The U.S. Office of Personnel Management (OPM) is issuing proposed regulations to revise certain pay administration rules for employees in “nonforeign areas,” which include Alaska, Hawaii, Guam, Puerto Rico, the Virgin Islands, and certain other areas listed in 5 CFR 591.205. Some of the proposed revisions are necessary to address the effects of implementing the Non-Foreign Area Retirement Equity Assurance Act of 2009 (NAREAA), as contained in subtitle B of title XIX of the National Defense Authorization Act for Fiscal Year 2010 (Pub. L. 111-84, October 28, 2009).

NAREAA provided for entitlement to locality pay in the nonforeign areas while phasing out nonforeign area cost-of-living allowances (COLAs) authorized under 5 U.S.C. 5941(a)(1). Under section 1914 of Public Law 111-84, locality pay is phased in during a transition period beginning on the first day of the first pay period in January 2010 and ending on the first day of the first pay period in January 2012, hereafter referred to as the “transition period.” As locality pay increases, payable COLA rates must be reduced as specified in section 1912(b) of NAREAA. (See also 5 U.S.C. 5941(c), as amended by section 1912(b).) NAREAA also amended 5 U.S.C. 5941 to provide that a nonforeign area COLA must be paid as a percentage of basic pay, including any applicable locality-based comparability payment. (See 5 U.S.C. 5941(c)(4), as amended by NAREAA.)

Under section 1915(b)(1) of NAREAA, when locality pay for a nonforeign area is increased during the transition period, the increase in the minimum rate (step 1) of any grade of a special rate schedule under 5 U.S.C. 5305 must be increased by no less than the dollar increase in the locality payment for a non-special rate employee at the same grade and step and in the same location. Corresponding increases must be provided for all special rates at higher steps in the pay range for the given grade.

OPM determined a methodology for increasing special rates for General Schedule (GS) employees in nonforeign areas in conjunction with locality pay increases during the transition period that complies with the minimum requirements in section 1915(b)(1). OPM explained this methodology in a memorandum (CPM 2009-27) issued on December 30, 2009. (See http://www.opm.gov/oca/compmemo/INDEX.asp. ) OPM calculates the dollar value of any locality pay increase for a non-special rate employee at each step rate and adds that dollar amount—referred to as an “additional adjustment”—to the corresponding special rate that would apply but for this additional adjustment. This additional adjustment is equal to a constant percentage of the employee's GS base rate based on the applicable locality payment. For example, in 2010, when locality pay in all the nonforeign areas was set at 4.72 percent (one-third of the full 2010 “Rest of U.S.” locality rate of 14.16 percent), the special rate “additional adjustment” in all nonforeign areas equaled 4.72 percent of the applicable GS base rate.

As provided in section 1913(c) of NAREAA, OPM has temporarily raised the limitations on the amount of special rates to a higher level during the transition period ending on the first day of the first pay period beginning on or after January 1, 2012. In other words, during the transition period, an additional adjustment made under section 1915(b) would not be limited by the normally applicable Executive Schedule level IV (EX-IV) cap on special rates ($155,500 in 2011), as established under 5 U.S.C. 5305(a)(1). However, NAREAA section 1913(c) required that any special rate in excess of the EX-IV cap at the end of the transition period must be converted to a retained rate under 5 U.S.C. 5363. Such a converted retained rate would be in excess of the current EX-IV cap on retained rates found in 5 CFR 536.304(b)(3) and 536.306(a).

Some employees in nonforeign areas were entitled to retained rates during the transition period for reasons unrelated to NAREAA. On December 27, 2010, OPM issued a memorandum (CPM 2010-23) that provided special rules for adjusting retained rates under 5 U.S.C. 5363 for employees in nonforeign areas receiving COLAs during the transition period. These special rules were authorized by NAREAA section 1918(a)(2).

Normally, OPM computes a special rate supplement by adding a fixed-dollar amount or fixed percentage of the applicable GS base rate to all GS base rates within a rate range for a category of employees. However, adding an additional adjustment in nonforeign areas (as a result of NAREAA section 1915(b)(1)) provides a third way to compute special rate supplements by allowing a combination of a fixed-dollar supplement and a percentage-based additional adjustment. OPM proposes revising 5 CFR 530.304(c) to recognize the possibility of an alternate method for computing special rate supplements in nonforeign areas for special rate schedules established before January 1, 2012.

The regulations in 5 CFR 530.304(b) provide the circumstances OPM considers in evaluating the need for special rates. OPM proposes adding locality pay for the area involved and a nonforeign area COLA for the area involved as other circumstances for OPM to consider. OPM currently has the ability to consider “any other circumstances OPM considers appropriate” under 5 CFR 530.304(b)(4). However, specifically listing locality pay and nonforeign area COLA will make it explicit that these additional circumstances are appropriate for OPM to consider in evaluating the need for special rates. For similar reasons, we are proposing to amend 5 CFR 530.306(a) to add locality pay and COLA as factors that may be considered in evaluating a special rate proposal and in determining the level of special rates, as provided under 5 CFR 530.306(b)(1).

The regulations in 5 CFR 530.304 govern the establishment of a special rate schedule covering a category of employees in one or more areas or locations, grades or levels, occupational groups, series, classes, or subdivisions thereof. Certain provisions in NAREAA required increases in special rate schedules to levels beyond what may be justified to prevent significant recruitment or retention difficulties. Accordingly, OPM may consider reducing special rate schedules in nonforeign areas. Under these circumstances, and in light of the special regulatory authority provided in NAREAA section 1918(a)(1), we are proposing to add a new paragraph (e) in § 530.304, which would authorize OPM to establish a separate special rate schedule that temporarily maintains the higher special rates for current employees in a covered category—i.e., those covered by the given special rate schedule before the effective date of the schedule reduction. Employees in that same category who become employed in a nonforeign area after the effective date would be covered by the reduced special rate schedule. In other words, future hires would be covered by a lower special rate schedule established consistent with labor market conditions and other provisions of 5 U.S.C. 5305, while current employees would have “grandfather” coverage under a higher special rate schedule that would provide pay protection, but would be phased out over time.

The regulations in 5 CFR 530.308 list the purposes for which a special rate is considered a rate of basic pay. Section 530.308 specifically states that special rates are considered basic pay for the purpose of computing nonforeign area COLAs and post differentials. Section 530.308 also states that special rates are considered basic pay for the same purposes that locality pay is considered basic pay, as provided in 5 CFR 531.610. Currently, § 531.610 is silent regarding the treatment of locality pay as part of basic pay in computing nonforeign area COLAs, since, at the time the regulation was issued, locality pay was not payable in nonforeign areas or to any employee receiving a COLA. Section 531.610(g) does provide that a locality rate is considered a rate of basic pay for computing nonforeign area post differentials, but mentions only the scenario in which an employee is temporarily working in a nonforeign area when the employee's official worksite is located in a locality pay area because, at the time the regulation was issued, this was the only scenario in which locality pay was payable to an employee receiving a nonforeign area post differential. However, locality pay now applies to employees whose official worksites are located in a nonforeign area, and NAREAA specifically provided that nonforeign area COLA must be paid as a percentage of basic pay, including any applicable locality-based comparability payment. (See 5 U.S.C. 5941(c)(4) as amended by NAREAA.) Based on that law change, OPM is proposing to revise § 531.610 to reflect the fact that a locality rate must be used in computing nonforeign area COLAs. In addition, based on the original intent of the § 531.610(g) regulation and in light of the change in law to provide locality pay in nonforeign areas, OPM is proposing to revise § 531.610 to clarify that a locality rate is considered a rate of basic pay for the purpose of computing nonforeign area post differentials without any qualification. OPM is also proposing to make conforming changes in § 530.308. Using locality rates to compute nonforeign area post differentials is consistent with using locality rates to compute nonforeign area COLAs, which is required by law. It is also consistent with use of special rates in computing nonforeign area post differentials, and consistency in treatment of locality rates and special rates is a key objective underlying a number of OPM pay administration regulations.

Under current pay retention regulations—specifically, 5 CFR 536.304(b)(3) and 536.306(a)—a retained rate is capped at EX-IV. However, as explained above, NAREAA allows for a special rate above EX-IV to be converted to an equal retained rate at the end of the transition period. Also, under NAREAA section 1918(a)(3), the Director of OPM is authorized to prescribe rules governing the establishment and adjustment of retained rates for any employee whose rate of pay exceeds applicable pay limitations beginning on the first day of the first pay period in January 2012. Accordingly, OPM is proposing to revise its pay retention regulations to allow a retained rate established based on a special rate payable in a nonforeign area that was in excess of the applicable limitation on special rates on January 1, 2012, to exceed the EX-IV limitation until the retained rate becomes equal to or falls below the EX-IV limitation.

Under current pay retention law and regulations, an employee is not eligible for pay retention if he or she was employed on a temporary or term basis immediately before the action causing a reduction in pay. (See 5 U.S.C. 5361(1) and 5 CFR 536.102(b)(2).) OPM is proposing to revise its pay retention regulations to allow an exception to this bar on eligibility in the case of a temporary or term employee in a nonforeign area who is receiving a special rate in excess of EX-IV at the end of the transition period. This proposal is consistent with NARREA section 1913(c), which requires that “any special rate” in excess of the applicable pay limitation be converted to a retained rate. Furthermore, NAREAA section 1918(a)(3) allows OPM to prescribe rules governing the establishment of retained rates for “any employee” whose rate of pay exceeds applicable pay limitations at the end of the transition period. In addition, OPM is authorized to extend pay retention provisions to individuals not otherwise eligible under 5 U.S.C. 5365(b)(2).

OPM is also proposing to revise its pay retention regulations to include an additional exception allowing pay retention for a temporary or term employee who is receiving a special rate incorporating an “additional adjustment” under NAREAA section 1915(b)(1) in the event the employee's special rate schedule is reduced or terminated in the future. NAREAA section 1918(a)(1) authorizes OPM to prescribe rules for special rate employees described in NAREAA section 1913. Also, as already noted above, OPM is authorized to extend pay retention provisions to individuals not otherwise eligible under 5 U.S.C. 5365(b)(2).

The above-described changes in the pay retention regulations will be made in a proposed new § 536.310. That section will be removed once all affected employees have a retained rate at or below EX-IV or have lost entitlement to pay retention under 5 CFR 536.308.

OPM is not proposing to continue special retained rate adjustment rules described in CPM 2010-23 after the transition period. Those special adjustment rules were needed while locality pay was being increased by significant amounts (1/3rd phase-in in January 2010, 2/3rd phase-in in January 2011, and full phase-in in January 2012), resulting in corresponding large reductions in COLA payments. OPM believes a continuing exception to the statutory retained rate adjustment rule would not be appropriate. The NAREAA section 1918(a)(2) authority under which OPM established the special retained rate adjustment rules applies only during the transition period. After the transition period, agencies must use the retained rate adjustment rules in 5 U.S.C. 5363(b)(2)(B) and 5 CFR 536.305 to adjust an employee's retained rate, including a retained rate that is above EX-IV, when a pay schedule is adjusted.

Pursuant to 5 U.S.C. 553(b)(3)(B), I find that good cause exists to waive the 60-day comment period for general notice of proposed rulemaking. Limiting the comment period for the proposed regulations to 45 days will enable OPM to issue final regulations by the time the transition period under NAREAA ends, which will ensure appropriate treatment of nonforeign area employees following the transition period and avoid administrative difficulties. Because of the reduced period for public comment, OPM will ensure that agency human resources officials, management groups, employee organizations representing Federal workers in the nonforeign areas, and congressional offices, are notified promptly once these regulations are published for public comment.

Issuance of final regulations before the end of the NAREAA transition period is necessary to ensure that certain employees will not experience reductions in pay when the transition period ends on January 1, 2012. For example, employees in nonforeign areas who are receiving special rates above level IV of the Executive Schedule (EX-IV) prior to January 1, 2012, must be converted to a retained rate under 5 U.S.C. 5363 on January 1, 2012, under NAREAA section 1913(c). Under current regulations implementing section 5363, retained rates are capped at EX-IV. However, NAREAA section 1918(a)(3) allows OPM to issue regulations under which normal retained rate limitations could be exceeded, and that is what these proposed regulations would do—thus, preventing a possible loss in pay. Similarly, regulation changes are necessary to allow certain temporary or time-limited appointees in nonforeign areas to receive a retained rate and avoid a reduction in pay.

The Office of Management and Budget has reviewed this rule in accordance with E.O. 13563 and E.O. 12866.

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

Accordingly, OPM is proposing to amend 5 CFR parts 530, 531, and 536 as follows:

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2011-0720; Directorate Identifier 2010-NM-252-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD.

Transport Canada Civil Aviation (TCCA), which is the aviation authority for Canada, has issued Canadian Airworthiness Directive CF-2010-26, dated August 17, 2010 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Bombardier has issued Temporary Revision (TR) MRB-46, dated February 4, 2010, to Section 1-32, Systems/Powerplant Maintenance Program, of the Maintenance Review Board (MRB) Report Part 1, of the Bombardier Q400 Dash 8 Maintenance Requirements Manual, PSM 1-84-7. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have proposed different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the proposed AD.

Based on the service information, we estimate that this proposed AD would affect about 65 products of U.S. registry. We also estimate that it would take about 1 work-hour per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $5,525, or $85 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR Part 39 as follows:

On July 19, 2010 (75 FR 41696), the Commission published new light bulb  1 labeling requirements and sought comments on several unresolved issues related to those requirements. 2 The new requirements, which amend the Appliance Labeling Rule, 16 CFR part 305 (“Rule”), feature a “Lighting Facts” label that discloses information about the bulb's brightness, annual energy cost, life, color appearance, and energy use. 3 The Commission also sought additional comment on the following unresolved issues: the label's product coverage, light-emitting diode (LED) test procedures, watt-equivalence claims, beam spread and directional light disclosures, lead content disclosures, bilingual labels, fossil fuel lamp labels, and power factor disclosures. The Commission sought comment on these issues in response to the Congressional directive to consider reopening the labeling rulemaking in 2011 if the Commission determines that further labeling changes are necessary. 4

Consistent with Congress' directive, the Commission is now reopening the light bulb labeling rulemaking to seek comments on proposed amendments to the Rule. Specifically, the Commission proposes to expand label coverage to additional styles of bulbs and to require a specific test procedure requirement for LED bulb labels. The comments received in response to the July 2010 Notice suggest that these changes will help consumers with their purchasing decisions. 5 As discussed in section III, the Commission is not proposing amendments related to any other issues raised in the July 2010 Notice.

The Commission proposes to expand label coverage beyond medium screw-based products  6 to include all screw-based bulbs and GU-10 and GU-24 pin-based bulbs because expanded coverage will provide consumers uniform information, such as energy cost, brightness, and bulb life, to help them with their lighting decisions. 7 In imposing these requirements, the Commission plans to give manufacturers at least two and a half years to change their packaging to incorporate the new labels. As explained below, the Commission also seeks comment on the Rule's existing exclusions for specialty bulbs ( e.g., bug, marine, and mine service lamps) and requiring the Lighting Facts labels for general service fluorescent lamp packages.

In response to the July 2010 Notice, several energy efficiency groups recommended, while industry members opposed, expanding coverage to include all screw-based models, including intermediate and candelabra based models, and GU-10 and GU-24 pin-based models. The energy efficiency groups argued that such expanded label coverage would help consumers choose among bulbs with varying light output, energy efficiency, and other factors.

Specifically, the Natural Resources Defense Council (NRDC) argued that the new label should appear on packages for all screw-based models to ensure that the same information, in the form of the new label, appears on most light bulbs. In its view, the label's consistent disclosures for energy cost, brightness, life, color temperature, and watts will help consumers choose products with the characteristics they seek. According to the NRDC, consumers need the same basic light bulb information regardless of the product's shape ( e.g., pear, globe, flame, or spiral), base ( e.g., small, medium, or large diameter), or technology ( e.g., incandescent, halogen, LED, CFL, etc. ). 8 Although medium screw bases are the most common type of consumer lamp, NRDC identified a wide variety of lamps which use candelabra and intermediate bases. During informal visits to retail stores, NRDC observed that these bulbs can range from 2 watts to 100 watts, fit many different applications including chandeliers, night lights, ceiling fans, and halogen fixtures, and use traditional incandescent, halogen, CFL, or LED technology. 9 NRDC also identified wide differences in the light output among these products, arguing that labeling them would ensure a level playing field for industry. Finally, NRDC noted that packages for these products generally have room for the new FTC label.

The Consortium for Energy Efficiency (CEE) also urged labeling for candelabra-based bulbs but added a recommendation for pin-based (GU-24 and GU-10) lamps. In its view, expanding labeling coverage to additional styles of bulbs will better inform consumers about relative product performance and avoid confusion that could be caused by requiring the Lighting Facts label for some products but not others. CEE explained that, because these products can vary significantly in light output, energy use, and other characteristics, the label will be helpful to consumers. For example, current incandescent candelabra-based bulbs generally draw 25-60 watts per lamp and thus have a broad range of energy costs. These products also occupy a significant market share, according to CEE estimates, with candelabra-based products comprising roughly 9% of bulbs sold. Similarly, pin-based CFLs, which also appear in various wattages, comprise roughly 8% of the CFLs in the U.S. in 2008 (approximately 28.3 million lamps) according to CEE estimates. 10 CEE observed that candelabra and pin-based lamps appear in varied light outputs, lifetimes, and color temperatures, suggesting such label information will help consumer purchasing decisions. 11 Finally, CEE recommended that the FTC minimize the burden of expanded label coverage by providing manufacturers with more time to incorporate changes into their normal production and design schedules. 12

In contrast, the National Electrical Manufacturers Association (NEMA) opposed expanded label coverage. NEMA explained that because intermediate and candelabra-based bulbs use less energy than medium screw base bulbs on a daily basis and appear only in a few household locations such as bathrooms, dining rooms, and some outdoor lighting decorative fixtures, they do not warrant labeling. 13 NEMA also argued that intermediate and candelabra based bulbs produced using differing technologies ( e.g., incandescent, CFL, and LED) do not necessarily have the same functionality, and thus are not always direct substitutes for each other, presumably decreasing the comparative benefits of the FTC label. For example, most CFL replacements do not dim and may not provide the same “sparkle” sought by consumers. NEMA also asserted that consumers are likely to purchase intermediate and candelabra bulbs based on aesthetic shape, fit, and maximum wattage of their existing sockets, not on the information provided by the new labels. Finally, NEMA argued that packages for intermediate and candelabra bulbs (often cardboard sheets with plastic bulb covers) have little or no room for the new label.

After considering the comments, the Commission finds the energy efficiency group recommendations for expanding coverage more persuasive than NEMA's arguments opposing them. 14 Contrary to NEMA's assertions, expanded labeling is likely to help consumers compare the variations in energy use, technology, and performance of these products. Specifically, these products can use significant amounts of energy compared to other lighting products. For example, as detailed by the comments, candelabra and intermediate-based incandescent bulbs are likely to draw significantly more watts than their CFL and LED counterparts. These bulbs also may draw more watts than larger, medium-based CFLs and LEDs. In addition, while competing technologies may not be available for some of these bulbs, that is not always the case, 15 and the development of additional competing technologies is likely in the future. Also, given the relatively high wattage and light output variation among these products, consumers are likely to consider the label's light output, energy cost, life, and other disclosures even if, as NEMA states, they also are concerned with other factors such as shape, fit, and maximum wattage. In fact, as indicated by other comments, performance characteristics for these bulbs vary significantly, strongly suggesting that the FTC label, which highlights such variations, will be relevant to many consumers. And, although typical usage patterns ( e.g., hours per day of operation) may vary for these products, the standard usage assumption on the Lighting Facts label ( i.e., three hours per day) will provide consumers a consistent method to compare performance. Finally, though NEMA raised concerns about package size, the Rule already addresses space limitation issues by allowing an alternative text-only label for packages with less than 24 inches of printable space. 16

To expand the label's coverage to additional styles of bulbs, the Commission proposes to amend the definition of “general service lamp” to cover all screw-based incandescent, CFL, and LED lamps, eliminate existing exclusions for specific bulb shapes generally available to consumers, and make other minor, conforming changes consistent with this proposal. 17 Currently, the definition excludes G shape lamps (as defined in ANSI C78.20-2003 and C79.1-2002) with a diameter of 5 inches or more; T shape lamps (as defined in ANSI C78.20-2003 and C79.1-2002) that use not more than 40 watts or have a length of more than 10 inches; and B, BA, CA, F, G16-1/2, G-25, G30, S, or M-14 lamps (as defined in ANSI C79.1-2002 and ANSI C78.20-2003) of 40 watts or less.

The Commission seeks comment on this proposal, particularly whether the Rule should retain existing exclusions for the particular shapes described above. 18 Please also provide detailed reasons for all comments. In preparing responses, commenters should review carefully the proposed revisions to the definition of “general service lamp” at the end of this notice. In addition, the Commission requests that comments address whether the Commission should retain existing exclusions for special-use bulbs including appliance lamps as defined at 42 U.S.C. 6291(30); black light lamps; bug lamps; colored lamps as defined at 42 U.S.C. 6291(30); infrared lamps; left-hand thread lamps; marine lamps; marine signal service lamp; mine service lamp; plant light lamps; rough service lamps as defined at 42 U.S.C. 6291(30); shatter-resistant lamps (including shatter-proof lamps and a shatterprotected lamps); sign service lamps; silver bowl lamps; showcase lamps; traffic signal lamps; and vibration service lamps as defined at 42 U.S.C. 6291(30). In addressing label coverage for these specialty bulbs or for any particular bulb shape, comments should indicate whether such bulbs are distributed, to any significant extent, for personal use or consumption by consumers.

Finally, commenters should address whether the Lighting Facts label should appear on the package of general service fluorescent lamps. 19 Currently, the Rule requires an encircled “E” on the package of these lamps to denote compliance with federal efficiency standards. When it issued this requirement in 1994, the Commission declined to require more detailed disclosures ( e.g., lumens, life, etc. ) because of similarities in the characteristics of competing general service fluorescent lamps. 20 The Commmission asks now whether it should reconsider this decision and, if so, why. In particular, comments should address the extent to which these products are sold to consumers in the residential market, the amount of energy such products use, the variability in energy use between comparable products, the burdens associated with such label changes, and the likelihood the new label information would help consumers in their purchasing decisions for these products.

Based on unchallenged support in the comments, the Commission proposes to require a specific test procedure, IES-LM-79-2008 (LM-79), for measuring LED light output and color characteristics to help ensure consistent label content. The July 2010 Notice identified this procedure as a “safe harbor,” allowing manufacturers to use LM-79 as a reasonable basis for LED light output claims. Now, the Commission proposes to make the procedure mandatory and provide manufacturers one year to begin using the procedure as the basis for their label information for LED bulbs. The Commission seeks comment on this proposal.

Comments provided convincing support for the adoption of LM-79. 21 CEE argued that an FTC requirement for LM-79 would create more consistency in the market. It explained that the procedure offers the only test available to measure LED products, given their unique properties. CEE also noted that representatives of industry, research institutions, and test laboratories contributed to its development and that the ENERGY STAR program has incorporated LM-79 into its specifications. Cree, Inc., also explained that most manufacturers know the LM-79 procedures, test labs conduct these measurements, and, in the commercial market at least, consumers are looking for this test data when they purchase LED bulbs.

After reviewing the comments submitted in response to the July 2010 Notice, the Commission is not proposing any new requirements for watt-equivalence standards, beam spread disclosures, directional light disclosures, lead content disclosures, bilingual labels, fossil fuel lamp labels, and power factor at this time. 22 Unless stated otherwise, the Commission is not seeking additional comments on these issues.

The Commission is not proposing standards for watt-equivalence claims because such requirements may inhibit helpful, truthful representations, and thus may not necessarily help consumers in their bulb purchasing decisions. Nevertheless, manufacturers should heed the Commission's earlier recommendation to use ENERGY STAR equivalence benchmarks for general guidance in developing their watt-equivalence claims. 23

Watt-equivalence claims often appear on CFL packages and generally contain conspicuous comparisons of the CFL's light output to equivalent incandescent lamps ( e.g., “this bulb is a ‘60-watt’ equivalent” or “13W=60W”). In the June 2010 Notice, the Commission sought comment on establishing mandatory, watt-equivalence requirements for these claims. 24

The comments offered conflicting views. NRDC suggested the Commission set standards to mandate consistency in watt-equivalence claims on light bulb packages. In particular, NRDC, which provided several examples of problematic watt-equivalence claims, urged the Commission to use the ENERGY STAR watt-equivalence benchmarks in that program's CFL specifications. It also noted that the European Union has already adopted such standards. Additionally, NRDC urged standards for reflector lamps separate from those for conventional incandescent bulbs. NEMA also supported standards but, as an alternative, recommended the Commission impose a blanket prohibition on all watt-equivalence claims. Such a prohibition, in NEMA's view, would shift consumers away from using older, nearly obsolete technology as the basis for their bulb comparisons.

Conversely, Cree, Inc. argued that strict standards may actually encourage watt-equivalence claims and cause continued consumer reliance on power as a shorthand for light output. Cree, Inc. also argued that watt-equivalence comparisons should take into account factors other than light output such as light quality and distribution. According to Cree, Inc., products with identical light outputs and color temperature may actually appear to be substantially different to consumers because of factors such as color rendition index, light distribution, and color point location.

After considering these comments, the Commission is not proposing watt-equivalence standards at this time. As discussed by the Commission in the July 2010 Notice, the ENERGY STAR benchmarks provide important guidance, but they may not be applicable in every case. 25 Variables such as color appearance and other factors discussed in the comments make it difficult to apply a “one-size-fits-all” approach. Indeed, rigid equivalence standards could inhibit truthful claims. For example, while typical 60-watt incandescent bulbs have an 800-lumen rating, some 60-watt bulbs that have a cooler light appearance, could have lower lumen ratings ( e.g., 675 lumens). A strict legal standard requiring at least 800 lumens for all 60-watt comparisons would prohibit such claims for those cooler, dimmer ( e.g., 675 lumens) bulbs even though they are truthful. 26 The comments did not address these concerns in any detail.

However, even in the absence of rigid watt-equivalence standards, manufacturers must ensure they can substantiate their watt-equivalence claims. The comments highlight the need for manufacturers to ensure their watt-equivalence claims are not deceptive. In particular, manufacturers must take into account the brightness of the bulbs they are comparing, as well as other material factors such as light appearance ( i.e., color temperature). To help manufacturers with these claims, the ENERGY STAR program has issued watt-equivalence standards that provide general benchmarks for comparing the light output of traditional incandescents to CFLs. In the short run, the Commission recommends that manufacturers adhere to the benchmarks in the ENERGY STAR watt-equivalence guidelines (see Table 1 below) unless they have a reasonable basis for a different equivalence standard. Simply put, if a manufacturer's claim is inconsistent with the ENERGY STAR benchmarks, it must possess another competent and reliable basis to substantiate its claims and should consider clearly qualifying its claims to avoid deception. Deceptive watt-equivalence comparisons are subject to FTC law enforcement actions under § 5 of the FTC Act.

In the long run, as more high-efficiency products appear and older incandescent technology leaves the market, watt-equivalence comparisons will have decreasing relevance to consumers. As equivalence claims recede, lumens will continue to provide a clear, consistent measurement for light output. However, consumer transition from watts to lumens will take time. The Commission encourages manufacturers to focus their communication efforts on lumens to help consumers with their lighting decisions. Eventually, consumer education, coupled with the phase-out of old incandescent bulbs, will help consumers look to lumens, not to obsolete watt-equivalence claims to evaluate bulb brightness.

The Commission is not proposing requirements for beam spread or directional light disclosures because the need for such mandatory disclosures to help consumers is unclear. In particular, no consistent definition exists for beam spread across different bulb types and the need for mandatory directional light disclosures is uncertain.

NEMA's comments opposed a beam spread disclosure because definitions of beam spread vary among different bulb types ( e.g., reflector and PAR [parabolic aluminized reflector] products). In addition, NEMA asserted that most residential consumers do not understand beam spread terminology. NEMA also indicated that commercial consumers and lighting designers generally obtain beam spread information from manufacturer catalogs, not from packages, thus suggesting that beam spread information on label packages would not be particularly helpful. No other commenter specifically addressed this issue. The Commission does not plan to pursue it further at this time.

NEMA and Cree, Inc. supported a directional light disclosure, arguing it would be useful to consumers and use little space on the package. In particular, NEMA recommended Center Beam Candlepower (CBCP) ( i.e., brightness at the center of the beam) for the directional disclosure on packaging for reflector lamps, including PARs. Cree, Inc. added that the label should disclose beam angle (either a specific angle or a category such as spot, flood, etc.).

Despite support in the comments, the Commission is not proposing to require CBCP disclosures at this time because nothing on the record suggests such information is familiar to typical consumers. Given this, CBCP or directional disclosure information may detract from information already on the label. If manufacturers believe such disclosures are important, nothing in the Rule prohibits them from providing it somewhere on the package (other than on the Lighting Facts label), as long as the information is truthful and substantiated.

The Commission is not proposing a lead disclosure on the Lighting Facts label at this time because there is no clear basis in the comments demonstrating that this additional requirement would assist consumers in their purchasing decisions. According to NEMA, manufacturers have removed most of the lead from regulated products and any remaining lead is not available to human touch.

The current Rule allows, but does not require, bilingual labels. In light of the substantial marketing directed at non-English speakers, the July 2010 Notice sought comment on whether, when manufacturers make claims in a foreign language on a light bulb package, they should be required to include the Lighting Facts label in both that language and English. NEMA, the only organization to comment on this issue, opposed such a bilingual labeling requirement, citing space limitations on packages and the confusion multiple languages may cause. The Commission heard from no organizations or persons with expertise in issues affecting non-English speaking consumers.

The Commission believes this issue warrants further consideration. For nearly 40 years, Commission rules, guides, and cease-and-desist orders that mandate the clear and conspicuous disclosure of information in advertisements and sales material have required that such information be displayed in the language of the target audience (ordinarily, the language principally used in the advertisement or sales material in question). 27 Before adopting an alternative approach in the context of light bulb packaging, the Commission will continue to consider this issue and seeks additional information from a wider group of stakeholders. As part of that process, the Commission requests further comment on whether non-English claims on light bulb packages should trigger mandatory bilingual labels or other disclosures, and specifically asks commenters to address the following questions:

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). 2 Title VII of the Dodd-Frank Act amended the Commodity Exchange Act (CEA or Act)  3 to establish a comprehensive new regulatory framework for swaps. The legislation was enacted to reduce risk, increase transparency, and promote market integrity within the financial system by, among other things: (1) Providing for the registration and comprehensive regulation of swap dealers and major swap participants; (2) imposing clearing and trade execution requirements on standardized derivative products; (3) creating rigorous recordkeeping and real-time reporting regimes; and (4) enhancing the Commission's rulemaking and enforcement authorities with respect to, among others, all registered entities and intermediaries subject to the Commission's oversight. Title VII also includes amendments to the federal securities laws to establish a similar regulatory framework for security-based swaps under the authority of the Securities and Exchange Commission (SEC).

A fundamental premise of the Dodd-Frank Act is that the use of properly regulated central clearing can reduce systemic risk. The Commission has proposed extensive regulations addressing open access and risk management at the derivatives clearing organization (DCO) level. 4 The Commission also has proposed regulations addressing risk management for swap dealers (SDs) and major swap participants (MSPs). 5

Clearing members provide the portals through which market participants gain access to DCOs as well as the first line of risk management. Accordingly, the Commission is proposing regulations to facilitate customer access to clearing and to bolster risk management at the clearing member level. The proposal addresses risk management for cleared trades by FCMs and SDs and MSPs that are clearing members.

Section 3(b) provides that one of the purposes of the Act is to ensure the financial integrity of all transactions subject to the Act and to avoid systemic risk. Section 8a(5) authorizes the Commission to promulgate such regulations that it believes are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes of the Act. Risk management systems are critical to the avoidance of systemic risks.

Section 4s(j)(2) requires each SD and MSP to have risk management systems adequate for managing its business. Section 4s(j)(4) requires each SD and MSP to have internal systems and procedures to perform any of the functions set forth in Section 4s.

Section 4d requires FCMs to register with the Commission. It further requires FCMs to segregate customer funds. Section 4f requires FCMs to maintain certain levels of capital. Section 4g establishes reporting and recordkeeping requirements for FCMs.

These provisions of law and Commission regulations promulgated pursuant to these provisions create a web of obligations designed to secure the financial integrity of the markets and the clearing system, to avoid systemic risk, and to protect customer funds. Effective risk management by FCMs is essential to achieving these goals. For example, a poorly managed position in the customer account can cause an FCM to become undersegregated. A poorly managed position in the proprietary account can cause an FCM to fall out of compliance with capital requirements.

Even more significantly, a failure of risk management can cause an FCM to become insolvent and default to a DCO. This can disrupt the markets and the clearing system and harm customers. Such failures have been predominately attributable to failures in risk management. 6

As noted previously, the Dodd-Frank Act requires the increased use of central clearing. In particular, Section 2(h) establishes procedures for the mandatory clearing of certain swaps. As stated in the Senate Committee report: “Increasing the use of central clearinghouses * * * will provide safeguards for American taxpayers and the financial system as a whole. 7

The Commission has proposed extensive risk management standards at the DCO level. Given the increased importance of clearing and the expected entrance of new products and new participants into the clearing system, the Commission believes that enhancing the safeguards at the clearing member level is necessary as well.

Bringing swaps into clearing will increase the magnitude of the risks faced by clearing members. In many cases, it will change the nature of those risks as well. Many types of swaps have their own unique set of risk characteristics. The Commission believes that the increased concentration of risk in the clearing system combined with the changing configuration of the risk warrant additional vigilance not only by DCOs but by clearing members as well.

FCMs generally have extensive experience managing the risk of futures. They generally have less experience managing the risks of swaps. The Commission believes that it is a reasonable precaution to require that certain safeguards be in place. It would ensure that FCMs, who clear on behalf of customers, are subject to standards at least as stringent as those applicable to SDs and MSPs, who clear only for themselves. Failure to require SDs, MSPs, and FCMs that are clearing members to maintain such safeguards would frustrate the regulatory regime established in the CEA, as amended by the Dodd-Frank Act. Accordingly, the Commission believes that applying the risk-management requirements in the proposed rules to SDs, MSPs, and FCMs that are clearing members are reasonably necessary to effectuate the provisions and to accomplish the purposes of the CEA.

Proposed § 1.73 would apply to clearing members that are FCMs; proposed § 23.609 would apply to clearing members that are SDs or MSPs. These provisions would require these clearing members to have procedures to limit the financial risks they incur as a result of clearing trades and liquid resources to meet the obligations that arise. The proposal would require clearing members to:

(1) Establish credit and market risk-based limits based on position size, order size, margin requirements, or similar factors;

(2) Use automated means to screen orders for compliance with the risk-based limits;

(3) Monitor for adherence to the risk-based limits intra-day and overnight;

(4) Conduct stress tests of all positions in the proprietary account and all positions in any customer account that could pose material risk to the futures commission merchant at least once per week;

(5) Evaluate its ability to meet initial margin requirements at least once per week;

(6) Evaluate its ability to meet variation margin requirements in cash at least once per week;

(7) Evaluate its ability to liquidate the positions it clears in an orderly manner, and estimate the cost of the liquidation at least once per month; and

(8) Test all lines of credit at least once per quarter.

Each of these items has been observed by Commission staff as an element of an existing sound risk management program at a DCO or an FCM.

The Commission does not intend to prescribe the particular means of fulfilling these obligations. As is the case with DCOs, clearing members will have flexibility in developing procedures that meet their needs. For example, items (1) and (2) could be addressed through simple numerical limits on order or position size or through more complex margin-based limits. Further examples could include price limits to reject orders that are too far away from the market, or limits on the number of orders that could be placed in a short time.

The following are examples of tools that could be used to monitor for risk and to mitigate it:

The Commission believes that these proposals are consistent with international standards. In August 2010, the International Organization of Securities Commissions issued a report entitled “Direct Electronic Access to Markets.”  8 The report set out a number of principles to guide markets, regulators, and intermediaries. Principle 6 states that:

Principle 7 states that:

Stress tests are an essential risk management tool. The purpose in conducting stress tests is to determine the potential for significant losses in the event of extreme market events and the ability of traders and clearing members to absorb the losses. As was the case with the DCO risk management proposal, the Commission does not intend to prescribe the manner in which clearing members conduct stress tests. Rather, the Commission would monitor to determine whether clearing members were routinely conducting stress tests reasonably designed for the types of risk the clearing members and their customers face.

The proposal also would require clearing members to evaluate their ability to meet calls for initial and variation margin. This includes testing for liquidity of financial resources available to cover exposures due to market events. Routine testing of this sort diminishes the chance of a default based on liquidity problems.

Each clearing member also would be required to evaluate periodically its ability to liquidate, in an orderly manner, the positions in the proprietary and customer accounts and estimate the cost of the liquidation. In recent years, Commission staff has observed instances where a trader was unable to meet its financial obligations and the FCM had to assume responsibility for the trader's portfolio. Under these conditions, an FCM would normally liquidate the portfolio promptly. In some instances, however, where the portfolio contained large and complex options positions, the FCM found that it was not easy to liquidate. The Commission believes that clearing members should periodically review portfolios to ensure that they have the ability to liquidate them and to estimate the cost of such liquidation. The exercise should also address the ability of the FCM to put on appropriate hedges to mitigate risk pending liquidation. Such an exercise would take into account the size of the positions, the concentration of the positions in particular markets, and the liquidity of the markets.

Finally, the proposal would require each clearing member to establish written procedures to comply with this regulation and to keep records documenting its compliance. The Commission believes that these are important elements of a good risk management program.

The Commission requests comments on all aspects of the risk management proposal. In particular the Commission requests comment on:

• The extent to which each DCO already (i) Requires clearing member FCMs, SDs, and MSPs to have each component, and (ii) audits compliance with such requirement;

• The extent to which each component has otherwise been incorporated into exsisting risk management systems of clearing member FCMs, SDs, and MSPs; and

• The potential costs and benefits of each component.

The Regulatory Flexibility Act (RFA) requires that agencies consider whether the regulations they propose will have a significant economic impact on a substantial number of small entities. 9 The Commission previously has established certain definitions of “small entities” to be used in evaluating the impact of its regulations on small entities in accordance with the RFA. 10 The proposed regulations would affect FCMs, DCOs, SDs, and MSPs.

The Commission previously has determined, however, that FCMs should not be considered to be small entities for purposes of the RFA. 11 The Commission's determination was based, in part, upon the obligation of FCMs to meet the minimum financial requirements established by the Commission to enhance the protection of customers' segregated funds and protect the financial condition of FCMs generally. 12 The Commission also has previously determined that DCOs are not small entities for the purpose of the RFA. 13

SDs and MSPs are new categories of registrants. Accordingly, the Commission has not previously addressed the question of whether such persons are, in fact, small entities for purposes of the RFA. Like FCMs, SDs will be subject to minimum capital and margin requirements and are expected to comprise the largest global financial firms. The Commission is required to exempt from SD registration any entities that engage in a de minimis level of swap dealing in connection with transactions with or on behalf of customers. The Commission anticipates that this exemption would tend to exclude small entities from registration. Accordingly, for purposes of the RFA for this rulemaking, the Commission is hereby proposing that SDs not be considered “small entities” for essentially the same reasons that FCMs have previously been determined not to be small entities and in light of the exemption from the definition of SD for those engaging in a de minimis level of swap dealing.

The Commission also has previously determined that large traders are not “small entities” for RFA purposes. 14 In that determination, the Commission considered that a large trading position was indicative of the size of the business. MSPs, by statutory definition, maintain substantial positions in swaps or maintain outstanding swap positions that create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets. Accordingly, for purposes of the RFA for this rulemaking, the Commission is hereby proposing that MSPs not be considered “small entities” for essentially the same reasons that large traders have previously been determined not to be small entities.

Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed regulations will not have a significant economic impact on a substantial number of small entities. The Commission invites the public to comment on whether SDs and MSPs should be considered small entities for purposes of the RFA.

The Paperwork Reduction Act (PRA)  15 imposes certain requirements on Federal agencies (including the Commission) in connection with their conducting or sponsoring any collection of information as defined by the PRA. This proposed rulemaking would result in new collection of information requirements within the meaning of the PRA. The Commission therefore is submitting this proposal 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 title for this collection of information is “Clearing Member Position Risk Management.” An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The OMB has not yet assigned this collection a control number.

The collection of information under these proposed regulations is necessary to implement certain provisions of the CEA, as amended by the Dodd-Frank Act. Specifically, it is essential both for effective risk management and for the efficient operation of trading venues among swap dealers, major swap participants, and futures commission merchants. The position risk management requirement established by the proposed rules diminishes the chance for a default, thus ensuring the financial integrity of markets as well as customer protection.

If the proposed regulations are adopted, responses to this collection of information would be mandatory. 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 CEA strictly prohibits the Commission, unless specifically authorized by the CEA, 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 is also required to protect certain information contained in a government system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

Swap dealers, major swap participants, and futures commission merchants would be required to develop and monitor procedures for position risk management in accordance with proposed rules 1.73 and 23.609.

The annual burden associated with these proposed regulations is estimated to be 524 hours, at an annual cost of $52,400 for each futures commission merchant, swap dealer, and major swap participant. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose, or provide information to or for a federal agency. The Commission has characterized the annual costs as initial costs because the Commission anticipates that the cost burdens will be reduced dramatically over time as the documentation and procedures required by the proposed regulations become increasingly standardized within the industry.

This hourly burden primarily results from the position risk management obligations that would be imposed by proposed regulations 1.73 and 23.609. Proposed 1.73 and 23.609 would require each futures commission merchant, swap dealer, and major swap participant to establish and enforce procedures to establish risk-based limits, conduct stress testing, evaluate the ability to meet initial and variation margin, test lines of credit, and evaluate the ability to liquidate, in an orderly manner, the positions in the proprietary and customer accounts and estimate the cost of the liquidation. The Commission believes that each of these items is currently an element of existing risk management programs at a DCO or an FCM. Accordingly, any additional expenditure related to §§ 1.73 and 23.609 likely would be limited to the time initially required to review and, as needed, amend, existing risk management procedures to ensure that they encompass all of the required elements and to develop a system for performing these functions as often as required.

In addition, proposed §§ 1.73 and 23.609 would require each futures commission merchant, swap dealer, and major swap participant to establish written procedures to comply, and maintain records documenting compliance. Maintenance of compliance procedures and records of compliance is prudent business practice and the Commission anticipates that swap dealers and major swap participants already maintain some form of this documentation.

With respect to the required position risk management, the Commission estimates that futures commission merchants, swap dealers, and major swap participants will spend an average of 2 hours per trading day, or 504 hours per year, performing the required tests. The Commission notes that the specific information required for these tests is of the type that would be performed in a prudent market participant's ordinary course of business.

In addition to the above, the Commission anticipates that futures commission merchants, swap dealers, and major swap participants will spend an average of 16 hours per year drafting and, as needed, updating the written policies and procedures to ensure compliance required by proposed §§ 1.73 and 23.609, and 4 hours per year maintaining records of the compliance.

The hour burden calculations below are based upon a number of variables such as the number of futures commission merchants, swap dealers, and major swap participants in the marketplace and the average hourly wage of the employees of these registrants that would be responsible for satisfying the obligations established by the proposed regulation.

There are currently 134 futures commission merchants based on industry data. Swap dealers and major swap participants are new categories of registrants. Accordingly, it is not currently known how many swap dealers and major swap participants will become subject to these rules, and this will not be known to the Commission until the registration requirements for these entities become effective after July 16, 2011, the date on which the Dodd-Frank Act becomes effective. While the Commission believes there will be approximately 200 swap dealers and 50 major swap participants, it has taken a conservative approach, for PRA purposes, in estimating that there will be a combined number of 300 swap dealers and major swap participants who will be required to comply with the recordkeeping requirements of the proposed rules. The Commission estimated the number of affected entities based on industry data.

According to recent Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 11-3031, “Financial Managers,” (which includes operations managers) that is employed by the “Securities and Commodity Contracts Intermediation and Brokerage” industry is $74.41. 16 Because swap dealers, major swap participants, and futures commission merchants include large financial institutions whose operations management employees' salaries may exceed the mean wage, the Commission has estimated the cost burden of these proposed regulations based upon an average salary of $100 per hour.

Accordingly, the estimated hour burden was calculated as follows: Developing and Conducting Position Risk Management Procedures for Swap Dealers and Major Swap Participants. This hourly burden arises from the proposed requirement that swap dealers and major swap participants establish and perform testing of clearing member risk management procedures.

Number of registrants: 300.

Frequency of collection: Daily.

Estimated number of responses per registrant: 252 [252 trading days].

Estimated aggregate number of responses: 75,600 [300 registrants × 252 trading days].

Estimated annual burden per registrant: 504 hours [252 trading days × 2 hours per record].

Estimated aggregate annual hour burden: 151,200 hours [300 registrants × 252 trading days × 2 hours per record].

Developing Written Procedures for Compliance, and Maintaining Records Documenting Compliance for Swap Dealers and Major Swap Participants. This hourly burden arises from the proposed requirement that swap dealers and major swap participants make and maintain records documenting compliance related to clearing member risk management.

Number of registrants: 300.

Frequency of collection: As needed.

Estimated number of annual responses per registrant: 1.

Estimated aggregate number of annual responses: 300.

Estimated annual hour burden per registrant: 20 hours.

Estimated aggregate annual hour burden: 6,000 burden hours [300 registrants × 20 hours per registrant].

Developing and Conducting Position Risk Management Procedures for Futures Commission Merchants: This hourly burden arises from the proposed requirement that futures commission merchants establish and perform testing of clearing member risk management procedures.

Number of registrants: 134.

Frequency of collection: Daily.

Estimated number of responses per registrant: 252 [252 trading days].

Estimated aggregate number of responses: 33,768 [134 registrants × 252 trading days].

Estimated annual burden per registrant: 504 hours [252 trading days × 2 hours per record].

Estimated aggregate annual hour burden: 67,536 hours [134 registrants × 252 trading days × 2 hours per record].

Developing Written Procedures for Compliance, and Maintaining Records Documenting Compliance for Futures Commission Merchants. This hourly burden arises from the proposed requirement that futures commission merchants make and maintain records documenting compliance related to clearing member risk management.

Number of registrants: 134.

Frequency of collection: As needed.

Estimated number of annual responses per registrant: 1.

Estimated aggregate number of annual responses: 134.

Estimated annual hour burden per registrant: 20 hours.

Estimated aggregate annual hour burden: 2,680 burden hours [134 registrants × 20 hours per registrant].

Based upon the above, the aggregate hour burden cost for all registrants is 227,416 burden hours and $22,741,600 [227,416 × $100 per hour].

In addition to the per hour burden discussed above, the Commission anticipates that swap dealers, major swap participants, and futures commission merchants may incur certain start-up costs in connection with the proposed recordkeeping obligations. Such costs would include the expenditures related to re-programming or updating existing recordkeeping technology and systems to enable the swap dealer, major swap participant, or futures commission merchant to collect, capture, process, maintain, and re-produce any newly required records. The Commission believes that swap dealers, major swap participants, and futures commission merchants generally could adapt their current infrastructure to accommodate the new or amended technology and thus no significant infrastructure expenditures would be needed. The Commission estimates the programming burden hours associated with technology improvements to be 60 hours.

According to recent Bureau of Labor Statistics, the mean hourly wages of computer programmers under occupation code 15-1021 and computer software engineers under program codes 15-1031 and 1032 are between $34.10 and $44.94. 17 Because swap dealers, major swap participants, and futures commission merchants generally will be large entities that may engage employees with wages above the mean, the Commission has conservatively chosen to use a mean hourly programming wage of $60 per hour. Accordingly, the start-up burden associated with the required technological improvements would be $3,600 [$60 × 60 hours] per affected registrant or $1,562,400 [$3,600 × 434 registrants] in the aggregate.

The Commission invites the public and other federal agencies to comment on any aspect of the recordkeeping burdens discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (i) Evaluate whether the proposed collection of information is 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 estimate of the burden of the proposed collection 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 collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.

Comments may be submitted directly to the Office of Information and Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy of submitted comments so that all comments can be summarized and addressed in the final rule preamble. Refer to the Addresses section of this notice of proposed rulemaking for comment submission instructions to the Commission. A copy of the supporting statements for the collection of information discussed above may be obtained by visiting http://www.RegInfo.gov. OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this document in the Federal Register . Therefore, a comment is best assured of having its full effect if OMB receives it within 30 days of publication.

Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its action before promulgating a regulation under the CEA. Section 15(a) of the CEA specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: (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. The Commission may in its discretion give greater weight to any one of the five enumerated areas and could in its discretion determine that, notwithstanding its costs, a particular order is necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the CEA.

The proposed rules involve risk management for cleared trades by futures commission merchants, swap dealers, and major swap participants that Are clearing members. The discussion below will consider the proposed rule in light of each section 15(a) concerns.

The Commission is proposing regulations that would require FCMs, SDs, and MSPs to put into place certain risk management procedures.

Good risk management practices among FCMs, SDs, and MSPs help insulate DCOs from financial distress. Moreover, while the rule calls for standard risk mitigation measures, it allows FCMs, SDs, and MSPs to use diverse techniques to implement those measures. This makes it less likely that multiple FCMs, SDs, and MSPs would be exposed to identical blind spots during unexpected market developments.

As far as costs are concerned, regular testing of various systems and financial positions requires significant personnel hours and potentially the services of external vendors. The requirement that records be created and maintained may impose costs on FCMs, SDs, and MSPs. The Commission believes that some costs might only be incremental because it believes that well-managed firms would generally already create and maintain records of this type.

The integrity of the markets is enhanced with the certainty that the customer's counterparties ( i.e., FCMs, SDs, and MSPs, as well as DCOs) are more likely to remain solvent during strenuous financial conditions.

As for the costs related to this rule, rigorous stress tests may encourage conservative margin requirements that reduce customers' ability to leverage their positions. Also, higher costs associated with maintaining more stringent risk management practices will ultimately be passed along to customers, likely in the form of larger spreads, which may reduce the liquidity and efficiency of the market. However, more conservative margin requirements and stringent risk management practices will also help reduce systemic risk thereby protecting the integrity of the financial system as a whole.

The rule extends the range of parties responsible for rigorous risk management practices which promotes further stability of the entire financial system. However, as mentioned previously, risk management systems can be costly to implement. The Commission does not know at this time, and requests comment on, how many parties will need to upgrade their systems, if any. Additionally, the Commission requests comment from the public as to what the costs might be to upgrade existing systems or install new systems to comply with the proposed regulation.

Requiring a significant investment in risk mitigation structures and procedures by all FCMs, SDs, and MSPs increases the number of entities committing time and resources to development of new techniques that have the potential to advance the practice across the entire industry. Such measures contribute to the overall stability of our global financial system.

In light of the foregoing, the Commission hereby proposes to amend Part 1, and Part 23, as proposed to be added at 75 FR 71390, November 23, 2010, and further amended at 75 FR 81530, December 28, 2010, of Title 17 of the Code of Federal Regulations as follows:

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). 2 Title VII of the Dodd-Frank Act amended the Commodity Exchange Act (CEA or Act)  3 to establish a comprehensive new regulatory framework for swaps. The legislation was enacted to reduce risk, increase transparency, and promote market integrity within the financial system by, among other things: (1) Providing for the registration and comprehensive regulation of swap dealers and major swap participants; (2) imposing clearing and trade execution requirements on standardized derivative products; (3) creating rigorous recordkeeping and real-time reporting regimes; and (4) enhancing the Commission's rulemaking and enforcement authorities with respect to, among others, all registered entities and intermediaries subject to the Commission's oversight. Title VII also includes amendments to the federal securities laws to establish a similar regulatory framework for security-based swaps under the authority of the Securities and Exchange Commission (SEC).

A fundamental premise of the Dodd-Frank Act is that the use of properly regulated central clearing can reduce systemic risk. Another tenet of the Dodd-Frank Act is that open access to clearing by market participants will increase market transparency and promote market efficiency by enabling market participants to reduce counterparty risk and by facilitating offset of open positions. The Commission has proposed extensive regulations addressing open access at the derivatives clearing organization (DCO) level. 4

Clearing members provide the portals through which market participants gain access to DCOs as well as the first line of risk management. Accordingly, the Commission is proposing regulations to facilitate customer access to clearing and to bolster risk management through timely processing. The proposals address: (i) The documentation between a customer and a futures commission merchant (FCM) that clears on behalf of the customer; and (ii) the timing of acceptance or rejection of trades for clearing by DCOs and clearing members.

Section 4d(c) of the CEA, as amended by the Dodd-Frank Act, directs the Commission to require FCMs to implement conflict of interest procedures that address such issues the Commission determines to be appropriate. Similarly, section 4s(j)(5), as added by the Dodd-Frank Act, requires SDs and MSPs to implement conflict of interest procedures that address such issues the Commission determines to be appropriate. Section 4s(j)(5) also requires SDs and MSPs to ensure that any persons providing clearing activities or making determinations as to accepting clearing customers are separated by appropriate informational partitions from persons whose involvement in pricing, trading, or clearing activities might bias their judgment or contravene the core principle of open access.

Pursuant to these provisions, the Commission has proposed § 1.71(d)(1) relating to FCMs and § 23.605(d)(1) relating to SDs and MSPs. 5 These regulations would prohibit SDs and MSPs from interfering or attempting to influence the decisions of affiliated FCMs with regard to the provision of clearing services and activities and would prohibit FCMs from permitting them to do so.

Section 4s(j)(6) of the CEA prohibits an SD or MSP from adopting any process or taking any action that results in any unreasonable restraint on trade or imposes any material anticompetitive burden on trading or clearing, unless necessary or appropriate to achieve the purposes of the Act. The Commission has proposed § 23.607 to implement this provision. 6

Section 2(h)(1)(B)(ii) of the CEA requires that DCO rules provide for the non-discriminatory clearing of swaps executed bilaterally or through an unaffiliated designated contract market (DCM) or swap execution facility (SEF). The Commission has proposed § 39.12(b)(2) to implement this provision. 7

On June 16, 2011, the Futures Industry Association (FIA) and the International Swap and Derivatives Association (ISDA), published an FIA-ISDA Cleared Derivatives Execution Agreement (Agreement) as a template for use by swap market participants in negotiating execution-related agreements with counterparties to swaps that are intended to be cleared. 8 The Agreement was developed with the assistance of a committee comprised of representatives of certain FIA and ISDA member firms which included both swap dealers and buy-side firms. More than 60 organizations provided input during the development of the document. 9

FIA and ISDA emphasized that the use of the agreement is voluntary and may not be necessary and appropriate under all circumstances. 10 FIA and ISDA recognized that many of the provisions in the Agreement will be superseded by new regulatory requirements and the rules of swap execution venues and clearing organizations. 11

The Agreement includes optional annexes that make the clearing member to one or both of the executing parties a party to the Agreement (the Tri-party annexes). Some of the participants in the process, as well as some market participants that were not included, have expressed concern to the Commission that aspects of the Tri-party annexes may be inconsistent with certain principles of the Dodd-Frank Act. 12

Specifically, concerns arise in connection with certain provisions that would permit a customer's FCM, in consultation with the SD, to establish specific credit limits for the customer's swap transactions with the SD, and to declare that with regard to trades with that SD, the FCM will only accept for clearing those transactions that fall within these specific limits. 13 The limits set for trades with the SD might be less than the overall limits set for the customer for all trades cleared through the FCM. The result would be to create a “sublimit” for the customer for trades with that SD. Some market participants have stated that the setting of such “sublimits” would result in restrictions of customer counterparties because, without such “sublimits,” the customer may enter into transactions with whomever it chooses, up to its overall limit with the FCM. 14

Generally, in cleared markets, an FCM does not know the identity of its customer's executing counterparty. Another effect of such sublimits would be to disclose the identity of the customer's counterparty to the FCM. In many instances, the FCM and the customer's counterparty—the SD—might be affiliated entities. Some market participants have stated that such disclosure may lead to “greater information exchange” between the FCM and the affiliated SD, which would “force the customer to execute with the clearing member's trading desk affiliate.”  15 A third effect of such sublimits could be to delay acceptance of the trades into clearing while the FCM verifies compliance with the sublimits.

Arrangements with these effects potentially conflict with the concepts of open access to clearing and execution of customer transactions on a DCM or SEF on terms that have a reasonable relationship to the best terms available. More specifically, they potentially conflict with proposed §§ 1.71(d)(1), 23.605(d)(1), 23.608, and 39.12. As certain market participants have stated, tri-party agreements of the type described above could lead to undue influence by FCMs on a customer's choice of counterparties (or, conversely, undue influence by SDs on a customer's choice of clearing member). Therefore, they could constrain a customer's opportunity to obtain execution of the trade on the terms that have a reasonable relationship to the best terms available by limiting the number of potential counterparties. 16

To address these concerns and to provide further clarity in this area, the Commission is now proposing § 1.72 relating to FCMs, § 23.608 relating to SDs and MSPs, and § 39.12(a)(1)(vi) relating to DCOs. These new regulations would prohibit arrangements involving FCMs, SDs, MSPs, or DCOs that would (a) disclose to an FCM, SD, or MSP the identity of a customer's original executing counterparty; (b) limit the number of counterparties with whom a customer may enter into a trade; (c) restrict the size of the position a customer may take with any individual counterparty, apart from an overall credit limit for all positions held by the customer at the FCM; (d) impair a customer's access to execution of a trade on terms that have a reasonable relationship to the best terms available; or (e) prevent compliance with specified time frames for acceptance of trades into clearing.

The Commission believes that implementation of the proposal would reduce risk and foster open access to clearing, as well as execution of customer trades on terms that have a reasonable relationship to the best terms available. Restrictions of the sort prohibited by the proposed rules could increase risk by delaying or blocking access to clearing. They could increase costs and reduce market efficiency by limiting the number of counterparties available for trading. They could restrict access to clearing by limiting the potential clearing members with which a customer could deal.

The Commission is not proposing to dictate here what happens to a trade that is rejected for clearing by an FCM or a DCO. Three outcomes are possible: (i) The parties could try to clear the trade through another DCO or FCM; (ii) the trade could revert to a bilateral transaction; or (iii) the parties could break the trade. The parties should agree in advance, subject to applicable law, which alternative will apply and how to measure and apportion any resulting losses. The Commission believes that the proposals herein will decrease the likelihood that trades will be rejected and diminish the potential for loss in cases where rejection does occur.

The Commission requests comment on whether the proposals will achieve the intended goals and on the costs and benefits of the proposed means of achieving those goals. In particular, the Commission requests comment on:

• Whether the proposal would increase open access to clearing and execution of customer transactions on a DCM or SEF on terms that have a reasonable relationship to the best terms available;

• Whether the proposal could decrease open access to clearing in any way; and

• Whether the proposals would increase risk to DCOs, FCMs, SDs, or MSPs in any way.

As noted above, a goal of the Dodd-Frank Act is to reduce risk by increasing the use of central clearing. Minimizing the time between trade execution and acceptance into clearing is an important risk mitigant. The Commission recently proposed § 39.12(b)(7) regarding time frames for clearing. 17 Upon review of the comments received, the Commission is now proposing a revised version of that provision. 18

As previously proposed, § 39.12(b)(7)(i) required DCOs to coordinate with designated contract markets (DCMs) and swap execution facilities (SEFs) to facilitate prompt and efficient processing of trades. In response to a comment, the Commission now proposes to require prompt, efficient, and accurate processing of trades. 19

Recognizing the key role clearing members play in trade processing and submission of trades to central clearing, the Commission is also now proposing parallel provisions for coordination among DCOs and clearing members. Proposed § 39.12(b)(7)(i)(B) would require DCOs to coordinate with clearing members to establish systems for prompt processing of trades. Proposed §§ 1.74(a) and 23.610(a) would require reciprocal coordination with DCOs by FCMs, SDs, and MSPs that are clearing members.

As previously proposed, § 39.12(b)(7)(ii) required DCOs to accept immediately upon execution all transactions executed on a DCM or SEF. A number of DCOs and other commenters expressed concern that this requirement could expose DCOs to unwarranted risk because DCOs need to be able to screen trades for compliance with applicable clearinghouse rules related to product and credit filters. 20 The Commission recognizes that while immediate acceptance for clearing upon execution currently occurs in some futures markets, it might not be feasible for all cleared markets at this time. For example, where the same cleared product is traded on multiple execution venues, a DCO needs to be able to aggregate the risk of trades coming in to ensure that a clearing member or customer has not exceeded its credit limits. Accordingly, the Commission is proposing to modify § 39.12(b)(7)(ii) to permit DCOs to screen trades against applicable product and credit criteria before accepting or rejecting them. Consistent with principles of open access, the proposal would require that such criteria be non-discriminatory with respect to trading venues and clearing participants.

The Commission continues to believe that acceptance or rejection for clearing in close to real time is crucial both for effective risk management and for the efficient operation of trading venues. 21 Rather than prescribe a specific length of time, the Commission is proposing as a standard that action be taken “as quickly as would be technologically practicable if fully automated systems were used.” The Commission anticipates that this standard would require action in a matter of milliseconds or seconds or, at most, a few minutes, not hours or days. 22

This is intended to be a performance standard, not the prescription of a particular method of trade processing. The Commission expects that fully automated systems will be in place at some DCOs, FCMs, SDs, and MSPs. Others might have systems with some manual steps. This would be permitted so long as the process could operate within the same time frame as the automated systems.

The Commission recognizes that some trades on a DCM or SEF are executed non-competitively. Examples include block trades and exchanges of futures for physicals (EFPs). A DCO may not be notified immediately upon execution of these trades. Accordingly, as discussed below, they will be treated in the same manner as trades that are not executed on a DCM or SEF.

As previously proposed, §§ 39.12(b)(7)(iii) and 39.12(b)(7)(iv) distinguished between swaps subject to mandatory clearing and swaps not subject to mandatory clearing. Upon review of the comments, the Commission believes that this distinction is unnecessary with regard to processing time frames. If a DCO lists a product for clearing, it should be able to process it regardless of whether clearing is mandatory or voluntary. Therefore, newly proposed § 39.12(b)(7)(iii) would cover all trades not executed on a DCM or SEF. It would require acceptance or rejection by the DCO as quickly after submission as would be technologically practicable if fully automated systems were used.

Proposed § 1.74(b) would set up a parallel requirement for clearing FCMs; proposed § 23.610(b) would set up a parallel requirement for SDs and MSPs that are clearing members. These rules, again, would apply a performance standard, not a prescribed method for achieving it.

The Commission notes that from both a timing perspective and a risk perspective, the most efficient method would be to screen all orders using predetermined criteria established by the rules of the DCO and the provisions of the clearing documentation between the customer and its clearing member. In such a case all trades would be accepted for clearing upon execution because the clearing member and DCO would have already applied their credit and product filters.

A less efficient means would be for the clearing member to authorize the DCO to screen trades on its behalf and to accept or reject according to criteria set by the clearing member. The least efficient would be for the DCO to send a message to the clearing member for each trade requesting acceptance or rejection.

The Commission requests comment on the costs and benefits of the proposal. In particular, the Commission requests comment on whether the performance standard is appropriate and workable.

The Regulatory Flexibility Act (RFA) requires that agencies consider whether the regulations they propose will have a significant economic impact on a substantial number of small entities. 23 The Commission previously has established certain definitions of “small entities” to be used in evaluating the impact of its regulations on small entities in accordance with the RFA. 24 The proposed regulations would affect FCMs, DCOs, SDs, and MSPs.

The Commission previously has determined, however, that FCMs should not be considered to be small entities for purposes of the RFA. 25 The Commission's determination was based, in part, upon the obligation of FCMs to meet the minimum financial requirements established by the Commission to enhance the protection of customers' segregated funds and protect the financial condition of FCMs generally. 26 The Commission also has previously determined that DCOs are not small entities for the purpose of the RFA. 27

SDs and MSPs are new categories of registrants. Accordingly, the Commission has not previously addressed the question of whether such persons are, in fact, small entities for purposes of the RFA. Like FCMs, SDs will be subject to minimum capital and margin requirements and are expected to comprise the largest global financial firms. The Commission is required to exempt from SD registration any entities that engage in a de minimis level of swap dealing in connection with transactions with or on behalf of customers. The Commission anticipates that this exemption would tend to exclude small entities from registration. Accordingly, for purposes of the RFA for this rulemaking, the Commission is hereby proposing that SDs not be considered “small entities” for essentially the same reasons that FCMs have previously been determined not to be small entities and in light of the exemption from the definition of SD for those engaging in a de minimis level of swap dealing.

The Commission also has previously determined that large traders are not “small entities” for RFA purposes. 28 In that determination, the Commission considered that a large trading position was indicative of the size of the business. MSPs, by statutory definition, maintain substantial positions in swaps or maintain outstanding swap positions that create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets. Accordingly, for purposes of the RFA for this rulemaking, the Commission is hereby proposing that MSPs not be considered “small entities” for essentially the same reasons that large traders have previously been determined not to be small entities.

Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed regulations will not have a significant economic impact on a substantial number of small entities. The Commission invites the public to comment on whether SDs and MSPs should be considered small entities for purposes of the RFA.

The Paperwork Reduction Act (PRA)  29 imposes certain requirements on Federal agencies (including the Commission) in connection with their conducting or sponsoring any collection of information as defined by the PRA. This proposed rulemaking would result in new collection of information requirements within the meaning of the PRA. The Commission therefore is submitting this proposal 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 title for this collection of information is “Customer Clearing Documentation and Timing of Acceptance for Clearing.” An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. The OMB has not yet assigned this collection a control number.

The collection of information under these proposed regulations is necessary to implement certain provisions of the CEA, as amended by the Dodd-Frank Act. Specifically, it is essential to reducing risk and fostering open access to clearing and execution of customer transactions on a DCM or SEF on terms that have a reasonable relationship to the best terms available by prohibiting restrictions in customer clearing documentation of SDs, MSPs, FCMs, or DCOs that could delay or block access to clearing, increase costs, and reduce market efficiency by limiting the number of counterparties available for trading. The proposed regulations are also crucial both for effective risk management and for the efficient operation of trading venues among SDs, MSPs, FCMs, and DCOs.

If the proposed regulations are adopted, responses to this collection of information would be mandatory. 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 CEA strictly prohibits the Commission, unless specifically authorized by the CEA, 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 is also required to protect certain information contained in a government system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

SDs, MSPs, FCMs, and DCOs would be required to develop and maintain written customer clearing documentation in compliance with proposed regulations 1.72, 23.608, and 39.12. Proposed regulation 39.12(b)(7)(i)(B) would require DCOs to coordinate with clearing members to establish systems for prompt processing of trades. Proposed regulations 1.74(a) and 23.610(a) require reciprocal coordination with DCOs by FCMs, SDs, and MSPs that are clearing members.

The annual burden associated with these proposed regulations is estimated to be 16 hours, at an annual cost of $1,600 for each FCM, SD, and MSP. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose, or provide information to or for a federal agency. The Commission has characterized the annual costs as initial costs because the Commission anticipates that the cost burdens will be reduced dramatically over time as the documentation and procedures required by the proposed regulations become increasingly standardized within the industry.

Proposed §§ 1.72 and 23.608 would require each FCM, SD, and MSP to ensure compliance with the proposed regulations. Maintenance of contracts is prudent business practice and the Commission anticipates that SDs and MSPs already maintain some form of this documentation. Additionally, the Commission believes that much of the existing customer clearing documentation already complies with the proposed rules, and therefore that compliance will require a minimal burden.

In addition to the above, the Commission anticipates that FCMs, SDs, and MSPs will spend an average of 16 hours per year drafting and, as needed, updating customer clearing documentation to ensure compliance required by proposed §§ 1.72 and 23.608.

For each DCO, the annual burden associated with these proposed regulations is estimated to be 40 hours, at an annual cost of $4,000. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, disclose, or provide information to or for a federal agency. The Commission has characterized the annual costs as initial costs as the Commission anticipates that the cost burdens will be reduced dramatically over time as once the documentation and procedures required by the proposed regulations are implemented, any additional expenditure related to § 39.12 likely would be limited to the time required to review and, as needed, amend, existing documentation and procedures.

Proposed 39.12(b)(7) would require each DCO to coordinate with clearing members to establish systems for prompt processing of trades. The Commission believes that this is currently a practice of DCOs. Accordingly, any additional expenditure related to § 39.12(b)(7) likely would be limited to the time initially required to review and, as needed, amend, existing trade processing procedures to ensure that they conform to all of the required elements and to coordinate with FCMs, SDs, and MSPs to establish reciprocal procedures.

The Commission anticipates that DCOs will spend an average of 20 hours per year drafting and, as needed, updating the written policies and procedures to ensure compliance required by proposed § 39.12, and 20 hours per year coordinating with FCMs, SDs, and MSPs on reciprocal procedures.

The hour burden calculations below are based upon a number of variables such as the number of FCMs, SDs, MSPs, and DCOs in the marketplace and the average hourly wage of the employees of these registrants that would be responsible for satisfying the obligations established by the proposed regulation.

There are currently 134 FCMs and 14 DCOs based on industry data. SDs and MSPs are new categories of registrants. Accordingly, it is not currently known how many SD and MSPs will become subject to these rules, and this will not be known to the Commission until the registration requirements for these entities become effective after July 16, 2011, the date on which the Dodd-Frank Act becomes effective. While the Commission believes there will be approximately 200 SD and 50 MSPs, it has taken a conservative approach, for PRA purposes, in estimating that there will be a combined number of 300 SDs and MSPs who will be required to comply with the recordkeeping requirements of the proposed rules. The Commission estimated the number of affected entities based on industry data.

According to recent Bureau of Labor Statistics, the mean hourly wage of an employee under occupation code 11-3031, “Financial Managers,” (which includes operations managers) that is employed by the “Securities and Commodity Contracts Intermediation and Brokerage” industry is $74.41. 30 Because SDs, MSPs, FCMs, and DCOs include large financial institutions whose operations management employees' salaries may exceed the mean wage, the Commission has estimated the cost burden of these proposed regulations based upon an average salary of $100 per hour.

Accordingly, the estimated hour burden was calculated as follows:

Developing Written Procedures for Compliance, and Maintaining Records Documenting Compliance for SDs and MSPs. This hourly burden arises from the proposed requirement that SDs and MSPs make and maintain records documenting compliance related to client clearing documentation.

Number of registrants: 300.

Frequency of collection: as needed.

Estimated number of annual responses per registrant: 1.

Estimated aggregate number of annual responses: 300.

Estimated annual hour burden per registrant: 16 hours.

Estimated aggregate annual hour burden: 4,800 burden hours [300 registrants × 16 hours per registrant].

Developing Written Procedures for Compliance, and Maintaining Records Documenting Compliance for FCMs. This hourly burden arises from the proposed requirement that FCMs make and maintain records documenting compliance related to client clearing documentation.

Number of registrants: 134.

Frequency of collection: as needed.

Estimated number of annual responses per registrant: 1.

Estimated aggregate number of annual responses: 134.

Estimated annual hour burden per registrant: 16 hours.

Estimated aggregate annual hour burden: 2,144 burden hours [134 registrants × 16 hours per registrant].

Drafting and Updating Trade Processing Procedures for DCOs. This hour burden arises from the time necessary to develop and periodically update the trade processing procedures required by the proposed regulations.

Number of registrants: 14.

Frequency of collection: Initial drafting, updating as needed.

Estimated number of annual responses per registrant: 1.

Estimated aggregate number of annual responses: 14.

Estimated annual hour burden per registrant: 40 hours.

Estimated aggregate annual hour burden: 560 burden hours [14 registrants × 40 hours per registrant].

Based upon the above, the aggregate hour burden cost for all registrants is 7,504 burden hours and $750,400 [7,504 × $100 per hour].

The Commission invites the public and other federal agencies to comment on any aspect of the recordkeeping burdens discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments in order to: (i) Evaluate whether the proposed collection of information is 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 estimate of the burden of the proposed collection 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 collection of information on those who are to respond, including through the use of automated collection techniques or other forms of information technology.

Comments may be submitted directly to the Office of Information and Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy of submitted comments so that all comments can be summarized and addressed in the final rule preamble. Refer to the Addresses section of this notice of proposed rulemaking for comment submission instructions to the Commission. A copy of the supporting statements for the collections of information discussed above may be obtained by visiting RegInfo.gov. OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this document in the Federal Register. Therefore, a comment is best assured of having its full effect if OMB receives it within 30 days of publication.

Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its action before promulgating a regulation under the CEA. Section 15(a) of the CEA specifies that costs and benefits shall be evaluated in light of five broad areas of market and public concern: (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. The Commission may in its discretion give greater weight to any one of the five enumerated areas and could in its discretion determine that, notwithstanding its costs, a particular order is necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the CEA.

The proposed rules have two major components: (i) The documentation between a customer and a futures commission merchant that clears on behalf of the customer; and (ii) the timing of acceptance or rejection of trades for clearing by derivatives clearing organizations and clearing members. The discussion below will consider each component in light of the section 15(a) concerns.

The Commission is proposing regulations that would prohibit arrangements involving FCMs, SDs, MSPs, or DCOs that would (a) disclose to an FCM, SD, or MSP the identity of a customer's counterparty; (b) limit the number of counterparties with whom a customer may enter into swaps; (c) restrict the size of the position a customer may take with any individual counterparty, apart from an overall limit for all positions held by the customer at the FCM; (d) impair a customer's access to execution of trades on a DCM or SEF on terms that have a reasonable relationship to the best terms available; or (e) prevent compliance with specified time frames for acceptance of trades into clearing.

This measure protects the customer from any discriminatory behavior by potential clearing members or counterparties and helps ensure that customers have open access to the markets and an opportunity to obtain execution on competitive terms. The proposal would also promote financial integrity by removing potential obstacles such as more documentation requirements imposed by dealers or unnecessary restrictions on trading by a third-party, and by accelerating the timeframe for acceptance or rejection of a trade for clearing thereby reducing risk of delay or uncertainty as to whether a swap will be accepted or rejected for clearing. For example, by contrast, under a tri-party agreement, an FCM might have to evaluate each customer transaction not only against the customer's overall credit limit but also against a sub-limit for each counterparty which can delay acceptance.

As far as costs are concerned, the possibility of “breakage” remains for SDs and other counterparties. However, this concern is mitigated by the timelines required in the second section of this rule, which reduce the likelihood that a SD would have time to enter into other transactions before the one in view is accepted or rejected for clearing. Similarly, if a SD has to enter into a replacement trade, the costs will be mitigated by the tight timeline, because the SD would know quickly whether the trade was accepted or rejected for clearing. As noted above, the process of evaluating individual transactions against counterparty sub-limits could delay notification of acceptance or rejection for clearing. In the absence of this rule, the cost to trade will have to account for these factors and additional market risk during that time.

This rule helps prevent the disclosure, to the FCM, of the identity of the counterparty of its customer. Such lack of disclosure promotes integrity in the market by ensuring that all participants who meet certain qualifying criteria for trading have open access to all available counterparties because intermediaries will be unable to set sub-limits by counterparty. Moreover, in the absence of this rule, tri-party agreements or other similar arrangements among FCMs, SDs or MSPs and customers could result in matching processes that have the potential to be time intensive. Preventing these agreements will promote faster matching which may increase liquidity through lower transaction costs.

This rule also prevents customers from being penalized (or having distorted commercial incentives) in their choice of FCM due to previous transactions with a given FCM or SD. As a consequence, this rule also has the potential to promote competition among FCMs to deliver services efficiently. Lastly, this rule would reduce duplicative risk management because DCOs and their members already have access to information necessary to perform credit analysis on individual customers and counterparties. SDs would be unnecessarily duplicating work that has already been done.

By not forcing a customer to transact with counterparties who may be offering less attractive terms, this rule may improve pricing. In addition, adhering to time frames specified for acceptance of trades into clearing helps to prevent stale prices.

The rule does not affect the risk management structure of FCMs. Moreover, by preventing customers from learning their counterparty's identity, the responsibility for risk management remains clear. The FCM must be responsible for evaluating each customer's credit risk. It cannot rely on a counterparty to conduct due diligence. Moreover, preserving anonymity in the market increases the number of available counterparties, which leads to a more liquid market, thereby reducing risk.

As mentioned before, to the extent that the SD experiences “breakage,” it exposes a SD to counterparty risk which is a potential cost. However, by facilitating quicker acceptance or rejection into clearing, the proposal would mitigate such costs by compressing the time within which the counterparty exposure would exist.

The Commission is proposing regulations that would require prompt, efficient, and accurate processing of trades, and require DCOs to coordinate with clearing members to establish systems for prompt processing of trades.

Rapid processing protects market participants from acting on bad information by making additional trades under the presumption that an initial trade has gone through if that trade may, in fact, not clear. As mentioned, compressing the time for acceptance or rejection for clearing also reduces the time within exposures can accumulate if a trade is rejected.

As far as costs are concerned, coordination among the DCOs, FCMs, SDs and MSPs in order to design and implement a system to clear transactions “as quickly as would be technologically practicable if fully automated systems were used” will likely require capital investment and personnel hours in some instances. The Commission believes, however, that DCOs and clearing members may already be using procedures that comply with the standard. To the extent that participants do not currently have automated systems, they made need to install or upgrade existing systems to comply.

Rapid clearing helps ensure that eligible counterparties will not be tied up in transactions that do not clear. They will be available to other eligible customers. This increases both competitiveness and efficiency of the market. In addition, extensive coordination among the DCOs, FCMs, SDs, and MSPs has the potential to standardize processes and technologies to support this rule. That reduces switching costs for customers and increases competitiveness.

Costs will be incurred in developing systems and procedures for those products and participants where the proposed standards are not currently being met. The Commission anticipates, however, that eventually such costs would be compensated for by increased efficiency and market integrity. The Commission does not know at this time, and requests comment on, how many parties will need to upgrade their systems, if any. Additionally, the Commission requests comment from the public as to what the costs might be to upgrade existing systems or install new systems to comply with the proposed regulation.

Requiring rapid clearing encourages screening for credit worthiness of customers. That helps ensure that only bids and offers of qualified parties are contained in the limit order book which helps protect its informational value. Moreover, pricing feedback from cleared transactions will reach the market more quickly.

Timely clearing allows each party to the transaction to act more quickly if they need to implement a hedge or other transactions related to the swap. This reduces the risk associated with potential adverse movements of the market while waiting for clearing to occur. However, if some of the processes are manual, the mandate for greater speed increases the possibility of errors.

Rapid clearing makes U.S. based DCOs, FCMs, SDs, and MSPs more attractive as service providers for global swap business. Furthermore, the proposal would facilitate achievement of the overarching Dodd-Frank Act mandate to promote clearing.

In light of the foregoing, the Commission hereby proposes to amend part 1; part 23, as proposed to be added at 75 FR 71390, November 23, 2010, and further amended at 75 FR 81530, December 28, 2010; and part 39, as proposed to be amended at 76 FR 13101, March 10, 2011, of Title 17 of the Code of Federal Regulations as follows:

We encourage you to participate in this rulemaking by submitting comments and related materials. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided.

If you submit a comment, please include the docket number for this rulemaking (USCG-2010-1145), indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online (via http://www.regulations.gov ) or by fax, mail, or hand delivery, but please use only one of these means. If you submit a comment online via http://www.regulations.gov , it will be considered received by the Coast Guard when you successfully transmit the comment. If you fax, hand deliver, or mail your comment, it will be considered as having been received by the Coast Guard when it is received at the Docket Management Facility. We recommend that you include your name and a mailing address, an e-mail address, or a telephone number in the body of your document so that we can contact you if we have questions regarding your submission.

To submit your comment online, go to http://www.regulations.gov , click on the “submit a comment” box, which will then become highlighted in blue. In the “Document Type” drop down menu select “Proposed Rule” and insert “USCG-2010-1145” in the “Keyword” box. Click “Search” then click on the balloon shape in the “Actions” column. If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8 1/2 ; by 11 inches, suitable for copying and electronic filing. If you submit comments by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period and may change the rule based on your comments.

To view comments, as well as documents mentioned in this preamble as being available in the docket, go to http://www.regulations.gov , click on the “read comments” box, which will then become highlighted in blue. In the “Keyword” box insert “USCG-2010-1145” and click “Search.” Click the “Open Docket Folder” in the “Actions” column. You may also visit the Docket Management Facility in Room W12-140 on the ground floor of the Department of Transportation West Building, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. We have an agreement with the Department of Transportation to use the Docket Management Facility.

Anyone can search the electronic form of comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review a Privacy Act notice regarding our public dockets in the January 17, 2008, issue of the Federal Register (73 FR 3316).

We do not now plan to hold a public meeting. But you may submit a request for one on or before September 15, 2011 using one of the four methods specified under ADDRESSES . Please explain why you believe a public meeting would be beneficial. If we determine that one would aid this rulemaking, we will hold one at a time and place announced by a later notice in the Federal Register .

The PSR superfund site, which is located on the north shore of West Seattle within Elliott Bay, and northwest of the mouth of the Duwamish river, was created by the EPA to cover the remains of the Wyckoff West Seattle Wood Treating Facility. The wood treating facility, which was in operation between 1909 and 1994, was mostly located on a pile-supported facility extending into Elliott Bay. The area was added to the federal Superfund National Priorities List in May 1994. Later that year the entire wood treatment facility was demolished and approximately 4000 cubic yards of highly contaminated soil and process sludge were removed from the site. Construction of a subsurface physical containment barrier was started in 1996 and completed in 1999. The final sediment cap, completed in 2004, is approximately 58-acres which includes approximately 1500 linear feet of shoreline, and intertidal and subtidal areas to depth of about 300 feet.

The Lockheed Shipyard Sediment Operable Unit consists of contaminated near shore sediments within and adjacent to the Lockheed Shipyard on Harbor Island. Harbor Island is located approximately one mile southwest of the Central Business District of Seattle, in King County, Washington, and lies at the mouth of the Duwamish Waterway on the southern edge of Elliott Bay. The Lockheed Shipyard sediments are located on the west side of Harbor Island and face the West Waterway of the Duwamish Waterway. The final site does not protrude a significant distance into the West Duwamish waterway. Lockheed Shipyards acquired established shipbuilding operations in 1959 and the facility until 1986. In April 1997, Lockheed sold the upland property and its legal rights to the submerged portions of the site to the Port of Seattle. The remedy for the contaminated sediments included demolition of 3 piers, three shipways and one finger pier. The piers and shipways primarily consist of timber superstructures supported by approximately 6000 piles. Contaminants found in sediments which were either dredged or capped are arsenic, copper, lead, mercury, zinc, PAHs and PCBs. The metal contaminants were associated with sand blast grit and paint clips.

Remedial actions for both of these sites as established by the EPA include preventing use of large anchors on the cap. This rulemaking is necessary to assist the EPA in that remedial action.

This rule is necessary to prevent disturbance of the PSR and Lockheed Shipyard sediment caps. It does so by restricting anchoring, dragging, trawling, spudding or other activities that involve disrupting the integrity of the cap in an RNA around the sediment caps. This RNA is similar to RNAs which protect other caps in the area. Enforcement of this RNA will be managed by Coast Guard Sector Puget Sound assets including Vessel Traffic Service Puget Sound through radar and closed circuit television sensors. The Captain of the Port Puget Sound may also be assisted by other government agencies in the enforcement of this zone.

We developed this proposed rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This proposed rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. This expectation is based on the fact that the RNA established by the rule would encompass a small area that should not impact commercial or recreational traffic, and prohibited activities are not routine for the designated areas.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this proposed rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities. This rule would affect the following entities, some of which may be small entities: The owners or operators of vessels intending to anchor, dredge, spud, lay cable or disturb the seabed in any fashion when this rule is in effect. The RNA would not have a significant economic impact on small entities due to its minimal restrictive area and the opportunity for a waiver to be granted for any legitimate use of the seabed.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact LTJG Ian Hanna, Waterways Management, Sector Puget Sound, Coast Guard; telephone 206-217-6045, e-mail SectorSeattleWWM@uscg.mil. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

This proposed rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this proposed rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This proposed rule would not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This proposed rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this proposed rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and would not create an environmental risk to health or risk to safety that might disproportionately affect children.

In preparation for this rulemaking, on October 8, 2010, Sector Puget Sound conducted a tribal consultation with representatives from the Suquamish and Muckleshoot tribes in accordance with Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The group noted that the sediment caps were in the usual and accustomed (U&A) fishing grounds of both tribes. Their main concern was that this RNA would prohibit them from exercising their U&A fishing. The Coast Guard and EPA clarified that nothing in this rulemaking is intended to conflict with these tribes' treaty fishing rights and they are not restricted from any type of fishing in the described areas. As a result of the consultation the Coast Guard added paragraph b.(3) to the regulation.

We have analyzed this proposed rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This proposed rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this proposed rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. A preliminary environmental analysis checklist supporting this determination is available in the docket where indicated under ADDRESSES .

This proposed rule involves no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. Therefore, we believe that this rule should be categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction, from further environmental documentation. As a proposal to establish a regulated navigation area, this rule meets the criteria outlined in paragraph (34)(g). We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

For further information, please see the information provided in the direct final action, with the same title, that is located in the “Rules and Regulations” section of this Federal Register publication.

The Council has considered a limited access program for the mackerel fishery on multiple occasions since 1992, with the most recent control date set as July 5, 2002 (67 FR 44792, later reaffirmed on June 9, 2005, 70 FR 33728). The Council initially notified the public of its intent to consider the impacts of alternatives for limiting access to the mackerel fishery in a Notice of Intent to Prepare a Supplemental Environmental Impact Statement (SEIS) for Amendment 9 to the MSB FMP (Amendment 9) on March 4, 2005 (70 FR 10605). The Council subsequently conducted scoping meetings in March 2005 on the development of a limited access program through Amendment 9. However, due to unforeseen delays in the development of Amendment 9, the Council notified the public on December 19, 2005 (70 FR 75114), that the mackerel limited access program would instead be analyzed in Amendment 11. The Council notified the public on February 27, 2007 (75 FR 8693), that it would begin the development of Amendment 11 in an SEIS, and finally notified the public on August 11, 2008 (73 FR 46590), that it would be necessary to prepare a full environmental impact statement (EIS) for Amendment 11. During further development of Amendment 11, the Council determined that the additional issues, namely updates to EFH designations and recreational allocations for the mackerel fishery, would also be considered.

The Council conducted public hearings in February 2010 and was originally scheduled to take final action on Amendment 11 in April of 2010, but decided to revise certain alternatives after reviewing public comment. The revisions were deemed to require a Supplement to the Draft Environmental Impact Statement (SDEIS) and an additional comment period through October 12, 2010.

This action proposes management measures that were recommended by the Council in Amendment 11. If implemented, these management measures would:

• Implement a three-tiered limited access system, with vessels grouped based on the following landings thresholds, with all qualifiers required to have possessed a valid permit on March 21, 2007. A vessel must have landed at least 400,000 lb (181.44 mt) in any one year 1997-2005 to qualify for a Tier 1 permit; at least 100,000 lb (45.36 mt) in any one year March 1, 1994—December 31, 2005, to qualify for a Tier 2 permit; or at least 1,000 lb (0.45 mt) in any one year March 1, 1994—December 31, 2005, to qualify for a Tier 3 permit, with Tier 3 allocated up to 7 percent of the commercial quota, through the specifications process;

• Establish an open access permit for all other vessels;

• Establish trip limits for all tiers annually through the specifications process, with possession limits initially set as unlimited for Tier 1; 135,000 lb (61.23 mt) for Tier 2; 100,000 lb (45.36 mt) for Tier 3; and 20,000 lb (9.07 mt) for open access;

• Establish permit application, permit appeal, vessel baseline, and vessel upgrade, replacement, and confirmation of permit history provisions similar to established for other Northeast region limited access fisheries;

• Establish a 10-percent maximum volumetric fish hold upgrade for Tier 1 and Tier 2 vessels;

• Allow vessel owners to retain mackerel fishing history in a purchase and sale agreement and use the history to qualify a different vessel for a mackerel permit (permit splitting);

• Require Tier 3 vessels to submit VTRs on a weekly basis;

• Designate as EFH the area associated with 90 percent of survey catch for each life stage of non-overfished species and the area associated with 95 percent of survey catch for each life stage of overfished or status unknown species (i.e., butterfish, mackerel, Loligo squid, and Illex squid); and

• Establish an annual recreational mackerel allocation equaling 6.2 percent of the mackerel allowable biological catch.

The Council took final action on October 13, 2010, and submitted Amendment 11 for NMFS review on May 12, 2011. A Notice of Availability (NOA) for Amendment 11, as submitted by the Council for review by the Secretary of Commerce, was published in the Federal Register on July 6, 2011 (76 FR 39374). The comment period on Amendment 11 ends on September 6, 2011. In addition to the implementing measures proposed in this rule, Amendment 11 contains changes in the EFH designations for MSB species that are not reflected in the regulations.

The proposed regulations are based on the measures in Amendment 11. NMFS has noted several instances where it has interpreted the language in Amendment 11 to account for any missing details in the Council's description of the proposed measures. In addition, some of the proposed regulations in Amendment 11 are associated with the Council's Omnibus Annual Catch Limit and Accountability Measures (ACL/AM) Amendment, for a proposed rule which published on June 17, 2011 (76 FR 35578). Several sections of regulatory text are affected by both actions. The proposed regulations for both actions will present adjustments to the existing regulatory text. In the likely event that the Omnibus ACL/AM Amendment is finalized prior to Amendment 11, the finalized regulations for Amendment 11 will be presented as modifications to the regulations that will be implemented in the Omnibus ACL/AM Amendment, and will thus differ in structure, but not content, from the regulations presented in this proposed rule. The adjustments will be similar to those in this proposed rule. NMFS seeks comments on all of the measures in Amendment 11.

Amendment 11 would implement a three-tiered limited access permit system for the mackerel fishery. Vessels that do not qualify for a limited access mackerel permit would still be able to receive the open access mackerel permit described below. The initial trip limits proposed for each permit category below would be adjustable through the specifications process.

In order to be eligible for a limited access mackerel permit, applicants would have to meet both a permit history requirement and a landings requirement. The permit history requirement and landings requirement must be derived from the same vessel (i.e., it is not possible to combine the permit criteria from Vessel A with the landings criteria from Vessel B to create a mackerel eligibility).

To qualify for a Tier 1 Limited Access Mackerel permit, a vessel must have been issued a Federal mackerel permit that was valid on March 21, 2007, and must have landed at least 400,000 lb (181.44 mt) of mackerel in any one year between January 1, 1997, and December 31, 2005, as verified by NMFS records or documented through dealer receipts submitted by the applicant. The Tier 1 Limited Access Mackerel permit would allow such vessels to possess and land unlimited amounts of mackerel.

To qualify for a Tier 2 Limited Access Mackerel permit, a vessel must have been issued a Federal mackerel permit that was valid on March 21, 2007, and must have landed at least 100,000 lb (45.36 mt) of mackerel in any one year between March 1, 1994, and December 31, 2005, as verified by NMFS records or documented through dealer receipts submitted by the applicant. The Tier 2 Limited Access Mackerel permit would allow such vessels to possess and land 135,000 lb (61.23 mt) of mackerel per trip.

To qualify for a Tier 3 Limited Access Mackerel permit, a vessel must have been issued a Federal mackerel permit that was valid on March 21, 2007, and must have landed at least 1,000 lb (0.45 mt) of mackerel in any one year between March 1, 1994, and December 31, 2005, as verified by NMFS records or documented through dealer receipts submitted by the applicant. The Tier 3 Limited Access Mackerel permit would allow such vessels to possess and land 100,000 lb (45.36 mt) of mackerel per trip.

The current regulations state that during a closure of the directed mackerel fishery that occurs prior to June 1, vessels issued a mackerel permit may not fish for, possess, or land more than 20,000 lb (9.08 mt) of mackerel per trip, and that during any closure that occurs after June 1, vessels may not fish for, possess, or land more than 50,000 lb (22.7 mt) of mackerel per trip. This provision would be maintained for limited access mackerel permit holders.

Amendment 11 would establish measures to govern future transactions related to limited access vessels, such as purchases, sales, or reconstruction. These measures would apply to all limited access mackerel vessels. Except as noted, the provisions proposed in this amendment are consistent with those that govern most of the other Northeast region limited access fisheries; there are some differences in the limited access program for American lobster.

Initial eligibility for a mackerel limited access permit would have to be established during the first year after the implementation of Amendment 11. A vessel owner would required to submit an application for a mackerel limited access permit within 12 months of the effective date of the final regulations. In order to expedite the transition to the limited access mackerel program, NMFS would require applicants wishing to fish for mackerel with a limited access permit after January 1, 2012, to submit an application at least 30 days prior to the start of the 2012 fishing year (November 30, 2011). After January 1, 2012, current mackerel permit holders who have not yet submitted an application for a limited access mackerel permit, and individuals who have submitted incomplete or unsuccessful applications for a limited access mackerel permit, would automatically be re-designated as open access permit holders under the new mackerel permit system, and would be subject to the open access possession limit described in this proposed rule. All applicants would have until December 31, 2012, to submit an initial application.

A person who does not currently own a fishing vessel, but who has owned a qualifying vessel that has sunk, been destroyed, or transferred to another person, and the applicant has lawfully retained the valid mackerel permit and fishing history, would be required to apply for and receive a CPH. To be eligible to obtain a CPH, the applicant would have to show that the qualifying vessel meets the eligibility requirements for the limited access mackerel permit in question, and that all other permit restrictions described below are satisfied. If the vessel sank, was destroyed, or was transferred before March 21, 2007, the permit issuance criteria may be satisfied if the vessel was issued a valid Federal mackerel permit at any time between March 21, 2006, and March 21, 2007.

Issuance of a valid CPH would preserve the eligibility of the applicant to apply for a limited access permit for a replacement vessel based on the qualifying vessel's fishing and permit history at a subsequent time. A CPH would have to be applied for in order for the applicant to preserve the limited access eligibility of the qualifying vessel. Vessel owners who were issued a CPH could obtain a vessel permit for a replacement vessel, consistent with the vessel size upgrade restrictions, based upon the vessel length, tonnage, and horsepower of the vessel on which the CPH issuance is based.

The Amendment 11 document is unclear regarding application deadline for vessels applying to receive a CPH during the application period. The document states that applications for CPH would have to be submitted no later than 30 days prior to the end of the first full permit year in which a vessel permit cannot be issued. This would mean that, if the limited access program is effective on January 1, 2012, applicants applying directly into CPH would only have until March 31, 2012 (30 days before the end of the permit year) to apply for a CPH, while applicants applying for an active mackerel permit would have until December 31, 2012, to apply. NMFS clarifies that applicants wishing to place their limited access mackerel permit directly into CPH will be given the same initial application deadline as applicants applying for an active limited access mackerel permit, namely from January 1, 2012, to December 31, 2012.

NMFS will use dealer data in NMFS's database to determine eligibility. If NMFS data do not demonstrate that a vessel made landings of mackerel that satisfy the eligibility criteria for a limited access permit, applicants would have to submit dealer receipts that verify landings, or use other sources of information (e.g., joint venture receipts) to demonstrate that there is incorrect or missing information in the Federal dealer records via the appeals process described below.

Amendment 11 does not specify a method for dividing qualifying landings between vessels that fished cooperatively for mackerel in pair trawl operations that wish to each use a subset of shared landings history to qualify individual vessels. NMFS proposes that owners of pair trawl vessels may divide the catch history between the two vessels in the pair through third party verification and supplemental information, such as previously submitted VTRs, or dealer reporting. The two owners must apply for a limited access mackerel permit jointly and must submit proof that they have agreed to the division of landings. This approach was used to qualify pair trawl vessels in Amendment 1 to the Atlantic Herring FMP.

An Atlantic mackerel limited access permit and fishing history would be presumed to transfer with a vessel at the time it is bought, sold, or otherwise transferred from one owner to another, unless it is retained through a written agreement signed by both parties in the vessel sale or transfer.

The Council proposed a provision specific to multiple vessel ownership, qualification, and replacement. The provision states that, if an individual owns more than one vessel, but only one of those vessels has the permit and landings history required to be eligible for a limited access mackerel permit, the individual can replace the vessel that it determined to be eligible with one of his/her other vessels, provided that the replacement vessel complies with the upgrade restrictions detailed below. The proposed rule does not contain a regulation specific to the Council's proposed measure. Rather, the individual regulations pertaining to qualification, baselines, upgrades, and vessel replacements separately address the Council's proposed measure.

This provision would not exempt owners of multiple vessels from the permit splitting provision, described below. For example, if a vessel owner has a limited access multispecies permit on the same vessel that created the mackerel eligibility, the entire suite of permits would need to be replaced onto the owner's other vessel in order to move the mackerel eligibility. In addition, if an individual owns two vessels, a 50-ft (15.2 m) vessel with a mackerel eligibility, and a 65-ft (19.8 m) vessel, he would not be able to move the mackerel eligibility onto the larger vessel, because it is outside of the vessel upgrade restrictions.

Amendment 11 adopts the permit splitting provision currently in effect for other limited access fisheries in the region. Therefore, a limited access mackerel permit may not be issued to a vessel if the vessel's permit history was used to qualify another vessel for any other limited access permit. This means all limited access permits, including limited access mackerel permits, must be transferred as a package when a vessel is replaced or sold.

However, Amendment 11 explicitly states that the permit-splitting provision would not apply to the retention of an open access mackerel permit and fishing history that occurred prior to April 3, 2009, if any limited access permits were issued to the subject vessel. Thus, vessel owners who sold a vessel with limited access permits and retained the open access mackerel permit and landings history prior to April 3, 2009, with the intention of qualifying a different vessel for a limited access mackerel permit, would be allowed to do so under Amendment 11. This differs from the current permit splitting provisions of other limited access fishery regulations, specifically the Atlantic herring limited access permit splitting provision implemented under Amendment 1 to the Atlantic Herring FMP. It is consistent with permit splitting provisions implemented for the scallop limited access general category permit program.

Consistent with previous limited access programs, no more than one vessel would be able to qualify, at any one time, for a limited access permit or CPH based on that or another vessel's fishing and permit history, unless more than one owner has independently established fishing and permit history on the vessel during the qualification period and has either retained the fishing and permit history, as specified above, or owns the vessel at the time of initial application under Amendment 11. If more than one vessel owner claimed eligibility for a limited access permit or CPH, based on a vessel's single fishing and permit history, the NMFS Regional Administrator would determine who is entitled to qualify for the permit or CPH based on information submitted and in compliance with the applicable permit provisions.

Amendment 11 specifies an appeals process for applicants who have been denied a limited access Atlantic mackerel permit. Applicants would have two opportunities to appeal the denial of a limited access mackerel permit. The review of initial application denial appeals would be conducted under the authority of the Regional Administrator at NMFS's Northeast Regional Office. The review of second denial appeals would be conducted by a hearing officer appointed by the Regional Administrator, or through a National Appeals program, which is under development by NMFS and may be utilized for mackerel appeals.

An appeal of the denial of an initial permit application (first level of appeal) must be made in writing to the NMFS Northeast Regional Administrator. Under this amendment, appeals would be based on the grounds that the information used by the Regional Administrator in denying the permit was incorrect. The only items subject to appeal under this limited access program would be the accuracy of the amount of landings, and the correct assignment of landings to a vessel and/or permit holder. Amendment 11 would require appeals to be submitted to the Regional Administrator, postmarked no later than 30 days after the denial of an initial limited access mackerel permit application. The appeal must be in writing, must state the specific grounds for the appeal, the limited access mackerel permit category for which the applicant believes he should qualify, and information to support the appeal. The appeal shall set forth the basis for the applicant's belief that the Regional Administrator's decision was made in error. The appeal would not be reviewed without submission of information in support of the appeal. The Regional Administrator would appoint a designee to make the initial decision on the appeal.

Should the appeal be denied, the applicant would be allowed to request a review of the Regional Administrator's appeal decision (second level of appeal). Such a request must be in writing postmarked no later than 30 days after the appeal decision, must state the specific grounds for the appeal, and must include information to support the appeal. A hearing would not be conducted without submission of information in support of the appeal. If the request for review of the appeal decision is not made within 30 days, the appeal decision is the final administrative action of the Department of Commerce. If the National Appeals process is not fully established, the Regional Administrator will appoint a hearing officer. The hearing officer would make findings and a recommendation to the Regional Administrator, which would be advisory only. The Regional Administrator's decision is the final administrative action of the Department of Commerce.

The owner of a vessel denied a limited access mackerel permit could fish for mackerel, provided that the denial has been appealed, the appeal was pending, and the vessel had on board a letter from the Regional Administrator authorizing the vessel to fish under the limited access category for which the applicant has submitted the appeal. The Regional Administrator would issue such a letter for the pendency of any appeal. If the appeal is ultimately denied, the Regional Administrator would send a notice of final denial to the vessel owner; and the authorizing letter would become invalid 5 days after the receipt of the notice of denial.

A vessel's baseline refers to those specifications (length overall, gross registered tonnage (GRT), net tonnage (NT), and horsepower (HP)) from which any future vessel size change is measured. The vessel baseline specifications for vessels issued a limited access mackerel permits would be the specifications of the vessel that was initially issued the limited access permit as of the date that the vessel qualifies for such a permit. If a vessel owner is initially issued a CPH instead of a mackerel permit, the attributes of the vessel that is the basis of the CPH would establish the size baseline against which future vessel limitations would be evaluated. If the vessel that established the CPH is less than 20 ft (6.09 m) in length, then the baseline specifications associated with other limited access permits in the CPH suite will be used to establish the mackerel baseline specifications. If the vessel that established the CPH is less than 20 ft (6.09 m) in length, the limited access mackerel eligibility was established on another vessel, and there are no other limited access permits in the CPH suite, then the applicant must submit valid documentation of the baseline specifications of the vessel that established the eligibility. If a vessel owner applying for a CPH has a contract to purchase a vessel to replace the vessel for which CPH was issued prior to the submission of the mackerel limited access permit application (for the CPH), then the contracted vessel would form the baseline specifications for that vessel, provided an initial application for the contract vessel to replace the vessel for which the CPH was issued is received by December 31, 2012 (1 full year after the end of the proposed initial application period).

A vessel could be upgraded in size, whether through retrofitting or replacement, and be eligible to retain or renew a limited access permit, only if the upgrade complies with the limitations in Amendment 11. The vessel's HP could be increased only once, whether through refitting or vessel replacement. Such an increase could not exceed 20 percent of the vessel's baseline specifications. The vessel's length, GRT, and NT could be increased only once, whether through refitting or vessel replacement. Any increase in any of these three specifications of vessel size could not exceed 10 percent of the vessel's baseline specifications. If any of these three specifications is increased, any increase in the other two must be performed at the same time. This type of upgrade could be done separately from an engine HP upgrade. Amendment 11 maintains the existing specification of maximum length, size and HP for vessels engaged in the Atlantic mackerel fishery (165 ft (50.02 m), 75 GRT (680.3 mt), and 3,000 HP). Tier 1 and Tier 2 vessels must also comply with the upgrade restrictions relevant to the vessel hold volume certification described below.

In addition to the standard baseline specifications, Tier 1 and Tier 2 vessels would be required to obtain a fish hold capacity measurement from a certified marine surveyor. The hold capacity measurement submitted at the time of application for a Tier 1 or Tier 2 limited access mackerel permit would serve as an additional permit baseline for these permit categories. The hold volume for at Tier 1 or Tier 2 permit could only be increased once, whether through refitting or vessel replacement. Any increase could not exceed 10 percent of the vessel's baseline hold measurement. This type of upgrade could be done separately from the size and HP upgrades.

Amendment 11 does not specify how a hold capacity baseline should be established for vessels whose permits go directly into CPH. In cases where the qualifying vessel has sunk or been destroyed, it will not be feasible for the applicant to obtain a hold capacity certification. NMFS proposes that the hold capacity baseline for such vessels will be the hold capacity of the first replacement vessel after the permits are removed from CPH.

The term “vessel replacement,” in general, refers to replacing an existing limited access vessel with another vessel. In addition to addressing increases in vessel size, hold capacity, and HP, Amendment 11 would establish a restriction that requires that the same entity must own both the limited access vessel (permit and fishing history) that is being replaced, and the replacement vessel.

Amendment 11 includes a provision to allow a vessel owner to voluntarily exit a limited access fishery. Such relinquishment would be permanent. In some circumstances, it could allow vessel owners to choose between different permits with different restrictions without being bound by the more restrictive requirement (e.g., lobster permits holders may choose to relinquish their other Northeast Region limited access permits to avoid being subject to the reporting requirements associated with those other permits). If a vessel's limited access permit history for the mackerel fishery is voluntarily relinquished to the Regional Administrator, no limited access permit for that fishery may be reissued or renewed based on that vessel's history.

Amendment 11 specifies that a vessel owner must maintain the limited access permit status for an eligible vessel by renewing the permits on an annual basis or applying for the issuance of a CPH. A CPH is issued to a person who does not currently own a particular fishing vessel, but who has legally retained the fishing and permit history of the vessel for the purposes of transferring it to a replacement vessel at a future date. The CPH provides a benefit to a vessel owner by securing limited access eligibility through a registration system when the individual does not currently own a vessel.

A vessel's limited access permit history would be cancelled due to the failure to renew, in which case, no limited access permit could ever be reissued or renewed based on the vessel's history or to any other vessel relying on that vessel's history. All limited access permits must be issued on an annual basis by the last day of the fishing year for which the permit is required, unless a CPH has been issued. A complete application for such permits must be received no later than 30 days before the last day of the permit year.

Amendment 11 proposes an allocation for participants in the limited access mackerel fishery that hold a Tier 3 permit. Tier 3 would be allocated a maximum catch of up to 7 percent of the commercial mackerel quota (the remainder of the commercial mackerel quota would be available to Tier 1 or Tier 2 vessels). The Tier 3 allocation would be set annually during the specifications process. NMFS presumes that, during a closure of the Tier 3 mackerel fishery that occurs prior to June 1, vessels issued a mackerel permit may not fish for, possess, or land more than 20,000 lb (9.08 mt) of mackerel per trip, and that during a closure that occurs after June 1, vessels may not fish for, possess, or land more than 50,000 lb (22.7 mt) of mackerel per trip. In order to monitor Tier 3 landings, Amendment 11 would require vessels that hold a Tier 3 limited access mackerel permit to submit vessel trip reports (VTRs) on a weekly basis.

Any vessel could be issued an open access mackerel permit that would authorize the possession and landing of up to 20,000 lb (9.07 mt) of mackerel per trip. The open access possession limit would stay the same during a closure of the directed mackerel fishery.

Section 600.815(a)(9) of the final rule to revise the regulations implementing the EFH provisions of the Magnuson-Stevens Act requires a complete review of EFH information at least once every 5 years. With the exception of the establishment of Loligo egg EFH in Amendment 9 to the MSB FMP in 2008, the EFH information for MSB fisheries has not been updated since the original analysis and designations were done for Amendment 8 to the MSB FMP (Amendment 8) in 1998. Amendment 11 would revise the EFH text descriptions for all MSB species based on updated data from the Northeast Fishery Science Center (NEFSC) trawl survey, the Marine Resources Monitoring Assessment and Prediction Program (MARMAP), state bottom trawl surveys, NOAA's Estuarine Living Marine Resources (ELMR) program, and scientific literature on habitat requirements. Amendment 11 would designate as EFH the area associated with 90 percent of the cumulative geometric mean catches for non-overfished species, and the area associated with 95 percent of the cumulative geometric mean catches for unknown or overfished species. All MSB species currently fall in the latter category. Text descriptions and maps for the new proposed EFH designation can be found in Amendment 11.

Amendment 11 proposes an allocation to the recreational fishery in order to incorporate recreational mackerel ACLs/AMs into the framework for the Council's Omnibus ACL/AM Amendment. The recreational allocation would be set equal to 6.2 percent of the domestic mackerel allowable biological catch (ABC). This allocation corresponds to the proportion of total U.S. mackerel landings that was accounted for by the recreational fishery from 1997-2007 times 1.5. The Council would be able to take action via specifications, a framework adjustment, or amendment to adjust any disconnect between the recreational allocation and future recreational harvests.

Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with the MSB FMP, other provisions of the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.

This proposed rule has been determined to be not significant for purposes of Executive Order 12866.

This proposed rule contains collection-of-information requirements subject to review and approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA). Several of these requirements have been submitted to OMB for approval under the MSB Amendment 10 Family of Forms (OMB Control No. 0648-0601). Under the proposed limited access program, vessel owners would be required to submit to NMFS application materials to demonstrate their eligibility for a limited access permit. The public burden for the application requirement pertaining to the limited access program is estimated to average 45 min per application, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection information.

Only 410 vessels are expected to qualify and consequently renew their limited access mackerel permits via the renewal application each year. The renewal application is estimated to take 30 min on average to complete. Up to 30 applicants are expected to appeal the denial of their permit application. The appeals process is estimated to take an average of 2 hr to complete. Vessels that qualify for a Tier 1 or Tier 2 mackerel permit would be required to submit documentation of hold volume size. The Council estimated that 74 vessels would qualify for either a Tier 1 or Tier 2 limited access mackerel permit. Tier 1 and 2 vessel owners will experience a time burden due to this requirement in the form of travel time to/from a certified marine surveyor. It is not possible to estimate a time burden associated with obtaining a hold volume measurement, as vessels would have to travel varying distances to visit certified marine surveyors. Travel time to a marine surveyor is not an information collection burden, so is not considered a response.

Completion of a replacement or upgrade application requires an estimated 3 hr per response. It is estimated that no more than 40 of 410 vessels possessing these permits will request a vessel replacement or upgrade annually. Completion of a CPH application requires an estimated 30 min per response. It is estimated that no more than 30 of the 410 vessels possessing these limited access permits will request a CPH annually.

The proposed rule also modifies the VTR requirement for Tier 3 mackerel vessel. All mackerel vessels are currently required to submit VTRs on a monthly basis; this requirement is currently approved under the Northeast Region Logbook Family of Forms (OMB Control No. 0648-0212). This proposed rule would require vessels issued a Tier 3 mackerel permit to submit VTRs on a weekly basis. A change request for this requirement has been submitted to OMB for approval. The public burden for the revised VTR requirement is expected to average 5 min for each additional VTR submission.

Public comment is sought regarding: Whether this proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collection of information, including through the use of automated collection techniques or other forms of information technology. Send comments on these or any other aspects of the collection of information to the Regional Administrator (see ADDRESSES ), and email to OIRA_Submission@omb.eop.gov or fax to 202-395-7285.

Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.

The Council prepared an IRFA, as required by section 603 of the Regulatory Flexibility Act (RFA). The IRFA describes the economic impact this proposed rule, if adopted, would have on small entities. A description of the action, why it is being considered, and the legal basis for this action are contained at the beginning of this section in the preamble and in the SUMMARY . A summary of the analysis follows. A copy of this analysis is available from the Council or NMFS (see ADDRESSES ) or via the Internet at http://www.nero.noaa.gov.

The proposed measures in Amendment 11 would primarily affect participants in the mackerel fishery. All of the potentially affected businesses are considered small entities under the standards described in NMFS guidelines, because they have gross receipts that do not exceed $4 million annually. There were 2,331 vessels issued open access mackerel permits in 2010. The Small Business Administration (SBA) size standard for commercial fishing (NAICS code 114111) is $4 million in sales. Available data indicate that no single fishing entity earned more than $4 million annually. Although there are likely to be entities that, based on rules of affiliation, would qualify as large business entities, due to lack of reliable ownership affiliation data NMFS cannot apply the business size standard at this time. Data are currently being compiled on vessel ownership that should permit a more refined assessment and determination of the number of large and small entities in the mackerel fishery for future actions. For this action, since available data are not adequate to identify affiliated vessels, each operating unit is considered a small entity for purposes of the RFA, and, therefore, there is no differential impact between small and large entities. Therefore, there are no disproportionate economic impacts on small entities. Section 6.5 in Amendment 11 describes the vessels, key ports, and revenue information for the mackerel fishery, therefore, that information is not repeated here.

There will be an estimated 820 applications for a limited access mackerel permit. With an average processing time of 45 min, the total time burden for this application is 615 hr. Only 410 vessels are expected to qualify and consequently renew their permit via the renewal application each year. The renewal application is estimated to take 30 min on average to process, for a burden of 205 hr. Up to 30 applicants are expected to appeal the denial of their permit application (other FMPs estimated between 5-7 percent of applications would move on to the appeal stage). The appeals process is estimated to take 2 hr to complete, on average, with a total burden of 60 hr. The 3-yr average total public cost burden for permit applications, appeals, and renewals is $261, which includes postage and copy fees for submissions.

Each hold volume measurement done by a certified marine surveyor is estimated to cost $4,000. An estimated 74 vessels would qualify for either a Tier 1 or Tier 2 limited access mackerel permit, and would be required to submit a hold volume measurement at the time of permit issuance. Roughly 40 vessels are expected to upgrade or replace vessels each year, and would be required to submit a hold volume measurement for the upgraded or replacement vessel. Therefore, annual average cost over a 3-yr period is estimated to be $258,667 ($98,667 for annualized initial hold volume certifications, plus $160,000 for replacement hold volume certifications), not including travel expenses.

New limited access mackerel vessels would be subject to the same replacement, upgrade, and permit history restrictions as other limited access vessels. Completion of a replacement or upgrade application requires an estimated 3 hr per response. It is estimated that no more than 40 of the 410 vessels possessing these limited access permits will request a vessel replacement or upgrade annually. This resultant burden would be up to 120 hr. Completion of a CPH application requires an estimated 30 min per response. It is estimated that owners of no more than 30 of the 410 vessels possessing a limited access mackerel permit will request a CPH annually. The resultant burden would be up to 15 hr. The total public cost burden for replacement, upgrade, and CPH applications is $140 for postage and copy fees.

An estimated 329 Tier 3 limited access mackerel vessels would be required to submit VTRs on a weekly basis. Completion of a VTR is estimated to take 5 min per submission. The resultant burden would be 1,151.5 hr. The total public cost burden for VTR submission is $5,790.40 for postage.

The FEIS estimates the numbers of vessel that would qualify for limited access permits under the different alternatives. In addition to the no action alternative and preferred alternative, six additional alternatives for tiered limited access programs, and two alternatives that would qualify participants in the Atlantic herring fishery for limited access mackerel permits. Information from the dealer weighout database was used to estimate how many vessels would qualify under each of the proposed limited access alternatives. The economic impacts of these alternatives on both individual vessels and the overall capacity of mackerel fleet is described in sections 5.1.4 and 7.5 of the FEIS and are summarized below.

The composition of the qualifying group that results under each of the tiered limited access programs described in this segment changes based on each alternative. In most instances, the quota allocation and trip limit alternatives described below are averages or percentages based on the composition of the qualifying group. Accordingly, the Tier allocation and trip limit alternative sets described below are different for each of the tiered limited access program alternatives.

Under the preferred alternative, 29 vessels would qualify for a Tier 1 permit, 45 vessels would qualify for a Tier 2 permit, and 329 vessels would qualify for a Tier 3 permit, resulting in a total of 403 vessels that would qualify for the various limited access mackerel permits. The preferred alternative would cap Tier 3 with a maximum allocation of up to 7 percent of the commercial mackerel quota, with no other additional allocations for any other Tiers. The economic impacts of the Tier allocations will be discussed separately from the structure of the limited access program.

The eligibility criteria for a Tier 1 permit in Alternative 1B would have required a vessel to possess a mackerel permit and have landed at least 1,000,000 lb (453.6 mt) in any one year between January 1, 1997, and December 31, 2007. To qualify for a Tier 2 permit, a vessel would have been required to possess a permit and have landed at least 100,000 lb (45.36 mt) between January 1, 1988, and December 31, 2007. To qualify for a Tier 3 permit, a vessel would have been required to possess a permit and have landed at least 25,000 lb (11.34 mt) between January 1, 1988, and December 31, 2007. Under Alternative 1B, 26 vessels would qualify for a Tier 1 permit, 64 vessels would qualify for a Tier 2 permit, and 56 vessels would qualify for a Tier 3 permit, resulting in a total of 146 vessels that would qualify for the various limited access mackerel permits.

The eligibility criteria for a Tier 1 permit in Alternative 1C would have required a vessel to possess a mackerel permit and have landed at least 1,000,000 lb (453.6 mt) in any one year between January 1, 1997, and December 31, 2007. To qualify for a Tier 2 permit, a vessel would have been required to possess a permit and have landed at least 100,000 lb (45.36 mt) between January 1, 1997, and December 31, 2007. To qualify for a Tier 3 permit, a vessel would have been required to possess a permit and have landed at least 1,000 lb (.45 mt) between January 1, 1997, and December 31, 2007. As with the preferred alternative, 1C would have capped Tier 3 with a maximum allocation of up to 7 percent of the commercial mackerel quota, with no other additional allocations for any other Tiers. Under Alternative 1C, 26 vessels would qualify for a Tier 1 permit, 36 vessels would qualify for a Tier 2 permit, and 309 vessels would qualify for a Tier 3 permit, resulting in a total of 371 vessels that would qualify for the various limited access mackerel permits.

The eligibility criteria for a Tier 1 permit in Alternative 1E would have required a vessel to possess a mackerel permit and have landed at least 400,000 lb (181.44 mt) of mackerel in any one year between January 1, 1997, and December 31, 2005. To qualify for a Tier 2 permit, a vessel would have been required to possess a permit and have landed at least 100,000 lb (45.36 mt) of mackerel in any one year between January 1, 1997, and December 31, 2005. To qualify for a Tier 3 permit, a vessel would have been required to possess a permit and have landed at least 25,000 lb (11.34 mt) of mackerel in any one year between January 1, 1997, and December 31, 2007. Under Alternative 1E, 29 vessels would qualify for a Tier 1 permit, 25 vessels would qualify for a Tier 2 permit, and 50 vessels would qualify for a Tier 3 permit, resulting in a total of 104 vessels that would qualify for the various limited access mackerel permits.

The eligibility criteria for a Tier 1 permit in Alternative 1F would have required a vessel to possess a mackerel permit and have landed at least 1,000,000 lb (453.6 mt) in any one year between January 1, 1997, and December 31, 2007. To qualify for a Tier 2 permit, a vessel would have been required to possess a permit and have landed at least 100,000 lb (45.36 mt) between January 1, 1988, and December 31, 2007. To qualify for a Tier 3 permit, a vessel would have been required to possess a permit and have landed at least 10,000 lb (4.5 mt) between January 1, 1988, and December 31, 2007. Under Alternative 1F, 26 vessels would qualify for a Tier 1 permit, 64 vessels would qualify for a Tier 2 permit, and 121 vessels would qualify for a Tier 3 permit, resulting in a total of 211 vessels that would qualify for the various limited access mackerel permits.

Alternative 1G would implement a single-tiered limited access program for which 26 vessels would qualify. The eligibility criteria for a limited access permit would have required a vessel to possess a mackerel permit and have landed at least 1,000,000 lb (453.6 mt) in any one year between January 1, 1997, and December 31, 2007.

The eligibility criteria for a Tier 1 permit in Alternative 1J would have required a vessel to possess a mackerel permit and have landed at least 1,000,000 lb (453.6 mt) of mackerel in any one year between January 1, 1997, and December 31, 2007. To qualify for a Tier 2 permit, a vessel would have been required to possess a permit and have landed at least 100,000 lb (45.36 mt) of mackerel in any one year between March 1, 1994, and December 31, 2007. To qualify for a Tier 3 permit, a vessel would have been required to possess a permit and have landed at least 25,000 lb (11.34 mt) of mackerel in any one year between March 1, 1994, and December 31, 2007. Under Alternative 1J, 26 vessels would qualify for a Tier 1 permit, 55 vessels would qualify for a Tier 2 permit, and 49 vessels would qualify for a Tier 3 permit, resulting in a total of 130 vessels that would qualify for the various limited access mackerel permits.

The number of individual qualifiers resulting from these management alternatives primarily varies based on the start date and end date of the qualifying landings period, and the required landings threshold for each Tier. A comparison of Alternatives 1B and 1C illustrates the effects of different start dates on numbers of qualifiers. Alternative 1C, which has a 1997 start date, results in 42 fewer qualifying vessels (29 fewer vessels in Tier 2, 13 fewer in Tier 3) than Alternative 1B, which has a 1988 start date. While the later start dates result in fewer qualifiers in Tiers 2 and 3, the economic impacts on these individual vessels should not be significant when compared to their recent level of participation in the fishery. Vessels are still placed in a Tier based on their participation in the fishery since 1997, and analysis in Amendment 11 shows that lower Tiers generally derive a small percentage of their revenue (less than 2 percent for all alternatives) from mackerel.

Vessels that had sizable landings in 2006 or 2007 would be most impacted by the use of a 2005 qualifying landings period end date; this can be illustrated by comparing Alternative 1C (2007) and 1E (2005). With the 2007 end date in 1C, there would be 26 Tier 1 vessels and 35 Tier 2 vessels. If the end date is switched to 2005, as in 1E, three Tier 1 vessels and six Tier 2 vessels fall into lower Tiers. These vessels fell into lower Tiers because their best years of participation were more recent. Depending on the trip limits selected for the lower Tiers, these vessels may be negatively impacted by the earlier end date because they would be constrained compared to their recent participation in the mackerel fishery.

The FEIS presents an estimate of the maximum feasible annual capacity for the Tier 1 and Tier 2 vessels projected to qualify in each of proposed alternatives; this estimate indicates the maximum amount of mackerel the fleet could land under the various management alternatives in a single year. Only Tier 1 and Tier 2 were included in the analysis because, with the exception of Alternative 1G, the other tiers in the presented alternatives will be constrained by trip limits or tier allocations. The highest capacity estimates are associated with the no action alternative and Alternative 1G (202,111 mt). The capacity for the open access vessels is included in the estimate for Alternative 1G because of the relatively high open access trip limit alternatives associated with 1G (20,000-121,000 mt). Alternative 1E restricts capacity the most, and results in a 49-percent reduction in capacity compared to the no action alternative. The least restrictive alternatives (1B and 1F) result in a 35-percent capacity reduction. The preferred alternative (1D) is the second most restrictive, and results in a 47-percent capacity reduction compared to no action. Alternatives with lower capacity, such as the preferred alternative, could provide greater long-term economic benefits to the qualifying fleet if reduced capacity contributes to the continued health of the mackerel resource.

Alternative 1H and 1I would grant Tier 3 permits to limited access Atlantic herring vessels that would not otherwise qualify for a limited access mackerel permit. Alternative 1H would award a Tier 3 permit to vessels with Category A or B herring permits, and Alternative 1I would award Tier 3 permits to vessels with Category A, B, or C herring permits. Individual vessels are known to target both mackerel and Atlantic herring on the same trip. This provision would prevent forced regulatory discards of incidentally captured mackerel on trips primarily targeting Atlantic herring, and would be expected to result in positive economic benefits for the Atlantic herring fleet. The Council ultimately did not select this alternative because it concluded that the preferred open access mackerel possession limit (20,000 lb (9.07 mt) per trip) would be sufficient to prevent regulatory discards. This alternative was not expected to have a large economic impact on the overall mackerel fishery, as this small number of vessels would be granted access to Tier 3, which would be limited by low trip limits or a Tier allocation.

The FEIS describes four alternatives for allocating the commercial mackerel quota between the limited access Tiers. These alternatives were proposed as another mechanism to ensure that each Tier in the limited access program maintained their historical level of participation in the mackerel fishery in the future. The action alternatives would create a shared allocation for Tier 1, Tier 3, and the open access vessels, but allocate Tier 2 the percentage of total landings that Tier 2 landed from 1997-2007 (2B), double the Tier 2 percentage from 1997-2007 (2C), or triple the Tier 2 percentage from 1997-2007 (2D). Alternatives 2C and 2D feature a provision that, if less than half of Tier 2's allocation has been harvested on April 1, would transfer half of the remaining allocation to the Tier 1/Tier 3/open access allocation.

Based on public comment after the Draft Environmental Impact Statement (DEIS) was published, the Council modified alternatives 1C and 1D (preferred) to provide accommodations for smaller, historical participants in the mackerel fishery. These alternatives would result in more Tier 3 qualifiers, and would initially award Tier 3 a fairly high trip limit in order to allow the qualifiers occasional sizeable landings of mackerel. However, these alternatives would also cap Tier 3 at a maximum of 7 percent of the commercial quota, with no additional allocations for any other Tiers. Given the selection of Alternative 1D as preferred, the Council ultimately recommended the no action alternative regarding allocations for Tier 2.

All three action alternatives base the Tier 2 quota on a minimum of 100 percent of their collective landings from 1997-2007. When combined with the tiered limited access alternatives described above, the resulting Tier 2 allocations would range from 3.5 to 3.8 percent of the annual commercial mackerel quota for Alternative 2B; 7.0 to 7.7 percent of the quota for 2C; and 10.5 to 11.5 percent of the quota for 2D. Given the lower 2011 mackerel quotas, these allocations may constrain landings for all Tiers. The quota transfer provisions in 2C and 2D could benefit Tier 1 in that they would help avoid a situation where Tier 1 is closed, but Tier 2 is left open with a significant portion of its allocation unused.

The no action alternative (preferred), which also includes a cap on Tier 3 under preferred Alternative 1D, should not have substantial economic impact on most fishery participants. While Tier 3 would include an estimated 329 vessels with a relatively high trip limit, the Tier would be capped at a maximum of 7 percent of the commercial fishery allocation, so it should not affect the directed fishery. The economic impact of the Tier 2 allocations depends on Tier activity. If fishing opportunities expand for Tier 2, the no action alternative could allow Tier 2 participants to increase their activity, which could negatively impact other Tiers also attempting to access quota. On the other hand, the no action alternative could have negative impacts on Tier 2 if Tier 1 is very active in a given year and accesses a significant amount of the quota before Tier 2 vessels are able to given Tier 1's higher capacity.

Amendment 11 includes five trip limit alternatives in addition to the no action and preferred alternative. The trip limits analyzed in the FEIS are intended to restrict vessels to a range of landings that are characteristic of trips by vessels within a Tier. Under all alternatives, Tier 1 is not constrained by a trip limit, and all other trip limits would be established annually through specifications. The preferred alternative (3F) would initially set the trip limits at 135,000 lb (61.24 mt) for Tier 2; 100,000 lb (45.36 mt) for Tier 3; and 20,000 lb (9.07 mt) for open access. Alternatives 3B, 3C, and 3D would initially set the trip limits for Tier 2, Tier 3, and open access vessels such that 99 percent, 98 percent, and 95 percent of the trips in each would not have been affected, respectively. This would result in initial trip limits ranging from 39,000-553,000 lb (14.6-206.4 mt) for Tier 2; 4,000-100,000 lb (1.5-37.3 mt) for Tier 3; and 1,000-20,000 lb (0.4-7.5 mt) for open access, depending on the selected limited access program. Alternative 3E initially exempts Tier 2 from a trip limit, and sets all other trip limits in the range described in Alternatives 3B-3D. Alternative 3G was designed to be selected with Alternative 1G (single-tiered alternative), and would initially set the open access trip limit in range calculated for Tier 2 with Alternatives 3B-3D under Alternative 1B (61,000-121,000 lb; 22.8-45.2 mt).

The alternatives analyzed in the FEIS where designed to establish a trip limits that would be higher than historical landings for a majority of the fleet. Accordingly, none of the proposed trip limits are expected to have a negative economic impact on most of the mackerel fleet. In addition, the Tiers with trip limits typically derive a small percentage of their revenue from mackerel (less than 2 percent), so the trip limits are not expected to limit the contribution of mackerel to these vessels' annual revenue. In the event that mackerel availability increases in the future, the trip limits will benefit all mackerel fishery participants in that they will keep vessels in one Tier from significantly expanding effort to the point that their activity is characteristic of a higher Tier; put another way, trip limits could reduce additional capitalization, which could have long-term economic benefits if lower fishery capacity helps sustain the mackerel resource.

Amendment 11 includes most of the provisions adopted in other limited access fisheries in the Northeast Region to govern the initial qualification process, future ownership changes, and vessel replacements. For the most part, there is no direct economic impact. The nature of a limited access program requires rules for governing the transfer of limited access fishing permits. The procedures have been relatively standard for previous limited access programs, which makes it easier for a vessel owner issued permits for several limited access fisheries to undertake vessel transactions. The standard provisions adopted in Amendment 11 are those governing change in ownership; replacement vessels; CPH; abandonment or voluntary relinquishment of permits; and appeal and denial of permits. This action would also allow a vessel owner to retain an open access mackerel fishing history prior to the implementation of Amendment 11 to be eligible for issuance of a mackerel permit based on the eligibility of the vessel that was sold, even if the vessel was sold with other limited access permits.

The economic impacts of the limited access permit provisions are analyzed in section 7.5.4 of the Amendment 11 document. The preferred alternative that requires hold volume measurements for Tier 1 and Tier 2 vessels would cost qualifiers for these permits an estimated $4,000 per vessel, not including travel expenses, and would prevent such vessels from increasing hold volume by more than 10 percent through refitting or replacement. This provision, and other provisions that restrict vessel upgrades, may constrain future business opportunities for vessels with immediate plans for vessel refitting or replacement. However, these restrictions may have long-term benefits to fishery participants by limiting capitalization in the mackerel fishery. The proposed regulations regarding qualification with retained vessel histories may have positive economic impacts for participants that sold their vessel but retained their mackerel fishing history. However, this provision could result in more vessels qualifying for mackerel permits, which may result in increased fishery capitalization. This could have a negative impact on the mackerel fleet if any additional capitalization impacts the sustained health of the mackerel resource. The preferred alternative requiring weekly VTR submissions from Tier 3 vessels is expected to cost qualifiers an additional $5,790.40 annually for postage.

EFH designations identify the geographic domain within which fishery management measures that would minimize the adverse impacts of fishing and non-fishing activities could be implemented. The no action alternative would maintain the current text and map designations for EFH for all MSB species and life stages. The preferred alternative would designate as EFH the area associated with 90 percent of the cumulative geometric mean catches for non-overfished species, and the area associated with 95 percent of the cumulative geometric mean catches for unknown or overfished species. The three non-preferred alternatives vary slightly from the preferred, and include: (1) 75 percent area for non-overfished species, 90 percent for unknown or overfished species; (2) 95 percent area for non-overfished species, 100 percent for unknown or overfished species; and (3) 100 percent for all species.

With the exception of egg life stage for Loligo, all of the MSB species are pelagic and have life stages that inhabit the water column. Because the fishing gears that have the potential to adversely impact EFH are bottom-tending, the EFH for MSB species is not vulnerable to fishing impacts. None of the EFH alternatives analyzed in Amendment 11 would result in regulations affecting fishing activity. Accordingly, none of analyzed alternatives are expected to have negative economic impact on the fishing industry. Overall, the preferred alternative would allow for more effective consultations on oversight of EFH when compared to current EFH definitions, which could have positive impacts on the MSB resource.

The commercial fishery currently closes when it reaches 90 percent of the total mackerel quota (commercial plus recreational). It is assumed that recreational fishery will harvest 15,000 mt of the commercial quota each year, regardless of the total commercial quota, but there is no hard allocation for the recreational fishery. The no action alternative would maintain the assumption that the recreational mackerel fishery could harvest 15,000 mt of the commercial quota. If the mackerel fishery is closed at 90 percent of the commercial quota, and the recreational fishery was actually able to harvest the assumed 15,000 mt, the mackerel quota would be exceeded. For example, the commercial mackerel quota for the 2011 fishing year is 46,779 mt. If the commercial mackerel fishery is closed when 90 percent of this quota is attained (42,101 mt), and the recreational mackerel fishery has harvested the assumed 15,000 mt, then the mackerel quota would be exceeded by 22 percent (42,101 mt + 15,000 mt = 57,101 mt). Mackerel quota overages can compromise the sustainability of the resource, resulting in negative long-term economic impacts on the fishery.

The preferred alternative would designate an allocation for the recreational mackerel fishery that corresponds to the proportion of total U.S. landings that were accounted for by the recreational fishery from 1997-2007 times 1.5 (6.2 percent of total U.S. mackerel landings). Other alternatives include an allocation equal to the proportion of U.S. landings accounted for by the recreational mackerel fishery during this period (4.1 percent), and two times the proportion from this period (8.2 percent).

The proposed allocation is unlikely to constrain the current operations of the recreational mackerel fishery. Recreational landings from 2000-2009 ranged from 530-1,633 mt, with average recreational landings of 774 mt from 2007-2009. Under the preferred alternative, the recreational sector would have received an allocation of 2,900 mt in 2011 (6.2 percent of 46,779 mt). Given recent reduced mackerel quotas, the proposed recreational mackerel allocation could constrain the commercial mackerel fishery compared to the no action alternative. However, the constraint on the commercial fishery is more related to the overall quota than to any of the potential recreational allocations considered in Amendment 11.

Finally, Amendment 11 considered the establishment of a cap for at-sea processing via transfers for the mackerel fishery. The action alternatives included caps on at-sea processing initially set equal to 7 percent, 14 percent, 21 percent, 50 percent, or 75 percent of the mackerel initial optimum yield (IOY), with the cap set annually through specifications. Though there has not been at-sea processing for mackerel by mother ship-type processors since the foreign fishery ended in the early 1990s, the Council developed this set of alternatives in response to public comment about the potential impacts if large-scale at-sea processing of mackerel were to commence in the future. In particular, commenters noted that, if there were significant amounts of at-sea mackerel processing, the disruption of the supply of mackerel to land-based processors could have negative economic impacts on fishing communities.

There is little information available about the possible impacts of at-sea processing in the mackerel fishery. Under the proposed no action alternative, if at-sea processing were to become significant for mackerel, an unlimited portion of the mackerel market share could be transferred to at-sea processors. Land-based mackerel processors, and the shoreside communities in which they reside, would be impacted to the extent that mackerel processing shifts to the at-sea operations. Limiting at-sea processing (action alternatives) could have economic benefits by ensuring a portion of the mackerel supply would still be available to land-based mackerel processors.

For the reasons set out in the preamble, 50 CFR part 648 is proposed to be amended as follows: