Pursuant to a legislative requirement, GAO reviewed the Securities and Exchange Commission's (SEC) new rule on filing requirements for self-regulatory organizations (SRO) regarding derivative securities products. GAO noted that: (1) the new rule would permit a SRO to list and trade new derivative securities products pursuant to existing self-regulatory organization trading rules; and (2) SEC complied with applicable requirements in promulgating the rule.
Securities and Exchange Commission: Amendment to Rule Filing, OGC-99-29,
January 5, 1999
The Honorable Phil Gramm Chairman The Honorable Paul S. Sarbanes Ranking Minority Member Committee on Banking, Housing, and Urban Affairs United States Senate
The Honorable Thomas J. Bliley, Jr. Chairman 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 ENCLOSURE
ANALYSIS UNDER 5 U.S.C. 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION ENTITLED "AMENDMENT TO RULE FILING REQUIREMENTS FOR SELF-REGULATORY ORGANIZATIONS REGARDING NEW DERIVATIVE SECURITIES PRODUCTS" (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 rule.
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.