Writing Sample by Anthony Maddaluno

A Short Analysis on the Enforceability of 17 C.F.R. §240.15a-6
By
Anthony Maddaluno

TABLE OF CONTENTS
INTRODUCTION.………………………………………………………………………..3
ANALYSIS OF THE ENFORCEABILITY OF RULE 15a-6……………………………4
A. The SEC used quantified estimates to support its conclusions about the costs that
chaperoning broker-dealers would incur complying with Rule 15a-6………………….....4
B. The SEC used quantified estimates about the aggregate costs of compliance with Rule
15a-6 to support its conclusions about Rule 15a-6’s effect on the market in terms
promoting efficiency, competition and capital formation ……………………………….11
C. The SEC failed to produce quantified estimates to support its conclusions that
chaperoning broker-dealers would receive several benefits under Rule 15a-6……….....14
D. The SEC drew internally inconsistent conclusions about the costs and benefits that
Rule 15a-6 imposes on chaperoning broker-dealers……………………………………..17
E. The SEC acted arbitrarily and capriciously because it failed to adequately address the
problems raised in comments that could impose additional costs on chaperoning broker-
dealers …………………………….…………………………………………..................21
CONCLUSION…………………………………………………………………………..25
2

INTRODUCTION
In 1989, the Securities Exchange Commission (“Commission” or the “SEC”)
found that U.S. investors, including large institutional investors, were increasingly
trading foreign securities on foreign securities markets through U.S. registered broker-
dealer intermediaries (“chaperoning broker-dealers” or “registered broker-dealers”).1
In response to these trends, the SEC enacted Rule 15a-6 which requires chaperoning
broker-dealers to provide U.S. investors trading in foreign securities the same protections
that U.S. investors have when trading in domestic securities.2
This paper advances the
position that Rule 15a-6 is unenforceable because the SEC failed to fulfill its statutory
obligation under 15 USC, §78c(f), 78(w)(a) and 80a-2(c).
Under 15 USC, §78c(f), 78(w)(a) and 80a-2(c), the SEC is required to consider
how the costs and benefits (“economic consequences”) effectuated by Rule 15a-6 relates
to promoting efficiency, competition and capital formation in the market.3
The analysis
section of this paper will demonstrate that the SEC failed to satisfy this statutory
obligation for the following reasons. First, the SEC’s conclusions about the benefits that
chaperoning broker-dealers would receive under the amended Rule 15a-6, were not based
on quantified estimates. Second, the SEC’s conclusions are internally inconsistent. Third,
the SEC’s conclusions are inconsistent with the conclusions of members of the industry
that were submitted in comments to the SEC.
1
Registration Requirements for Foreign Broker-Dealers, 54 Fed. Reg. 30013, 30014
(July 18, 1989) (to be codified at 17 C.F.R. pt. 240).
2
Registration Requirements for Foreign Broker-Dealers, 54 Fed. Reg. at 30014.
3
15 USC,” §78c(f), 78(w)(a), 80a-2(c).
3

ANALYSIS OF THE ENFORCEABILITY OF RULE 15a-6
A. The SEC used quantified estimates to support its conclusions about the costs that
chaperoning broker-dealers would incur complying with Rule 15a-6
One reason why the court in Business Roundtable found that the proposed rule
was unenforceable, was that the court found that the SEC had failed to conduct a serious
evaluation of the costs that companies could incur under the rule. 4
Specifically, the court
held that the SEC acted arbitrarily and capriciously by not conducting a serious
evaluation of costs that could be imposed upon companies from use of the rule by
shareholders representing special interests, particularly union and government pension
funds.5
Here, the SEC used quantified estimates of the costs of compliance with the
specific requirements of Rule 15a-6 in a release in 2008 that amended the rule. For
example, the SEC used quantified estimates of the costs incurred by chaperoning broker-
dealers under Rule 15a-6’s collection of information requirements.6
Specifically, the SEC
calculated that each chaperoning broker-dealer who intermediates transactions between
foreign-broker dealers under exemption (A)(1) under the rule would incur a total cost of
$10,800 per year in order to remain in full compliance with the rule’s collection of
information provisions.7
For chaperoning broker-dealers who intermediate transactions
for foreign broker-dealers who rely on exemption (A)(2) of the rule, the SEC has
estimated that the total cost incurred by each chaperoning broker-dealer would be
4
Business Roundtable. at 1144.
5
6
Exemption of Certain Foreign Brokers or Dealers, 73 Fed. Reg. 34-58047fr at
39208.
7
39208.
4

$13,527 per year.8
The SEC made these cost determinations by multiplying the estimated hourly
salary for a compliance attorney by the estimated number of hours per year that a
compliance attorney would have to work to ensure that the chaperoning broker-dealer is
in full compliance.9
The SEC used the same formula to estimate the costs incurred by
foreign-broker dealers under the rule’s collection of information requirements.10
A second example of the SEC’s use of quantified estimates of the costs that
chaperoning broker-dealers would incur under Rule 15a-6, is the SEC’s implementation
of the provisions of Rule 15c3-1 to determine the specific costs that chaperoning broker-
dealers would incur in order to maintain the required minimum amount of net capital.
Rule 15a-6 requires that chaperoning broker-dealers must maintain sufficient net capital
in accordance with Rule 15c3-1.11
Specifically, Rule 15c3-1 provides the following
mathematical formulas that can be used to quantify the cost that each chaperoning
broker-dealer under Rule 15a-6 would incur in order to maintain the required minimum
of net capital.
Under Rule 15c3-1, a chaperoning broker-dealer can elect to have its minimum
net capital requirement measured by its aggregate indebtedness to all other persons.
Under this aggregate indebtedness standard, the chaperoning broker-dealer must set aside
enough liquid assets as net capital so as to prevent its aggregate indebtedness to all of its
8
39208.
9
Exemption of Certain Foreign Brokers or Dealers, 73 Fed. Reg. 34-58047fr at pp.
39208.
10
Exemption of Certain Foreign Brokers or Dealers, 73 Fed. Reg. 34-58047fr, at pp.
39208.
11
Exemption of Certain Foreign Brokers or Dealers. 73 Fed. Reg 34-58047 at pp. 11-
12.
5

clients i.e. U.S. Investors and Foreign Broker-dealers does not exceed 1500% of that net
capital amount.12
The chaperoning broker-dealer can also opt for an alternative
computation under Rule 15c3-1(a)(2). Under this alternative standard, a chaperoning
broker-dealer cannot allow its net capital to be less than $250,000 or 2% of aggregate
debit items whichever figure is greater.13
Rule 15c3-1 also mandates quantified adjustments to the minimum net capital
requirement based on the specific services that the broker-dealer provides. The
implementation of these quantified adjustments in the context of Rule 15a-6’s net capital
requirements illustrates the SEC’s use of quantified cost estimates when considering the
impact of Rule 15a-6’s net capital requirement in terms of promoting efficiency,
competition and capital formation in the market.
Specifically, a chaperoning broker-dealer only needs to maintain a minimum net
capital of no less than $250,000 if it carries customer or broker-dealer accounts and
receives funds or holds funds for those persons.14
A broker-dealer receives funds under
this provision if it receives checks, drafts, or other evidences of indebtedness made
payable to itself or persons other than the requisite registered broker-dealer carrying the
account of a customer, escrow agent, issuer, underwriter, sponsor, or other distributor of
securities.15
A broker-dealer is deemed to hold securities if it carries securities or funds in
either a customer or broker-dealer dealer account and it does not promptly forward or
deliver all of the securities or funds owed to its clients.16
Moreover, a chaperoning
12
17 C.F.R. § 240.15c3-1(a)(1)(i).
13
17 C.F.R. § 240.15c3-1(a)(1)(ii).
14
17 C.F.R. § 240.15c3-1(a)(2)(i).
15
17 C.F.R. § 240.15c3-1(a)(2)(iv).
16
17 C.F.R. § 240.15c3-1(a)(2)(iv).
6

broker-dealer is required to maintain a minimum of $50,000 in net capital if it introduces
transactions and accounts of customers or other brokers or dealers to another registered
broker-dealer, it carries such accounts on a fully disclosed basis, and it only receives but
does not hold securities or funds on behalf of its customers or other broker-dealers.17
Conversely, a chaperoning broker-dealer would only be required to maintain no
less than $5,000 in net capital if it does not: receive funds directly or indirectly, holds
funds or securities, owe funds or securities to customers and does not carry accounts of or
for customers.18
In addition, the SEC has clarified that chaperoning broker-dealers can
become eligible for the $5,000 minimum net capital requirement if they enter into a fully
disclosed carrying agreement with another registered broker-dealer who has agreed to
comply with the SEC’s rules and has accepted responsibility for receiving and holding
the securities during the course of these transactions.19
A third example of the SEC using quantified estimates of the costs of compliance
for chaperoning broker-dealers with Rule 15a-6 is the implementation of provisions
under Rule 15c3-3. Rule 15c3-3 quantifies the specific costs that Rule 15a-6 imposes on
chaperoning broker-dealers who receive, deliver and safeguard funds and/or securities on
behalf of the foreign broker-dealer and/or U.S. investor. 20
Specifically, Rule 15c3-3
requires chaperoning broker-dealers to determine from their own books or records the
quantity of fully paid securities and excess margin securities that are within their
possession or control. 21
Rule 15c3-3 also requires chaperoning broker-dealers to
17
17 C.F.R. § 240.15c3-1(a)(2)(iv).
18
17 C.F.R. § 240.15c3-1(a)(2)(vi).
19
Frequently Asked Questions Regarding Rule 15a-6 and Foreign Broker-Dealers,
www.sec.gov/divisions/marketreg/faq-15a-6-foreign-bd.htm.
20
Exemption of Certain Foreign Brokers or Dealers. 73 Fed. Reg 34-58047 at 11-12.
21
17 C.F.R. § 240.15c3-3(c)(7).
7

determine the quantity of fully paid securities and excess margin securities that are not
within the their possession or control.22
A fourth example of the SEC using quantified estimates to determine the costs
that chaperoning broker-dealers will incur complying with Rule 15a-6 are the quantified
estimates that the SEC used concerning the costs of compliance with Rule 15a-6(a)(3)(iii)
(B) and (D). These provisions require chaperoning broker-dealers to obtain and record
consents to service of process from foreign broker-dealers, foreign associated persons and
qualified persons.23
Specifically, the SEC estimated that each chaperoning broker-dealer acting under
Exemption (A)(1) of Rule 15a-6 would be required to obtain and record a total of fifty
consents to service of process from foreign associated persons as well as ten consents to
service of process from foreign broker-dealers.24
The SEC also estimated that
chaperoning broker-dealers acting under Exemption (A)(2) would be required obtain a
total of eighty three consents to service of process from foreign associated persons and
sixteen consents from foreign broker-dealers.25
Next, the SEC estimated the amount that the compliance attorney for each
chaperoning broker-dealer would spend 30 minutes obtaining and recording per
consent.26
The SEC then multiplied this estimated time a compliance attorney would
spend obtaining and recording each consent, by the estimated number of consents that
22
17 C.F.R. § 240.15c3-3(c)(7).
23
39204.
24
39204.
25
39204.
26
39204.
8

each chaperoning-broker dealer would be required to obtain. The product of this order is
the estimated cost that chaperoning broker-dealers would incur under these provisions.
The SEC also used this formula to determine the cost that each chaperoning broker-dealer
acting under Exemption (A)(2) would incur.27
A fifth example of the SEC’s use of quantified estimates in considering the costs
that chaperoning broker-dealers incur under Rule 15a-6 are the quantified estimates of the
costs relating to compliance with Rule 15a-6(a)(3)(iii)(C).28
Rule 15a-5(a)(3)(iii)(C)
obligates each registered broker-dealer that assumes the role of a chaperoning broker-
dealer under either Exemption (A)(1) or Exemption (A)(2) to obtain representations from
the foreign broker-dealer concerning the types of information that is required by Rule
17a-3(a)(12).29
Specifically, the SEC estimated that each chaperoning broker-dealer who
intermediates transactions under Exemption (A)(1) of the rule would have to pay its
compliance attorney for 5 hours of work per year to prepare and the required
representations from the foreign broker-dealers.30
The SEC also estimated that each
chaperoning broker-dealer that is intermediating transactions under Exemption (A)(2)
would be required to spend approximately eight hours per year obtaining and recording
this information.31
All these examples demonstrate that the SEC used quantified estimates of costs
and mathematical formulas rather than mere conjecture to determine the costs incurred by
27
39204.
28
39203.
29
17 C.F.R. §240.15a-6(a)(3)(iii)(C).
30
39203.
31
39203.
9

each chaperoning broker-dealer under Rule 15a-6. Therefore, Rule 15a-6 is not
unenforceable on the ground that the SEC failed to make a serious evaluation as to the
costs that would be effectuated under the rule.
10

B. The SEC used quantified estimates about the aggregate cost of compliance with
Rule 15a-6 to support its conclusions about Rule 15a-6’s effect on the market in
terms promoting efficiency, competition and capital formation
The SEC also used quantitative estimates to support its conclusions about the
aggregate cost that the Rule 15a-6 would impose on the industry as a whole. For
example, the SEC used quantified estimates of the annual cost that chaperoning broker-
dealers incur under the reporting and recordkeeping requirements of Rule 15a-6(a)(3)(iii)
(B) and (D).32
The SEC also estimated that approximately forty U.S. registered broker-dealers
would act as chaperoning broker-dealers under Exemption (A)(1) of the rule and fifty-
eight U.S. registered broker-dealers would act as chaperoning broker-dealers under
Exemption (A)(2).33
The SEC then multiplied the estimated number of chaperoning
broker-dealers by the estimated number of hours that each chaperoning broker-dealer was
required to pay its compliance attorney per year.34
Using this data the SEC determined
that the industry would collectively incur the costs of paying for 2,300.18 hours of work
and 1,400 hours of work for chaperoning broker-dealers acting under Exemption (A)(1)
and Exemption (A)(2) respectively. Thus, ensuring universal compliance with Rule 15a-
6(a)(3)(iii)(B) and (D).35
Another example of the SEC using quantified estimates of the aggregate burden
32
39204.
33
39204.
34
39204.
35
39204.
11

that the industry incurs under Rule 15a-6(a)(3)(iii)(C).36
Specifically, the SEC multiplied
the estimated number of chaperoning broker-dealers acting under Exemption (A)(1) by
the estimated number of hours that a compliance attorney would have to work to ensure
compliance. The SEC used the subsequent results to determine the number of hours that
each chaperoning broker-dealer acting under Exemption (A)(1) in order to remain in
compliance. 37
Next, the SEC employed that same formula to determine the number of hours that
each chaperoning broker-dealer acting under Exemption (A)(2) would have to pay its
compliance attorney in order to comply with Rule 15a-6(a)(3)(iii)(C). 38
Finally the SEC
added the products from both of those equations to conclude that the aggregate burden on
all chaperoning broker-dealers in the industry would be the amount that all of the
chaperoning broker-dealers in the industry would have to pay their compliance attorneys
to perform 344 hours of work per year.39
After estimating these aggregate costs, the SEC considered the effect of Rule 15a-
6 on the market in terms of promoting efficiency, competition and capital formation.
Specifically, the SEC concluded that the proposed amendments that it is implementing
will promote efficiency by reducing the costs of compliance for both registered broker-
dealers and foreign broker-dealers who conduct transactions pursuant to paragraph (a)
(3).40
In addition, the SEC concluded that the proposed amendments would not impose
36
39203.
37
39203.
38
39203.
39
39203.
40
12

any burden on competition not necessary or appropriate in furtherance of the Exchange
Act.41
Finally, the SEC concluded that the currently amended form of Rule 15a-6 will not
have any significant effect on capital formation.42
Since the SEC produced quantified estimates of individual costs to each
chaperoning broker-dealer and to the industry in the aggregate, the enforceability of Rule
15a-6 cannot be successfully challenged on these two grounds.
39209.
41
39208.
42
39209.
13

C. The SEC failed to produce quantified estimates to support its conclusions that
chaperoning broker-dealers would receive several benefits under Rule 15a-6
Another reason the court in Business Roundtable held that Rule 14a-11 was
unenforceable was because the SEC only identified “intangible” or “less readily
quantifiable,” benefits. 43
Specifically, the court found that the SEC concluded that Rule
14a-11 would result in mitigated collective action and free-rider concerns as well as the
potentiality of improved board performance and enhanced shareholder value.44
However,
the court found that the SEC did not base these conclusions on any quantified estimates.45
In addition, the court found that by ignoring “this crucial datum” the SEC “has no way of
knowing whether the rule…will be of net benefit.”46
Comparatively, the SEC’s conclusions about the benefits that would result from
the amended Rule 15a-6’s implementation are also unsupported by any quantified
estimates.47
For example, the SEC concluded that the amended rule would allow a
broader category of U.S. investors greater access to foreign broker-dealers and foreign
markets by expanding and streamlining the conditions under which a foreign broker-
dealer could operate without triggering the registration requirements of §15(a)(1) or
§15B(a)(1) of the Exchange Act.48
However, the SEC did not estimate the amount of
costs that a chaperoning broker-dealer acting under Exemption (A)(1) or Exemption (A)
(2) could be expected to save under the amended rule.49
43
44
45
46
47
39206.
48
39206.
49
14

Another benefit that the SEC identified was the elimination of the need for
chaperoning broker-dealers to “double-book” transactions under Rule 15a-6(a)(3).
Specifically, the SEC failed to provide any estimates of the difference between the cost of
“double booking” under the old version of Rule 15a-6 and the currently amended
version.50
The SEC also concluded that because chaperoning broker-dealers acting under
Exemption (A)(1) of the amended Rule 15a-6 were not required to “effect” transactions,
these chaperoning broker-dealers would no longer be required to perform all the
functions associated with effecting transactions.51
Such functions included: complying
with recording and recordkeeping rules, issuing confirmations, and maintaining custody
of customer funds and securities.52
However, the SEC also did not base this conclusion on
any estimates of the amount of cost reductions that could be expected.
Since the SEC did not quantify the extent that any of these benefits would offset
the costs of compliance under the amended rule, the SEC did not know and therefore
could not consider whether or not the supposed benefits of the amended rule would
outweigh the anticipated increases in costs that the rule imposes. In other words, the SEC
failed to determine the individual benefits that chaperoning broker-dealers would receive
under the specific provisions of the amended rule and the net benefit effectuated by the
amended rule as a whole because it did not use any quantified estimates. Therefore, the
SEC has failed to satisfy their statutory obligation under 5 U.S.C.A. § 78c-f,§ 78(w)
39206.
50
39206.
51
39206.
52
39206.
15

(f)§80a-2. More poignantly, by failing to quantify these benefits, the SEC has also
disregarded its stated mission to protect investors, maintain fair, orderly and efficient
markets and facilitate capital formation.53
53
Exemption of Certain Foreign Brokers or Dealers, 73 Fed. Reg. at 39183.
16

D. The SEC drew internally inconsistent conclusions about the costs and benefits
that Rule 15a-6 imposes on chaperoning broker-dealers
Another reason why the court in Business Roundtable held that Rule 14a-11 was
un-enforceable, was that the SEC had drawn internally inconsistent conclusions about the
anticipated benefits that would be effectuated by the rule. Specifically, the court found
that the SEC predicted that one benefit of the rule would be “direct printing and mailing
cost savings” in regards to proxy materials.54
The court then found that the SEC predicted
that the number of election contests under Rule 14a-11 “would be quite high.” For this
reason, the court concluded that the SEC’s conclusion about the anticipated benefits was
inconsistent because the increase in the frequency of election contests would result higher
printing and mailing costs in the aggregate, which would undermine any realized cost
reductions.55
Thus, the court found drew some internally inconsistent conclusions in its 2008
release about the costs and benefits that the newly amended Rule 15a-6 would impose on
chaperoning broker-dealers. These internally inconsistent conclusions further undermined
the SEC’s considerations about the amended rule’s effect on the market in terms of
promoting efficiency, competition and capital formation.
Comparatively, the SEC drew an inconsistent conclusion about the effect of
amended Rule 15a-6 that undermined its conclusion that chaperoning broker-dealers
acting under Exemption (A)(1) would benefit from cost reductions under paragraph (a)
(3). Specifically, the SEC initially reasoned that chaperoning broker-dealers acting will
experience cost reductions when complying with the requirements Rule 15a-6(a)(3)
54
55
17

because they will no longer be required to perform all of the functions associated with
effecting transactions.56
Such functions include recording and recordkeeping, issuing
confirmations and holding securities and funds on behalf of U.S. investors.57
However, the SEC also found that under the amended rule, chaperoning broker-
dealers acting under Exemption (A)(1) would be required to maintain certain books and
records including confirmation statements, albeit in the form and manner mandated by
the foreign securities authority.58
It stands to reason that these additional requirements
would result in incurred costs to chaperoning broker-dealers that would offset the benefits
that they would receive under paragraph (a)(3).
In addition, the SEC also concluded that the these unspecified, un-quantified cost
reductions that chaperoning broker-dealers who act under Exemption (A)(1) will
supposedly benefit from, may further be undermined by the increase in the aggregate
costs that will be incurred in order to accommodate increasing trading activity under the
rule.59
For these reasons, the SEC’s conclusion about chaperoning broker-dealers
benefiting from cost reductions for reporting and bookkeeping is inconsistent and
misleading. Furthermore, the SEC’s conclusion that the costs incurred as a result of the
increased trading activity will be “incremental” and “insignificant does not rectify the
inconsistency because the SEC did not provide any quantified estimates to justify this
56
39206.
57
39206.
58
39206.
59
39207.
18

conclusion.60
Thus, the SEC’s internally inconsistent conclusions closely parallel the
SEC’s inconsistent conclusions about the “direct printing and mailing cost savings” and
predicted increase in elections in Business Roundtable.
Another example is the SEC’s inconsistent conclusions about the affect of
amended Rule 15a-6 on competition in the industry. Specifically, the SEC proposed an
85% threshold for determining whether a foreign broker-dealer conducts a predominantly
foreign business (“foreign business test”) because a lower threshold may allow a foreign
broker dealer to conduct significant business in U.S. securities without being regulated.61
This 85% threshold implies that a foreign broker-dealer may be allowed to
conduct some business activities in U.S. securities albeit not rising to the level of
“significant business.” The SEC also noted that allowing a foreign broker-dealer to
conduct any business in U.S. securities could affect the competitive positions of U.S.
registered broker-dealers and foreign broker-dealers.62
Therefore, since foreign broker-
dealers may be engaged in at least some business activity involving U.S. securities, it is
possible that the amended rule may have some effect on competition. Therefore, the
SEC’s conclusion that the amended Rule 15a-6 would not impose any burden on
competition not necessary or appropriate in furtherance of the Exchange Act is
inconsistent. 63
In addition, the SEC’s request for comments on whether the proposed
amendments would impose a burden on competition suggests that its conclusion was also
60
39207.
61
39209.
62
39209.
63
39208.
19

based on incomplete information.64
64
39209.
20

E. The SEC acted arbitrarily and capriciously because it failed to adequately
address the problems raised in comments that could impose additional costs on
chaperoning broker-dealers
Another reason why the court in Business Roundtable held that Rule 14a-11 was
unenforceable was that the SEC acted arbitrarily and capriciously by entirely failing to
consider an important aspect of the problem raised in a comment.65
Specifically,
commenters to Rule 14a-11 had expressed concern that these employee benefit funds
would impose costs upon companies by using Rule 14a-11 as leverage to gain
concessions, such as additional benefits for unionized employees, unrelated to
shareholder value.66
The court found that while the SEC did not completely ignore the
potential costs that these commenters raised, its failure to respond to these comments
amounted to arbitrary conduct.67
Comparatively, the SEC acted arbitrarily and capriciously because it failed to
adequately respond to comments that raised potential costs that chaperoning broker-
dealers and other small entities could incur under amended Rule 15a-6. For example, one
comment, submitted by the State Street Corporation, urged the SEC to reconsider the
SEC’s decision to use the foreign business test in amended Rule 15a-6. 68
Specifically,
this commenter argued that the foreign business test would be: unnecessarily complex
and burdensome, raise numerous questions about how to value a wide range of securities
such as non-equities and require a significant undertaking to establish systems of
compliance.69
In addition, this commenter also asserted that the application of U.S.
65
66
67
68
SEC Comment, File No. S71608-25. (September 8, 2008)
69
SEC Comment, File No. S71608-25. (September 8, 2008)
21

research rules, particularly Regulation AC, to research reports made by foreign broker-
dealers would unnecessarily hinder the free flow of information that the SEC is seeking
to encourage with no concomitant increase in investor protection.70
Given the nature of the problems that were raised in this comment, it can be
reasonably inferred that chaperoning broker-dealers would incur significant costs under
this rule. In addition, it can be inferred that these costs would be disproportionately borne
by smaller chaperoning broker-dealers who will receive less benefits as a result of less
trading, yet still have to incur the same amount of costs in establishing the required
compliance systems. For these reasons, the SEC’s failure to adequately address these
problems and the potential costs that they raise is analogous to the SEC’s failure to
address the concerns raised by the Chamber of Commerce in Business Roundtable.71
The
implications this comment also casts doubt on the validity of the SEC’s conclusion that
Rule 15a-6 would not have a significant economic impact on a substantial number of
small entities.72
The SEC also failed to adequately address the economic impact of a problem that
was raised in a comment by Dorsey and Whitney LLP. 73
Specifically, this comment
raised the issue that proposed NASD Rules 2711(h) and 472(k) would frustrate one of the
primary objectives of Rule 15a-6 i.e. to facilitate access to foreign markets through
foreign broker-dealers and the research that they provide.74
The concern, raised in this
comment is still valid today because proposed NASD rules can be adopted as FINRA
70
SEC Comment, File No. S71608-25.
71
72
39209.
73
SEC Comment, File No. SR-NASD-2002-21 and SR-NYSE-2002-09. (April 18, 2002)
74
SEC Comment, File No. SR-NASD-2002-21 and SR-NYSE-2002-09. (April 18, 2002)
22

proposed rules.
It can be logically inferred that the frustration of the ability of U.S. investors to
access foreign markets and the research provided by foreign broker-dealers would impose
additional costs on chaperoning broker-dealers when it comes to soliciting U.S. investors
to trade in these foreign markets with these foreign broker-dealers. Such costs that these
two proposed rules can impose on chaperoning broker-dealers could include reduced
benefits in the form of less trading and additional costs in preparing trading data on the
foreign securities. Therefore, the SEC’s failure to address the concern raised by Dorsey
and Whitney LLP would significantly undermine the SEC’s conclusion that Rule 15a-6
would not have any impact on small entities.75
In addition, the SEC’s failure to address the potential costs raised by Dorsey and
Whitney LLP undermines the SEC’s conclusions about the anticipated benefits that
chaperoning broker-dealers could receive under amended Rule 15a-6. Specifically, the
SEC’s conclusion that amended Rule 15a-6 would benefit chaperoning broker-dealers by
allowing broader category of investors to gain greater access to foreign broker-dealers
and foreign markets would be undermined.76
The SEC’s conclusion that amended Rule
15a-6 would result in cost reductions for chaperoning broker-dealers who intermediating
transactions between U.S. investors and foreign broker-dealers would also undermined if
if chaperoning broker-dealers by the costs that could be incurred if FINRA adopts those
two proposed rules.77
75
39209.
76
39206.
77
39206.
23

Comparatively, the court in Business Roundtable found that the SEC
acknowledged but did not adequately address numerous studies by commenters that
reached the opposite result regarding the anticipated benefits of Rule 14a-11.78
Therefore,
the SEC’s failure to address the enactment of these two proposed rules by FINRA is
analogous to the SEC’s failure to address the challenge to its quantified estimates raised
by the Chamber of Commerce in Business Roundtable.
78
Business Roundtable. at 1150-1151. (See also Elaine Buckberg, NERA Econ.
Consulting & Jonathan Macey, Yale Law School, Report on Effects of Proposed SEC
Rule 14a-11 on Efficiency, Competitiveness and Capital Formation 9 (2009),
available at www.nera.com/upload/Buckberg_Macey_Report_Final.pdf. )
24

4. CONCLUSION
For these reasons, the enforceability of amended Rule 15a-6 could be successfully
challenged on the grounds that the SEC failed to fulfill its statutory obligation under 15
USC, §78c(f), 78(w)(a) and 80a-2(c) as interpreted by the D.C. Court of Appeals for the
District of Columbia in Business Roundtable.
25

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