Rule 15b11-1 Form BDN Justification

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 15b11-1 and Form BD-N
A.

Justification.

1.
Necessity of Information Collection
The Securities Exchange Act of 1934 (“Exchange Act”) was enacted by Congress to
regulate the nation’s securities markets and the securities professionals who participate in those
markets. The Exchange Act establishes a regulatory scheme for broker-dealers to effect
transactions in securities. In addition, the Exchange Act and the rules promulgated thereunder
require broker-dealers to meet minimum standards designed to protect investors.
In 2000, Congress enacted the Commodity Futures Modernization Act of 2000
(“CFMA”). 1 Among other purposes, the CFMA permits the trading of security futures products.
Security futures products are defined as securities for purposes of the Exchange Act, and as
futures contracts for purposes of the Commodity Exchange Act. The CFMA added Section
15(b)(11) to the Exchange Act, which provides that futures commission merchants (“FCMs”)
and introducing brokers (“IBs”) that are registered with the Commodity Futures Trading
Commission (“CFTC”) may register with the Commission as broker-dealers for the purpose of
effecting transactions in security futures products by filing a written notice with the
Commission. 2
To implement the foregoing statutory provisions of the Exchange Act, the Commission has
promulgated Rule 15b11-1 (17 C.F.R. 240.15b11-1) and Form BD-N (17 C.F.R. 249.501b) to
serve as the form of notice for futures commission merchants and introducing brokers that
register as broker-dealers by notice pursuant to Section 15(b)(11)(A) of the Exchange Act.
Specifically, the form requires a broker-dealer registering by notice to indicate whether it is
filing a notice registration to conduct a securities business in security futures products and if so,
that it satisfies the statutory conditions for notice registration. These items enable the
Commission and other regulators to identify notice-registered broker-dealers.

1

Pub. L. No. 106-554, Appendix E, 114 Stat. 2763.

2

15 U.S.C. 78o(b)(11).

2.

Purpose and Use of the Information Collection
Form BD-N is used to elicit basic identification information as well as information that
allows the Commission staff to ensure that the futures commission merchants and introducing
brokers meet the statutory conditions to register by notice pursuant to Section 15(b)(11) of the
Exchange Act. Without the information elicited by the Form BD-N, the Commission would be
unable to fulfill its regulatory obligations.
3.

Consideration Given to Information Technology
Applicants for notice registration as broker-dealers file Form BD-N with the National
Futures Association (“NFA”), similar to the manner in which they file Forms required to register as
an FCM or IB. This method of collection reduces the regulatory burden upon notice-registered
broker-dealers by permitting them to file applications for registration and amendments thereto at
one central location, rather than filing Form BD-N separately with the Commission and other
regulators.
4.

Duplication
Not applicable. No duplication of the requirement of Rule 15b11-1 exists.

5.

Effect on Small Entities
Not applicable. Rule 15b11-1 applies uniformly to all entities.

6.

Consequences of Not Conducting Collection
Applicants for notice registration as broker-dealers generally are required to file Form BD-N
only once to register and are required to file amendments to Form BD-N only when information
originally reported in Form BD-N changes or becomes inaccurate. Therefore, less frequent
collection for Form BD-N information would impair the accuracy of the information available to the
Commission and decrease the protections afforded to investors.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)
There are no special circumstances. This collection is consistent with the guidelines in
5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency
When creating Form BD-N, the Commission staff consulted with the NASD and staff of the

CFTC.
The required Federal Register notice with a 60-day comment period soliciting
comments on this collection of information was published. No public comments were
received.
9.

Payment or Gift
Not applicable.

10.

Confidentiality
The Commission makes the information obtained on Form BD-N available to the public.

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11.

Sensitive Questions
Form BD-N asks no questions of a sensitive nature. The collection is covered under the
Systems of Records Notice (SORN) (SEC-49) Broker-Dealer Records. The Privacy Impact
Assessment (PIA) is provided as a supplemental document.
12.

Burden of Information Collection
As of April 19, 2013, 277 entities were notice registered with the Commission. NFA
received one initial application on Form BD-N in calendar year 2010, two in calendar year 2011,
four in calendar year 2012, and one for the period January 1, 2013 through November 13, 2013.
Based on this data, Commission staff estimates that NFA will receive approximately two initial
applications annually on Form BD-N. 3 Commission staff has previously estimated that the
average time necessary to complete the initial Form BD-N is approximately 30 minutes. 4 The
Commission staff estimates that total annual burden hours required for filing initial Forms BD-N
is approximately one hour. 5
Once registered on Form BD-N, notice-registered broker-dealers are required to file
amendments to Form BD-N when information originally reported in Form BD-N changes or
becomes inaccurate. On average, approximately 58 amendments to Form BD-N were received
annually by NFA to amend registrants’ addresses from January 2010 to November 2013. 6 Based
on this data, Commission staff estimates that NFA will receive approximately the same number
of amendments annually on Form BD-N. Commission staff has previously estimated that the
average time necessary to complete an amendment to Form BD-N is approximately 15 minutes. 7
Therefore, Commission staff estimates that the total annual burden hours for filing Form BD-N
amendments by notice-registered broker-dealers is approximately 15 hours. 8
The Commission staff previously estimated the total annual filing burden for Form BD-N
and Form BD-N amendments to be 8 hours. As the number of initial applications filed on Form
BD-N decreased yet the number of amendments received on the Form BD-N increased since the

3

(1 initial application + 2 initial applications + 4 initial applications + ((1 initial application / 11
months) x 12 months)) = 8.09 total initial applications / 4 years = 2.02 initial applications
annually.

4

Securities Exchange Act Release No. 44730 (August 21, 2001), 66 FR 45138.

5

(2 initial applications x 0.5 hours per application) = 1 hour.

6

(227 amendments filed/3.92 years) = 57.9 amendments annually.

7

Securities Exchange Act Release No. 44730 (August 21, 2001), 66 FR 45138.

8

(58 amendments per year x 0.25 hours per amendment) = 14.5 hours (which rounds to 15 hours).

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last filing with OMB, Commission staff estimates that the total annual filing (reporting) burden
associated with Rule 15b11-1 and Form BD-N has increased to 16 hours. 9
The Commission believes that a broker-dealer would have a compliance department
employee, at $269 per hour, 10 ensure that the firm is compliant with filing and amending Form
BD-N. Therefore, the Commission estimates that the annualized cost to respondents of the burden
associated with filing and amending Form BD-N is approximately $4170. 11
13.

Costs to Respondents
The Rule does not impose any costs aside from those associated with the burden hours
discussed in item 12 above.

14.

Costs to Federal Government
Because the NFA has agreed to accept and process all applications for notice-registered
broker-dealers on Form BD-N electronically, the cost to the federal government of processing a
Form BD-N for purposes of Rule 15b11-1 is negligible.
15.

Changes in Burden
The Commission staff’s estimated total annual filing burden for initial applications and
amendments filed on Form BD-N increased from 8 to 16 hours. The Commission staff’s
estimate of initial applications decreased from ten to two based on the average number of initial
applications filed from January 1, 2013 through November 13, 2013. This decrease reduced the
estimated burden by four hours. 12 The estimate of amendments filed on a annual basis increased
from 11 to 58 amendments based on the 227 address amendments filed on Form BD-N during

9

(1 hour for initial application + 14.5 hours for amendments) = 15.5 hours (which rounds to 16
hours).

10

This figure ($269/hour) is the salary given for a Compliance Manager in the Securities Industry
and Financial Markets Association’s Report on Management & Professional Earnings in the
Securities Industry 2012, modified by the Commission to account for an 1,800-hour work year
and multiplied by 5.35 to account for bonuses, firm size, employee benefits and overhead.

11

15.5 hours x $269 = $4169.50.

12

(2 initial applications x .5 hours per application = 1 hour) – (10 initial applications previously
estimated x .5 hours per application = 5 hours) = - 4 hours.

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the period January 2010 to November 2013. This increase raised the burden by 12 hours. 13
Thus, the total burden increased 8 hours. 14
16.

Information Collections Planned for Statistical Purposes
Not applicable.

17.

Approval to Omit OMB Expiration Date
Not applicable.

18.

Exceptions to Certification for Paperwork Reduction Act Submissions
Not applicable.

B.

Collection of Information Employing Statistical Methods
Not applicable. The collection of information on Form BD-N does not employ statistical
methods.

13

(58 amendment filings x .25 hours per amendment = 14.5 hours) – (11 amendment filings
previously estimated x .25 hours per amendment = 2.75 hours) = 11.75 (rounded to 12).

14

(12 hour increase for amendment filings – 4 hour decrease for initial applications) = 8 hours.