Skip to Content

Notice

Submission for OMB Review; Comment Request

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble

Upon written request, copies available from: U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549-0213.

Extension: Rule 15g-9; SEC File No. 270-325; OMB Control No. 3235-0385.

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 a request for extension of the previously approved collection of information discussed below.

Section 15(c)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (the “Exchange Act”) authorizes the Commission to promulgate rules that prescribe means reasonably designed to prevent fraudulent, deceptive, or manipulative practices in connection with over-the-counter (“OTC”) securities transactions. Pursuant to this authority, the Commission in 1989 adopted Rule 15a-6 which was subsequently redesignated as Rule 15g-9, 17 CFR 240.15g-9 (the “Rule”). The Rule requires broker-dealers to produce a written suitability determination for, and to obtain a written customer agreement to, certain recommended transactions in penny stocks that are not registered on a national securities exchange, and whose issuers do not meet certain minimum financial standards. The Rule is intended to prevent the indiscriminate use by broker-dealers of fraudulent, high pressure telephone sales campaigns to sell penny stocks to unsophisticated customers.

The Commission staff estimates that there are approximately 253 broker-dealers subject to the Rule. The burden of the Rule on a respondent varies Start Printed Page 53502widely depending on the frequency with which new customers are solicited. On the average for all respondents, the staff has estimated that respondents process three new customers per week, or approximately 156 new customer suitability determinations per year. We also estimate that a broker-dealer would expend approximately one-half hour per new customer in obtaining, reviewing, and processing (including transmitting to the customer) the information required by Rule 15g-9, and each respondent would consequently spend 78 hours annually (156 customers × .5 hours) obtaining the information required in the rule. We determined, based on the estimate of 253 broker-dealer respondents, that the current annual burden of Rule 15g-9 is 19,734 hours (253 respondents × 78 hours).

In addition, we estimate that if tangible communications alone are used to transmit the documents required by Rule 15g-9, each customer should take: (1) No more than eight minutes to review, sign and return the suitability determination document; and (2) no more than two minutes to either read and return or produce the customer agreement for a particular recommended transaction in penny stocks, listing the issuer and number of shares of the particular penny stock to be purchased, and send it to the broker-dealer. Thus, the total current customer respondent burden is approximately 10 minutes per response, for an aggregate total of 1,560 minutes for each broker-dealer respondent. Since there are 253 respondents, the annual burden for customer responses is 394,680 minutes (1,560 customer minutes per each of the 253 respondents) or 6,578 hours.

In addition, we estimate that, if tangible means of communications alone are used, broker-dealers could incur a recordkeeping burden under Rule 15g-9 of approximately two minutes per response. Since there are approximately 253 broker-dealer respondents and each respondent would have approximately 156 responses annually, respondents would incur an aggregate recordkeeping burden of 78,936 minutes (253 respondents × 156 responses × 2 minutes per response), or 1,315 hours. Accordingly, the aggregate annual hour recordkeeping burden associated with Rule 15g-9 is 27,627 hours (19,734 hours to prepare the suitability statement and agreement + 6,578 hours for customer review + 1,315 hours for processing).

We recognize that under the amendments to Rule 15g-9, the burden hours may be slightly reduced if the transaction agreement required under the rule is provided through electronic means such as an e-mail from the customer to the broker-dealer (e.g., the customer may take only one minute, instead of the two minutes estimated above, to provide the transaction agreement by e-mail rather than regular mail). If each of the customer respondents estimated above communicates with his or her broker-dealer electronically, the total burden hours on the customers would be reduced from 10 minutes to 9 minutes per response, or an aggregate total of 1,404 minutes per respondent (156 customers × 9 minutes for each customer). Since there are 253 respondents, the annual customer respondent burden, if electronic communications were used by all customers, would be approximately 355,212 minutes (253 respondents × 1,404 minutes per each respondent), or 5,920 hours. We do not believe the time burden on broker-dealers in obtaining, reviewing, and processing the suitability determination would change through use of electronic communications. In addition, we do not believe that, based on information currently available to us, recordkeeping burdens under Rule 15g-9 would change where the required documents were sent or received through means of electronic communication. Thus, if all broker-dealer respondents obtain and send the documents required under the rule electronically, the aggregate annual hour burden associated with Rule 15g-9 would be 26,969 hours (19,734 hours to prepare the suitability statement and agreement + 5,920 hours for customer review + 1,315 recordkeeping hours).

We cannot estimate how many broker-dealers and customers will choose to communicate electronically. If we assume that 50 percent of respondents would continue to provide documents and obtain signatures in tangible form, and 50 percent would choose to communicate electronically in satisfaction of the requirements of Rule 15g-9, the total aggregate hour burden would be 27,297 burden hours ((27,627 aggregate burden hours for documents and signatures in tangible form × 0.50 of the respondents = 13,813 hours) + (26,969 aggregate burden hours for electronically signed and transmitted documents × 0.50 of the respondents = 13,484 hours).

The broker-dealer must keep the written suitability determination and customer agreement required by the Rule for at least three years. Completing the suitability determination and obtaining the customer agreement in writing is mandatory for broker-dealers who effect transactions in penny stocks and do not qualify for an exemption, but does not involve the collection of confidential information. Please note that 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.

The Commission may not conduct or sponsor a collection of information unless it displays a currently valid control number. No person shall be subject to any penalty for failing to comply with a collection of information subject to the PRA that does not display a valid Office of Management and Budget (OMB) control number.

Background documentation for this information collection may be viewed at the following link, http://www.reginfo.gov. Comments should be directed to (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or by sending an e-mail to: Shagufta_Ahmed@omb.eop.gov; and (ii) Thomas Bayer, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312 or send an e-mail to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice.

Start Signature

Dated: August 22, 2011.

Elizabeth M. Murphy,

Secretary.

End Signature End Preamble

[FR Doc. 2011-21858 Filed 8-25-11; 8:45 am]

BILLING CODE 8011-01-P