[Federal Register Volume 67, Number 62 (Monday, April 1, 2002)]
[Notices]
[Pages 15424-15426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7752]
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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 Filings and Information Services, Washington, DC
20549
Extension
Rule 15c2-11; SEC File No. 270-196; OMB Control No. 3235-0202
Notice is hereby given that pursuant to the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501 et seq.) the Securities and Exchange Commission
(``Commission'') has submitted to the Office of Management and Budget
request for extension of the previously approved collection of
information discussed below.
The Commission adopted Rule 15c2-11 \1\ (Rule 15c2-11 or Rule) in
1971 under the Securities Exchange Act of 1934 \2\ (Exchange Act) to
regulate the initiation or resumption of quotations in a quotation
medium by a broker-dealer for over-the-counter (OTC) securities. The
Rule was designed primarily to prevent certain manipulative and
fraudulent trading schemes that had arisen in connection with the
distribution and trading of unregistered securities issued by shell
companies or other companies having outstanding but infrequently traded
securities. Subject to certain exceptions, the Rule prohibits brokers-
dealers from publishing a quotation for a security, or submitting a
quotation for publication, in a quotation medium unless they have
reviewed specified information concerning the security and the issuer.
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\1\ 17 CFR 240.15c2-11.
\2\ 15 U.S.C. 78a et seq.
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In February 1998, the Commission proposed amendments to strengthen
the Rule's focus on abuses associated with microcap securities.\3\ In
response to comments on the proposal, the Commission reproposed
amendments to Rule 15c2-11 to tailor its provisions to cover those
kinds of quotations and securities that we believe are more likely to
be the subject of microcap abuses.\4\
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\3\ Securities Exchange Act Release No. 39670 (February 17,
1998) (Proposing Release).
\4\ Securities Exchange Act Release No. 41110 (March 2, 1999)
(Reproposing Release).
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Under these reproposed amendments, the Rule will no longer apply to
securities of larger issuers or those securities that have a
substantial trading price or value of average daily trading volume. In
addition, the Rule will only cover priced quotations, except in the
case of the first quotation for a covered OTC security. The Commission
has also proposed several revisions that require broker-dealers to
obtain more information about non-reporting issuers, ease the Rule's
recordkeeping requirements when broker-dealers can electronically
access information about reporting issuers, and promote greater access
to issuer information by customers and other broker-dealers. Because
these proposed refinements will significantly revise the Rule's scope,
we are publishing them to give interested persons an opportunity to
provide us with their comments and views.
The information required to be reviewed is submitted by the
respondents to the National Association of Securities Dealers
Regulation (``NASDR'') on Form 211 for review and approval. Based on
information provided by the NASDR and the Pink Sheets LLC, it is
estimated that as of January 4, 2002, there were approximately 1,876
covered OTC securities quoted exclusively in the OTC Bulletin Board,
3,942 quoted exclusively in the Pink Sheets, and 1,889 dually quoted on
both for a total of 7,707 covered OTC securities.\5\ However, we
believe that approximately 10% (771) of these securities would not be
subject to the Rule, based on the exceptions that are included in this
reproposing Release and therefore approximately 6,936 securities would
be subject to the Rule.\6\
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\5\ Although there may be covered OTC securities quoted in other
quotation mediums, the empirical data to include them in these
estimations is not readily available.
\6\ Because the reproposal excludes debt securities, there is no
need to include the debt securities quoted in the Yellow Sheets in
these burden estimates.
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According to NASDR estimates, we also believe that approximately
1,271 new applications from broker-dealers to initiate or resume
publication of covered OTC securities in the OTC Bulletin Board and/or
the Pink Sheets or
[[Page 15425]]
other quotation mediums were approved by the NASDR for the 2001
calendar year. We estimate that 75% of the covered OTC securities were
issued by reporting issuers, while the other 25% were issued by non-
reporting issuers. We also estimate that broker-dealers publish priced
quotations for approximately 90% of the covered OTC securities quoted
in the OTC Bulletin Board and publish priced quotes for about 43% of
the covered OTC securities quoted in the Pink Sheets. According to
NASDR and Pink Sheets estimates, we believe that, on average, there are
approximately 4.3 broker-dealers publishing priced quotations for each
covered OTC security, and that at any given time there are
approximately 400 broker-dealers that submit priced quotations for
covered OTC securities. Finally, the Reproposed Rule's transition
provision would not subject the broker-dealers quoting the securities
of the estimated 6,936 potentially covered securities currently quoted
to the Rule until the annual review requirement is triggered.
Therefore, only those new applications that are submitted after the
reproposals become effective would be subject to the initial review
requirement.
Because the reproposed amendments would require the first broker-
dealer publishing a quotation (priced or unpriced) for a particular
security to collect issuer information, we believe that during the
first year after the reproposed amendments are effective, broker-
dealers that are publishing the first quotations (whether priced or
unpriced) for covered OTC securities in the aggregate would have to
conduct approximately 1,143 initial reviews of issuer information. This
estimate is based on the assumption that the NASDR will, in the first
year after the reproposals become effective, approve approximately 10%
fewer Form 211 filings than the 1,271 approved in 2001. We believe that
it will take a broker-dealer about 4 hours to collect, review, record,
retain, and supply to the NASDR the information pertaining to a
reporting issuer, and about 8 hours to collect, review, record, retain,
and supply to the NASDR the information pertaining to a non-reporting
issuer.
We therefore estimate that broker-dealers who are the first to
publish the first quote for a covered OTC security of a reporting
issuer will require 3,813 hours (1,271 x 75% x 4) to collect,
review, record, retain, and supply to the NASDR the information
required by the Rule as reproposed. We estimate that after the
reproposals have become effective the broker-dealers who are the first
to publish the first quote for a covered OTC security of a non-
reporting issuer (priced or unpriced) will require 2,542 hours (1,271
x 25% x 8) to collect, review, record, retain, and supply to the
NASDR the information required by the Rule. We therefore estimate the
total annual burden hours for the first broker-dealers to be 6,355
hours (3,813 + 2,542).
The Rule also would require an annual review for broker-dealers
publishing priced quotations for covered OTC securities. We have
estimated that each issuer is quoted by about 4.3 broker-dealers. We
are assuming that of the universe of approximately 6,936 potentially
affected covered OTC securities, broker-dealers would publish priced
quotations for approximately 90% of the OTC Bulletin Board securities
or 3,049 securities ((3,765 x 90%) x 90%) and for 43% of the Pink
Sheet securities or 1525 securities ((3,942 x 90%) x 43%).\7\
Therefore, we estimate that priced quotations will be published for
approximately 4,574 (3,049 + 1,525) covered OTC securities. Given that
about 75% of OTC stocks are issued by reporting issuers and the other
25% by non-reporting issuers, and that it would take a broker-dealer 4
and 8 hours, respectively, to meet the requirements of the reproposed
Rule for these issuers, we estimate the burden hours as follows: for
reporting issuers we estimate approximately 58,996 hours (3,430 x 4.3
x 4), and for non-reporting issuers we estimate approximately 39,319
hours (1,143 x 4.3 x 8). Therefore, we estimate the total annual
paperwork burden hours for all broker-dealers to be 104,670 hours
(6,355 + 58,996 + 39,319).
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\7\ Some securities have priced quotations published in both of
these quotation systems. To avoid double counting, such securities
are counted as OTC Bulletin Board securities.
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Regarding the burden on issuers to provide broker-dealers with the
required information, we believe that the 2,202 issuers of covered OTC
securities (based on our estimate that 75% of the 6,936 potentially
covered OTC securities are reporting issuers) will not bear any
additional hourly burdens under the reproposed amendments because these
issuers already report the required information to the Commission
through mandated periodic filings. Further, reporting issuer
information is widely available to broker-dealers through a variety of
media. However, non-reporting issuer information is not widely
available. Consequently, these issuers must provide the information
required by the reproposed amendments to requesting broker-dealers
before quotations in their securities can be published. We believe that
the 1,734 issuers of non-reporting covered OTC securities (based on an
estimate that 25% of the 6,936 potentially covered OTC securities are
non-reporting ) will spend an average of 9 hours each to collect,
prepare, and supply the information required by the proposal to the
first broker-dealer that requests this information. Thereafter, we
estimate that it will take an average of 1 hour for an issuer to
provide the same information to the remaining 3.3 broker-dealers that
request the information. Accordingly, we estimate that 1,734 non-
reporting issuers annually will incur 15,606 hours (1,734 x 9 x 1)
to comply with the first broker-dealer's request for information, and
5,722 hours (1,734 x 1 x 3.3) to comply with the subsequent 3.3
broker-dealer requests for an annual total of 21,328 burden hours
(15,606 + 5,722). On average, therefore, each non-reporting issuer
would spend approximately 12.3 burden hours (21,328/1,734) per year to
comply with these requests.
We estimate the collection of information will require
approximately 125,998 burden hours annually (104,670 + 21,328) from
approximately 2,134 respondents (400 broker-dealers and 1,734 issuers).
Subject to certain exceptions, the Rule prohibits brokers-dealers
from publishing a quotation for a security, or submitting a quotation
for publication, in a quotation medium unless they have reviewed
specified information concerning the security and the issuer. The
broker-dealer is required to retain the information for three years,
the first two years in an easily accessible place. The broker-dealer
must also make the information reasonably available upon request to any
person expressing an interest in a proposed transaction in the security
with such broker or dealer. The collection of information that is
submitted to the NASDR for review and approval is currently not
available to the public from the NASDR.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number.
Written comments regarding the above information should be directed
to the following persons: (i) Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Office of Management and Budget, Room 10202, New Executive Office
Building, Washington, DC 20503; and (ii) Michael E. Bartell, Associate
Executive Director, Office of Information Technology,
[[Page 15426]]
Securities and Exchange Commission, 450 Fifth Street, NW, Washington,
DC 20549. Comments must be submitted to OMB within 30 days of this
notice.
Dated: January 31, 2002.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7752 Filed 3-29-02; 8:45 am]
BILLING CODE 8010-01-P