FR 2024-29306

This document from the Federal Register discusses a notice by the Securities and Exchange Commission (SEC) seeking comments on an extension request for information collection related to rules and forms used in the registration of security-based swap entities (SBS Entities). The SEC uses this information to determine whether applicants meet the standards for registration and to maintain an accessible information resource for the public. The public comment period for this request is open from December 16, 2024, to January 13, 2025.

General Summary of the Document

The SEC is requesting an extension of its information collection efforts pursuant to the Paperwork Reduction Act. This pertains specifically to several rules and forms associated with registering SBS Entities. As of September 2024, 53 such entities are registered, with an expectation of five additional registrations. This collection of information is crucial for the SEC to ensure that SBS Entities are compliant with the Securities Exchange Act of 1934. Additionally, it helps maintain a registry that serves both regulatory and public information purposes.

Significant Issues and Concerns

Several concerns arise from the document. Firstly, it doesn't provide detailed information on why the ongoing costs imposed on non-resident SBS applicants are necessary or justified. This could make it difficult for stakeholders to evaluate the overall financial impact on these entities.

Another issue is the methodology for estimating certain costs. For instance, the cost to appoint a U.S. agent for service of process is based on averages from just three websites. This small sample size may not accurately represent the broader market. Additionally, there isn't a clear breakdown of the estimated 10,660 annual burden hours, which makes it challenging to assess the legitimacy of this estimate.

The language describing the necessity for non-resident SBS Entities to obtain a legal opinion is somewhat complex. A simpler explanation might enhance understanding for a general audience. Lastly, there is no discussion of how these potential costs might disproportionately impact smaller SBS Entities compared to larger ones.

Impact on the Public

Broadly, the document's impact on the public lies in its role in maintaining transparency and regulatory compliance within the financial markets. By ensuring that SBS Entities are properly registered and regulated, the SEC aims to protect investors and the integrity of the financial system.

Impact on Specific Stakeholders

For SBS Entities, especially those that are non-resident, the implications are more pronounced. These entities may face significant financial burdens due to the legal requirements for registration and ongoing compliance. Smaller SBS Entities might find these costs especially onerous, potentially affecting their ability to participate in the market compared to larger, more established firms.

Therefore, while the efforts by the SEC ensure a level of market integrity and investor protection, the financial and administrative burdens on SBS Entities—particularly non-resident and smaller ones—might require further evaluation and potential adjustment to ensure a balanced approach.

The document under review from the Securities and Exchange Commission (SEC) discusses financial costs associated with the registration and maintenance of Security-Based Swap (SBS) Entities. Here is an analysis of the financial references made within this document:

Summary of Financial Provisions

The Securities and Exchange Commission estimates the costs involved in the registration and maintenance of SBS Entities. Each nonresident SBS Entity is expected to incur approximately $211 annually to maintain a relationship with a U.S. agent for service of process. Additionally, for all nonresident SBS Entities, the collective cost is estimated at $5,697 per year. Furthermore, obtaining the necessary opinion of counsel incurs additional costs. It is estimated that each nonresident entity applying to register would spend, on average, around $25,000 in outside legal expenses to secure this opinion, summing up to a total of $225,000 annually. Furthermore, there is an estimated $25,000 annual charge for revisions to this opinion due to changes in the regulatory environment. Consequently, the total estimated financial burden associated with this entire process is approximately $255,697 per year.

Analysis of Financial Allocations and Issues

The document addresses the financial burdens imposed on entities by the SEC’s registration rules, particularly focusing on the rules and forms related to SBS Entity registration and withdrawal. The mentioned $211 annual cost for a U.S. service agent was derived by averaging prices from three different online service providers. This approach, though straightforward, lacks comprehensive analysis or consideration of broader market data, which may not fully represent the existing market conditions. The decision to include only three providers for the cost analysis could be seen as insufficient for determining an average, potentially leading to questions about its representativeness and accuracy.

The significant expenses related to obtaining legal opinions, approximately $25,000 per entity, underscore the financial hurdles for nonresident entities aspiring to register with the Commission. However, the document does not provide a detailed evaluation of how these costs impact smaller SBS Entities compared to larger ones, a potentially critical consideration, as smaller entities might proportionally bear a heavier financial burden.

Moreover, the overall compliance burden, estimated at 10,660 burden hours annually for all SBS Entities, lacks a detailed breakdown. This omission makes it challenging to understand or assess whether the estimate is warranted or overly burdensome, especially for entities with limited resources.

In summary, while the document provides specific cost estimates and financial obligations for entities registering as SBS Entities, it leaves several important considerations — such as the sufficiency of the data sources for cost estimation and the differentiated impact on smaller entities — inadequately addressed. These considerations are crucial for understanding and evaluating the fairness and reasonableness of the identified financial burdens.