Securities and Exchange Commission: Amendment to Rule Filing Requirements for Self-Regulatory Organizations Regarding New Derivative Securities Products

Published by the Government Accountability Office on 1999-01-05.

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


      January 5, 1999

      The Honorable Phil Gramm
      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: Amendment to Rule Filing
                 Requirements for Self-Regulatory Organizations Regarding New
                 Derivative Securities Products

      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 (SEC),
      entitled "Amendment to Rule Filing Requirements for Self-Regulatory Organizations
      Regarding New Derivative Securities Products" (RIN: 3235-AH39). We received the
      rule on December 10, 1998. It was published in the Federal Register as a final rule
      on December 22, 1998. 63 Fed. Reg. 70952.

      The final rule is an amendment to Rule 19b-4 under the Securities Exchange Act of
      1934 and permits a self-regulatory organization (SRO) to list and trade new
      derivative securities products pursuant to existing self-regulatory organization
      trading rules.

      Enclosed is our assessment of the SEC'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 SEC complied with the applicable requirements.

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 Thomas McCool,
Director, Financial Institutions and Markets Issues. Mr. McCool can be reached at
(202) 512-8678.

Robert P. Murphy
General Counsel


cc: The Honorable Jonathan G. Katz
    The Secretary of the 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
                            (RIN: 3235-AH39)

(i) Cost-benefit analysis

Although the SEC was not required to prepare a cost-benefit analysis of the rule, it
did request commenters to provide analysis and data regarding the proposed rule.
No comments concerning cost or benefits were received.

The SEC believes the rule will reduce the SROs' regulatory and compliance burdens
and help them maintain their competitive balance with the overseas and OTC
derivative markets.

The SEC states that since the new rule provides an alternative approach for SROs
to list and trade new derivative securities products, it does not require SROs to
incur any additional costs.

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

The Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of
Proposed Rulemaking. The IRFA provides the information required by sections
603(b)(1), (b)(2), (b)(3), and (b)(4). It describes the reasons for the proposed
agency action; its objectives; the legal basis; and the reporting, recordkeeping, and
other compliance requirements of the proposed rule.

The final rule incorporates the Final Regulatory Flexibility Analysis consistent with
the requirements of 5 U.S.C. § 604. Because broker-dealers will have additional
days to earn income through trading such new derivative securities products, the
analysis finds that broker-dealer small entities will benefit substantially from the
final rule.

(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 SEC 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 issued using the notice and comment procedures contained in
5 U.S.C. § 553.

On April 29, 1998, the SEC published a Notice of Proposed Rulemaking (NPRM) in
the Federal Register. 63 Fed. Reg. 23584. The SEC received 10 comments in
response to the NPRM and discusses the comments in the preamble to the final

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

The final rule contains an information collection which is subject to review by the
Office of Management and Budget (OMB) under the Paperwork Reduction Act. The
collection has been approved by OMB and issued OMB control number 3235-0504.

Statutory authorization for the rule

The final rule is issued pursuant to 15 U.S.C. § 78a et seq., particularly sections
3(a)(27), 3(b), 19(b), 23(a), and 36(a) of the Exchange Act.

Executive Order No. 12866

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

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