Division, Office of the Comptroller of the Currency, Public Information
Room, Mailstop 2-3, Attention: 1557-NEW, 250 E Street, SW., Washington,
DC 20219. In addition, comments may be sent by fax to<PHONE_NUMBER>, or
by electronic mail to<EMAIL_ADDRESS>You may personally
inspect and photocopy comments at the OCC, 250 E Street, SW.,
Washington, DC 20219. For security reasons, the OCC requires that
visitors make an appointment to inspect comments. You may do so by
calling<PHONE_NUMBER>. Upon arrival, visitors will be required to
present valid government-issued photo identification and submit to
security screening in order to inspect and photocopy comments.
    OTS: Information Collection Comments, Chief Counsel's Office,
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552;
send a facsimile transmission to<PHONE_NUMBER>; or send an e-mail to
<EMAIL_ADDRESS>OTS will post comments and the
related index on the OTS Internet site at  http://www.ots.treas.gov. In
addition, interested persons may inspect the comments at the Public
Reading Room, 1700 G Street, NW., by appointment. To make an
appointment, call<PHONE_NUMBER>, send an e-mail to
public.info<EMAIL_ADDRESS>or send a facsimile transmission to 202-906-
7755.
    NCUA: You may submit comments by any of the following methods
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
     Agency Web site: http://www.ncua.gov/RegulationsOpinionsLaws/proposedregs/proposedregs.html. Follow the
instructions for submitting comments.
     E-mail: Address to<EMAIL_ADDRESS>Include ``[Your
name] Comments on Notice of Proposed Rulemaking Incentive-based
Compensation Arrangements'' in the e-mail subject line.
     Fax:<PHONE_NUMBER>. Use the subject line described above
for e-mail.
     Mail: Address to David Chow, Deputy Chief Information
Officer, National Credit Union Administration, 1775 Duke Street,
Alexandria, VA 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Additionally, you should send a copy of your comments to the OMB
Desk Officer for the NCUA, by mail to U.S. Office of Management and
Budget, 725 17th Street, NW., 10235, Washington, DC 20503, or by fax to
202-395-6974. The Paperwork Reduction Act requires OMB to make a
decision concerning the collection of information contained in the
proposed regulation between 30 and 60 days after publication of this
document in the Federal Register. Therefore, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication. This does not affect the deadline for the public to
comment to the NCUA on the proposed regulation.
    SEC: Comments should be directed to the Office of Management and
Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Room 10102,
New Executive Office Building, Washington, DC 20503, and commenters
also should send a copy of their comments to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090, and refer to File No. S7-12-11. We will post
all public comments we receive without change, including any personal
information you provide, such as your name and address, on the SEC Web
site at http://www.sec.gov. Requests for materials submitted to OMB by
the Commission with regard to this collection of information should be
in writing, refer to File No. S7-12-11, and be submitted to the
Securities and Exchange Commission, Office of Investor Education and
Advocacy, 100 F Street, NE., Washington, DC 20549-0213. OMB is required
to make a decision concerning the collection of information between 30
and 60 days after publication of this release in the Federal Register.
A comment to OMB is best assured of having full effect if OMB receives
it within 30 days after publication of this release.
    Board: You may submit comments, identified by Docket No. R-1410, by
any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments on the http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
     E-mail<EMAIL_ADDRESS>Include docket
number in the subject line of the message.
     FAX:<PHONE_NUMBER> or<PHONE_NUMBER>.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be

edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper in Room MP-500
of the Board's Martin Building (20th and C Streets, NW.) between 9 a.m.
and 5 p.m. on weekdays.
Proposed Information Collection
    Title of Information Collection: Reporting and Recordkeeping
Requirements Associated with Incentive-based Compensation Arrangements.
    Frequency of Response: Annual.
    Affected Public: Businesses or other for-profit.
    Respondents:
    FDIC: State nonmember banks or an insured U.S. branch of a foreign
bank that has total consolidated assets of $1 billion or more.
    OCC: National banks and Federal branches and agencies of foreign
banks with $1 billion or more in total assets.
    OTS: Savings associations and savings and loan holding companies
with $1 billion or more in total assets.
    NCUA: Credit unions with $1 billion or more in total assets.
    SEC: Broker-dealers registered under section 15 of the Securities
Exchange Act of 1934 \39\ with $1 billion or more in total assets and
investment advisers, as such term is defined in section 202(a)(11) of
the Investment Advisers Act of 1940, with $1 billion or more in total
assets \40\ (collectively ``covered BDs and IAs'').
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    \39\ 15 U.S.C. 78o.
    \40\ 15 U.S.C. 80b-2(a)(11). By its terms, the definition of
``covered financial institution'' in Section 956 includes any firm
that meets the definition of ``investment adviser'' under the
Investment Advisers Act of 1940 (``Investment Advisers Act''),
regardless of whether the firm is registered as an investment
adviser under the Act. Banks and bank holding companies are
generally excluded from the definition of ``investment adviser''
under section 202(a)(11) of the Investment Advisers Act.
---------------------------------------------------------------------------

    Board: State member banks, bank holding companies, and state-
licensed uninsured branches and agencies of foreign banks with more
than $1 billion in total assets, and the U.S. operations of foreign
banking organizations with $1 billion or more in U.S. assets.
    Abstract: Section 956 of the Dodd-Frank Act requires that the
agencies prohibit incentive-based payment arrangements at a covered
financial institution that encourage inappropriate risks by a financial
institution by providing excessive compensation or that could lead to
material financial loss. Under the Dodd-Frank Act, a covered financial
institution also must disclose to its appropriate Federal regulator the
structure of its incentive-based compensation arrangements sufficient
to determine whether the structure provides ``excessive compensation,
fees, or benefits'' or ``could lead to material financial loss'' to the
institution. The Dodd-Frank Act does not require a covered financial
institution to disclose compensation of individuals as part of this
requirement.
    Section ----.4(a) would require covered financial institutions that
have total consolidated assets of $1 billion or more to submit a report
annually to the Agency that describes the structure of the covered
financial institution's incentive-based compensation arrangements for
covered persons and that is sufficient to allow an assessment of
whether the structure or features of those arrangements provide or are
likely to provide covered persons with excessive compensation, fees, or
benefits to covered persons or could lead to material financial loss to
the institution. Section ----.4(b) would require the following minimum
standards:
    (1) A clear narrative description of the components of the covered
financial institution's incentive-based compensation arrangements
applicable to covered persons;
    (2) A succinct description of the covered financial institution's
policies and procedures governing its incentive-based compensation
arrangements;
    (3) If the covered financial institution has total consolidated
assets of $50 billion or more,\39\ an additional succinct description
of incentive-based compensation policies and procedures specific to the
covered financial institution's:
---------------------------------------------------------------------------

    \39\ For credit unions, $10 billion or more.
---------------------------------------------------------------------------

    (i) Executive officers; and
    (ii) Other covered persons who the board of directors, or a
committee thereof, of the institution has identified and determined
under Sec.  ------.5(b)(3)(ii) of this part individually have the
ability to expose the institution to possible losses that are
substantial in relation to the institution's size, capital, or overall
risk tolerance;
    (4) Any material changes to the covered financial institution's
incentive-based compensation arrangements and policies and procedures
made since the covered financial institution's last report submitted
under paragraph (a)(1) of this section; and
    (5) The specific reasons why the covered financial institution
believes the structure of its incentive-based compensation plan: (i)
Does not provide covered persons incentives to engage in behavior that
is likely to cause the covered financial institution to suffer material
financial loss; and (ii) does not provide covered persons with
excessive compensation.
    Section ----.5(b)(3)(ii)(B) would require the board of directors of
covered financial institutions that have total consolidated assets of
$50 billion or more to approve and document the identification of those
covered persons that individually have the ability to expose the
institution to possible losses that are substantial in relation to the
institution's size, capital, or overall risk tolerance.
    Section ----.6(b)(5) would ensure that documentation of the
institution's processes for establishing, implementing, modifying, and
monitoring incentive-based compensation arrangements is maintained that
is sufficient to enable the Agency to determine the institution's
compliance with 12 U.S.C. 5641.
    Estimated Burden:

FDIC

    Number of respondents: 301 (12 institutions with total consolidated
assets of $50 billion or more and 289 institutions with total
consolidated assets between $1 billion and $50 billion; 4,466
institutions with total consolidated assets below $1 billion are
exempt).
    Burden per respondent for initial set up: 180 hours for
institutions with $50 billion or more in total assets (80 hours for
reporting requirements and 100 hours for recordkeeping requirements)
and 70 hours for institutions between $1 billion and $50 billion in
total assets (30 hours for reporting requirements and 40 hours for
recordkeeping requirements).
    Burden per respondent for ongoing compliance: 70 hours for
institutions with $50 billion or more in total assets (40 hours for
reporting requirements and 30 hours for recordkeeping requirements) and
25 hours for institutions between $1 billion and $50 billion in total
assets (15 hours for reporting requirements and 10 hours for
recordkeeping requirements).
    Total FDIC annual burden: 30,455 hours (22,390 hours for initial
set-up and 8,065 hours for ongoing compliance).

OCC

    Number of respondents: 158 (18 institutions with total consolidated
assets of $50 billion or more and 140 institutions with total
consolidated assets between $1 billion and $50 billion; 1,215
institutions and 67 trust companies with total consolidated assets
below $1 billion are exempt).

    Burden per respondent for initial set up: 180 hours for
institutions with $50 billion or more in total assets (80 hours for
reporting requirements and 100 hours for recordkeeping requirements)
and 70 hours for institutions between $1 billion and $50 billion in
total assets (30 hours for reporting requirements and 40 hours for
recordkeeping requirements).
    Burden per respondent for ongoing compliance: 70 hours for
institutions with $50 billion or more in total assets (40 hours for
reporting requirements and 30 hours for recordkeeping requirements) and
25 hours for institutions between $1 billion and $50 billion in total
assets (15 hours for reporting requirements and 10 hours for
recordkeeping requirements).
    Total OCC annual burden: 17,800 hours (13,040 hours for initial
set-up and 4,760 hours for ongoing compliance).

OTS

    Number of respondents: 163 (17 institutions with total consolidated
assets of $50 billion or more and 146 institutions with total
consolidated assets between $1 billion and $50 billion.
    Burden per respondent for initial set up: 180 hours for
institutions with $50 billion or more in total assets (80 hours for
reporting requirements and 100 hours for recordkeeping requirements)
and 70 hours for institutions between $1 billion and $50 billion in
total assets (30 hours for reporting requirements and 40 hours for
recordkeeping requirements).
    Burden per respondent for ongoing compliance: 70 hours for
institutions with $50 billion or more in total assets (40 hours for
reporting requirements and 30 hours for recordkeeping requirements) and
25 hours for institutions between $1 billion and $50 billion in total
assets (15 hours for reporting requirements and 10 hours for
recordkeeping requirements).
    Total OTS annual burden: 18,120 hours (13,280 hours for initial
set-up and 4,840 hours for ongoing compliance).

NCUA

    Number of respondents: 184 (6 institutions with total consolidated
assets of $10 billion or more and 178 institutions with total
consolidated assets between $1 billion and $10 billion).
    Burden per respondent for initial set up: 180 hours for
institutions with $10 billion or more in total assets (80 hours for
reporting requirements and 100 hours for recordkeeping requirements)
and 70 hours for institutions between $1 billion and $10 billion in
total assets (30 hours for reporting requirements and 40 hours for
recordkeeping requirements).
    Burden per respondent for ongoing compliance: 70 hours for
institutions with $10 billion or more in total assets (40 hours for
reporting requirements and 30 hours for recordkeeping requirements) and
25 hours for institutions between $1 billion and $10 billion in total
assets (15 hours for reporting requirements and 10 hours for
recordkeeping requirements).
    Total NCUA annual burden: 18,410 hours (13,540 hours for initial
set-up and 4,870 hours for ongoing compliance).

SEC

    Number of respondents: The proposed rule would establish additional
reporting and recordkeeping burdens for broker-dealers that are covered
financial institutions (``covered BDs and IAs'') with assets of at
least $50 billion, as compared to covered BDs and IAs with assets
between $1 billion and $50 billion. The Commission estimates that
approximately 200 respondents (approximately 130 broker-dealers and
approximately 70 investment advisers) would be affected generally by
the proposed rules, and that approximately 30 of the 200 respondents
would be affected by proposed Sec. Sec.  248.204(c)(3) and
248.205(b)(3)(ii)(B).\40\
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    \40\ Each Federal regulator has proposed how to calculate a
firm's ``total consolidated assets''. For broker-dealers, the
determination of whether the broker-dealer had $1 billion in assets
would be made by reference to the broker-dealer's year-end audited
consolidated statement of financial condition filed with the
Commission pursuant to Rule 17a-5. For investment advisers, asset
size would be determined by the adviser's total assets shown on the
balance sheet for the adviser's most recent fiscal year end. Data
from the SEC's Office of Risk, Strategy and Financial Innovation
indicates that there are 132 registered broker-dealers with assets
of $1 billion or more and 18 broker-dealers with assets of at least
$50 billion. Most investment advisers currently do not report to the
Commission the amount of their own assets, so the Commission is
unable to determine how many have $1 billion or more in assets and
$50 billion or more in total consolidated assets. See Form ADV, Part
1A, Item 12. The Commission estimates that advisers with assets
under management of $100 billion or more would have total
consolidated assets of $1 billion or more. Based on data from the
Investment Adviser Registration Depository (``IARD''), the SEC's
Division of Investment Management estimates that 68 registered
advisers with assets under management of at least $100 billion would
have assets of $1 billion or more, and 7 registered advisers with
assets under management of at least $500 billion would have total
consolidated assets of at least $50 billion. The Commission has
rounded these numbers to 70 and 10 for purposes of its analysis.
---------------------------------------------------------------------------

(A) Proposed Section 248.204 (Required Reports)
    The Commission, jointly with the other Agencies, proposes that
covered BDs and IAs be required to describe the structure of the firms'
incentive-based compensation arrangements for covered persons in a
manner that is sufficient to allow an assessment of whether the
structure or features of those arrangements provide or are likely to
provide covered persons with excessive compensation, fees, or benefits
to covered persons or could lead to material financial loss to the
firm. Proposed Sec.  248.204(c)(1) would require a narrative
description of the components of the incentive-based compensation
arrangements applicable to covered persons, specifying the types of
covered persons to which they apply. Proposed Sec.  248.204(c)(2) would
require that covered BDs and IAs provide a succinct description of
their incentive-based compensation policies and procedures. Proposed
Sec.  248.204(c)(3) would require that covered BDs and IAs with total
consolidated assets of $50 billion or more provide the Commission with
a succinct description of incentive-based compensation policies and
procedures applicable to executive officers and other covered persons
whom the board of directors, or a committee thereof, has identified as
having the ability to expose the institution to possible losses that
are substantial in relation to the firm's size, capital, or overall
risk tolerance. Proposed Sec.  248.204(c)(4) would require covered BDs
and IAs to describe the material changes to the firm's incentive based
compensation arrangements. Proposed Sec.  248.204(c)(5) would require
each covered BD and IA to describe the specific reasons why it believes
the structure of its incentive-based compensation does not encourage
inappropriate risks by the covered financial institution by providing
covered persons with excessive compensation or incentive-based
compensation that could lead to material financial loss to the covered
financial institution.
    Based on the initial and ongoing burden the Commission estimated in
connection with the adoption of the executive compensation reporting
requirements for public companies filing Form 10-Ks under the Exchange
Act (i.e. Item 402 of Regulation S-K), the Commission estimates that
the burden for the covered BD and IA respondents imposed by the
proposed reporting requirements would be 100 hours.\41\ Since the
proposed rule does

not provide for different reporting requirements for smaller covered
BDs and IAs with assets between $1 billion and $50 billion and for
larger firms with assets of at least $50 billion, the Commission has
not estimated separate reporting burdens for larger covered BDs and
IAs. Therefore, the Commission estimates a collective reporting burden
of 20,000 hours for covered BDs and IAs.\42\
---------------------------------------------------------------------------

    \41\ The Commission estimated that public company respondents
would incur approximately 95 hours of annual burden in connection
with the adoption of Item 402 of Regulation S-K. See Securities Act
of 1933 Release No. 8432A and Securities Exchange Act Release No.
54302A.(August 29, 2006), 71 FR 53158, 53217 (September 8, 2006)
(S7-03-06). The Commission is rounding this number up to 100 for the
instant proposed rule estimate.
    \42\ 200 covered BDs and IAs x 100 hours = 20,000 hours.
---------------------------------------------------------------------------

(B) Documentation of Determining Designated Persons (Section
248.205(b)(3)(ii)(B))

    For covered BDs and IAs with assets of at least $50 billion,
proposed Sec.  248.205(b)(3)(ii)(B) would require a firm's board of
directors, or a committee thereof, to identify those covered persons
(other than executive officers) that individually have the ability to
expose the institution to possible losses that are substantial in
relation to the institution's size, capital, or overall risk tolerance.
These covered persons may include, for example, traders with large
position limits relative to the institution's overall risk tolerance
and other individuals that have the authority to place at risk a
substantial part of the capital of the covered financial institution.
The Agencies propose that the compensation decisions applicable to such
persons must be approved by the firm's board of directors or a
committee of the board and that the covered BD or IA document the
compensation decisions made by the board or its committee.
    The Commission estimates that each covered BD and IA with assets of
at least $50 billion would incur 20 hours of burden initially to comply
with the proposed recordkeeping requirements associated with the
proposed rule and 10 hours of burden on an ongoing basis. Therefore,
the Commission estimates an initial collective recordkeeping burden in
connection with the documentation requirement provided in Sec.
248.205(b)(3)(ii)(B) is 600 hours for covered BDs and IAs with assets
of at least $50 billion.\43\ The Commission estimates the ongoing
collective recordkeeping burden in connection with this requirement to
be 300 hours for covered BDs and IAs with assets of at least $50
billion.\44\
---------------------------------------------------------------------------

    \43\ 30 covered BDs and IAs with assets of at least $50 billion
x 20 hours = 600 hours.
    \44\ 30 covered BDs and IAs with assets of at least $50 billion
x 10 hours = 300 hours.
---------------------------------------------------------------------------

(C) Required Policies and Procedures
    Proposed Sec.  248.206(a) would require covered financial
institutions to adopt and maintain policies and procedures reasonably
designed to ensure and monitor compliance with 12 U.S.C. 5641,
commensurate with the size and complexity of the organization and the
scope and nature of its use of incentive-based compensation. As
described in further detail above, proposed Sec.  248.206(b) would
require that the policies and procedures, at a minimum, are consistent
with the disclosure requirements and prohibitions in other parts of the
proposed rule, ensure that risk management or oversight personnel have
a role in designing and assessing incentive-based compensation
arrangements, provide for independent monitoring of the incentive-based
compensation awards, risks taken and actual outcomes, require that a
covered financial institution's board receive data and analysis from
management and other sources sufficient to enable the board to assess
whether the incentive-based compensation arrangements are consistent
with 12 U.S.C. 5641, and require sufficient documentation of the
covered financial institution's incentive-based compensation
arrangements to enable the Commission to determine the covered BDs or
IAs compliance with 12 U.S.C. 5641. In addition, the proposal would
require that the covered BDs' and IAs' policies and procedures include
certain features when a firm uses deferral in connection with an
incentive-based compensation arrangement, and that the policies and
procedures subject incentive-based compensation arrangements to a
corporate governance framework.
    Many covered BDs and IAs are already conforming to the incentive-
based compensation standards reflected in the Guidance because they are
affiliated with banking organizations supervised by the FRB, OCC, OTS
or FDIC that have already altered their incentive-based compensation
arrangements and policies and procedures following the publication of
the Guidance. The Guidance applies to all banking organizations
supervised by the FRB, OCC, OTS or FDIC, including national banks,
State member banks, State nonmember banks, savings associations, U.S.
bank holding companies, savings and loan holding companies, the U.S.
operations of foreign banks with a branch, agency or commercial lending
company in the United States, and Edge and agreement corporations
(collectively ``banking organizations'').\45\ Based upon information
filed with the Commission and the staff's discussions with a number of
BDs and its review of the public filings of covered BDs, IAs and
certain parent companies, the Commission believes that covered BDs and
IAs affiliated with banking organizations (``covered bank BDs and
IAs'') have already altered their incentive-based compensation policies
and procedures and corresponding arrangements in conjunction with their
affiliated banking organizations that are subject to the Guidance.
Based on public filings with the Commission, the SEC estimates that
there are approximately 25 covered bank BDs and IAs with total
consolidated assets of at least $50 billion and approximately 85
covered bank BDs and IAs with total consolidated assets between $1
billion and $50 billion.\46\ Therefore, covered bank BDs and IAs should
bear significantly less burden than those covered BDs and IAs not
already subject to the Guidance (``covered non-bank BDs and IAs'') to
develop and maintain policies and procedures as required in the
proposed rules. The Commission requests comment on its estimated number
of covered bank BDs and IAs.
---------------------------------------------------------------------------

    \45\ See Guidance 75 FR at 36398.
    \46\ The Commission estimates that there are approximately 20
covered bank BDs with assets of at least $50 billion and 35 covered
bank BDs with assets between $1 billion and $50 billion. The
Commission bases the estimates for covered bank BDs upon data
submitted to the Commission in FOCUS reports (i.e. Form X-17A-5 Part
II). The Commission estimates that there are approximately 5 covered
bank IAs with assets of at least $50 billion and 50 covered bank IAs
with assets between $1 billion and $50 billion. The estimates for
covered bank IAs are based upon data submitted to the Commission in
Form ADV (i.e. Form ADV Part 1A, Items 6.A.(6) and 7.A.(5)).
---------------------------------------------------------------------------

    The Commission believes that the covered bank BDs and IAs would
incur approximately the same recordkeeping burden as the banking
organizations. Based on the initial estimates of recordkeeping burden
provided by FRB, OCC, FDIC and OTS for proposed Sec.  248.206, the
Commission estimates an initial recordkeeping burden of 80 hours for
each covered bank BD and IA with $50 billion or more in total
consolidated assets and 40 hours of initial recordkeeping burden for
each covered bank BD and IA with total consolidated assets between $1
billion and $50 billion. Based on the ongoing estimates of
recordkeeping burden provided by FRB, OCC, FDIC and OTS, the Commission
believes that each covered bank BD and IA respondent with total
consolidated assets of at least $50 billion would incur approximately
30 hours of ongoing recordkeeping burden

and each covered bank BD and IA respondent with total consolidated
assets between $1 billion and $50 billion would incur approximately 10
hours of recordkeeping burden on an ongoing basis.
    For covered non-bank BDs and IAs, the Commission estimates a
significantly higher burden, namely the amount of burden that the
banking agencies originally estimated in the Guidance (480 hours of
initial burden, rounded up to 500 in the instant proposal and 40 hours
of ongoing burden) \47\ in addition to the amounts that the FRB, OTS,
FDIC and OCC estimated in connection with the instant proposed rule.
The Commission estimates that there are approximately 75 covered non-
bank BDs with assets between $1 billion and $50 billion, 10 covered
non-bank IAs with assets between $1 billion and $50 billion and 5
covered non-bank IAs with assets of at least $50 billion.\48\
---------------------------------------------------------------------------

    \47\ See Guidance, 75 FR at 36403.
    \48\ The Commission estimates that there are approximately 75
covered non-bank BDs with assets between $1 billion and $50 billion
. The Commission estimates that there are approximately 5 covered
non-bank IAs with assets of at least $50 billion and 10 covered non-
bank IAs with assets between $1 billion and $50 billion. The
Commission bases these estimates upon data submitted to the
Commission in FOCUS reports (i.e. Form X-17A-5 Part II) and in Form
ADV (i.e. Form ADV Part 1A, Items 6.A.(6) and 7.A.(5)). See supra
note 46. It is difficult to determine whether any unregistered
advisers are non-bank IAs that are not subject to the Guidance.
---------------------------------------------------------------------------

    Therefore, for covered non-bank BDs and IAs, the Commission
estimates an initial recordkeeping burden estimate of 580 hours \49\
for covered BDs and IAs with $50 billion or more in total consolidated
assets and 540 hours \50\ of recordkeeping burden for covered BDs and
IAs with total consolidated assets between $1 billion and $50 billion.
The Commission estimates that covered non-bank BD and IA respondents
with total consolidated assets of at least $50 billion would incur
approximately 70 hours \51\ of ongoing recordkeeping burden while those
covered non-Bank BDs and IAs with total consolidated assets between $1
billion and $50 billion would incur approximately 50 hours \52\ of
ongoing recordkeeping burden.
    Total SEC initial and annual recordkeeping and reporting burdens
(from proposed Section 248.205(b)(iii)(2)(B) and proposed Section
248.206):

----------------------------------------------------------------------------------------------------------------
                                                 Covered bank    Covered bank    Covered non-     Covered non-
                                                  BDs and IAs     BDs and IAs    bank BDs and   bank BDs and IAs
                                                   ($50B +)       ($1B-$50B)     IAs ($50B +)      ($1B-$50B)
                                                    (hours)         (hours)         (hours)          (hours)
----------------------------------------------------------------------------------------------------------------
Initial Reporting.............................      \53\ 2,500      \54\ 8,500        \55\ 500        \56\ 8,500
Initial Recordkeeping.........................      \57\ 2,500      \58\ 3,400      \59\ 3,000       \60\ 46,000
Ongoing Reporting.............................      \61\ 2,500      \62\ 8,500        \63\ 500        \64\ 8,500
Ongoing Recordkeeping.........................      \65\ 1,000      \66\ 1,000        \67\ 400        \68\ 4,300
----------------------------------------------------------------------------------------------------------------

D. External Costs

    The Commission also believes that the proposed rules would likely
generate external costs to the covered BDs and IAs, particularly at the
stage of preparing the initial reports required by Sec.  248.204 and
initially developing and implementing the policies and procedures in
compliance with Sec.  248.206. Covered BDs and IAs may elect to hire
various types of professionals, including attorneys, benefits
consultants, and accountants. The Commission estimates that the covered
BDs and IAs would hire professionals to prepare the necessary reports
and develop and maintain the necessary policies and procedures at
approximately the same hourly level as the covered BDs and IAs assume
internally (e.g. covered bank BDs and IAs with at least $50 billion in
assets would collectively use approximately the equivalent of 2,500
hours worth of professionals' time to prepare the required reports, in
addition to the covered bank BDs' and IAs' internal burden to prepare
them).
---------------------------------------------------------------------------

    \49\ 500 hours (from Guidance) + 80 hours (from the estimate
provided by the Fed, OCC, FDIC and OTS in instant proposed rule) =
580 hours.
    \50\ 500 hours (from Guidance) + 40 hours (from the estimate
provided by the Fed, OCC, FDIC and OTS in instant proposed rule) =
540 hours.
    \51\ 40 hours (from Guidance) + 30 hours (from the estimate
provided by the Fed, OCC, FDIC and OTS in instant proposed rule) =
70 hours.
    \52\ 40 hours (from Guidance) + 10 hours (from the estimate
provided by the Fed, OCC, FDIC and OTS in instant proposed rule) =
50 hours.
    \53\ (20 covered bank BDs with assets of at least $50B + 5
covered bank IAs with assets of at least $50B) x 100 hours = 2,500
hours.
    \54\ (35 covered bank BDs with assets between $1B and $50B + 50
covered bank IAs with assets between $1B and $50B) x 100 hours =
8,500 hours.
    \55\ 5 covered non-bank IAs with assets of at least $50B x 100
hours = 500 hours.
    \56\ (75 covered non-bank BDs with assets between $1B and $50B +
10 covered non-bank IAs with assets between $1B and $50B) x 100
hours = 8,500 hours.
    \57\ (20 covered bank BDs with assets of at least $50B + 5
covered bank IAs with assets of at least $50B) x 80 hours + ((20
covered bank BDs + 5 covered bank IAs) x 20 hours in connection with
proposed Section 248.205(b)(3)(ii)(B)) = 2,500 hours.
    \58\ (35 covered bank BDs with assets between $1B and $50B + 50
covered bank IAs with assets between $1B and $50B) x 40 hours =
3,400 hours.
    \59\ 5 covered non-bank IAs with assets of at least $50B x 580
hours + ((5 covered non-bank IAs with assets of at least $50B) x 20
hours in connection with proposed Section 248.205(b)(3)(ii)(B)) =
3,000 hours.
    \60\ (75 covered non-bank BDs with assets between $1B and $50B +
10 covered non-bank IAs with assets between $1B and $50B) x 540
hours = 45,900 hours.
    \61\ (20 covered bank BDs with assets of at least $50B + 5
covered bank IAs with assets of at least $50B) x 100 hours = 2,500
hours.
    \62\ (35 covered bank BDs with assets between $1B and $50B + 50
covered bank IAs with assets between $1B and $50B) x 100 hours =
8,500 hours.
    \63\ 5 covered non-bank IAs with assets of at least $50B x 100
hours = 500 hours.
    \64\ (75 covered non-bank BDs with assets between $1B and $50B +
10 covered non-bank IAs with assets between $1B and $50B) x 100
hours = 8,500 hours.
    \65\ (20 covered bank BDs with assets of at least $50B + 5
covered bank IAs with assets of at least $50B) x 30 hours + ((20
covered bank BDs + 5 covered bank IAs) x 10 hours in connection with
proposed Section 248.205(b)(3)(ii)(B)) = 900 hours.
    \66\ (35 covered bank BDs with assets between $1B and $50B + 50
covered bank IAs with assets between $1B and $50B) x 10 hours = 850
hours.
    \67\ 5 covered non-bank IAs with assets of at least $50B x 70
hours + ((5 covered non-bank IAs with assets of at least $50B) x 10
hours in connection with proposed Section 248.205(b)(3)(ii)(B)) =
400 hours.
    \68\ (75 covered non-bank BDs with assets between $1B and $50B +
10 covered non-bank IAs with assets between $1B and $50B) x 50 hours
= 4,250 hours.
---------------------------------------------------------------------------

    The Commission believes that there would be approximately an equal
balance of attorneys,\69\ benefits

consultants,\70\ actuaries \71\ and accountants \72\ that are hired at
each covered BD or IA. The chart below summarizes the external costs
that the Commission estimates covered BDs and IAs would assume
collectively in connection with the proposed rule. The Commission
requests comments on these external cost estimates, including the
hourly rate that the Commission estimates for external attorneys,
benefits consultants, actuaries and accountants.
---------------------------------------------------------------------------

    \69\ An outside attorney's salary range is estimated at $400 an
hour based on industry sources. See Securities Exchange Act Release
No. 62174 (May 26, 2010) at note 510, 75 FR 32556 (June 8, 2010)
(S7-15-09). The Commission requests comment on this estimate.
    \70\ An outside management consultant's salary range (national
averages) is available from http://www.payscale.com. Using their
data from the 75th percentile, adjusting it for an 1800-hour work
year, and multiplying by the 5.35 factor which normally is used to
include benefits but here is used as an approximation to offset the
fact that New York salaries are typically higher than the rest of
the country, the result is $596 per hour (rounded to $600). The
Commission requests comment on this estimate.
    \71\ An outside actuary's salary range (national averages) is
available from http://www.payscale.com. Using their data from the
75th percentile, adjusting it for an 1800-hour work year, and
multiplying by the 5.35 factor which normally is used to include
benefits but here is used as an approximation to offset the fact
that New York salaries are typically higher than the rest of the
country, the result is $330 per hour. The Commission requests
comment on this estimate.
    \72\ An outside accountant's salary range is available from the
U.S. Bureau of Labor Statistics, Occupational Employment Statistics
Web site. Using their data for median salaries from New York State,
which has the highest rates in the country, and multiplying by the
5.35 factor which is used to include benefits, the result is $250
per hour. The Commission requests comment on this estimate.
---------------------------------------------------------------------------

    Total SEC estimated external recordkeeping costs:
---------------------------------------------------------------------------

    \73\ 2,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $987,500.
    \74\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \75\ 500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25% x
$330/hour) + (25% x $250/hour)] = $197,500.
    \76\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \77\ 2,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $987,500.
    \78\ 3,400 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $1,343,000.
    \79\ 3,000 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $1,185,000.
    \80\ 46,000 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $18,170,000.
    \81\ 2,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $987,500.
    \82\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \83\ 500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25% x
$330/hour) + (25% x $250/hour)] = $197,500.
    \84\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \85\ 1,000 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $395,000.
    \86\ 1,000 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $395,000.
    \87\ 400 hours x [(25% x $400/hour) + (25% x $600/hour) + (25% x
$330/hour) + (25% x $250/hour)] = $158,000.
    \88\ 4,300 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $1,698,500.

----------------------------------------------------------------------------------------------------------------
                                                 Covered bank    Covered bank    Covered non-     Covered non-
                                                  BDs and IAs     BDs and IAs    bank BDs and     bank BDs and
                                                   ($50B +)       ($1B-$50B)     IAs ($50B +)    IAs ($1B-$50B)
                                                   (million)       (million)       (million)        (million)
----------------------------------------------------------------------------------------------------------------
Initial Reporting.............................         \73\ $1       \74\ $3.4   \75\ $200,000         \76\ $3.4
Initial Recordkeeping.........................          \77\ 1        \78\ 1.3        \79\ 1.2           \80\ 18
Ongoing Reporting.............................          \81\ 1        \82\ 3.4    \83\ 200,000          \84\ 3.4
Ongoing Recordkeeping.........................    \85\ 400,000    \86\ 400,000    \87\ 150,000          \88\ 1.7
----------------------------------------------------------------------------------------------------------------

Board

    Number of respondents: 664 (59 institutions with total consolidated
assets of $50 billion or more and 605 institutions with total
consolidated assets between $1 billion and $50 billion).
    Burden per respondent for initial set up: 180 hours for
institutions with $50 billion or more in total consolidated assets (80
hours for reporting requirements and 100 hours for recordkeeping
requirements) and 70 hours for institutions between $1 billion and $50
billion in total consolidated assets (30 hours for reporting
requirements and 40 hours for recordkeeping requirements).
    Burden per respondent for ongoing compliance: 70 hours for
institutions with $50 billion or more in total consolidated assets (40
hours for reporting requirements and 30 hours for recordkeeping
requirements) and 25 hours for institutions between $1 billion and $50
billion in total consolidated assets (15 hours for reporting
requirements and 10 hours for recordkeeping requirements).
    Total Board annual burden: 72,225 hours (52,970 hours for initial
set-up and 19,255 hours for ongoing compliance).

C. OTS Executive Orders 12866 and 13563 Determination

    Executive Order 13563, ``Improving Regulation and Regulatory
Review,'' affirms and supplements Executive Order 12866, ``Regulatory
Planning and Review,'' which requires Federal agencies to prepare a
regulatory impact analysis for agency actions that are found to be
``significant regulatory actions.'' Significant regulatory action means
any regulatory action that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
    (2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
    (4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive order.\89\
---------------------------------------------------------------------------

    \89\ See 58 FR 51735 (Oct. 4, 1993), as amended.
---------------------------------------------------------------------------

    Based on its initial assessment, OTS anticipates that the proposed
rule (if the final rule is the same as the proposed rule) would not be
economically significant. Nonetheless, OTS solicits comment on the
economic impact.
    OTS does not anticipate that the proposal would create a serious
inconsistency or otherwise interfere with an action taken or planned by
another agency. OTS's proposal is essentially the same as the proposal
of every other Federal agency regulating the financial services
industry. Thus, rather than creating any inconsistency, by being part
of this joint interagency proposal, OTS's portion adds to the
consistency of regulations on incentive-based compensation that will
encompass the financial services industry.

    OTS does not anticipate that the proposal would materially alter
the budgetary impact of entitlements, grants, user fees, or loan
programs or the rights and obligations of recipients thereof. The
proposal does not have any provisions related to those subjects.
    The Office of Management and Budget's Office of Information and
Regulatory Affairs has designated this proposed rule to be a
significant regulatory action that is likely to result in a rule that
may raise novel legal or policy issues arising out of legal mandates,
the President's priorities, or the principles set forth in Executive
Orders 12866 and 13563. OTS notes that the proposal does raise some
similar issues as were raised by the Banking Agency Guidance issued
June 25, 2010, and the 1995 Federal banking agency guidelines
implementing the compensation-related and other safety and soundness
standards in section 39 of the FDIA (codified at 12 CFR pt. 570, App.
A).
Need for Regulatory Action
    The proposed rule is required by section 956 of the Dodd-Frank Act.
Thus, the proposal is needed to fulfill the statutory mandate that OTS
and the other agencies participating in this joint rulemaking prescribe
regulations or guidelines that:
    1. Prohibit incentive-based payment arrangements, or any feature of
any such arrangement, at a covered financial institution that the
Agencies determine encourage inappropriate risks by a financial
institution by providing excessive compensation or that could lead to a
material financial loss.
    2. Require covered financial institutions to disclose to its
appropriate Federal regulator the structure of its incentive-based
compensation arrangements sufficient to determine whether the structure
provides ``excessive compensation, fees, or benefits'' or ``could lead
to material financial loss'' to the institution.
    3. Are comparable to the existing compensation-related safety and
soundness standards applicable to insured depository institutions under
section 39 of the FDIA (12 U.S.C. 1831p-1(c)) (12 CFR pt. 570, App. A
for OTS).
    The legislative history of the Dodd-Frank Act describes the reasons
Congress believed section 956 of the Dodd-Frank Act was needed.\90\
Further information and analysis is contained in the Final Report of
the Financial Crisis Inquiry Commission.\91\ OTS's portion of the
proposed rule is intended to enhance the regulatory oversight of
incentive compensation schemes at larger OTS-regulated savings
associations and savings and loan holding companies so as to help
ensure that compensation at such institutions is neither excessive in
itself nor encourages excessive risk taking.
---------------------------------------------------------------------------

    \90\ See H.R. Rep. 111-236, Corporate and Financial Institution
Compensation Fairness Act of 2009, at 6 (2009). For additional
legislative history, see Compensation Structure and Systemic Risk:
Hearing Before the H. Comm. on Financial Services, 111th Cong.
(2009).
    \91\ Final Report of the National Commission on the Causes of
the Financial and Economic Crisis in the United States, January
2011, available at http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_full.pdf. The report contains discussion of financial sector
executive compensation practices, including on pages 61-65.
---------------------------------------------------------------------------

Scope of Proposed Rule
    Section 956 of the Dodd-Frank Act defines ``covered financial
institutions'' to include depository institutions and depository
institution holding companies, as defined in section 3 of the FDIA,
with assets of $1 billion or more. OTS's portion of the proposed rule
applies to savings associations and savings and loan holding companies
with $1 billion or more in total consolidated assets that have
incentive-based compensation programs.
    With regard to savings associations, as of December 31, 2010, OTS
supervised 731 savings associations with a combined total of $932
billion in assets. The largest savings association had assets of $88
billion. Only three other savings associations had assets greater than
$50 billion. The smallest savings association had assets of $3.5
million. Of the 731 savings associations, 103 have more than a $1
billion each in total assets and thus are covered by the proposed rule
(assuming they all have incentive-based compensation programs). Those
103 savings associations represent 85% of all thrift industry assets
($793 billion of the total $932 billion). To put this in context,
however, the latest available data on commercial banks (dated September
30, 2010) show 508 commercial banks with assets of $1 billion or more,
but with combined total assets of $11 trillion, more than eleven times
the amount of assets compared to OTS supervised savings associations of
$1 billion or more.
    With regard to savings and loan holding companies, as of December
31, 2010, OTS supervised 102 savings and loan holding companies.
Savings and loan holding companies are companies that own or control
one or more savings associations. Excluding 42 shell holding companies
that do not have incentive-based compensation programs, there are 60
savings and loan holding companies with aggregate consolidated assets
of $3.1 trillion dollars that are covered by the proposed rule
(assuming they all have incentive-based compensation programs).
Individually, these companies have consolidated assets ranging from $1
billion to over $750 billion, and vary in complexity as well as size.
They conduct a wide range of activities beyond those conducted by the
saving association(s) they control. These range from activities closely
related to banking, such as insurance and securities brokerage, to
activities conducted by large, multinational corporations, such as
retailing and manufacturing.
    Therefore, altogether, OTS's portion of the proposed rule would
affect a maximum of 163 OTS-supervised institutions (103 savings
associations and 60 savings and loan holding companies).
    OTS further notes that the Board, OCC, and FDIC will assume
supervisory and rulemaking responsibility for entities currently
supervised and regulated by OTS on the transfer date provided in Title
III of the Dodd-Frank Act. That date is expected to be July 21, 2011.
These agencies expect to adopt, or incorporate, as appropriate, any
final rule adopted by OTS as part of this rulemaking for relevant
covered financial institutions that come under their respective
supervisory authority after the transfer date.
Types of Impact of Proposed Rule
    OTS reviewed existing practices at a subset of these 163
institutions to determine how much the rule would add to the current
cost of administering incentive-based compensation programs. A covered
financial institution would have to:
    1. Submit an annual report to OTS describing the structure of its
incentive-based compensation program in sufficient detail for OTS to
determine whether the program provides excessive compensation or
compensation that could lead to material loss to the institution. The
annual report would have to include an analysis of the characteristics
of the incentive-based compensation program that prevent excessive
compensation and/or mitigate risk of material financial loss.
    2. Review and, if necessary, redesign its incentive-based
compensation system to ensure it has the elements necessary to
adequately manage the risks arising from incentive-based compensation.
The rule would contain a list of the minimum elements to be included in
the policies and procedures.

    3. Conduct ongoing monitoring and, as appropriate, auditing of the
incentive-based compensation program to ensure that it does, in fact,
allocate incentive-based compensation in a way that is not excessive
and does not encourage inappropriate risks.
    In estimating the implementation costs to covered financial
institutions, OTS assumed that costs would generally fall in four
areas:
    1. Initially reviewing incentive-based compensation programs to
determine whether program modifications are needed;
    2. Modifying incentive-based compensation programs, where needed;
    3. Ongoing monitoring of incentive-based compensation programs to
ensure continued compliance; and
    4. Preparing and submitting required annual reports on the programs
to OTS.
    Almost all of the covered financial institutions have incentive-
based compensation programs. Each covered financial institution,
therefore, would need to perform an initial review to determine whether
modifications would be needed. This initial review would also include
the analysis necessary to prepare the first report to OTS.
    Those institutions needing modifications would have to expend
further resources to design and implement compliant systems that fit
the institution's business strategy and internal structure. The
complexity and length of this process would vary depending on the size
of the institution, the scope of the institution's incentive-based
compensation program, and the extent of necessary modifications.
    The rule's burden would be minimized by granting covered financial
institutions the latitude to employ a variety of means to mitigate the
risks posed by their current incentive-based compensation programs.
While institutions would have to develop policies and procedures that
provide clear expectations, institutions could choose the incentive-
based compensation risk balancing measures that best address their
employees and their risks.\92\
---------------------------------------------------------------------------

    \92\ The Federal Banking Agency Guidance presents and discusses
these measures.
---------------------------------------------------------------------------

    OTS's provisional assessment is that most covered financial
institutions would have to make minimal changes to their systems
covering:
    1. Compensation to executives;
    2. The oversight exercised by the board and compensation committee;
    3. The scope of risk management; and
    4. The role of internal audit.
    Some of the key restrictions in the proposed rule are restrictions
that covered financial institutions are already observing. Section
563h.5(a) would provide that a covered financial institution must not
establish or maintain any type of incentive-based compensation
arrangement, or any feature of any such arrangement, that encourages
inappropriate risks by the covered financial institution by providing a
covered person with excessive compensation. Section 563h.5(b) would
provide that a covered financial institution must not establish or
maintain any type of incentive-based compensation arrangement, or any
feature of any such arrangement, that encourages inappropriate risks by
the covered financial institution, by providing incentive-based
compensation to covered persons, either individually or as part of a
group of persons who are subject to the same or similar incentive-based
compensation arrangements, that could lead to material financial loss
to the covered financial institution.
    OTS and the other Federal banking regulators have long required
depository institutions to conform their compensation practices to
principles of safety and soundness.\93\ Since 1995, OTS and the other
Federal banking regulators have specifically prohibited depository
institutions from paying compensation, fees, and benefits that are
excessive or that could lead to material financial loss to the
institutions.\94\ Since 1995, OTS and the other Federal banking
regulators have also specified that compensation that could lead to
material financial loss to an institution is prohibited as an unsafe
and unsound practice.\95\ The standards specified in Sec.  563h.5(a)(2)
for determining whether an incentive-based compensation arrangement
provides excessive compensation are taken directly from the existing
1995 guidelines.\96\
---------------------------------------------------------------------------

    \93\ See section 39(c) of FDIA, 12 U.S.C. 1831p-1(c).
    \94\ See 12 CFR part 570, App. A, paragraph II.I.
    \95\ See 12 CFR part 570, App. A, paragraph III.B.
    \96\ See 12 CFR part 570, App. A, paragraph III.A.
---------------------------------------------------------------------------

    Since June 25, 2010, OTS and the other Federal banking regulators
have maintained guidance designed to help ensure that incentive-based
compensation policies at banking organizations do not encourage
imprudent risk-taking and are consistent with the safety and soundness
of the organization, including guidance on methods such as deferral
that make compensation more sensitive to risk. The requirements
specified in Sec.  563h.5(b)(2) for avoiding incentive-based
compensation arrangements that could lead to material financial loss
are taken directly from the guidance.\97\ Most covered financial
institutions, therefore, already have the listed elements in place.
Further, a recent report of the Basel Committee on Banking Supervision
(BCBS) noted that most larger institutions already use management
accounting to map company performance to business units, and largely
employ risk-adjusted return to capital and other economic efficiency
measures to assess performance when making incentive-based compensation
allocation decisions.\98\
---------------------------------------------------------------------------

    \97\ 75 FR at 36405.
    \98\ BCBS Consultative paper: Range of Methodologies for Risk
and Performance Alignment of Remuneration, available at http://www.bis.org/publ/bcbs178.pdf.
---------------------------------------------------------------------------

    Even the reporting requirements of Sec.  563h.4 of the proposed
rule would not be completely new for many institutions. Publicly listed
institutions already disclose their incentive-based compensation
systems.\99\
---------------------------------------------------------------------------

    \99\ SEC regulation 17 CFR 229.402(a)(2) requires listed
companies to disclose all elements of the compensation provided to
``named executive officers'' and ``directors.''
---------------------------------------------------------------------------

    As a group, covered financial institutions are likely to make more
significant changes to incentive-based compensation programs for non-
executive employees and, to some degree, principal shareholders. While
institutions have in place most of the internal policies and procedures
necessary to run an incentive-based compensation program for these two
groups, modifications would likely be necessary to ensure full
compliance.
    Larger institutions, defined as having total consolidated assets of
$50 billion or more, would have to defer at least 50 percent of the
annual incentive-based compensation of executive officers for at least
three years. These institutions would also apply special review and
approval requirements for the incentive-based compensation arrangements
for material risk takers. Among OTS-supervised institutions, 13 holding
companies and 4 thrifts would be subject to this requirement. These 17
institutions would likely need to make changes to their compensation
programs, as it appears that none of them currently defers the required
percentage of incentive-based compensation for the required amount of
time.
    Finally, institutions have an ongoing requirement to prepare annual
reports and administer their incentive-based compensation program in
compliance with the rule. The administration of the program would
include calculating the amount of compensation subject to risk-based
adjustment (e.g., deferral),

calculating the performance metrics upon which incentive compensation
are based, ensuring that independent review of compensation awards is
conducted, and assessing the effectiveness of risk-based adjustments to
incentive-based compensation payouts. As previously mentioned,
institutions generally take these actions to comply with existing
safety and soundness regulations and guidance.
    To assist the public in understanding how OTS's proposed rule (12
CFR part 563h) compares with Federal Banking Agency Guidelines from
1995 (12 CFR part 570, App. A), and the Federal Banking Agency Guidance
from 2010 (75 FR 36395), OTS provides the following summary in bullet
form:
    1. Applicability
     Proposed Rule--Applies to those savings associations and
savings and loan holding companies that have total consolidated assets
of $1 billion or more and offer incentive-based compensation
arrangements to covered persons (Sec. Sec.  563h.2 and 563h.3).
     1995 Guidelines--Applies to all savings associations (]
I.i).
     2010 Guidance--Applies to all savings associations (p.
36405 n.2).
    2. Reports
     Proposed Rule--Requires annual reports to OTS describing
the structure of incentive-based compensation arrangements; sets
minimum standards for the reports. (Sec.  563h.4)
     1995 Guidelines--No comparable provision.
     2010 Guidance--No comparable provision.
    3. Excessive compensation
     Proposed Rule--Prohibits establishing or maintaining any
type of incentive-based compensation arrangement, or any feature of any
such arrangement, for covered persons that encourages inappropriate
risks by providing excessive compensation (Sec.  563h.5(a)(1)). Sets a
standard that an incentive-based compensation arrangement provides
excessive compensation when amounts paid are unreasonable or
disproportionate to the services performed, taking into consideration
seven factors listed in the proposed rule (Sec.  563h.5(a)(2)).
     1995 Guidelines--Prohibits excessive compensation as an
unsafe and unsound practice. Sets a standard that compensation is
excessive when amounts paid are unreasonable or disproportionate to the
services performed by taking into consideration seven factors listed in
the guidelines. Covers the same categories of persons and lists the
same seven factors as the proposed rule. (] III.A)
     2010 Guidance--No comparable provision.
    4. Material financial loss
    Generally; Requirements for all covered financial institutions
     Proposed Rule--Prohibits establishing or maintaining any
type of incentive-based compensation arrangement, or any feature of any
such arrangement, that encourages inappropriate risks by the covered
financial institution, by providing incentive-based compensation to
covered persons, either individually or as part of a group of persons
who are subject to the same or similar incentive-based compensation
arrangements, that could lead to material financial loss to the covered
financial institution (Sec.  563h.5(b)(1)). Specifies that an
incentive-based compensation arrangement established or maintained by a
covered financial institution for one or more covered persons must meet
three criteria listed in the proposed rule (Sec.  563h.5(b)(2)).
     1995 Guidelines--Prohibits compensation that could lead to
material financial loss as an unsafe and unsound practice (] III.B).
     2010 Guidance--Provides that incentive compensation
arrangements, to be consistent with safety and soundness, should meet
three criteria (p. 36405). The criteria listed are the same as in the
proposed rule.
    Specific requirements for covered financial institutions with $50
billion or more in total consolidated assets; Deferral required for
executive officers
     Proposed Rule--Specifies that at least 50% of the
incentive-based compensation for an executive officer at an institution
with total consolidated assets of $50 billion or more must be deferred
over a period of no less than three years, with the release of deferred
amounts to occur no faster than on a pro rata basis, and with the
adjustment of the deferred amount to reflect actual losses or other
measures or aspects of performance that are realized or become better
known during the deferral period (Sec.  563h.5(b)(3)(i)).
     1995 Guidelines--No comparable provision.
     2010 Guidance--No comparable provision.
    Specific requirements for covered financial institutions with $50
billion or more in total consolidated assets; additional requirement
for covered persons presenting particular loss exposure
     Proposed Rule--Contains special procedures and
restrictions on the incentive-based compensation of covered persons
(other than executive officers) who the institution's board identifies
as having the ability to expose the institution to possible losses that
are substantial in relation to the institution's size, capital, or
overall risk tolerance (Sec.  563h.5(b)(3)(ii)).
     1995 Guidelines--No comparable provision.
     2010 Guidance--No comparable provision.
    5. Policies and procedures
     Proposed Rule--Sets minimum standards for policies and
procedures on incentive compensation (Sec.  563h.6).
     1995 Guidelines--No comparable provision.
     2010 Guidance--No comparable provision. But see discussion
of other policy and procedure requirements (pp. 36403-05).
    6. Evasions
     Proposed Rule--Anti-evasion provision prohibits, doing
indirectly or through or by any other person, any act or thing that
would be unlawful to do directly (Sec.  563h.7).
     1995 Guidelines--No comparable provision.
     2010 Guidance--No comparable provision.
Assessment of Impact of Proposed Rule
    OTS believes that an institution would spend several hundred person
hours conducting an initial review of its incentive-based compensation
program and making any necessary modifications. All institutions of $1
billion in total consolidated assets or more would have to conduct the
review, and most institutions would have to make some modification to
their incentive-based compensation programs.
    OTS estimates that smaller institutions (those with less than $50
billion in assets) would spend, at most, eight weeks (320 person hours)
to perform the initial steps necessary to comply. Among the covered
financial institutions, 146 fall into this category. Using $150 as an
estimate of hourly cost,\100\ the total cost to the smaller
institutions as a group would be $7 million ($150 x 320 hours x 146
institutions). At larger institutions, these modifications would be
more extensive because of the number of individuals involved and the
amount the institution would have to expand and/or adjust risk
sensitivity measures. The larger institutions may require as much as
twice the time as smaller institutions to implement the rule, for an
estimated cost of $1.6 million ($150 x 640 hours x 17 institutions).
The total initial

implementation costs, therefore, should come to approximately $8.6
million.
---------------------------------------------------------------------------

    \100\ OTS estimates that legal and administrative expenses would
average, at most, $150 per hour.
---------------------------------------------------------------------------

    The subsequent ongoing costs associated with monitoring and
managing incentive-based compensation programs, once established, are
unlikely to be significantly greater than the costs associated with the
administration of current incentive-based programs. OTS, therefore,
believes that the ongoing annual costs of the rule would not exceed
$100 million. As previously discussed, institutions already have in
place most of the mechanisms necessary to implement the rule's
requirements. Once the institution makes adjustments indicated by its
initial analysis, these mechanisms would continue to function as they
do now.
    Any ongoing costs in addition to those already incurred would be
for:
    1. Production of an annual report;
    2. Administration of incentive-based compensation for a broader
range of employees;
    3. Administration of a more complex deferral scheme at some
institutions; and
    4. More sophisticated risk sensitivity mechanisms.
    With respect to item 1, OTS believes that the costs of the annual
report would be minimal. Reports after the first submitted would only
need to document significant changes to the incentive-based
compensation program. Human resource departments maintain descriptions
of their incentive-based compensation programs for internal
administrative purposes; these descriptions could serve as the basis
for regulatory reporting.
    With respect to items 2, 3, and 4, OTS anticipates that
institutions would use some additional human resources and risk
management expertise to administer the programs. For the 17 larger
institutions, OTS estimates that the cost of these additional resources
would be about $24,000 per institution annually. For the 146 smaller
institutions, the additional resources would entail additional
personnel and other expenses of less than $12,000 per institution per
year.\101\ Therefore, OTS estimates the annual cost to be about $2.2
million (17 larger institutions x $24,000 = $0.4 million; 146 smaller
institutions x $12,000 = $1.8 million).
---------------------------------------------------------------------------

    \101\ OTS estimates that for institutions with assets between $1
billion and $50 billion, the costs of managing the additional
elements of the program would entail some personnel and Information
Technology (IT) support. As institutions already have personnel
management software systems in place, either in house or contracted
out, the incremental costs of IT support would be negligible.
---------------------------------------------------------------------------

    In summary, OTS estimates the costs to the institutions of
implementing the rule as proposed as follow:
    First year: $8.6 million + $2.2 million = $10.8 million.
    Second and subsequent years: $2.2 million.
    Beyond the costs of implementation, OTS assumes that the broader
economic impact of the rule would be negligible. The overall level of
compensation, as set by the forces of supply and demand in the labor
market, is unlikely to change. Any variations in compensation levels
that may occur would be minimal and, given the small number of covered
financial institutions, have no effect on overall demand in the
economy.
    If the rule has its desired effect, institutions will take a more
measured approach in their assessment of risk and return. As a result,
the amount of lending in some excessively risky business areas may be
reduced, which in turn may have an economic impact on the areas served
by the 163 OTS-supervised covered financial institutions. Incentive-
based compensation programs that appropriately balance risk and reward
will entail reductions only of economic activity that is unsound and
which, ultimately, entails more cost than benefit to the economy as a
whole. Any reduction in inappropriately risky lending brought about by
the rule, therefore, would be a benefit of the rule.
    The recent crisis in financial markets demonstrated the significant
costs that can arise from financial instability; the purpose of the
rule is to enhance the financial stability of the financial sector by
diminishing incentives for inappropriate risk taking. Because the
benefits of financial stability are largely intangible, OTS made no
attempt to quantify them here.
Conclusion
    OTS's preliminary estimates of the annualized cost of this rule to
the 163 OTS-supervised covered financial institutions as a group would
be substantially less than $100 million. Moreover, the overall annual
economic impact would not be significant. OTS seeks comment on this
economic impact assessment.

D. OCC Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1532), requires the OCC to prepare a budgetary impact statement before
promulgating a rule that includes a Federal mandate that may result in
the expenditure by State, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year (adjusted annually for inflation). OCC has determined that this
proposed rule will not result in expenditures by State, local, and
tribal governments, or the private sector, of $100 million or more in
any one year. Accordingly, OCC has not prepared a budgetary impact
statement.

E. OTS Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (Unfunded Mandates Act) requires that an agency prepare a
budgetary impact statement before promulgating a rule that includes a
Federal mandate that may result in expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more (adjusted annually for inflation) in any one year. (The
inflation adjusted threshold for 2011 is $142 million or more.) If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule.
    OTS has determined that this proposed rule will not result in
expenditures by State, local, and tribal governments, or the private
sector, in excess of the threshold. Accordingly, OTS has not prepared a
budgetary impact statement.

F. NCUA Executive Order 13132 Determination

    Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, the NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5)
voluntarily complies with the Executive Order. The Proposed Rule
applies to credit unions with $1 billion in assets and over and would
not have substantial direct effects on the states, on the connection
between the national government and the states, or on the distribution
of power and responsibilities among the various levels of government.
The NCUA has determined that the Proposed Rule does not constitute a
policy that has federalism implications for purposes of the Executive
Order.

G. NCUA and FDIC: The Treasury and General Government Appropriations
Act, 1999--Assessment of Federal Regulations and Policies on Families

    The NCUA and FDIC have determined that this Proposed Rule would not
affect family well-being within the meaning of section 654 of the
Treasury and General Government Appropriations Act, 1999,

Public Law 105-277, 112 Stat. 2681 (1998).

H. SEC Economic Analysis

Economic Analysis
    As discussed above, 12 U.S.C. 5641 requires the Commission, jointly
with other appropriate Federal regulators, to prescribe regulations or
guidelines to require covered financial institutions to disclose
information about their incentive-based compensation arrangements
sufficient for the Agencies to determine whether their compensation
structure provides an executive officer, employee, director or
principal shareholder with excessive compensation, fees or benefits or
could lead to material financial loss to the firm.\102\ 12 U.S.C. 5641
also requires the Agencies to prescribe joint regulations or guidelines
that prohibit any type of incentive-based compensation arrangements
that the Agencies determine encourages inappropriate risks by covered
financial institutions by providing excessive compensation to officers,
employees, directors, or principal shareholders (``covered persons'')
or that could lead to material financial loss to the covered financial
institution.\103\
---------------------------------------------------------------------------

    \102\ 12 U.S.C. 5641(a).
    \103\ 12 U.S.C. 5641(b).
---------------------------------------------------------------------------

    The Agencies have determined that it is appropriate to propose
rules, instead of guidelines, as permitted under 12 U.S.C. 5641. The
Commission believes that broker-dealers and investment advisers would
benefit from the greater predictability afforded by rules. Such greater
predictability would facilitate broker-dealers' and investment
advisers' ability to design compliance policies and procedures. The
rule being proposed by the Agencies consists of a reporting section, a
prohibition section, and a policies and procedures section. The
reporting section requires enhanced reporting of incentive-based
compensation arrangements for covered persons by a covered financial
institution to such institution's appropriate Federal regulator. The
prohibition section forbids incentive-based compensation arrangements
that encourage covered persons to expose the institution to
inappropriate risks by providing the covered person excessive
compensation and prohibits incentive-based compensation arrangements
that encourage covered persons to expose the covered financial
institutions to inappropriate risks that could lead to a material
financial loss. The policies and procedures section requires that the
covered financial institutions maintain policies and procedures to
ensure compliance with these requirements and prohibitions. The
Commission is sensitive to the costs and benefits imposed on broker-
dealers registered with the Commission under section 15 of the
Securities Exchange Act (``registered broker-dealers'') and investment
advisers, as defined in section 202(a)(11) of the Investment Advisers
Act of 1940 (``investment advisers''). The discussion below focuses on
the costs and benefits applicable to registered broker-dealers and
investment advisers that meet the definition of ``covered financial
institution'' under the proposed rule (collectively ``covered BDs and
IAs''). The discussion addresses the decisions made jointly by the
Agencies to fulfill the mandates of the Dodd-Frank Act within the
Agencies' permitted discretion, rather than the costs and benefits of
the mandates of the Dodd-Frank-Act itself. However, to the extent that
the Commission's discretion is exercised to realize the benefits
intended by the Dodd-Frank Act or to impose the costs associated with
the Dodd-Frank Act, the two types of benefits and costs are not
entirely separable. Therefore, the Paperwork Reduction Act (``PRA'')
hourly burden estimates made in accordance with the requirements of the
PRA, and their corresponding dollar cost estimates, are included in the
calculations below.

A. Report of Incentive-Based Compensation Arrangements

    In order to fulfill the requirement imposed by 12 U.S.C. 5641(a)
relating to the disclosure of incentive-based compensation
arrangements, the proposal would require a covered financial
institution to submit a report annually to, and in the format directed
by, its regulator, that describes the structure of the covered
financial institution's incentive-based compensation arrangements for
covered persons. Similar to the policies and procedures requirements
under the proposed rule, the annual report would be commensurate with
the size and complexity of the organization, as well as the scope and
nature of its use of incentive-based compensation arrangements. As
such, institutions with no incentive-based compensation arrangements or
arrangements that affect only a few covered persons, would need to
submit only limited information. The report would be required to
contain:
     A clear narrative description of the components of the
covered financial institution's incentive-based compensation
arrangements applicable to covered persons, specifying the categories
of covered persons to which they apply;
     A succinct description of the covered financial
institution's policies and procedures governing its incentive-based
compensation arrangements;
     For covered financial institutions with total consolidated
assets of at least $50 billion, an additional succinct description of
incentive-based compensation policies and procedures specific to the
covered financial institution's executive officers and other covered
persons who the institution's board of directors (or a committee of the
board) has identified and determined have the ability to expose the
institution to possible losses that are substantial in relation to the
institution's size, capital, or overall risk tolerance;
     A description of any material changes to the covered
financial institution's incentive-based compensation arrangements and
policies and procedures made since the covered financial institution's
last report submitted this section; and
     The specific reasons the covered financial institution
believes the structure of its incentive-based compensation arrangements
does not provide covered persons incentives to engage in behavior that
is likely to cause the covered financial institution to suffer a
material financial loss and does not provide covered persons with
excessive compensation.
1. Benefits
    The Commission believes that the information that would be required
to be reported to the Commission under proposed Sec.  248.205 would
assist Commission examiners to determine whether covered BDs and IAs
are fulfilling the requirements of section 956 of the Dodd-Frank Act.
The report is designed to elicit pointed, succinct explanations about
issues that would likely be of high interest to an examiner, such as a
clear narrative description of the firm's incentive-based compensation
plan, a succinct description of the firm's incentive-based compensation
policies and procedures and any changes thereto, and reasons that the
compensation structure will not encourage behavior that violates the
principles of 12 U.S.C. 5641. The Commission anticipates that examiners
would find these descriptions a useful starting point in an examination
to make a risk-assessment as to which areas of a firm's incentive-based
compensation arrangements merit further examination. Persons within
covered BDs and IAs responsible for determining compensation levels, as
well as persons receiving incentive-based compensation

would be able to review the incentive-based compensation policies,
which should promote the balance of the incentive-based compensation
process at covered BDs and IAs. The Commission also believes that the
reporting of incentive-based compensation information would foster a
climate of accountability at covered BDs and IAs by raising the profile
of incentive-based compensation at firms, and thereby improving the
care with which the firms design their incentive-based compensation
programs. By including persons who individually have the ability to
expose a firm with total consolidated assets of at least $50 billion to
possible losses that are substantial in relation to the firm's size,
capital, or overall risk tolerance as persons whose compensation should
be subject to the requirements of the statute (designated risk takers),
the proposed rule should encourage executives to consider more
carefully those compensation arrangements that could potentially lead
to activities that could expose the covered institution to significant
risks. Properly incentivizing designated risk takers could limit the
risk exposure of covered financial institutions.
    The reporting provisions of the proposed rule are designed to
elicit qualitative statements from the covered financial institution,
including covered BDs and IAs, regarding, among other things, the
specific reasons the covered financial institution believes the
structure of its incentive-based compensation plan does not provide
covered persons incentives to engage in behavior that is likely to
cause the covered financial institution to suffer a material financial
loss and does not provide covered persons with excessive compensation.
The proposed rule is designed to elicit a meaningful discussion of the
firm's incentive-based compensation arrangements. In all cases, covered
BDs and IAs should report to the Commission the comprehensive
descriptions relating to each of the required disclosures described
below.
2. Costs
    The Commission is aware that requiring companies to file reports on
the structure of their incentive-based compensation arrangements could
impose costs on covered financial institutions. For example, by
requiring covered financial institutions to report the information in
the proposed rule, it is possible that this could serve as a
disincentive for covered financial institutions to re-visit or
otherwise revise their incentive-based compensation plans, because
doing so would create additional regulatory burdens for the covered
financial institution. Further, while the Commission intends to keep
the reported information confidential to the full extent it is
permitted to do so under the Freedom of Information Act (``FOIA''), the
Commission understands that firms may nonetheless have concerns about
potential disclosure of information that could be competitively
sensitive, as incentive-based compensation plans and arrangements are.
The Commission believes that not including information regarding the
individual compensation levels of covered persons may mitigate some
confidentiality concerns. Accordingly, the Commission is aware of these
potential costs and seeks comment on them generally, as well as on any
specific methods that could be used to minimize these costs and
concerns.
    The Commission is also aware that the proposed rule would generate
compliance-related costs associated with, among other things,
collecting the necessary information and preparing the reports, as well
as hiring outside professionals, such as attorneys, compensation or
benefits consultants, accountants and/or actuaries. In the charts
below, the Commission estimates the internal and external costs
associated with the proposed reporting requirements. In order to arrive
at the internal cost estimates, the Commission multiplied the hourly
burden estimates provided in the PRA Section by the estimated hourly
rate for a securities attorney.\104\ The Commission is using the same
external cost estimates for the reporting requirement that it used in
the PRA Section of this proposed rule. The Commission seeks comment on
all these cost estimates.
---------------------------------------------------------------------------

    \104\ The Commission estimates $354 per hour for a securities
attorney, based on SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by Commission staff to account
for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.

                                                                     Internal Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Covered bank  BDs and IAs     Covered bank  BDs and IAs   Covered non-bank BDs and IAs  Covered non-bank BDs and IAs
                                            ($50B +)                     ($1B-$50B)                      ($50B +)                     ($1B-$50B)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Reporting...............  $900,000 \105\..............  $3 million \106\............  $175,000 \107\..............  $3 million.\108\
Ongoing Reporting...............  900,000 \109\...............  3 million \110\.............  175,000 \111\...............  3 million.\112\
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                     External Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Covered bank  BDs and IAs     Covered bank  BDs and IAs   Covered non-bank BDs and IAs  Covered non-bank BDs and IAs
                                            ($50B +)                     ($1B-$50B)                      ($50B +)                     ($1B-$50B)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Reporting...............  $1 million \113\............  $3.4 million \114\..........  $200,000 \115\..............  $3.4 million.\116\
Ongoing Reporting...............  1 million \117\.............  3.4 million \118\...........  200,000 \119\...............  3.4 million.\120\
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. Prohibition on Certain Incentive-Based Compensation Arrangements
---------------------------------------------------------------------------

    \105\ 2,500 hours x $354/hour = $885,000.
    \106\ 8,500 hours x $354/hour = $3,009,000.
    \107\ 500 hours x $354 = $177,000.
    \108\ 8,500 hours x $354/hour = $3,009,000.
    \109\ 2,500 hours x $354/hour = $885,000.
    \110\ 8,500 hours x $354/hour = $3,009,000.
    \111\ 500 hours x $354 = $177,000.
    \112\ 8,500 hours x $354/hour = $3,009,000.
    \113\ 2,500 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $987,500.
    \114\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \115\ 500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $197,500.
    \116\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \117\ 2,500 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $987,500.
    \118\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $3,357,500.
    \119\ 500 hours x [(25% x $400/hour) + (25% x $600/hour) + (25%
x $330/hour) + (25% x $250/hour)] = $197,500.
    \120\ 8,500 hours x [(25% x $400/hour) + (25% x $600/hour) +
(25% x $330/hour) + (25% x $250/hour)] = $3,357,500.
---------------------------------------------------------------------------

    The proposed rule states that a covered financial institution may
not establish or maintain any incentive-based compensation arrangement,
or any feature of any such arrangement, that encourages a covered
person to expose the institution to inappropriate risks by providing
that person with excessive compensation. Under the proposed rule,
compensation would be considered excessive when amounts paid are
unreasonable or disproportionate to the services performed by a covered
person. In determining whether incentive-based compensation is
unreasonable or disproportionate to the services performed, the covered
BDs and IAs would consider those factors set forth in the section 39(c)
of the FDIA.\121\
---------------------------------------------------------------------------

    \121\ Under Section 248.205(a)(2) of the proposed rule, an
incentive-based compensation arrangement provides excessive
compensation when amounts paid are unreasonable or disproportionate
to the services performed by a covered person, taking into
consideration:
    (i) The combined value of all cash and non-cash benefits
provided to the covered person;
    (ii) The compensation history of the covered person and other
individuals with comparable expertise at the covered financial
institution;
    (iii) The financial condition of the covered financial
institution;
    (iv) Comparable compensation practices at comparable
institutions, based upon such factors as asset size, geographic
location, and the complexity of the institution's operations and
assets;
    (v) For postemployment benefits, the projected total cost and
benefit to the covered financial institution;
    (vi) Any connection between the individual and any fraudulent
act or omission, breach of trust or fiduciary duty, or insider abuse
with regard to the covered financial institution; and
    (vii) Any other factors the Commission determines to be
relevant.
    \122\ See Guidance on Sound Incentive Compensation Policies, 75
FR 36395 (June 25, 2010) (jointly adopted by the OCC, the FRB, the
FDIC and OTS).
---------------------------------------------------------------------------

    To address the prohibition against arrangements that potentially
encourage inappropriate risks that could lead to a material financial
loss at the covered financial institution, the Agencies propose to deem
incentive-based compensation arrangements for all covered persons to
encourage inappropriate risks that could lead to material financial
loss at the institution unless the arrangement or feature: (i) Balances
risk and financial results, for example, by using deferral of payments,
risk adjustment of awards, longer performance periods, or reduced
sensitivity to short-term performance; (ii) is compatible with
effective controls and risk management; and (iii) is supported by
strong oversight by a covered BD's or IA's board of directors. These
principles are substantially identical to the principles published in
the Guidance.\122\
    The proposed rule would require additional measures for certain
covered persons working for covered financial institutions with total
consolidated assets of $50 billion or more. For executive officers and
heads of major business lines of such firms, at least 50% of their
incentive-based compensation would be required to be deferred on a pro-
rata basis over a period of at least three years. Such executive
officers' and business line heads' deferred incentive-based
compensation would be required to be adjusted downward to reflect
actual losses or other measures or aspects of performance that are
realized or become better known during the deferral period (the ``look-
back'').
    The Agencies also propose for a covered financial institution with
$50 billion or more in assets that for certain classes of covered
person whose activities, by their nature, expose the covered financial
institution to a risk of significant loss (designated risk takers),
that such firm's board of directors, or a committee thereof, perform
individual review of each such person's incentive-based compensation
against certain factors and that each such person's incentive-based
compensation be approved by the board of directors, or committee
thereof.
1. Benefits
    The Commission believes that the proposed prohibitions related to
the incentive-based compensation arrangements would help ensure that
covered financial institutions avoid incentive-based compensation
arrangements that would threaten the safety and soundness of the
covered financial institution or otherwise have serious adverse effects
on economic conditions or financial stability of covered BDs and IAs.
In order to address the adverse effects that incentive-based
compensation arrangements may have on covered financial institutions'
financial condition, the proposed rules would mandate the application
of the principles described in the Guidance (provide incentives that
appropriately balance risk and reward, compatibility with effective
controls and risk-management, and the support of strong corporate
governance) to all covered financial institutions, including covered
BDs and IAs. The Commission believes that applying these principles to
covered BDs and IAs should promote sound incentive-based compensation
practices and discourage incentive-based compensation arrangements that
contributed to the recent financial crisis.
    The proposed elements defining when an incentive-based compensation
arrangement provides excessive compensation or could result in a
material financial loss would benefit covered financial institutions by
identifying specific factors to determine whether certain arrangements
are prohibited. Abiding by the standards reflected in section 39(c) of
the FDIA

and the principles described in the Guidance, which already apply to
banking institutions, should help to promote the safety and soundness
of the covered BD or IA and by extension protect investors and promote
the public interest. The proposed rule also should give firms the
discretion to reward the most productive employees because the
definition of ``excessive compensation'' should be sufficiently broad
so as to permit covered financial institutions the flexibility to
reward productive employees.
    Moreover, by not prescribing mandatory deferral for covered BDs and
IAs with assets under $50 billion, but rather by requiring non-specific
standards for these arrangements (i.e., that they balance risk and
return, are compatible with effective controls and risk management,
etc.), the proposed rule would provide smaller covered BDs and IAs with
significant flexibility to tailor their compensation packages to their
covered persons. The proposed rule would permit covered BDs and IAs
with assets below $50 billion to determine their respective incentive-
based compensation arrangements within the parameters of meeting
certain goals (i.e., that the payments balance risk and return, are
compatible with effective risk controls and risk management) set forth
in the proposed rule.
    The Commission believes that the proposed rule should curb
excessive risk taking, which should lead to more effective capital
allocation. The rule should discourage compensation incentives that
encouraged capital flow into investments that were unprofitable on the
whole. Hereafter, the flow of capital into less risky investments
should result in capital being put to more effective use. More
efficient capital allocation, in turn, should improve the quality of
the firms' financial services and products, as firms employ capital to
its most productive use. Since higher quality service and products are
ordinarily associated with increased competition, it is possible that
competition among covered BDs and IAs would be more robust.
    By requiring that the incentive-based compensation arrangements of
covered BDs and IAs with more than $50 billion in total assets defer at
least 50% of the compensation of covered executives and chiefs of major
business lines for at least three years, and requiring firms to adjust
any amount deferred to reflect actual losses or other measures of
performance that are realized or become better known only during the
deferral period, the proposed rule should help align the interests of
those covered persons with the greatest ability to influence the risk
profile of the covered financial institution with the interests of the
covered financial institution. The deferral requirement for executive
officers and chiefs of major business lines at the largest covered
financial institutions reflects the previously acknowledged benefit for
deferral of certain high-level employees whose activities present
broad, and potentially lengthy, risk exposure to an institution, and
whose activities do not lend themselves as easily to risk
quantification and assessment through ex ante or other predictive risk
adjustment measures. Requiring deferral for this discrete group of
individuals at particularly large institutions, where up-front or ex
ante risk adjustment measures are less likely to be effective, is a
useful risk adjustment tool. It permits time for risks not previously
discerned or quantifiable to ultimately materialize and permits
adjustment of unreleased deferral payments on the basis of observed
consequences as opposed to mere predicted results. The Commission
believes that the heightened standards for the largest covered BDs and
IAs is particularly appropriate because decisions made at the largest
covered BDs and IAs can greatly impact the fair and orderly operation
of the financial markets. These deferral restrictions should weaken the
incentive for executive officers and chiefs of major business lines to
make decisions that create short term gain at the expense of increased
long term risk. The Commission also expects that by example, an express
deferral requirement for executive officers and heads of major business
lines would have a broader beneficial impact on the structure of
compensation used throughout a company.\123\ The required look-back
mechanism included in the proposed rule is a means by which the covered
financial institution may reduce previously awarded compensation over
the deferred period of time. Thus, the required look-back adds to the
power of deferring compensation in that previously awarded compensation
may actually not be awarded if the firm finds that such compensation
does not reflect actual losses or other measures better realized during
the deferral period.
---------------------------------------------------------------------------

    \123\ Certain recent studies provide empirical evidence
consistent with deferred compensation helping reduce the probability
of corporate default. See e.g. Wei and Yermack (2010). In one study,
the authors conclude that bank CEOs with large amounts of inside
debt in the form of pensions and deferred compensation exposed their
firms to less risk and obtained greater performance during the
recent financial crisis. (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1519252).
---------------------------------------------------------------------------

    As with the deferral requirement and the look-back mechanism, the
Commission preliminarily believes that these provisions of the proposed
rule relating to designated risk takers would help to strengthen board
oversight of covered persons' incentive-based compensation. The
Commission believes that promoting strong corporate governance
oversight of a covered BD's or IA's incentive-based compensation
arrangements would promote sound practices and foster a high quality
process regarding incentive-based compensation decisions at a covered
financial institution. Moreover, the additional oversight of designated
risk takers' incentive-based compensation should help to provide proper
incentives to these persons and thus limit the risk exposure of covered
BDs and IAs. In addition, requiring the board of directors, or a
committee of the board, to identify designated risk takers other than
executive officers and to approve their incentive-based compensation
should help to improve the board's understanding of the risk profile of
certain firm activities or divisions that have the ability to expose
the institution to possible substantial losses. It would also encourage
the board to spend more time considering the compensation arrangements
of important employees who are not executives but who have the ability
to materially impact the risk profile of the firm. The proposed rule
also provides covered financial institutions the flexibility to
determine who the relevant potential excessive risk takers are.
2. Costs
a. All Covered BDs and IAs
    The Commission also anticipates that the proposed rule may entail
certain costs. For example, in a case where a firm elects to defer an
excessive portion of covered persons' compensation, such deferral may
reduce effort expended by covered persons and the willingness of
covered persons to take even measured risks. The Commission understands
that it is necessary for covered financial institutions to take a
certain amount of risk in order to operate their businesses.
Accordingly, the Commission desires to carefully balance the need for
covered financial institutions to take risk against the possibility
that if the wrong regulatory balance is struck, covered persons may
have the incentive to actually take less risk than is optimal in order
to ensure that, on a personal level, the covered employee has
sufficient cash flow. In the event that employees

are induced to take less than optimal risk, then there might be a
negative effect on the efficiency of capital allocation. The Commission
preliminarily believes that the proposed rule strikes an appropriate
balance in this regard but requests comment generally on this issue.
    Based on its experience in the area, staff conversations with
covered BDs and filings by publicly-traded covered BDs, IAs and certain
parent companies, the Commission believes that the elements of the
prohibition applicable to all covered BDs and IAs related to excessive
compensation and material financial loss to the firms already generally
represent the practices of many covered BDs and IAs. Therefore, the
Commission believes that covered BDs and IAs generally already consider
factors consistent with those referenced in section 39(c) of the FDIA
and the principles in the Guidance in designing and administering their
incentive-based compensation programs. Nonetheless, the Commission
recognizes that some covered BDs and IAs may not conform to incentive-
based compensation standards consistent with section 39(c) of the FDIA
and the principles in the Guidance.
    In addition, the Commission acknowledges the possibility that the
proposed rules may reduce the incentive for certain covered persons to
switch jobs because would-be new employers that are covered financial
institutions would be bound to offer such covered persons compensation
packages that comply with the proposed rules. If a lack of turnover
results, it might adversely impact competitiveness among firms, but it
may also promote institutional stability within firms. The Commission
believes the proposed rule strikes an appropriate balance in this
regard, but requests comment generally on this issue.
    The Commission seeks comment on whether the proposed prohibitions
applicable to covered BDs and IAs (which include only those broker-
dealers and investment advisers with assets of more than $1 billion)
may disadvantage covered financial institutions as compared to
financial institutions not covered under the proposed rules because
covered financial institutions would be required to assume costs in
designing, implementing, monitoring and maintaining a regulatory
program reasonably designed to address the requirements of the proposed
rules, whereas broker-dealers and investment advisers with total
consolidated assets less than $1 billion would not be subject to such
costs. The Commission also seeks comment on whether it is possible that
covered BDs and IAs would have more difficulty recruiting qualified
individuals to work for their firms if such individuals fear that added
scrutiny of their incentive-based compensation may lead to lower
aggregate pay.
b. Covered BDs and IAs With Assets of $50 Billion or More
    In addition to the costs imposed upon all covered BDs and IAs,
described above, the proposed rule would impose additional costs on
firms with assets of $50 billion or more. The Commission anticipates
that it is possible that covered BDs and IAs with assets of $50 billion
or more may have to pay more in base salary to compensate their
executive officers and heads of a major business line for the
uncertainty associated with the ultimate receipt of deferred
compensation. However, it is also possible that increases in salaries
would be offset by decreases in deferred incentive-based compensation.
The Commission requests comment on whether covered BDs and IAs should
expect to incur the cost of increased salaries that may result from the
implementation of required deferred compensation and look-back policies
for certain covered persons.
    As stated above, the Commission also recognizes that the firms with
assets of at least $50 billion may have more difficulty recruiting
individuals for those positions than a firm not subject to the deferral
requirement. In addition, such firms may have difficulty recruiting
individuals who object to having their compensation specifically
approved and monitored by the covered BD's or IA's board of directors
or committee thereof. To the extent that this adversely affects the
quality of employees that firms of that size are able to attract, it
may negatively affect the business of larger covered financial
institutions.
    To the extent that the proposal relies on an assumption that a
covered person understands the risks inherent in a particular business
decision but chooses to disregard them because the covered person would
not bear the costs associated with those risks being realized, the
proposal may not be effective at promoting a more accurate or realistic
assessment of a business decision as to which neither the executive
officer nor the covered financial institution grasps the inherent risk.
To the extent, however, that the proposal relies on an assumption that
covered persons do not always fully understand the risks inherent in
particular business decisions and have had inadequate incentives to
ensure that they comprehend these risks, the proposal would be more
effective. It is not clear what, if any, other regulatory steps could
be taken to promote a better comprehension of risk, and mandatory
deferral as provided in the proposed rule would at least provide some
required measure of risk adjustment in cases where such risks are
understood by executive officers at large covered financial
institutions. If, however, the risks that covered persons take are very
long term (i.e., beyond 5 years), the proposed compensation deferral
might not prove to be effective at deferring covered persons' taking on
inappropriate risk for the firm.
    As stated above, the Commission also believes there would be
compliance-related costs associated with the proposed rule. Based upon
experience of the Commission staff, the Commission understands that
although mandatory deferral of a significant percentage of firms'
incentive-based compensation to executive officers and chiefs of major
business lines is the existing practice among many covered BDs and IAs,
it would represent a new practice for some firms. Even for firms with
existing deferral practices, there would be costs to conform their
deferral practices to the requirements of proposed Sec.  248.205(b)(3).
For example, based on staff's discussions with the industry, its review
of information in public filings, and its experience in the area, the
Commission believes that the practice of adjusting deferred amounts of
compensation to reflect actual losses or other measures that are
realized or become known during the deferral period (administering a
look-back) exists in comparatively fewer firms than does the practice
of deferral itself. The Commission also believes that many firms may
provide deferral or vesting periods of less than the three years under
the proposed rule. The Commission believes, based upon its experience
and the filings submitted by publicly-traded covered BDs, IAs and
certain public companies, that some, but not all boards or board
committees of covered BDs and IAs with assets of at least $50 billion
already have a role in approving the compensation for highly-paid
individuals, including most people that would be defined as designated
risk takers under the proposed rule. Accordingly, the Commission
anticipates that covered BDs and IAs would experience costs in
implementing the deferral, look-back and designated risk takers
components of the requirements for firms with assets of $50 billion or
more.

    The requirement under proposed Sec.  248.205(b)(3)(ii)(B) to
require the board of directors (or committee of the board) of covered
financial institutions that have total consolidated assets of $50
billion or more to approve and document the identification of those
covered persons that individually have the ability to expose the
institution to possible losses that are substantial in relation to the
institution's size, capital, or overall risk tolerance would create new
burden for such larger covered financial institutions. Based on staff
experience and conversations with larger covered BDs and the filings
submitted by publicly-traded covered IAs and certain parent companies,
the Commission does not believe that the boards of larger covered BDs
and IAs generally identify and approve the compensation of such
designated risk takers.
    The Commission believes that the most significant ongoing cost that
covered BDs and IAs would assume to comply with proposed Sec.
248.205(b)(3)(ii)(B) is the cost of having appropriate senior personnel
administer the deferred compensation, look-back and designated risk
takers provisions. As with all matters related to incentive-based
compensation, covered BDs and IAs would be required to administer their
incentive-based compensation arrangements in a manner that is
compatible with effective controls and risk management and is supported
by strong corporate governance, including active and effective
oversight by the covered financial institution's board of directors.
The Commission anticipates that firms would use an appropriate mix of
senior risk management personnel along with the firms' board of
directors, or committee thereof, to administer the identification of
designated risk takers and approval of their compensation, as required
under the proposed rule.
    Larger covered financial institutions with total consolidated
assets of at least $50 billion may experience a disadvantage relative
to smaller financial institutions on account of the proposed required
deferral for executive officers and board-level review of the
incentive-based compensation of designated risk takers. In addition to
the added costs that such larger financial institutions would incur to
implement the deferral and board-level review of designated risk
takers' compensation, the Commission believes that some executive
officers may have disincentives from working for a covered financial
institution whereby their compensation would be required to be deferred
or in firms where their incentive-based compensation is subject to
board-level scrutiny.
    In order to help the Commission better understand all the costs
associated with this aspect of the proposed rule, the Commission
requests comment on them generally. The Commission is also soliciting
comment on the following specific issues:
     Do commenters believe that requiring a minimum deferral
period of three years for at least 50% of the compensation for
executive officers and chiefs of major business lines at large covered
financial institutions would place such financial institutions at an
unjustified disadvantage in the hiring of and retaining qualified
personnel as compared to smaller covered financial institutions? If
commenters believe that this is the case, what would commenters do to
modify the proposed rule while reasonably ensuring that there is useful
and meaningful risk adjustment of incentive-based compensation for
executives at large covered financial institutions? Do commenters
believe that requiring a different minimum deferral period or minimum
deferred percentage would promote better incentive-based compensation
practices? Should the required minimum deferral provisions be extended
to smaller covered financial institutions?
     Do commenters believe that there is a substantial risk
that covered financial institutions would reconfigure their operations,
structure, or assets in such a manner so as to circumvent being
classified as a large covered financial institution?
     Do commenters believe that mandating deferral as a risk
adjustment tool for executive officers at large covered financial
institutions would inhibit the development of other potentially more
effective risk adjustment tools? Are there other risk adjustment tools
that are more effective than deferral, and why are those tools more
effective?

C. Required Policies and Procedures and Documentation of the
Compensation of Certain Covered Persons

    The proposal would require covered financial institutions to adopt
policies and procedures reasonably designed to ensure and monitor
compliance with 12 U.S.C. 5641 commensurate with the size and
complexity of the organization and the scope and nature of its use of
incentive-based compensation. As described in further detail above, the
proposed rule would require that the policies and procedures, at a
minimum, be consistent with the disclosure requirements and
prohibitions in other parts of the proposed rule, ensure that risk
management or oversight personnel have a role in designing and
assessing incentive-based compensation arrangements, provide for
independent monitoring of the incentive-based compensation awards,
risks taken and actual outcomes, require that a covered financial
institution's board receive data and an analysis to enable the board to
assess whether the incentive-based compensation arrangements are
consistent with 12 U.S.C. 5641, and require sufficient documentation of
the covered financial institution's incentive-based compensation
arrangements to enable the Commission to determine the covered BDs' or
IAs' compliance with 12 U.S.C. 5641. In addition, the proposal would
require that the covered BDs' and IAs' policies and procedures include
certain features for when a firm uses deferral in connection with an
incentive-based compensation arrangement, and that the policies and
procedures subject incentive-based compensation arrangements to an
appropriate corporate governance framework.
    In addition, for covered BDs and IAs with assets of at least $50
billion, proposed Sec.  248.205(b)(3)(ii)(B) would require a firm's
board of directors, or a committee thereof, to identify those covered
persons (other than executive officers) that individually have the
ability to expose the institution to possible losses that are
substantial in relation to the institution's size, capital, or overall
risk tolerance. These covered persons may include, for example, traders
with large position limits relative to the institution's overall risk
tolerance and other individuals that have the authority to place at
risk a substantial part of the capital of the covered financial
institution. The Agencies propose that the compensation decisions
applicable to such persons must be approved by the firm's board of
directors or a committee of the board and that the covered BD or IA
document the compensation decisions made by the board or its committee.
1. Benefits
    The Commission believes that requiring covered financial
institutions to adopt and enforce the policies and procedures described
above would foster the Agencies' understanding of the covered financial
institutions' incentive-based compensation practices and would promote
compliance and accountability regarding the practices that the Agencies
propose to prohibit. The rule is designed to ensure that covered BDs
and IAs establish adequate

procedures and controls to ensure compliance with 12 U.S.C 5641. The
Commission preliminarily believes that the policies and procedures
section of the proposed rule would help to ensure that boards receive
data to monitor incentive-based compensation arrangements. Further, the
Commission believes that, at a minimum, the proposed rule should help
to ensure that incentive-based compensation arrangements would be
designed with more careful consideration of its effects on risk. The
Commission also believes that the proposed rule would provide greater
board of director and risk management/risk oversight personnel
supervision of incentive-based compensation arrangements and practices
at the covered financial institution because boards would receive data
and analysis from management to support a finding that the incentive-
based compensation arrangements are consistent with 12 U.S.C. 5641.
Moreover, risk-management/risk-oversight personnel would help to design
and assess the effectiveness of the covered BD's or IA's incentive-
based compensation arrangement. The Commission believes that these
provisions of the proposed rule would help to strengthen the
supervision of covered persons' incentive-based compensation
arrangements by the board of directors. The proposed rule would help
increase the importance of the compensation-setting function at covered
financial institutions, including covered BDs and IAs. The Commission
preliminarily believes that this increased internal importance would
result in a higher quality process regarding incentive-based
compensation decisions at a covered financial institution. For example,
the proposed rule would help to ensure that information is received by
the relevant decision makers and other persons acting in an internal
supervisory role within the covered financial institution. This
development should strengthen the supervision of the board with respect
to incentive-based compensation arrangements.
    The recordkeeping requirement in proposed in Sec.  248.206(b)(5)
should ensure that Commission staff members are able to properly
examine covered BDs' and IAs' incentive-based compensation practices in
the context of an examination. The proposal also would require that a
covered BD or IA have policies and procedures that provide that
compensation payments are reduced to reflect adverse risk outcomes or
high levels of risk taken. This should help ensure that the
compensation contracts are accurately followed and diminish the adverse
effect of deferred compensation that proves to be unwarranted once the
risks associated with the covered person's activities are realized over
time.
2. Costs
    As described more fully in the PRA Section, the Commission believes
that covered individual bank BDs and IAs would be subject to
significantly less initial and ongoing costs than non-bank BDs and IAs
because bank BDs and IAs are already subject to the Guidance. The
Commission is also aware that the proposed rule would generate
compliance-related costs associated with, among other things,
collecting the necessary information and preparing the reports, as well
as hiring outside professionals, such as attorneys, compensation or
benefits consultants, accountants and/or actuaries. In the chart below,
the Commission estimates the internal costs associated with the
proposed recordkeeping requirements. In order to arrive at these
internal cost estimates, the Commission multiplied the hourly burden
estimates provided in the PRA Section by the estimated hourly rate for
a securities attorney.\124\ The Commission is using the same external
cost estimates for the recordkeeping requirement that it used in the
PRA Section of this proposed rule. The Commission seeks comment on all
these cost estimates.
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    \124\ The Commission estimates $354 per hour for a securities
attorney, based on SIFMA's Management & Professional Earnings in the
Securities Industry 2010, modified by Commission staff to account
for an 1800-hour work-year and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead.

                                                            Total Internal Recordkeeping Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Covered bank  BDs and IAs     Covered bank  BDs and IAs   Covered non-bank BDs and IAs  Covered non-bank BDs and IAs
                                            ($50B +)                     ($1B-$50B)                      ($50B +)                     ($1B-$50B)
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Initial Recordkeeping...........  $900,000 \125\..............  $1.2 million \126\..........  $1.1 million \127\..........  $16 million.\128\
Ongoing Recordkeeping...........  $400,000 \129\..............  $400,000 \130\..............  $150,000 \131\..............  $1.5 million.\132\
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                                                            Total External Recordkeeping Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Covered bank  BDs and IAs     Covered bank  BDs and IAs   Covered non-bank BDs and IAs  Covered non-bank BDs and IAs
                                            ($50B +)                     ($1B-$50B)                      ($50B +)                     ($1B-$50B)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Recordkeeping...........  $1 million \133\............  $1.3 million \134\..........  $1.2 million \135\..........  $18 million.\136\
Ongoing Recordkeeping...........  $400,000 \137\..............  $400,000 \138\..............  $250,000 \139\..............  $1.7 million.\140\
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Solicitation of Comment
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