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Proposed Collection; Comment Request

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Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549


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”) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval.

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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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]

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]

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 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 × 75% × 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 × 25% × 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 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 × 90%) × 90%) and for 43% of the Pink Sheet securities or 1525 securities ((3,942 × 90%) × 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 × 4.3 × 4), and for non-reporting issuers we estimate approximately 39,319 hours (1,143 × 4.3 × 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).

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-Start Printed Page 4293reporting 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 × 9 × 1) to comply with the first broker-dealer's request for information, and 5,722 hours (1,734 × 1 × 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).

Written comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency'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 within 60 days of this publication.

Please direct your written comments to Michael E. Bartell, Associate Executive Director, Office of Information Technology, Securities and Exchange Commission, 450 5th Street, NW., Washington, DC 20549.

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Dated: January 18, 2002.

J. Lynn Taylor,

Assistant Secretary.

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3.  Securities Exchange Act Release No. 39670 (February 17, 1998) (Proposing Release).

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4.  Securities Exchange Act Release No. 41110 (March 2, 1999) (Re-proposing Release).

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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.

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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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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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[FR Doc. 02-2118 Filed 1-28-02; 8:45 am]