[Federal Register Volume 87, Number 13 (Thursday, January 20, 2022)]
[Notices]
[Pages 3135-3137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01057]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-586, OMB Control No. 3235-0647]


Submission for OMB Review; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

Extension:
    Rule 204

    Notice is hereby given that pursuant to the Paperwork Reduction Act 
of 1995 (``PRA'') (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (``Commission'') has submitted to the Office of Management 
and Budget (``OMB'') a request for approval of extension of the 
previously approved collection of information provided for in Rule 204 
(17 CFR 242.204), under the Securities Exchange Act of 1934 (15 U.S.C. 
78a et seq.).
    Rule 204(a) provides that a participant of a registered clearing 
agency must deliver securities to a registered clearing agency for 
clearance and settlement on a long or short sale in any equity security 
by settlement date, or if a participant of a registered clearing agency 
has a fail to deliver position at a registered clearing agency in any 
equity security for a long or short sale transaction in the equity 
security, the participant shall, by no later than the beginning of 
regular trading hours on the applicable close-out date, immediately 
close out its fail to deliver positions by borrowing or purchasing 
securities of like kind and quantity. For a short sale transaction, the 
participant must close out a fail to deliver by no later than the 
beginning of regular trading hours on the settlement day following the 
settlement date. If a participant has a fail to deliver that the 
participant can demonstrate on its books and records resulted from a 
long sale, or that is attributable to bona-fide market making 
activities, the participant must close out the fail to deliver by no 
later than the beginning of regular trading hours on the third 
consecutive settlement day following the settlement date. Rule 204 is 
intended to help further the Commission's goal of reducing fails to 
deliver by maintaining the reductions in fails to deliver achieved by 
the adoption of temporary Rule 204T, as well as other actions taken by 
the Commission. In addition, Rule 204 is intended to help further the 
Commission's goal of addressing

[[Page 3136]]

potentially abusive ``naked'' short selling in all equity securities.
    The information collected under Rule 204 will continue to be 
retained and/or provided to other entities pursuant to the specific 
rule provisions and will be available to the Commission and self-
regulatory organization (``SRO'') examiners upon request. The 
information collected will continue to aid the Commission and SROs in 
monitoring compliance with these requirements. In addition, the 
information collected will aid those subject to Rule 204 in complying 
with its requirements. These collections of information are mandatory.
    Several provisions under Rule 204 will impose a ``collection of 
information'' within the meaning of the Paperwork Reduction Act.
    I. Allocation Notification Requirement: As of December 31, 2020, 
there were 3,551 registered broker-dealers.\1\ Each of these broker-
dealers could clear trades through a participant of a registered 
clearing agency and, therefore, become subject to the notification 
requirements of Rule 204(d). If a participant allocates a fail to 
deliver position to a broker or dealer pursuant to Rule 204(d), the 
broker or dealer that has been allocated the fail to deliver position 
in an equity security must determine whether such fail to deliver 
position was closed out in accordance with Rule 204(a). If such broker 
or dealer does not comply with the provisions of Rule 204(a), such 
broker or dealer must immediately notify the participant that it has 
become subject to the requirements of Rule 204(b). The Commission 
estimates that a broker or dealer could have to make such determination 
and notification with respect to approximately 2.1 equity securities 
per day.\2\ The Commission estimates a total of 1,886,646 potential 
notifications in accordance with Rule 204(d) across all registered 
broker-dealers that could be allocated responsibility to close out a 
fail to deliver position per year (3,551 registered broker-dealers 
notifying participants once per day \3\ on 2.1 equity securities, 
multiplied by 253 trading days in 2020). The total estimated annual 
burden hours per year will be approximately 301,864 burden hours 
(1,886,646 multiplied by 0.16 hours/notification \4\).
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    \1\ The Commission's Division of Economic and Risk Analysis 
(``DERA'') estimates that there were approximately 3,551 registered 
broker-dealers as of December 31, 2020.
    \2\ DERA estimates that there were approximately 7,450 average 
daily fail to deliver positions during 2020. Across 3,551 registered 
broker-dealers, the number of securities per registered broker-
dealer per trading day is approximately 2.1 (7,450 / 3,551) equity 
securities.
    \3\ Because failure to comply with the close-out requirements of 
Rule 204(a) is a violation of the rule, the Commission believes that 
a broker or dealer would make the notification to a participant that 
it is subject to the borrowing requirements of Rule 204(b) at most 
once per day.
    \4\ See Amendments to Regulation SHO, Exchange Act Release No. 
60388 (July 27, 2009), 74 FR 38265 (July 31, 2009) (``Rule 204 
Adopting Release'') (making permanent the amendments to Regulation 
SHO contained in Interim Final Temporary Rule 204T and incorporating 
by reference the time estimates from the Rule 204T Adopting Release 
for compliance with the notification, demonstration, and 
certification requirements of Rule 204).
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    II. Demonstration Requirement for Fails to Deliver on Long Sales: 
As of December 31, 2020, there were 127 participants of NSCC that were 
registered as broker-dealers. If a participant of a registered clearing 
agency has a fail to deliver position in an equity security at a 
registered clearing agency and determined that such fail to deliver 
position resulted from a long sale, the Commission estimates that a 
participant of a registered clearing agency will have to make such 
determination with respect to approximately 29 securities per day.\5\ 
The Commission estimates a total of 931,799 potential demonstrations in 
accordance with Rule 204(a)(1) across all broker-dealer participants 
per year (127 participants checking for compliance once per day on 29 
securities, multiplied by 253 trading days in 2020). The total 
approximate estimated annual burden hour per year will be approximately 
149,088 burden hours (931,799 multiplied by 0.16 hours/demonstration 
\6\).
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    \5\ DERA estimates that during 20120 approximately 49.2% of 
trade volume was long. DERA estimates that there were approximately 
7,450 average daily fail to deliver positions during 2020. Across 
127 broker-dealer participants of the NSCC, the number of securities 
per participant per day is approximately 59 (7,450 / 127) equity 
securities. 49.2% of 59 equity securities per trading day equals 
approximately 29 securities per day.
    \6\ See supra note 4.
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    III. Pre-Borrow Notification Requirement: As of December 31, 2020, 
there were 27 participants of NSCC that were registered as broker-
dealers. If a participant of a registered clearing agency has a fail to 
deliver position in an equity security, the participant must determine 
whether the fail to deliver position was closed out in accordance with 
Rule 204(a). The Commission estimates that a participant of a 
registered clearing agency will have to make such determination with 
respect to approximately 59 equity securities per day.\7\ The 
Commission estimates a total of 1,895,729 potential notifications in 
accordance with Rule 204(c) across all participants per year (127 
broker-dealer participants notifying broker-dealers once per day on 59 
securities, multiplied by 253 trading days in 2020). The total 
estimated annual burden hours per year will be approximately 303,317 
burden hours (1,895,729 multiplied by 0.16 hours/notification \8\).
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    \7\ See supra note 5.
    \8\ See supra note 4.
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    IV. Certification Requirement: As of December 31, 2020, there were 
3,551 registered broker-dealers. Each of these broker-dealers may clear 
trades through a participant of a registered clearing agency. If the 
broker-dealer determines that it has not incurred a fail to deliver 
position on settlement date for a long or short sale in an equity 
security for which the participant has a fail to deliver position at a 
registered clearing agency or has purchased or borrowed securities in 
accordance with the pre-fail credit provision of Rule 204(e), the 
Commission estimates that a broker-dealer could have to make such 
determination with respect to approximately 2.1 securities per day.\9\ 
The Commission estimates that each such registered broker-dealer could 
have to certify to a participant that the broker-dealer has not 
incurred a fail to deliver position on settlement date for a long or 
short sale in an equity security for which the participant has a fail 
to deliver position at a registered clearing agency or, alternatively, 
that the broker-dealer is in compliance with the requirements set forth 
in the pre-fail credit provision of Rule 204(e), 1,886,646 times per 
year (3,551 registered broker-dealers certifying once per day on 2.1 
securities, multiplied by 253 trading days in 2020). The total 
approximate estimated annual burden hours per year will be 
approximately 301,864 burden hours (1,886,646 multiplied by 0.16 hours/
certification \10\).
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    \9\ See supra note 2.
    \10\ See supra note 4.
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    V. Pre-Fail Credit Demonstration Requirement: As of December 31, 
2020, there were 3,551 registered broker-dealers. If a broker-dealer 
purchased or borrowed securities in accordance with the conditions 
specified in Rule 204(e) and determined that it had a net long position 
or net flat position on the settlement day for which the broker-dealer 
is claiming pre-fail credit, the Commission estimates that a broker-
dealer could have to make such a determination with respect to 
approximately 2.1 securities per day.\11\ The Commission estimates that 
the total number of times per year that such registered broker-dealers 
could have to demonstrate on their respective books

[[Page 3137]]

and records that the broker-dealer has a net long position or net flat 
position on the settlement day for which the broker-dealer is claiming 
pre-fail credit is 1,886,646 times per year (3,551 registered broker-
dealers checking for compliance once per day on 2.1 equity securities, 
multiplied by 253 trading days in 2020). The total approximate 
estimated annual burden hours per year will be 301,864 burden hours 
(1,886,646 multiplied by 0.16 hours/demonstration \12\).
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    \11\ See supra note 2.
    \12\ See supra note 4.
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    The total aggregate annual burden for the collection of information 
undertaken pursuant to all five provisions is thus 1,357,997 hours per 
year (301,864 + 149,088 + 303,317 + 301,864 + 301,864).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information under the PRA unless it 
displays a currently valid OMB control number.
    The public may view background documentation for this information 
collection at the following website: www.reginfo.gov. Find this 
particular information collection by selecting ``Currently under 30-day 
Review--Open for Public Comments'' or by using the search function. 
Written comments and recommendations for the proposed information 
collection should be sent within 30 days of publication of this notice 
to (i) <a href="/cdn-cgi/l/email-protection#7f323d275130323d5130362d3e512c3a3c201b1a0c1420101919161c1a0d3f30323d513a302f51383029"><span class="__cf_email__" data-cfemail="98d5dac0b6d7d5dab6d7d1cad9b6cbdddbc7fcfdebf3c7f7fefef1fbfdead8d7d5dab6ddd7c8b6dfd7ce">[email protected]</span></a> and (ii) David Bottom, 
Director/Chief Information Officer, Securities and Exchange Commission, 
c/o John Pezzullo, 100 F Street NE, Washington, DC 20549, or by sending 
an email to: <a href="/cdn-cgi/l/email-protection#edbdbfacb2a08c84818f8295ad9e888ec38a829b"><span class="__cf_email__" data-cfemail="451517041a08242c29272a3d053620266b222a33">[email protected]</span></a>.

    Dated: January 14, 2022.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01057 Filed 1-19-22; 8:45 am]
BILLING CODE 8011-01-P


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