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 5, 2017, there were 132 participants of NSCC that were 
registered as broker-dealers. If a participant of a registered clearing 
agency has a fail to deliver position in an equity security at a 
registered clearing agency and determined 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 33 securities per day.\3\ We estimate a total 
of 1,093,356 potential demonstrations in accordance with Rule 204(a)(1) 
across all broker-dealer participants per year (132 participants 
checking for compliance once per day on 33 securities, multiplied by 
251 trading days in 2017). The total approximate estimated annual 
burden hour per year will be approximately 174,937 burden hours 
(1,093,356 multiplied by 0.16 hours/documentation).
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    \3\ DERA estimates that during 2017 approximately 62.93% of 
trade volume was long. DERA estimates that there were approximately 
6,868 average daily fail to deliver positions during 2017. Across 
132 broker-dealer participants of the NSCC, the number of securities 
per participant per day is approximately 52 equity securities. 
62.93% of 52 equity securities per trading day equals approximately 
33 securities per day.
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    III. Pre-Borrow Notification Requirement: As of December 5, 2017, 
there were 132 participants of NSCC that were registered as broker-
dealers. If a participant of a registered clearing agency has a fail to 
deliver position in an equity security, the participant must 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 52 equity securities per day.\4\ We estimate a 
total of 1,722,864 potential notifications in accordance with Rule 
204(c) across all participants per year (132 broker-dealer participants 
notifying broker-dealers once per day on 52 securities, multiplied by 
251 trading days in 2017). The total estimated annual burden hours per 
year will be approximately 275,658 burden hours (1,722,864 multiplied 
by 0.16 hours/documentation).
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    \4\ See supra note 3.
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    IV. Certification Requirement: As of December 31, 2017, there were 
3,893 registered broker-dealers. Each of these broker-dealers may clear 
trades through a participant of a registered clearing agency. If the 
broker-dealer determines that it has not incurred a fail to deliver 
position on settlement date for a long or short sale in an equity 
security for which the participant has a fail to deliver position at a 
registered clearing agency or has purchased or borrowed securities in 
accordance with the pre-fail credit provision of Rule 204(e), we 
estimate that a broker-dealer could have to make such determination 
with respect to approximately 1.76 securities per day.\5\ We estimate 
that registered broker-dealers could have to certify to the participant 
that it has not incurred a fail to deliver position on settlement date 
for a long or short sale 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 the pre-fail credit provision of Rule 204(e), 
1,719,772 times per year (3,893 registered broker-dealers certifying 
once per day on 1.76 securities, multiplied by 251 trading days in 
2017). The total approximate estimated annual burden hour per year will 
be approximately 275,164 burden hours (1,719,772 multiplied by 0.16 
hours/certification).
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    \5\ See supra note 1.
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    V. Pre-Fail Credit Demonstration Requirement: As of December 31, 
2017, there were 3,893 registered broker-dealers. If a broker-dealer 
purchased or borrowed securities in accordance with the conditions 
specified in Rule 204(e) and determined that it had a net long position 
or net flat position on the settlement day for which the broker-dealer 
is claiming pre-fail credit, we estimate that a broker-dealer could 
have to make such determination with respect to approximately 1.76 
securities per day.\6\ We estimate that registered broker-dealers could 
have to demonstrate on 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 pre-fail credit, 1,719,772 times per year 
(3,893 registered broker-dealers checking for compliance once per day 
on 1.76 equity securities, multiplied by 251 trading days in 2017). The 
total approximate estimated annual burden hours per year will be 
275,164 burden hours (1,719,772 multiplied by 0.16 hours/
demonstration).
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    \6\ 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 1,276,087 hours per 
year (275,164 + 174,937 + 275,658 + 275,164 + 275,164).
    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

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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 
Candace Kenner, 100 F Street NE, Washington DC 20549 or send an email 
to: [email protected].

    Dated: September 7, 2018.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19882 Filed 9-12-18; 8:45 am]
 BILLING CODE 8011-01-P


