[Federal Register: November 16, 2007 (Volume 72, Number 221)]
[Notices]
[Page 64688-64694]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16no07-162]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56779; File No. S7-26-07]
Notice of Application of the National Association of Realtors for
Exemptive Relief Under Sections 15 and 36 of the Exchange Act and
Request for Comment
November 9, 2007
The National Association of Realtors[supreg] (``NAR'') has
requested an exemption pursuant to sections 15(a)(2) and 36(a) of the
Securities Exchange Act of 1934 (``Exchange Act'') from the broker-
dealer registration requirements of section 15(a)(1) and the reporting
and other requirements of the Exchange Act (other than sections
15(b)(4) and 15(b)(6)), and the rules and regulations thereunder, that
apply to a broker or dealer that is not registered with the Commission.
Subject to the conditions specified in NAR's application
(``Application'') and discussed below, the requested exemption would
permit a licensed real estate agent or broker who is predominantly
engaged in and has substantial experience in the commercial real estate
market and the real estate brokerage firm with which such agent or
broker is licensed to receive compensation in the form described below
for the sale of a TIC Security, as defined below.
[[Page 64689]]
In order to provide an opportunity for interested persons to
comment on the Application, the Commission is publishing this notice
and request for comment pursuant to Rule 0-12 under the Exchange Act.
The Commission will carefully consider all comments submitted, and,
should it determine to issue an exemption, could eliminate or add to,
or modify, the conditions discussed below.
Background
Section 15(a)(1) of the Exchange Act generally requires any broker
or dealer who makes use of the mails or any instrumentality of
interstate commerce to effect transactions in, or induce the purchase
or sale of, any security to register with the Commission. Section
3(a)(4)(A) of the Exchange Act generally defines a ``broker'' as ``any
person engaged in the business of effecting transactions in securities
for the account of others.'' Absent an exemption, a licensed real
estate agent or real estate broker who receives compensation for the
sale of a TIC Security would be required to be registered as a broker
with the Commission or to be a registered associated person of a
registered broker-dealer. Similarly, a real estate brokerage firm that
receives compensation for the sale of a TIC Security would be required
to register as a broker-dealer.
Section 15(a)(2) of the Exchange Act authorizes the Commission to
conditionally or unconditionally exempt from the broker-dealer
registration requirements of section 15(a)(1) any broker or dealer or
class of brokers or dealers, by rule or order, as it deems consistent
with the public interest and the protection of investors.\1\ Similarly,
but more broadly, section 36 of the Exchange Act authorizes the
Commission to conditionally or unconditionally exempt any person,
security, or transaction, or any class or classes of persons,
securities, or transactions, from any provision or provisions of the
Exchange Act or any rule or regulation thereunder, by rule, regulation,
or order, to the extent that such exemption is necessary or appropriate
in the public interest, and is consistent with the protection of
investors.\2\
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\1\ See 15 U.S.C. 78o(a)(2).
\2\ See 15 U.S.C. 78mm.
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Summary of the Application
NAR requests an exemption to allow any licensed real estate agent
or broker who is predominantly engaged in and has substantial
experience \3\ in the sale of commercial real estate \4\ (``Commercial
Real Estate Professional'') and the real estate brokerage firm with
which he or she is licensed (``Real Estate Firm'') (collectively, a
``RE Participant'') to receive a real estate advisory fee (``Real
Estate Advisory Fee'') from a purchaser of an undivided tenant-in-
common interest in real property (``TIC Interest'') \5\ that is offered
and sold together with other arrangements that cause it to be deemed to
be a security under the federal securities laws (``TIC Security'').\6\
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\3\ The Application defines ``substantial experience'' to mean a
Commercial Real Estate Professional who (1) has received a Certified
Commercial Investment Member designation from the Commercial
Investment Real Estate Institute, a designation from the Society of
Industrial and Office REALTORS[supreg], or an Accredited Land
Consultant designation from the REALTORS[supreg] Land Institute; (2)
has education and transaction experience that is equivalent to those
required to obtain those designations; or (3) has participated in at
least five commercial real estate transactions having an aggregate
value of at least $3 million in the prior five years or at least 10
commercial real estate transactions having an aggregate value of at
least $10 million in the prior 10 years, including 3 transactions in
the prior 3 years. Alternatively, the Application provides that a
Commercial Real Estate Professional will satisfy the ``substantial
experience'' requirement based on a combination of at least two of
the following factors: education in commercial real estate; the
length of time during which the person has engaged in commercial
real estate transactions; the dollar value of commercial real estate
transactions in which the individual has participated; and the
number of commercial real estate transactions in which the
individual has participated.
\4\ For purposes of the Application, ``commercial real estate''
includes all real estate categories other than single-family and
one- to four-unit residential dwellings, including office, retail,
raw land, multifamily (i.e., greater than four dwellings),
industrial and others. It does not include TIC Securities.
\5\ TIC Interests are generally offered as a replacement
property to individuals seeking to complete tax-deferred exchange
transactions pursuant to Section 1031 of the Internal Revenue Code
of 1986, as amended.
\6\ TIC Securities are sold by a sponsor through a registered
broker-dealer acting as a placement agent (``Lead Placement
Agent''). Such Lead Placement Agent may be the sole distributor of
the TIC Securities or may enter into an agreement with one or more
other registered broker-dealers to sell the TIC Securities as
participating brokers (each, a ``Selling Broker-Dealer''). A Lead
Placement Agent also may act as a Selling Broker-Dealer.
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Under NAR's exemptive request, a Real Estate Advisory Fee could be
paid by the purchaser directly or on behalf of the purchaser by the
sponsor or issuer of the TIC Security, which could, thereby, reduce the
commission or other compensation received by a registered broker-dealer
involved in the TIC Security transaction. The Real Estate Advisory Fee
generally would be paid to the Real Estate Firm with which the
Commercial Real Estate Professional is licensed. The Firm would
distribute all or a previously agreed upon percentage of the Real
Estate Advisory Fee to the Commercial Real Estate Professional that
signed a buyer's agent agreement with the client and to any other
Commercial Real Estate Professional or Real Estate Firm that was added
to the agreement with the consent of the client.
As proposed by NAR, in order for any Commercial Real Estate
Professional or any Real Estate Firm with which such person is licensed
to receive or share in a Real Estate Advisory Fee in reliance on the
requested exemption, the Commercial Real Estate Professional, the Real
Estate Firm, the Selling Broker-Dealer and the Lead Placement Agent for
the TIC Security transaction would comply with the following
conditions, as applicable:
(1) General Conditions
a. A Real Estate Advisory Fee shall only be paid to or shared with
a Commercial Real Estate Professional who is predominantly engaged in
sales of real estate other than TIC Securities, has substantial
experience in commercial real estate,\7\ is appropriately licensed in
compliance with the applicable state real estate laws, and is
identified in the buyer's agent agreement (as further described below)
with the client.\8\
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\7\ See note 3.
\8\ Although not proposed as a condition to NAR's requested
exemption, NAR states in its application that it ``believes'' the
buyer's agent agreement ``should include'' a representation that the
Commercial Real Estate Professional who receives or shares a Real
Estate Advisory Fee has substantial experience in commercial real
estate.
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b. Each client of the RE Participant purchasing a TIC Security must
receive at closing a deed representing his or her undivided fractional
interest in the TIC Security property and the TIC Security must qualify
as a ``replacement property'' for purposes of an IRC section 1031
exchange, regardless of whether the client is purchasing the TIC
Security for that purpose.
c. The TIC Security transaction must be effected through a
registered broker-dealer.
(2) Buyer's Agent Agreement and Introduction to Selling Broker-Dealer
a. Prior to the Commercial Real Estate Professional discussing a
specific TIC Security property with his or her client, the client must
enter into a written buyer's agent agreement with the RE Participant,
which shall obligate the RE Participant to solely represent the client
in connection with the purchase of a TIC Security.
b. The buyer's agent agreement must identify any other RE
Participant who is
[[Page 64690]]
to receive or share in the Real Estate Advisory Fee and any such other
RE Participant may only be added to the buyer's agent agreement with
the consent of the client.
c. The buyer's agent agreement must state the aggregate maximum
amount of the Real Estate Advisory Fee to be paid by the client to all
RE Participants, including any RE Participant that is added to the
agreement, which shall be expressed as either a fixed dollar amount or
as a dollar amount that is determined in accordance with a
predetermined formula (e.g., a fixed percentage of the property's full
purchase price or a fixed percentage of the cash paid for the
property).
d. The aggregate maximum amount of Real Estate Advisory Fee that is
actually paid by the client to all RE Participants, including any RE
Participant that is added to the buyer's agent agreement, will not
exceed the amount of the contracted Real Estate Advisory Fee even if
the client, the sponsor, or another person is willing to pay a higher
fee.
e. The Commercial Real Estate Professional may discuss the real
estate characteristics of a TIC Security property with the client and
arrange for the client to inspect a TIC Security property and any other
non-securities property before introducing the client to the Selling
Broker-Dealer, but shall arrange such introduction upon the client
advising the Commercial Real Estate Professional that he or she is
considering the purchase of a specific TIC Security property.
(3) Restrictions on Conduct of the RE Participant
A RE Participant that, directly or indirectly, receives a portion
of a Real Estate Advisory Fee will not:
a. List or otherwise advertise the availability of TIC Securities
or advertise that the RE Participant represents clients in connection
with the purchase of TIC Securities;
b. Share a Real Estate Advisory Fee with any person not permitted
to receive such Fee under the requested exemption;
c. Handle customer funds or securities in a TIC Security
transaction;
d. Negotiate the terms and conditions of the purchase of any TIC
Security on behalf of the client with a broker-dealer or sponsor
selling a TIC Security or have any power to bind the client in the TIC
Security transaction, but may transmit documents and information
between the parties and may attend meetings between the Lead Placement
Agent, Selling Broker-Dealer, and the sponsor and the client (solely in
order to assist the client);
e. Represent the client as a ``purchaser representative,'' as
defined in Rule 501(h) of the Securities Act of 1933;
f. Participate in the structuring of a TIC Security investment
offered to the client;
g. Have the authority to close a purchase of a TIC Security on a
client's behalf; or
h. Assist a client that purchases a TIC Security to obtain
financing, except to provide a list of potential lenders.
(4) Other Obligations of the RE Participant
a. The RE Participant must deliver a copy of the executed buyer's
agent agreement to the Lead Placement Agent at closing.
b. Any Commercial Real Estate Professional that is to receive,
directly or indirectly, a portion of a Real Estate Advisory Fee must
not be subject to any ``statutory disqualification,'' as that term is
defined in section 3(a)(39) of the Exchange Act (other than
subparagraph (E) of that section), and will deliver a representation in
writing to that effect to the Lead Placement Agent at closing. To the
extent the statutory disqualification representation is included in the
buyer's agent agreement, it must be updated at closing with respect to
each Commercial Real Estate Professional that may, directly or
indirectly, receive any portion of a Real Estate Advisory Fee.
(5) Obligations of the Selling Broker-Dealer and Lead Placement Agent
a. Before the TIC Security transaction is effected, the Selling
Broker-Dealer must perform a suitability analysis of the TIC Security
transaction in accordance with the rules of the Selling Broker-Dealer's
applicable self-regulatory organization (``SRO'') as if the Selling
Broker-Dealer had recommended the TIC Security transaction and must
deliver a representation in writing to that effect to the Lead
Placement Agent at closing or, if the Selling Broker-Dealer is the Lead
Placement Agent, must make a representation in writing to that effect
at closing.
b. The Selling Broker-Dealer will inform the customer if the
Selling Broker-Dealer determines that the TIC Security transaction to
be effected for the customer is not suitable under the rules of the
Selling Broker-Dealer's applicable SRO, and will not effect the TIC
Security transaction unless it obtains the customer's written
affirmation that the customer wants to proceed with the TIC Security
transaction notwithstanding the Selling Broker-Dealer's determination.
The Selling Broker-Dealer must deliver the written affirmation to the
Lead Placement Agent at closing or, if the Selling Broker-Dealer is the
Lead Placement Agent, must maintain the written affirmation as
specified below.
c. The Lead Placement Agent must maintain a copy of each of the
documents that is to be made and/or delivered at closing pursuant to
the requested exemption (i.e., the buyer's agent agreement, the
statutory disqualification representations, the suitability
representation, and, if applicable, the customer's written
affirmation), the relevant part of the real estate closing documents
that evidences the amount of the Real Estate Advisory Fee paid to any
RE Participant involved in the TIC Security transaction, and any other
records that are required to be maintained in accordance with the
recordkeeping requirements of the federal securities laws for a period
of three (3) years in accordance with Exchange Act Rule 17a-4(f).
Summary of Reasons for the Exemption
NAR states that the requested exemption would allow a potential
purchaser of a TIC Security to benefit from the real estate expertise
of a Commercial Real Estate Professional, while receiving necessary
protections afforded by federal and state securities laws and
regulations. NAR states that the proposed conditions would limit the
role of a Commercial Real Estate Professional and Real Estate Firm with
which such person is licensed that would receive a Real Estate Advisory
Fee. As a result, NAR states that an exemption from registration and
regulation of the Commercial Real Estate Professional and the Real
Estate Firm with which such person is licensed as a broker-dealer would
be appropriate in the public interest and consistent with the
protection of investors.
NAR has waived its request for confidential treatment and the
Application is available on the Commission's Web site (http://www.sec.gov/rules/other.shtml
) and at the Commission's Public Reference
Room, 100 F Street, NE., Washington, DC 20549, on official business
days between the hours of 10 a.m. and 3 p.m.
Request for Comment
The Commission invites any person to submit comments or other
information that relates to the exemptions requested in the
Application, including whether the exemption should be granted, whether
the conditions are appropriate, and whether conditions should be added,
eliminated, or modified. In
[[Page 64691]]
particular, the Commission requests comment as to the following:
Is the Application's definition of ``substantial
experience in commercial real estate'' appropriate? Should
``substantial experience in commercial real estate'' be defined
differently? If so, how?
Should a Commercial Real Estate Professional be considered
to have ``substantial experience in commercial real estate'' if he or
she meets a combination of two subjective factors (such as education
and dollar value of transactions), or should substantial experience
only be demonstrated by the specific education or transactional
benchmarks enumerated in the Application?
Should the quantitative factors included in the
Application's definition of ``substantial experience in commercial real
estate'' be periodically adjusted for inflation? If so, how often and
which measure of inflation should be used?
Are there education and experience designations from
groups other than those affiliated with NAR that would be appropriate
to name specifically as evidencing ``substantial experience in
commercial real estate''?
Should the exemption include a quantitative threshold to
describe when a Commercial Real Estate Professional would be
``predominantly engaged'' in the sale of real estate other than TIC
Securities? If so, what should that threshold be? For example, should
85 percent of the dollar value of a Commercial Real Estate
Professional's sales during one or more prior calendar years be in real
estate other than TIC securities in order to meet the predominance
requirement?
Should the exemption be conditioned on the buyer's agent
agreement including a representation that the Commercial Real Estate
Professional who receives or shares a Real Estate Advisory Fee has
substantial experience in commercial real estate?
Is there a possibility that the exemption, if granted,
could create an incentive for Commercial Real Estate Professionals to
sell TIC Securities instead of non-security forms of commercial real
estate investments to their clients? Are there countervailing factors
that would mitigate or neutralize any such incentive? Should the
possibility of any such incentive be addressed by one or more
conditions, for example, by requiring Commercial Real Estate
Professionals to disclose in the buyer's agent agreement the various
fees they would receive for selling TIC Securities and non-security
forms of commercial real estate investments? Are there other conditions
that could address this incentive?
Are the proposed conditions that would impose obligations
on registered broker-dealers appropriate? Would they be sufficient to
accomplish the desired goals, including maintaining investor
protection? Should any be eliminated or modified, or should additional
conditions be included? Commenters are invited to suggest conditions
and explain their purpose.
For further information, contact Catherine McGuire, Chief Counsel;
Brian Bussey, Assistant Chief Counsel; or Michael Hershaft, Special
Counsel, at (202) 551-5550, Office of Chief Counsel, Division of Market
Regulation, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-6628.
Submission of Comments
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File No. S7-26-07 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. S7-26-07. This file number
should be included on the subject line if e-mail is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's Internet Web site (http://www.sec.gov/rules/other.shtml).
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File No. S7-26-07 and should
be submitted on or before December 17, 2007. The Commission will take
final action on the Application no earlier than December 18, 2007.
Paperwork Reduction Act Analysis
Certain provisions of the requested exemption contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995.\9\ The Commission has submitted these
information collections to the Office of Management and Budget
(``OMB'') for review in accordance with 44 U.S.C. 3507(c) and 5 CFR
1320.10. These collections of information under the requested exemption
are new, and OMB has not yet assigned a control number for them. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number.\10\
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\9\ 44 U.S.C. 3501, et seq.
\10\ 44 U.S.C. 3512.
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A. Delivery of the Buyer's Agent Agreement to the Lead Placement Agent
at Closing
1. Collection of Information
The requested exemption would be conditioned on the RE Participant
delivering a copy of the executed buyer's agent agreement to the Lead
Placement Agent at closing.
2. Proposed Use of the Information
The proposed buyer's agent agreement is designed to assist in
implementing the requested exemption and monitoring for compliance. The
proposed delivery requirement is designed to ensure that the Lead
Placement Agent has a copy of the buyer's agent agreement in order to
comply with its recordkeeping obligations discussed below, which would
facilitate monitoring compliance with the requested exemption.
3. Respondents
The proposed collection of information would apply to RE
Participants who rely on the requested exemption.
4. Reporting and Recordkeeping Burden
The Commission estimates that approximately 800 RE Participants
\11\ would rely on the requested exemption and each RE Participant
would, on average, deliver to the Lead Placement Agent a copy of an
executed buyer's agent agreement 6.63 times \12\ a year.
[[Page 64692]]
Based on these estimates, the Commission estimates that this
requirement would result in approximately 5,304 disclosures \13\ per
year. The Commission also estimates that a RE Participant would spend
approximately five minutes per disclosure to the Lead Placement Agent.
Thus, the estimated total annual reporting and recordkeeping burden for
this requirement is 442 hours \14\ for the RE Participants.
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\11\ Based on discussions with industry participants on the
number of registered representatives currently involved in TIC
Security transactions, the Commission estimates that approximately
800 Commercial Real Estate Professionals would rely on the requested
exemption. Although this collection of information covers RE
Participants, which includes Commercial Real Estate Professionals
and the real estate brokerage firms with which they are licensed,
the Commission expects that the Commercial Real Estate
Professionals, and not the firms, would actually fulfill the
delivery requirement.
\12\ Based on discussions with industry representatives, we
understand that there were approximately 312 TIC Security offerings
in 2006 and approximately 17 participants per offering for a total
of 5,304 TIC Security transactions. For purposes of calculating the
reporting and recordkeeping burden, the Commission estimates that
all TIC Security transactions would be conducted pursuant to the
requested exemption. The Commission recognizes that it is highly
unlikely that all TIC Security transactions would involve a RE
Participant pursuant to the requested exemption in light of the
existing broker-dealer sales channel for TIC Securities. However,
the Commission does not have sufficient information to estimate
participation rates of less than 100 percent, and thus has chosen
the most conservative estimate for calculating the reporting and
recordkeeping burden. Accordingly, 5,304 TIC Security transactions/
800 RE Participants = 6.63. The Commission has rounded its
calculation to two decimal places. Assuming a relatively even
distribution of transactions among potential respondents, some
respondents would deliver to the Lead Placement Agent a copy of an
executed buyer's agent agreement six times a year, and others would
do so seven times a year.
\13\ 6.63 x 800 = 5,304.
\14\ 5,304 TIC Security transactions x five minutes per
transaction = 26,520/60 = 442.
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5. Collection of Information is Mandatory
This proposed collection of information would be mandatory for RE
Participants who rely on the requested exemption.
6. Confidentiality
The proposed collection of information would be provided by the RE
Participant to the Lead Placement Agent and would be available for
inspection by the Commission and the applicable SRO.
7. Record Retention Period
The requested exemption does not contain a separate record
retention period.\15\
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\15\ The Lead Placement Agent, as a registered broker-dealer,
would be subject to the record retention provisions of Exchange Act
Rule 17a-4. OMB has approved the collection of information related
to these record retention provisions. See OMB control number 3235-
0279.
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B. Delivery of the Statutory Disqualification Representation at Closing
1. Collection of Information
The requested exemption would require any Commercial Real Estate
Professional that is to receive, directly or indirectly, a portion of a
Real Estate Advisory Fee to not be subject to any ``statutory
disqualification,'' as defined in section 3(a)(39) of the Exchange Act
(other than subparagraph (E) of that section), and to deliver a
representation in writing to that effect to the Lead Placement Agent at
closing.\16\
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\16\ Although the requested exemption would require a Commercial
Real Estate Professional to update the ``statutory
disqualification'' representation at closing, if the ``statutory
disqualification'' notice were already included in the buyer's agent
agreement, there would be no requirement to include the
representation in the buyer's agent agreement. Commercial Real
Estate Professionals would have only one ``statutory
disqualification'' representation disclosure requirement per
transaction.
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2. Proposed Use of the Information
The proposed ``statutory disqualification'' representation would be
used in implementing the requested exemption and monitoring its use.
The proposed delivery requirement is designed to ensure that the Lead
Placement Agent has a copy of the statutory disqualification
representation in order to comply with its recordkeeping obligations
discussed below, which would facilitate monitoring compliance with the
exemption.
3. Respondents
The proposed collection of information would apply to Commercial
Real Estate Professionals who would receive, directly or indirectly, a
portion of a Real Estate Advisory Fee pursuant to the requested
exemption.
4. Reporting and Recordkeeping Burden
The Commission estimates that approximately 800 Commercial Real
Estate Professionals \17\ would rely on the requested exemption and
each Commercial Real Estate Professional would on average deliver the
written statutory disqualification representation 6.63 times \18\ a
year. Based on these estimates, the Commission anticipates that this
requirement would result in 5,304 disclosures \19\ per year. The
Commission estimates that approximately 95 percent of Commercial Real
Estate Professionals would spend approximately five minutes for each
representation to the Lead Placement Agent. The Commission also
estimates that approximately five percent of Commercial Real Estate
Professionals \20\ would spend approximately 30 minutes for their first
representation to the Lead Placement Agent,\21\ and five minutes for
each of the 5.63 subsequent representations. Thus, the estimated total
annual reporting and recordkeeping burden for these requirements is
458.67 hours \22\ for Commercial Real Estate Professionals.
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\17\ See note 11.
\18\ See note 12. The Commission has rounded its calculation to
two decimal places. Assuming a relatively even distribution of
transactions among potential respondents, some respondents would
deliver to the Lead Placement Agent a written statutory
disqualification representation six times a year, and others would
do so seven times a year.
\19\ See note 13.
\20\ Based on the Commission's experience with disciplinary
disclosures by registered representatives on Forms U-4, the
Commission estimates that five percent of Commercial Real Estate
Professionals could be subject to a statutory disqualification and
would require more time to make such a determination.
\21\ The Commission estimates that these Commercial Real Estate
Professionals would spend 25 minutes to determine whether they would
be subject to a statutory disqualification and to generate the
representation, and five minutes to disclose the representation.
\22\ 800 x .95 x 6.63 x 5 = 25,194/60 = 419.90 total burden
hours for 95 percent of the Commercial Real Estate Professionals.
800 x .05 x 1 x 30 = 1,200/60 = 20 hours for the first
representation by five percent of the Commercial Real Estate
Professionals. 800 x .05 x 5.63 x 5 = 1,126/60 = 18.77 hours for the
second and third representations by five percent of the Commercial
Real Estate Professionals. Thus total burden hours would be 419.90 +
20 + 18.77 = 458.67. The Commission has rounded its calculations to
two decimal places.
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5. Collection of Information Is Mandatory
This proposed collection of information would be mandatory for
Commercial Real Estate Professionals who rely on the requested
exemption.
6. Confidentiality
The collection of information would be provided by the Commercial
Real Estate Professional to the Lead Placement Agent and to the
customer and would be available for inspection by the Commission and
the applicable SRO.
7. Record Retention Period
The requested exemption does not contain a separate record
retention period.\23\
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\23\ See note 15.
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C. Suitability Determination by the Selling Broker-Dealer
1. Collection of Information
The requested exemption would require a Selling Broker-Dealer to
deliver a representation in writing that the Selling Broker-Dealer
performed a suitability analysis to the Lead Placement Agent at
closing, or, if the Selling Broker-Dealer is the Lead Placement Agent,
to make such a representation in writing at closing.
2. Proposed Use of the Information
The proposed suitability representation would be used in
[[Page 64693]]
implementing the requested exemption and monitoring its use. The
proposed delivery requirement is designed to ensure that the Lead
Placement Agent has a copy of the suitability analysis in order to
comply with its recordkeeping obligations discussed below, which would
facilitate monitoring compliance with the exemption.
3. Respondents
The proposed collection of information would apply to Selling
Broker-Dealers, who deliver or make a suitability determination
pursuant to the requested exemption.
4. Reporting and Recordkeeping Burden
The Commission estimates that approximately 150 Selling Broker-
Dealers \24\ would either deliver or make a representation at closing
and each Selling Broker-Dealer would on average deliver or make such a
representation 33.59 times \25\ a year. Based on the simplicity of the
record to be created, the Commission also estimates that a Selling
Broker-Dealer would spend approximately five minutes on each
disclosure. Thus, the estimated total annual reporting and
recordkeeping burden for this requirement is 419.90 hours \26\ for
Selling Broker-Dealers.
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\24\ The approximate number of Selling Broker-Dealers is based
on discussions with industry participants.
\25\ The Commission estimates that there would be approximately
5,304 TIC Security transactions a year. See note 12. The Commission
estimates that approximately five percent of all proposed TIC
Security transactions would be determined to be not suitable for a
customer under the requested exemption. This estimate is based on
discussions with industry, which indicated that currently
approximately five percent of proposed TIC Security transactions are
determined to be not suitable for a potential purchaser.
Accordingly, the Commission estimates that Selling Broker-Dealers
would make or deliver a suitability determination in approximately
95 percent of all transactions. Thus, a Selling Broker-Dealer would
make or deliver approximately ((5,304 x .95)/150) = 33.59
determinations. The Commission has rounded its calculation to two
decimal places. Assuming a relatively even distribution of
transactions among potential respondents, some respondents would
make or deliver a suitability representation 33 times a year, and
others would do so 34 times a year.
\26\ (5,304 x .95) x five minutes per transaction = 25,194/60 =
419.90.
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5. Collection of Information Is Mandatory
This proposed collection of information would be mandatory for
Selling Broker-Dealers who rely on the requested exemption.
6. Confidentiality
The proposed collection of information would be provided by the
Selling Broker-Dealer to the Lead Placement Agent, or if the Selling
Broker-Dealer is the Lead Placement Agent, to create the collection of
information and would be available for inspection by the Commission and
the applicable SRO.
7. Record Retention Period
The requested exemption does not contain a separate record
retention period.\27\
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\27\ See note 15.
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D. Customer Affirmation by the Selling Broker-Dealer
1. Collection of Information
The requested exemption would require a Selling Broker-Dealer that
determines that a TIC Security transaction is not suitable to obtain a
written affirmation that the customer wants to proceed with the TIC
Security transaction notwithstanding the Selling Broker-Dealer's
determination. It also would require the Selling Broker-Dealer to
deliver the written affirmation to the Lead Placement Agent at closing
or, if the Selling Broker-Dealer is the Lead Placement Agent, to
maintain the written affirmation consistent with the record retention
provisions of Exchange Act Rule 17a-4.
2. Proposed Use of the Information
This proposed information is designed to ensure that the customer
is informed if a Selling Broker-Dealer determines a transaction is not
suitable, and, if the customer wants to proceed with the transaction,
that the customer has made such a decision in light of the broker-
dealer's determination. In addition, the proposed delivery requirement
is designed to ensure that the Lead Placement Agent has a copy of the
customer affirmation in order to comply with its recordkeeping
obligations discussed below, which would facilitate monitoring
compliance with the exemption.
3. Respondents
The proposed collection of information would apply to Selling
Broker-Dealers who deliver or maintain a customer affirmation
determination pursuant to the requested exemption.
4. Reporting and Recordkeeping Burden
The Commission estimates that there are approximately 150 Selling
Broker-Dealers that are potential respondents, those Selling Broker-
Dealers would obtain and then deliver or maintain a written affirmation
from 265.20 customers who are clients \28\ of Commercial Real Estate
Participants a year, and each Selling Broker-Dealer would on average
obtain and then deliver or maintain such an affirmation 1.77 \29\ times
a year. The Commission also estimates that a customer would spend
approximately 30 minutes on each disclosure and the Selling Broker-
Dealer would spend approximately 35 minutes on each disclosure.\30\
Thus, the estimated total annual reporting and recordkeeping burden for
this proposed requirement is an aggregate of 132.60 hours for customers
\31\ and 154.70 hours for the Selling Broker-Dealers.\32\
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\28\ As discussed in note 25, the Commission estimates that
approximately five percent of all proposed TIC Security transactions
would be determined to be not suitable. 5,304 x .05 = 265.20. The
Commission has rounded its calculation to two decimal places. In
other words, in any given year the Commission estimates there would
be either 265 or 266 customers whose Selling Broker-Dealer
determines that a TIC Security transaction is not suitable.
\29\ The Commission estimates that there would be approximately
5,304 TIC Security transactions under the requested exemption. See
note 12. The Commission estimates that Selling Broker-Dealers would
obtain and then deliver or maintain the customer affirmation in five
percent of all transactions under the requested exemption. This
estimate is based on discussions with industry, which indicated that
currently approximately five percent of proposed TIC Security
transactions are determined to be not suitable for a potential
purchaser. For purposes of calculating the reporting and
recordkeeping burden, the Commission estimates that all customers
whose Selling Broker-Dealer determines that a TIC Security
transaction is not suitable would provide a written affirmation
pursuant to the requested exemption. The Commission recognizes that
it is highly unlikely that all customers would provide a written
affirmation in the face of a Selling Broker-Dealer's determination
that a TIC Security transaction is not suitable. However, the
Commission does not have sufficient information to estimate
affirmation rates of less than 100 percent, and thus has chosen the
most conservative estimate for calculating the reporting and
recordkeeping burden. Thus, a Selling Broker-Dealer would obtain
approximately ((5,304 x .05)/150) = 1.77 affirmations a year. The
Commission has rounded its calculation to two decimal places.
Assuming a relatively even distribution of transactions among
potential respondents, some respondents would obtain an affirmation
one time a year, and others would do so two times a year.
\30\ We estimate that it would take the Selling Broker-Dealer 30
minutes to explain to its customer that the transaction is not
suitable, and to discuss with and obtain the subsequent affirmation
from the customer, and five minutes to deliver or maintain the
affirmation.
\31\ 265.20 TIC Security transactions (5,304 x .05) x 30 minutes
per transaction = 7,956/60 = 132.60.
\32\ 265.20 TIC Security transactions (5,304 x .05) x 35 minutes
per transaction = 9,282/60 = 154.70.
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5. Collection of Information Is Mandatory
This collection of information would be mandatory for Selling
Broker-Dealers who rely on the requested exemption.
6. Confidentiality
The proposed collection of information would be provided by the
Selling Broker-Dealer to the Lead Placement Agent, or retained as a
[[Page 64694]]
record, if the Selling Broker-Dealer is the Lead Placement Agent, and
would be available for inspection by the Commission and the applicable
SRO.
7. Record Retention Period
The requested exemption does not contain a separate record
retention period.\33\
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\33\ See note 15.
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E. Recordkeeping by the Lead Placement Agent
1. Collection of Information
The requested exemption would require the Lead Placement Agent to
maintain a copy of each of the documents that is to be made and/or
delivered at closing, as discussed above (i.e., the buyer's agent
agreement, the statutory disqualification representations, the
suitability representation, and, if applicable, the customer's written
affirmation), and the relevant part of the real estate closing
documents that evidences the amount of the Real Estate Advisory Fee
paid to any RE Participant involved in the TIC Security
transaction.\34\
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\34\ The requested exemption also would require the Lead
Placement Agent to maintain a copy of any other records that are
required to be maintained in accordance with the recordkeeping
requirements of the federal securities laws. See note 15.
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2. Proposed Use of the Information
The proposed use of this information is to facilitate monitoring
compliance with the exemption by compelling the Lead Placement Agent to
maintain records of all documents that are required to be delivered at
closing.
3. Respondents
The proposed collection of information would apply to Lead
Placement Agents that act pursuant to the requested exemption.
4. Reporting and Recordkeeping Burden
The Commission estimates that approximately 45 Lead Placement
Agents \35\ would act pursuant to the requested exemption. On average,
a Lead Placement Agent would maintain copies of the relevant documents
for approximately 117.87 TIC Security transactions \36\ a year. The
Commission also estimates that a Lead Placement Agent would spend 10
minutes per closing to maintain a copy of these documents. Thus, the
estimated total annual reporting and recordkeeping burden for this
requirement is 884 hours.\37\
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\35\ Based on discussions with industry representatives, the
Commission estimates that there are 45 sponsors of TIC Security
transactions and that each would have a Lead Placement Agent.
\36\ 5,304 TIC Security transactions/45 Lead Placement Agents =
117.87. The Commission has rounded its calculation to two decimal
places. Assuming a relatively even distribution of transactions
among potential respondents, some Lead Placement Agents would
maintain copies of the relevant documents for 117 transactions a
year, and others would do so for 118 transactions a year.
\37\ 5,304 TIC Security transactions x 10 minutes = 53,040/60 =
884.
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5. Collection of Information Is Mandatory
This proposed collection of information would be mandatory for Lead
Placement Agents that act pursuant to the requested exemption.
6. Confidentiality
The proposed collection of information does not address the
confidentiality of information prepared under this rule; however, the
collection of information would be available for inspection by the
Commission and the applicable SRO.
7. Record Retention Period
As specified, the Lead Placement Agent would be required to
maintain copies of these documents for a period of three years in
accordance with its existing obligations under Exchange Act Rule 17a-
4(f).
F. Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits
comments to:
(1) Evaluate whether the proposed collections of information are
necessary for the proper performance of the functions of the
Commission, including whether the information would have practical
utility;
(2) Evaluate the accuracy of the Commission's estimate of the
burden of the proposed collections of information;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collections of information on those
required to respond, including through the use of automated collection
techniques or other forms of information technology.
Persons desiring to submit comments on the proposed collection of
information requirements should direct them to the Office of Management
and Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
DC 20503, and should send a copy of their comments to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090, and refer to File No. S7-26-07. OMB is
required to make a decision concerning the collection of information
between 30 and 60 days after publication of this notice in the Federal
Register. Therefore, comments to OMB are best assured of having full
effect if OMB receives them within 30 days of this publication.
Requests for materials submitted to OMB by the Commission with regard
to this collection of information should be in writing, refer to File
No. S7-26-07, and be submitted to the Securities and Exchange
Commission, Branch of Records Management, 100 F Street, NE.,
Washington, DC 20549-1110.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7-22425 Filed 11-15-07; 8:45 am]
BILLING CODE 8011-01-P