[Federal Register Volume 83, Number 247 (Thursday, December 27, 2018)]
[Rules and Regulations]
[Pages 66615-66618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-28051]


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DEPARTMENT OF THE TREASURY

17 CFR Parts 404 and 449


Disclosure Update

AGENCY: Office of the Assistant Secretary for Financial Markets, 
Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
final rule to amend certain regulations issued under the Government 
Securities Act of 1986 (GSA). Treasury's recordkeeping and reporting 
requirements for registered government securities brokers and dealers 
cross-reference existing Securities and Exchange Commission (SEC) 
regulations, with modifications. The SEC recently amended certain of 
its disclosure requirements that may have become redundant, 
duplicative, overlapping, outdated, or superseded as a result of 
changes to U.S. Generally Accepted Accounting Principles (U.S. GAAP). 
The technical amendments to the Treasury recordkeeping rules and Form 
G-405, referenced in the regulations, conform to SEC amendments 
regarding the reporting of extraordinary gains and losses, the 
cumulative effect of changes in accounting principles, and 
comprehensive income on the annual reports and Form X-17A-5 (Financial 
and Operational Combined Uniform Single Report or ``FOCUS Report'').

DATES: This final rule is effective January 1, 2019.

ADDRESSES: This final rule is available at http://www.treasurydirect.gov and http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Lori Santamorena, Executive Director, 
or Kevin Hawkins, Associate Director, Department of the Treasury, 
Bureau of the Fiscal Service, Government Securities Regulations Staff, 
(202) 504-3632 or email us at <a href="/cdn-cgi/l/email-protection#4621293035232534232106202f3525272a68323423273533343f68212930"><span class="__cf_email__" data-cfemail="95f2fae3e6f0f6e7f0f2d5f3fce6f6f4f9bbe1e7f0f4e6e0e7ecbbf2fae3">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

I. Background

    The GSA requires the Secretary of the Treasury to adopt rules with 
respect to transactions in government securities effected by government 
securities brokers and dealers in the areas of financial 
responsibility, protection of investor securities and funds, 
recordkeeping, reporting, and audit. The regulatory framework 
established by the GSA requires the Secretary in promulgating these 
rules to ``consider the sufficiency and appropriateness of then 
existing law and rules applicable'' to government securities brokers 
and dealers.\1\ In issuing the final GSA rules, Treasury considered 
existing regulation with a view toward preventing overly burdensome and 
duplicative regulation.\2\ Treasury's GSA rules therefore generally 
provide that compliance by registered government securities brokers and 
dealers with certain applicable SEC rules constitutes compliance with 
the GSA rules. Treasury seeks to maintain consistency, where practical, 
with parallel rules that have been adopted or amended by the SEC for 
registered brokers and dealers.
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    \1\ Public Law 99-571, 100 Stat. 3208 (1986).
    \2\ 52 FR 27910 (July 24, 1987).
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    Treasury's recordkeeping rules in part 404 (Recordkeeping and 
Preservation of Records), and the reporting requirements in part 405 
(Reports and Audit) for registered government securities brokers and 
dealers, cross-reference existing SEC regulations, with modifications. 
The format of reporting under the GSA regulations in part 405 is also 
substantially similar to that required pursuant to SEC rules. Sections 
17 CFR 405.2 and 449.5 of the GSA regulations require that registered 
government securities brokers and dealers use Form G-405 (Report on 
Finances and Operations of Government Securities Brokers and Dealers, 
or the ``FOGS Report'') to make the required monthly, quarterly and 
annual financial reports to the SEC or to their self-regulatory 
organization.
    Treasury adopted the FOGS Report in 17 CFR 449.5 of the GSA 
regulations based on the SEC's FOCUS Report. Registered government 
securities brokers and dealers are required to file financial reports 
which include information on their assets, liabilities, liquid capital, 
total haircuts, and ratio of liquid capital to total haircuts, among 
other items, on the FOGS Report.

II. Analysis

    Certain SEC rules contain accounting and disclosure requirements 
including U.S. GAAP accounting standards. The SEC periodically reviews 
and amends its disclosure requirements to eliminate rules that become 
redundant, duplicative, or overlapping as the Financial Accounting 
Standards Board (FASB) updates U.S. GAAP.
    In keeping with this practice, on August 17, 2018, the SEC amended 
several of its disclosure requirements related to information that is 
addressed by more recently updated U.S. GAAP requirements.\3\ This 
included amendments regarding the reporting of

[[Page 66616]]

extraordinary gains or losses, the cumulative effect of changes in 
accounting principles, and comprehensive income on the annual reports 
required by paragraph (d) of the Securities Exchange Act Rule 17a-5 and 
Parts II, IIA, IIB, and III of the FOCUS Report.
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    \3\ Securities Act Release No. 33-10532, Disclosure Update and 
Simplification, retrieved from https://www.sec.gov/rules/final/2018/33-10532.pdf.
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    Various SEC disclosure requirements and forms, including the FOCUS 
Report, that referred only to an income statement (or similar term) 
were no longer consistent with U.S. GAAP because the FASB replaced the 
income statement with the statement of comprehensive income.\4\ In 
contrast to net income, which does not include some changes in equity, 
comprehensive income includes all non-owner changes to equity.
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    \4\ See ASU No. 2011-05, Comprehensive Income (Topic 220): 
Presentation of Comprehensive Income. As defined in the FASB's 
Accounting Standards Codification (ASC), comprehensive income is the 
change in equity of a business entity during the period from 
transactions and other events and circumstances from nonowner 
sources.
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    To update its disclosure requirements regarding the annual reports 
and the FOCUS Report, the SEC's references to ``income statement'' or 
``statement of income'' are supplemented by ``statement of 
comprehensive income.'' \5\
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    \5\ The FASB also eliminated the concept of extraordinary items 
from U.S. GAAP noting that preparers found it ambiguous, 
unnecessary, and rarely used. The FASB noted that eliminating the 
concept would save time and reduce costs for preparers while 
alleviating uncertainty for preparers, auditors, and regulators. The 
FASB also eliminated from U.S. GAAP the requirement to report 
cumulative effect of a change in accounting principle in the income 
statement. U.S. GAAP now requires, unless impracticable or otherwise 
provided for in a newly issued accounting standards update, 
retrospective application of a change in accounting principle to all 
prior periods, with the cumulative effect reported in the opening 
balance of retained earnings for the earliest period presented.
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    As a result of the SEC's amendments regarding the reporting of 
comprehensive income on the annual reports and FOCUS Report, Treasury 
determined that it is necessary to make conforming changes to certain 
rules and financial reports that registered government securities 
brokers and dealers are required to file.
    17 CFR 404.2 incorporates language from Securities Exchange Act 
Rule 17h-1T, with modifications. Treasury is amending 17 CFR 404.2 by 
adding the same note contained in the SEC's Rule 17h-1T amendment. The 
SEC amended Rule 17h-1T (Risk assessment recordkeeping requirements for 
associated persons of brokers and dealers) by adding a note indicating 
that statements of comprehensive income must be included in place of 
income statements, if required by the applicable generally accepted 
accounting principles.
    Treasury is amending the FOGS Report by inserting new line items 
for reporting comprehensive income or loss when required by U.S. GAAP 
and eliminating line items for reporting extraordinary gains and losses 
and the cumulative effect of changes in accounting principles. The 
general instructions to Parts II and IIA of the FOGS Report will also 
be amended to reflect these changes.

III. Effective Date

    The amendments to 17 CFR 404.2 and the FOGS Report become effective 
January 1, 2019, and apply to FOGS Reports covering reporting periods 
ending after December 31, 2018.\6\ Treasury has consulted with staff 
from the SEC and the Financial Industry Regulatory Authority (FINRA) 
regarding the implementation of the form changes. Treasury understands 
that FINRA will make available the amended FOGS Report to its members 
that are registered government securities brokers and dealers. Copies 
of the FOGS Report may also be obtained by downloading the form from 
the TreasuryDirect.gov website.
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    \6\ The January 1, 2019 effective date aligns with SEC staff's 
no-action relief regarding the effective date of the SEC's changes 
to its FOCUS Report. See SEC No Action Letter, Implementation of 
Effective Date of Disclosure Update and Simplification Adopting 
Release for Broker-Dealer Reports (October 29, 2018).
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IV. Special Analysis

    Executive Orders 13563 and 12866 direct agencies to assess costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, of 
reducing costs, of harmonizing rules, and of promoting flexibility. 
This rule is not a significant regulatory action for purposes of 
Executive Order 12866.
    Because the final rule makes no substantive change to the existing 
rules and imposes no additional reporting requirements, we find under 5 
U.S.C. 553(b)(B) that there is good cause that notice and public 
procedures are unnecessary, and that the rule can be issued in final 
form. For the same reasons, we find that a delayed effective date is 
unnecessary and good cause exists pursuant to 5 U.S.C. 553(d)(3) to 
issue the rule with less than a 30-day delay.
    Because no notice of proposed rulemaking is required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do 
not apply. These amendments reflect Treasury's continuing interest in 
meeting its informational needs while minimizing the cost and burden on 
those entities affected by the regulations.
    The amendments to 17 CFR 404.2 and the FOGS Report collectively 
affect approximately two government securities brokers and dealers who 
must file periodic reports with the SEC and FINRA, based on the number 
of registered government securities brokers and dealers who filed these 
financial reports in September 2018. Treasury shares the SEC's belief 
that respondents currently provide information in response to U.S. GAAP 
or other SEC disclosure requirements that have been updated more 
recently, rather than the superseded requirements covered by the 
amendments. As a result, we do not believe that these amendments would 
result in a change to respondents' overall paperwork burden.

List of Subjects in 17 CFR Parts 404 and 449

    Banks, banking, Brokers, Government securities, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, 17 CFR parts 404 and 449 
are amended as follows:

PART 404--RECORDKEEPING AND PRESERVATION OF RECORDS

0
1. The authority citation for part 404 continues to read as follows;

    Authority:  15 U.S.C. 78o-5(b)(1)(B), (b)(1)(C), (b)(2), (b)(4).


0
2. Amend Sec.  404.2 by adding Note 1 to Paragraph (v) of the quoted 
text in paragraph (b)(4) to read as follows:


Sec.  404.2  Records to be made and kept current by registered 
government securities brokers and dealers; records of non-resident 
registered government securities brokers and dealers.

* * * * *
    (b) * * *
    (4) * * *
    ``(v) * * *

    Note 1 to paragraph 240.17h-1T(a)(1)(v).  Statements of 
comprehensive income (as defined in 17 CFR 210.1-02) must be 
included in place of income statements, if required by the 
applicable generally accepted accounting principles.

* * * * *

[[Page 66617]]

PART 449--FORMS, SECTION 15C OF THE SECURITIES EXCHANGE ACT OF 1934

0
3. The authority citation for part 449 continues to read as follows;

    Authority: 15 U.S.C. 78o-5(a), (b)(1)(B), (b)(4).


0
4. Amend Form G-405 Part II (FOGS Report) (referenced in Sec.  449.5):
0
a. Under the heading ``Statement of Financial Condition'' by revising 
paragraph 29, redesignating paragraphs 29.E and F as paragraphs 29.F 
and G, respectively, and adding a new paragraph 29.E; and
0
b. By revising the heading ``Statement of Income (Loss)'' and under 
that heading, revising the subheading ``Net Income'', reserving 
paragraphs 31, 31.A and 32, revising paragraph 33, redesignating 
paragraph 34 as paragraph 36, adding new paragraph 34 and paragraphs 
34.A and 35, and revising newly redesignated paragraph 36.
    The revisions and additions read as follows:

    Note:  The text of Form G-405 Part II does not, and this 
amendment will not, appear in the Code of Federal Regulations.

FORM G-405

REPORT ON FINANCES AND OPERATIONS OF GOVERNMENT SECURITIES BROKERS AND 
DEALERS

PART II 11

* * * * *

STATEMENT OF FINANCIAL CONDITION

* * * * *
    29. * * *

    E. Accumulated other comprehensive income ___1797
    F. Total ___1795
    G. Less capital stock in treasury (___)1796
* * * * *

STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as 
Defined in Sec.  210.1-02 of Regulation S-X), as Applicable

* * * * *

NET INCOME/COMPREHENSIVE INCOME

* * * * *
    31. [RESERVED]
    A. [RESERVED]
    32. [RESERVED]
    33. Net income (loss) after Federal income taxes $ ___ 4230
    34. Other comprehensive income (loss) ___ 4226
    A. After Federal income taxes of ___ 4227
    35. Comprehensive income (loss) $ ___ 4228

MONTHLY INCOME

    36. Income (current month only) before provision for Federal income 
taxes $ ___ 4211
* * * * *

0
5. Amend the Form G-405 Part II (FOGS Report) (referenced in Sec.  
449.5) General Instructions by:
0
a. Revising the heading ``Statement of Income (Loss)'' and removing 
from under that heading the subheadings ``Extraordinary Items'' and 
``Effect of Changes in Accounting Principles'' and their related text; 
and
0
b. Revising under the heading ``Statement of Changes in Ownership 
Equity (Sole Proprietorship, Partnership or Corporation)'' the text 
related to the subheading ``Net Income (Loss) For Period.''
    The revisions read as follows:

    Note:  The text of Form G-405 Part II General Instructions does 
not, and this amendment will not, appear in the Code of Federal 
Regulations.

FORM G-405, PART II

REPORT ON FINANCES AND OPERATIONS OF GOVERNMENT SECURITIES BROKERS AND 
DEALERS GENERAL INSTRUCTIONS

* * * * *

STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as 
Defined in Sec.  210.1-02 of Regulation S-X), as Applicable

    If there are no items of other comprehensive income in the period 
presented, the broker or dealer is not required to report comprehensive 
income.
* * * * *

STATEMENT OF CHANGES IN OWNERSHIP EQUITY

(SOLE PROPRIETORSHIP, PARTNERSHIP OR CORPORATION)

* * * * *

Net Income (Loss) for Period

    Report the amount of net income (loss) for the period reported on 
the Statement of Income (Loss) or Statement of Comprehensive Income, as 
applicable.
* * * * *

0
6. Amend Form G-405 Part IIA (FOGS Report) (referenced in Sec.  449.5) 
by:
0
a. Revising under the heading ``Statement of Financial Condition for 
Noncarrying, Nonclearing and Certain other Government Securities 
Brokers or Dealers'' paragraph 23 by redesignating current paragraphs 
23.E and F as paragraphs 23.F and G, respectively and adding a new 
paragraph 23.E; and
0
b. Revising the heading ``Statement of Income (Loss)'' and under that 
heading, revising the subheading ``Net Income'', removing and reserving 
paragraphs 19, 19.A and 20, revising paragraph 21, redesignating 
current paragraph 22 as paragraph 24, adding new paragraph 22 and 
paragraphs 22.A and 23, and revising newly redesignated paragraph 24.
    The revisions and additions read as follows:

    Note:  The text of Form G-405 Part IIA does not, and this 
amendment will not, appear in the Code of Federal Regulations.

FORM G-405

REPORT ON FINANCES AND OPERATIONS OF GOVERNMENT SECURITIES BROKERS AND 
DEALERS

PART IIA 12

* * * * *

STATEMENT OF FINANCIAL CONDITION FOR NONCARRYING, NONCLEARING AND 
CERTAIN OTHER GOVERNMENT SECURITIES BROKERS OR DEALERS

* * * * *
    23. * * *
    E. Accumulated other comprehensive income ___1797
    F. Total _1795
    G. Less capital stock in treasury 16 (_)1796
* * * * *

STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as 
Defined in Sec.  210.1-02 of Regulation S-X), as Applicable

* * * * *

NET INCOME/COMPREHENSIVE INCOME

* * * * *
    19. [RESERVED]
    a. [RESERVED]
    20. [RESERVED]
    21. Net income (loss) after Federal income taxes $ ___ 4230
    22. Other comprehensive income (loss) ___ 4226
    a. After Federal income taxes of ___ 4227
    23. Comprehensive income (loss) $ ___ 4228

MONTHLY INCOME

    24. Income (current month only) before provision for Federal income 
taxes $ ___ 4211
* * * * *

[[Page 66618]]


0
7. Amend the General Instructions to Form G-405 Part IIA (FOGS Report) 
(referenced in Sec.  449.5) by:
0
a. Revising the heading ``Statement of Income (Loss)'' and removing 
from under that heading paragraphs 19 and 20; and
0
b. Revising under the heading ``Statement of Changes in Ownership 
Equity (Sole Proprietorship, Partnership or Corporation)'' the text 
related to the subheading ``Net Income (Loss) For Period.''
    The revisions read as follows:

    Note: The text of Form G-405 Part IIA General Instructions does 
not, and this amendment will not, appear in the Code of Federal 
Regulations.

FORM G-405, PART IIA

REPORT ON FINANCES AND OPERATIONS OF GOVERNMENT SECURITIES BROKERS AND 
DEALERS

GENERAL INSTRUCTIONS

* * * * *

STATEMENT OF INCOME (LOSS) or STATEMENT OF COMPREHENSIVE INCOME (as 
Defined in Sec.  210.1-02 of Regulation S-X), as Applicable

    If there are no items of other comprehensive income in the period 
presented, the broker or dealer is not required to report comprehensive 
income.
* * * * *

STATEMENT OF CHANGES IN OWNERSHIP EQUITY

(SOLE PROPRIETORSHIP, PARTNERSHIP OR CORPORATION)

* * * * *

Net Income (Loss) For Period

    Report the amount of net income (loss) for the period reported on 
the Statement of Income (Loss) or Statement of Comprehensive Income, as 
applicable.
* * * * *

0
8. Amend the Form G-405 Part III (FOGS Report) (referenced in Sec.  
449.5) by revising under the heading ``Oath or Affirmation'' checkbox 
(c) to read as follows:

    Note: The text of Form G-405 Part III does not, and this 
amendment will not, appear in the Code of Federal Regulations.

ANNUAL AUDITED REPORT

FORM G-405 PART III

* * * * *

OATH OR AFFIRMATION

* * * * *
    [square] (c) Statement of Income (Loss) or, if there is other 
comprehensive income in the period(s) presented, a Statement of 
Comprehensive Income (as defined in Sec.  210.1-02 of Regulation S-X).
* * * * *

Brian Smith,
Deputy Assistant Secretary for Federal Finance.
[FR Doc. 2018-28051 Filed 12-26-18; 8:45 am]
 BILLING CODE 4810-AS-P


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