[Federal Register Volume 87, Number 210 (Tuesday, November 1, 2022)]
[Notices]
[Pages 65841-65842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23693]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-655, OMB Control No. 3235-0717]


Submission for OMB Review; Comment Request; Extension: Exchange 
Act Rule 3a71-3

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

    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.).
    The compliance date for Rule 3a71-3 was in November 2021. 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 U.S. bank 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 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. The Commission anticipates that 
counterparties may elect to develop and incorporate these 
representations in trading documentation following 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.'' Based on its 
understanding of the current state of the security-based swap market, 
the Commission staff estimates that nine 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.
    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. Across the nine respondents, this 
amounts to approximately 45 hours, or 15 hours per year when annualized 
over three years. 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. The Commission further believes 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 90 hours across the nine 
respondents.\1\
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    \1\ 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 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 nine 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 nine respondents will seek outside legal services for year 
two or year three.

[[Page 65842]]

Thus, the Commission expects the aggregate cost to the nine respondents 
over the three-year period will be $18,000, or $6,000 per year when 
annualized over three years. The Commission expects the total labor 
cost per respondent will be approximately $666.67 when annualized over 
three years.

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 
approximately 3,000 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. Across the 3,000 respondents, this 
aggregates to a maximum of approximately 15,000 hours, or 5,000 hours 
per year when annualized over three years. This estimate assumes little 
or no reliance on standardized disclosure language.
    The Commission expects that the majority of the burden associated 
with the 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 counterparties and onboarding new 
counterparties. Across the 3,000 respondents, this aggregates to a 
maximum of approximately 30,000 hours.
    The Commission believes that some of the entities that comply with 
Rule 3a71-3 will seek outside counsel to help them develop new 
representations. For PRA purposes, the Commission assumes that all 
3,000 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 those 3,000 
respondents will seek outside legal services for year two or year 
three. Thus, the Commission expects that the aggregate cost over those 
3,000 respondents over the three-year period will be $6 million, or $2 
million per year when annualized over three years. The Commission 
expects the total labor cost per respondent will be approximately 
$666.67 when annualized over three years.
    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. Find this 
particular information collection by selecting ``Currently under 30-day 
Review--Open for Public Comments'' or by using the search function. 
Written comments and recommendations for the proposed information 
collection should be sent by December 1, 2022 to (i) 
[email protected] and (ii) David Bottom, 
Director/Chief Information Officer, Securities and Exchange Commission, 
c/o John Pezzullo, 100 F Street NE, Washington, DC 20549, or by sending 
an email to: [email protected].''

    Dated: October 26, 2022.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-23693 Filed 10-31-22; 8:45 am]
BILLING CODE 8011-01-P


