SEC: Reporting Requirements for Brokers or Dealers Under the Securities Exchange Act of 1934

Published by the Government Accountability Office on 1997-02-25.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Office of the General Counsel


      February 25, 1997

      The Honorable Alfonse M. D'Amato
      The Honorable Paul S. Sarbanes
      Ranking Minority Member
      Committee on Banking, Housing, and Urban Affairs
      United States Senate

      The Honorable Thomas J. Bliley, Jr.
      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Subject:   Securities and Exchange Commission: Reporting Requirements for
                 Brokers or Dealers Under the Securities Exchange Act of 1934

      Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report
      on a major rule promulgated by the Securities and Exchange Commission
      (Commission), entitled "Reporting Requirements for Brokers or Dealers Under
      the Securities Exchange Act of 1934" (RIN: 3235-AF91). We received the rule on
      February 7, 1997. It was published in the Federal Register as a final rule on
      February 12, 1997. 62 Fed. Reg. 6469.

      The final rule amends the Commission's broker-dealer record preservation rule to
      allow broker-dealers to employ, under certain conditions, electronic storage media
      to maintain records required to be retained. The amendments reflect a recognition
      of technical developments that will provide economic as well as time-saving
      advantages for broker-dealers by expanding the scope of recordkeeping options
      while at the same time continuing to require broker-dealers to maintain records in a
      manner that preserves their integrity. The preamble to the final rule also contains
      an interpretation of the Commission's record preservation rule relating to the
      treatment of electronically generated communications.

Enclosed is our assessment of the Commission's compliance with the procedural
steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the
rule. Our review indicates that the Commission complied with the applicable

If you have any questions about this report, please contact James Vickers,
Assistant General Counsel, at (202) 512-8210. The official responsible for GAO
evaluation work relating to the Securities and Exchange Commission is
Jean Gleason Stromberg, Director, Financial Institutions and Markets Issues.
Ms. Stromberg can be reached at (202) 512-8678.

Robert P. Murphy
General Counsel


cc: The Honorable Jonathan G. Katz
    Securities and Exchange Commission

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       ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
                                ISSUED BY
                  SECURITIES EXCHANGE ACT OF 1934"
                             (RIN: 3235-AF91)

(i) Cost-benefit analysis

The Commission stated in its submission to us that it was not required to prepare
and did not prepare a cost-benefit analysis of the rule.

However, in its submission to our Office, the Commission discusses estimates made
by the Securities Industry Association which estimate the average cost savings to
the securities industry to be as much as $158.75 million, assuming 500 firms use one
of the permissible optical storage technologies. This is broken down to an annual
savings of $1.6 million for the 25 largest broker-dealers and $250,000 for 475 smaller
firms. The Commission states that this is the type of information which would have
been provided by a cost-benefit analysis.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,
607 and 609

The Chairman of the Commission has certified that the final rule will not have a
significant economic impact on a substantial number of small entities because the
rule does not alter the regulatory requirements for broker-dealers using currently
accepted media for record retention purposes.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform
Act of 1995, 2 U.S.C. §§ 1532-1535

As an independent regulatory agency, the Commission is not subject to title II of the
Unfunded Mandates Reform Act of 1995.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

The final rule was promulgated using the notice and comment procedures of
5 U.S.C § 553. A notice of proposed rulemaking was published in the Federal

Register on July 15, 1993. 58 Fed. Reg. 38092. The Commission received 13
comments in response to the proposed rulemaking which are summarized and
responded to in the preamble to the final rule and the Commission explains the
changes to the proposed rule which were made based on the comments.

These changes involve adopting a standard that the electronic media must satisfy
rather than specifying the type of media that must be used, the preserving of
handwritten records, the storage of a duplicate record and the instances when an
audit system is required.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The information collections required under the final rule were previously approved
by the Office of Management and Budget (OMB) following a notice in the Federal
Register on August 12, 1993, that the Commission had submitted the matter to OMB
for approval. 58 Fed. Reg. 42992. No comments were received and OMB issued
control number 3235-0279 approving the information collections. The control
number was reauthorized by OMB on June 30, 1996, after no comments were
received in response to an April 2, 1996, Federal Register notice. 61 Fed. Reg.

The final rule makes no substantive modifications to the previously approved

Statutory authorization for the rule

The rule was promulgated pursuant to the Securities Exchange Act of 1934,
particularly section 17(a)(1). 15 U.S.C. § 78q(a)(1). That section provides the
Commission authority to issue such rules regarding the keeping of records as
necessary to protect investors.

Executive Order No. 12866

The rule, promulgated by an independent regulatory agency, is not subject to the
review requirements of Executive Order No. 12866.

The Commission did not identify any other statutes or executive orders imposing
requirements relevant to the rule.

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