[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

[[Page 43256]]

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: 
Lindsay.M.Abate@omb.eop.gov; 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: PRA_Mailbox@sec.gov. 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


