Notice2022-18386
Proposed Collection; Comment Request; Extension: Exchange Act Rule 3a71-3
Primary source
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Published
August 26, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 165 (Friday, August 26, 2022)</title>
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[Federal Register Volume 87, Number 165 (Friday, August 26, 2022)]
[Notices]
[Pages 52600-52601]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-18386]
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SECURITIES AND EXCHANGE COMMISSION
[SEC File No. 270-655, OMB Control No. 3235-0717]
Proposed Collection; 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 (44 U.S.C. 3501 et seq.) (``PRA''), the Securities and Exchange
Commission (``Commission'') is soliciting comments on the existing
collection of information provided for in Rule 3a71-3 (17 CFR 240.3a71-
3) 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.
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
[[Page 52601]]
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. 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.
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 will
have practical utility; (b) the accuracy of the Commission's estimate
of the burden of the collection of information; (c) ways to enhance the
quality, utility, and clarity of the information 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 by October
25, 2022.
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.
Please direct your written comments to: David Bottom, Director/
Chief Information Officer, Securities and Exchange Commission, c/o John
Pezzullo, 100 F Street NE, Washington, DC 20549, or send an email to:
<a href="/cdn-cgi/l/email-protection#e1b1b3a0beac80888d838e99a1928482cf868e97"><span class="__cf_email__" data-cfemail="e4b4b6a5bba9858d88868b9ca4978187ca838b92">[email protected]</span></a>.
Dated: August 22, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18386 Filed 8-25-22; 8:45 am]
BILLING CODE 8011-01-P
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