On February 22, 2011, the U.S. Office of Personnel Management (OPM) issued a proposed rule (76 FR 9694) to redefine Dolores, Montrose, Ouray, San Juan, and San Miguel Counties, CO, and the Curecanti National Recreation Area portion of Gunnison County, CO, from the Southern Colorado wage area to the Northeastern Arizona wage area. The proposed rule had a 30-day comment period during which OPM received no comments.

The Federal Prevailing Rate Advisory Committee (FPRAC), the national labor-management committee responsible for advising OPM on matters concerning the pay of FWS employees, recommended these changes by consensus. FPRAC recommended no other changes in the geographic definitions of the Northeastern Arizona and Southern Colorado wage areas.

In addition, this final rule deletes Pitkin County, CO, as an area of application county in the Southern Colorado wage area. OPM redefined Pitkin County as part of the area of application of the Denver, CO, wage area in a final rule published in 2000 (65 FR 26119). However, Pitkin County continues to incorrectly appear listed as an area of application county in the Southern Colorado wage area. The Denver wage area correctly lists Pitkin County as one of its area of application counties.

I certify that these regulations will not have a significant economic impact on a substantial number of small entities because they will affect only Federal agencies and employees.

Accordingly, the U.S. Office of Personnel Management amends 5 CFR part 532 as follows:

Background

The domestic fruit fly regulations, contained in 7 CFR 301.32 through 301.32-10 (referred to below as the domestic regulations), were established to prevent the spread of certain fruit fly species, including Ceratitis capitata (Mediterranean fruit fly), into noninfested areas of the United States. The regulations designate soil and many fruits, nuts, vegetables, and berries as regulated articles and impose restrictions on the interstate movement of those regulated articles from regulated areas.

Avocado, Persea americana (including the variety Hass), is listed as a regulated article for Mediterranean fruit fly, melon fruit fly ( Bactrocera cucurbitae ), Mexican fruit fly ( Anastrepha ludens ), Oriental fruit fly ( Bactrocera dorsalis ), peach fruit fly ( Anastrepha zonata ), and sapote fruit fly ( Anastrepha serpentina ) in the regulations. Because avocados are listed as regulated articles, they may not be moved interstate from an area quarantined for one of those fruit flies unless the movement is authorized by a certificate or limited permit. In general, avocados may be eligible for a certificate if a bait spray is applied to the production site beginning prior to harvest and continuing through the end of harvest or if a post-harvest irradiation treatment is applied to the fruit. To be eligible for a limited permit, a regulated article must be moved to a specific destination for specialized handling, utilization, or processing or for treatment and meet all other applicable provisions of the regulations. For Hass avocados moving interstate from any Mexican fruit fly or sapote fruit fly quarantined area, the avocados may be moved interstate under certificate if the fruit is safeguarded after harvest in accordance with specific measures set out in § 301.32-4(d). We have determined that Hass avocados are a host for Mexican fruit fly and sapote fruit fly only after harvest; these measures are designed to prevent Hass avocados harvested in a quarantined area from being infested with these fruit flies after harvest. Avocados handled in accordance with these measures are thus allowed to move from the quarantined area without further restriction under the certificate.

The regulations in “Subpart-Fruits and Vegetables” (7 CFR 319.56-1 through 319.56-50, referred to below as the import regulations) prohibit or restrict the importation of fruits and vegetables into the United States from certain parts of the world to prevent the introduction and dissemination of plant pests that are new to or not widely distributed within the United States.

The requirements for importing Hass variety avocados into the United States from Michoacán, Mexico, are described in § 319.56-30. Those requirements include pest surveys and pest risk-reducing practices, treatment, packinghouse procedures, inspection, and shipping procedures. Although Mediterranean fruit fly is not known to be present in Michoacán, Mexico, the regulations require that trapping be conducted for Mediterranean fruit fly and that any fruit fly finds are reported to the Animal and Plant Health Inspection Service (APHIS).

The regulations in § 319.56-50 allow the importation into the continental United States of Hass avocados from Peru provided, among other things, that the avocados originate from an area free of Mediterranean fruit fly or that the avocados have been treated for Mediterranean fruit fly in accordance with our phytosanitary treatment regulations in 7 CFR part 305. In addition, the regulations in § 319.56-50 require that the avocados must either originate from an area within Peru that is free of South American fruit fly or an area with low pest prevalence for South American fruit fly and where trapping for South American fruit fly is conducted.

On April 4, 2011, we published in the Federal Register (76 FR 18419-18421, Docket No. APHIS-2010-0127) a proposal  1 to amend our domestic quarantine regulations to provide for the interstate movement of Hass avocados from Mediterranean fruit fly quarantined areas in the United States with a certificate if the fruit is safeguarded after harvest in accordance with specific measures. We also proposed to amend our foreign quarantine regulations to remove trapping requirements for Mediterranean fruit fly for Hass avocados imported from Michoacán, Mexico, the treatment requirements and origin restrictions for Mediterranean fruit fly for imported Hass avocados from Peru, and the trapping requirements and origin restrictions for South American fruit fly for imported Hass avocados from Peru. These proposed actions were intended to make our domestic and foreign requirements for movement of Hass avocados consistent with each other, relieve restrictions for Mexican and Peruvian Hass avocado producers, and provide an alternative means for Hass avocados to be moved interstate if the avocados originate from a Mediterranean fruit fly quarantined area in the United States.

We solicited comments concerning our proposal for 30 days ending May 4, 2011. We reopened and extended the deadline for comments until May 18, 2011, in a document published in the Federal Register on May 9, 2011 (76 FR 26654-26655). We received 30 comments by that date. They were from private citizens, customs brokers, trade associations, a State department of agriculture, growers, industry groups, chambers of commerce, ports, and foreign governments. The majority of commenters supported the proposed rule. Several commenters submitted comments that were not germane to the rule. The issues raised by the other commenters are discussed below.

One commenter stated that, because Hass avocados have been proven to be limited hosts for South American fruit fly and Mediterranean fruit fly, APHIS should relieve movement restrictions on Hass avocados from all countries with Mediterranean fruit fly and South American fruit fly that ship Hass avocados to the United States. The commenter stated that this would fulfill our bilateral and multilateral sanitary and phytosanitary agreements.

Currently, Hass avocados are allowed entry into the United States from the State of Michoacán, Mexico, and Peru under the regulations in §§ 319.56-30 and 319.56-50, respectively. In addition, Hass avocados are allowed entry into the United States from Chile administratively, provided that the avocados originate from an area free of the Mediterranean fruit fly or that the avocados have been treated by either cold treatment or fumigation with methyl bromide. Because we recognize Chile as free of Mediterranean fruit fly and South American fruit fly, we did not mention Chile in our proposed rule; however, we are also relieving movement restrictions on Hass avocados from Chile due to Mediterranean fruit fly, should Mediterranean fruit fly be reintroduced to Chile. In the event that another country where Mediterranean fruit fly and South American fruit fly are present is authorized to export Hass avocados to the United States, we will not impose movement restrictions associated with those fruit flies, except for post-harvest safeguarding as described in the proposed rule.

One commenter expressed concern that Peru's research protocol and findings, particularly with respect to the host status of Hass avocados for South American fruit fly, were not subjected to peer review. The commenter further stated that the NPPO of Peru should conduct additional experiments to test host susceptibility to South American fruit fly using fruit of varying degrees of maturity from stressed trees. The commenter cited the abandonment of the regulatory protocol allowing the movement of Sharwil variety avocados from Hawaii to the continental United States due to repeated finds of Oriental fruit fly larva within avocado fruit during drought conditions.

While Peru's report on the host status of Hass avocado for South American fruit fly was not peer-reviewed, their research corroborated current literature, including peer-reviewed research conducted by Martin Aluja et al., 2 concluding that, under most circumstances, Hass avocados are generally poor hosts for Anastrepha spp. fruit flies. As stated in the commodity import evaluation document published in connection with the proposed rule, APHIS does not consider South American fruit fly to infest Hass avocados in Mexico, but we included it in the pest list for Hass avocados from Peru due to a lack of host records and data. Peru subsequently conducted a study on host status and came to the conclusion that Hass avocados in Peru are not hosts to South American fruit fly. As stated in our commodity import evaluation document, the main risk of fruit fly infestation is from avocado fruit outside of the normal population, i.e., fruit that is left to become overripe on the tree, injured or damaged fruit, fruit picked up from the ground, picked fruit left in the field for days, and fruit that is the wrong cultivar. Therefore, we have determined that Hass avocados are conditional nonhosts for Mediterranean fruit fly and South American fruit fly. We have encouraged Peru to submit the data they submitted to us regarding the host status of Hass avocado to South American fruit fly for publication in a peer-reviewed journal.

The commenter is correct that the regulatory protocol allowing Sharwil avocados to be moved to the continental United States from Hawaii was abandoned due to repeated finds of Oriental fruit fly larva within avocado fruit. However, the situation within Hawaii was fundamentally different than the situation within Peru for several reasons, not the least of which is the different fruit fly species and avocado varieties involved.

Apart from variety-host interactions, other factors indicate that the problems with interstate movement of Sharwil variety avocados are not likely to occur in Hass variety avocados. For example, the exocarp of the Hass avocado fruit provides a barrier to infestation by fruit flies that may not be offered by the exocarp of other varieties of avocados. In general, drought conditions may increase incidences of fruit fly infestation of avocados, in particular due to an increase in a specific type of peduncle damage called girdling. However, unlike Sharwil avocados in Hawaii, it has been shown that Hass avocados in Mexico that experience girdling do not reach a size conducive to export (see footnote 2). Therefore, they are not likely to be included in commercial shipments. In addition, it is unlikely that avocado trees in Peru would undergo drought stress because the avocado groves there are irrigated. Mature ripe fruit, including Hass avocados, are also more susceptible to insect infestation than immature or “green” fruit; the greater distance that Peruvian Hass avocados must travel to reach the United States means that mature ripe Hass avocados would not be packed for export to the United States, as they would spoil by the time they arrived on the export market.

One commenter asked what sort of oversight APHIS would have over our Hass avocado import programs and what resources will be made available to ensure that the provisions in the regulations are carried out.

As signatories to the International Plant Protection Convention, the national plant protection organizations (NPPO) of Mexico, Peru, and Chile are obligated to fulfill their responsibilities for importation of Hass avocados. In addition, we have APHIS employees stationed in countries throughout the world, including Mexico, Peru, and Chile, to monitor import program activities. We have conducted site visits as part of developing our import requirements and found the NPPOs of Mexico, Peru, and Chile to have the necessary resources and capacity to implement them. In addition, all Hass avocado shipments are subject to inspection at the port of entry, which may include fruit cutting to ensure freedom from quarantine pests. This inspection serves as a check on the effectiveness of the required mitigations.

One commenter suggested that each avocado importer provide a bond that could be used to pay for mitigating potential pest outbreaks as a result of the importation.

We do not consider such a bond requirement to be practical, largely because no country in the world requires the indemnification of agricultural products offered for importation; if the United States were to set a precedent and require such indemnification, it would be only a matter of time before our domestic agricultural producers would be required to put up similar bonds for their exports. Any grower or farmer has little control over his or her produce once it has left the grove or farm, let alone once it has been exported to another nation. Finally, requiring such indemnification would run counter to our obligations under current international trade agreements and would certainly be subject to challenge by our trading partners. For these reasons, the use of such bonds is considered impractical. In addition, as our import requirements are sufficient to mitigate the risk of pest introduction via the importation of Hass avocados, we do not believe that such a requirement would be necessary in any case.

Several commenters expressed concern regarding the impact of the proposed rule on U.S. avocado producers. One commenter pointed to a historical decrease in U.S. avocado acreage and stated that increasing U.S. regulatory constraints and water costs as well as lower-priced foreign imports have accelerated the decline in avocado acreage in recent years. The commenter further stated that lowering the costs borne by foreign producers and allowing unlimited foreign imports will drive domestic avocado producers out of business, resulting in the permanent loss of the domestic avocado industry, which will have an adverse economic effect for businesses connected with the domestic avocado industry. In addition, the commenter stated that communities in the United States where avocados are currently grown would suffer from fallowed farm land. The commenter recommended that, before additional Peruvian avocados are imported, a far-reaching and comprehensive economic impact analysis be prepared, preferably by an independent third party, to evaluate the impacts to the U.S. avocado industry and the effects of additional pressures.

While the commenter is correct that U.S. avocado acreage has declined in the past 25 years, many factors could contribute to that decline, including the increasing opportunity cost of avocado production and the conversion of avocado groves to residential or commercial lots. In addition, despite a decrease in avocado acreage, avocado production has remained approximately the same over that period. While APHIS does not place specific limits on imports of agricultural products generally, APHIS does allow imports to occur only after pest risks are investigated and appropriate mitigation measures are in place.

This rule will allow foreign producers to realize cost savings, and may increase imports. However, we have determined that the domestic avocado industry will not be significantly adversely affected by this rule. Avocados from Chile, Mexico, and Peru are currently allowed importation into the United States and, in the case of Mexico and Chile, have been allowed into the United States for a number of years. Despite this, the U.S. avocado industry is still very active and there have been no introductions of pests that can be traced to avocado imports in the United States.

APHIS does realize that additional imports may place downward pressure on domestic Hass avocado prices, but it also may mean greater availability and potentially greater demand by consumers for all avocados, imported and domestic alike.

Should domestic avocado production decline as a result of this rule, some land may be removed from avocado production. However, fallowing land implies that opportunity cost of avocado production land is zero. On the contrary, the land will be put to a use that provides the owner with the highest return, which could include noneconomic considerations. We would also like to emphasize that, by allowing imports to occur under reasonable science-based restrictions, we advocate for a more accessible world market for U.S. exports as well.

The additional areas of study suggested by the commenter are beyond the requirements of the Regulatory Flexibility Act, which requires agencies to evaluate the potential effects of their proposed and final rules on small businesses, small organizations, and small governmental jurisdictions and to prepare and make available for public comment a regulatory flexibility analysis that describes expected impacts of a rule on small entities. In addition, we believe a study of that scope is not warranted given that this rule was not intended to allow additional avocados into the United States but to relieve restrictions, which we have deemed no longer necessary, on the importation of Hass avocados already allowed entry.

Another commenter stated that, because there are no domestic areas quarantined for the presence of Mediterranean fruit fly, it is not a benefit to U.S. producers to remove restrictions on the interstate movement of Hass avocados for Mediterranean fruit fly. The commenter further expressed concern regarding the economic impact of the rule on small entities and recommended that APHIS consult an economic report put out by the University of California, Davis, Department of Agricultural and Resource Economics, in 2004 regarding how to offset price impacts from imported avocados.

While the commenter is correct that there are currently no areas within the United States quarantined for Mediterranean fruit fly, we proposed to remove restrictions on the movement of Hass avocados due to Mediterranean fruit fly if, in the future, areas of the United States were to be quarantined for Mediterranean fruit fly. Since 2005, there have been 13 Mediterranean fruit fly outbreaks in the United States. The last outbreak of Mediterranean fruit fly in California was in 2009, and it affected avocado production areas. As stated previously, avocados from Chile, Mexico, and Peru are already allowed entry into the United States; the final rule merely relieves restrictions on the movement of Hass avocados we have determined are not necessary in light of research demonstrating the limited host status of Hass avocados to Mediterranean and South American fruit fly.

Therefore, for the reasons given in the proposed rule and in this document, we are adopting the proposed rule as a final rule, without change.

This is a substantive rule that relieves restrictions and, pursuant to the provisions of 5 U.S.C. 553, may be made effective less than 30 days after publication in the Federal Register . Immediate implementation of this rule is necessary to provide relief to those persons who are adversely affected by restrictions we no longer find warranted. The shipping season for Hass avocados from Mexico, Peru, and Chile is in progress. Making this rule effective immediately will allow interested producers and others in the marketing chain to benefit during this year's shipping season. Therefore, the Administrator of the Animal and Plant Health Inspection Service has determined that this rule should be effective upon publication in the Federal Register .

This final rule has been determined to be not significant for the purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget.

In accordance with 5 U.S.C. 604, we have performed a final regulatory flexibility analysis, which is summarized below, regarding the economic effects of this rule on small entities. Copies of the full analysis are available on the Regulations.gov Web site (see footnote 1 in this document for a link to Regulations.gov) or by contacting the person listed under FOR FURTHER INFORMATION CONTACT .

Within the United States, avocado fruit is primarily produced in California, Hawaii, and Florida. There were approximately 8,200 farms producing avocados in those States in 2007. About 180,000 metric tons (MT) of avocados were produced annually in the United States over a 20-year period beginning in the 1990-1991 season. There is an occasional fluctuation with an occasional higher or lower production amount than other years; the variance in avocado production can be attributed to various circumstances including inclement weather.

Currently, the costs associated with the Mediterranean fruit fly mitigation measures on Hass avocados from Mexico and Peru have increased the cost of imported avocados for consumers. Removing requirements for treatment, trapping, and origin restrictions for Hass avocados from Mexico and Peru due to Mediterranean fruit fly and South American fruit fly will reduce the cost associated with mitigation for producers, and in consequence, likely lower the cost of imported avocados for U.S. consumers.

The impact of the rule on Hass avocado fruit operations in California, Hawaii, and Florida will depend on the volume and season of increased Hass avocado imports from Mexico and Peru, the volume and season of continental U.S. production, the volume and season of imports from other countries, as well as U.S. consumption and export levels. Consumer demand for avocados has increased greatly in the past decade. Imports of Hass avocados increased from 56,000 MT in 2001 to a high of 420,000 MT in 2009.

The countries affected by the mitigation treatment changes in this rule already export Hass avocados to the United States. It is worth noting that the increase in imports of Hass avocados has occurred over the last 10 years while U.S. domestic avocado production quantities and values have remained relatively stable. It would appear that the domestic market for avocados continues to expand to absorb both increasing imports and existing domestic production rather than new avocado imports displacing either domestic production or existing imports. It therefore does not appear that the current increasing level of imports has had a significant impact on a substantial number of small avocado producers or importers.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are inconsistent with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule.

This final rule contains no new information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

Accordingly, we are amending 7 CFR parts 301 and 319 as follows:

The information presented in this preamble is organized as follows:

These items are designated under the authority of section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA), as amended by the Food, Conservation, and Energy Act of 2008 (FCEA), 7 U.S.C. 8102 (referred to in this document as “section 9002”).

As part of the BioPreferred Program, USDA published, on November 23, 2010, a proposed rule in the Federal Register (FR) for the purpose of designating a total of 14 items for the preferred procurement of biobased products by Federal agencies (referred to hereafter in this FR notice as the “preferred procurement program”). This proposed rule can be found at 75 FR 71492. This rulemaking is referred to in this preamble as Round 7 (RIN 0503-AA36).

In the proposed rule, USDA proposed designating the following 14 items for the preferred procurement program: Animal repellents; bath products; bioremediation materials; compost activators and accelerators; concrete and asphalt cleaners; cuts, burns, and abrasions ointments; dishwashing products; erosion control materials; floor cleaners and protectors; hair care products, including shampoos and conditioners as subcategories; interior paints and coatings; oven and grill cleaners; slide way lubricants; and thermal shipping containers, including durable and non-durable thermal shipping containers as subcategories.

Today's final rule designates the proposed items within which biobased products will be afforded Federal procurement preference. USDA has determined that each of the items being designated under today's rulemaking meets the necessary statutory requirements; that they are being produced with biobased products; and that their procurement will carry out the following objectives of section 9002: to improve demand for biobased products; to spur development of the industrial base through value-added agricultural processing and manufacturing in rural communities; and to enhance the Nation's energy security by substituting biobased products for products derived from imported oil and natural gas.

When USDA designates by rulemaking an item (a generic grouping of products) for preferred procurement under the BioPreferred Program, manufacturers of all products under the umbrella of that item, that meet the requirements to qualify for preferred procurement, can claim that status for their products. To qualify for preferred procurement, a product must be within a designated item and must contain at least the minimum biobased content established for the designated item. When the designation of specific items is finalized, USDA will invite the manufacturers and vendors of these qualifying products to post information on the product, contacts, and performance testing on its BioPreferred Web site, http://www.biopreferred.gov. Procuring agencies will be able to utilize this Web site as one tool to determine the availability of qualifying biobased products under a designated item. Once USDA designates an item, procuring agencies are required generally to purchase biobased products within these designated items where the purchase price of the procurement item exceeds $10,000 or where the quantity of such items or of functionally equivalent items purchased over the preceding fiscal year equaled $10,000 or more.

Subcategorization. Most of the items USDA is considering for designation for preferred procurement cover a wide range of products. For some items, there are subgroups of products within the item that meet different requirements, uses and/or different performance specifications. Where such subgroups exist, USDA intends to create subcategories within the designated items. In sum, USDA looks at the products within each item category to evaluate whether there are subgroups of products within the item that have different characteristics or that meet different performance specifications and, where USDA finds these types of differences, it intends to create subcategories with the minimum biobased content based on the tested products within the subcategory.

For some items, however, USDA may not have sufficient information at the time of designation to create subcategories within an item. In such instances, USDA may either designate the item without creating subcategories ( i.e., defer the creation of subcategories) or designate one subcategory and defer designation of other subcategories within the item until additional information is obtained. Once USDA has received sufficient additional information to justify the designation of a subcategory, the subcategory will be designated through the proposed and final rulemaking process.

Within today's final rule, USDA has subcategorized three of the items being designated. The first item is hair care products and the subcategories are (1) shampoo products, and (2) conditioner products. The second item is interior paints and coatings and the subcategories are (1) interior latex and waterborne alkyd paints and coatings, and (2) interior oil-based and solventborne alkyd paints and coatings. The third item is thermal shipping containers and the subcategories are (1) durable thermal shipping containers, and (2) non-durable thermal shipping containers.

Minimum Biobased Contents. The minimum biobased contents being established with today's rulemaking are based on products for which USDA has biobased content test data. Because the submission of product samples for biobased content testing is on a strictly voluntary basis, USDA was able to obtain samples only from those manufacturers who volunteered to invest the resources required to submit the samples.

In addition to considering the biobased content test data for each item, USDA also considers other factors including public comments received on the proposed minimum biobased contents and product performance information. USDA also considers the overall range of the tested biobased contents within an item, groupings of similar values, and breaks (significant gaps between two groups of values) in the biobased content test data array. USDA evaluates this information to determine whether some products that may have a lower biobased content also have unique performance or applicability attributes that would justify setting the minimum biobased content at a level that would include these products. USDA believes that this evaluation process allows it to establish minimum biobased contents based on a broad set of factors to assist the Federal procurement community in its decisions to purchase biobased products.

USDA makes every effort to obtain biobased content test data on multiple products within each item. For most designated items, USDA has biobased content test data on more than one product within a designated item. However, in some cases, USDA has been able to obtain biobased content data for only a single product within a designated item. As USDA obtains additional data on the biobased contents for products within these designated items and their subcategories, USDA will evaluate whether the minimum biobased content for a designated item or subcategory will be revised.

USDA anticipates that the minimum biobased content of an item that is based on a single product is more likely to change as additional products within that designated item are identified and tested. In today's final rule, the minimum biobased contents for both subcategories under the thermal shipping containers designated item are based on a single tested product. Given that only three biobased products have been identified in this item, and only one manufacturer of products within each subcategory supplied a sample for testing, USDA believes it is reasonable to set minimum biobased contents for these subcategories based on the single data point for each subcategory.

Overlap with EPA's Comprehensive Procurement Guideline program for recovered content products under the Resource Conservation and Recovery Act (RCRA) Section 6002. Some of the products that are biobased items designated for preferred procurement under the preferred procurement program may also be items the Environmental Protection Agency (EPA) has designated under the EPA's Comprehensive Procurement Guideline (CPG) for products containing recovered materials. In situations where it believes there may be an overlap, USDA is asking manufacturers of qualifying biobased products to make additional product and performance information available to Federal agencies conducting market research to assist them in determining whether the biobased products in question are, or are not, the same products for the same uses as the recovered content products. Manufacturers are asked to provide information highlighting the sustainable features of their biobased products and to indicate the various suggested uses of their product and the performance standards against which a particular product has been tested. In addition, depending on the type of biobased product, manufacturers are being asked to provide other types of information, such as whether the product contains fossil energy-based components (including petroleum, coal, and natural gas) and whether the product contains recovered materials. Federal agencies also may ask manufacturers for information on a product's biobased content and its profile against environmental and health measures and life-cycle costs (the ASTM Standard D7075, “Standard Practice for Evaluating and Reporting Environmental Performance of Biobased Products,” or the Building for Environmental and Economic Sustainability (BEES) analysis for evaluating and reporting on environmental performance of biobased products). Federal agencies may then use this information to make purchasing decisions based on the sustainability features of the products. Detailed information on ASTM Standard D7075, and other ASTM standards, can be found on ASTM's Web site at http://www.astm.org. Information on the BEES analytical tool can be found on the Web site http://www.bfrl.nist.gov/oae/software/bees.html.

Section 6002 of RCRA requires a procuring agency procuring an item designated by EPA generally to procure such an item composed of the highest percentage of recovered materials content practicable. However, a procuring agency may decide not to procure such an item based on a determination that the item fails to meet the reasonable performance standards or specifications of the procuring agency. An item with recovered materials content may not meet reasonable performance standards or specifications, for example, if the use of the item with recovered materials content would jeopardize the intended end use of the item.

Where a biobased item is used for the same purposes and to meet the same Federal agency performance requirements as an EPA-designated recovered content product, the Federal agency must purchase the recovered content product. For example, if a biobased hydraulic fluid is to be used as a fluid in hydraulic systems and because “lubricating oils containing re-refined oil” has already been designated by EPA for that purpose, then the Federal agency must purchase the EPA-designated recovered content product, “lubricating oils containing re-refined oil.” If, on the other hand, that biobased hydraulic fluid is to be used to address a Federal agency's certain environmental or health performance requirements that the EPA-designated recovered content product would not meet, then the biobased product should be given preference, subject to reasonable price, availability, and performance considerations.

This final rule designates one item for preferred procurement for which there may be overlap with an EPA-designated recovered content product. The interior latex and waterborne alkyd subcategory within the interior paints and coatings item may overlap with the EPA- designated recovered content products “reprocessed latex paints” and “consolidated latex paints.” EPA provides recovered materials content recommendations for these recovered content products in a Recovered Materials Advisory Notice (RMAN I). The RMAN recommendations for these CPG products can be found by accessing EPA's Web site http://www.epa.gov/epaoswer/non-hw/procure/products.htm and then clicking on the appropriate product name.

Federal Government Purchase of Sustainable Products. The Federal government's sustainable purchasing program includes the following three statutory preference programs for designated products: The BioPreferred Program, the Environmental Protection Agency's Comprehensive Procurement Guideline for products containing recovered materials, and the Environmentally Preferable Purchasing program. The Office of the Federal Environmental Executive (OFEE) and the Office of Management and Budget (OMB) encourage agencies to implement these components comprehensively when purchasing products and services.

Procuring agencies should note that not all biobased products are “environmentally preferable.” For example, unless cleaning products contain no or reduced levels of metals and toxic and hazardous constituents, they can be harmful to aquatic life, the environment, and/or workers. Household cleaning products that are formulated to be disinfectants are required, under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), to be registered with EPA and must meet specific labeling requirements warning of the potential risks associated with misuse of such products. When purchasing environmentally preferable cleaning products, many Federal agencies specify that products must meet Green Seal standards for institutional cleaning products or that the products have been reformulated in accordance with recommendations from the EPA's Design for the Environment (DfE) program. Both the Green Seal standards and the DfE program identify chemicals of concern in cleaning products. These include zinc and other metals, formaldehyde, ammonia, alkyl phenol ethoxylates, ethylene glycol, and volatile organic compounds (VOC). In addition, both require that cleaning products have neutral or less caustic pH.

In contrast, some biobased products may be more environmentally preferable than some products that meet Green Seal standards for institutional cleaning products or that have been reformulated in accordance with EPA's DfE program. To fully compare products, one must look at the “cradle-to-grave” impacts of the manufacture, use, and disposal of products. Biobased products that will be available for preferred procurement under this program have been assessed as to their “cradle-to-grave” impacts.

One consideration of a product's impact on the environment is whether (and to what degree) it introduces new fossil carbon into the atmosphere. Fossil carbon is derived from non-renewable sources (typically fossil fuels such as coal and oil), whereas renewable biomass carbon is derived from renewable sources (biomass). Qualifying biobased products offer the user the opportunity to manage the carbon cycle and reduce the introduction of new fossil carbon into the atmosphere.

Manufacturers of qualifying biobased products designated under the preferred procurement program will be able to provide, at the request of Federal agencies, factual information on environmental and human health effects of their products, including the results of the ASTM D7075, or the comparable BEES analysis which examines 12 different environmental parameters, including human health. Therefore, USDA encourages Federal procurement agencies to consider that USDA has already examined all available information on the environmental and human health effects of biopreferred products, when making their purchasing decisions.

Other Preferred Procurement Programs. Federal procurement officials should also note that biobased products may be available for purchase by Federal agencies through the AbilityOne Program (formerly known as the Javits-Wagner-O'Day (JWOD) program). Under this program, members of organizations including the National Industries for the Blind (NIB) and the National Institute for the Severely Handicapped (NISH) offer products and services for preferred procurement by Federal agencies. A search of the AbilityOne Program's online catalog (www.abilityone.gov) indicated that four of the items being designated today (concrete and asphalt cleaners, dishwashing detergent, floor cleaners and protectors, and hair care products) are available through the AbilityOne Program. While there is no specific product within these items identified in the AbilityOne online catalog as being a biobased product, it is possible that such biobased products are available or will be available in the future. Also, because additional categories of products are frequently added to the AbilityOne Program, it is possible that biobased products within other items being designated today may be available through the AbilityOne Program in the future. Procurement of biobased products through the AbilityOne Program would further the objectives of both the AbilityOne Program and the preferred procurement program.

Outreach. To augment its own research, USDA consults with industry and Federal stakeholders to the preferred procurement program during the development of the rulemaking packages for the designation of items. USDA consults with stakeholders to gather information used in determining the order of item designation and in identifying: Manufacturers producing and marketing products that fall within an item proposed for designation; performance standards used by Federal agencies evaluating products to be procured; and warranty information used by manufacturers of end user equipment and other products with regard to biobased products.

Future Designations. In making future designations, USDA will continue to conduct market searches to identify manufacturers of biobased products within items. USDA will then contact the identified manufacturers to solicit samples of their products for voluntary submission for biobased content testing. Based on these results, USDA will then propose new items for designation for preferred procurement.

In the preamble to the first six items designated for preferred procurement (71 FR 13686, March 16, 2006), USDA stated that it planned to identify approximately 10 items in each future rulemaking. In an effort to finalize the designation of more items in a shorter time period, USDA now plans to increase the number of items in each rulemaking, whenever possible. Thus, today's final rulemaking designates 14 items for preferred procurement.

USDA has developed a preliminary list of items for future designation and has posted this preliminary list on the BioPreferred Web site. While this list presents an initial prioritization of items for designation, USDA cannot identify with certainty which items will be presented in each of the future rulemakings. In response to comments from other Federal agencies, USDA intends to give increased priority to those items that contain the highest biobased content. In addition, as the program matures, manufacturers of biobased products within some industry segments have become more responsive to USDA's requests for technical information than those in other segments. Thus, items with high biobased content and for which sufficient technical information can be obtained quickly may be added or moved up on the prioritization list. USDA intends to update the list of items for future designation on the BioPreferred Web site every six months, or more often if significant changes are made to the list.

As a result of the comments received on the proposed rule, USDA has made several changes in finalizing the proposed rule. These changes are summarized in the remainder of this section. A summary of each comment received, and USDA's response to the comment, is presented in section IV.

The definitions of three proposed items were revised to avoid potential overlap with previously designated items. The definition of the bath products designated item was revised to specifically exclude products marketed as hand cleaners and/or hand sanitizers. The definition of the concrete and asphalt cleaners designated item was revised to include only those products marketed for use in commercial or residential construction or industrial applications. The definition of the floor cleaners and protectors designated item was revised to include only those products marketed specifically for use on industrial, commercial, and/or residential flooring.

The proposed item interior paints and coatings was subcategorized. The subcategories are (1) interior latex and waterborne alkyd paints and coatings, and (2) interior oil-based and solventborne alkyd paints and coatings.

The discussion of potential overlap with the EPA recovered content product re-refined lubricating oil was removed from the slide way lubricants.

USDA solicited comments on the proposed rule for 60 days ending on January 24, 2011. USDA received comments from five commenters by that date. The comments were from three Federal government agencies and two biobased product manufacturers.

In the remainder of this section, USDA first addresses two general comments that relate to the overall designation process. Comments related to the designation of specific items are presented next, followed by USDA's response to those comments.

Comment: One commenter stated that the BioPreferred Web site might imply to some that the listed products have been tested and meet all Federal requirements, when the primary test of concern is for biobased content. The commenter stated that, in numerous cases, the products have not been tested/evaluated for DoD applications. The commenter suggested that there should be some type of statement on the Web site explaining that the item type meets USDA requirements but not necessarily those of any other component of the Federal government.

Response: USDA agrees with the commenter that the functional performance of biobased products is of great concern to procuring agencies and that such performance is not guaranteed as a part of the designation process. USDA attempts to gather performance information from biobased product manufacturers during the designation process, but does not have the statutory authority to require manufacturers to provide such information. The absence of industry standards listed in association with a catalog entry simply indicates that the company has elected not to provide any information about performance testing associated with their products. Purchasing officials interested in performance data associated with a specific product are encouraged to contact the listed contacts for further information. USDA will consider the feasibility of including a symbol in the catalog (when the performance standards record is null) so that purchasing officials can quickly see which products have testing standards associated with their products.

Comment: One commenter believes that it is important to have a product category designation for automotive motor oils. The commenter states that there are categories for 2-cycle engine oil, and bar and chain lubricant, which are typically petroleum-based products. The commenter believes there would be significant benefit in designating automotive motor oils as a product category in the next round. The commenter stated that this could lead to the creation of more effective and environmentally friendly motor oil from biobased materials.

Response: USDA thanks the commenter for the recommendation and is willing to work with the commenter to obtain valid information regarding the potential for establishing a product category for automotive motor oils. USDA would be especially interested in obtaining information related to performance characteristics of biobased automotive motor oils, including documentation of successful performance testing by recognized testing organizations such as ASTM and SAE.

Comment: One commenter stated that Federal agencies are implementing integrated pest management (IPM) in place of the use of pesticides. The commenter recommends USDA address whether the use of biobased animal repellents is consistent with Federal IPM efforts.

Response: USDA contacted Dr. Martin Draper, the National Program Leader—Plant Pathology, of USDA's National Institute of Food and Agriculture to discuss whether the use of biobased animal repellents is consistent with Federal IPM programs. Dr. Draper stated that IPM encourages the use of diverse methods of mitigating pest pressures, in most cases reducing pesticide use. He further stated that biorational pesticides and biological controls would be welcome and encouraged within the constructs of IPM. He stated that IPM programs are focused on efficacious products and strategies that optimize economic advantage while reducing potential deleterious effects on the environment and human health and that if the products that can do that are biobased, all the better. He further stated that pest repellents would be included as a component of IPM if that was an appropriate strategy. According to Dr. Draper, exclusion, the best option in managing vertebrate pests, is impractical or illegal in some cases. In those cases, repellents become very important in the management of some very damaging pests. Dr. Draper concluded by saying that he did not see where the use of biobased animal repellents would be a conflict with IPM programs.

Comment: One commenter believes that the proposed designation of bath products overlaps with the previous designation of hand cleaners. The commenter stated that manufacturers and purchasers need clear guidance as to which biobased content level applies, as the recommended minimum biobased content level for hand cleaners is slightly higher than that proposed for bath products. The commenter further recommends that USDA provide a clear definition of bath products that distinguishes it from hand cleaners.

Response: USDA does not believe that the designation of bath products overlaps significantly with the previous designation of hand cleaners and sanitizers. Hand cleaners and sanitizers are defined as products formulated exclusively for use as human hand personal care products. Bath products, as defined, are personal hygiene products, including soaps and other cleansers. However, USDA does agree that there may be some confusion regarding these differences and has amended the definition of bath products to state that these exclude products that are specifically marketed as “hand cleaners” and/or “hand sanitizer” products.

Comment: One commenter stated that the designation of bioremediation materials and compost activators could lead to unnecessary addition of biobased components to these products in order to qualify for Federal procurement preference.

The commenter stated that a review of the Technical Support Document indicates that the overwhelming majority of the products identified within these two product categories consist of active biological microorganism cultures. The commenter further noted that some product descriptions also indicate that the product contains nutrients or organic materials. However, the active ingredient is typically a culture of microorganisms.

Thus, according to the commenter, developing a formula for sale to the government by adding more biobased organic materials that simply dilute the microbiological active ingredient is a logical response to USDA's contemplated biobased content minimum. The commenter stated that the result of a “successful” USDA designation in this area might be simply the wasting of biobased products into the compost pile or into soils being remediated. The commenter further stated that the addition of biobased organic materials would also increase the use of packaging materials, fuels, etc. for product transport, having a negative effect on the environment.

The commenter also noted that neither of these product classes appears to have standardized tests to determine product effectiveness—which increases the difficulty to the government to avoid procurement of diluted products prepared to satisfy a biobased content mandate.

The commenter recommends that the “bioremediation materials” product category and the “compost activators and accelerators” product category not be designated under the biobased procurement preference program.

Response: USDA disagrees with the commenter's recommendation that bioremediation materials and compost activators and accelerators not be included in the biobased procurement preference program. Based on the information collected prior to proposing these items for designation, available products within these two items are almost universally high in biobased content. Also, because the microorganisms that are the active ingredients in the products would be counted as biobased content, reducing the percentage of the microorganisms in the product and increasing the biobased nutrient, or carrier, content would not increase the overall biobased content of a product. In addition, reformulating the product to include fewer microorganisms would tend to hurt the performance of the product. Thus, manufacturers would have no reason to add inactive biobased ingredients to increase the biobased content of the products. USDA held a meeting with the commenter to clarify the comments/responses and explain the rationale for finalizing the designation of these two items, but did not make any changes in the final rule.

Comment: One commenter stated that the proposed designation of concrete and asphalt cleaners overlaps with the previously designated graffiti remover. The commenter believes that guidance is needed as to which biobased content applies, as the proposed minimum biobased content level for graffiti remover is significantly lower than that for the concrete and asphalt cleaners. The commenter further stated that concrete and asphalt cleaners should be clearly distinguished from graffiti remover.

Response: USDA reviewed the product information collected on both the proposed concrete and asphalt cleaners item and the previously designated graffiti remover item to investigate clarifications that could be made to the definitions. Based on the product descriptions provided by manufacturers, USDA found that products within the proposed concrete and asphalt cleaners item were predominantly described as being intended for use in construction or industrial applications. Graffiti and grease remover products were generally described as being intended for use in janitorial and/or institutional applications. USDA has, therefore, clarified the definition of concrete and asphalt cleaners to specify that products within this item include only those marketed for use in construction or industrial applications.

Comment: One commenter, in reference to the Boeing Spec D6-17487P listed in connection with the proposed concrete and asphalt cleaners item, asked if proprietary standards like these are readily available to the purchasing agencies. The commenter stated that, if so, their Hazardous Minimization/Green Products Community would like access to them.

Response: USDA does not have access to individual performance specifications such as Boeing Specification D6-17487P. USDA suggests that interested parties contact biobased product vendors/manufacturers, or the entity that established the performance standard, directly regarding access to their specifications.

Comment: One commenter, in reference to the Boeing Spec D6-7127 listed in connection with the proposed dishwashing products item, asked if proprietary standards like these are readily available to purchasing agencies. The commenter stated that, if so, their Hazardous Minimization/Green Products Community would like access to them.

Response: As stated in the response to a similar comment related to the concrete and asphalt cleaners item, USDA does not have access to individual performance standards and recommends that interested parties contact biobased product vendors/manufacturers, or the entity that established the performance standard.

Comment: One commenter believes that the proposed designation of floor cleaners and protectors overlaps with the previous designation of bathroom and spa cleaners, as both types of products can be used to clean similar surfaces. The commenter believes that guidance is needed as to which biobased content applies, as the proposed minimum biobased content level for floor cleaners is slightly higher than that recommended for bathroom cleaning products. The commenter further stated that a definition of floor cleaners that clearly distinguishes it from bathroom cleaners is needed.

Response: USDA has revised the definition of the proposed floor cleaners and protectors item to specify that products within this item are marketed specifically for use on industrial, commercial, and/or residential flooring. USDA agrees with the commenter that some products that are marketed within the previously designated bathroom and spa cleaners item may be used on floors. Those products are generally marketed as multi-surface cleaners formulated specifically for use in bathrooms and spa areas. By specifying that applicable floor cleaner and protector products are those marketed specifically for use on flooring, USDA believes that most overlay issues will be eliminated.

Comment: One commenter recommends that USDA create a category of “personal care products,” with bath products, hand cleaners, and hair care products listed as subsets. Each item should be clearly defined to be distinguishable from each other.

Response: USDA agrees with the commenter that some of the proposed and previously designated items include products that are functionally similar and could be more clearly defined to avoid overlap. USDA has developed the designation rulemakings in several individual “rounds” as new product information was gathered. In addition, biobased product manufacturers have continued to introduce biobased alternatives that are marketed in an increasing variety of applications, especially in the category of “multi-purpose” cleaners and lubricants. USDA recognizes that the potential for many biobased products to be marketed under multiple designated items continues to increase. On one hand, this is encouraging because it means that biobased alternatives are becoming more widespread and more marketable. On the other hand, it means that some of the items that were designated early in the process are not organized and defined in the most practical way. Once the initial designation of those items for which information is readily available has been completed, USDA intends to revisit the entire list of designated items and undertake a reorganization to streamline and clarify the items and update the minimum biobased content requirements, as applicable.

Comment: One commenter proposes that this item designation be subcategorized based on differences in the requirements, uses, and performance specifications. Based on the USDA definition of subgroups, the commenter believes two subgroups exist for interior paints and coatings, “interior latex and latex-hybrid paints and coatings” and “interior oil-based and alkyd paints and coatings.” Because significantly different technologies and chemistries are used to meet the requirements, uses, and performance specific to each of these subgroups, different minimum biobased content levels should be set for each of these.

The commenter stated that coatings within the first proposed subcategory, interior latex and latex-hybrid paints and coatings, are carried in water and are capable of meeting all national and regional VOC regulations. The commenter also stated that it is important that procurement officers have biobased options capable of meeting the VOC regulations in their particular region. The commenter stated that they currently sell products that would fall into this subcategory and can provide them to the USDA for biobased content testing. The commenter recommended that a minimum level of approximately 20 percent biobased carbon would be appropriate for the latex and latex hybrid-paints and coatings subcategory.

According to the commenter, latex paint is the dominant coating type used in the interior paint and coatings market; used for typical painting projects, such as wall paint. The commenter stated that users of latex paints have very specific performance expectations, including fast drying times and low odor. The commenter noted that these are very important factors, because the paint cost accounts for only about 20-30 percent of the total paint-job cost, with the majority of costs being related to labor. Faster drying paints significantly reduce labor costs and allow office buildings and other interior spaces to be quickly returned to service after painting. These coatings are also carried in water which results in low odor, low VOC and significantly lower contribution to indoor air quality issues.

The commenter also stated that subcategorization of interior latex and latex-hybrid paint and coatings will also provide the requested clarity on the potential overlap that was identified by the USDA, with the EPA's Resource Conservation and Recovery Act (RCRA). By subcategorizing in this manner, there is no overlap for applications that require a paint from the “interior oil-based and alkyd paint and coatings” subcategory. The commenter stated that, in the case of applications requiring paint from the “interior latex and latex-hybrid paints and coatings” subcategory, the decision between a biobased latex paint (USDA BioPreferred) or reprocessed/consolidated latex paint (EPA RCRA) can be made by the procurement officer based on price, availability, and performance considerations.

The commenter stated that the second proposed subcategory, interior oil-based and alkyd paints and coatings are defined by the ACA as “a paint that contains drying oil, oil varnish or oil-modified resin as the film-forming ingredient.” The commenter explained that an alkyd resin is defined by the ACA as “synthetic resin modified with oil.” Thus, alkyd paints and coatings are defined as “coatings that contains alkyd resins in the binder.” The commenter also stated that these coatings typically are carried in a natural or synthetic solvent and therefore may not meet VOC regulations in certain geographical regions.

The commenter stated that the coating HC84-0015 tested by the USDA qualifies for this subcategory and the coatings Q14G-0009, Q14G-0013, and Q14G-0002, may qualify for this subcategory as well. The commenter agrees with a 67 percent biobased content level for this subcategory.

The commenter explained that interior alkyd and oil-based paints in the U.S. market are typically used for trim paint and as wood primers, especially where tannin blocking is specifically required. The commenter stated that users of alkyd and oil-based paints have very specific performance expectations and that these coatings are used on trim specifically for their hardness, smooth application, tannin blocking ability, and the ability to achieve substantially higher gloss levels. They can also be used for wall coatings when this type of performance is required. In contrast to latex and latex hybrid, these types of coatings are slow to dry and often have some odor associated with them.

The commenter recommended the following changes to the proposed designation of biobased interior paints and coatings for preferred Federal procurement:

The subcategories should be based on their differentiated use and performance specifications. Allowing for the inclusion of latex paints will lead to wider adoption and use of biobased products in the interior paints and coatings category.

The commenter believes that a level of 67 percent biobased content is appropriate for the interior oil-based and alkyd paints and coatings subcategory, but the level for the interior latex and latex-hybrid paints and coatings should be approximately 20 percent biobased carbon content.

The commenter also stated that the 100 percent biobased content level found in product MXF6-0004 should not be used to determine the minimum biobased content for interior paints and coatings or either of the proposed subcategories because this type of coating is not feasible for use and this product was not tested for biobased content as it is intended to be used. The commenter stated that, when used as instructed by the manufacture in the product description, the biobased content of the full painting system will be significantly lower. While the milk-paint base itself is biobased, according to the product description provided by the USDA, it requires mixing with an adhesive in order to adhere to non-porous surfaces ( e.g. any previously painted surfaces). Milk-paint manufactures also typically recommend using an acrylic top-coat for durability. The commenter stated that, since the adhesive is a necessary part of the “coating” to insure adhesion to the substrate, it must be included in any determination of biobased content.

Response: USDA considered the information provided by the commenter, reviewed the data previously collected on this proposed item, and also researched other coating-related information available on the Internet. USDA agrees with the commenter that the proposed item should include at least two subcategories based on two fundamentally different coating technologies.

USDA found that within the broad category of interior paints and coatings all products can be categorized at the highest level as either waterborne or solventborne. As the names imply, the products can be divided into those that use water as the “carrier” liquid and those that use a solvent other than water ( e.g., typically petroleum-based solvents). Waterborne coatings have traditionally been formulated as an emulsion of petroleum based acrylic resins in water. These coatings were low in VOC content, but did not contain biobased components. Solventborne coatings have traditionally been formulated as plant based (soy, linseed, castor) alkyd resins in petroleum based solvents. These coatings have a much higher VOC content, but do include a biobased component.

Recent advances in coating technology have resulted in the formulation of waterborne coatings that include varying levels of plant based alkyd resins. Thus, there are now biobased alternatives within both the waterborne and solventborne coating types. While solventborne alkyd coatings still generally contain a much higher biobased content, waterborne coatings with a significant biobased content are becoming increasingly popular. The commenter reported selling a line of waterborne coating products with at least 20 percent biobased content. USDA also contacted a major resin manufacturer who confirmed that their products are used in waterborne alkyd coatings containing biobased contents in the 20 to 30 percent range.

USDA agrees with the commenter that other types of coatings, such as the milk-paint discussed by the commenter, are not generally representative of the coating technologies that dominate the interior coatings market. While various other types of coating technologies are available, their use is very specialized and the volumes that would potentially be purchased by Federal procurement officials is negligible compared to waterborne and solventborne coatings. USDA has, therefore, not considered these specialty coatings in establishing subcategories for this item. However, to the extent that any of these specialty coatings fall within the subcategories established in today's final rule, they would be eligible for the same consideration for preferred procurement as more traditional coatings.

For the reasons presented above, USDA has decided to create two subcategories within the interior paints and coatings item. USDA recognizes that there are many factors for purchasing officials to consider when purchasing interior paints and coatings. Procurement decisions must be made considering applicable VOC regulations as well as a long list of necessary coating performance characteristics. Creating two subcategories within the interior paints and coatings item allows USDA to acknowledge the differences between the two basic coating types and also to set minimum biobased contents that are representative of each type. In the final rule, the two subcategories are: (1) Interior latex and waterborne alkyd paints and coatings, and (2) interior oil-based and solventborne alkyd paints and coatings. The minimum biobased content of the first subcategory is 20 percent and the minimum biobased content of the second subcategory is 67 percent. USDA believes that these minimum biobased contents will result in procuring officials being able to select from a sufficiently large number of products to ensure that their performance needs can be met.

Comment: One commenter stated that, under E.O. 13423 and 13514, Federal agencies are using interior paints with no or low VOC content as part of their high performance sustainable building efforts. For some agencies, the use of no- or low-VOC paints is necessary to help meet air non-attainment area requirements. USDA should address the VOC content of biobased paints and whether the use of these products is consistent with agency efforts to reduce their use of VOC-containing products.

Response: As discussed in the response to the previous comment, USDA has subcategorized the interior paints and coatings item into two subcategories. The two subcategories can generally be described as being either waterborne (the latex and waterborne alkyds subcategory) or solventborne (the oil-based and solventborne alkyds subcategory). Waterborne coatings, as the name implies, use water as the carrier for the resins and pigments. Solventborne coatings use an organic solvent (typically a petroleum-derived solvent) as the carrier. The vast majority of coatings used in the interior paints and coatings market are waterborne coatings and one of the primary driving factors in the emergence of waterborne technology was the low organic solvent content of these coatings. Not only do these coatings meet VOC requirements, they are fast drying and low in odor. Solventborne coatings are typically used as primers and for wood trim, cabinets, and furniture. They are used primarily for their hardness, smooth application, and higher gloss levels. Because they contain organic solvents, however, these coatings may not meet VOC regulations in some geographical regions.

USDA agrees with the commenter that the use of low VOC coatings is an important consideration in many Federal agency's environmental programs. USDA recommends that purchasing officials first consider the performance and environmental concerns when deciding whether to purchase waterborne or solventborne coatings. Once that decision is made, purchasing officials must determine whether the available biobased alternatives within each coating type meet their performance and cost criteria.

Comment: One commenter stated that the proposed designation of slide way lubricants does not overlap with EPA's designation of re-refined lubricating oils. The commenter stated that the EPA designation applies to engine lubricants, hydraulic fluids, and gear oils.

Response: USDA thanks the commenter for the comment. USDA reconsidered the potential for an overlap and agrees that slide way lubricants do not overlap with EPA's designated re-refined lubricating oil. USDA has removed the discussion of the potential overlap for this item from the final rule.

Comment: One commenter stated that this proposed category has two subcategories with only one manufacturer and that USDA is proposing to defer the compliance date until additional manufacturers are identified. The commenter suggests that in future rounds it may be preferable to hold off designating an item until more than one manufacturer is identified.

Response: Section 9002 of the Farm Security and Rural Investment Act of 2002 (FSRIA), as amended by the Food, Conservation, and Energy Act of 2008 (FCEA), states that USDA shall “* * * designate those items (including finished products) that are or can be produced with biobased products (including biobased products for which there is only a single product or manufacturer in the category) that will be subject to the preference described in paragraph (2) * * *”. Thus, USDA does not agree that it should defer designating an item until more than one manufacturer is identified.

Executive Order 12866 requires agencies to determine whether a regulatory action is “significant.” The Order defines a “significant regulatory action” as one 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 this Executive Order.”

Today's final rule has been determined by the Office of Management and Budget to be not significant for purposes of Executive Order 12866. We are not able to quantify the annual economic effect associated with today's final rule. As discussed earlier in this preamble, USDA made extensive efforts to obtain information on the Federal agencies' usage within the 14 designated items, including their subcategories. These efforts were largely unsuccessful. Therefore, attempts to determine the economic impacts of today's final rule would require estimation of the anticipated market penetration of biobased products based upon many assumptions. In addition, because agencies have the option of not purchasing designated items if price is “unreasonable,” the product is not readily available, or the product does not demonstrate necessary performance characteristics, certain assumptions may not be valid. While facing these quantitative challenges, USDA relied upon a qualitative assessment to determine the impacts of today's final rule. Consideration was also given to the fact that agencies may choose not to procure designated items due to unreasonable price.

Today's final rule is expected to have both positive and negative impacts to individual businesses, including small businesses. USDA anticipates that the biobased preferred procurement program will provide additional opportunities for businesses and manufacturers to begin supplying products under the designated biobased items to Federal agencies and their contractors. However, other businesses and manufacturers that supply only non-qualifying products and do not offer biobased alternatives may experience a decrease in demand from Federal agencies and their contractors. USDA is unable to determine the number of businesses, including small businesses, that may be adversely affected by today's final rule. The final rule, however, will not affect existing purchase orders, nor will it preclude businesses from modifying their product lines to meet new requirements for designated biobased products. Because the extent to which procuring agencies will find the performance, availability and/or price of biobased products acceptable is unknown, it is impossible to quantify the actual economic effect of the rule.

The designation of these 14 items provides the benefits outlined in the objectives of section 9002; to increase domestic demand for many agricultural commodities that can serve as feedstocks for production of biobased products, and to spur development of the industrial base through value-added agricultural processing and manufacturing in rural communities. On a national and regional level, today's final rule can result in expanding and strengthening markets for biobased materials used in these items.

Like the benefits, the costs of today's final rule have not been quantified. Two types of costs are involved: Costs to producers of products that will compete with the preferred products and costs to Federal agencies to provide procurement preference for the preferred products. Producers of competing products may face a decrease in demand for their products to the extent Federal agencies refrain from purchasing their products. However, it is not known to what extent this may occur. Pre-award procurement costs for Federal agencies may rise minimally as the contracting officials conduct market research to evaluate the performance, availability and price reasonableness of preferred products before making a purchase.

The RFA, 5 U.S.C. 601-602, generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

USDA evaluated the potential impacts of its designation of these items to determine whether its actions would have a significant impact on a substantial number of small entities. Because the preferred procurement program established under section 9002 applies only to Federal agencies and their contractors, small governmental (city, county, etc. ) agencies are not affected. Thus, the proposal, if promulgated, will not have a significant economic impact on small governmental jurisdictions.

USDA anticipates that this program will affect entities, both large and small, that manufacture or sell biobased products. For example, the designation of items for preferred procurement will provide additional opportunities for businesses to manufacture and sell biobased products to Federal agencies and their contractors. Similar opportunities will be provided for entities that supply biobased materials to manufacturers.

The intent of section 9002 is largely to stimulate the production of new biobased products and to energize emerging markets for those products. Because the program is still in its infancy, however, it is unknown how many businesses will ultimately be affected. While USDA has no data on the number of small businesses that may choose to develop and market biobased products within the items designated by this rulemaking, the number is expected to be small. Because biobased products represent a small emerging market, only a small percentage of all manufacturers, large or small, are expected to develop and market biobased products. Thus, the number of small businesses manufacturing biobased products affected by this rulemaking is not expected to be substantial.

The preferred procurement program may decrease opportunities for businesses that manufacture or sell non-biobased products or provide components for the manufacturing of such products. Most manufacturers of non-biobased products within the items being designated for preferred procurement in this rule are expected to be included under the following NAICS codes: 324191 (petroleum lubricating oil and grease manufacturing), 325320 (pesticide and other agricultural chemical manufacturing), 325412 (pharmaceutical preparation manufacturing), 325510 (paint and coating manufacturing), 325611 (soap and other detergent manufacturing), 325612 (polish and other sanitation goods manufacturing), 325620 (toilet preparation manufacturing), 325998 (other miscellaneous chemical products and preparation manufacturing), 326150 (urethane and other foam product manufacturing), and 314999 (other miscellaneous textile mill products). USDA obtained information on these 10 NAICS categories from the U.S. Census Bureau's Economic Census database. USDA found that the Economic Census reports about 8,092 companies within these 10 NAICS categories and that these companies own a total of about 9,255 establishments. Thus, the average number of establishments per company is about 1.1. The Census data also reported that of the 9,255 individual establishments, about 9,119 (98.5 percent) have fewer than 500 employees. USDA also found that the overall average number of employees per company among these industries is about 58, with only one segment reporting an average of more than 100 employees (the pharmaceutical preparation industry segment at about 250 employees per company). Thus, nearly all of the businesses fall within the Small Business Administration's definition of a small business (fewer than 500 employees, in most NAICS categories).

USDA does not have data on the potential adverse impacts on manufacturers of non-biobased products within the items being designated, but believes that the impact will not be significant. Most of the items being designated in this rulemaking are typical consumer products widely used by the general public and by industrial/commercial establishments that are not subject to this rulemaking. Thus, USDA believes that the number of small businesses manufacturing non-biobased products within the items being designated and selling significant quantities of those products to government agencies affected by this rulemaking to be relatively low. Also, this final rule will not affect existing purchase orders and it will not preclude procuring agencies from continuing to purchase non-biobased items when biobased items do not meet the availability, performance, or reasonable price criteria. This final rule will also not preclude businesses from modifying their product lines to meet new specifications or solicitation requirements for these products containing biobased materials.

After considering the economic impacts of this final rule on small entities, USDA certifies that this action will not have a significant economic impact on a substantial number of small entities.

While not a factor relevant to determining whether the final rule will have a significant impact for RFA purposes, USDA has concluded that the effect of the rule will be to provide positive opportunities to businesses engaged in the manufacture of these biobased products. Purchase and use of these biobased products by procuring agencies increase demand for these products and result in private sector development of new technologies, creating business and employment opportunities that enhance local, regional, and national economies.

This final rule has been reviewed in accordance with Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights, and does not contain policies that would have implications for these rights.

This rule has been reviewed in accordance with Executive Order 12988, Civil Justice Reform. This rule does not preempt State or local laws, is not intended to have retroactive effect, and does not involve administrative appeals.

This final rule does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment. Provisions of this final rule will not have a substantial direct effect on States or their political subdivisions or on the distribution of power and responsibilities among the various government levels.

This final rule contains no Federal mandates under the regulatory provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538, for State, local, and tribal governments, or the private sector. Therefore, a statement under section 202 of UMRA is not required.

For the reasons set forth in the Final Rule Related Notice for 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), this program is excluded from the scope of Executive Order 12372, which requires intergovernmental consultation with State and local officials. This program does not directly affect State and local governments.

Today's final rule does not significantly or uniquely affect “one or more Indian tribes, * * * the relationship between the Federal Government and Indian tribes, or * * * the distribution of power and responsibilities between the Federal Government and Indian tribes.” Thus, no further action is required under Executive Order 13175.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 through 3520), the information collection under this final rule is currently approved under OMB control number 0503-0011.

USDA is committed to compliance with the E-Government Act, which requires Government agencies, in general, to provide the public the option of submitting information or transacting business electronically to the maximum extent possible. USDA is implementing an electronic information system for posting information voluntarily submitted by manufacturers or vendors on the products they intend to offer for preferred procurement under each designated item. For information pertinent to E-Government Act compliance related to this rule, please contact Ron Buckhalt at (202) 205-4008.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, that includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. USDA has submitted a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register .

For the reasons stated in the preamble, the Department of Agriculture is amending 7 CFR chapter XXIX as follows:

The FOIA requires each Federal agency covered by the Act to specify a schedule of fees applicable to processing of requests for agency records. 5 U.S.C. 552(a)(4)(A)(i). On May 16, 2011 the Board published for comment in the Federal Register its Proposed FOIA Fee Schedule, 76 FR 28194. In response to the notice, one comment was received regarding excessive fees. The Board's 2010 and 2011 FOIA fee schedules are the same; there is no proposed increase.

The Board is now establishing the Fee Schedule. Pursuant to 10 CFR 1703.107(b)(6) of the Board's regulations, the Board's General Manager will update the FOIA Fee Schedule once every 12 months. The previous Fee Schedule Update was published in the Federal Register and went into effect on June 15, 2010, 75 FR 39629.

Accordingly, the Board issues the following schedule of updated fees for services performed in response to FOIA requests:

History

On April 19, 2011, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Drummond Island, MI, creating additional controlled airspace at Drummond Island Airport (76 FR 21826) Docket No. FAA-2010-0609. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by creating additional Class E airspace extending upward from 700 feet above the surface for new standard instrument approach procedures at Drummond Island Airport, Drummond Island, MI. This action is necessary for the safety and management of IFR operations at the airport. Geographic coordinates are also being updated to coincide with the FAA's aeronautical database.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace for Drummond Island Airport, Drummond Island, MI.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

On May 2, 2011, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Ava, MO, reconfiguring controlled airspace at Ava Bill Martin Memorial Airport (76 FR 24409) Docket No. FAA-2011-0122. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace extending upward from 700 feet above the surface for the Ava, MO area. Decommissioning of the Bilmart NDB and cancellation of the NDB approach at Ava Bill Martin Memorial Airport has made reconfiguration of the airspace necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Ava Bill Martin Memorial Airport, Ava, MO.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

On May 9, 2011, the FAA published in the Federal Register a notice of proposed rulemaking to establish Class E airspace for Ranger, TX, creating controlled airspace at Cook Canyon Ranch Airport (76 FR 26658) Docket No. FAA-2010-1240. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by establishing Class E airspace extending upward from 700 feet above the surface for new standard instrument approach procedures at Cook Canyon Ranch Airport, Ranger, TX. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes controlled airspace for Cook Canyon Ranch Airport, Ranger, TX.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

History

On April 19, 2011, the FAA published in the Federal Register a notice of proposed rulemaking to establish Class E airspace for Hearne, TX, creating controlled airspace at Hearne Municipal Airport (76 FR 21831) Docket No. FAA-2011-0214. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by establishing Class E airspace extending upward from 700 feet above the surface for new standard instrument approach procedures at Hearne Municipal Airport, Hearne, TX. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes controlled airspace for Hearne Municipal Airport, Hearne, TX.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR Part 71 as follows:

History

On Tuesday, April 19, 2011, the FAA published a notice of proposed rulemaking in the Federal Register to amend Class E airspace to accommodate new SIAPS at Yakutat Airport, Yakutat, AK (76 FR 21832).

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. Three comments were received. One commenter noted that the proposed rule incorrectly referred to the Yakutat VORTAC: The correct navigational aid is the Yakutat VOR/DME. The rule has been changed to correct that error. The second commenter suggested that the portion of the proposed Class E airspace overlaying Canadian airspace should be excluded. The FAA has found merit in this and has adjusted the airspace to exclude that area outside of U.S. airspace. The third commenter noted that a portion of the airspace overlies offshore airspace beyond 12 NM from the shoreline (Control 1487L) which should be revised to reflect the change in the 1,200 ft. airspace. The FAA agrees and that change is being incorporated in a separate offshore airspace rulemaking. The FAA also noted that two of the longitudes used in the geographic coordinates for the airspace description were incorrectly rounded. This action corrects that error.

The Class E airspace areas designated as 700/1,200 ft. transition areas are published in paragraph 6005 of FAA Order 7400.9U, Airspace Designations and Reporting Points, dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by revising Class E airspace to accommodate eight amended standard instrument approach procedures at the Yakutat Airport, Yakutat, AK. This action provides adequate controlled airspace upward from 700 feet and 1,200 feet above the surface for the safety and management of IFR operations at Yakutat Airport. A portion of the 1,200 foot controlled airspace extends over Offshore Airspace Control 1487L which has been amended in a separate rulemaking. With the exception of editorial changes, and the changes described above, this rule is the same as that proposed in the NPRM.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Because this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart 1, Section 40103, Sovereignty and use of airspace. Under that section, the FAA is charged with prescribing regulations to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority because it creates additional Class E airspace at the Yakutat Airport, Yakutat, AK for the safe and efficient use of the National Airspace System.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

On Thursday, May 12, 2011, the FAA published a notice of proposed rulemaking (NPRM) in the Federal Register to revise Class E airspace at Talkeetna, AK (76 FR 27619).

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. One comment was received noting that the longitude of the Talkeetna VOR/DME was incorrect. The FAA agrees and will correct the error.

The Class E airspace areas are published in paragraphs 6002 and 6005, respectively, of FAA Order 7400.9U, Airspace Designations and Reporting Points, signed August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order. With the exception of editorial changes, and the changes described above, this rule is the same as that proposed in the NPRM.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by revising Class E airspace at the Talkeetna Airport, Talkeetna, AK, to accommodate four amended standard instrument approach procedures and the revised obstacle departure procedure. This Class E surface airspace and Class E airspace extending upward from 700 and 1,200 feet above the surface is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Because this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart 1, Section 40103, Sovereignty and use of airspace. Under that section, the FAA is charged with prescribing regulations to ensure the safe and efficient use of the navigable airspace. This regulation is within the scope of that authority because it creates Class E airspace sufficient in size to contain aircraft executing instrument procedures for the Talkeetna Airport and represents the FAA's continuing effort to safely and efficiently use the navigable airspace.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

Direct Final Rule Procedure

The FAA anticipated that this regulation would not result in adverse or negative comment and therefore is issued as a direct final rulemaking. Because the changes to the lightning commit criteria will increase launch availability and are already for U.S. Government launchs at Air Force launch ranges, the public interest is well served by this rulemaking.

The comment period closed July 8, 2011, and the FAA received no comments.

In light of the fact that no comments were submitted in response to the direct final rule, the FAA has determined that no further rulemaking action is necessary. Therefore, Amendment No. 417-2 takes effect as of July 25, 2011.

On March 11, 2009, President Obama signed the Omnibus Appropriations Act. 1 Section 626 of that Act directed the Commission to commence, within 90 days of enactment, a rulemaking proceeding with respect to mortgage loans. 2 Section 626 also directed the FTC to use notice and comment procedures under Section 553 of the Administrative Procedure Act  3 to promulgate these rules. 4

On May 22, 2009, President Obama signed the Credit CARD Act. 5 Section 511 of this statute clarified the Commission's rulemaking authority under the Omnibus Appropriations Act. 6

Section 511 of the Credit CARD Act specified that the FTC rulemaking “shall relate to unfair or deceptive acts or practices regarding mortgage loans, which may include unfair or deceptive acts or practices involving loan modification and foreclosure rescue services.”  7 The Omnibus Appropriations Act, as clarified by the Credit CARD Act, does not otherwise specify what the Commission should include in, or exclude from, a rule, but rather directs the FTC to issue mortgage rules that “relate to” unfairness or deception. 8

Section 5 of the FTC Act broadly proscribes unfair or deceptive acts or practices in or affecting commerce. An act or practice is deceptive if there is a representation, omission of information, or practice that is likely to mislead consumers who are acting reasonably under the circumstances, and the representation, omission, or practice is one that is material, i.e., likely to affect consumers' decisions to purchase or use the product or service at issue. 9 Section 5(n) of the FTC Act sets forth a three-part test to determine whether an act or practice is unfair. First, the practice must be one that causes or is likely to cause substantial injury to consumers. Second, the injury must not be outweighed by countervailing benefits to consumers or to competition. Third, the injury must be one that consumers could not reasonably have avoided. 10

Accordingly, the Commission interprets the Omnibus Appropriations Act, as clarified by the Credit CARD Act, to allow it to issue rules that prohibit or restrict unfair or deceptive conduct or that are reasonably related to the goal of preventing unfair or deceptive practices. The FTC notes, however, that all of the conduct prohibited by the Final Rule is itself deceptive.

Section 511 of the Credit CARD Act also clarified that the Commission's rulemaking authority is limited to entities over which the FTC has jurisdiction under the FTC Act. 11 Under the FTC Act, the Commission has jurisdiction over any person, partnership, or corporation that engages in unfair or deceptive acts or practices in or affecting commerce, except, among others:  12 banks, 13 savings and loan institutions, Federal credit unions, 14 non-profits, 15 and common carriers. The Final Rule does not cover the practices of entities that are excluded from the FTC's jurisdiction.

The Omnibus Appropriations Act, as clarified by the Credit CARD Act, also permits both the Commission and the states to enforce the rules the FTC issues. 16 The Commission can use its powers under the FTC Act to investigate and enforce such rules, and the FTC can seek civil penalties under the FTC Act against those who violate them. In addition, states can enforce the rules by bringing civil actions in Federal district court or another court of competent jurisdiction to obtain civil penalties and other relief. Before bringing such an action, however, states must give 60 days advance notice to the Commission or other “primary federal regulator” of the proposed defendant, 17 and the regulator has the right to intervene in the action.

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. 18 The Dodd-Frank Act made substantial changes in the Federal regulatory framework for providers of financial services. Among the changes, the Dodd-Frank Act will transfer the Commission's rulemaking authority under the Omnibus Appropriations Act to a new Bureau of Consumer Financial Protection (CFPB)  19 on July 21, 2011, the “designated transfer date” set by the Treasury Department. 20 In addition, on the designated transfer date, the FTC's authority to “issue guidelines” under the Omnibus Appropriations Act will transfer to the CFPB. 21 Both the Commission and the CFPB, however, will have authority to bring law enforcement actions and seek civil penalties against specific categories of “nondepository covered persons” to enforce the rules promulgated under the Omnibus Appropriations Act, including this Final Rule. 22

On June 1, 2009, the Commission published in the Federal Register an Advance Notice of Proposed Rulemaking (ANPR) soliciting comments on the contours of a possible rule that would prohibit or restrict unfair and deceptive acts and practices that may occur throughout the life-cycle of a mortgage loan, 23 i.e., in the advertising and marketing of the loan, at the time of loan origination, in the home appraisal process, and during the servicing of the loan. The ANPR described these services generically as “Mortgage Acts and Practices,” and the rulemaking proceeding was entitled the Mortgages Acts and Practices (MAP) Rulemaking. 24

On September 30, 2010, the Commission published in the Federal Register a Notice of Proposed Rulemaking (NPRM) relating to unfair or deceptive acts and practices that may occur with regard to mortgage advertising, the MAP B Advertising Rule (proposed rule). 25 Among other things, the proposed rule prohibited any misrepresentation in any commercial communication regarding any term of any mortgage credit product, and it imposed certain recordkeeping requirements.

In response to the NPRM, the Commission received a total of 22 comments. 26 Commenters included industry trade associations or groups, credit unions, state credit union regulators, a not-for-profit law firm, a real estate settlement services firm, and a group of state banking and consumer credit regulators. The Commission also received five comments from individuals. Most of the comments expressed support for FTC regulatory action or particular aspects of the proposed rule. These comments are discussed below. 27

As discussed in the ANPR and NPRM, the mortgage life-cycle begins when a consumer initially shops for a mortgage, whether to purchase a home or real property, 28 refinance an existing mortgage, or obtain a home equity loan or line of credit (known as a HELOC) based on the consumer's equity in the home. 29 Consumers may consider obtaining diverse types of mortgage products. The loan may be a forward mortgage, the most prevalent type of loan, in which the homeowner borrows funds and remits payments for principal, interest, and, in some cases, other charges. Alternatively, the loan may be a reverse mortgage, in which senior citizens borrow funds secured by their homes. With a reverse mortgage, the borrower is not required to repay the debt as long as he or she remains in the home; and the loan is not due until the homeowner moves out of or sells the home, dies, or fails to satisfy certain loan conditions. 30 Forward mortgages may be traditional, such as fully amortizing 30-year fixed-rate or adjustable rate mortgages (ARMs), 31 or nontraditional. 32

Consumers receive information about mortgages through many different channels of communication. Some consumers seek out mortgage information on their own, for example, on the Internet or by contacting a real estate broker, mortgage lender, mortgage broker, or others. Marketers and advertisers widely disseminate mortgage advertisements to consumers through print media (such as newspapers and magazines), television, radio, the Internet, billboards, and other methods. Marketers and advertisers also send targeted information to particular consumers through direct mail or electronic communications such as e-mail or text messages.

Many types of entities market and advertise mortgage products. Mortgage lenders, mortgage brokers, mortgage servicers, and real estate brokers advertise and market mortgage products. In addition, advertising agencies, home builders, lead generators, 33 rate aggregators, 34 and others also may market and advertise mortgage products to consumers. Mortgage lenders and servicers are particularly likely to market products to their current customers, in addition to prospective customers.

Advertising and marketing can provide consumers with valuable information about mortgage options, costs, and features. This information is critical to the decisions consumers make throughout the mortgage origination process, especially because mortgage products are typically complex. 35 Information is useful for decision making, however, only if it is truthful and non-misleading. 36 Preventing and deterring deception in advertisements for mortgages, therefore, is a primary objective of FTC law enforcement and of the Final Rule.

The elements of deception are set forth in the FTC's Deception Policy Statement of 1984. An act or practice is deceptive if: (1) There is a representation, omission of information, or practice that is likely to mislead consumers acting reasonably under the circumstances; and (2) that representation, omission, or practice is material to consumers. 37

A representation may be express or implied. “Express claims directly represent the fact at issue, while implied claims do so in an oblique or indirect way.”  38 Whether an implied claim is made depends on the overall net impression that consumers take away from an advertisement, based on all of its elements (language, pictures, graphics, etc. ). 39 The FTC evaluates whether consumers' impressions or interpretations of a representation or omission are reasonable. Reasonableness is evaluated based on the sophistication and understanding of consumers in the group to which the representation is targeted, which may be a general audience or a specific group, such as children or the elderly. 40 A claim may be susceptible to more than one reasonable interpretation, and if one such interpretation is misleading, then the advertisement is deceptive, even if other, non-deceptive interpretations are possible. 41

A disclaimer or qualifying statement may correct a misleading impression, but only if it is sufficiently clear and prominent to convey the qualifying information effectively, i.e., it is both noticed and understood by consumers. “[I]n many circumstances, reasonable consumers do not read the entirety of an ad or are directed away from the importance of the qualifying phrase by the acts or statements of the seller;”  42 thus, a fine print disclosure at the bottom of a print advertisement or a brief video superscript in a television advertisement is unlikely to qualify a claim effectively. 43 Similarly, because consumers “may glance only at the headline” of an advertisement, “accurate information in the text may not remedy a false headline.”  44

A representation, omission, or practice is material if it is likely to affect a consumer's choice of or conduct regarding a product. 45 If consumers are likely to have chosen differently but for the claim, the claim is likely to have caused consumer injury. 46 Express claims are presumed material. 47 Similarly, information regarding the cost of a product or service is presumed material. 48 Intentional implied claims, 49 and claims about the purpose and efficacy of a product or service, 50 are also presumed to be material.

In addition to the FTC Act, mortgage advertisers and marketers are subject to TILA (including the Home Ownership and Equity Protection Act (HOEPA)  52 ) and Regulation Z, among other legal requirements. 53 In July 2008, the Federal Reserve Board issued many new mortgage advertising rules under Regulation Z; these rules took effect on October 1, 2009. 54

The states also have enacted various laws or regulations that address aspects of deceptive mortgage advertising practices, 55 including laws implementing the Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act), which requires a nationwide licensing and/or registration system for mortgage loan originators. 56

None of these Federal or state statutes or regulations duplicates the specificity and breadth of practices, and diversity of entities, 57 covered in the Final Rule.

The FTC has substantial law enforcement experience with mortgage advertising practices. Since 1995, the Commission has brought 18 law enforcement actions against individuals or companies that allegedly engaged in unfair or deceptive practices or violations of TILA in mortgage advertising. 58 These actions have targeted large and small mortgage lenders, mortgage brokers, and others throughout the country. 59 The cases have involved advertisements and marketing materials in various media, including print advertisements, 60 unsolicited e-mails, 61 direct mail marketing, 62 Internet advertisements and Web sites, 63 telemarketing, 64 and in-person sales presentations. 65 The alleged violations have included deceptive claims—often made to subprime borrowers—about key terms and other aspects of the loans, such as:

• Misrepresentations of the loan amount or the amount of cash disbursed;  66

• Claims for loans with specified terms, when no loans with those terms were available from the advertiser;  67

• Claims of low “teaser” rates and payment amounts, without disclosing that the rates and payments would increase substantially after a limited period of time;  68

• Misrepresentations that rates were fixed for the full term of the loan;  69

• Misrepresentations about, or failure to adequately disclose, the existence of a prepayment penalty  70 or large balloon payment due at the end of the loan;  71

• Claims about the monthly payment amounts that the borrower would owe, without disclosing the existence, cost, and terms of credit insurance products “packed” into the loan;  72

A. Background 1. The Poison Prevention Packaging Act of 1970 and Implementing Regulations

The Poison Prevention Packaging Act of 1970 (“PPPA”), 15 U.S.C. 1471-1476, gives the Commission authority to establish standards for the “special packaging” of household substances, such as drugs, when child-resistant (“CR”) packaging is necessary to protect children from serious personal injury or illness due to the substance and the special packaging is technically feasible, practicable, and appropriate for such substance. Accordingly, CPSC regulations require that oral prescription drugs be in CR packaging. 16 CFR 1700.14(a)(10). The powder forms of cholestyramine and colestipol, two drugs that are chemically similar to colesevelam hydrochloride and sevelamer carbonate, currently are exempt from CR packaging. Id. 1700.14(a)(10)(v) and (xv).

CPSC regulations allow companies to petition the Commission for exemption from CR requirements. 16 CFR part 1702. Among the possible grounds for granting an exemption are that:

On February 24, 2009, Daiichi Sankyo, Inc. (“Daiichi”) petitioned the Commission to exempt the powdered form of colesevelam hydrochloride, which it markets as Welchol ®, from the special packaging requirements for oral prescription drugs. The petitioner stated that the exemption is justified because of lack of toxicity and lack of adverse human experience with the drug. Welchol ® has been marketed in tablet form and dispensed in CR packaging. On October 2, 2009, the U.S. Food and Drug Administration (“FDA”) approved a new powder formulation of the drug. The petition requested an exemption only for the powder dosage form of Welchol ®. The product, in tablet form, would continue to be in CR packaging.

Welchol ® is a bile acid sequestrant indicated as an adjunct to: (1) Reduce elevated low-density lipoprotein cholesterol (LDL-C) levels; and (2) improve glycemic control in adults with type 2 diabetes mellitus. The new dosage form of Welchol ® provides 1.875 g or 3.75 g of the powdered drug in unit dose packages to be mixed with water and taken orally as a suspension. (A unit dose package of Welchol ® is a pouch that contains an individual dose.)

On March 6, 2009, Genzyme Corporation (“Genzyme”) petitioned the Commission to exempt the powdered form of sevelamer carbonate, which it markets as Renvela, ® from the special packaging requirements for oral prescription drugs. The petitioner stated that the exemption is justified because of lack of toxicity and lack of adverse human experience with the drug.

Renvela ® is a phosphate binder indicated for the control of serum phosphorus in patients with chronic kidney disease on dialysis. The tablets are marketed with a pill crusher for patients who have trouble swallowing the tablets. The company reformulated Renvela ® as a powder to be taken as an oral suspension, and the FDA approved this powder formulation on August 12, 2009. The new dosage form of Renvela ® provides either 0.8 g or 2.4 g of Renvela ® powder in unit dose packages to be mixed with 2 ounces of water.

On February 16, 2011, we published a notice of proposed rulemaking (“NPR”) proposing to exempt from special packaging the powder forms of colesevelam hydrochloride (Welchol ®) and sevelamer carbonate (Renvela ®). 76 FR 8942. As explained in the preamble to the proposed rule, we considered the two exemption petitions together because Welchol ® and Renvela ® have similar chemical structures, biological properties, and powder formulations.

As noted in the preamble to the proposed rule (76 FR at 8943), the systemic toxicity of colesevelam hydrochloride and sevelamer carbonate is limited because they are not absorbed from the gastrointestinal (GI) tract. There is no data indicating that either drug is acutely toxic. Acute toxicity is the type of toxicity that is of concern when considering whether CR packaging is appropriate. Even in patients taking these drugs chronically, the adverse effects are mostly minor, such as diarrhea, nausea, constipation, flatulence, and dyspepsia.

If a child were to ingest accidentally Welchol ® or Renvela ®, the potential for the occurrence of mild to moderate GI discomfort, such as indigestion, constipation, nausea, and vomiting does exist. However, a review of relevant data indicates that an acute ingestion of these drugs would not result in serious toxicity.

CPSC's CR packaging regulations exempt cholestyramine and colestipol in powder form, two bile acid sequestrants that are similar chemically to Welchol ® and Renvela.® We have not found any relevant articles in the medical literature describing toxic effects following the acute ingestion of either cholestyramine or colestipol from 1975 through 2010.

As discussed in the preamble to the proposed rule (76 FR at 8944), we searched the following databases for incidents related to Welchol ® and Renvela ® occurring between 2000 and 2009: the Injury and Potential Injury Incident database (“IPII”), the National Electronic Injury Surveillance System database (“NEISS”), and the Death Certificates database (“DTHS”). We found one incident involving Welchol ® in the NEISS database. In that incident, 11-month-old twin boys were taken to the emergency room after they had been playing with their grandmother's prescription medications. It is not clear how many, if any, pills the boys ingested, but the children were treated and released from the hospital. We also searched Poisindex,® Pub Med, and Google for Welchol,® Renvela,® colestipol, and cholestyramine, and found no relevant incidents of acute poisoning in humans.

Before publication of the proposed rule, and as noted therein, we also analyzed Medwatch reports obtained from the FDA. Medwatch is the FDA's program for reporting a serious adverse event, product quality problem, product use error, or therapeutic inequivalence/failure that may be associated with the use of an FDA-regulated drug, biologic, medical device, dietary supplement, or cosmetic. (See http://www.fda.gov/Safety/MedWatch/HowToReport/default.htm. ) There may be adverse events that have occurred and are not reported in the Medwatch database. Also, the existence of a report in the database does not mean necessarily that the product actually caused the adverse event.

The FDA gave us 151 distinct incidents of adverse events associated with Welchol ® reported through the Medwatch system. We excluded incidents where other medications may have caused the adverse event reported, resulting in 22 adverse events. Most adverse events reported to Medwatch were gastrointestinal or involved muscle pain, which is to be expected considering the adverse effects reported from clinical trials of Welchol.®

We also received reports from the FDA of 40 distinct incidents of adverse events associated with Renvela.® We excluded incidents where other medications may have caused the adverse event reported, resulting in five in-scope incidents. Two of the five incidents were deaths, which most likely were related to the underlying disease and not treatment with Renvela.® One of the five incidents involved intestinal obstruction and perforation, which the patient's physician thought were possibly related to the patient's treatment with Renvela.® In the two remaining incidents, one patient experienced gastroenteritis, and the other (who had asthma and chronic obstructive pulmonary disease) suffered severe breathing problems while on Renvela.® Neither of these two results likely was related to Renvela.®

We updated the injury data since publication of the proposed rule. We searched the IPII, NEISS, and death certificate databases from 2000 through 2010, for incidents associated with Welchol,® Renvela,® and related drugs ( i.e., cholestyramine (Questran ®) and colestipol (Colestid ®)). We did not identify any incidents related to Renvela,® Questran,® or Colestid,® and identifed only one new Welchol ®-related case. This incident occurred in July 2010, when a 19-month-old boy was found in his crib with an open Tylenol ® bottle. The bottle was previously used for carrying Welchol ® and other drugs. It was not clear from the report if any Welchol ® tablets were in the bottle when the child accessed it. The child was taken to the emergency department, held overnight for observation, and then released the next day.

Additionally, we searched Poisindex ® (a comprehensive database which identifies the toxicity of commercial, biological, and pharmaceutical products), and the medical literature for updated information on colesevelam hydrochloride and sevelamer carbonate colestipol, and cholestyramine. We found no incidents of acute poisoning in humans through this search.

We also evaluated the likelihood of children younger than 5 years old ingesting powdered substances. The powdered form of these substances makes them more difficult to ingest than medicines in other forms and therefore, likely will keep children from ingesting significant quantities. It would be difficult for children under 5 years old to eat large amounts of powder quickly without aspirating or coughing. It also would be difficult for children to mix powder thoroughly in a liquid, and the resulting lumpy quality may be unappealing to children who try to drink it. Although children are likely to be able to tear open the non-child-resistant packets used for Welchol ® and Renvela,® they are likely to spill much of the contents; therefore, they would have to open a number of packages to access a significant quantity of the drug. Most unintentional poisonings among children occur during short lapses in direct visual supervision. The difficulty posed by ingestion of powder introduces a delay in the poisoning scenario, and supervision is likely to resume before a child can take in a significant quantity.

As noted in the preamble to the proposed rule (76 FR at 8944), the packages used with the powder formulations of Welchol ® and Renvela ® also reduce the likelihood of child poisoning. Both drugs are provided in small, foil-lined packages containing individual doses. The Renvela ® package is easy to tear only at the notch. Because the package must be opened at a precise location, it is less accessible, especially to young children. The Welchol ® package does not have a notch and has uniform resistance to tearing, which makes it more difficult to open than Renvela.® Although both packages tear easily enough to be opened by children under 5 years of age, the fine motor skills of children in this age group are still developing, and such children are likely to spill most of the powder.

We published a notice of proposed rulemaking in the Federal Register on February 16, 2011, to exempt colesevelam hydrochloride (Welchol ®) and sevelamer carbonate (Renvela ®) from the special packaging requirements of the PPPA. 76 FR 8942. The proposed rule would amend our existing regulations at 16 CFR § 1700.14 by adding a new paragraph (a)(10)(xxii) to exempt coleselam hydrochloride in powder form in packages containing not more than 3.75 grams of the drug. The proposed rule also would create a new paragraph (a)(10)(xxiii) to exempt sevelamer carbonate in powder form in packages containing not more than 2.4 grams of the drug. We received 27 comments, with 15 supporting the proposed rule. In general, the comments did not address the codified text; instead, they focused on issues relating to the drugs themselves. The comments are available at http://www.regulations.gov/#!docketDetail;rpp=50;po=0;D=CPSC-2011-0007 . This section summarizes the issues raised by the comments and provides responses to those issues. Each summarized issue is identified below as a single comment, and the word “Comment,” in parentheses, will appear before the summary description of all comments on that issue, and the word “Response,” in parentheses, will appear before our response to the issue. We also have numbered each summarized issue as a separate comment to help distinguish between the different issues raised by the commenters and summarized by us. They are listed in no particular order.

(Comment 1)— Some commenters were concerned about what they felt was a lack of data, and they thought that these drugs could be harmful to children ( e.g., cause bowel obstruction, electrolyte/serum glucose imbalance, and death), particularly if ingested in large amounts. One commenter also questioned the use of adverse effect data from adults and animals in predicting toxicity from accidental poisoning in children.

(Response 1)— We typically consider all available data in toxicity assessments, with human data taking precedence over animal data. While limited data are available on the acute toxicity of Welchol ® and Renvela ® in children, the adverse effects reported are similar to those in adults. Because these drugs are not absorbed systemically, acute adverse effects typically are limited to the GI tract and are unlikely to be serious. An extension of these effects would be expected in an overdose scenario. Notably, intestinal obstruction has only been observed during therapeutic use of these drugs in patients whose health has been compromised otherwise ( e.g., low birth weight, chronic kidney disease, and adhesions). Cases have been documented in infants and one child following treatment with a similar drug, cholestyramine. In addition, a 45-year-old male developed an intestinal obstruction, perforation, and an abdominal fistula (abnormal opening in the stomach or bowel, which allows the contents to leak) after several months of treatment with Renvela.® Intestinal obstruction has occurred very rarely after treatment with Welchol.® In fact, Welchol ® has a greater specificity for bile acids than cholestyramine and colestipol and has been suggested to have greater gastrointestinal tolerance than the other two drugs.

Based on all available information, an imbalance of electrolytes or glucose control is unlikely to occur following an acute exposure to Welchol ® or Renvela.® No unexpected laboratory tests were seen following chronic administration of 3.75 grams g/day of Welchol ® to pediatric subjects with heterozygous familial hypercholesteremia or 15 g/day of Renvela ® to normal volunteers. Chronic administration of Welchol ® decreased fasting glucose levels 3.9-15.9 mg/dl. Because a blood glucose goal is 100-180 mg/dl for children, it is unlikely that acute administration of Welchol ® would cause hypoglycemia ( i.e., low blood sugar) in a child (less than 60 mg/dl).

Moreover, as discussed in section C of this preamble, there are no available poisoning data showing that these drugs cause serious toxicity following an acute exposure.

(Comment 2)— Some commenters argued that: (1) The powder may present a choking hazard to children; and (2) there is little support for claims that the powders are more difficult for children to ingest, access from the packet without spilling, and mix thoroughly in a liquid.

(Response 2)— The low acute toxicity of Welchol® and Renvela® is a key factor for the exemptions. Additionally, CPSC's Human Factors staff considered relevant data and medical literature to conclude that powders generally present a low risk because they are more difficult to ingest, particularly in large quantities. Generally, with the exception of caustics, the primary exposure risk associated with powders is aspiration. Notably, any potential choking hazard with these drugs could also occur with any non-pharmaceutical powder formulation available in the household, such as soaps, baby powder, drink mixes, and food products.

We maintain that a child would have difficulty opening the packet of either of these drugs and mixing the powder with a liquid because of the lack of precision and control required. Moreover, there are no available poisoning data with these or similar drugs (colestipol or cholestyramine) to indicate otherwise.

(Comment 3)— One commenter stated that he believes that “the drug can potentially be mixed with something to create an adverse reaction.”

(Response 3)— The commenter provided no evidence to suggest that this is a likely event, and no information or examples of a substance that would cause an adverse reaction when mixed with Welchol® or Renvela®. Although it is possible that a child might mix the powder with a liquid in imitation of an adult, it is highly unlikely that a child would do so repeatedly because a small child can drink only a limited amount of liquid at one time. In addition, the consistency of incompletely mixed powder is likely to deter repetition.

(Comment 4)— Some commenters asserted that benefits from the CR exemptions are limited: increased profits for the manufacturers of the drugs; and ease of opening the package.

(Response 4)— Exempting from CR requirements the powder forms of Welchol® and Renvela® may increase patient compliance. Poor adherence to medication regimens for chronic health issues is a well-established concern. Easier access to these drugs could benefit patients with minimal or no risk to children.

This rule exempts two drugs that otherwise would be subject to CR packaging requirements under the PPPA. Because the rule grants an exemption, it is not subject to the usual requirement under the Administrative Procedure Act (“APA”) that a rule must be published 30 days before it takes effect. 5 U.S.C. 553(d)(1). Therefore, it is appropriate for the rule to become effective upon publication in the Federal Register .

Under the Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601 et seq., an agency that engages in rulemaking generally must prepare initial and final regulatory flexibility analyses describing the impact of the rule on small businesses and other small entities. Section 605 of the RFA provides that an agency is not required to prepare a regulatory flexibility analysis if the head of an agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.

As noted in the preamble to the proposed rule (76 FR at 8945), the Commission's Directorate for Economic Analysis prepared a preliminary assessment of the impact of a rule to exempt powder formulations of Welchol® and Renvela® from special packaging requirements. Based on this assessment, we preliminarily concluded that the proposed amendment exempting powder formulations of Welchol® and Renvela® from special packaging requirements would not have a significant impact on a substantial number of small businesses or other small entities. We received no comments on this assessment or any additional information. Therefore, we conclude that exempting powder formulations of colesevelam hydrochloride (currently marketed as Welchol® and sevelamer carbonate (currently marketed as Renvela® from special packaging requirements would not have a significant impact on a substantial number of small businesses or other small entities.

Pursuant to the National Environmental Policy Act, and in accordance with the Council on Environmental Quality regulations and CPSC procedures for environmental review, we have assessed the possible environmental effects associated with the proposed PPPA amendment. As discussed in the preamble to the proposed rule, CPSC regulations state that rules requiring special packaging for consumer products normally have little or no potential for affecting the human environment. 16 CFR 1021.5(c)(3). Nothing in this rule alters that expectation. Therefore, because the rule would have no adverse effect on the environment, neither an environmental assessment nor an environmental impact statement is required.

According to Executive Order 12988 (February 5, 1996), agencies must state in clear language the preemptive effect, if any, of new regulations.

The PPPA provides that, generally, when a special packaging standard issued under the PPPA is in effect, “no State or political subdivision thereof shall have any authority either to establish or continue in effect, with respect to such household substance, any standard for special packaging (and any exemption therefrom and requirement related thereto) which is not identical to the [PPPA] standard.” 15 U.S.C. 1476(a). A state or local standard may be excepted from this preemptive effect if: (1) the state or local standard provides a higher degree of protection from the risk of injury or illness than the PPPA standard; and (2) the state or political subdivision applies to the Commission for an exemption from the PPPA's preemption clause and the Commission grants the exemption through a process specified at 16 CFR part 1061. 15 U.S.C. 1476(c)(1). In addition, the Federal government, or a state or local government, may establish and continue in effect a nonidentical special packaging requirement that provides a higher degree of protection than the PPPA requirement for a household substance for the Federal, state, or local government's own use. 15 U.S.C. 1476(b).

Thus, with the exceptions noted above, the rule exempting powder formulations of Welchol® and Renvela® from special packaging requirements preempts nonidentical state or local special packaging standards for the substances.

For the reasons given above, the Commission amends 16 CFR part 1700 as follows:

I. Background and Summary of Comments A. Background

On November 2, 2010, the Commission proposed Reporting Rules that, in addition to establishing recordkeeping requirements, require routine swaps position reports from clearing organizations, clearing members and swap dealers and apply non-routine reporting requirements to large swaps traders. 1 The Reporting Rules, as finalized and adopted herein, will allow the Commission to administer its regulatory responsibilities under the Commodity Exchange Act (“CEA or Act”) by implementing and conducting effective surveillance of economically equivalent physical commodity futures, options and swaps. The Reporting Rules will directly support the Commission's transparency initiatives such as its dissemination of Commitments of Traders and Index Investment Data Reports and will allow the Commission to monitor compliance with the trading requirements of the Act. 2

The Commission currently receives and uses for market surveillance and enforcement purposes, data on large positions in all physical commodity futures and option contracts traded on designated contract markets (“DCMs”). Without the Reporting Rules, there would be no analogous reporting system in place for economically equivalent swaps, which until recently were largely unregulated financial contracts. The Reporting Rules, as discussed below, are reasonably necessary for the effective surveillance of economically equivalent futures and swaps.

The Commission received approximately 130 comment letters, and engaged in several ex parte communications, for the proposed Reporting Rules. The Commission has carefully reviewed and considered the submitted comments. Substantive comments pertinent to specific provisions in the rulemaking are summarized and discussed below and in other sections of this notice.

The National Futures Association (“NFA”) submitted a comment  3 suggesting that its issuance of trader identifications should be a part of the position reporting process. Although beyond the scope of this rulemaking as proposed, the Commission may review the feasibility of adopting such an approach as a part of its ongoing updating and revision of other transaction and position reporting requirements.

The Air Transport Association (“ATA”), Better Markets Inc. (“Better Markets”), the Petroleum Marketers Association of America (“PMAA”) and New England Fuel Institute (“NEFI”), and Robert Pollin and James Heintz of the Political Economy Research Institute (“PERI”) indicated support for the proposed regulations. 4 ATA supported the proposal as a practical solution to the Commission's current lack of swaps position data. Better Markets stated its support for the use of futures equivalence and the assembly of data based on price relationships. PMAA and NEFI argued the regulations will provide for a solid foundation for position limits.

Bindicap Comster, the Futures Industry Association (“FIA”) and a working group of commercial energy firms (“Working Group”), meanwhile, opposed the proposed regulations, 5 arguing that an expanded special call reporting mechanism, similar to the special call that the Commission has issued to support its Index Investment Data and Commitments of Traders Reports, would be a better alternative to the proposed regulations while remaining consistent with the requirements of the Act. 6 The Commission notes that its current special call for Index Investment Data Reports is a targeted collection of data. It gathers information related to specific products from a limited set of market participants. The special call was not intended to function as a tool for general market surveillance, including compliance with section 4a of the Act. In order to be able to gather data of the quality needed to conduct market surveillance the special call would have to undergo substantial modifications, such as requiring much more granular data by counterparty in a data stream on or close to a next-day basis, which in effect would convert it into the Reporting Rules.

FIA and the Working Group also questioned whether the Commission has sufficient authority to adopt such regulations. FIA argued that the Commission's authority is not clear because of the CEA section 2(h) reporting exemption for swaps on exempt commodities. The Working Group argued that the proposal is not required by the Dodd-Frank Act and that it is not necessary to comply with CEA section 4a(a)(1). The Commission has requisite statutory authority for the Reporting Rules based on CEA sections 4a, 4t and 8a(5). Specifically, section 4a of the CEA, as amended by the Dodd-Frank Act, directs the Commission to establish position limits, as appropriate, for physical commodity swaps. 7 Section 737 of the Dodd-Frank Act, which amended section 4a to direct the Commission to impose these limits, became effective on the date of enactment of the Dodd-Frank Act— i.e., July 21, 2010. Section 8a(5) of the CEA authorizes the Commission to promulgate such regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes of the CEA. In the Commission's judgment, the Reporting Rules are reasonably necessary to implement the statutory mandate in section 4a for the Commission to establish position limits, as appropriate, on an expedited basis.

In addition, section 4t of the Act authorizes the Commission to establish a large trader reporting system for significant price discovery function swaps, of which economically equivalent swaps are a subset. Swaps position reports are a necessary component of an effective surveillance program. Accordingly, the Commission is adopting the subject swap reporting requirements pursuant to its authority in sections 4a and 4t of the CEA, as described above.

With regard to the future establishment of swap data repositories (“SDRs”) and whether the Commission should wait for SDRs to provide swaps position data instead of adopting the regulations, ATA argued that the Commission should proceed with the regulations and not wait for SDRs to become operational. FIA and the Working Group, on the other hand, argued that the future role of SDRs makes adoption of the regulations unnecessary. The Commission has determined that the Reporting Rules are reasonably necessary for several reasons. It is likely that physical commodity SDRs will require the most time to become operational since, unlike for swaps in the interest rate, equity and credit default asset categories, there currently is no functional and accepted data repository for swaps in the energy, metal or agricultural commodity asset categories. In addition, even after SDRs have been established, because they are fundamentally transaction repositories, it may be a considerable time before SDRs are able to reliably convert transaction data into positional data. Thus, in view of the considerable time before physical commodity swap SDRs are likely to be operational and have the ability to convert transactions to positions, the Commission has determined to adopt the Reporting Rules. In order to address concerns raised about the possibility of redundant regulatory obligations, however, the Reporting Rules do include, in final regulation 20.9, a sunset provision.

Better Markets, FIA and the Working Group, as well as a not-for-profit electric end-user coalition (“Electric End User Coalition”), 8 argued that the proposed regulations should not be adopted by the Commission until regulations defining the terms “swap dealer” and “swap” are adopted first. As further explained below, the Commission has determined to tie the compliance date of the regulations for swap dealers that are not clearing members to the effective date of the “swap dealer” definition final rulemaking. 9 With regard to the “swap” definition, the Commission has determined to utilize, on a transitional basis and until final definitional regulations become effective, a definition of “swap” that is based on the reference to “commodity swap” within the definition of “swap agreement” in part 35 of the Commission's regulations. Swap market participants have relied on the definition of “swap agreement” for exempting transactions from the CEA since 1993. As a result, market participants have an understanding of the general nature of the definition of commodity swap. The swaps that would be subject to the Reporting Rules would be the same under both definitions.

With regard to the definition of “reporting entity,” FIA and the Working Group argued that it is overly broad. Bindicap Comster argued that the definition is appropriate. In the Commission's judgment, the Reporting Rules have been narrowly tailored to obtain the information reasonably necessary from clearing organizations, clearing members and swap dealers in order to implement and conduct an effective initial surveillance program for swaps.

With regard to the proposed definition of “paired swaps,” the Working Group argued that it would not always appropriately capture the concept of economic equivalence because, for example, different delivery locations may have periods of high correlation followed by periods where such correlations break down. Better Markets argued that it was too narrow because it did not consider criteria such as market hedging practices, margin netting offered by clearing organizations or historical price correlation. The proposed regulations identified three categories of swaps that would be economically equivalent to DCM contracts and thereby subject to reporting under the proposed rules: (1) Swaps directly or indirectly linked to the price of a referenced DCM contract; (2) swaps directly or indirectly linked to the price of the same commodity for delivery at the same location as that of a referenced DCM contract; and (3) swaps based on the same commodity as that of a referenced DCM contract which are deliverable at different locations that nonetheless have the same supply and demand fundamentals as the referenced DCM contract's delivery point. The first two categories of the definition of economically equivalent swaps are appropriately tailored and objectively defined, do not require case by case Commission analysis, and would provide sufficient data for the Commission to meet its responsibility under sections 4a and 4t of the Act. To further the objectives of clear applicability of the regulations and the submission of accurate reports, as well as to lower the burden on reporting entities by limiting the set of reportable swaps, the Commission has amended the definition to remove the third category.

With regard to the reporting mechanics and data fields of the proposed regulations, Better Markets suggested additional reporting fields, arguing that reporting entities should be required to specify their role with respect to the execution of reported trades and that clearing organizations should be required to report net position information as well as gross positions and delta values. The Commission has determined that the data fields specified in the regulations will provide the Commission with sufficient data to begin its initial surveillance of the swaps markets for physical commodities, while minimizing the burden on reporting entities. Such identification data, including trader categorization, will be collected in 102S and 40S filings which include other trader identifying information and are submitted to the Commission much less frequently than positional data. The Commission can later broaden the scope of the reporting requirements or frequency of reporting identifying data if necessary based on its administrative experience.

The final Reporting Rules do, however, harmonize the data fields required to be reported by swap dealers for cleared and non-cleared swaptions. As proposed, certain fields were required for cleared swaptions that were not required for non-cleared swaptions and vice-versa. Although certain data fields may be more relevant for cleared or non-cleared swaptions, the harmonization of required data fields will simplify the reporting of swaptions and thereby will likely decrease (and not increase) any burden associated with reporting swaptions under the Reporting Rules as finalized.

FIA argued that reporting entities' trade capture systems are not readily adaptable to the data fields specified in the proposed regulations. It also argued that data for cleared swaps should only be submitted by clearing members in order to prevent double counting. The reporting of cleared positions by swap dealers and clearing members was intentionally incorporated into the regulations. As with the collection of any data, there is a need to verify submitted information.

FIA also argued that reporting entities, because certain counterparty data may not be available to them or organized as described by the Reporting Rules, should only be required to report their positions and the names of counterparties, not all the specified data related to consolidated accounts in the proposed regulations.

The Commission has amended the proposed regulations, which initially required a reporting entity to identify information about the controller of a reportable account, to partially address this concern by requiring that data be provided by a clearing member's or swap dealer's direct legal counterparty. Data is no longer required to be provided by account controller. In addition, the final Reporting Rules do not require reporting by actual swap and swaption accounts. All of these amendments will serve to streamline the reporting process while preserving the Commission's regulatory interests.

With regard to the reporting threshold of futures equivalent contracts for economically equivalent swaps, Better Markets suggested that the threshold reporting level should be 25 contracts instead of the 50-contract threshold specified in the proposed regulations. Bindicap Comster stated that the threshold reporting level of 50 contracts is generally suitable while the FIA stated that the threshold reporting level for a particular swap should depend upon its liquidity.

The Commission determined the 50-contract threshold for reporting based on industry inquiries regarding a reporting level that would make 95% of the economically equivalent swaps markets visible to the Commission. In order to streamline reporting and give reporting entities the option of avoiding a complex reporting level calculation, however, the final Reporting Rules allow reporting entities to deem a reporting level of one or more swaps to be a reportable position. Thus the final Reporting Rules allow reporting entities the option of not conducting any potentially complex or costly reporting threshold analysis prior to transmitting reports to the Commission.

The Commission is aware that a reporting level of one contract could potentially expand the Reporting Rules' books and records obligations to additional swap market participants. Therefore, final regulation 20.6 applies a books and records requirement to swap counterparties only if such persons' swaps positions meet or exceed a simplified 50 futures contract equivalent reporting level. Also, final regulation 20.6 provides that persons with swaps positions meeting or exceeding the aforementioned threshold may keep and reproduce books and records for transactions resulting in such swaps positions in the record retention format that such person has developed in the normal course of business. Regulation 20.6 also provides that such persons may keep and reproduce books and records for, among other things, the cash commodity underlying such swaps positions in accordance with the record retention format developed in the normal course of business.

In connection with the submission of swaps position data, FIA expressed concern about the confidential treatment of data submitted should the Commission determine to require the submission of data to third parties. This concern is not relevant as the regulations only involve the submission of position and identifying data to the Commission. The Commission will protect proprietary information according to the Freedom of Information Act and 17 CFR part 145, “Commission Records and Information.” In addition, section 8(a)(1) of the Act strictly prohibits the Commission, unless specifically authorized by the Act, from making public “data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers.” The Commission also is required to protect certain information contained in a government system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

FIA and the Working Group argued that the costs placed by the proposed regulations would be significant and that the Commission significantly underestimated the costs to clearing members and swap dealers. FIA stated that some of its members believe the costs to be very substantial and in some cases exceeding millions of dollars, while acknowledging that it is difficult to estimate costs with any precision. The Working Group stated that some of its members estimate the total compliance costs to range up to $80,000 to $750,000 per year, inclusive of capital costs, and that the upfront costs could be as high as $1.5 million. The Commission has carefully considered the costs on market participants. In response, the Commission notes that the Reporting Rules are tailored to collect routine reports only from clearing organizations, clearing members, and swap dealers. Based on discussions with potential reporting entities, the Commission has determined that the costs that would be imposed by the regulations on reporting entities is reasonable given the trade capture and information technology resources of such entities and their familiarity with limiting and managing complex price risks. Clearing organizations and clearing members should have appropriate systems in place and currently likely provide or collect market and large trader reports.

The compliance date for swap dealers that are not clearing members will be delayed until the Commission further defines the term swap dealer. In order to address concerns relating to the ability of reporting entities to comply with the requirements of part 20 by the compliance date set forth in final regulation 20.10(a), final regulation 20.10(c) authorizes the Commission (or staff members delegated with such authority) to permit, for a period not to exceed six calendar months following the effective date of the Reporting Rules, the submission of reports that differ in content, form, or manner from that mandated in part 20, provided that there is a good faith attempt at compliance with part 20.

In addition, in order to address the possibility of certain firms that may not be able to comply expediently with the requirements of part 20 should they fall within the definition of swap dealer, regulation 20.10(e) allows the Commission to defer compliance for such firms for a period not to exceed six calendar months following the effective date of final regulations further defining the term swap dealer. The Commission's consideration of costs and burdens is discussed in more detail below.

The Electric End User Coalition also argued that the recordkeeping burden imposed by the proposed regulations on commercial entities would be significant. In particular it argued that the recordkeeping requirements should not apply to end-users and that the Commission should defer to other regulators, specifically the Federal Energy Regulatory Commission (“FERC”), with regard to recordkeeping obligations. In the Commission's judgment, the recordkeeping requirements for end-users with swaps positions that meet or exceed the relevant thresholds are consistent with requirements under current Commission regulation 18.05. As described above, final regulation 20.6 generally permits such end-users to keep and reproduce records of swaps positions, as well as the underlying cash commodities, in the record retention format that such entities have developed in the normal course of business.

With regard to the “swap” definition, the final part 20 regulations utilize a definition of “swap ” that is based on the reference to “commodity swaps” within the definition of “swap agreement” in part 35 of the Commission's regulations. 10 Swap market participants have relied on the definition of “swap agreement” for exempting transactions from the CEA since 1993. As a result, market participants have an understanding of the general nature of the definition of commodity swaps. The part 35 definition will become effective on the effective date of this final rulemaking and will operate until the effective date of any swap definitional rulemaking by the Commission under section 1a of the CEA. Under both definitions, the category of the swaps that would be subject to the Reporting Rules remains the same. 11 For further clarity, forwards as currently excluded from the CEA ( i.e., prior to the effective date of the Dodd-Frank Act) are also outside the scope of the definition of “swap” as used in this reporting scheme.

Regulation 20.2 lists the 46 DCM-listed futures contracts covered by the Reporting Rules (“Covered Futures Contracts”), as well as an additional line item for diversified commodity indices. 12 The Commission, through the definition of paired swap or paired swaption (for ease of reference, collectively “paired swaps”) in regulation 20.1, defines a subset of swaps as economically equivalent to the Covered Futures Contracts. The definition of paired swaps ( i.e., economically equivalent swaps) identifies two distinct categories of instruments.

First, the definition includes those paired swaps that are directly or indirectly linked to the price of a Covered Futures Contract. This category includes swaps that are partially or fully settled or priced at a differential to a Covered Futures Contract. The following are examples of these types of paired swaps:

The second category of swaps captured by the paired swap definition includes swaps that directly or indirectly link to, including being partially or fully settled or priced at a differential to, the price of the same commodity for delivery at the same location or locations as that of a Covered Futures Contract. As opposed to the first category of paired swaps, the second category looks to a swap's connection to the commodity underlying a Covered Futures Contract, and to the delivery locations specified in a Covered Futures Contract, as opposed to the price of the contract itself. Therefore, the linkage for contracts in this second category is to the price of the underlying commodity and its physical marketing channels.

As proposed, a paired swap would have also included swaps that are based on the same commodity  15 as that of a Covered Futures Contract but deliverable at locations that are different than a Covered Futures Contract's delivery locations, so long as such locations have substantially the same supply and demand fundamentals as that of a Covered Futures Contract reference delivery location. In response to comments, the Commission has determined not to include this proposed category in the final definition of paired swaps. The final definition thereby narrows the scope of the swaps that are subject to position reporting.

Regulation 20.3 requires paired swap reports from clearing organizations. Clearing organizations are defined in regulation 20.1 as persons or organizations that act as a medium between clearing members for the purpose of clearing swaps or effecting settlements of swaps or swaptions. The definition is adopted as proposed and is modeled after the definition used in current Commission regulation 15.00 (the definitional section for the Commission's large trader reporting rules) solely for the purposes of reporting under part 20. The definition is intended to cover entities that qualify as clearing organizations, regardless of their registration status with the Commission, should for example there exist a mutual recognition regime. It is not meant to apply to financial institutions or parties to swaps that provide counterparties with financing, credit support, or hold collateral to facilitate or to ensure that payments are made under the terms of a paired swap.

Pursuant to regulation 20.3, clearing organizations, for paired swap positions, are required to report the aggregate proprietary and aggregate customer accounts of each clearing member of that clearing organization. Regulation 20.1 defines clearing member as any person who is a member of, or enjoys the privilege of clearing trades in its own name through, a clearing organization. The paired swap positions must be reported to the Commission as futures equivalent positions in terms of a swap's related Covered Futures Contract. Appendix A to this part provides several examples of the methods used for converting swap positions into futures equivalent positions. The regulations call for reporting in futures equivalents because such conversions are made by entities that deal in swaps to effectively manage residual price risks by entering into Covered Futures Contracts. Reporting in futures equivalents provides a measure of equivalency between positions in paired swaps and their related Covered Futures Contracts, which allows for more effective market surveillance and the monitoring of trading across futures and swaps.

As required under paragraphs (a) and (b) of regulation 20.3, each clearing organization is required to submit to the Commission a data record that identifies either gross long and gross short futures equivalent positions if the data record corresponds to a paired swap position, or gross long and gross short futures equivalent positions on a non-delta-adjusted basis if the data record corresponds to a paired swaption position. A data record (for the purposes of this rulemaking) can be thought of as a grouped subset of data elements that communicates a unique (non-repetitive) positional message to the Commission.

Clearing organizations are required to report a data record for each clearing member for each reporting day, which is defined in regulation 20.1 as the daily period of time between a clearing organization or reporting entity's usual and customary last internal valuation of paired swaps and the next such period. In order to provide clearing organizations with some flexibility in determining daily operational cycles that would coincide with their obligation to provide clearing member reports on a daily basis, the proposed definition would permit such cycles of time to vary for different clearing organizations, so long as the daily period of time is consistently observed and the Commission is notified, upon its request, of the manner by which a cycle is calculated. Data records would be reported electronically in a manner consistent with current Commission practice.

The positional data elements in paragraphs (a) and (b) of regulation 20.3 require daily reports for each aggregated proprietary account and each aggregated customer account, by each cleared product, and by each futures equivalent month. Each data record would indicate the commodity reference price with which each cleared product is associated. As defined in regulation 20.1, a commodity reference price is the price series used by the parties to a swap or swaption to determine payments made, exchanged, or accrued under the terms of that swap or swaption. In addition, data records for swaptions are required to be broken down further by expiration date, put or call indicator, and strike price. Appendix B to part 20 includes examples of data records that would be required of clearing organizations.

In addition to reports for clearing members, clearing organizations are, pursuant to regulation 20.3(c), required to provide to the Commission, for each futures equivalent month, end of reporting day settlement prices for each cleared product and deltas for every unique swaption put and call, expiration date, and strike price. This second daily report will allow the Commission to assign an appropriate weight to unadjusted positions.

Regulation 20.4 requires reporting entities to report principal  16 and direct legal counterparty paired swap positions to the Commission when such positions become reportable. Reporting entities are required to follow the same procedure for determining if their principal or counterparty positions are reportable to the Commission. Regulation 20.1 identifies a reporting entity as a clearing member or a swap dealer as defined in section 1a of the CEA and as subject to definitional changes that will be made through Commission regulations further defining the term swap dealer. The compliance date of any provisions relating to swap dealers will be the effective date of a final swap dealer definition. 17

Regulation 20.4 requires reporting entities to provide positional reports when reporting entities have principal and counterparty reportable paired swap positions. The final Reporting Rules amend regulation 20.1 to define a reportable position in two distinct ways. First, regulation 20.1, as proposed and finalized, defines a reportable position as a position, in any one futures equivalent month, comprised of 50 or more futures equivalent paired swaps or swaptions based on the same commodity. This proposed level is calibrated to capture data on a sufficiently large percentage of paired swap positions and was arrived at after consultation with multiple market participants. 18 Once a paired swap position attributable to the reporting entity as principal or to its counterparty meets or exceeds the 50 futures equivalent contract threshold, all other paired swaps in the same commodity attributable to such trader becomes part of that trader's reportable position. 19

Alternatively the Reporting Rules, as amended and finalized, allow reporting entities to identify a reportable position as all positions on a gross basis in a consolidated account (as described in regulation 20.4(a)) that are based on the same commodity, so long as this approach is consistently applied to all consolidated accounts for reporting purposes. This amended definition of a reportable position allows reporting entities to forgo the 50-contract threshold calculation, which may be complex or costly, prior to submitting reports to the Commission.

As with reports that are required to be provided by clearing organizations to the Commission under regulation 20.3, regulation 20.4 requires paired swap positions to be represented and reported in futures equivalents. A common method of accounting for positions in swaps and futures allows for more effective market surveillance. The data collected by the Reporting Rules could be used to determine aggregate open interest levels for economically equivalent derivatives. For example, such “size-of-the-market” calculations could in turn serve as a basis for computing non-spot-month position limits, should the Commission determine to adopt such limits.

Under final regulation 20.11, for the purpose of reporting in futures equivalents, paired swaps and swaptions that are based on commonly known diversified indices with publicly available weightings must be reported as if such indices underlie a single futures contract with monthly expirations for each calendar month and year. Bespoke indices, however, must be decomposed into their futures equivalent components and reported along with a commodity reference price which allows the Commission to match such components to the bespoke index. The term commodity reference price is defined in regulation 20.1 as the price series (including derivatives contract and cash market prices or price indices) used by the parties to a swap or swaption to determine payments made, exchanged, or accrued under the terms of such contracts.

To determine what to report under regulation 20.4, reporting entities are required to separately consider principal and counterparty positions on a gross basis. Reporting entities are required to provide for each reporting day a data record that either identifies long and short paired swap positions (if the record pertains to swap positions) or long and short non-delta-adjusted paired swaption positions and long and short delta-adjusted swaption positions (if the record pertains to swaptions positions). For uncleared paired swaps, the regulations require a reporting entity to use economically reasonable and analytically supported deltas.

More specifically, regulation 20.4, as proposed and finalized, requires that this information be grouped separately by principal or counterparty positions, by futures equivalent month, by cleared or uncleared contracts, by commodity reference price, and by clearing organization if the data record pertains to cleared swaps. Data records pertaining to swaption positions under the final regulations are to be further grouped by put or call, expiration date, and strike price. The reports provided under regulation 20.4 are required to also include identifiers for the commodity underlying the reportable position, the counterparties of the account and the 102S filing identifier, as described in more detail below, assigned by the reporting entity to its counterparty.

Regulation 20.5(a) requires a 102S filing for the identification of a reporting entity's counterparty when such counterparty holds a reportable position. The 102S filing consists of the “name, address, and contact information of the counterparty with the reportable account” and a “brief description of the nature of such person's paired swaps and swaptions' market activity.” The reporting entity is required to submit a 102S filing only once for each person associated with a reportable account unless prior filed information is no longer accurate.

Once an account counterparty is reportable, the Commission may contact the trader directly and require that the trader file a more detailed identification report, a 40S filing. The Commission would require a 40S filing if a trader has become reportable for the first time and is not known to the Commission. A 40S filing consists of the submission of a CFTC Form 40 “Statement of Reporting Trader.” As the current version of Form 40 covers information on positions in futures and options, traders would be required to complete the form as if the form covered information related to positions in paired swaps and swaptions.

The 102S filing and the 40S filing together would allow the Commission to identify the person(s) owning or controlling the trading of a reportable account, the person to contact regarding trading, the nature of the trading, whether the reportable account is related—by financial interest or control—to another account, and the principal occupation or business of the account owner. The filings also would provide the Commission information on whether the account is being used for hedging cash market exposure.

Commission staff would use the information in these two filings to determine if the reported account corresponds to a new trader or is an additional account of an existing trader. If the account is an additional one of an existing trader, it would then be aggregated with that of other related accounts currently being reported.

The Commission plans to update, streamline and make electronic its current Form 102 and Form 40 in the near term. The Commission intends for such revised forms to include sections specifically for swap and swaptions. When updated, regulation 20.5 will be amended to reflect these revisions and to require reports electronically through updated Forms 102 and 40.

Regulation 20.6 imposes recordkeeping requirements on clearing organizations, reporting entities, and persons with positions in paired swaps above a certain futures equivalent threshold. Regulations 20.6(a) and 20.6(b) require clearing organizations and reporting entities, respectively, to keep records of transactions in paired swaps or swaptions as well as methods used to convert paired swaps or swaptions into futures equivalents. In addition, regulation 20.6(c) requires every person with greater than 50 all-months-combined futures equivalent positions on a gross basis in paired swaps or swaptions on the same commodity to keep books and records for transactions resulting in such swaps positions and, among other things, the cash commodity underlying such positions. In general, such person may keep and reproduce such books and records in the record retention format that such person has developed in the normal course of business. Furthermore, in order to clarify the Commission's authority to issue special calls for books and records, the Commission is including an explicit special call provision with respect to reportable positions in regulation 20.6(d).

The recordkeeping duties imposed by regulations 20.6(a) and 20.6(b) are in accordance with the requirements of regulation 1.31. Regulation 1.31(a)(1) requires that these transaction records be kept for five years, the first two of which they “shall be readily accessible.” Such books and records “shall be open to inspection by any representative of the Commission.”

These recordkeeping requirements allow the Commission to have ready access to records that would enable Commission staff to reconstruct the transaction history of reported positions. These requirements would ensure that data records submitted to the Commission could be audited. In addition, these records enable Commission staff to better reconstruct trading activity that may have had a material impact on the price discovery process.

The recordkeeping burden imposed by regulation 20.6 is not anticipated to be unduly significant. These requirements are not unlike the recordkeeping requirements imposed by Congress in new CEA section 4r(c)(2) on all swap market participants, and by the Commission on those entities with reportable futures accounts under the existing recordkeeping provision of regulation 18.05.

Regulation 20.7(a) provides that the Commission would specify, in writing to persons required to report, the format, coding structure, and electronic data transmission procedures for these reports and submissions. The purpose of this provision is to provide notice on how the Commission would determine the means by which the part 20 reports are to be formatted and submitted. The Commission notes that subsequent to the commencement of reporting, and from time to time thereafter, it will provide standardized codes for data elements such as commodity reference prices and require that submitted position reports use such standard codes instead of proprietary codes. Such information will be disseminated on the Commission's Web site. 20

Regulation 20.8, as proposed and finalized, delegates certain of the Commission's part 20 authorities to the Director of the Division of Market Oversight and through the Director to other employee or employees as designated by the Director. The delegated authority extends to: (1) Issuing a special call for a 40S or 102S filing and books and records; (2) providing instructions or determining the format, coding structure, and electronic data transmission procedures for submitting data records and any other information required under this part; and (3) determining the compliance schedules described in regulation 20.10. The purpose of these delegations is to facilitate the ability of the Commission to respond to changing market and technological conditions for the purpose of ensuring timely and accurate data reporting.

Regulation 20.9, as proposed and finalized, includes a sunset provision that would render the Reporting Rules ineffective and unenforceable upon the Commission's finding (through the issuance of an order) that operating SDRs are capable of processing positional data in a manner that would enable the Commission to effectively oversee and surveil paired swaps trading and paired swap markets. Regulation 20.9 also states that the Commission may retain the effectiveness and enforceability of any or all requirements in part 20, such as the reporting of deltas for uncleared paired swaps or the reporting of paired swap positions in futures equivalents, should the Commission determine through an order that such reporting is of material value to conducting market surveillance.

Under regulation 20.10, the compliance date for reporting requirements for clearing organizations under regulation 20.3 and clearing members under regulation 20.4 is sixty days after the publication of this notice in the Federal Register . The compliance date with regulation 20.4 for swap dealers that are not clearing members is the effective date of final regulations defining the term swap dealer. 21 All special call provisions must be complied with sixty days following the date of publication of this notice in the Federal Register .

Regulation 20.10 also allows the Commission to permit for a period, not to exceed six calendar months following the effective date of this part, during which a clearing organization or reporting entity or trader may provide reports that differ in content or are submitted in a form and manner which is other than prescribed by the provisions of part 20, provided that the submitter coordinates with the Commission and is making a good faith attempt to comply with all of the provisions of part 20. Furthermore, upon the passage of the full compliance schedule outlined above, all paired swaps and swaptions position and market reports that are currently reported under a Commission order or parts 15 through 19 and 21 of the Commission's regulations must instead be reported exclusively under part 20.

In order to address the possibility of certain firms that may not be able to comply expediently with the requirements of part 20 should they fall within the definition of swap dealer, regulation 20.10(e) allows the Commission to defer compliance for such firms for a period not to exceed six calendar months following the effective date of final regulations further defining the term swap dealer.

A deferred compliance period of six months is appropriate to reduce potential compliance costs for such reporting entities because they may not have procedures in place for routine reporting of swaps data as they currently are not regulated as financial firms. The deferred compliance period would provide these affected entities with additional time to determine whether they need to make any arrangements to implement the reporting regime, and to make any such arrangements. Once the swap dealer definition is final, a party that is uncertain as to whether or not they are a swap dealer would not be foreclosed from asking CFTC staff or the Commission for additional relief under the CEA or Commission regulations.

The Commission also notes that it expects to consult with clearing organizations and reporting entities with respect to the manner of reporting before determining the format, coding structure, and electronic data transmission procedures that must be used to transmit information to the Commission pursuant to regulation 20.7.

Section 15(a) of the Act requires that the Commission, before promulgating a regulation under the Act or issuing an order, consider the costs and benefits of its action. By its terms, CEA section 15(a) does not require the Commission to quantify the costs and benefits of a new regulation or determine whether the benefits of the regulation outweigh its costs. Rather, CEA section 15(a) requires the Commission to “consider the costs and benefits” of its action.

CEA section 15(a) specifies that costs and benefits shall be evaluated in light of the following considerations: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. Accordingly, the Commission could, in its discretion, give greater weight to any of the five considerations and could, in its discretion, determine that, notwithstanding its costs, a particular regulation was necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the Act.

As mentioned above, under CEA section 4a(a)(2), the Commission has been directed to establish position limits for exempt and agricultural commodities, as appropriate. Section 4t of the Act authorizes the Commission to establish a large trader reporting system for significant price discovery function swaps, of which economically equivalent swaps are a subset. As discussed in more detail above, swaps position reports are a necessary component of an effective surveillance program, including monitoring compliance with any limits that may be established by the Commission under section 4a of the Act.

Through the public comment process, alternatives to the Reporting Rules were presented to and reviewed by the Commission. Some commenters indicated that their respective alternatives would provide the Commission with the data it needs and would be less burdensome than the Reporting Rules. Bindicap Comster, the FIA, and the Working Group opposed the proposed regulations, and suggested an expanded special call reporting mechanism would be a better alternative. The Commission's current Index Investment Data Reports special call is a targeted collection of data. It gathers information related to specific products from a limited set of market participants. The special call was not intended to function as a tool for general market surveillance. In order to be able to gather positional data of the quality needed to conduct market surveillance, the special call would have to undergo substantial modifications which in effect would convert it into the Reporting Rules. In light of the broad areas of cost and benefit evaluation specified by CEA section 15(a), in particular section 15(a)(2)(B), the Commission has determined that the alternative presented by Bindicap Comster, FIA, and the Working Group is less viable than the Reporting Rules and would not reduce costs to persons subject to this part or provide additional benefits.

With regard to the future establishment of SDRs and whether the Commission should wait for SDRs to provide swaps position data instead of adopting the regulations, ATA argued that the Commission should proceed with the regulations and not wait for SDRs to become operational. FIA and the Working Group, meanwhile, argued that the future role of SDRs makes adoption of the regulations unnecessary. The Commission has determined that the Reporting Rules are necessary for several reasons. It is likely that physical commodity SDRs will require the most time to become operational since, unlike for swaps in the interest rate, equity and credit default asset categories, there currently is no functional and accepted data repository for energy, metal and agricultural commodities. In addition, even after SDRs have been established, because they are fundamentally transaction repositories, it may be a considerable amount of time before SDRs are able to reliably convert transaction data into positional data. Thus, in view of the considerable time before physical commodity swap SDRs are likely to be operational and have the ability to convert transactions to positions, the Commission has determined to adopt the Reporting Rules instead of the proposed alternative, consistent with the objectives outlined in CEA section 15(a)(2). Without a comprehensive and operational market surveillance system in the near term, the Commission would not be able to administer the CEA as amended by the Dodd-Frank Act.

The Electric End User Coalition also argued that the recordkeeping burden imposed by the proposed regulations would be significant. In particular it argued that the recordkeeping requirements should not apply to end-users and that the Commission should defer to other regulators, specifically FERC, with regard to recordkeeping obligations. In the Commission's judgment, the recordkeeping requirements of the regulations are not unduly burdensome and are consistent with the recordkeeping requirements of current Commission regulations 1.31 and 18.05. In addition, as the regulations have been narrowly tailored to collect routine data only from clearing organizations, clearing members and swap dealers, the Reporting Rules will not have a significant negative impact on a substantial number of end-users. The Commission has thus determined to proceed with the Reporting Rules.

In developing the Reporting Rules, the Commission has aimed to minimize the cost and burden associated with reporting positional data to the Commission. As discussed above, the Commission has tailored the Reporting Rules to conform to the market structure for cleared and uncleared paired swaps. The cost of the part 20 regulations will be borne by firms that are clearing organizations reporting under regulation 20.3 and reporting entities reporting under regulation 20.4. For such firms, the additional cost to implement a reporting system is expected to be reasonable since the Commission understands these firms track their counterparties' positions for risk management purposes.

Although the Reporting Rules establish a reporting system for cleared paired swaps that resembles the large trader reporting system, they establish a structurally different reporting system for uncleared paired swaps. The structure of the uncleared paired swaps market is not as centralized as the cleared paired swaps market: there is no central counterparty that corresponds to a clearing organization in the uncleared paired swaps market. The Commission believes that swap dealers may be counterparties to a significant portion of the market for uncleared paired swaps and swaptions.

Accordingly, the Reporting Rules require position reporting from swap dealers. These firms are to report their reportable positions as well as those of their counterparties. As is the case for clearing member reporting entities, it is likely that creating or purchasing an information technology system that can present such a firm's net position exposures on a daily basis will not be an overly burdensome marginal expense, since the Commission understands swap dealers track their exposures for risk management purposes.

For counterparties that will be subject to the recordkeeping requirements of regulation 20.6, it should be noted that these requirements will place new burdens (in terms of reporting and retaining information on cash market transactions) only on persons that are reportable solely in paired swaps. This is because Congress, in new CEA section 4r(c)(2), has extended recordkeeping requirements to all swaps irrespective of any reporting requirement. Likewise, counterparties that hold reportable futures positions (in addition to reportable paired swaps positions) are currently subject to existing recordkeeping requirements under regulation 18.05. Thus, the Commission believes that these additional burdens, in marginal terms, are not expected to be overly burdensome, given that firms collect information on their commercial activities in the normal course of business operations. The Commission also notes its adoption of regulation 20.10, which staggers implementation of the Reporting Rules. The flexible implementation process should reduce compliance costs in general.

As described in detail below, the Commission held several meetings with potential reporting entities and conducted analysis to estimate the reporting and recordkeeping burdens imposed by the Reporting Rules annually for the next five years. For clearing organizations, the reporting burden is estimated to be approximately 950 hours and $100,000 spread across 5 entities, or 190 hours and $20,000 per entity. The recordkeeping burden for clearing organizations is estimated to be 100 hours and $100,000 spread across 5 entities, or 20 hours and $20,000 per entity. Each clearing organization, then, is estimated to have a total annual burden of 207 hours and $40,000.

For clearing members, the reporting burden is estimated to be 25,000 hours and $6,000,000 spread across 100 entities (80 swap dealers and 20 non-swap dealers), or 250 hours and $60,000 per entity. The recordkeeping burden for clearing members is estimated to be 2,000 hours and $2,000,000 spread across 100 entities, or 20 hours and $20,000 per entity. In addition, clearing members have a burden in connection with 102S submissions. The burden for 102S submissions is estimated to be 1,800 hours and $1,000,000 spread across 200 entities (of which 100 are clearing members), or 9 hours and $5,000 per entity. Each clearing member, then, is estimated to have a total annual burden of 279 hours and $85,000.

For non-clearing member swap dealers, the reporting burden is estimated to be 37,500 hours and $8,000,000 spread across 100 entities, or 375 hours and $80,000 per entity. The recordkeeping burden for non-clearing member swap dealers is estimated to be 2,000 hours and $2,000,000 spread across 100 entities, or 20 hours and $20,000 per entity. In addition, non-clearing member swap dealers have a burden in connection with 102S submissions. The burden for 102S submissions is estimated to be 1,800 hours and $1,000,000 spread across 200 entities (of which 100 are non-clearing member swap dealers), or 9 hours and $5,000 per entity. Each non-clearing member swap dealer, then, is estimated to have a total annual burden of 404 hours and $105,000.

For persons with reportable positions, the reporting burden in connection with 40S submissions is estimated to be 165 hours and $4,500,000 spread across 500 entities, or .33 hours and $9,000 per entity. The recordkeeping burden for persons with reportable positions is estimated to be 10,000 hours and $11,500,000 spread across 500 entities, or 20 hours and $23,000 per entity. Each person with reportable positions, then, is estimated to have a total annual burden of 20.33 hours and $32,000.

Two commenters to the proposing release, FIA and the Working Group, argued that the Commission underestimated the costs imposed by the Reporting Rules. FIA stated that some of its members believe the costs to be very substantial and in some cases exceeding millions of dollars. The Working Group stated that some of its members estimate the total compliance costs to range up to $80,000 to $750,000 per year, inclusive of capital costs, and that the upfront costs could be as high as $1.5 million. In light of these comments, the Commission has carefully reviewed its analysis and estimates, and it has determined its estimates to be reasonable and satisfactory in accordance with CEA section 15(a)(2) for the purpose of cost-benefit analysis of the Reporting Rules.

In addition to providing increased market transparency through the reporting of paired swap positions to the Commission, the Commission will be better able to first, protect market participants and the public (CEA section 15(a)(2)(A)) and second, increase the efficiency and competitiveness of the markets (CEA section 15(a)(2)(B)). The extension of the Commission's surveillance activities to these paired swap markets will enhance the deterrence and detection of problematic activities and, thus, help ensure the integrity of these markets and protect market participants and the public from disruptive trading, price manipulation, and the effects of market congestion. Further, with this extension, the Commission will be able to expand its Commitments of Traders Reports, for example, to include aggregate position data on the paired swaps markets, and thus will provide the public, including market participants, greater transparency into the constitution of markets covered by part 20. This increased transparency may reduce the informational asymmetries in the paired swap markets and thereby improve the efficiency of the market and promote competition.

As discussed above, implementing part 20 will enable the Commission to monitor and enforce position limits, if established by the Commission, to diminish, eliminate, or prevent excessive speculation; to deter and prevent market manipulation; ensure sufficient market liquidity for bona fide hedgers; and to ensure that the price discovery function of the underlying market is not disrupted. By enabling the Commission to monitor compliance with position limits, if established by the Commission, to address these concerns, the Commission would be better able to protect the price discovery process (CEA section 15(a)(2)(C)) and market participants and the public from the threats of excessive speculation and price manipulation (CEA section 15(a)(2)(A)).

The Commission, after considering the CEA section 15(a) factors, finds that the Reporting Rules are reasonably necessary and appropriate to protect the public interest and effectuate and accomplish purposes and goals of the CEA. The Commission also finds that the expected incremental cost imposed by part 20 is outweighed by the expected benefit. Accordingly, the Commission has determined to adopt the Reporting Rules.

The Regulatory Flexibility Act (“RFA”) requires Federal agencies, in proposing regulations, to consider the impact of those regulations on “small entities.”  22 In response to the Reporting Rules, the Electric End User Coalition argued that the recordkeeping burden imposed by the proposed regulations would be significant. In particular it argued that the recordkeeping requirements should not apply to end-users and that the Commission should defer to other regulators, specifically FERC, with regard to recordkeeping obligations. In the Commission's judgment, the recordkeeping requirements of the regulations are consistent with the recordkeeping requirements of current Commission regulations 1.31 and 18.05. In addition, as the regulations have been narrowly tailored to collect routine data only from clearing organizations, clearing members and swap dealers, the Commission has determined that the Commission does not expect the Reporting Rules to have a significant impact on a substantial number of small entities. The Commission has thus determined to proceed with the Reporting Rules.

The Reporting Rules will affect organizations including registered derivatives clearing organization (“DCOs”), clearing members (many of whom are registered with the Commission already as futures commission merchants (“FCMs”)), swap dealers, and persons who have books and records obligations under regulation 20.6.

The Commission has previously determined that DCOs  23 and FCMs  24 are not “small entities” for purposes of the RFA. As noted above, a person with non-discretionary reporting or books and records obligations under final regulations 20.3, 20.4 and 20.6 will either be a clearing organization, clearing member, swap dealer, or a person with at least 50 or more gross paired swaps positions in the same commodity on a futures equivalent and all-months-combined basis. The Commission notes this threshold is comparable to the minimum 25-contract reporting levels in effect for futures positions under regulation 15.03. Previously, the Commission had determined that the reporting levels in regulation 15.03, which determine which positions are reportable, would not affect small entities. 25 The Commission does not believe that entities who meet the Reporting Rules' non-discretionary quantitative threshold will constitute small entities for RFA purposes.

Accordingly, the Commission does not expect the Reporting Rules to have a significant impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the Reporting Rules will not have a significant economic impact on a substantial number of small entities.

The Paperwork Reduction Act (“PRA”)  26 imposes certain requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA. The Reporting Rules will result in new collection of information requirements within the meaning of the PRA. The Commission submitted the proposing release to the Office of Management and Budget (“OMB”) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The Commission requested that OMB approve, and assign a new control number for, the collections of information covered by the proposing release. The information collection burdens created by the Commission's proposed rules, which were discussed in detail in the proposing release, are identical to the collective information collection burdens of the final rules.

The Commission invited the public and other Federal agencies to comment on any aspect of the information collection requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicited comments in order to: (i) Evaluate whether the proposed collections of information were necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (ii) evaluate the accuracy of the Commission's estimates of the burden of the proposed collections of information; (iii) determine whether there are ways to enhance the quality, utility and clarity of the information to be collected; and (iv) minimize the burden of the collections of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.

The Commission received two comments on the burden estimates and information collection requirements contained in its proposing release. FIA and the Working Group argued that the costs placed by the proposed regulations would be significant and that the Commission significantly underestimated the costs to clearing members and swap dealers. FIA stated that some of its members believe the costs to be very substantial and in some cases exceeding millions of dollars, while acknowledging that it is difficult to estimate costs with any precision. The Working Group stated that some of its members estimate the total compliance costs to range up to $80,000 to $750,000 per year, inclusive of capital costs, and that the upfront costs could be as high as $1.5 million. The Commission has carefully considered the costs on market participants. Some comments regarding significant industry burdens assumed that a substantial number of end-users would be swept up into the definition of swap dealer. In response, the Commission notes that the Reporting Rules are tailored to collect routine reports only from clearing organizations, clearing members, and swap dealers. In addition, based on numerous meetings with potential reporting entities, the Commission has determined that the costs that would be imposed by the proposed regulations on reporting entities is reasonable given the trade capture and information technology resources of such entities.

The title for this collection of information is “Part 20—Large Trader Reporting for Physical Commodity Swaps.” OMB has approved assigned OMB control number 3038-[_] to this collection of information.

Part 20 establishes reporting requirements for clearing organizations and reporting entities and recordkeeping requirements for these firms in addition to firms that become reportable because of a reportable paired swap or swaption positions. Accordingly, the Commission is seeking a new and separate control number for reporting from clearing organizations and reporting entities (collectively “respondents”) and recordkeeping for firms that become reportable because of a reportable paired swap or swaption position operating in compliance with the requirements of part 20.

Part 20 will result in the collection of information on “paired swaps and swaptions” positions as defined in regulation 20.1. Specifically, part 20 provides for three new kinds of reports:

1. Under regulation 20.3, swap clearing organizations will provide daily reports of relevant position and clearing data.

2. Under regulation 20.4, reporting entities will produce daily position reports on a second-day basis on their own and individual counterparty accounts. There are two categories of reporting entities: (a) Clearing members and (b) swap dealers that are not clearing members. The former category, clearing members, will include many firms that are currently registered as FCMs with the Commission. The Commission estimates that a total of 180 swap dealers transact in physical commodity swaps and thereby may be reporting entities under part 20 (clearing members and non-clearing members combined).

3. Finally, under regulation 20.5, all reporting entities will submit identifying information to the Commission on new reportable accounts through a 102S filing.

In addition to creating these reporting requirements, regulation 20.6 imposes recordkeeping requirements for (1) clearing organizations, (2) reporting entities, and (3) persons with paired swaps positions as specified in regulation 20.6(c). The Commission estimates that the recordkeeping requirements of regulation 20.6 will not be overly burdensome. For the firms subject to the reporting and recordkeeping requirements of regulation 20.6, it should be noted that these requirements are not unlike the recordkeeping requirements imposed by Congress in new CEA section 4r(c)(2) and by existing recordkeeping regulation 18.05. If a firm subject to these recordkeeping requirements was previously reportable due to a futures position in the relevant commodity above the “reporting level” ( see regulation 15.03), then the regulation 20.6(b) recordkeeping burdens would not be new, as that firm would already be subject to these requirements under regulation 18.05. If a firm becomes subject to the regulation 20.6 recordkeeping requirements only because of a reportable paired swaps position (and not because of a futures position above the reportable level), then the requirements contained in the Reporting Rules add only the duty to keep records on all commercial activities that a reporting entity or person hedges to the swaps-related recordkeeping duties imposed by CEA section 4r(c)(2). These additional burdens are not expected to be substantial, given that in the normal course of business firms would collect this information on their commercial activities.

The Commission estimates that implementing part 20 will create a total annual reporting and recordkeeping hour burden of 79,503 hours across 705 firms. Based on a weighted average wage rate of $74.36, 27 this will amount to an annualized labor cost of $5.9 million. In addition, the Commission estimates that total annualized capital/start-up, operating, and maintenance costs  28 will amount to a combined $35.2 million (a typographical error in the proposed Reporting Rules indicated a $32.7 cost). This overall total reporting and recordkeeping hour burden is the sum of estimated burdens for the three reporting categories and the three recordkeeping categories mentioned above.

Reporting burdens:

1. Regulation 20.3 clearing organization reports will account for 938 of these annual reporting and recordkeeping hours. These hours will be spread across 5 respondents. Annualized capital/start-up, operating, and maintenance costs for all affected clearing organizations combined will be approximately $100,000. 29

2. Regulation 20.4 reporting entity reports will have two separate burden estimates based on the kind of reporting entity providing the report:

a. Clearing member (80 clearing member/swap dealers plus 20 clearing member/non-swap dealers) reporting entity reports will create an annual reporting and recordkeeping burden of 25,000 hours spread across 100 respondents. Annualized capital/start-up, operating, and maintenance costs for all firms in this category combined will be approximately $6 million.

b. Swap dealer non-clearing member reporting entity reports will create an annual reporting and recordkeeping burden of 37,500 hours spread across 100 respondents. Annualized capital/start-up, operating, and maintenance costs for all firms in this category combined will be approximately $8 million.

3. Regulation 20.5 reporting entity 102S submissions will create an annual reporting and recordkeeping burden of 1,800 hours spread across 200 firms. Annualized capital/start-up, operating, and maintenance costs for all reporting entities combined providing these reports will be approximately $1 million.

4. 40S submissions by persons with reportable positions under regulation 20.5(b) in paired swaps will create an annual reporting and recordkeeping burden of 165 hours and will affect 500 firms. Annualized capital/start-up, operating, and combined maintenance costs for all firms providing 40S filings will be approximately $4.5 million.

Recordkeeping burdens:

1. Regulation 20.6(a) recordkeeping duties for clearing organizations will account for 100 of these annual reporting and recordkeeping hours. These hours will be spread across 5 firms. Annualized capital/start-up, operating, and maintenance costs to meet the recordkeeping requirements of regulation 20.6(a) will be approximately $100,000.

2. Regulation 20.6(b) reporting entity recordkeeping duties will have two separate burden estimates based on the kind of reporting entity providing the report:

a. Clearing member (80 clearing member/swap dealers plus 20 clearing member/non-swap dealers) reporting entity recordkeeping will create an annual reporting and recordkeeping burden of 2,000 hours spread across 100 respondents. Annualized capital/start-up, operating, and maintenance costs for all firms in this category of recordkeeping reporting entities will be approximately $2 million.

b. Swap dealer non-clearing member reporting entity recordkeeping will create an annual reporting and recordkeeping burden of 2,000 hours spread across 100 respondents. Annualized capital/start-up, operating, and maintenance costs for all firms in this category of recordkeeping reporting entities will be approximately $2 million.

3. Regulation 20.6(c) recordkeeping duties for persons with paired swaps positions will create an annual reporting and recordkeeping burden of 10,000 hours spread across 500 firms. Annualized capital/start-up, operating, and maintenance costs for all traders in this category combined will be approximately $11.5 million.

The Commission will protect proprietary information according to the Freedom of Information Act and 17 CFR part 145, “Commission Records and Information.” In addition, section 8(a)(1) of the Act strictly prohibits the Commission, unless specifically authorized by the Act, from making public “data and information that would separately disclose the business transactions or market positions of any person and trade secrets or names of customers.”  30 The Commission also is required to protect certain information contained in a government system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR chapter I as follows: