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Commodity Futures Trading Commission.
Final rule.
The Commodity Futures Trading Commission (“Commission” or “CFTC”) is adopting a final rule (“Final Rule”) that establishes two exemptions from the statutory requirement to execute certain types of swaps on a swap execution facility (“SEF”) or a designated contract market (“DCM”) (this requirement, the “trade execution requirement”).
The Final Rule is effective on March 15, 2021.
Roger Smith, Associate Chief Counsel, Division of Market Oversight, (202) 418-5344,
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act
In 2013, pursuant to its discretionary rulemaking authority in CEA sections 5h(f)(1) and 8a(5), the Commission issued an initial set of rules implementing this statutory framework for swap trading and the registration and oversight of SEFs (“2013 SEF Rules”).
In November 2018, the Commission issued a proposed rule (“Proposed
Commenters provided limited and generally positive feedback regarding these two proposed exemptions from the trade execution requirement.
The Final Rule establishes two exemptions from the trade execution requirement for swaps, both of which are linked to the Commission's exemptions from, and exceptions to, the swap clearing requirement. The first such trade execution requirement exemption applies to a swap that qualifies for, and meets the associated requirements of, any exception or exemption under part 50 of the Commission's regulations. The second codifies relief provided under CFTC Letter No. 17-67, and prior staff letters,
CEA section 2(h)(8) specifies that swap transactions that are excepted from the clearing requirement pursuant to CEA section 2(h)(7) are not subject to the trade execution requirement.
In contrast to swaps that are eligible for the end-user exception, the Commission's regulations do not specifically exempt from the trade execution requirement swaps that are not subject to the swap clearing requirement based on other statutory authority provisions. Pursuant to its exemptive authority under CEA section 4(c), the Commission promulgated additional exemptions from the clearing requirement for swaps between certain types of entities. Commission regulation 50.51 allows an “exempt cooperative” to elect a clearing exemption for swaps entered into in connection with loans to the cooperative's members.
At the time of the drafting of the Proposed Rule, the Commission was in the process of considering a proposal to codify certain exemptions from the clearing requirement.
Proposed § 36.1(c) established an exemption to the trade execution requirement for swap transactions for which an exception or exemption has been elected pursuant to part 50. The Proposed Rule also indicated that the trade execution requirement would not apply to swap transactions for which a future exemption has been adopted by the Commission under part 50.
Proposed § 36.1(e) established a separate exemption from the trade execution requirement that may be elected by eligible affiliate counterparties to a swap submitted for clearing, notwithstanding the eligible affiliate counterparties' option to elect a clearing exemption pursuant to § 50.52. Eligible affiliate counterparties may rely on this exemption from the trade execution requirement regardless of their decision not to elect the inter-affiliate clearing exemption and instead clear the swap.
The Commission has determined that these two exemptions are consistent with the objectives of CEA section 4(c). The following sections address the exemptions in turn.
The Commission received several comments on the proposed regulations to codify exemptions to the trade execution requirement for swaps that are not subject to the clearing requirement under part 50. JBA expressed support for the proposed exemption.
In addition to the proposed exemptions for swaps not subject to the clearing requirement, Blackrock, ISDA, SIFMA, and GFXD requested an exemption from the trade execution requirement that would apply in instances where a SEF outage or system disruption or limited hours of operation prevent participants from complying with the requirement.
For the purposes of promoting responsible economic or financial
For the reasons stated below, the Commission believes that the trade execution requirement should not be applied to a swap transaction that is eligible for a clearing requirement exception or exemption under part 50, and that the exemption from the trade execution requirement is in the public interest and consistent with the CEA in such circumstances.
The Commission has determined to finalize the exemption largely as proposed, renumbered as § 36.1(b).
In response to Citadel's comment that swaps subject to future exemptions from the clearing requirement should not automatically be eligible for an exemption from the trade execution requirement, the Commission notes that Congress expressly chose to link the statutory exemption from the trade execution requirement under CEA section 2(h)(8) to the 2(h)(7) exemption from the clearing requirement. Therefore, as explained elsewhere, the Commission considers it appropriate to follow this statutory intent with respect to the trade execution requirement and recognize that any swaps eligible for an exemption from the clearing requirement should qualify for an exemption from the trade execution requirement. The Commission notes that, consistent with the statutory restrictions on the use of its CEA section 4(c) authority, it has been judicious in issuing clearing exceptions and exemptions, and will continue to be so particularly in light of this linking of clearing exceptions and exemptions with the trade execution exemption.
Additionally, while the Final Rule automatically makes swaps that are eligible for future exemptions from, and exceptions to, the clearing requirement eligible for this exemption from the trade execution requirement, nothing in the Final Rule limits a future Commission's ability to issue new clearing exemptions or exceptions but still require compliance with CEA section 2(h)(8) by amending this exemption. Given the limited nature of these part 50 exceptions and exemptions, the Commission does not believe that this approach with regard to the trade execution requirement will diminish swaps market transparency or liquidity in a manner likely to implicate systemic risk concerns.
Commenters' requests for additional exemptions from the trade execution requirement are outside the scope of the current rulemaking. However, the Commission will take these requests under advisement for future rulemakings.
In its comments, Citadel also recommended that participants be required to elect the clearing exemption in order to be eligible for this exemption from the trade execution requirement. The Commission notes that as proposed, renumbered § 36.1(b) required that the appropriate swap clearing requirement exception or exemption be elected in order to be eligible for this exemption. However, since the Proposed Rule, the Commission has adopted exemptions from the swap clearing requirement under part 50 that do not to need be elected, but rather apply by virtue of the status of a counterparty to the transaction.
Therefore, the Commission is amending § 36.1(b) to state that section 2(h)(8) of the Act does not apply to a swap transaction that qualifies for an exception under section 2(h)(7) of the Act or one or more of the exceptions or exemptions under part 50 of chapter I of title 17, and for which the associated requirements are met. This amendment will still require, as recommended by Citadel, that, where applicable, the
Under § 36.1(b), swap transactions would still be entered into solely between eligible contract participants (“ECPs”),
The Proposed Rule proposed to create a new § 36.1(e) to establish an exemption from the trade execution requirement for swaps between certain affiliates that are submitted for clearing. Counterparties are eligible to elect the exemption if they meet the conditions set forth under § 50.52(a) for “eligible affiliate counterparty” status.
The Commission has previously stated that transactions subject to the inter-affiliate exemption from the swap clearing requirement are exempt from the trade execution requirement.
In the 2013 rulemaking adopting the inter-affiliate exemption from the clearing requirement, commenters explained that corporate groups often use a single affiliate to face the swap market on behalf of multiple affiliates within the group, which permits the corporate group to net affiliates' trades. This netting effectively reduces the overall risk of the corporate group and the number of open swap positions with external market participants, which in turn reduces operational, market, counterparty credit, and settlement risk.
JBA expressed support for the proposed exemption on the grounds that inter-affiliate transactions “do not necessarily seek competitive pricing, but are generally based on intra-group risk management and trading strategies.”
The Commission believes that exempting an inter-affiliate swap from the trade execution requirement is consistent with the objectives of CEA section 4(c) regardless of whether or not it has been submitted for clearing. For the reasons discussed below, the Commission has determined to finalize this exemption as proposed, renumbered as § 36.1(c).
As noted above, these transactions are not intended to be arm's-length, market-facing, or competitively executed under any circumstance, irrespective of the type of swap involved. Therefore, these transactions would not contribute to the price discovery process if executed on a SEF or a DCM. The statutory purposes of the swaps trading regulatory regime are “to promote the trading of swaps on swap execution facilities
The Commission recognizes the efficiency benefits associated with entering into inter-affiliate swaps via internal processes and acknowledges that applying the trade execution requirement to such transactions could inhibit affiliated counterparties from efficiently executing these types of transactions for risk management, operational, and accounting purposes. The Commission therefore believes this trade execution requirement exemption would promote economic and financial innovation by allowing affiliated counterparties to efficiently utilize the risk management approach that best suits their specific needs, including with respect to decisions regarding whether to clear inter-affiliate swaps, without being unduly influenced by whether that choice would require them to execute swaps on a SEF or DCM.
In response to Citadel's comment, the Commission has determined not to require affiliate counterparties to elect the inter-affiliate exemption under § 50.52 in order to claim the
As explained previously, the Commission recognizes the benefits of inter-affiliate swap transactions, including their contributions to efficient risk management within corporate groups. Given that inter-affiliate trades are not executed on a competitive basis and therefore do not contribute to meaningful price discovery, the Commission does not believe that subjecting such transactions to the trade execution requirement would provide any benefit to the swaps markets that would justify the costs and burdens of such a requirement, which may discourage corporate groups from using these transactions as part of an effective risk-management strategy.
For these reasons, the exemption from the trade execution requirement for affiliated counterparties is appropriate and consistent with the public interest and purposes of the CEA. This exemption is limited to transactions between eligible affiliate counterparties. The transactions subject to this exemption are still required to be reported under the Commission's regulatory reporting requirements under part 45. Therefore, the Commission will still be able to conduct oversight and surveillance of the transactions covered by the exemption. For these reasons, the Commission does not believe that it would have a materially adverse effect on the ability of the Commission or any SEF or DCM to discharge its regulatory or self-regulatory duties under the CEA. Finally, under the exemption, swap transactions would still be entered into solely between ECPs, whom the Commission believes, for purposes of this Final Rule, to be appropriate persons.
The Regulatory Flexibility Act (“RFA”)
As noted above, one commenter, Mercaris, stated that the Proposed Rule would have an adverse impact on small swaps broking entities due to its expansion of the types of swaps that are subject to the trade execution requirement (to include all swaps that are required to be cleared) as well as the types of entities that are required to register as SEFs (to include trading platforms operated by swaps broking entities). Mercaris accordingly requested exemptions from the trade execution requirement for swaps that are based on new agricultural assets or have a notional value not exceeding $5 billion, and stated that a failure to provide such exemptions would violate the RFA.
Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the regulations will not have a significant economic impact on a substantial number of small entities.
The Paperwork Reduction Act of 1995 (“PRA”)
The PRA applies to all information, regardless of form or format, whenever the government is obtaining, causing to be obtained, or soliciting information, and includes required disclosure to third parties or the public, of facts or opinions, when the information collection calls for answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on, ten or more persons.
The Final Rule establishes two exemptions from the trade execution requirement. The Final Rule will not create any new, or revise any existing, collections of information under the PRA. Therefore, no information collection request has been submitted to the Office of Management and Budget for review.
Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders.
The Commission is amending § 36.1 to codify two exemptions from the trade execution requirement for swaps. As noted, the trade execution requirement applies to any swap that is subject to the swap clearing requirement and has been “made available to trade” by a SEF or DCM pursuant to § 37.10 or § 38.12. The first trade execution requirement exemption applies to a swap transaction that qualifies for an exception to, or exemption from, the clearing requirement under part 50 of the Commission's regulations, and for which the associated requirements are met. The second applies to a swap that is entered into by eligible affiliate counterparties and cleared, regardless of the affiliates' decision not to claim the inter-affiliate clearing exemption under § 50.52 of the Commission's regulations and instead clear the swap.
The baseline against which the Commission considers the costs and benefits of this Final Rule is the statutory and regulatory requirements of the CEA and Commission regulations now in effect, in particular CEA section 2(h)(8) and certain rules in part 37 of the Commission's regulations. The Commission, however, notes that as a practical matter certain market participants, such as eligible affiliates and non-financial end-users, have adopted trade execution practices consistent with this Final Rule based upon statutory provisions or no-action relief provided by Commission staff that is time-limited in nature.
In some instances, it is not reasonably feasible to quantify the costs and benefits with respect to certain factors, for example, price discovery or market integrity. Notwithstanding these types of limitations, however, the Commission otherwise identifies and considers the costs and benefits of these rules in qualitative terms. The Commission did not receive any comments from commenters which quantified or attempted to quantify the costs and benefits of the Proposed Rule.
The following consideration of costs and benefits is organized according to the rules and rule amendments adopted in this release. For each rule, the Commission summarizes the amendments and identifies and discusses the costs and benefits attributable to such rule. The Commission, where applicable, then considers the costs and benefits of the rules in light of the five public interest considerations set out in section 15(a) of the CEA.
The Commission notes that this consideration of costs and benefits is based on the understanding that the swaps market functions internationally, with many transactions involving U.S. firms taking place across international boundaries, with some Commission registrants being organized outside of the United States, with leading industry members typically conducting operations both within and outside the United States, and with industry members commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the discussion of costs and benefits below refers to the effects of the Final Rule on all swaps activity subject to the new and amended regulations, whether by virtue of the activity's physical location in the United States or by virtue of the activity's connection with activities in, or effect on, U.S. commerce under CEA section 2(i).
CEA section 2(h)(8) specifies that swap transactions that are excepted from the clearing requirement pursuant to CEA section 2(h)(7) (described in more detail above) are not subject to the trade execution requirement.
The Commission is adopting § 36.1(b) to expressly exempt from the trade execution requirement swaps that are exempt from the clearing requirement pursuant to part 50 of the Commission's regulations. Part 50 exempts from the clearing requirement swaps that have at least one counterparty that is a certain type of entity, including “exempt cooperatives”, entities that qualify for the statutory end-user exception,
The Final Rule exempts from the trade execution requirement swap transactions between eligible affiliate counterparties that elect to clear such transactions, notwithstanding their ability to elect the clearing exemption under § 50.52. Under the current rules, inter-affiliate transactions are only exempt from the trade execution requirement if the eligible affiliate counterparties elect not to clear the transaction. However, eligible affiliate counterparties that elect to clear their inter-affiliate transactions are not exempted from the trade execution requirement despite these transactions also not being intended to be price forming or arm's length and therefore may not be suitable for trading on SEFs or DCMs.
Therefore, the Final Rule treats cleared and uncleared inter-affiliate swap transactions the same with respect to the trade execution requirement. The Commission believes that this approach will be beneficial because inter-affiliate swap transactions do not change the ultimate ownership and control of swap positions (or result in netting), and permitting them to be executed internally (provided that they qualify for the clearing exemption under existing § 50.52) may reduce costs relative to requiring that they be executed on a SEF or a DCM. Finally, the Commission believes that this exemption may help ensure that eligible affiliate counterparties are not discouraged from clearing their inter-affiliate swap transactions in order not to have to trade them on SEFs or DCMs subject to the trade execution requirement, which may
In an effort to estimate the scope of the Final Rule, Commission staff reviewed swap transaction data for fixed-to-floating IRS for the week ending September 18, 2020. Staff found that approximately $496 billion notional amount was traded in fixed-to-floating IRS subject to the trade execution requirement (“TER IRS”) during that week.
The Final Rule also exempts swap transactions that are excepted or exempted from the clearing requirement under part 50 from the trade execution requirement. The Commission believes that swap transactions which are excepted or exempted from the clearing requirement also benefit from exemption from the trade execution requirement, and that the same reasoning that supports the clearing exemptions supports an explicit exemption from the trade execution requirement. The Commission also believes that exempting these transactions from the trade execution requirement is consistent with CEA section 2(h)(8) and adoption of the Final Rule may reduce transaction costs and may permit some entities to avoid incurring the costs associated with onboarding on a SEF or DCM.
The Commission's staff analysis identified relatively little volume in TER IRS that was marked as being executed by end-users, $760 million notional of which $10 million was traded on-SEF and the rest traded off-exchange. However, it is unclear whether the data captures all the TER IRS trades executed by entities that are trading TER IRS off-exchange pursuant to the no-action relief. In a separate analysis for the recently adopted amendments to part 50, adopting additional clearing exemptions, the Commission found that that final rule exempted only a small fraction of IRS transactions from the clearing requirement.
The Commission notes that some swap transactions that are subject to the trade execution requirement involving entities that are eligible for existing exemptions (or existing no-action relief) are nevertheless executed on SEFs (as permitted transactions without restrictions on execution method) and all market participants will continue to have the option to execute on SEFs if they determine that they obtain benefits from trading on a SEF voluntarily.
The Commission believes that the exemptions for certain swaps from the trade execution requirement will not impose new costs on market participants or on SEFs and DCMs and, since they are limited in scope and in some instances involve affiliates and thus are not arm's-length transactions, will not significantly detract from price discovery or protection of market participants and the public.
The Commission anticipates that the exemptions for certain swaps from the trade execution requirement should not materially affect the protection of market participants and the public. The exemptions finalized today are intended to establish that a limited set of swap transactions which are otherwise subject to the trade execution requirement may occur off-exchange (or on-SEF as permitted transactions). These transactions include inter-affiliate swap transactions and other swap transactions that are exempt under part 50 from the clearing requirement.
The Commission anticipates that the exemptions from the trade execution requirement, as discussed above, will maintain the current efficiency of those trades and thus maintain the financial integrity of the counterparties consistent with statutory intent. The Commission believes that the exemptions under part 50 are appropriately tailored and thus, should not materially affect the competitiveness of the swap markets. The Commission does not believe that there would be a benefit to competition in the swap markets if inter-affiliate trades were required to trade on a SEF or on a DCM since these trades merely transfer positions between different entities within the same corporate group.
While, as a general matter, the Commission believes that price discovery in swaps subject to the trade execution requirement should occur on SEFs or DCMs, the Commission nevertheless believes that the exemptions from the trade execution requirement should not materially impact price discovery in the U.S. swaps markets. Most of the transactions eligible for the exemptions, such as inter-affiliate trades, are not price forming, while others involve end-users and similar entities.
The Commission anticipates that the exemptions from the trade execution requirement should not significantly impair the furtherance of sound risk management practices because firms using the exemptions should continue to be able to move swap positions between affiliates, and to take advantage of the statutory end-user exception from the clearing requirement as well as the exemptions from the clearing requirement set forth in part 50. The Commission observes that eligible market participants have been engaging in swaps activity consistent with this Final Rule pursuant to statutory provisions or CFTC staff no-action relief and the practice has not been found to impair risk management practices.
The Commission has not identified any effects of the rules and the trade execution requirement exemption on other public interest considerations.
Commenters were generally supportive of the Proposed Rule and section 4(c) exemptions and recommended only one viable alternative.
CEA section 15(b) requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the purposes of the Act, in issuing any order or adopting any Commission rule or regulation (including any exemption under section 4(c) or 4c(b)), or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association established pursuant to section 17 of the Act.
The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. The Commission requested and did not receive comments on whether the Proposed Rule implicates any other specific public interest to be protected by the antitrust laws. The Commission has considered the Final Rule to determine whether it is anticompetitive and has identified no significant anticompetitive effects. Although the Final Rule exempts certain swaps from the requirement to trade competitively on a SEF or DCM, as noted above, these exemptions are narrowly circumscribed in scope, and the Commission has determined the exemptions to be in the public interest. The Commission also notes that the inter-affiliate transactions exempted under new § 36.1(b) would not be executed on a competitive, arm's-length basis even if they were required to occur on a SEF or DCM.
Trade execution requirement.
For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR part 36 as follows:
7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, and 7b-3, as amended by Titles VII and VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
(b) Section 2(h)(8) of the Act does not apply to a swap transaction that qualifies for the exception under section 2(h)(7) of the Act or an exception or exemption under part 50 of this chapter, and for which the associated requirements are met.
(c) Section 2(h)(8) of the Act does not apply to a swap transaction that is executed between counterparties that have eligible affiliate counterparty status pursuant to § 50.52(a) of this chapter even if the eligible affiliate counterparties clear the swap transaction.
The following appendices will not appear in the Code of Federal Regulations.
On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.
More than two years ago, in November 2018, the Commission voted to propose a comprehensive overhaul of the existing framework for swap execution facilities (SEFs).
Back in November 2018, I expressed concern that finalization of the SEF Proposal would reduce transparency, increase limitations on access to SEFs, and add significant costs for market participants.
In addition to expressing substantive concerns about the overbreadth of the SEF Proposal, I also voiced concerns that we were rushing by having a comparatively short 75-day comment period.
Finally, I would like to address the Commission's separate vote to withdraw the
I support the Commission's decision to withdraw its 2018 proposal to overhaul the regulation of swap execution facilities (“SEFs”)
When the Commission issued the 2018 SEF NPRM, I proposed that we enhance the existing swaps trading system instead of dismantling it. For example, I urged the Commission to clarify the floor trader exception to the swap dealer registration requirement and abolish the practice of post-trade name give-up for cleared swaps. I am pleased that the Commission already has acted favorably on both of those matters. Today's rulemaking represents a further positive step in this targeted approach.
Many commenters to the 2018 SEF NPRM supported this incremental approach, advocating discrete amendments rather than wholesale changes. Today, the Commission is adopting two Final Rules that codify tailored amendments that received general support from commenters. The first rule—Swap Execution Facilities—amends part 37 to address certain operational challenges that SEFs face in complying with current requirements, some of which are currently the subject of no-action relief or other Commission guidance. The second rule—Exemptions from Swap Trade Execution Requirement—exempts two categories of swaps from the trade execution requirement, both of which are linked to exceptions to or exemptions from the swap clearing requirement.
Commission regulations require a SEF to capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses, which currently includes identification of each account to which fills are ultimately allocated.
This Swap Execution Facility final rule also will amend part 37 to tie a SEF's financial resource requirements more closely to the cost of its operations, whether in complying with core principles and Commission regulations or winding down its operations. Based on its experience implementing the SEF regulatory regime, the Commission believes that these amended resource requirements—some of which simply reflect current practice—will be sufficient to ensure that a SEF is financially stable while avoiding the imposition of unnecessary costs. Additional amendments to part 37, including requirements that a SEF must prepare its financial statements in accordance with U.S. GAAP standards, identify costs that it has excluded in determining its projected operated costs, and notify the Commission within 48 hours if it is unable to comply with its financial resource requirements, will further enhance the Commission's ability to exercise it oversight responsibilities.
Finally, this rule makes limited changes to the Chief Compliance Officer (“CCO”) requirements. As a general matter, I agree that the Commission should clarify certain CCO duties and streamline CCO reporting requirements where information is duplicative or not useful to the Commission. Although the CCO requirements diverge somewhat from those for futures commission merchants and swap dealers, the role of SEFs is different and therefore, standardization is not always necessary or appropriate. I expect that the staff will continue to monitor the effects of all of the changes adopted today and inform the Commission if it believes further changes to our rules are needed.
Commodity Exchange Act (“CEA”) section 2(h)(8) specifies that a swap that is excepted from the clearing requirement pursuant to CEA section 2(h)(7) is not subject to the requirement to trade the swap on a SEF. Accordingly, swaps that fall into the statutory swap clearing exceptions (
The Exemptions from Swap Trade Execution Requirement final rule affirms the link between the clearing mandate and the trading mandate for swaps that are exempted from the clearing mandate under authorities other than CEA section 2(h)(7). The additional clearing exemptions are typically provided by the Commission to limited types of market participants, such as cooperatives or central banks that use swaps for commercial hedging or have financial structures or purposes that greatly reduce the need for mandatory clearing and SEF trading. In addition, limited data provided in the release indicates that, at least up to this point in time, these exempted swaps represent a small percentage of the notional amount of swaps traded.
This final rule also exempts inter-affiliate swaps from the trade execution requirement. These swaps are exempted from the clearing requirement primarily because the risks on both sides of the swap are, at least in some respects, held within the same corporate enterprise. As described in the final rule release, these swaps may not be traded at arms-length and serve primarily to move risk from one affiliate to another within the same enterprise. Neither market transparency nor price discovery would be enhanced by including these transactions within the trade execution mandate. For these reasons, I am approving the Exemptions from Swap Trade Execution Requirement final rule as a sensible exemption consistent with the relevant sections of the CEA.
These two Final Rules provide targeted changes to the SEF regulations based on experience from several years of implementing them. These limited changes, together with the withdrawal of the remainder of the 2018 SEF NPRM, effectively leave in place the basic framework of the SEF rules as originally adopted by the Commission. This framework has enhanced market transparency, improved competition, lowered transaction costs, and resulted in better swap prices for end users. While it
I thank the staff of the Division of Market Oversight for their work on these two rules and their helpful engagement with my office.
U.S. Copyright Office, Library of Congress.
Interim rule.
The U.S. Copyright Office is issuing an interim rule regarding the protection of confidential information by the mechanical licensing collective and the digital licensee coordinator under title I of the Orrin G. Hatch-Bob Goodlatte Music Modernization Act. After soliciting public comments through a notification of inquiry and a notice of proposed rulemaking, the Office is now issuing interim regulations identifying appropriate procedures to ensure that confidential, private, proprietary, or privileged information contained in the records of the mechanical licensing collective and the digital licensee coordinator is not improperly disclosed or used.
Effective March 15, 2021.
Regan A. Smith, General Counsel and Associate Register of Copyrights, by email at
On October 11, 2018, the president signed into law the Orrin G. Hatch-Bob Goodlatte Music Modernization Act (“MMA”) which, among other things, substantially modifies the compulsory “mechanical” license for making and distributing phonorecords of nondramatic musical works under 17 U.S.C. 115.
The MMA specifically directs the Office to “adopt regulations to provide for the appropriate procedures to ensure that confidential, private, proprietary, or privileged information contained in the records of the mechanical licensing collective and digital licensee coordinator is not improperly disclosed or used, including through any disclosure or use by the board of directors or personnel of either entity, and specifically including the unclaimed royalties oversight committee and the dispute resolution committee of the mechanical licensing collective.”
Beyond these specific directives, Congress invested the Office with “broad regulatory authority”
Congress acknowledged that “[a]lthough the legislation provides specific criteria for the collective to operate, it is to be expected that situations will arise that were not contemplated by the legislation,” and that “[t]he Office is expected to use its best judgement in determining the
On September 24, 2019, the Office issued a notification of inquiry (“NOI”) seeking, among other things, public input on any issues that should be considered regarding the treatment of confidential and other sensitive information under the blanket license regime.
On April 22, 2020, the Office issued a notice of proposed rulemaking (“NPRM”) regarding the treatment of confidential and other sensitive information under the blanket license regime, and solicited public comments on the proposed rule, including comments about the use of confidentiality designations and nondisclosure agreements.
Having carefully considered the comments and other record materials in this proceeding, the Office is now issuing an interim rule. The Office has determined that it is prudent to promulgate this rule on an interim basis in order to retain added flexibility for responding to unforeseen circumstances. In some cases, the Office has adopted certain provisions in light of conflicting approaches suggested by various stakeholders. At times, the Office has opted for the more conservative approach to new issues presented in this rulemaking to ward against inappropriate disclosure or use of sensitive business information in the first instance, concluding that subsequent adjustment of an overly cautious rule is preferable to later addressing types of information that have already been shared. The Office will consider modifications as needed in response to new evidence, unforeseen issues, or where something is otherwise not functioning as intended as the MLC starts receiving confidential information from digital music providers and copyright owners for purposes of administering the section 115 license.
In issuing this interim rule, the Office is mindful of Congress's overall goals for the MMA to enhance transparency, accountability, and public access to musical work ownership information.
The interim rule adopts certain provisions of the proposed rule and makes a number of adjustments in response to public comments regarding the definition of “confidential information” and the use and disclosure of such information.
Because the MMA does not define the term “confidential,” the interim rule defines “confidential information”—both by what it is and what it is
The interim rule creates various restrictions on the disclosure and use of confidential information by the MLC and DLC, as well as their employees, agents, consultants, vendors, and independent contractors, and members of their boards of directors and committees. In response to concerns about competitive harm that could result from the improper disclosure of confidential information from DMPs and copyright owners, the interim rule states that the MLC and DLC must limit disclosure of confidential information to their employees, agents, consultants, vendors, and independent contractors who are engaged in the entities' respective authorized functions and who require access to confidential information for the purpose of performing their duties during the ordinary course of their work. The MLC and DLC are prohibited from disclosing confidential information to members of their boards of directors and committees, and from using confidential information for any purpose other than their authorized functions under section 115. Consistent with the proposed rule, the MLC and DLC may disclose confidential information to qualified auditors or outside counsel under the statutorily-permitted audits, and to the Office, Copyright Royalty Board, and federal courts, or when such disclosure is required by court order or subpoena, subject to an appropriate protective order. Notwithstanding any restrictions, the rule states that the MLC may fulfill its disclosure obligations under section 115 (
Because “MLC Internal Information” and “DLC Internal Information” do not relate to sensitive business information disclosed by DMPs, significant nonblanket licensees, or copyright owners, the rule does not impose strict disclosure requirements as it does with “confidential information.” Instead, it creates categories of individuals to whom the MLC and DLC
These issues are discussed in turn below.
The MMA does not define the term “confidential.”
As these are potentially broad categories, the proposed rule also refined the definition of “confidential information” by excluding information that is
Recognizing that important restrictions on the disclosure of information are cabined by equally significant countervailing considerations of transparency in reporting certain types of information, the proposed rule also excluded the following from the definition of “confidential information”: Information made publicly available through notices of license,
As discussed below, the interim rule adjusts the definition of “confidential information” based on public comments.
The DLC contends that the definition of “confidential information” should expressly include “any sensitive data provided by digital music providers related to royalty calculations (including, but not limited to, service revenues, subscriber counts, and performing rights organization fee information).”
By contrast, the MLC, the National Music Publishers' Association (“NMPA”), the Songwriters of North America (“SONA”), and the Future of Music Coalition (“FMC”) maintain that receipt of statements of account should not impose confidentiality restrictions on copyright owners, with SONA “seek[ing] to ensure that the final confidentiality rule . . . does not become a basis to withhold records from copyright owners, self-published songwriters, and their authorized representatives.”
While the Office appreciates that DMPs understandably want to ensure that sensitive business information provided to the MLC is not unlawfully or inappropriately disclosed or used, the definition of “confidential information” is already inclusive of information that is competitively sensitive as between digital music providers. Indeed, the DLC itself states that this information “plainly falls within the definition of Confidential Information in the Proposed Rule.”
With respect to disclosure of information provided in royalty statements to copyright owners specifically, prior to the MMA, the Office previously considered and rejected the suggestion to place confidentiality requirements on copyright owners receiving statements of account under the section 115 statutory license due to the inclusion of “competitively sensitive” information, determining instead that “once the statements of account have been delivered to the copyright owners, there should be no restrictions on the copyright owners' ability to use the statements or disclose their contents.”
Accordingly, the interim rule states that once a royalty statement has been delivered to a copyright owner, there are no restrictions on that copyright owner's ability to use the statement or disclose its contents. The Office declines the MLC's proposal to exclude from the definition of “confidential information,” “[i]nformation concerning the calculation of the payable royalty pool and the per-work royalty allocation under part 385 to be reported in royalty statements to copyright owners under 37 CFR 210.29(c)(1)(vi).” Instead, as discussed below, the rule states that the mechanical licensing collective shall be permitted to prepare and deliver royalty statements to musical work copyright owners (and the contents therein) in accordance with the Office's regulations governing royalty statements, which require “[a] detailed and step-by-step accounting of the calculation of royalties under applicable provisions of part 385 of this title, sufficient to allow the copyright owner to assess the manner in which the royalty owed was determined and the accuracy of the royalty calculations, which shall include details on each of the components used in the calculation of the payable royalty pool.”
The MLC and FMC suggest that the proposed rule's definition of “confidential information” is too broad.
The Office agrees that cabining “confidential information” to include “sensitive financial or business information” disclosed by digital music providers, significant non-blanket licensees, or copyright owners (or any of their authorized agents or vendors) to the mechanical licensing collective or digital licensee coordinator would help reasonably ensure that the Office's regulations apply in relation to the administration of the section 115 statutory license, as opposed to information provided to the MLC and DLC more generally (
ARM, while asserting that the proposed “general definition is appropriate,” asks that the definition specifically include “information such as royalty rates and other provisions of agreements between recorded music companies and digital service providers.”
At the MLC's suggestion, the proposed rule excluded from the definition of “confidential information,” top-level compilation data presented in anonymized format that does not allow identification of such data as belonging to any digital music provider, significant nonblanket licensee, or copyright owner.
Commenters supported the definition of “confidential information” including “information submitted by a third party that is reasonably designated as confidential by the party submitting the information,” as well as “usage data and other sensitive data used to compute market shares when distributing unclaimed accrued royalties, sensitive data shared between the MLC and DLC regarding any significant nonblanket licensee, and sensitive data concerning voluntary licenses or individual download licenses administered by and/or disclosed to the MLC.”
Finally, ARM contends that because this rule focuses on the protection of information, “referring to
Accordingly, the Office has adjusted the phrase “documents or information that are public or may be made public by law or regulation” to refer solely to “information.” By focusing on “information” as opposed to “documents,” the rule clarifies that the MLC and DLC would be prohibited from disclosing documents containing “confidential information” disclosed by digital music providers, significant non-blanket licensees, and copyright owners (or any of their authorized agents or vendors) or third parties that reasonably designate information as confidential—
In response to stakeholder concern about the disclosure of sensitive personal information, particularly relating to copyright owner information,
Having carefully considered these issues, the Office has adjusted the interim rule to include birth year in the definition of confidential information.
Under the proposed rule, “confidential information” excluded information made publicly available by the MLC or DLC pursuant to participation in proceedings before the Office or Copyright Royalty Judges (including proceedings to redesignate the MLC or DLC).
After consideration, the Office has adjusted this aspect of the proposed rule by eliminating the reference to “information made publicly available by the mechanical licensing collective or digital licensee coordinator pursuant to participation in proceedings before the Office or Copyright Royalty Judges.” The Office agrees that this specific reference is not necessary because information is no longer confidential once it has been publicly disclosed voluntarily and without any restrictions (and with appropriate authority). The Office retains the provision that excludes “information that is public” from the definition of “confidential information” so as to cover authorized public filings by the MLC or DLC with the Office or Copyright Royalty Board.
In the definition of “confidential information,” the proposed rule stated that documents or information created by a party will not be considered confidential with respect to usage of those documents or information by the same party (
The Office has adjusted the interim rule to remove the paragraph referencing “documents or information created by a party” from the definition of “confidential information.” Because the definition of “confidential information” has been revised to mean sensitive financial or business information disclosed by digital music providers, significant non-blanket licensees, or copyright owners (or any of their authorized agents or vendors) to the MLC or DLC, and because the rule clearly restricts use and disclosure of such information by the MLC and DLC (as discussed below), this paragraph is no longer necessary. As described below, the Office has also adopted provisions relating to the confidentiality of MLC and DLC internal information. Should the Office learn of instances where a party is prevented from using or disclosing its own confidential information under the regulations, the Office will consider any necessary adjustments.
The proposed rule included various categories of permitted disclosure and use by MLC and DLC employees, board and committee members of the MLC and DLC (and their respective employers), and vendors and agents of the MLC and DLC. Given the somewhat divergent views from the MLC and DLC in response to the NOI, and the need for regulatory language to accommodate unforeseen issues, the proposed rule was intended to provide parity in access to confidential information, rather than hard and fast categories prohibiting disclosure of information relevant to, or accessed by, digital music providers or music publishers.
• Employees of the MLC or DLC may receive confidential information.
• Agents, consultants, vendors, and independent contractors of the MLC or DLC may receive confidential information, only when necessary to carry out their duties.
• Other individuals authorized by the MLC may receive confidential information, but only to the extent necessary for such persons to know such information and only when necessary for the MLC to perform its duties.
• Non-DLC members of the MLC's board or statutory committees as well as DLC representatives on the MLC's board or statutory committees may receive confidential information only on a need-to-know basis and to the extent necessary to carry out their duties.
• The MLC and DLC may disclose confidential information to qualified auditors or outside counsel under the statutorily-permitted audits.
• The MLC and DLC may disclose confidential information to the Office, Copyright Royalty Board, and federal courts by parties to their proceedings, or when such disclosure is required by court order or subpoena, subject to an appropriate protective order.
• DLC representatives who serve on the board of directors or committees of the MLC may share confidential information with individuals:
○ Serving on the board of directors and committees of the DLC, but only to the extent necessary for such persons to know such information and only when necessary to carry out their duties for the DLC.
○ Employed by DLC members, only to the extent necessary for such persons to know such information and for the DLC to perform its duties.
The proposed rule included the following use restrictions for confidential information:
• The MLC, including its employees, agents, consultants, vendors, independent contractors, and non-DLC members of the MLC board of directors or committees, shall not use any confidential information for any purpose under than for section 115 activities for the MLC.
• The DLC, including its employees, agents, consultants, vendors, independent contractors, members of the DLC board of directors or committees, and DLC representatives serving on the board of directors or committees of the MLC, shall not use any confidential information for any purpose other than section 115 activities for the DLC.
• Individuals employed by DLC members who receive confidential information from DLC representatives would be prohibited from using confidential information for any purpose other than for work performed during the ordinary course of business for the DLC or MLC.
Comments in response to disclosure requirements under the proposed rule were mixed. As discussed below, the DLC objected to this aspect of the proposed rule, maintaining that members of the MLC's board of directors and committees should not have access to DMP-specific information relating to sensitive financial or business information. By contrast, the MLC
The DLC contends that “it is absolutely critical that the Office maintain a strict firewall between the MLC Board and the sensitive information provided by digital music providers to the MLC,”
The DLC proposes that “[a]t most, members of MLC and DLC boards and committees should be given access only to aggregated and anonymized data—a category of information that the Proposed Rule already excludes from the definition of Confidential Information.”
The DLC's proposal would also specify conditions under which DLC members of the MLC board and committees could “share information
By contrast, the MLC contends that it would not “be appropriate to promulgate a regulation that prevents the MLC's governance from seeing DMP-specific information, subject to appropriate written confidentiality agreements and the restriction that they not see information relating to specific, identified copyright owners.”
Instead, to “ensure that the MLC board and committee members shall not receive inappropriate confidential information,” the MLC proposes language to “clarif[y] . . . that no copyright owners or songwriters (which captures all of the MLC's directors and committee members, except for those representing DMPs) will be shown confidential information of other copyright owners,” and that digital music providers should “not receiv[e] information concerning competitors.”
Other comments regarding access of MLC and DLC board and committee members, and DLC member employers, to confidential information generally supported a more limited approach. CISAC & BIEM assert that “[w]hile there is certainly a need for the DLC to access certain Confidential Information to perform its duties, disclosure to individual employees of DLC members is not justified.”
In contrast, the Songwriters Guild of America, Inc. (“SGA”) and the Society of Composers & Lyricists (“SCL”) proposed a broader approach whereby “[n]on-DLC members on the MLC board of directors or committees may receive Confidential Information from the MLC subject to an appropriate written
After carefully considering these comments, the Office concludes that taking a more conservative approach to new issues presented in this rulemaking regarding the protection of sensitive financial or business information disclosed by digital music providers, significant non-blanket licensees, and copyright owners (or any of their authorized agents or vendors) to the mechanical licensing collective or digital licensee coordinator is appropriate. Although the MLC advocates for a generally more open approach than the DLC, both entities acknowledge that improper disclosure of confidential information could be harmful.
Against this backdrop, the interim rule takes the following approach. The mechanical licensing collective shall limit disclosure of confidential information to its employees, agents, consultants, vendors, and independent contractors who are engaged in the collective's authorized functions under 17 U.S.C. 115(d) and activities related directly thereto and who require access to confidential information for the purpose of performing their duties during the ordinary course of their work for the mechanical licensing collective, subject to an appropriate written confidentiality agreement.
For the reasons discussed, the interim rule precludes the mechanical licensing collective from disclosing confidential information to members of its board of directors or committees, including the collective's Unclaimed Royalties Oversight Committee, or the DLC's board of directors or committees. Recipients of confidential information from the MLC shall not disclose such confidential information to anyone else except as expressly permitted in the Office's regulations, with an exception for qualified auditors or outside counsel conducting statutorily-permitted audits, or attorneys and other authorized agents of parties to proceedings before federal courts, the Copyright Office, or the Copyright Royalty Judges, or when such disclosure is required by court order or subpoena (discussed below).
For parity, the interim rule states that the digital licensee coordinator shall limit disclosure of confidential information to its employees, agents, consultants, vendors, and independent contractors who are engaged in the digital licensee coordinator's authorized functions under 17 U.S.C. 115(d)(5)(C) and activities related directly thereto, and require access to confidential information for the purpose of performing their duties during the
Notwithstanding the above restrictions, the interim rule clarifies that the mechanical licensing collective shall continue to fulfill its disclosure obligations under section 115 including, but not limited to, delivering royalty statements to copyright owners
As proposed by the DLC, the interim rule also incorporates “MLC Internal Information” as a category of information that can be shared with the MLC board of directors and committees, including representatives of the DLC, subject to an appropriate written confidentiality agreement.
Because “MLC Internal Information” and “DLC Internal Information” do not relate to sensitive business information disclosed by DMPs, significant nonblanket licensees, or copyright owners, the rule does not impose strict disclosure requirements as it does with “confidential information” due to the less-sensitive nature of these information categories. Rather, the rule creates categories of individuals to whom the MLC and DLC
• Employees, agents, consultants, vendors, and independent contractors of the DLC;
• Individuals serving on the board of directors or committees of the DLC or MLC; and
• Individuals otherwise employed by members of the DLC.
Under the interim rule, the DLC may disclose DLC Internal Information to the following persons, subject to an appropriate written confidentiality agreement:
• Members of the DLC's board of directors and committees; and
• Members of the MLC's board of directors and committees.
The proposed rule allowed disclosure of confidential information to attorneys and other authorized agents of parties to proceedings before federal courts, the Office, or the Copyright Royalty Judges, or when such disclosure is required by court order or subpoena, subject to an appropriate protective order or agreement.
In response to multiple commenters expressing concern about MLC vendors using the confidential information they acquire while conducting work for the MLC for other purposes,
FMC and CISAC & BIEM support this aspect of the proposed rule, noting that vendors' use of confidential information other than for duties performed during the ordinary course of work for the MLC or DLC has the potential to increase the risk of anti-competitive harm and conflicts of interest.
For its part, the MLC contends that this aspect of the proposed rule “is overly prescriptive, imposes unnecessary burdens and costs on copyright owners, and is likely not within the scope of the Office's authority.”
As noted above, the MMA expressly directs the Office to adopt regulations to, among other things, prevent the improper use of confidential information contained in the mechanical licensing collective's records.
If the Office were to adopt the MLC's proposal, HFA would receive an advantage for non-mechanical business opportunities not granted to competitors (
The Office similarly rejects the MLC's proposed language stating that “[n]othing herein shall preclude the party or parties to whom information is confidential from voluntarily transmitting such Confidential Information to a third party with lesser restrictions on use, and nothing herein shall preclude the MLC from assisting in any such voluntary transfer.”
In the NPRM, the Office noticed a potential alternative to the MLC's proposal. The Office had considered whether to propose language requiring the MLC to offer such information equally to third parties, perhaps restricted to those offering or administering music licensing services, for a reasonable cost,
After careful consideration, the interim rule adopts this aspect of the proposed rule, with the following slight modifications. The Office adjusted the interim rule so that instead of stating the MLC “shall not use any Confidential Information for any purpose other than determining compliance with statutory license requirements, royalty calculation, collection, matching, and distribution, and activities related directly thereto,” it states that the MLC “shall not use any Confidential Information for any purpose other than the collective's authorized functions under 17 U.S.C. 115(d) and activities related directly thereto.”
Both the MLC and DLC proposed having the MLC and DLC implement policies and procedures to prevent unauthorized access and/or use of confidential information, an approach that seems necessary to effectuate the intent of the regulations.
The MLC and DLC retained this aspect of the proposed rule in their suggested regulatory text.
The NPRM also sought public comment on whether the regulations should address instances of inadvertent unauthorized disclosure.
The proposed rule also provided that any written confidentiality agreements relating to the use or disclosure of confidential information must be maintained and stored by the relevant parties for at least the same amount of time that certain digital music providers are required to maintain records of use pursuant to 17 U.S.C. 115(d)(4)(A)(iv). At the time of the NPRM, a separate rulemaking proposed a five-year retention period for such records; the Office subsequently adopted a seven-year period in response to public comments in that proceeding.
ARM generally supported this aspect of the proposed rule, but suggested an adjustment to require retention for a defined retention period of “five years after disclosures cease to be made pursuant to [the agreements].”
The proposed rule did not impose a requirement that confidential information must bear a designation of confidentiality, although the Office noted that the MLC or DLC could presumably impose such a requirement in their own policies.
Relatedly, the Office asked in the NPRM whether, in addition to a category of “Confidential Information,” the regulations should provide for a “Highly Confidential Information” category to provide an additional layer of protection for certain documents and information.
The MLC and DLC disagree as to whether DLC representatives on the MLC's board of directors or committees should be required to sign nondisclosure agreements (“NDAs”) in their personal capacities. The DLC initially suggested that only the DLC as an organization should be bound, and not DLC representatives in their personal capacities or as representatives of their employers.
In the NPRM, the Office was disinclined to require that confidentiality obligations for the MLC and DLC operate at an organization-to-organization level. Instead, the proposed rule stated that the various categories of individuals to receive confidential information do so subject to an appropriate written confidentiality agreement. In response, the MLC “believes that the current Proposed Regulation, which provides that any DLC appointee to the MLC board or committees must sign a confidentiality agreement is the appropriate solution.”
The Office recognizes that the DLC would prefer for DLC representatives to be able to easily share MLC Internal Information and consult as needed within their companies, but the Office is mindful that sensitive information regarding the MLC's internal operations needs appropriate protections in place to prevent improper disclosure or use. As noted in the NPRM, binding individuals in their personal capacities provides an avenue of recourse and is a common practice in model protective orders used in the analogous context of preventing confidential information produced through litigation discovery from being improperly disclosed or misused.
In response to commenters' concern about the MLC requiring additionally restrictive NDAs for its board and committee members,
The MLC objected to these provisions, contending that “[l]imiting the scope of the `appropriate written confidentiality agreements' to agreements that provide for no more and no less than what is already specified in the regulation renders meaningless the added qualifier that the use or disclosure shall be made subject to an `appropriate written confidentiality agreement.' ”
The Office acknowledges that its regulations may not address all appropriate use restrictions and that confidentiality agreements may need to fill in some gaps (
Copyright, Phonorecords, Recordings.
For the reasons set forth in the preamble, the Copyright Office amends 37 CFR part 210 as follows:
17 U.S.C. 115, 702.
(a)
(b)
(1) “Confidential Information” means sensitive financial or business information, including trade secrets or information relating to financial or business terms that could cause competitive disadvantage or be used for commercial advantage, disclosed by digital music providers, significant non-blanket licensees, and copyright owners (or any of their authorized agents or vendors) to the mechanical licensing collective or digital licensee coordinator. “Confidential Information” also means sensitive personal information, including but not limited to, an individual's Social Security number, taxpayer identification number, financial account number(s), or date of birth.
(i) “Confidential Information” specifically includes usage data and other sensitive data used to compute market shares when distributing unclaimed accrued royalties, sensitive data provided by digital music providers related to royalty calculations, sensitive data shared between the mechanical licensing collective and digital licensee coordinator regarding any significant nonblanket licensee, sensitive data concerning voluntary licenses or individual download licenses administered by and/or disclosed to the mechanical licensing collective, and sensitive data concerning agreements between sound recording companies and digital music providers. “Confidential information” also includes sensitive financial or business information disclosed to the mechanical licensing collective or digital licensee coordinator by a third party that is reasonably designated as confidential by the party disclosing the information, subject to the other provisions of this section.
(ii) “Confidential Information” does not include:
(A) Information that is public or may be made public by law or regulation, including but not limited to information made publicly available through:
(
(
(B) Information that at the time of delivery to the mechanical licensing collective or digital licensee coordinator is public knowledge, or is subsequently publicly disclosed by the party to whom the information would otherwise be considered confidential. The party seeking information from the mechanical licensing collective or digital licensee coordinator based on a claim that the information sought is a matter of public knowledge shall have the burden of proving that fact.
(C) Top-level compilation data presented in anonymized format that does not allow identification of such data as belonging to any specific digital music provider, significant nonblanket licensee, or copyright owner.
(2) “MLC Internal Information” means sensitive financial or business information created by or collected by the mechanical licensing collective for purposes of its internal operations, such as personnel, procurement, or technology information. “MLC Internal Information” does not include:
(i) Information that is public or may be made public by law or regulation, information in the public musical works database prescribed by 17 U.S.C. 115(d)(3)(E), and information in the mechanical licensing collective's bylaws, annual report, audit report, or the mechanical licensing collective's adherence to transparency and accountability with respect to the collective's policies or practices, including its anti-commingling policy, pursuant to 17 U.S.C. 115(d)(3)(D)(ii), (vii), and (ix); or
(ii) Information that at the time of delivery to the mechanical licensing collective is public knowledge, or is subsequently publicly disclosed by the
(3) “DLC Internal Information” means sensitive financial or business information created by or collected by the digital licensee coordinator for purposes of its internal operations, such as personnel, procurement, or technology information. “DLC Internal Information” does not include:
(i) Information that is public or may be made public by law or regulation, information in the public musical works database prescribed by 17 U.S.C. 115(d)(3)(E), and information disclosable through the digital licensee coordinator's bylaws; or
(ii) Information that at the time of delivery to the digital licensee coordinator is public knowledge, or is subsequently publicly disclosed by the party to whom the information would otherwise be considered confidential. The party seeking information from the digital licensee coordinator based on a claim that the information sought is a matter of public knowledge shall have the burden of proving that fact.
(c)
(2) Notwithstanding paragraph (c)(1) of this section, the mechanical licensing collective shall be permitted to fulfill its disclosure obligations under section 115 including, but not limited to:
(i) Providing monthly reports to the digital licensee coordinator setting forth any significant nonblanket licensees of which the collective is aware that have failed to comply with the Office's regulations regarding submission of a notice of nonblanket activity for purposes of notifying the mechanical licensing collective that the licensee has been engaging in covered activities, or regarding the delivery of reports of usage for the making and distribution of phonorecords of nondramatic musical works; and
(ii) Preparing and delivering royalty statements to musical work copyright owners that include the minimum information required in accordance with 37 CFR 210.29(c), but without including additional Confidential Information that does not relate to the recipient copyright owner or relevant songwriter. Once a copyright owner receives a royalty statement from the mechanical licensing collective, there are no restrictions on the copyright owner's ability to use the statement or disclose its contents.
(A) Members of the mechanical licensing collective's board of directors and committees shall not have access to musical work copyright owners' royalty statements, except where a copyright owner discloses their own royalty statement to the members of the mechanical licensing collective's board of directors or committees. Notwithstanding this paragraph, members of the mechanical licensing collective's board and committees are not restricted in accessing their own royalty statements from the mechanical licensing collective.
(B) The digital licensee coordinator, including members of the digital licensee coordinator's board of directors and committees, shall not have access to musical work copyright owners' royalty statements, except where a copyright owner discloses their own royalty statement to the mechanical licensing collective's board of directors or committees.
(3) The digital licensee coordinator shall limit disclosure of Confidential Information to employees, agents, consultants, vendors, and independent contractors of the digital licensee coordinator who are engaged in the digital licensee coordinator's authorized functions under 17 U.S.C. 115(d)(5)(C) and activities related directly thereto and require access to Confidential Information for the purpose of performing their duties during the ordinary course of their work for the digital licensee coordinator, subject to an appropriate written confidentiality agreement. The digital licensee coordinator shall not disclose Confidential Information to members of the digital licensee coordinator's board of directors and committees, or the mechanical licensing collective's board of directors or committees.
(4) In addition to the permitted disclosure of Confidential Information in this paragraph (c), the mechanical licensing collective and digital licensee coordinator may disclose Confidential Information to:
(i) A qualified auditor or outside counsel, pursuant to 17 U.S.C. 115(d)(4)(D), who is authorized to act on behalf of the mechanical licensing collective with respect to verification of royalty payments by a digital music provider operating under the blanket license, subject to an appropriate written confidentiality agreement;
(ii) A qualified auditor or outside counsel, pursuant to 17 U.S.C. 115(d)(3)(L), who is authorized to act on behalf of a copyright owner or group of copyright owners with respect to verification of royalty payments by the mechanical licensing collective, subject to an appropriate written confidentiality agreement; and
(iii) Attorneys and other authorized agents of parties to proceedings before federal courts, the Copyright Office, or the Copyright Royalty Judges, or when such disclosure is required by court order or subpoena, subject to an appropriate protective order or agreement.
(5) With the exception of persons receiving information pursuant to paragraph (c)(4) of this section, anyone to whom the mechanical licensing collective or digital licensee coordinator discloses Confidential Information as permitted in section shall not disclose such Confidential Information to anyone else except as expressly permitted in this section.
(d)
(2) The digital licensee coordinator shall not use any Confidential Information for any purpose other than its authorized functions under 17 U.S.C. 115(d)(5)(C) and activities related directly thereto. Anyone to whom the digital licensee coordinator discloses Confidential Information as permitted in this section shall not use any Confidential Information for any
(e)
(2) Representatives of the digital licensee coordinator who serve on the board of directors or committees of the mechanical licensing collective and receive MLC Internal Information may share such MLC Internal Information with the following persons:
(i) Employees, agents, consultants, vendors, and independent contractors of the digital licensing coordinator who require access to MLC Internal Information for the purpose of performing their duties during the ordinary course of their work for the digital licensee coordinator, subject to an appropriate written confidentiality agreement;
(ii) Individuals serving on the board of directors and committees of the digital licensee coordinator or mechanical licensing collective who require access to MLC Internal Information for the purpose of performing their duties during the ordinary course of their work for the digital licensee coordinator or mechanical licensing collective, subject to an appropriate written confidentiality agreement;
(iii) Individuals otherwise employed by members of the digital licensee coordinator who require access to MLC Internal Information for the purpose of performing their duties during the ordinary course of their work for the digital licensee coordinator, subject to an appropriate written confidentiality agreement.
(3) The digital licensee coordinator may disclose DLC Internal Information to the following persons:
(i) Members of the digital licensee coordinator's board of directors and committees, subject to an appropriate written confidentiality agreement; and
(ii) Members of the mechanical licensing collective's board of directors and committees, including music publisher representatives, songwriters, and representatives of the digital licensee coordinator who serve on the board of directors or committees of the mechanical licensing collective, subject to an appropriate written confidentiality agreement.
(iii) The DLC may also disclose DLC Internal Information to other individuals in its discretion, subject to the adoption of reasonable confidentiality policies.
(f)
(g)
(h)
Approved by:
Environmental Protection Agency (EPA).
Direct final rule.
The Environmental Protection Agency (EPA) is taking a direct final action to approve negative declarations submitted in lieu of State plans to satisfy the requirements of the Emission Guidelines and Compliance Times for Municipal Solid Waste Landfills for the State of Maine and the State of Rhode Island. The negative declarations certify that there are no existing facilities in the States that must comply with this rule.
This direct final rule will be effective April 12, 2021 without further notice, unless the EPA receives adverse comments by March 15, 2021. If the EPA receives adverse comments, we will publish a timely withdrawal of the direct final rule in the
Submit your comments, identified by Docket ID No. EPA-R01-OAR-2020-0593 at
Jessica Kilpatrick, Air Permits, Toxics, & Indoor Programs Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 1, 5 Post Office Square, Mail Code: 05-2, Boston, MA 02109-0287. Telephone: 617-918-1652. Fax: 617-918-0652 Email:
Section 111(d) of the Clean Air Act (CAA) establishes standards of performance for existing sources, specifically pertaining to the remaining useful life of a source. Air pollutants included under this section are those which have not already been established as air quality criteria pollutants via 42 U.S.C. 7408(a) or hazardous air pollutants via 42 U.S.C. 7412. Section 111(d)(1) requires states to submit to the EPA for approval a plan that establishes standards of performance. The plan must provide that the state will implement and enforce the standards of performance. A Federal plan is prescribed if a state does not submit a state-specific plan or the submitted plan is disapproved. If a state has no designated facilities for a standards of performance source category, it may submit a negative declaration in lieu of a state plan for that source category according to 40 CFR 60.23a(b) and 62.06.
A municipal solid waste (MSW) landfill is defined in 40 CFR 60.41(f) as, “an entire disposal facility in a contiguous geographical space where household waste is placed in or on land.” Other substances may be placed in the landfill which are regulated under Subtitle D of the Resource Conservation and Recovery Act (RCRA), 40 CFR 257.2. MSW landfills emit gases generated by the decomposition of organic compounds or evolution of new organic compounds from the deposited waste. The EPA regulations specifically delineate measures to control methane and nonmethane organic compound (NMOC) emissions, which can adversely impact public health.
Standards of Performance for
The Maine Department of Environmental Protection (ME DEP) submitted a negative declaration to the EPA on March 11, 2020 pursuant to the requirements at 40 CFR 60.23a(b) and 62.06, certifying that there are no existing source MSW landfills in the state subject to the requirements of 40 CFR part 60, subpart Cf. ME DEP stated that its three landfills potentially subject to subpart Cf have made operational or physical changes such that the state is no longer required to develop a state plan to regulate these landfills as existing sources. One landfill closed in late 2009 and pre-control emissions of NMOC are less than 34 megagrams per year, meeting removal criteria via 40 CFR 60.33f(f). The other two landfills have recently expanded their capacity and satisfy the definition of modification by commencing construction after July 17, 2014 and are therefore subject to Federal CAA landfill regulations pursuant to subpart XXX.
The Rhode Island Department of Environmental Management (RI DEM) submitted a negative declaration to the EPA on July 28, 2020 pursuant to the requirements at 40 CFR 60.23a(b) and 62.06, certifying that there are no existing source MSW landfills in the state subject to the requirements of 40 CFR part 60, subpart Cf. RI DEM stated it only has one operating landfill, which expanded its capacity and commenced construction on the new phase in September 2014. The landfill satisfies the definition of modification by commencing construction after July 17, 2014 and is therefore subject to Federal CAA landfill regulations pursuant to subpart XXX.
The EPA is approving the Maine and Rhode Island negative declarations. These negative declarations satisfy the requirements of 40 CFR 60.23a(b) and 62.06, serving in lieu of a CAA 111(d) state plan for existing source MSW landfills.
The EPA is publishing this action without prior proposal because the Agency views this as a noncontroversial amendment and anticipates no adverse comments. However, in the Proposed Rules section of this
If the EPA receives such comments, we will publish a document withdrawing the final rule and informing the public that the rule will not take effect. All public comments received will then be addressed in a subsequent final rule based on the proposed rule. The EPA will not institute a second comment period on the proposed rule. All parties interested in commenting on the proposed rule should do so at this time. If no such comments are received, the public is advised that this rule will be effective on April 12, 2021 and no further action will be taken on the proposed rule. Please note that if the EPA receives adverse comments on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, the EPA may adopt as final those provisions of the
Under the CAA, the Administrator is required to approve a 111(d) plan submission that complies with the provisions of the CAA and applicable Federal regulations (40 CFR 62.04). Thus, in reviewing 111(d) plan submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 regulatory action because this action is not significant under Executive Order 12866;
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this rule is not approved to apply on any Indian reservation land or in any other area where the EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by April 12, 2021. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements (See section 307(b)(2)).
Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the Proposed Rules section of this
Environmental protection, Administrative practice and procedure, Air pollution control, Intergovernmental relations, Reporting and recordkeeping requirements.
Part 62 of chapter I, title 40 of the Code of Federal Regulations is amended as follows:
42 U.S.C. 7401
On March 11, 2020, the Maine Department of Environmental Protection submitted a letter certifying no existing source Municipal Solid Waste Landfills subject to 40 CFR part 60, subpart Cf, operate within the State's jurisdiction.
On July 28, 2020, the Rhode Island Department of Environmental Management submitted a letter certifying no existing source Municipal Solid Waste Landfills subject to 40 CFR part 60, subpart Cf, operate within the State's jurisdiction.
Federal Emergency Management Agency, DHS.
Final rule.
This rule identifies communities where the sale of flood
The effective date of each community's scheduled suspension is the third date (“Susp.”) listed in the third column of the following tables.
If you want to determine whether a particular community was suspended on the suspension date or for further information, contact Adrienne L. Sheldon, PE, CFM, Federal Insurance and Mitigation Administration, Federal Emergency Management Agency, 400 C Street SW, Washington, DC 20472, (202) 674-1087. Details regarding updated publication requirements of community eligibility status information under the NFIP can be found on the CSB section at
The NFIP enables property owners to purchase Federal flood insurance that is not otherwise generally available from private insurers. In return, communities agree to adopt and administer local floodplain management measures aimed at protecting lives, new and substantially improved construction, and development in general from future flooding. Section 1315 of the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits the sale of NFIP flood insurance unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed in this document no longer meet that statutory requirement for compliance with NFIP regulations, 44 CFR part 59. Accordingly, the communities will be suspended on the effective date listed in the third column. As of that date, flood insurance will no longer be available in the community. FEMA recognizes communities may adopt and submit the required documentation after this rule is published but prior to the actual suspension date. These communities will not be suspended and will continue to be eligible for the sale of NFIP flood insurance. Their current NFIP participation status can be verified at anytime on the CSB section at
In addition, FEMA publishes a Flood Insurance Rate Map (FIRM) that identifies the Special Flood Hazard Areas (SFHAs) in these communities. The date of the published FIRM is indicated in the fourth column of the table. No direct federal financial assistance (except assistance pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act not in connection with a flood) may be provided for construction or acquisition of buildings in identified SFHAs for communities not participating in the NFIP and identified for more than a year on FEMA's initial FIRM for the community as having flood-prone areas (section 202(a) of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4106(a), as amended). This prohibition against certain types of federal assistance becomes effective for the communities listed on the date shown in the last column. The Administrator finds that notice and public comment procedures under 5 U.S.C. 553(b), are impracticable and unnecessary because communities listed in this final rule have been adequately notified.
Each community receives 6-month, 90-day, and 30-day notification letters addressed to the Chief Executive Officer stating that the community will be suspended unless the required floodplain management measures are met prior to the effective suspension date. Since these notifications were made, this final rule may take effect within less than 30 days.
Flood insurance, Floodplains.
Accordingly, 44 CFR part 64 is amended as follows:
42 U.S.C. 4001
Federal Communications Commission.
Final rule.
The Federal Communications Commission (Commission) amends E-Rate invoicing rules to enhance the efficient administration of the program while ensuring that program participants have sufficient time to complete the invoice payment process.
Effective February 11, 2021.
James Bachtell, Wireline Competition Bureau, 202-418-7400 or TTY: 202-418-0484.
This is a synopsis of the Modernizing the E-Rate Program for Schools and Libraries (Order) in WC Docket No. 13-184; FCC 20-178, adopted December 9, 2020 and released December 10, 2020. Due to the COVID-19 pandemic, the Commission's headquarters will be closed to the general public until further notice. The full text of this document is available at the following internet address:
1. The efficient administration of the E-Rate program depends on providing program participants flexibility to procure needed services and equipment in a timely and cost-effective manner, while ensuring that safeguards are in place to administer the program effectively and protect against waste, fraud and abuse. Since the program's inception, the Commission and the program's administrator, the Universal Service Administrative Company (USAC), have continuously worked to achieve the appropriate balance in meeting these goals. This Order builds on those efforts by amending the invoicing rules to enhance the efficient administration of the program while ensuring that program participants have sufficient time to complete the invoice payment process.
2. Specifically, the Commission permits applicants and service providers up to 120 days to submit invoices after USAC issues a Revised Funding Commitment Decision Letter approving a post-commitment request or granting an appeal of a previously denied or reduced funding request. In so doing, the Commission facilitates program participants' ability to meet evolving needs—by changing service providers or submitting service substitutions, for example—without jeopardizing their ability to obtain reimbursement or necessitating a Commission waiver proceeding. Consistent with this change, the Commission grants relief to certain program participants that were excluded from an earlier invoicing relief order and provides a one-time waiver opportunity for program participants that were unable to timely submit an invoice because they were awaiting a post-commitment decision.
3. In taking these actions, the Commission promotes the goals of the E-Rate program by ensuring that its
4. The Commission amends the rules to provide greater flexibility to applicants and service providers by providing them 120 days to submit an invoice after USAC issues a Revised Funding Commitment Decision Letter approving a post-commitment request or granting an appeal regarding a previously denied or reduced funding request. The Commission also extends the relief provided in the
5.
6. The Commission amends the rule now without notice and comment in accordance with the exception to the Administrative Procedure Act (APA) for procedural rules. This change in the rules will be effective February 11, 2021. Upon effectiveness, if USAC grants an appeal or approves other post-commitment requests submitted by an applicant or service provider, it must provide applicants and service providers 120 days from the date of the resulting Revised Funding Commitment Decision Letter to complete invoicing.
7. The Commission limits the rule change to post-commitment requests or appeal decisions that result in a Revised Funding Commitment Decision Letter approving the request. Therefore, applicants or service providers appealing partially approved funding requests should submit invoices for the partial funding before the original invoice deadline expires because USAC will not provide additional time to invoice if the appeal is denied.
8.
9. The Commission also directs the Bureau to extend this relief to any applicant or service provider that similarly faced this issue and filed a pending request for waiver of this rule due to a post-commitment request approval or a successful appeal decision received after the invoice deadline for funding years 2014-2015 and funding year 2017 or later. Because all of these applicants and service providers had approved funding commitments and were unable to take the last step to file invoices due to circumstances outside of their control, there are no concerns about waste, fraud, or abuse. The Commission therefore directs the Bureau to evaluate and grant these pending waiver requests on a case-by-case basis consistent with the Order. For program participants that receive a waiver, the Commission directs USAC to issue a Revised Funding Commitment Decision Letter and provide 120 days from the issuance of that letter for applicants or service providers to submit or resubmit invoices.
10. Finally, the Commission recognizes that there may be other applicants and service providers that faced the same circumstances as the others granted relief in the Order but did not file a waiver request with the Commission. To ensure that similar facts lead to similar outcomes, other applicants or service providers facing similar circumstances may request within 60 days from February 11, 2021, a waiver demonstrating that they were unable to timely invoice due to a delay in the processing of a post-commitment change or resolution of a successful appeal decision for funding years 2014 or later. The Commission finds that 60 days is an appropriate length of time to give applicants and service providers to file their waiver requests. The Commission's current rules require that appeals and waiver requests be submitted within this time frame, which provides petitioners an adequate opportunity to respond meaningfully to adverse decisions. Because these filings are likely being submitted beyond the 60-day time period for waiver requests, each pleading must contain an explanation of the reason they did not previously file a timely waiver request and, if the Bureau finds good cause, it should waive the filing deadline in § 54.720(a) of the Commission's rules. The Bureau is directed to evaluate and grant these waiver requests to the extent affected parties demonstrate that they were unable to submit timely invoices under the circumstances discussed in the Order and demonstrate good cause to waive the deadline to timely file a waiver request.
11. This document does not contain any new or modified information collection requirements subject to PRA. In addition, therefore, it does not contain any new or modified information collection burden for small business concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).
12. The Commission will not send a copy of the Order to Congress and the
13. Accordingly,
14.
15.
16. The rule changes adopted in the Order constitute either a rules of agency organization, procedure and practice and are not subject to the notice and comment and effective date provisions of the Administrative Procedure Act. Accordingly, these rule changes are
This document was received for publication by the Office of the Federal Register on January 5, 2021.
For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 54 as follows:
47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 229, 254, 303(r), 403, 1004, and 1302 unless otherwise noted.
(a)
(1) 120 days after the last day to receive service;
(2) 120 days after the date of the FCC Form 486 Notification Letter; or
(3) 120 days after the date of the Revised Funding Commitment Decision Letter approving a post-commitment request made by the applicant or service provider or a successful appeal of a previously denied or reduced funding request, whichever is latest.
Federal Deposit Insurance Corporation.
Notice of proposed rulemaking.
In order to streamline FDIC regulations, the FDIC proposes to rescind and remove from the Code of Federal Regulations rules entitled
Comments must be received on or before March 15, 2021.
You may submit comments, identified by RIN 3064-AF30, by any of the following methods:
•
•
•
•
Please include your name, affiliation, address, email address, and telephone number(s) in your comment. All statements received, including attachments and other supporting materials, are part of the public record and are subject to public disclosure. You should submit only information that you wish to make publicly available.
Thomas Hearn, Counsel, Legal Division,
The policy objective of the proposed rule is to rescind and remove unnecessary and duplicative regulations in order to simplify them and improve the public's understanding of them. Subpart Q of part 390 is composed entirely of definitions of terms used in other subparts of parts 390 and 391. When completed, the ongoing rescission and removal of all other subparts of parts 390 and 391 mean the definitions in subpart Q will no longer apply to any current regulation, rendering it unnecessary. Therefore, the proposed rescission and removal of subpart Q may contribute to minimizing potential misunderstanding of the subpart by readers and help keep federal regulations current.
Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act or the Act) provided for the functions, powers, and duties of the Office of Thrift Supervision (OTS) relating to State savings associations to transfer to the FDIC effective one year after July 21, 2010, the date that the Dodd-Frank Act was enacted.
When the FDIC reissued OTS regulations as parts 390 and 391 of the FDIC's regulations, it specifically noted that its staff would evaluate the reissued regulations and may later recommend incorporating them into other FDIC regulations, amending them, or rescinding them, as appropriate.
Subpart A—Security Procedures, final rule, 83 FR 13839 (Apr. 2, 2018)
Subpart A—Restrictions on Post-Employment Activities of Senior Examiners, final rule, 79 FR 42181 (July 21, 2014)
Part 390, subpart Q, contains definitions of terms used in subparts 390 and 391,
As of the quarter ending June 30, 2020, the FDIC supervised 3,270 depository institutions, of which 35 (1.1 percent) are State savings associations.
The proposed rule could have a broad effect on the public by simplifying the Code of Federal Regulations, and thereby, benefit the public by promoting ease of understanding and reference. Assessing the magnitude of this potential effect appears infeasible given the absence of direct studies demonstrating the potential connection between outdated federal regulations and compliance outcomes.
The FDIC does not believe that the proposed rule will have direct substantive effects on financial market activity or the U.S. economy.
The FDIC invites comments on all aspects of this analysis. In particular, would the proposed rule have any costs or benefits to covered entities that the FDIC has not identified?
The FDIC has considered alternatives to the proposed rule, but believes the proposed rule represents the most appropriate option for covered institutions. As discussed previously, the Dodd-Frank Act transferred to the FDIC certain powers, duties, and functions formerly performed by the
The FDIC has evaluated the existing regulations regarding definitions of terms used in parts 390 and 391. The FDIC considered the status quo alternative of retaining the current regulations, but believes it would be unnecessary for FDIC-supervised institutions to continue to refer to these regulations when they will not apply to remaining regulations. If subpart Q remained in the Federal Code while all the subparts to which it applied were rescinded and removed, some members of the public could incur modest but unnecessary costs associated with the time and effort to comprehend the meaning of the presence of subpart Q. Therefore, the FDIC is proposing to rescind and remove the regulations.
The FDIC invites comments on all aspects of this proposed rulemaking. In particular, the FDIC requests comments on what negative impacts, if any, can you foresee in the FDIC's proposal to rescind and remove part 390, subpart Q from the Code of Federal Regulation and to coordinate this action with the effective dates of the rescission and removal of the other remaining subparts of part 390. Please provide any other comments you have on the proposal.
In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA),
The proposed rule would rescind and remove from FDIC regulations part 390, subpart Q. The proposed rule will not create any new or revise any existing collections of information under the PRA. Therefore, no information collection request will be submitted to the OMB for review.
The Regulatory Flexibility Act (RFA), requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of the proposed rule on small entities.
As of the quarter ending June 30, 2020, the FDIC supervised 3,270 depository institutions,
Based on the information above, the FDIC certifies that the proposed rule, if enacted, would not have a significant economic impact on a substantial number of small entities.
The FDIC invites comments on all aspects of the supporting information provided in this section, and in particular, whether the proposed rule would have any significant effects on small entities that the FDIC has not identified.
Section 722 of the Gramm-Leach-Bliley Act
Under section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), the FDIC is required to review all of its regulations at least once every 10 years in order to identify any outdated or otherwise unnecessary regulations imposed on insured institutions.
Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),
Administrative practice and procedure, Advertising, Aged, Civil rights, Conflict of interests, Credit, Crime, Equal employment opportunity, Fair housing, Government employees, Individuals with disabilities, Reporting and recordkeeping requirements, Savings associations.
For the reasons stated in the preamble, the Federal Deposit Insurance Corporation proposes to amend part 390 of title 12 of the Code of Federal Regulations as follows:
12 U.S.C. 1819.
By order of the Board of Directors.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve multiple state implementation plan (SIP) revisions submitted by the Commonwealth of Pennsylvania. These revisions were submitted by the Pennsylvania Department of Environmental Protection (PADEP) to establish and require reasonably available control technology (RACT) for nine major sources of volatile organic compounds (VOC) and/or nitrogen oxides (NO
Written comments must be received on or before March 15, 2021.
Submit your comments, identified by Docket ID No. EPA-R03-OAR-2020-0597 at
Ms. Emily Bertram, Permits Branch (3AD10), Air and Radiation Division, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814-5273. Ms. Bertram can also be reached via electronic mail at
On March 9, 2020, PADEP submitted a revision to its SIP to address case-by-case NO
For additional background information on Pennsylvania's “presumptive” RACT II SIP see 84 FR 20274 (May 9, 2019) and on Pennsylvania's source-specific or “case-by-case” RACT determinations see the appropriate technical support document (TSD) which is available online at
Ground level ozone is not emitted directly into the air but is created by chemical reactions between NO
On July 18, 1997, EPA promulgated a standard for ground level ozone based on 8-hour average concentrations. 62 FR 38856. The 8-hour averaging period replaced the previous 1-hour averaging period, and the level of the NAAQS was changed from 0.12 parts per million (ppm) to 0.08 ppm. EPA has designated two moderate nonattainment areas in Pennsylvania under the 1997 8-hour ozone NAAQS, namely Philadelphia-Wilmington-Atlantic City, PA-NJ-MD-DE (the Philadelphia Area) and Pittsburgh-Beaver Valley (the Pittsburgh Area). See 40 CFR 81.339.
On March 12, 2008, EPA strengthened the 8-hour ozone standards, by revising its level to 0.075 ppm averaged over an 8-hour period (2008 8-hour ozone NAAQS). On May 21, 2012, EPA designated five marginal nonattainment areas in Pennsylvania for the 2008 8-hour ozone NAAQS: Allentown-Bethlehem-Easton, Lancaster, Reading, the Philadelphia Area, and the Pittsburgh Area. 77 FR 30088; see also 40 CFR 81.339.
On March 6, 2015, EPA announced its revocation of the 1997 8-hour ozone NAAQS for all purposes and for all areas in the country, effective on April 6, 2015. 80 FR 12264. EPA has determined that certain nonattainment planning requirements continue to be in effect under the revoked standard for nonattainment areas under the 1997 8-hour ozone NAAQS, including RACT.
The CAA regulates emissions of NO
Areas designated nonattainment for the ozone NAAQS are subject to the general nonattainment planning requirements of CAA section 172. Section 172(c)(1) of the CAA provides that SIPs for nonattainment areas must include reasonably available control measures (RACM) for demonstrating attainment of all NAAQS, including emissions reductions from existing sources through the adoption of RACT. Further, section 182(b)(2) of the CAA sets forth additional RACT requirements for ozone nonattainment areas classified as moderate or higher. Section 182(b)(2) of the CAA sets forth requirements regarding RACT for the ozone NAAQS for VOC sources. Section 182(f) subjects major stationary sources of NO
Section 184(b)(1)(B) of the CAA applies the RACT requirements in section 182(b)(2) to nonattainment areas classified as marginal and to attainment areas located within ozone transport regions established pursuant to section 184 of the CAA. Section 184(a) of the CAA established by law the current Ozone Transport Region (OTR) comprised of 12 eastern states, including Pennsylvania. This requirement is referred to as OTR RACT. As noted previously, a “major source” is defined based on the source's PTE of NO
Since the 1970's, EPA has consistently defined “RACT” as the lowest emission limit that a particular source is capable of meeting by the application of the control technology that is reasonably available considering technological and economic feasibility.
EPA has provided more substantive RACT requirements through implementation rules for each ozone NAAQS as well as through guidance. In 2004 and 2005, EPA promulgated an implementation rule for the 1997 8-hour ozone NAAQS in two phases (“Phase 1 of the 1997 Ozone Implementation Rule” and “Phase 2 of the 1997 Ozone Implementation Rule”). 69 FR 23951 (April 30, 2004) and 70 FR 71612 (November 29, 2005), respectively. Particularly, the Phase 2 Ozone Implementation Rule addressed RACT statutory requirements under the 1997 8-hour ozone NAAQS. See 70 FR 71652 (November 29, 2005).
On March 6, 2015, EPA issued its final rule for implementing the 2008 8-hour ozone NAAQS (“the 2008 Ozone SIP Requirements Rule”). 80 FR 12264. At the same time, EPA revoked the 1997 8-hour ozone NAAQS, effective on April 6, 2015.
In addressing RACT, the 2008 Ozone SIP Requirements Rule is consistent with existing policy and Phase 2 of the 1997 Ozone Implementation Rule. In the 2008 Ozone SIP Requirements Rule, EPA requires RACT measures to be implemented by January 1, 2017 for areas classified as moderate nonattainment or above and all areas of the OTR. EPA also provided in the 2008 Ozone SIP Requirements Rule that RACT SIPs must contain adopted RACT regulations, certifications where appropriate that existing provisions are RACT, and/or negative declarations stating that there are no sources in the nonattainment area covered by a specific control technique guidelines (CTG) source category. In the preamble to the 2008 Ozone SIP Requirements Rule, EPA clarified that states must provide notice and opportunity for public comment on their RACT SIP submissions, even when submitting a certification that the existing provisions remain RACT or a negative declaration. States must submit appropriate supporting information for their RACT submissions, in accordance with the Phase 2 of the 1997 Ozone Implementation Rule. Adequate documentation must support that states have considered control technology that is economically and technologically feasible in determining RACT, based on information that is current as of the time of development of the RACT SIP.
In addition, in the 2008 Ozone SIP Requirements Rule, EPA clarified that states can use weighted average NO
As indicated earlier, RACT requirements apply to any ozone nonattainment areas classified as moderate or higher (serious, severe or extreme) under CAA sections 182(b)(2) and 182(f). Pennsylvania has outstanding ozone RACT requirements for both the 1997 and 2008 8-hour ozone NAAQS. The entire Commonwealth of Pennsylvania is part of the OTR established under section 184 of the CAA and thus is subject statewide to the RACT requirements of CAA sections 182(b)(2) and 182(f), pursuant to section 184(b).
At the time of revocation of the 1997 8-hour ozone NAAQS (effective April 6, 2015), only two moderate nonattainment areas remained in the Commonwealth of Pennsylvania for this standard, the Philadelphia and the Pittsburgh Areas. As required under EPA's anti-backsliding provisions, these two moderate nonattainment areas continue to be subject to RACT under the 1997 8-hour ozone NAAQS. Given its location in the OTR, the remainder of the Commonwealth is also treated as moderate nonattainment area under the 1997 8-hour ozone NAAQS for any planning requirements under the revoked standard, including RACT. The OTR RACT requirement is also in effect under the 2008 8-hour ozone NAAQS throughout the Commonwealth, since EPA did not designate any nonattainment areas above marginal for this standard in Pennsylvania. Thus, in practice, the same RACT requirements continue to be applicable in Pennsylvania for both the 1997 and 2008 8-hour ozone NAAQS. RACT must be evaluated and satisfied as separate requirements under each applicable standard.
RACT applies to major sources of NO
In Pennsylvania, the SIP program is implemented primarily by the PADEP, but also by local air agencies in Philadelphia County (the City of Philadelphia's Air Management Services [AMS]) and Allegheny County, (the Allegheny County Health Department [ACHD]). These agencies have implemented numerous RACT regulations and source-specific measures in Pennsylvania to meet the applicable ozone RACT requirements. Historically, statewide RACT controls have been promulgated by PADEP in Pennsylvania Code Title 25—Environmental Resources, Part I—Department of Environmental Protection, Subpart C—Protection of Natural Resources, Article III—Air Resources, (25 Pa. Code) Chapter 129. AMS and ACHD have incorporated by reference Pennsylvania regulations, but have also promulgated regulations adopting RACT controls for their own jurisdictions. In addition, AMS and ACHD have submitted, through PADEP, separate source-specific RACT determinations as SIP revisions for sources within their respective jurisdictions, which have been approved by EPA. See 40 CFR 52.2020(d)(1).
States were required to make RACT SIP submissions for the 1997 8-hour ozone NAAQS by September 15, 2006. PADEP submitted a SIP revision on September 25, 2006, certifying that a number of previously approved VOC RACT rules continued to satisfy RACT under the 1997 8-hour ozone NAAQS
On May 16, 2016, PADEP submitted a SIP revision addressing RACT under both the 1997 and 2008 8-hour ozone NAAQS in Pennsylvania. PADEP's May 16, 2016 SIP revision intended to address certain outstanding non-CTG VOC RACT, VOC CTG RACT, and major NO
On May 9, 2019, EPA conditionally approved the RACT II rule based on PADEP's September 26, 2017 commitment letter.
Therefore, as authorized in CAA section 110(k)(3) and (k)(4), Pennsylvania was required to submit the following as case-by-case SIP revisions, by May 9, 2020, for EPA's approval as a condition of approval of 25 Pa. Code 128 and 129 in the May 16, 2016 SIP revision: (1) All facility-wide or system-wide averaging plans approved by PADEP under 25 Pa. Code 129.98 including, but not limited to, any terms and conditions that ensure the enforceability of the averaging plan as a practical matter (
In order to satisfy a requirement from EPA's May 9, 2019 conditional approval, PADEP has submitted to EPA, SIP revisions addressing case-by-case RACT requirements for major sources in Pennsylvania subject to 25 Pa. Code 129.99. As noted in Table 1 of this document, on March 9, 2020, PADEP submitted to EPA, a SIP revision pertaining to Pennsylvania's case-by-case NO
In the Pennsylvania RACT SIP revision, PADEP included a case-by-case RACT determination for the existing emissions units at each of these major sources of NO
In this rulemaking action, EPA is taking action on eight major sources of NO
The case-by-case RACT determinations submitted by PADEP consist of an evaluation of all reasonably available controls at the time of evaluation for each affected emissions unit, resulting in a PADEP determination of what specific control requirements, if any, satisfy RACT for that particular unit. The adoption of new or additional controls or the revisions to existing controls as RACT were specified as requirements in new or revised Federally enforceable permits (hereafter RACT II permits) issued by PADEP to the source. The RACT II permits, which revise or adopt additional source-specific controls, have been submitted as part of the Pennsylvania RACT SIP revisions for EPA's approval in the Pennsylvania SIP under 40 CFR 52.2020(d)(1). The RACT II permits submitted by PADEP are listed in the last column of Table 2 of this document, along with the permit effective date, and are part of the docket for this rulemaking, which is available online at
After thorough review and evaluation of the information provided by PADEP for eight major sources of NO
EPA also finds that all the proposed revisions to previously SIP approved RACT requirements, under the 1979 1-hour ozone standard (RACT I), as discussed in PADEP's SIP revisions, will result in equivalent or additional reductions of NO
EPA's complete analysis of PADEP's case-by-case RACT SIP revisions is included in the TSD available in the docket for this rulemaking action and available online at
Based on EPA's review, EPA is proposing to approve the Pennsylvania SIP revisions for the eight case-by-case RACT facilities listed in Table 2 of this document and incorporate by reference in the Pennsylvania SIP, via the RACT II permits, source specific RACT determinations under the 1997 and 2008 8-hour ozone NAAQS for certain major sources of NO
In this document, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference source specific RACT determinations via the RACT II permits as described in Sections II and III of this document—Summary of SIP Revisions and EPA's Evaluation of SIP Revisions. EPA has made, and will continue to make, these materials generally available through
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because it is not a significant
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this proposed rulemaking, addressing Pennsylvania's NO
Air pollution control, Environmental protection, Incorporation by reference, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a revision to the Indiana State Implementation Plan (SIP) submitted on July 16, 2020, by the Indiana Department of Environmental Management (IDEM). The revision incorporates changes to Indiana's existing emission reporting rule to be consistent with the emissions statement requirements in the Clean Air Act (CAA). The CAA requires stationary sources in ozone nonattainment areas to submit annual emissions statements. The revision to the rule extends the requirements in Indiana's emission reporting rule to Clark and Floyd counties, which were designated nonattainment under the 2015 ozone National Ambient Air Quality Standard (NAAQS) in 2018, and removes the requirement for Lawrenceburg Township in Dearborn County and to LaPorte County, because these areas are currently designated attainment for the 1997, 2008 and 2015 ozone standards.
Comments must be received on or before March 15, 2021.
Submit your comments, identified by Docket ID No. EPA-R05-OAR-2020-0387 at
Charles Hatten, Environmental Engineer, Control Strategies Section, Air Programs Branch (AR 18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886-6031,
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA.
Section 182(a)(3)(B) of the CAA requires states with ozone nonattainment areas to submit revisions to their SIPs to require the owner or operator of each stationary source of volatile organic compounds (VOC) or oxides of nitrogen (NO
As EPA has promulgated more stringent NAAQS for ozone in 1997, 2008, and 2015, additional areas in Indiana have been designated as nonattainment. On March 29, 2007 (72 FR 14681), EPA determined that Indiana regulation 326 Indiana Administrative Code (IAC) 2-6, Emission Reporting, satisfied the requirements of CAA Section 182(a)(3)(B) for nonattainment areas under the 1997 ozone NAAQS. The requirement to submit annual emissions statements affected stationary sources located in Lake, Porter, and LaPorte Counties. On April 7, 2017 (82 FR 16926), EPA approved into Indiana's SIP a revised version of 326 IAC 2-6 that extended the emissions reporting requirements to Lawrenceburg Township, Dearborn County, which had been designated nonattainment under the 2008 ozone NAAQS. In a separate action, on April 7, 2017 (82 FR 16934), EPA approved Indiana's emissions reporting requirements for Lake and Porter counties designated
On October 26, 2015 (80 FR 65292), EPA promulgated a revised ozone NAAQS of 0.070 parts per million (ppm). Clark and Floyd Counties, Indiana were designated nonattainment for the 2015 ozone NAAQS on August 3, 2018 (83 FR 25776).
Under the existing federally approved SIP for Indiana, the emission statement requirements apply to Lake, Porter, LaPorte, and Dearborn (Lawrenceburg Township) Counties. On July 16, 2020, IDEM submitted a request that EPA approve the revisions to the existing emission reporting rule, 326 IAC 2-6, to be consistent with the current emissions statement requirements for stationary sources in section 182(a)(3)(B) of the CAA.
The changes to the SIP revise the applicability of the emission reporting rule, 326 IAC 2-6-1. IDEM is adding Clark and Floyd Counties, designated nonattainment for the 2015 ozone NAAQS, to the list of areas for which stationary sources that emit 25 tons or more per year of VOC or NO
Indiana's revised version of 326 IAC 2-6-1 appropriately extends the emissions statement requirements to Clark and Floyd Counties, and removes the requirement for Lawrenceburg Township in Dearborn County and LaPorte County. Indiana's emissions reporting rule correctly reflects areas for which the CAA requires stationary sources to submit annual emissions statements.
As discussed above, EPA is proposing to approve the revisions to the emission reporting rule, 326 IAC 2-6-1, into Indiana's SIP, as submitted on July 16, 2020, to address the CAA emission statement requirement in section 182(a)(3)(B).
In this rule, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference Indiana rule 326 IAC 2-6-1 “Applicability”, effective on April 4, 2020. EPA has made, and will continue to make, these documents generally available through
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because it is not a significant regulatory action under Executive Order 12866;
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Environmental protection, Air pollution control, Incorporation by reference, Nitrogen dioxide, Ozone, Volatile organic compounds.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve revisions to the Indiana sulfur dioxide (SO
Comments must be received on or before March 15, 2021.
Submit your comments, identified by Docket ID No. EPA-R05-OAR-2020-0369 at
Andrew Lee, Physical Scientist, Attainment Planning and Maintenance Section, Air Programs Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 353-7645,
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA.
On July 10, 2020, the Indiana Department of Environmental Management (IDEM) submitted a request for revisions of the Indiana SO
IHCC's coke batteries produce coke as their main product. Hot coke oven gas is generated from heating coal in coke ovens to approximately 2,000 °F. The volatile products from the coal, produced by the high heat, are then combusted with oxygen to provide heat from above and gas flues in the bottom of the chamber collect the combustion gases and provide heat from below. This recycling of gases is the fuel used for the ovens during normal operations. Once almost all the coke oven gases are combusted, the gas passes from the different ovens in a battery into a common tunnel and passes into an afterburner which oxidizes any gases that are not fully combusted. The gas stream is then directed to one of the sixteen heat recovery steam generators (HRSGs) operated by Cokenergy, where this heat is used to make steam to generate electricity. The coke oven gas cools as it passes through the HRSG, allowing the gas to be routed through air pollution control devices, including a flue gas desulfurization (FGD) unit and a baghouse, before venting through the main stack. When a HRSG is offline because of maintenance, malfunction or process concerns, or for any other reason, some of the gases must be vented through the common tunnel afterburner to a bypass vent stack because the extreme temperature of the gases would damage the pollution control equipment downstream. IHCC has sixteen bypass vent stacks, one associated with each HRSG.
The revised SIP decreases the amount of coke oven gas which can be allowed to vent to the atmosphere through the bypass vent stacks. Previously, the facility was permitted to vent fourteen percent (14%) of the coke oven waste gas through the common tunnel on an annual basis. Now, during normal operation of the HRSG, the revised rule limits venting gases out through the bypass vent stacks to a maximum of thirteen percent (13%) of the coke oven waste gases leaving the common tunnel, as determined on an annual basis. However, if Cokenergy undertakes HRSG “retubing,” as defined in 326 IAC 7-4.1-7(e), then venting gases out through the bypass vent stacks is allowed up to a maximum of fourteen percent (14%) of the coke oven waste gases leaving the common tunnel, as determined on an annual basis for the calendar year that Cokenergy undertakes the HRSG retubing. The rule requires the facility to verify that the fourteen percent venting limit in 326 IAC 7-4.1-7(d)(1) is warranted by the retubing activities. If less than 3.25% of the annual venting is due to the retubing activities, then the facility may only vent 13% of their annual emissions via the bypass vent stacks. Overall, this action would increase the control capture efficiency of the facility by increasing the percentage of the exhaust gas stream routed to control devices.
Rule 326 IAC 7-4.1-7 retains the combined SO
The revised proposed rule 326 IAC 7-4.1-8 continues to require that IHCC comply with the following requirements: The coke ovens must recycle the gases emitted during the coking process in such a way that the recycled gases must be the only fuel source used for the ovens during normal operations, the gases must not be routed directly to the atmosphere unless they first pass through the common tunnel afterburner, and a maximum of 19% of the coke oven waste gases leaving the common tunnel may be vented to the atmosphere on a 24-hour basis. The sulfur dioxide limits on IHCC's coke oven battery operations in 326 IAC 7-4.1-8(a) are unchanged. 326 IAC 7-4.1-8 includes the same new limitations on bypass vent stack usage as in 326 IAC 7-4.1-7, as discussed above. The rulemaking also includes technical corrections and clarifications that do not have a substantive effect of the application of the rules.
CAA section 110(l) states that SIP revisions cannot be approved if they interfere with applicable requirements concerning attainment and reasonable further progress. EPA proposes to find that this proposed action is consistent with CAA section 110(l) because the proposed changes retain and/or tighten the existing SO
EPA is proposing to approve Indiana's July 10, 2020 request to revise 326 IAC 7-4.1-7 and 326 IAC 7-4.1-8. The proposed SO
In this proposed rule, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference Indiana rules 326 IAC 7-4.1-7 “Cokenergy LLC sulfur dioxide emission limitations” and 326 IAC 7-4.1-8 “Indiana Harbor Coke Company sulfur dioxide emission limitations”, effective on April 24, 2020. EPA has made, and will continue to make, these documents generally available through
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because it is not a significant regulatory action under Executive Order 12866;
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements, Sulfur oxides.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a revised paragraph of the Ohio Revised Code (ORC) into Ohio's state implementation plan (SIP) under the Clean Air Act (CAA). This revision will allow for the extension of an installation permit which is the subject of an appeal by a party other than the owner or operator of the air contaminant source. The extension will allow the date of termination of the permit to be no later than eighteen months after the effective date of the permit plus the number of days between the date in which the permit was appealed and the date the appeal was resolved.
Comments must be received on or before March 15, 2021.
Submit your comments, identified by Docket ID No. EPA-R05-OAR-2020-0559 at
Charmagne Ackerman, Environmental Engineer, Air Permits Section, Air Programs Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886-0448,
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA.
EPA is proposing to approve paragraph (F)(2)(b)(iv) of ORC 3740.03 into the Ohio SIP. On October 27, 2020, EPA received a submittal from the Ohio Environmental Protection Agency (OEPA) requesting the approval of the ORC Permit Expiration Provision at ORC 3740.03 (F)(2)(b)(iv) into Ohio's SIP. In 2009, the Ohio General Assembly modified portions of ORC 3704.03 to update the requirements for the expiration of air pollution installation permits. Specifically, the modification included paragraph (F)(2)(b), which prescribes that installation permits are initially effective for 18 months, but the 18-month time period can be modified for cause as described in the law. This portion of the ORC became effective October 16, 2009.
The majority of the provisions in ORC 3704.03 paragraph (F)(2)(b) are contained in Ohio Administrative Code (OAC) rule 3745-31-07, which was most recently approved into the SIP on August 24, 2015 (80 FR 36477). However, paragraph (F)(2)(b)(iv) is not part of OAC 3745-31-07, and OEPA has requested that the paragraph be approved into the SIP.
On January 12, 2021, OEPA submitted a letter to further clarify several implementation aspects of the submittal, as discussed below.
Paragraph (F)(2)(b)(iv) allows for an installation permit to be extended beyond 18 months if the installation permit is subject to appeal by a party other than the owner or operator of the air contaminant source that is subject of the installation permit. In the case as described, the termination date of the installation permit will not be later than 18 months after the effective date of the permit plus the number of days between the date in which the permit was appealed and the date on which all appeals concerning the permit have been resolved. The Federal Prevention of Significant Deterioration (PSD) rules at 40 CFR 52.21(r)(2) describes the timing that the owner/operator must begin construction of a PSD source including the requirement that the construction must start within 18 months after receipt of approval. Subparagraph (r)(2) also stated that the EPA Administrator may extend the 18-month time period upon a satisfactory showing that an extension is justified. EPA finds that the language in paragraph (F)(2)(b)(iv) is consistent with the Federal PSD regulations.
The January 12, 2021, letter from OEPA provided assurance that in the instance of a lengthy appeal process, OEPA fully maintains its discretion to re-assess the permit to ensure that it is consistent with Federal regulations and guidance. Additionally, OEPA is able to utilize existing mechanisms on its website to notify the public of the extended permit. These clarifications ensure that the provisions are consistent with Federal regulations, and thus, approvable. Since it only affects the timing associated with an affected installation permit's termination date, the requested SIP revision does not impact the amount of emissions associated with any law, rule, or permit. Thus, the revision does not interfere with any applicable requirement concerning attainment and reasonable further progress (as defined in CAA Section 171), or any other applicable requirements of the CAA. Therefore, a detailed CAA Section 110(l) analysis is not necessary.
In this action, EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is proposing to incorporate by reference Ohio Revised Code section 3704.03(F)(2)(b)(iv), effective October 16, 2009, discussed in Section I of this action. EPA has made, and will continue to make, these documents generally available through
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because it is not a significant regulatory action under Executive Order 12866;
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
Environmental Protection Agency (EPA).
Proposed rule.
Pursuant to the Federal Clean Air Act (CAA or the Act), the Environmental Protection Agency (EPA) is proposing to approve the portions of a State Implementation Plan (SIP) revision submitted by the State of Texas that describes how CAA requirements for Nonattainment New Source Review (NNSR) and emission statements are met in the Dallas-Fort Worth (DFW), Houston-Galveston-Brazoria (HGB), and Bexar County ozone nonattainment areas for the 2015 ozone National Ambient Air Quality Standards (NAAQS).
Written comments must be received on or before March 15, 2021.
Submit your comments, identified by Docket No. EPA-R06-OAR-2020-0166, at
Carl Young, EPA Region 6 Office, Infrastructure and Ozone Section, 214-665-6645,
Throughout this document wherever “we,” “us,” or “our” is used, we mean the EPA.
Ground-level ozone is a gas that is formed by the reaction of Volatile Organic Compounds (VOC) and Oxides of Nitrogen (NO
On October 1, 2015, we revised the ozone NAAQS to a level of 0.070 parts per million (ppm) (annual fourth-highest daily maximum 8-hour average concentration, averaged over 3 years).
The DFW and HGB areas were classified as Marginal ozone nonattainment areas for the 2015 ozone NAAQS with an attainment deadline of August 3, 2021 (83 FR 25776, June 4, 2018). Bexar County (which includes the City of San Antonio) was also classified as a Marginal ozone nonattainment area with an attainment deadline of September 24, 2021 (83 FR 35136, July 25, 2018). The DFW area consists of Collin, Dallas, Denton, Ellis, Johnson, Kaufman, Parker, Tarrant, and Wise Counties. The HGB area consists of Brazoria, Chambers, Fort Bend, Galveston, Harris, and Montgomery Counties.
On June 24, 2020, Texas submitted a SIP revision for the DFW, HGB and Bexar County areas. The SIP revision included a description of how provisions previously approved by EPA meet the 2015 ozone NAAQS Marginal area CAA requirements for (1) NNSR
A NNSR permitting program for ozone nonattainment areas is required by the CAA section 182(a)(2)(C). The NNSR requirements are further defined in 40 CFR 51 Subpart I (Review of New Sources and Modifications). NNSR permits for ozone authorize construction of new major sources or major modifications of existing sources of NO
More stringent NNSR requirements apply to the counties in the DFW and HGB areas as they are also classified as Serious nonattainment for the 2008 ozone standard of 0.075 ppm (40 CFR 81.344). For the DFW and HGB areas, these provisions require new major sources or major modifications at existing sources, that emit or has the potential to emit, at least 50 tons per year of NO
CAA section 182(a)(3)(B) calls for SIPs for all ozone nonattainment areas to require that the owner or operator of each stationary source of NO
We are proposing to approve portions of a SIP revision submitted by the State of Texas on June 24, 2020, that describes how CAA requirements for NNSR and emission statements are met in the DFW, HGB, and Bexar County ozone nonattainment areas for the 2015 ozone NAAQS.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the proposed rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Environmental protection, Air pollution control, Incorporation by reference, Nitrogen dioxide, Ozone, Reporting and record keeping requirements, Volatile organic compounds.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve negative declarations in lieu of state plans to satisfy the requirements in the Emission Guidelines and Compliance Times for Municipal Solid Waste Landfills for the State of Maine and the State of Rhode Island. The negative declarations certify that there are no existing facilities in the States that must comply with this rule.
Written comments must be received on or before March 15, 2021.
Submit your comments, identified by Docket ID No. EPA-R01-OAR-2020-0593 at
Jessica Kilpatrick, Air Permits, Toxics, & Indoor Programs Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 1, 5 Post Office Square, Mail Code: 05-2, Boston, MA, 02109-0287. Telephone: 617-918-1652. Fax: 617-918-0652 Email:
In the Rules and Regulations section of this
For additional information, see the direct final rule which is located in the Rules and Regulations section in this issue of the
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104-13. Comments are requested regarding: Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; 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 on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Comments regarding this information collection received by March 15, 2021 will be considered. Written comments and recommendations for the proposed information collection should be submitted within 30 days of the publication of this notice on the following website
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
Food Safety and Inspection Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 and the Office of Management and Budget (OMB) regulations, the Food Safety and Inspection Service (FSIS) is announcing its intention to renew an approved information collection regarding the labeling requirements for mechanically tenderized beef products. There are no changes to the existing information collection. The approval for this information collection will expire on July 31, 2021.
Submit comments on or before April 12, 2021.
FSIS invites interested persons to submit comments on this
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•
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Gina Kouba, Office of Policy and Program Development, Food Safety and Inspection Service, USDA, 1400 Independence Avenue SW, Mailstop 3758, South Building, Washington, DC 20250-3700; (202) 720-5627.
FSIS is requesting renewal of an approved information collection regarding the labeling requirements for mechanically tenderized beef products. There are no changes to the existing information collection. The approval for this information collection will expire on July 31, 2021.
FSIS regulations require the use of the descriptive designation “mechanically tenderized” on the labels of raw or partially cooked needle—or blade—tenderized beef products, including beef products injected with marinade or solution, unless these products are to be fully cooked at an official establishment. The Agency also requires that the product name for the beef products include the descriptive designation “mechanically tenderized” and an accurate description of the beef component (9 CFR 317.2(e)(3)). Establishments that use these labels on product do not have to submit them to FSIS for approval prior to use provided such labels comply with 9 CFR 412.2. Retail facilities that use these labels on product do not have to submit them to FSIS for approval prior to use.
FSIS has made the following estimates based upon an information collection assessment:
All responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record. Copies of this information collection assessment can be obtained from Gina Kouba, Office of Policy and Program Development, Food Safety and Inspection Service, USDA, 1400 Independence Avenue SW, Mailstop 3758, South Building, Washington, DC 20250-3700; (202) 720-5627.
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of FSIS's functions, including whether the information will have practical utility; (b) the accuracy of FSIS's estimate of the burden of the proposed collection of information, including the validity of the method and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques, or other forms of information technology. Comments may be sent to both FSIS, at the addresses provided above, and the Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), Washington, DC 20253.
Responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.
Public awareness of all segments of rulemaking and policy development is important. Consequently, FSIS will announce this
FSIS will also announce and provide a link to this
No agency, officer, or employee of the USDA shall, on the grounds of race, color, national origin, religion, sex, gender identity, sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, or political beliefs, exclude from participation in, deny the benefits of, or subject to discrimination any person in the United States under any program or activity conducted by the USDA.
To file a complaint of discrimination, complete the USDA Program Discrimination Complaint Form, which may be accessed online at
Send your completed complaint form or letter to USDA by mail, fax, or email:
Persons with disabilities who require alternative means for communication (Braille, large print, audiotape, etc.), should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD).
Food and Nutrition Service (FNS), USDA.
Notice.
In accordance with the Paperwork Reduction Act of 1995, this notice invites the general public and other public agencies to comment on this proposed information collection. This collection is a revision of a currently approved information collection for the WIC Farmers' Market Nutrition Program (FMNP) Regulations for the reporting and record-keeping burden associated with the WIC FMNP Program regulations.
Written comments must be received on or before April 12, 2021.
Comments may be sent to: Sara Olson, Chief, Policy Branch, Supplemental Food Programs Division, Food and Nutrition Service, U.S. Department of Agriculture, Braddock Metro Center II, 1320 Braddock Place, Room 328, Alexandria, VA 22314. Comments may also be submitted via fax to the attention of Sara Olson at 703-305-2086 or via email to
All responses to this notice will be summarized and included in the request for Office of Management and Budget approval. All comments will be a matter of public record.
Requests for additional information or copies of this information collection should be directed to Sara Olson at 703-305-2085 or via email to
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions that were used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on those who are to respond, including use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Section 17(m)(8) of the Child Nutrition Act of 1966 (42 U.S.C. 1786(m)(8)), and the WIC Farmers' Market Nutrition Program (FMNP) regulations at 7 CFR part 248 require that certain program-related information be collected and that full and complete records concerning FMNP operations are maintained. The information reporting and record-keeping burdens are necessary to ensure appropriate and efficient management of the FMNP. These burden activities are covered by this Information Collection Request (ICR) which include requirements that involve the authorization and monitoring of State agencies; the certification of FMNP participants; the nutrition education that is provided to participants; farmer and market authorization, monitoring, and management; and financial and participation data (using WIC Farmers Market Nutrition Program (FMNP) Annual Financial and Program Data Report (FNS 683B), which is approved (both the form and its associated reporting burden) under OMB Control Number: 0584-0594 Food Programs Reporting System (FPRS), Expiration Date: 07/31/2023). Recordkeeping burden associated with this form is not approved under OMB Control Number 0584-0594. State agencies must maintain records in order to support data reported in FPRS, and the recordkeeping burden for such record maintenance is captured in this ICR, OMB Control Number: 0584-0447. State plans are the principal source of information about how each State agency operates its FMNP. Information from participants and local agencies is collected through State-developed forms or Management Information Systems. The information collected is used by the Department of Agriculture/Food and Nutrition Service to manage, plan, evaluate, make decisions and report on FMNP program operations. Along with the State Plans, State agencies also submit the Federal-State Supplemental Nutrition Programs Agreements (FNS-339) whose reporting and recordkeeping burden is associated and approved under OMB Control Number: 0584-0332, Expiration Date: 04/30/2022.
This information collection is requesting a revision in the burden hours due to program changes and
The currently approved burden for this collection is 929,211 hours. FNS estimates the new burden at 1,640,801 burden hours, which is an increase of 711,591. The currently approved total annual responses are 4,968,338; we are requesting 4,908,769, which is a decrease of 59,569 total annual responses. The currently approved reporting burden is 515,260 hours; for this revision, FNS estimates 1,247,271 hours, which is an increase of 732,011 hours. The currently approved recordkeeping burden is 413,950 hours; for this revision, we estimate 393,530 hours, which is a decrease of 20,420 hours. The total approved reporting and record-keeping burden increased by 711,591 hours.
See the table below for the estimated total annual burden for each type of respondent.
Forest Service, USDA.
Issuance of proposed directives; notice of availability for public comment; extension of comment period.
The Forest Service published a notice in the
Comments must be received in writing by April 17, 2021.
Comments may be submitted electronically to
Myra Black, Program Manager, Forest Management, Range Management and Vegetation Ecology, at 202-650-7365, or by electronic mail to
The Forest Service Rangeland Management proposed directives were drafted in a good faith effort to provide greater management flexibility and enhance the clarity of policies and procedures applicable to the rangeland management program. To ensure that all members of the public who have an interest in rangeland management have the opportunity to provide comment, we are extending the comment period on the proposed directive to April 17, 2021.
The proposed directives and additional information on the proposed directives can be found at
After the public comment period closes, the Forest Service will consider timely and relevant comments in the development of the final directives. A notice of the final directives, including a response to timely and relevant comments, will be posted on the Forest Service's web page at
Commission on Civil Rights.
Announcement of meetings.
Notice is hereby given, pursuant to the provisions of the rules and regulations of the U.S. Commission on Civil Rights (Commission), and the Federal Advisory Committee Act (FACA), that meetings of the Maryland Advisory Committee to the Commission will convene by conference call at 12:00 p.m. (ET) on the following Tuesdays: March 2, April 6, and May 4, 2021. The purpose of the meetings is to conclude its work on health disparities and COVID-19 in Maryland and begin project planning for a new examination of civil rights issues in Maryland.
Tuesdays: March 2, April 6, and May 4, 2021, at 12:00 p.m. (ET).
Barbara Delaviez at
The meeting is available to the public through the web link above. If joining only via phone, callers can expect to incur charges for calls they initiate over wireless lines, and the Commission will not refund any incurred charges. Individuals who are deaf, deafblind and hard of hearing may also follow the proceedings by first calling the Federal Relay Service at 1-800-877-8339 and providing the Service with conference details found through registering at the web link above. To request additional accommodations, please email
Members of the public are invited to make statements during the open comment period of the meeting or submit written comments. The comments must be received in the regional office approximately 30 days after each scheduled meeting. Written comments may be emailed to Barbara Delaviez at
Records and documents discussed during the meeting will be available for public viewing as they become available at
• Rollcall
• Conclude Work on COVID-19 Health Disparities
• Next Steps and Other Business
• Open Comment
• Adjournment
Commission on Civil Rights.
Announcement of meetings.
Notice is hereby given, pursuant to the provisions of the rules and regulations of the U.S. Commission on Civil Rights (Commission), and the Federal Advisory Committee Act (FACA), that planning meetings of the New Jersey Advisory Committee to the Commission will convene by conference call on the 3rd Fridays of each month as follows: March 19, April 16, May 21, June 18, July 16, August 20, and September 1, 2021; all meetings will begin at 1:00 p.m. (ET). The purpose of the meetings is continued project planning and preparation of the report on the committee's civil rights project on the civil rights impacts of criminal asset forfeitures and the impacts that a criminal record has on access to employment and occupational licensing in New Jersey. There may be votes taken at one or more meeting, as needed.
3rd Fridays at 1:00 p.m.: March 19, April 16, May 21, June 18, July 16, August 20, and September 1, 2021.
Ivy L. Davis, at
Interested members of the public may listen to the discussion by calling the following toll-free conference call number: 1-800-667-5617 and conference call ID number: 7386659. Please be advised that before placing them into the conference call, the conference call operator may ask callers to provide their names, their organizational affiliations (if any), and email addresses (so that callers may be notified of future meetings). Callers can expect to incur charges for calls they initiate over wireless lines, and the Commission will not refund any incurred charges. Callers will incur no charge for calls they initiate over land-line connections to the toll-free telephone number herein.
Individuals who are deaf, deafblind and hard of hearing may also follow the proceedings by first calling the Federal Relay Service at 1-800-877-8339 and providing the Federal Relay Service operator with the conference call-in numbers: 1-800-667-5617 and conference call ID number: 7386659.
Members of the public are invited to make statements during the Public Comment section of the meeting or to submit written comments. The comments must be received in the regional office approximately 30 days after each scheduled meeting. Written comments may be emailed to the Eastern Regional Office, Ivy Davis at
Records and documents discussed during the meeting will be available for public viewing, as they become available at
Commission on Civil Rights.
Announcement of meetings.
Notice is hereby given, pursuant to the provisions of the rules and regulations of the U.S. Commission on Civil Rights (Commission), and the Federal Advisory Committee Act (FACA), that monthly planning
1st Wednesdays at 1:00 p.m.: March 3, April 7, May 5, June 2, July 7, August 4, and September 1, 2021.
Ivy L. Davis, at
Interested members of the public may listen to the discussion by calling the following toll-free conference call number: 1-800-367-2403 and conference call ID: 4195799. Please be advised that before placing them into the conference calls, the conference call operator may ask callers to provide their names, their organizational affiliations (if any), and email addresses (so that callers may be notified of future meetings). Callers can expect to incur charges for calls they initiate over wireless lines, and the Commission will not refund any incurred charges. Callers will incur no charge for calls they initiate over land-line connections to the toll-free telephone number herein.
Individuals who are deaf, deafblind and hard of hearing may also follow the proceedings by first calling the Federal Relay Service at 1-800-877-8339 and providing the Federal Relay Service operator with the conference call-in numbers: 1-800-822-2024 and conference call ID: 4195799.
Members of the public are invited to make brief statements during the Public Comment section of each meeting or to submit written comments. The comments must be received in the regional office approximately 30 days after each scheduled meeting via email to Ivy Davis at
Records and documents discussed during the meeting will be available for public viewing, as they become available, at
Economic Development Administration, U.S. Department of Commerce.
Notice and opportunity for public comment.
The Economic Development Administration (EDA) has received petitions for certification of eligibility to apply for Trade Adjustment Assistance from the firms listed below. Accordingly, EDA has initiated investigations to determine whether increased imports into the United States of articles like or directly competitive with those produced by each of the firms contributed importantly to the total or partial separation of the firms' workers, or threat thereof, and to a decrease in sales or production of each petitioning firm.
Any party having a substantial interest in these proceedings may request a public hearing on the matter. A written request for a hearing must be submitted to the Trade Adjustment Assistance Division, Room 71030, Economic Development Administration, U.S. Department of Commerce, Washington, DC 20230, no later than ten (10) calendar days following publication of this notice. These petitions are received pursuant to section 251 of the Trade Act of 1974, as amended.
Please follow the requirements set forth in EDA's regulations at 13 CFR 315.9 for procedures to request a public hearing. The Catalog of Federal Domestic Assistance official number and title for the program under which these petitions are submitted is 11.313, Trade Adjustment Assistance for Firms.
On October 8, 2020, PPC Broadband, Inc., (PPC Broadband) submitted a notification of proposed production activity to the FTZ Board for its facility within FTZ 90, in Dewitt, New York.
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Pursuant to its authority under the Foreign-Trade Zones Act of June 18, 1934, as amended (19 U.S.C. 81a-81u), the Foreign-Trade Zones Board (the Board) adopts the following Order:
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily determines that certain metal lockers and parts thereof (metal lockers) from the People's Republic of China (China) are being, or are likely to be, sold in the United States at less than fair value (LTFV). The period of investigation is January 1, 2020, through June 30, 2020. Interested parties are invited to comment on this preliminary determination.
Applicable February 11, 2021.
Laurel LaCivita or Patrick Barton, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4243 or (202) 482-0012, respectively.
This preliminary determination is made in accordance with section 733(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this investigation on August 5, 2020.
The products covered by this investigation are metal lockers from China. For a complete description of the scope of this investigation,
In accordance with the preamble to Commerce's regulations,
Commerce is conducting this investigation in accordance with section 731 of the Act. Commerce has calculated export prices in accordance with section 772(a) of the Act. Because China is a non-market economy, within the meaning of section 771(18) of the Act, Commerce has calculated normal value in accordance with section 773(c) of the Act. In addition, pursuant to section 776(a) and (b) of the Act, Commerce preliminarily has relied upon facts otherwise available, with adverse inferences, for the China-wide entity. For a full description of the methodology underlying Commerce's preliminary determination,
In the
Commerce preliminarily determines that the following estimated weighted-average dumping margins exist:
In accordance with section 733(d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of subject merchandise as described in the scope of the investigation section entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
To determine the cash deposit rate, Commerce normally adjusts the estimated weighted-average dumping margin by the amount of domestic subsidy pass-through and export subsidies determined in a companion CVD proceeding when CVD provisional measures are in effect. Accordingly, where Commerce has made a preliminary affirmative determination for domestic subsidy pass-through or export subsidies, Commerce has offset the calculated estimated weighted-average dumping margin by the appropriate rate(s). Any such adjusted rates may be found in the chart of estimated weighted-average dumping margins in the “Preliminary Determination” section.
Should provisional measures in the companion CVD investigation expire prior to the expiration of provisional measures in this LTFV investigation, Commerce will direct CBP to begin collecting cash deposits at a rate equal to the estimated weighted-average dumping margins calculated in this preliminary determination unadjusted for the passed-through domestic subsidies or for export subsidies at the time the CVD provisional measures expire.
These suspension of liquidation instructions will remain in effect until further notice.
Commerce intends to disclose to interested parties the calculations performed in connection with this preliminary determination within five days of its public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination. Normally, Commerce verifies information using standard procedures, including an on-site examination of original accounting, financial, and sales documentation. However, due to current travel restrictions in response to the global COVID-19 pandemic, Commerce is unable to conduct on-site verification in this investigation. Accordingly, we intend to verify the information relied upon in making the final determination through alternative means in lieu of an on-site verification.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance. Commerce will notify interested parties of the timeline for the submission of case briefs and written comments at a later date. Rebuttal briefs, limited to issues raised in case briefs, may be submitted no later than seven days after the deadline date for case briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date, time, and location of the hearing two days before the scheduled date.
Section 735(a)(2) of the Act provides that a final determination may be postponed until not later than 135 days after the date of the publication of the preliminary determination if, in the event of an affirmative preliminary determination, a request for such postponement is made by exporters who account for a significant proportion of exports of the subject merchandise, or in the event of a negative preliminary determination, a request for such postponement is made by the petitioners. Pursuant to 19 CFR 351.210(e)(2), Commerce requires that requests by respondents for postponement of a final antidumping determination be accompanied by a request for extension of provisional measures from a four-month period to a period not more than six months in duration.
On January 19, 2021, pursuant to 19 CFR 351.210(e), Zhejiang Xingyi requested that Commerce postpone the final determination and that provisional measures be extended to a period not to exceed six months.
In accordance with section 733(f) of the Act, Commerce will notify the International Trade Commission (ITC) of its preliminary determination of sales at LTFV. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of the subject merchandise are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 733(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The scope of the investigation covers certain metal lockers, with or without doors, and parts thereof (metal lockers). The subject metal lockers are secure metal storage devices less than 27 inches wide and less than 27 inches deep, whether floor standing, installed onto a base or wall-mounted. In a multiple locker assembly (whether a welded locker unit, otherwise assembled locker unit or knocked down unit or kit), the width measurement shall be based on the width of an individual locker not the overall unit dimensions. All measurements in this scope are based on actual measurements taken on the outside dimensions of the single-locker unit. The height is the vertical measurement from the bottom to the top of the unit. The width is the horizontal (side to side) measurement of the front of the unit, and the front of the unit is the face with the door or doors or the opening for internal access of the unit if configured without a door. The depth is the measurement from the front to the back of the unit. The subject certain metal lockers typically include the bodies (back, side, shelf, top and bottom panels), door frames with or without doors which can be integrated into the sides or made separately, and doors.
The subject metal lockers typically are made of flat-rolled metal, metal mesh and/or expanded metal, which includes but is not limited to alloy or non-alloy steel (whether or not galvanized or otherwise metallically coated for corrosion resistance), stainless steel, or aluminum, but the doors may also include transparent polycarbonate, Plexiglas or similar transparent material or any combination thereof. Metal mesh refers to both wire mesh and expanded metal mesh. Wire mesh is a wire product in which the horizontal and transverse wires are welded at the cross-section in a grid pattern. Expanded metal mesh is made by slitting and stretching metal sheets to make a screen of diamond or other shaped openings.
Where the product has doors, the doors are typically configured with or for a handle or other device or other means that permit the use of a mechanical or electronic lock or locking mechanism, including, but not limited to: A combination lock, a padlock, a key lock (including cylinder locks) lever or knob lock, electronic key pad, or other electronic or wireless lock. The handle and locking mechanism, if included, need not be integrated into one another. The subject locker may or may not also enter with the lock or locking device included or installed. The doors or body panels may also include vents (including wire mesh or expanded metal mesh vents) or perforations. The bodies, body components and doors are typically powder coated, otherwise painted or epoxy coated or may be unpainted. The subject merchandise includes metal lockers imported either as welded or otherwise assembled units (ready for installation or use) or as knocked down units or kits (requiring assembly prior to installation or use).
The subject lockers may be shipped as individual or multiple locker units preassembled, welded, or combined into banks or tiers for ease of installation or as sets of component parts, bulk packed (
The scope also includes all parts and components of lockers made from flat-rolled metal or expanded metal (
a. Slope tops: Slope tops are slanted metal panels or units that fit on the tops of the lockers and that slope from back to front to prevent the accumulation of dust and debris on top of the locker and to discourage the use of the tops of lockers as storage areas. Slope tops come in various configurations including, but not limited to, unit slope tops (in place of flat tops), slope hoods made of a back, top and end pieces which fit over multiple units and convert flat tops to a sloping tops, and slope top kits that convert flat tops to sloping tops and include tops, backs and ends.
b. Bases: Locker bases are panels made from flat-rolled metal that either conceal the legs of the locker unit, or for lockers without legs, provide a toe space in the front of the locker and conceal the flanges for floor anchoring.
c. Expansion filler panel: Expansion filler panels or fillers are metal panels that attach to locker units to cover columns, pipes or other obstacles in a row of lockers or fill in gaps between the locker and the wall. Fillers may also include metal panels that are used on the sides or the top of the lockers to fill gaps.
d. Dividers: Dividers are metal panels that divide the space within a locker unit into different storage areas.
e. Recess trim: Recess trim is a narrow metal trim that bridges the gap between lockers and walls or soffits when lockers are recessed into a wall.
f. Decorative end panels: End panels fit onto the exposed ends of locker units to cover holes, bolts, nuts, screws and other fasteners. They typically are painted to match the lockers.
g. End caps: End caps fit onto the exposed ends of locker units to cover holes, bolts, nuts, screws and other fasteners.
The scope also includes all hardware for assembly and installation of the lockers and locker banks that are imported with or shipped, invoiced, or sold with the imported locker or locker system except the lock.
Excluded from the scope are wire mesh lockers. Wire mesh lockers are those with each of the following characteristics:
(1) At least three sides, including the door, made from wire mesh;
(2) the width and depth each exceed 25 inches; and
(3) the height exceeds 90 inches.
Also excluded are lockers with bodies made entirely of plastic, wood, or any nonmetallic material.
Also excluded are exchange lockers with multiple individual locking doors mounted on one master locking door to access multiple units. Excluded exchange lockers have multiple individual storage spaces, typically arranged in tiers, with access doors for each of the multiple individual storage space mounted on a single frame that can be swung open to allow access to all of the individual storage spaces at once. For example, uniform or garment exchange lockers are designed for the distinct function of securely and hygienically exchanging clean and soiled uniforms. Thus, excluded exchange lockers are a multi-access point locker whereas covered lockers are a single access point locker for personal storage. The excluded exchange lockers include assembled exchange lockers and those that enter in `knock down' form in which all of the parts and components to assemble a completed exchange locker unit are packaged together. Parts for exchange lockers that are imported separately from the exchange lockers in `knock down' form are not excluded.
Also excluded are metal lockers that are imported with an installed electronic, internet-enabled locking device that permits communication or connection between the locker's locking device and other internet connected devices.
Also excluded are locks and hardware and accessories for assembly and installation of the lockers, locker banks and storage systems that are separately imported in bulk and are not incorporated into a locker, locker system or knocked down kit at the time of importation. Such excluded hardware and accessories include but are not limited to locks and bulk imported rivets, nuts, bolts, hinges, door handles, door/frame latching components, and coat hooks. Accessories of sheet metal, including but not limited to end panels, bases, dividers and sloping tops, are not excluded accessories.
Mobile tool chest attachments that meet the physical description above are covered by the scope of the investigation, unless such attachments are covered by the scope of the orders on certain tool chests and cabinets from China. If the orders on certain tool chests and cabinets from China are revoked, the mobile tool chest attachments from China will be covered by the scope of the investigation.
The scope also excludes metal safes with each of the following characteristics: (1) Pry resistant, concealed hinges; (2) body walls and doors of steel that are at least 17 gauge (0.05625 inch or 1.42874 mm thick); and (3) an integrated locking mechanism that includes at least two round steel bolts 0.75 inch (19 mm) or larger in diameter; or three bolts 0.70 inch (17.78 mm) or more in
The scope also excludes gun safes meeting each of the following requirements:
(1) Shall be able to fully contain firearms and provide for their secure storage.
(2) Shall have a locking system consisting of at minimum a mechanical or electronic combination lock. The mechanical or electronic combination lock utilized by the safe shall have at least 10,000 possible combinations consisting of a minimum three numbers, letters, or symbols. The lock shall be protected by a casehardened (Rc 60+) drill-resistant steel plate, or drill-resistant material of equivalent strength.
(3) Boltwork shall consist of a minimum of three steel locking bolts of at least
(4) The exterior walls shall be constructed of a minimum 12-gauge thick steel for a single-walled safe, or the sum of the steel walls shall add up to at least 0.100 inches for safes with walls made from two pieces of flat-rolled steel.
(5) Doors shall be constructed of a minimum one layer of 7-gauge steel plate reinforced construction or at least two layers of a minimum 12-gauge steel compound construction.
(6) Door hinges shall be protected to prevent the removal of the door. Protective features include, but are not limited to: hinges not exposed to the outside, interlocking door designs, dead bars, jeweler's lugs and active or inactive locking bolts.
The scope also excludes metal storage devices that (1) have two or more exterior exposed drawers regardless of the height of the unit, or (2) are no more than 30 inches tall and have at least one exterior exposed drawer.
Also excluded from the scope are free standing metal cabinets less than 30 inches tall with a single opening, single door and an installed tabletop.
The scope also excludes metal storage devices less than 27 inches wide and deep that (1) have two doors hinged on the right and left side of the door frame respectively covering a single opening and that open from the middle toward the outer frame; or (2) are free standing or wall-mounted, single-opening units 20 inches or less high with a single door.
The subject certain metal lockers are classified under Harmonized Tariff Schedule of the United States (HTSUS) subheading 9403.20.0078. Parts of subject certain metal lockers are classified under HTS subheading 9403.90.8041. In addition, subject certain metal lockers may also enter under HTS subheading 9403.20.0050. While HTSUS subheadings are provided for convenience and Customs purposes, the written description of the scope of the investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) finds that sales of citric acid and certain citrate salts (citric acid) from Thailand were made by COFCO Biochemical (Thailand) Co., Ltd. (COFCO) and Niran (Thailand) Co., Ltd. (Niran) at less than normal value (NV) during the period of review (POR) January 8, 2018, through June 30, 2019. We also find that Sunshine Biotech International Co., Ltd. (Sunshine) did not sell citric acid at less than NV during the POR.
Applicable February 11, 2021.
Joy Zhang (COFCO), Katherine Sliney (Niran), or Jolanta Lawska (Sunshine), AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1168, (202) 482-2437, or (202) 482-8362, respectively.
On August 12, 2020, we published the
On July 21, 2020, Commerce tolled all deadlines in administrative reviews by 60 days, thereby extending the deadline for these final results until January 19, 2021.
The merchandise covered by this order includes all grades and granulation sizes of citric acid, sodium citrate, and potassium citrate in their unblended forms, whether dry or in solution, and regardless of packaging type. The scope also includes blends of citric acid, sodium citrate, and potassium citrate; as well as blends with other ingredients, such as sugar, where the unblended form(s) of citric acid, sodium citrate, and potassium citrate constitute 40 percent or more, by weight, of the blend.
Citric acid and sodium citrate are classifiable under 2918.14.0000 and 2918.15.1000 of the Harmonized Tariff Schedule of the United States (HTSUS), respectively. Potassium citrate and crude calcium citrate are classifiable under 2918.15.5000 and, if included in a mixture or blend, 3824.99.9295 of the HTSUS. Blends that include citric acid, sodium citrate, and potassium citrate
All issues raised by the parties in their case and rebuttal briefs are listed in the appendix to this notice and are addressed in the Issues and Decision Memorandum. The Issues and Decision Memorandum is a public document and is on-file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users
We made no changes to the
The weighted-average dumping margins for the final results of this administrative review are as follows:
Pursuant to section 751(a)(2)(A) of the Act and 19 CFR 351.212(b)(1), Commerce will determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries of subject merchandise in accordance with the final results of this review.
Since COFCO and Niran have weighted-average dumping margins above
In accordance with our practice, for entries of subject merchandise during the POR for which a respondent did not know that the merchandise was destined for the United States, we will instruct CBP to liquidate such entries at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.
Consistent with its recent notice,
The following cash deposit requirements will be effective upon publication of the notice of final results of administrative review for all shipments of citric acid from Thailand entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results, as provided by section 751(a)(2) of the Act: (1) The cash deposit rate for the firms listed above will be equal to the dumping margins established in the final results of this review, except if the ultimate rates are
This notice also serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
This notice also serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the return or destruction of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3), which continues to govern business proprietary information in this segment of the proceeding. Timely written notification of the return/destruction of APO materials, or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation.
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.213(h)(1).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The Caribbean Fishery Management Council's (Council) Outreach and Education Advisory Panel (OEAP) will hold a 2-day public virtual meeting in March to discuss the items contained in the agenda in the
The OEAP virtual meeting will be held on March 17, 2021, from 12 p.m. to 3 p.m. and on March 18, 2021, from 12 p.m. to 3 p.m.
You may join the OEAP public virtual meeting (via Zoom) from a computer, tablet or smartphone by entering the following address:
Diana Martino (787) 226-8849, Caribbean Fishery Management Council, 270 Muñoz Rivera Avenue, Suite 401, San Juan, Puerto Rico 00918-1903.
The order of business may be adjusted as necessary to accommodate the completion of agenda items. The meeting will begin on March 17, 2021 at 12 p.m. and will end on March 18, 2021, at 3 p.m. Other than the start time, interested parties should be aware that discussions may start earlier or later than indicated. In addition, the meeting may be extended from, or completed prior to the date established in this notice.
For any additional information on this public virtual meeting, please contact Diana Martino, Caribbean Fishery Management Council, 270 Muñoz Rivera Avenue, Suite 401, San Juan, Puerto Rico, 00918-1903; telephone: (787) 226-8849.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of a public meeting.
The Gulf of Mexico Fishery Management Council will hold a meeting via webinar of its Law Enforcement Technical Committee (LETC), in conjunction with the Gulf States Marine Fisheries Commission's Law Enforcement Committee (LEC).
The webinar will convene on Tuesday, March 9, 2021; beginning at 10 a.m. and ending at 3 p.m., EST.
The meeting will be held via webinar. Please visit the Gulf Council website (
Dr. Ava Lasseter, Anthropologist, Gulf of Mexico Fishery Management Council;
The following items of discussion are on the agenda, though agenda items may be addressed out of order and any changes will be noted on the Council's website when possible.
The joint meeting will begin in a
General session will begin with introductions and adoption of agenda, and approval of minutes from the Joint LEC/LETC Meeting on March 11, 2020.
The Gulf Council LETC will receive an update on the Southeast For-hire Electronic Reporting Program, review Cobia Management (Amendment 32), discuss Lane Snapper and changes to accountability measures, and illegal charters.
The GSMFC LEC will approve strategic and operations plans, review the IJF Program Activity for the status of the Red Drum Profile, and Commission Pubs.
The committee will present the State Report Highlights from Florida, Alabama, Mississippi, Louisiana, Texas, USCG, NOAA OLE, and USFWS; and will discuss any Other Business items.
The Agenda is subject to change, and the latest version along with other meeting materials will be posted on
The Law Enforcement Technical Committee consists of principal law enforcement officers in each of the Gulf States, as well as the NOAA Office of Law Enforcement, U.S. Fish and Wildlife Service, the U.S. Coast Guard, and the NOAA Office of General Counsel for Law Enforcement.
Although other non-emergency issues not on the agenda may come before this group for discussion, in accordance with the Magnuson-Stevens Fishery Conservation and Management Act, those issues may not be the subject of formal action during this meeting. Actions will be restricted to those issues specifically identified in the agenda and any issues arising after publication of this notice that require emergency action under Section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take action to address the emergency.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meetings.
The South Atlantic Fishery Management Council's (Council) Citizen Science Program will hold two town hall meetings to assist in the development of a customizable citizen science mobile application via webinar March 9 and March 11, 2021.
The meetings via webinar will be held on Tuesday, March 9, 2021, from 5 p.m. until 7 p.m. and on Thursday, March 11, 2021, from 10 a.m. until 12 p.m.
Julia Byrd, Citizen Science Program Manager, SAFMC; phone: (843) 302-8433 or toll free: (866) SAFMC-10; fax: (843) 769-4520; email:
The role of citizen science is an evolving and potentially powerful tool to better understand marine fish populations. With that in mind, the South Atlantic Fishery Management Council's Citizen Science Program has partnered with the Atlantic Coastal Cooperative Statistics Program and the North Carolina Division of Marine Fisheries to develop a mobile application that encourages and supports the capture and sharing of information about Atlantic coast fish. The town hall meetings will be interactive to gain insights from stakeholders including fishermen, fisheries scientists, and fisheries managers. Interested participants will only need to attend one of the two meetings.
Items of discussion at the town hall meetings are as follows:
The meeting end times are subject to change depending on attendance and discussions.
These meetings are physically accessible to people with disabilities. Requests for auxiliary aids should be directed to the Council office (see
The times and sequence specified in this agenda are subject to change.
16 U.S.C. 1801
U.S. Election Assistance Commission.
Notice; corrections.
The U.S. Election Assistance Commission published a document in the
Wednesday, February 17, 2021, 11:30 a.m.-1:00 p.m. Eastern.
Kristen Muthig, Telephone: (202) 897-9285, Email:
Environmental Protection Agency (EPA).
Notice of data availability.
The Environmental Protection Agency (EPA) is providing notice of the availability of data on emission allowance allocations to certain units under the Cross-State Air Pollution Rule (CSAPR) trading programs. EPA has completed final calculations for the second round of allocations of allowances from the CSAPR new unit set-asides (NUSAs) for the 2020 control periods and has posted spreadsheets containing the calculations on EPA's website. EPA has also completed calculations for allocations of the remaining 2020 NUSA allowances to existing units and has posted spreadsheets containing those calculations on EPA's website as well.
February 11, 2021.
Questions concerning this action should be addressed to Jason Kuhns at (202) 564-3236 or
Under each CSAPR trading program where EPA is responsible for determining emission allowance allocations, a portion of each state's emissions budget for the program for each control period is reserved in a NUSA (and in an additional Indian country NUSA in the case of states with Indian country within their borders) for allocation to certain units that would not otherwise receive allowance allocations. The procedures for identifying the eligible units for each control period and for allocating allowances from the NUSAs and Indian country NUSAs to these units are set forth in the CSAPR trading program regulations at 40 CFR 97.411(b) and 97.412 (NO
In a notice of data availability (NODA) published in the
The detailed unit-by-unit data and final allowance allocation calculations are set forth in Excel spreadsheets titled “CSAPR_NUSA_2020_NO
EPA notes that an allocation or lack of allocation of allowances to a given unit does not constitute a determination that CSAPR does or does not apply to the unit. EPA also notes that under 40 CFR 97.411(c), 97.511(c), 97.611(c), 97.711(c), and 97.811(c), allocations are subject to potential correction if a unit to which allowances have been allocated for a given control period is not actually an affected unit as of the start of that control period.
40 CFR 97.411(b), 97.511(b), 97.611(b), 97.711(b), and 97.811(b).
Environmental Protection Agency (EPA).
Notice of data availability.
This Notice of Data Availability is to alert stakeholders of information from the Environmental Protection Agency regarding hydrofluorocarbon consumption and production in the United States for the years 2011, 2012, and 2013 and solicit stakeholder input. The Agency is providing this information in preparation for upcoming regulatory actions under the American Innovation and Manufacturing Act of 2020, included in the Consolidated Appropriations Act, 2021. Among other provisions, the Act directs the Environmental Protection Agency to develop production and consumption baselines and to phase down hydrofluorocarbon production and consumption relative to those baselines. This notice provides information related to total annual hydrofluorocarbon production and consumption between 2011 and 2013 reported to the Environmental Protection Agency's Greenhouse Gas Reporting Program as of March 30, 2020, which was the last reporting deadline for reporting year 2019 data. The notice identifies possible data gaps and requests comment on areas where additional information could improve the Agency's data on hydrofluorocarbon consumption and production in the United States for those three years. This notice also provides the Agency's initial information on hydrofluorocarbon use in applications that would receive mandatory allocations under the Act.
The Environmental Protection Agency (EPA) is interested in receiving comments on the data in this notice of data availability (NODA) to inform the Agency's regulatory process. To ensure that comments can be accounted for in an upcoming EPA proposed rule, please submit comments to the Agency by February 25, 2021.
You may send comments, identified by Docket ID No. EPA-HQ-OAR-2021-0044, by any of the following methods:
•
•
•
Andy Chang, U.S. Environmental Protection Agency, Stratospheric Protection Division, telephone number: 202-564-6658; or email address:
You may find the following suggestions helpful for preparing your comments: Explain your views as clearly as possible; describe any assumptions that you used; provide any technical information or data you used that support your views; provide specific examples to illustrate your concerns; offer alternatives; and make sure to submit your comments by the comment period deadline identified. Please provide any published studies or raw data supporting your position. Confidential Business Information (CBI) should not be submitted through
The Agency is providing information in preparation for upcoming regulatory actions under the American Innovation and Manufacturing Act of 2020 (AIM Act or Act), included in the Consolidated Appropriations Act, 2021. Among other provisions, the Act directs EPA to develop a U.S. production baseline and a U.S. consumption baseline and to phase down hydrofluorocarbon (HFC) production and consumption relative to those baselines.
EPA is seeking comment on the accuracy of the data and analyses presented in this notice and the draft reports in the docket to this notice and welcomes input on those data and potential data gaps. Data is available in this notice and will be available in the docket, and additional data will be added to the docket on February 8, 2021. Data from 2011 through 2013 will be helpful in developing the U.S. HFC baselines for production and consumption. Readers should note that EPA will only consider comments about the data presented in this notice and the draft reports provided in the docket and is not soliciting comments on any other topic through this notice. The Agency is also not seeking comment on the historic HCFC and CFC consumption and production values as the Agency already has those data and no further information is needed. Based on feedback provided through this NODA process and other stakeholder engagement, EPA intends to revise and release updated numbers for 2011-2013 at the same time the Agency issues a proposed rule to establish baselines and an HFC allocation system consistent with the AIM Act.
EPA is also providing separate documents in the docket related to the applications for which section (e)(4)(B)(iv) of the AIM Act directs the Administrator to allocate the full quantity of allowances necessary, based on projected, current, and historical trends. Similar to the data being provided related to the consumption and production baselines, EPA is providing the public with reports related to the applications listed for these mandatory allocations so that the public can view what data EPA currently has, comment on currently available information, and provide information on potential data gaps. The docket to this NODA contains documents for the following statutorily-established applications: (1) Propellants in metered dose inhalers (MDIs); (2) defense sprays; (3) structural composite preformed polyurethane foam for marine use and trailer use; (4) the etching of semiconductor material or wafers and the cleaning of chemical vapor deposition (CVD) chambers within the semiconductor manufacturing sector; and (5) on board aerospace fire suppression. These reports describe EPA's current awareness of the use of HFCs and provide information on EPA's current knowledge on projected, current, and historical trends of HFC related to these statutorily identified applications. EPA requests comment on the data and analysis in these documents.
As stated throughout this notice, EPA plans to undergo a future notice and comment rulemaking process, which will be a separate action, that will outline the Agency's approach to calculating HFC production and consumption baselines, allocating allowances in furtherance of the HFC phasedown, and defining applications for mandatory allocations. EPA will solicit public feedback on these issues through that separate notice and comment process, and therefore is not accepting public comment on these matters through this NODA. Public comments that pertain to issues beyond the scope of this NODA will not be considered. To the extent such comments are relevant to the previously referenced future and separate rulemaking, those comments should be resubmitted through that future rulemaking process in order to ensure that they are duly considered by the Agency. The list of companies in Table 2 is provided solely as an illustration of the sources of the net supply data currently in the Greenhouse Gas Reporting Program (GHGRP) for the years 2011, 2012, and 2013. The list should not be interpreted as any indication concerning future Agency decisions about the companies that will be allocated allowances pursuant to AIM Act regulations, since those are the three years defined in the AIM Act for calculating the baseline numbers. Use of AIM Act terminology in this NODA is for communication purposes only and should not be viewed as indications of how EPA will define these terms in future rulemaking actions.
The AIM Act will be implemented over time. EPA intends to provide more
EPA is announcing the availability of data related to the U.S. HFC production and consumption baselines as defined in the AIM Act. Data contained in this NODA and the associated docket is derived from EPA's GHGRP for the years 2011-2013. Some data will be provided in this notice and posted in the docket as of the date of publication of this NODA. Additional data that is denoted with an asterisk in tables provided later in this notice will be uploaded to the docket on February 8, 2021.
Under 40 CFR part 98, the GHGRP requires reporting of greenhouse gas (GHG) data and other relevant information from large GHG emission sources, fuel and industrial gas suppliers, and suppliers of carbon dioxide (CO
For the years 2011-2013, 42 companies reported HFC supply data under Subpart OO via the GHGRP (some of which owned multiple facilities). EPA anticipates at this time that the GHGRP data that will be used the most to inform the U.S. production and consumption baselines are the supplies of HFCs listed as regulated substances in the AIM Act that are reported under Subpart OO of the GHGRP.
The AIM Act states that for purposes of establishing the baselines and in implementing the statutorily required HFC phasedown, EPA shall use the statutorily provided exchange values for each regulated substance (
EPA is providing as much data as possible while respecting confidentiality determinations finalized through previous GHGRP rulemakings. Many of the data elements reported to subpart OO of the GHGRP were determined to be, and are treated as, confidential by EPA. The data presented in Tables 3 and 4, collected under subpart OO from producers, importers, and exporters of HFCs, are aggregations that shield the underlying CBI from public disclosure. On June 9, 2014, EPA issued a
EPA's CBI regulations require us to offer the opportunity to make a CBI claim to “any business which, although it has not asserted a [CBI] claim, might be expected to assert a claim if it knew EPA proposed to disclose the
In notifying GHGRP reporters of small-scale aggregations and per the June 9, 2014 FR notice, reporters are given 10 days to file for judicial review, per 40 CFR 2.205(f)(2). EPA's practice typically allows 10 business days for response or action by reporters upon notification. However, because the June 9, 2014 FR notice did not specify “business days” or “calendar days” and due to the expeditious nature of this NODA and the desire to include as much data as possible either within this notice or in the accompanying record, EPA notified reporters to respond or take action in 10 calendar days. Further, this release is similar to aggregated data released by the Agency from this business sector in the past, to which EPA has never received any concerns from submitters. Data aggregations that are currently going through the above outlined notification process are denoted with an asterisk in Tables 3 and 4 in this notice. EPA intends to add them to the docket for this NODA on February 8, 2021 after allowing reporters adequate time to review and respond to the aggregation notification.
As explained previously, the GHGRP collects and reports data related to the production of HFCs. Subpart OO defines “produce” as follows: “To produce a fluorinated GHG means to manufacture a fluorinated GHG from any raw material or feedstock chemical. Producing a fluorinated GHG includes the manufacture of a fluorinated GHG as an isolated intermediate for use in a process that will result in its transformation either at or outside of the production facility. Producing a fluorinated GHG also includes the creation of a fluorinated GHG (with the exception of HFC-23) that is captured and shipped off site for any reason, including destruction. Producing a fluorinated GHG does not include the reuse or recycling of a fluorinated GHG, the creation of HFC-23 during the production of HCFC-22, the creation of intermediates that are created and transformed in a single process with no storage of the intermediates, or the creation of fluorinated GHGs that are released or destroyed at the production facility before the production measurement at § 98.414(a).” 40 CFR 98.410(b).
This definition is similar to, but not identical to, the AIM Act definition of “produce.” The AIM Act defines the term
The GHGRP also collects data related to the destruction of HFCs. Destroyed HFCs are typically byproducts of a chemical process and are either destroyed on site or captured and shipped to a separate facility for destruction. Hazardous waste facilities also destroy HFCs that have been recovered from equipment or are otherwise used. The GHGRP has required facilities that produce or import HFCs to report the quantities that they destroy since 2010.
Six companies have reported production and/or destruction of HFCs listed in the AIM Act to the GHGRP in 2011, 2012, and 2013. The companies are listed in Table 2. EPA requests comment on whether this is the complete listing of companies who produced or destroyed HFCs in those years. The docket also contains data on the quantity equal to production minus destruction minus transformation of the AIM HFCs (other than HFC-23) on a GWP-weighted basis for 2011, 2012, and 2013. EPA is presenting aggregated information from producers and destruction facilities given the approach to releasing CBI under the GHGRP.
EPA has identified possible data gaps for HFC production and destruction in the United States for 2011, 2012, and 2013. First, the GHGRP does not collect data on the production of HFC-23 that is used, for example, in very low temperature refrigeration, blast chillers, semiconductor etching, and as a fire suppression agent.
Second, as discussed above, the GHGRP data on the destruction of HFCs during 2011, 2012, and 2013 may be incomplete, because facilities that destroyed but that did not produce or import fluorinated GHGs were not required to report the quantities destroyed in those years.
EPA specifically encourages comment and submission of data on these potential data gaps and whether there are other gaps that the Agency has not considered.
The AIM Act defines consumption as “a quantity equal to the difference between (A) a quantity equal to the sum of—(i) the quantity of that regulated substance produced in the United States; and (ii) the quantity of the regulated substance imported into the United States; and (B) the quantity of the regulated substance exported from the United States.” In more general terms, the net supply of a substance to the United States, as that term is understood under the GHGRP, may be helpful in developing consumption baselines under the AIM Act.
Under the GHGRP, each importer and exporter of HFCs must submit an annual report that includes total mass in metric tons of each HFC imported and exported, including each HFC in a product that makes up more than 0.5 percent of the product by mass. Each importer of HFCs must also report the total mass sold or transferred for use in processes resulting in the transformation or destruction of the HFC. HFCs are also imported and exported in equipment such as pre-charged air conditioners or in foams. Subpart QQ of the GHGRP collects data on these imports and exports.
Thirty-eight companies have reported importing and nineteen companies have reported exporting HFCs to the GHGRP in the years 2011, 2012, and 2013. These companies are listed in Table 2. EPA requests comment on whether this is the complete listing of companies to have imported and exported HFCs in those years.
The data presented in Tables 3 and 4 are large-scale aggregations of data. Data aggregations not included in the tables are denoted with an asterisk. EPA intends to provide updated data in the docket for this NODA on February 8, 2021, after providing reporters time to review and respond to the aggregation notification.
EPA has also reviewed some of the publicly available import and export data that are available for purchase. EPA is not relying on such sources for this analysis. However, EPA is interested in understanding the extent to which trade data is publicly available. EPA encourages commenters to provide information concerning any additional publicly available data sources on imports of which they are aware.
EPA has identified at least two possible data gaps with respect to HFC imports and exports into the United States for 2011, 2012, and 2013. First, companies that import or export less than 25,000 metric tons CO
EPA is also seeking comment on documents in the docket related to the applications for which section (e)(4)(B)(iv) of the AIM Act directs the Administrator to allocate the full quantity of allowances necessary, based on projected, current, and historical trends. The docket to this NODA contains documents presenting data related to the following applications: (1) Propellants in MDIs; (2) defense sprays; (3) structural composite preformed polyurethane foam for marine use and trailer use; (4) the etching of semiconductor material or wafers and the cleaning of CVD chambers within the semiconductor manufacturing sector; and (5) on board aerospace fire suppression. The descriptions below reflect EPA's current understanding of these applications, but EPA intends to further consider how to define these applications in its future proposal under the AIM Act.
• MDIs are handheld pressurized inhalation systems that deliver small, precisely measured therapeutic doses of medication directly to the airways of a patient, such as when a patient requires medication to relieve exacerbations of asthma. The pharmaceutical industry historically used CFCs as the propellant for MDIs before introducing HFC
• Defense sprays are aerosol sprays intended for self-defense, including pepper spray and animal deterrent sprays (
• Structural composite preformed polyurethane foam uses a process that fills a precast fabric into shape with expanding foam and provides reinforcement with fibers and resin to make composite materials in building equipment such as boats and on-road trailers. The foam blowing agent used in this process historically was HCFC-22 and more recently has been HFC-134a.
• Semiconductor manufacturers utilize HFCs, primarily HFC-23, in two critical processes: To create intricate circuitry patterns on silicon wafers (dry etching) and to rapidly clean CVD chambers.
• For onboard aerospace fire suppression, EPA is providing information on HFCs used in onboard civil aviation fire suppression systems, including on mainline and regional passenger and freighter aircraft. These systems have historically used ozone-depleting halons, although HFCs, specifically HFC-236fa and HFC-227ea, are used in lavatory trash receptable systems in new aircraft. EPA encourages comments specifically on other relevant onboard aerospace fire suppression applications that the Agency has not identified.
The reports in the docket describe EPA's current awareness of the use of HFCs and provide information on EPA's current knowledge on projected, current, and historical trends of HFC related to these statutorily identified applications. EPA requests comment on
Export-Import Bank of the United States.
Notice of new system of records.
The Export-Import Bank of the United States (EXIM) proposes to add a new electronic System of Records, EXIM CRM (Customer Relationship Management), subject to the Privacy Act of 1974, as amended. This notice is necessary to meet the requirements of the Privacy Act which is to publish in the
Comments must be received on or before March 15, 2021 to be assured of consideration.
Comments may be submitted electronically on
Tomeka Wray, Export-Import Bank of the United States, 811 Vermont Ave. NW, Washington, DC 20571. Telephone number: 202.565.3996.
The EXIM CRM system is used to manage relationships with potential or current customers, partners, and other organizations and agencies involved in EXIM deals or whom EXIM works with in supporting U.S. exporters. EXIM CRM is comprised of a cloud-based Salesforce application and a cloud-based HubSpot module connection integrating the HubSpot database to the Salesforce API.
EIB 21-01 EXIM CRM
EIB 21-01 EXIM CRM, EXIM CRM
Unclassified
EXIM CRM's Salesforce application is hosted in the Salesforce Government Cloud. The physical location and technical operation of the system is at the Salesforce Government Cloud's Chicago (Elk Grove Village, IL) and Washington (Ashburn, VA) data centers. The HubSpot application uses cloud storage and computes services from Amazon Web Services (AWS) and Google Cloud Platform (GCP). HubSpot's production infrastructure is centralized in AWS and GCP cloud hosting facilities, and is managed by the HubSpot engineering team.
Senior Vice President, Office of Small Business, Export-Import Bank of the United States, 811 Vermont Ave. NW, Washington, DC 20571.
The Export-Import Bank requests the information in this application under the following authorizations:
Authority of the Export-Import Bank Act of 1945, as amended (12 U.S.C. 635
The purpose of this system is to allow EXIM staff to manage relationships and track interactions with potential and existing customers, partners (
EXIM CRM is comprised of the following functional modules:
• Salesforce Customer Relationship Management
• Salesforce Partner Relationship Management
• HubSpot Marketing module, Enterprise version
EXIM utilizes HubSpot Marketing Hub, integrated with Salesforce, for email automation and to host landing pages and contact forms used by the public when requesting information or follow up from EXIM.
The EXIM CRM system will contain current or potential customer information; partner organization information; EXIM employee and contractor information.
EXIM CRM contains information related to individuals and corporate entities that are potential, current, or former customers, partners, or other organizations and agencies involved in EXIM transactions or whom EXIM works with in supporting U.S. exporters. The EXIM CRM system contains information on EXIM employees and contractors who are users of the system.
For customer, partner, and other organization or agency information—company name, individual contact names, email address, race, ethnicity, business address, phone number, company website, number of employees, annual revenue, DUNS Number, TINS, IBANs, NAICS Code, industry, products exported, EXIM transaction number, EXIM Master Guarantee Agreement Number, EXIM Delegated Authority Lender Agreement Number.
For EXIM employees and contractors—individual name, work email address, phone number.
The record information contained in EXIM CRM is obtained using one of three methods: Manual entry, direct database connection to supply the required information, or through importing source flat files to the EXIM CRM database.
In addition to those disclosures that are generally permitted under 5 U.S.C. 552a(b) of the Privacy Act, all or a portion of the records or information contained in this system may be disclosed to authorized entities, as is determined to be relevant and necessary, outside EXIM as a routine use pursuant to 5 U.S.C. 552a(b)(3) as follows:
a. For EXIM employees to support current or potential customers.
b. For EXIM employees to support current or potential partners.
c. To lenders for the purposes of applying for and servicing an EXIM loan guarantee.
d. To registered insurance brokers for the purpose of applying for and servicing an EXIM export credit insurance policy.
e. To provide information to a Federal agency partner including the Department of Commerce (DOC), Small Business Administrations (SBA), U.S. Trade & Development Agency (USTDA), and Development Finance Corporation (DFC) based on customer need for the purpose of linking U.S. businesses to available government business resources.
f. To provide information to partner state governments, local governments, non-profit business development and assistance organizations based on customer need for the purpose of linking U.S. businesses to exporting and other business resources.
g. To provide information to a Congressional Office from the record of an individual in response to an inquiry from that Office.
h. To disclose information to EXIM contractors supporting EXIM authorized activities.
i. For investigations of potential violations of law.
j. For litigation.
k. By National Archives and Records Administration for record management inspections in its role as Archivist.
l. For data breach and mitigation response.
m. To disclose pertinent information to the appropriate Federal, State, or local agency responsible for investigating, prosecuting, enforcing, or implementing a statute, rule, regulation or another purpose, when the disclosing agency becomes aware of an indication of a violation or potential violation of civil or criminal law or regulations.
On electronic digital media in encrypted format within the Salesforce Government Cloud controlled environment and accessed only by authorized personnel.
Information may be retrieved by business entity name, individual name, or email address.
All records shall be retained and disposed of in accordance with EXIM directives, EXIM's Record Schedule DAA-GRS2017-0002-0002, and General Records Schedule GRS 6.5 Item 020.
Information will be stored in electronic format within EXIM CRM. EXIM CRM has configurable, layered data sharing and permissions features to ensure users have proper access. Access to Salesforce and HubSpot is restricted to EXIM personnel who need it for their job. Authorized users have access only to the data and functions required to perform their job functions. Designated personnel at specific lender, insurance broker, and Regional Export Promotion Program (REPP) partner organizations are granted limited access to EXIM CRM through Salesforce's Partner Portal. This access is managed via Salesforce's and HubSpot's System Administration, User, and security functions.
Salesforce Government Cloud is compliant with the Federal Risk and Authorization Management Program (FedRAMP). The PII information in EXIM CRM will be encrypted and stored in place, and HTTPS protocol will be employed in accessing Salesforce.
HubSpot is hosted in AWS and GCP environments that are FedRAMP compliant, and ISO 27001 certified. The PII information in EXIM CRM will be encrypted and stored in place, and HTTPS protocol will be employed in accessing HubSpot.
Individuals wishing to make an amendment of records about them should write to: Senior Vice President, Office of Small Business, Export-Import Bank of the United States, 811 Vermont Ave. NW, Washington, DC 20571.
And provide the following information:
Individuals wishing to contest records about them should write to: Senior Vice President, Office of Small Business, Export-Import Bank of the United States, 811 Vermont Ave. NW, Washington, DC 20571.
And provide the following information:
Individuals wishing to determine whether this system of records contains information about them may do so by writing to: Senior Vice President, Office of Small Business, Export-Import Bank of the United States, 811 Vermont Ave. NW, Washington, DC 20571.
And provide the following information:
None.
None.
Federal Communications Commission.
Notice and request for comments.
As part of its continuing effort to reduce paperwork burdens, and as required by the Paperwork Reduction Act of 1995 (PRA), the Federal Communications Commission (FCC or Commission) invites the general public and other Federal agencies to take this opportunity to comment on the following information collections. Comments are requested concerning: Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; the accuracy of the Commission's burden estimate; ways to enhance the quality, utility, and clarity of the information collected; ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology; and ways to further reduce the information collection burden on small business concerns with fewer than 25 employees. The FCC may not conduct or sponsor a collection of information unless it displays a currently valid Office of Management and Budget (OMB) control
Written PRA comments should be submitted on or before April 12, 2021. If you anticipate that you will be submitting comments but find it difficult to do so within the period of time allowed by this notice, you should advise the contact listed below as soon as possible.
Direct all PRA comments to Cathy Williams, FCC, via email to
For additional information about the information collection, contact Cathy Williams at (202) 418-2918.
Section 20.21(f)(1)(iv)(A)(2)—In order to ensure that consumers are properly informed about which devices are suitable for their use and how to comply with our rules, the Commission required that all Consumer Signal Boosters certified for fixed, in-building operation include a label directing consumers that the device may only be operated in a fixed, in-building location. The Verizon Petitioners state that this additional labeling requirement is necessary to inform purchasers of fixed Consumer Signal Boosters that they may not lawfully be installed and operated in a moving vehicle or outdoor location. We recognize that our labeling requirement imposes additional costs on entities that manufacture Consumer Signal Boosters; however, on balance, we find that such costs are outweighed by the benefits of ensuring that consumers purchase appropriate devices. Accordingly, all fixed Consumer Signal Boosters, both Provider-Specific and Wideband, manufactured or imported on or after one year from the effective date of the rule change must include the following advisory (1) in on-line point-of-sale marketing materials, (2) in any print or on-line owner's manual and installation instructions, (3) on the outside packaging of the device, and (4) on a label affixed to the device: “This device may be operated ONLY in a fixed location for in-building use.”
Section 1.1307(b)(1)—Radiofrequency (RF). This rule requires that a label is affixed to the transmitting antenna that provides adequate notice regarding potential RF safety hazards and references the applicable FCC-adopted limits for RF exposure. Provider Reporting Requirement: In order to facilitate review of wireless providers' behavior regarding Consumer Signal Boosters, the R&O requires that on March 1, 2015, and March 1, 2016, all nationwide wireless providers publicly indicate their status regarding consent for each Consumer Signal Booster that has received FCC certification as listed in a Public Notice to be released by the Wireless Telecommunications Bureau 30 days prior to each reporting date. For each listed Consumer Signal Booster, wireless providers should publicly indicate whether they (1) consent to use of the device; (2) do not consent to use of the device; or (3) are still considering whether or not they will consent to the use of the device.
Registration Requirements: Section 20.21(a)(2)—The rules require signal booster operators to register Consumer Signal Boosters, existing and new, with their serving wireless providers prior to operation. This is a mandatory requirement to continue or begin operation of a Consumer Signal Booster. The registration requirement will aid in interference resolution and facilitate provider control over Consumer Signal Boosters. The information collection contained in Section 20.21(a)(2) affects individuals or households; thus, there are impacts under the Privacy Act. However, the government is not directly collecting this information and the R&O directs carriers to protect the information to the extent it is considered Customer Proprietary Network Information (CPNI).
Section 20.21(h)—By March 1, 2014, all providers who voluntarily consent to the use of Consumer Signal Boosters on their networks must establish a free registration system for their subscribers. At a minimum, providers must collect (1) the name of the Consumer Signal Booster owner and/or operator, if different individuals; (2) the make, model, and serial number of the device;
Certification Requirements: Sections 20.3, 20.21(e)(2), 20.21(e)(8)(i)(G), 20.21(e)(9)(i)(H), 90.203—These rules, in conjunction with the R&O, require that signal booster manufacturers demonstrate that they meet the new technical specifications using the existing and unchanged equipment authorization application, including submitting a technical document with the application for FCC equipment authorization that shows compliance of all antennas, cables and/or coupling devices with the requirements of § 20.21(e). The R&O further provides that manufacturers must make certain certifications when applying for device certification. Manufacturers must provide an explanation of all measures taken to ensure that the technical safeguards designed to inhibit harmful interference and protect wireless networks cannot be deactivated by the user. The R&O requires that manufacturers of Provider-Specific Consumer Signal Boosters may only be certificated with the consent of the licensee so the manufacturer must certify that it has obtained such consent as part of the equipment certification process. The R&O also requires that if a manufacturer claims that a device will not affect E911 communications, the manufacturer must certify this claim during the equipment certification process. Note: The “application for equipment” certification requirements are met under OMB Control Number 3060-0057, FCC Form 731.
Antenna Kitting Documentation Requirement: Sections 20.21(e)(8)(i)(G), 20.21(e)(9)(i)(H)—The rules require that all consumer boosters must be sold with user manuals specifying all antennas and cables that meet the requirements of this section. Part 90 Licensee Consent Documentation Requirement: Section 90.219(b)(1)(i)—This rule requires that non-licensees seeking to operate part 90 signal boosters must obtain the express consent of the licensee(s) of the frequencies for which the device or system is intended to amplify. The rules further require that such consent must be maintained in a recordable format that can be presented to a FCC representative or other relevant licensee investigating interference.
Cross-reference to Other Rule Parts: Sections 22.9, 24.9, and 27.9—Operation of a consumer signal booster under Parts 22, 24, and 27 of the Commission's rules must also comply with section 20.21 of the Commission's rules, including all relevant information collections.
Federal Deposit Insurance Corporation (FDIC).
Notice of the FDIC's response to exception requests pursuant to the Recordkeeping for Timely Deposit Insurance Determination rule.
In accordance with its rule regarding recordkeeping for timely deposit insurance determination, the FDIC is providing notice that it has granted time-limited exception relief to covered institutions from: The information technology system and recordkeeping requirements applicable to certain formal revocable and irrevocable trust accounts; the information technology system requirements, general recordkeeping requirements, and alternative recordkeeping requirements applicable to certain deposit accounts for which the covered institution must perform data clean up to assign an appropriate ownership right and capacity code to the subject accounts and related system updates; the information technology system requirements and general recordkeeping requirements to certain internal (work-in-process) deposit accounts for which the covered institution's information technology system is not yet capable of calculating deposit insurance within 24 hours after the appointment of the FDIC as receiver; and the information technology system requirements, general recordkeeping requirements, and alternative recordkeeping requirements for a limited number of deposit accounts held in the covered institution's trust department, which acts in an agency or fiduciary capacity.
The FDIC's grants of exception relief were effective as of February 3, 2021.
Benjamin Schneider, Section Chief, Division of Complex Institution Supervision and Resolution;
The FDIC granted two time-limited exception requests to multiple covered institutions and three time-limited exception requests to a covered institution pursuant to the FDIC's rule entitled “Recordkeeping for Timely Deposit Insurance Determination,” codified at 12 CFR part 370 (part 370).
These grants of relief will be subject to ongoing FDIC review, analysis, and verification during the FDIC's routine part 370 compliance tests. The FDIC presumes each covered institution is
The FDIC granted time-limited exception relief from the information technology system requirements set forth in § 370.3 and certain recordkeeping requirements set forth in § 370.4(b)(2) of the rule to two covered institutions for up to 18 months from their compliance date. These covered institutions requested exception relief in order to review records, perform customer outreach where necessary, and update recordkeeping and information technology systems in order to maintain a unique identifier of a grantor in the deposit account records for a limited number of deposit accounts held in connection with a formal revocable or irrevocable trust that would be insured as described in 12 CFR 330.10 or 12 CFR 330.13.
These covered institutions represented that they had not maintained a unique identifier (which may be, but is not required to be, a government issued identification number such as a social security number or tax identification number) for a grantor of a formal trust with transactional features in its records for the subject accounts. The covered institutions believe that they can obtain the information needed to maintain a unique identifier for such a grantor through a review of trust-related documents and customer outreach, but that information technology system updates are also necessary to ensure a unique identifier for each grantor can be maintained in deposit account records.
In connection with the FDIC's grants of relief, these covered institutions have represented that they will maintain the capability to place holds on the deposit accounts subject to the exception in the event of failure until a deposit insurance determination can be made and place all such accounts into the pending file of its part 370 output files during the relief period. As conditions of relief, these covered institutions must submit a status report to
The FDIC granted time-limited exception relief from the information technology system requirements set forth in § 370.3, general recordkeeping requirements set forth in § 370.4(a), and alternative recordkeeping requirements set forth in § 370.4(b) of the rule to a covered institution for up to 12 months from the granted relief date. The covered institution requested exception relief to perform data cleanup of account records, make system updates, and assign ownership, right and capacity codes to a limited number of various deposit accounts. These data cleanup and system update efforts are needed so that the covered institution's deposit account records and part 370-compliant information technology system capabilities can be used to calculate deposit insurance for the subject accounts.
The covered institution has identified data quality issues that led to inappropriate ownership, right and capacity codes being assigned to various deposit accounts. Data quality issues included inappropriate ownership, right and capacity codes being assigned to the subject accounts due to system logic misidentifying keywords in account titles. For example, a single account opened by `James Bond' might be assigned the public bond account ownership right and capacity code of PBA. In other instances, a limited number of accounts were not assigned an ownership right and capacity code due to unclear account titling, insufficient records, and general data quality issues.
The covered institution requested time-limited relief to review records, assign the appropriate ownership right and capacity code, and ensure its systems can calculate deposit insurance for the subject accounts. In addition, the covered institution represented that it will be able to identify the applicable ownership right and capacity code upon the completion of remediation efforts for the majority of accounts.
In connection with the FDIC's grant of relief, the covered institution will investigate the reason accounts were placed into the pending file of the covered institution's part 370 output files, review account records, write new system logic to ensure the applicable ownership right and capacity code is applied to the subject accounts, and, in the event of its failure, ensure that holds can be placed on all deposit accounts subject to this time-limited exception relief until sufficient information is obtained to enable calculation of deposit insurance coverage. As conditions of relief, the covered institution must submit a status report to
The FDIC granted time-limited exception relief from the information technology requirements set forth in § 370.3 and general recordkeeping requirements set forth in § 370.4(a) of the rule to a covered institution for up to 18 months from its compliance date for certain internal (work-in-process) accounts that the covered institution's information technology system cannot calculate deposit insurance within 24 hours of failure. The covered institution identified these internal accounts as accounts utilized for functions such as clearing, settlement, suspense or work-in-process. Such accounts do not qualify for alternative recordkeeping.
In connection with the FDIC's grant of relief, the covered institution described the internal (work-in-process) accounts in detail, including, account titling, the number of accounts, account balances, data and trends regarding transaction settlement cycles, business-as-usual processes in place, and zero-balance accounts. The covered institution has represented that it will place all such accounts into the pending file of the covered institution's part 370 output files; document procedures and processes to upload the data into the covered institution's deposit insurance calculation engine; and certify that the covered institution can obtain information from internal business lines necessary to make a deposit insurance determination as soon as possible after appointment of the FDIC as receiver.
As conditions of relief, the covered institution must submit a status report to
The FDIC granted time-limited exception relief from the information technology requirements set forth in § 370.3, general recordkeeping requirements set forth in § 370.4(a), and alternative recordkeeping requirements set forth in § 370.4(b) of the rule for up to 18 months from its compliance date for a limited number of deposit accounts for which its trust department acts in an agency or fiduciary capacity. The covered institution's trust department
In performing such services, the trust department opens deposit accounts that hold funds from uninvested cash, sweeps, or other transactions on behalf of its customers. The account records for the subject accounts, which the trust department maintains on a separate system of record, reflect that funds are held by the covered institution's trust department as an agent or fiduciary for its clients.
The covered institution must perform system enhancements to assign an ownership, right and capacity code to the subject accounts and up the trust department's systems of record in order to calculate deposit insurance. The covered institution represented that it must review account records to assign an ownership, right and capacity code to the subject accounts; input missing information or data into the trust department's systems of record; enhance information technology system logic; develop new account opening procedures at account onboarding; and if necessary, amend trust agreements and provide notices to third-party recordkeepers for accounts that qualify for alternative recordkeeping treatment with transactional features.
In connection with the FDIC's grant of relief, the covered institution will ensure that, in the event of its failure, holds can be placed on all deposit accounts subject to this time-limited exception relief until sufficient information is obtained to enable calculation of deposit insurance coverage. As conditions of relief, the covered institution must submit a status report to
Federal Deposit Insurance Corporation (FDIC).
Notice of the FDIC's response to exception requests pursuant to the Recordkeeping for Timely Deposit Insurance Determination rule.
In accordance with its rule regarding recordkeeping for timely deposit insurance determination, the FDIC is providing notice that it has granted time-limited exception relief to covered institutions until March 31, 2022, from information technology system requirements and recordkeeping requirements for principal and interest payments held in mortgage servicing accounts for which the covered institutions act as servicers or sub-servicers. The recommended relief will provide the covered institutions additional time to remediate their servicing platforms and internal processing capabilities pending further direction from the FDIC.
The FDIC's grant of exception relief was effective as of February 4, 2021.
Benjamin Schneider, Section Chief, Division of Complex Institution Supervision and Resolution;
The FDIC granted time-limited exception relief to multiple covered institutions and pursuant to the FDIC's rule entitled “Recordkeeping for Timely Deposit Insurance Determination,” codified at 12 CFR part 370 (part 370).
This grant of relief will be subject to ongoing FDIC review, analysis, and verification during the FDIC's routine part 370 compliance tests. The FDIC presumes each covered institution is meeting all the requirements set forth in the Rule unless relief has otherwise been granted. This grant of relief may be rescinded or modified upon: discovery of misrepresentation; material change of
The FDIC granted time-limited exception relief to covered institutions up to March 31, 2022, from the information technology system requirements of 12 CFR 370.3 and the recordkeeping requirements of 12 CFR 370.4 for principal and interest payments held in mortgage servicing accounts for which the covered institutions act as servicers or sub-servicers. The recommended relief will provide the covered institutions additional time to remediate their servicing platforms and internal processing capabilities pending further direction from the FDIC.
Pursuant to 12 CFR 330.7(d), mortgage principal and interest payments are insured for the cumulative balance paid into the account by the mortgagors, up to the limit of the standard maximum deposit insurance amount per mortgagor. If a covered institution does not maintain deposit records that enable it to calculate deposit insurance, the covered institution must maintain, at a minimum, the following in its deposit account records: (i) The unique identifier of the account holder; and (ii) the corresponding “pending reason” code listed in pending file format set forth in Appendix B to Part 370.
The covered institutions service the mortgage loans using platforms hosted by third party vendors. Principal and interest payments from mortgagors are placed into the mortgage servicing accounts with the funds held in custody for the investors that own the underlying mortgages. Because the loans are tracked and managed as a group by pool, the servicing platforms do not have a mechanism to allocate the mortgage servicing accounts balances to specific mortgagors. As a result, the covered institutions do not have a process to input mortgagor principal and interest data into their information technology systems to calculate deposit insurance coverage for the mortgage servicing accounts.
Remediation efforts are underway and include the development of a business requirements document, system updates, implementation, and testing. However, a number of the covered institutions have asked the FDIC for additional clarification of the part 370 recordkeeping rule with respect to the mortgage servicing accounts to determine how to produce borrower account level principal and interest data on a date of failure. Given the complexities of payments to investors under the agreements with the covered institutions, additional information from the FDIC is needed to finalize programming logic and various business requirements documents between the Banks and their service providers.
The FDIC's grant of relief is subject to the condition that each covered institution must submit within 60 days, upon receipt of additional information from the FDIC with respect to the part 370 processing for the mortgage servicing account ownership right and capacity code, a status report setting forth the project plan and timeline for integrating the mortgage servicing account ownership right and capacity code processing capabilities into the covered institution's information technology system.
The FDIC reserves the right to rescind or modify the grant of relief upon any material change of circumstances or conditions related to the accounts subject to this request.
The Federal Deposit Insurance Corporation (FDIC or Receiver), as Receiver for each of the following insured depository institutions, was charged with the duty of winding up the affairs of the former institutions and liquidating all related assets. The Receiver has fulfilled its obligations and made all dividend distributions required by law.
The Receiver has further irrevocably authorized and appointed FDIC-Corporate as its attorney-in-fact to execute and file any and all documents that may be required to be executed by the Receiver which FDIC-Corporate, in its sole discretion, deems necessary, including but not limited to releases, discharges, satisfactions, endorsements, assignments, and deeds. Effective on the termination dates listed above, the Receiverships have been terminated, the Receiver has been discharged, and the Receiverships have ceased to exist as legal entities.
Food and Drug Administration, HHS.
Notice; establishment of a public docket; request for comments.
The Food and Drug Administration (FDA or Agency) announces a forthcoming public advisory committee meeting of the Vaccines and Related Biological Products Advisory Committee (the committee). The general function of the committee is to provide advice and recommendations to FDA on regulatory issues. The meeting will be open to the public. FDA is establishing a docket for public comment on this document. Consistent with FDA's regulations, this notice is being published with less than 15 days prior to the date of the meeting based on a determination that convening a meeting of the Vaccines and Related Biological Products Advisory Committee as soon as possible is warranted. This
The meeting will be held on February 26, 2021, from 9 a.m. Eastern Time to 5:30 p.m. Eastern Time.
Please note that due to the impact of this COVID-19 pandemic, all meeting participants will be joining this advisory committee meeting via an online teleconferencing platform. Answers to commonly asked questions including information regarding special accommodations due to a disability may be accessed at:
FDA is establishing a docket for public comment on this meeting. The docket number is FDA-2021-N-0173. The docket will close on February 25, 2021. Submit either electronic or written comments on this public meeting by February 25, 2021. Please note that late, untimely filed comments will not be considered. Electronic comments must be submitted on or before February 25, 2021. The
Comments received on or before February 18, 2021, will be provided to the committee. Comments received after February 18, 2021, and by February 25, 2021, will be taken into consideration by FDA. In the event that the meeting is cancelled, FDA will continue to evaluate any relevant applications, submissions, or information, and consider any comments submitted to the docket, as appropriate.
You may submit comments as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” FDA will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Prabhakara Atreya or Kathleen Hayes, Center for Biologics Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 6306, Silver Spring, MD 20993-0002,
FDA intends to make background material available to the public no later than 2 business days before the meeting. If FDA is unable to post the background material on its website prior to the meeting, background material will be made publicly available on FDA's website at the time of the advisory committee meeting. Background material and the link to the online teleconference meeting room will be available at
For press inquiries, please contact the Office of Media Affairs at
FDA welcomes the attendance of the public at its advisory committee meetings and will make every effort to accommodate persons with disabilities. If you require accommodations due to a disability, please contact Prabhakara Atreya or Kathleen Hayes (
FDA is committed to the orderly conduct of its advisory committee meetings. Please visit our website at:
Notice of this meeting is given under the Federal Advisory Committee Act (5 U.S.C. app. 2).
Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).
Notice.
In compliance with the Paperwork Reduction Act of 1995, HRSA submitted an Information Collection Request (ICR) to the Office of Management and Budget (OMB) for review and approval. Comments submitted during the first public review of this ICR will be provided to OMB. OMB will accept further comments from the public during the review and approval period. OMB may act on HRSA's ICR only after the 30 day comment period for this notice has closed.
Comments on this ICR should be received no later than March 15, 2021.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
To request a copy of the clearance requests submitted to OMB for review, email Lisa Wright-Solomon, the HRSA Information Collection Clearance Officer at
The HPSL Program, as authorized by Public Health Service (PHS) Act sections 721-722 and 725-735, provides long-term, low-interest loans to students attending schools of medicine, osteopathic medicine, dentistry, veterinary medicine, optometry, podiatric medicine, and pharmacy. The LDS Program, as authorized by PHS Act sections 721-722 and 724-735, provides long-term, low interest loans to students attending schools of allopathic medicine, osteopathic medicine, podiatric medicine, dentistry, optometry, pharmacy, and veterinary medicine. The PCL Program, as authorized by PHS Act sections 721-723 and 725-735, provides long-term, low interest loans to students attending schools of allopathic medicine and osteopathic medicine to practice primary health care. The NSL Program, as authorized by PHS Act sections 835-842, provides long-term, low-interest loans to students who attend eligible schools of nursing in programs leading to a diploma degree, an associate degree, a baccalaureate degree, or a graduate degree in nursing. These programs also have a number of recordkeeping and reporting requirements for academic institutions and loan applicants. The applicable requirements for these programs are outlined in 42 CFR 57.201-218 and 57.301-318. HRSA proposes revisions to the Annual Operating Report (AOR)-HRSA Form 501 completed by institutions participating in the HPSL, LDS, PCL, and NSL programs to obtain additional information about those institutions and their student borrowers.
A 60-day notice published in the
The AOR-HRSA Form 501 provides HHS with information from participating schools relating to HPSL, LDS, PCL and NSL program operations and financial activities. The proposed revisions to the AOR include the addition of a part-time option to select questions to allow institutions to report data on their part-time students, who are eligible to receive funding through the NSL program.
Specifically, the “part-time” option will be added to the following questions for the NHL program:
• Question 3, page 1A of the non-PCL section of the AOR (total full-time enrollment for the Nursing discipline for the academic year−NSL loan recipients),
• Question 13 (total number of full time graduates−NSL loan recipients) at the school during the current reporting period),
• Question 14 (total number of full time NSL graduates−NSL loan recipients) during the current reporting period who indicate intent to serve in a rural area),
• Question 15b (of the total graduates reported in question 15a, the number of full-time NSL graduates−NSL loan recipients in academic year 20XX-20XX serving in medically underserved communities),
• Question 15c (of the total graduates reported in question 15a, the number of Full-Time NSL graduates—NSL loan recipients in academic year 20XX—20XX serving in primary care), and
• Question 15d (of the total graduates in question 15a, the number of full-time NSL graduates−NSL loan recipients in Academic Year 20XX-20XX who entered the field for which they received their degree).
HRSA also proposes to revise the AOR-HRSA Form 501 form to include four additional questions at the bottom of Page 1A of all AORs:
• 16a. Are you a Community College?
• 16b. Are you a Historically Black College or University?
• 16c. Are you a Tribal college or university? and
• 16d. Are you an institution located in a rural area?
In addition, HRSA proposes to revise Page 4 (the excess cash worksheet) of the AOR-HRSA Form 501 form to limit the grantees' ability to make projections to 1 year. This proposed revision will allow HRSA to improve the overall management of funding.
HRSA specifically requests comments on (1) the necessity and utility of the proposed information collection for the proper performance of the agency's functions, (2) the accuracy of the estimated burden, (3) ways to enhance the quality, utility, and clarity of the information to be collected, and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden.
Office of the Assistant Secretary for Health (OASH), Office of the Secretary, Department of Health and Human Services (HHS).
Request for information.
The Office of the Assistant Secretary for Health (OASH) in the Department of Health and Human Services seeks to obtain information regarding the current state of the science and technology to accelerate the pace of innovative solutions for the diagnosis of Lyme disease. A set of questions is available in the
To be considered, comments must be received electronically at the email address provided below, no later than 5:00 p.m. Eastern Time (ET) March 15, 2021.
Individuals are encouraged to submit responses electronically to Dr. Kristen Honey, Senior Advisor to the Assistant Secretary for Health, 200 Independence Avenue SW, Washington, DC 20201,
The HHS Lyme Innovation initiative is a patient-centered, data-driven approach to the threat of Lyme disease and tick-borne diseases. Lyme disease affects more than 300,000 people in the U.S. each year and accounts for more than 70% of all vector-borne diseases in our country. Lyme and other tick-borne diseases cost the U.S. economy billions of dollars annually.
The HHS Lyme Innovation initiative uses strategic public-private partnerships to accelerate advancements in Lyme disease and other tick-borne diseases. The Lyme Innovation initiative aims to build commitment to patient-centered innovations, identify ways to collect and share data while raising awareness, accelerate the discovery of next-generation diagnostic tools and technologies, and lower barriers across all phases of development, testing, and implementation. The recommendations of the Tick-Borne Disease Working Group to HHS inform the Lyme Innovation initiative. The Lyme Innovation initiative represents one way that HHS is executing the strategies described in “A National Public Health Framework for the Prevention and Control of Vector-Borne Diseases in Humans.”
HHS has entered into a public-private partnership with the Steven and Alexandra Cohen Foundation to form the LymeX Innovation Accelerator (LymeX). LymeX will accelerate the Lyme Innovation initiative's progress and strategically advance tick-borne-disease solutions in direct collaboration with Lyme disease patients, patient advocates, and diverse stakeholders. A primary goal of the LymeX partnership and the Framework is the development of new diagnostic technologies for Lyme disease.
The Centers for Disease Control and Prevention (CDC) website (
Serologic tests for diagnosis of Lyme disease have technical limitations. Antibodies may not be produced by the immune system early enough or in high enough quantities to meet the detection limit of these tests (
Serology tests are also not capable of determining if there is an active infection. As antibodies normally persist for months or even years after the infection is gone, serologic testing cannot be used to determine a cure. Additionally, cross-reactions between serologic tests for Lyme disease and those for other infectious diseases can also yield false positive results.
These limitations of serological testing compound the scientific challenges in identifying specific etiologies for Post-Treatment Lyme Disease Syndrome (PTLDS), which is characterized by persistence of symptoms for more than 6 months following treatment with oral antibiotics. Improvements in Lyme disease diagnostics would enable better clinical management of PTLDS patients as well.
HHS has identified an area of known need in developing more advanced diagnostic tests that diagnose infection at all stages of Lyme disease. Therefore, the LymeX partnership is embarking on a series of initiatives, including prize challenges to develop new diagnostic tests for Lyme disease. This RFI is intended to gather information on the current state of the science and development landscape for new diagnostic tests from the entrepreneurs, scientists, and physicians who will develop and use them.
We encourage responders to answer the following questions:
• What challenges/barriers exist for the development and validation of innovative diagnostic tests for Lyme disease?
• What types of diagnostic technologies are being developed (or could be developed or adapted) to detect Lyme disease, including technologies and breakthroughs adapted from COVID-19 diagnostics with potential applications for Lyme disease (
• What emerging technologies (
• What analyte (
• What is the optimal sample type (
• What challenges exist in the implementation and use of Lyme disease diagnostic testing in clinical practice?
• What role can or should public-private partnerships play in accelerating
This information will inform the development of the HHS Lyme Innovation initiative and the LymeX public-private partnership to create meaningful incentives to develop or validate new diagnostic tests for Lyme disease.
Office of the Secretary, HHS.
Notice.
In compliance with the requirement of the Paperwork Reduction Act of 1995, the Office of the Secretary (OS), Department of Health and Human Services, is publishing the following summary of a proposed collection for public comment.
Comments on the ICR must be received on or before April 12, 2021.
Submit your comments to
When submitting comments or requesting information, please include the document identifier 0990-New-60D, and project title for reference, to Sherrette Funn, Reports Clearance Officer,
Interested persons are invited to send comments regarding this burden estimate or any other aspect of this collection of information, including any of the following subjects: (1) The necessity and utility of the proposed information collection for the proper performance of the agency's functions; (2) the accuracy of the estimated burden; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) the use of automated collection techniques or other forms of information technology to minimize the information collection burden.
Annual submission of the FPAR is required of all Title X family planning services grantees for purposes of monitoring and reporting program performance (45 CFR part 74 and 45 CFR part 92). The FPAR is the only source of annual, uniform reporting by all grantees funded under Section 1001 of the Title X Public Health Service Act. Similar to the previous FPAR, FPAR 2.0 will provide consistent, national-level data on the Title X Family Planning program and its users. OPA will be able to assemble and analyze comparable and relevant program data to answer questions about the characteristics of the population served, the provision and use of services, and the impact of the program on certain family planning outcomes. FPAR 2.0 will also collect a standard set of data elements pertaining to users and encounters, such as user demographics, service delivery, family planning intentions and methods, and other indicators, which allow for comparisons over time at all levels of the program (
Information from FPAR 2.0 is important to OPA for many reasons, and will be used to:
(1) Monitor compliance with statutory requirements, regulations, and operational guidance.
(2) Comply with accountability and federal performance requirements for Title X family planning funds.
(3) Guide strategic and financial planning, to monitor performance, to respond to inquiries from policymakers and Congress about the program, and to estimate program impact.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of a meeting of the Board of Scientific Counselors, National Cancer Institute.
The meeting will be closed to the public as indicated below in accordance with the provisions set forth in section 552b(c)(6), Title 5 U.S.C., as amended for the review, discussion, and evaluation of individual intramural programs and projects conducted by the National Cancer Institute, including consideration of personnel qualifications and performance, and the competence of individual investigators, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Office of Federal Advisory Committee Policy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
U.S. Customs and Border Protection (CBP), Department of Homeland Security.
30-Day notice and request for comments; extension of an existing collection of information.
The Department of Homeland Security, U.S. Customs and Border Protection will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). The information collection is published in
Comments are encouraged and must be submitted (no later than March 15, 2021) to be assured of consideration.
Written comments and/or suggestions regarding the item(s) contained in this notice should be sent within 30 days of publication of this notice to
Requests for additional PRA information should be directed to Seth Renkema, Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, 90 K Street NE, 10th Floor, Washington, DC 20229-1177, Telephone number 202-325-0056 or via email
CBP invites the general public and other Federal agencies to comment on the proposed and/or continuing information collections pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
These requirements apply to the trade community who are familiar with CBP regulations and the tariff schedules.
U.S. Customs and Border Protection (CBP), Department of Homeland Security.
30-Day notice and request for comments; extension of an existing collection of information.
The Department of Homeland Security, U.S. Customs and Border Protection will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995 (PRA). The information collection is published in the
Comments are encouraged and must be submitted (no later than March 15, 2021) to be assured of consideration.
Written comments and/or suggestions regarding the item(s) contained in this notice should be sent within 30 days of publication of this notice to
Requests for additional PRA information should be directed to Seth Renkema, Chief, Economic Impact Analysis Branch, U.S. Customs and Border Protection, Office of Trade, Regulations and Rulings, 90 K Street NE, 10th Floor, Washington, DC 20229-1177, Telephone number 202-325-0056 or via email
CBP invites the general public and other Federal agencies to comment on the proposed and/or continuing information collections pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
These requirements apply to the trade community who are required by law to provide this declaration.
Transportation Security Administration, DHS.
30-Day notice.
This notice announces that the Transportation Security Administration (TSA) has forwarded the Information Collection Request (ICR), Office of Management and Budget (OMB) control number 1652-0042, abstracted below to OMB for review and approval of a revision of the currently approved collection under the Paperwork Reduction Act (PRA). The ICR describes the nature of the information collection and its expected burden. The collection involves TSA determining whether individuals seeking access to sensitive security information (SSI) may be granted access to the SSI.
Send your comments by March 15, 2021. A comment to OMB is most effective if OMB receives it within 30 days of publication.
Interested persons are invited to submit written comments on the proposed information collection to the Office of Information and Regulatory Affairs, OMB. Comments should be identified by Docket ID: TSA-2013-0001 and sent to the Federal eRulemaking Portal,
Christina A. Walsh, TSA PRA Officer, Information Technology (IT), TSA-11, Transportation Security Administration, 6595 Springfield Center Drive, Springfield, VA 20598-6011; telephone (571) 227-2062; email
TSA published a
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
(1) Evaluate whether the proposed information requirement is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden;
(3) Enhance the quality, utility, and clarity of the information to be collected; and
(4) Minimize the burden of the collection of information on those who are to respond, including using appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Pursuant to the requirements in Section 525(d) of the DHS Appropriations Act, 2007, Public Law 109-295, 120 Stat 1355, 1382, Oct. 4, 2006, as reenacted,
Under 49 CFR 1520.11 and 1520.15, TSA has also extended the use for security background checks to include other individuals, including a prospective bidder who is seeking to submit a proposal in response to a request for proposal issued by TSA; an individual involved in the performance of contractual agreements (
Under 49 CFR 1520.11(c), TSA may make an individual's access to SSI contingent upon satisfactory completion of a security threat assessment (STA), including evaluation of a criminal history records check (CHRC); and/or a name-based check against federal law enforcement, terrorism, and immigration databases; and/or other procedures and requirements for safeguarding SSI that are satisfactory to TSA.
To address program needs, TSA is revising the information collection. In particular, TSA is revising TSA Form 2211. The form entitled
In addition to the information required for conducting background checks, TSA requires contract bidders to provide a certification from each company/entity that its employees/personnel who are provided access to SSI are properly trained; a Non-Disclosure Agreement for each individual who is granted access to SSI; and an affirmation that each company/entity will designate a Senior Official who can certify that all appropriate protections will be followed, only authorized individuals will have access to the sensitive information, and that those individuals adequately understand their responsibilities to protect the information. TSA may also require these features for other contractual agreements (
In the case of a party seeking access to SSI in a civil proceeding in federal court, TSA will gather the information required for individual vetting, including fingerprinting to conduct a CHRC and also require these individuals to respond to questions to verify individuals' history in safeguarding sensitive information, including good standing with bar membership or sanctions; and to agree to abide by TSA instructions concerning the handling of SSI in connection with the court proceeding.
TSA is also revising the collection to allow individuals who have recently (
On the basis of the record
The Commission instituted these reviews on July 1, 2020 (85 FR 39581)
The Commission made these determinations pursuant to section 751(c) of the Act (19 U.S.C. 1675(c)). It completed and filed its determinations in these reviews on February 5, 2021. The views of the Commission are contained in USITC Publication 5158 (February 2021), entitled
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that on February 4, 2021, the presiding administrative law judge (“ALJ”) issued an Initial Determination on Violation of Section 337. The ALJ also issued a Recommended Determination on remedy and bonding should a violation be found in the above-captioned investigation. The Commission is soliciting submissions on public interest issues raised by the recommended relief should the Commission find a violation. This notice is soliciting comments from the public only.
Clint Gerdine, Esq., Office of the General Counsel, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202)708-2310. Copies of non-confidential documents filed in connection with this investigation may be viewed on the Commission's electronic docket (EDIS) at
Parties are to file public interest submissions pursuant to 19 CFR 210.50(a)(4). Section 337 of the Tariff Act of 1930 provides that, if the Commission finds a violation, it shall exclude the articles concerned from the United States:
The Commission is soliciting submissions on public interest issues raised by the recommended relief should the Commission find a violation, specifically: A limited exclusion order directed to certain wearable monitoring devices, systems, and components thereof imported, sold for importation, and/or sold after importation by respondents Fitbit, Inc. (“Fitbit”) of San Francisco, California; Garmin International, Inc. and Garmin USA, Inc. (“the domestic Garmin Respondents”), both of Olathe, Kansas; Garmin Ltd. d/b/a Garmin Switzerland GmbH of Schaffhausen, Switzerland; Ingram Micro Inc. of Irvine, California; Maintek Computer (Suzhou) Co., Ltd. of Jiangsu Province, China; and Inventec Appliances (Pudong) of Shanghai, China; and cease and desist orders issue directed to the domestic Garmin Respondents and Fitbit.
The Commission is interested in further development of the record on the public interest in this investigation. Accordingly, members of the public are invited to file submissions of no more than five (5) pages, inclusive of attachments, concerning the public interest in light of the ALJ's Recommended Determination on Remedy and Bonding issued in this investigation on February 4, 2021. Comments should address whether issuance of the recommended remedial orders in this investigation, should the Commission find a violation, would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) Explain how the articles potentially subject to the recommended remedial orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the recommended orders;
(iii) identify like or directly competitive articles that complainant, its licensees, or third parties make in the United States which could replace the subject articles if they were to be excluded;
(iv) indicate whether complainant, complainant's licensees, and/or third-party suppliers have the capacity to replace the volume of articles potentially subject to the recommended orders within a commercially reasonable time; and
(v) explain how the recommended orders would impact consumers in the United States.
Written submissions must be filed by the close of business on March 8, 2021.
Persons filing written submissions must file the original document electronically on or before the deadlines stated above. The Commission's paper filing requirements in 19 CFR 210.4(f) are currently waived. 85 FR 15798 (March 19, 2020). Submissions should refer to the investigation number (“Inv. No. 337-TA-1190”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and in Part 210 of the Commission's Rules of Practice and Procedure (19 CFR part 210).
By order of the Commission.
Bureau of Labor Statistics, Department of Labor.
Notice of information collection, request for comment.
The Department of Labor, as part of its continuing effort to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995. This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. The Bureau of Labor Statistics (BLS) is soliciting comments concerning the proposed revision of the “The Consumer Expenditure Surveys: The Quarterly Interview and the Diary.” A copy of the proposed information collection request can be obtained by contacting the individual listed below in the
Written comments must be submitted to the office listed in the Addresses section of this notice on or before April 12, 2021.
Send comments to Nora Kincaid, BLS Clearance Officer, Division of Management Systems, Bureau of Labor Statistics, Room 4080, 2 Massachusetts Avenue NE, Washington, DC 20212. Written comments also may be transmitted by email to
Nora Kincaid, BLS Clearance Officer, at 202-691-7628 (this is not a toll free number). (See
The Consumer Expenditure (CE) Surveys collect data on consumer expenditures, demographic information, and related data needed by the Consumer Price Index (CPI) and other public and private data users. The continuing surveys provide a constant measurement of changes in consumer expenditure patterns for economic analysis and to obtain data for future CPI revisions. The CE Surveys have been ongoing since 1979.
The data from the CE Surveys are used (1) for CPI revisions, (2) to provide a continuous flow of data on income and expenditure patterns for use in economic analysis and policy formulation, and (3) to provide a flexible consumer survey vehicle that is available for use by other Federal government agencies. Public and private users of price statistics, including Congress and the economic policymaking agencies of the Executive branch, rely on data collected in the CPI in their day-to-day activities. Hence, data users and policymakers widely accept the need to improve the process used for revising the CPI. If the CE Surveys were not conducted on a continuing basis, current information necessary for more timely, as well as more accurate, updating of the CPI would not be available. In addition, data would not be available to respond to the continuing demand from the public and private sectors for current information on consumer spending.
In the Quarterly Interview Survey, each consumer unit (CU) in the sample is interviewed every three months over four calendar quarters. The sample for each quarter is divided into three panels, with CUs being interviewed every three months in the same panel of every quarter. The Quarterly Interview Survey is designed to collect data on the types of expenditures that respondents can be expected to recall for a period of three months or longer. In general the expenses reported in the Interview Survey are either relatively large, such as property, automobiles, or major appliances, or are expenses which occur on a fairly regular basis, such as rent, utility bills, or insurance premiums.
The Diary (or recordkeeping) Survey is completed at home by the respondent family for two consecutive one-week periods. The primary objective of the Diary Survey is to obtain expenditure data on small, frequently purchased items which normally are difficult to recall over longer periods of time.
Office of Management and Budget approval is being sought for the proposed revision of the Consumer Expenditure Surveys: The Quarterly Interview (CEQ) and the Diary (CED).
The purpose of this request is to obtain clearance for modifications to the Consumer Expenditure (CE) Surveys and to test a self-administered Diary.
CE requests clearance to remove several point of purchase questions from the CEQ Computer Assisted Personal Interview (CAPI) instrument that are no longer needed by CPI and to add point of purchase questions for gasoline on trips including the name of the gas station or store and the location (city and state) where gasoline on a trip was purchased.
CE is also seeking clearance to add a `consent request' question to the CEQ. The consent request question will ask respondents for permission to record the interview for quality control purposes. This question will be added to test the impact of the consent request question on respondent behavior, as well as rates of consent, and overall interview duration. The question will be administered to half of the CUs in their fourth wave production interview between October and December 2021. Respondents in this test group will be asked the consent request question. However, no recordings of the interview will actually take place. The results of this Consent Request test will inform CE regarding plans to incorporate Computer Assisted Recording Instrument (CARI) technology into CE for quality control and research purposes.
CE is requesting clearance to test a self-administered Diary. In lieu of the production procedures for an in-person interview in which FRs place the diaries and train respondents on how to record the household's daily expenditures, the Self-Administered Diary test will entail Diary placement and collection of sample unit, demographics, income, and select expenditure data through the Household Screener survey. Additionally, instead of the CED paper Diary, respondents will use the Online Diary with slight modifications.
The purpose of the Self-Administered Diary test is to determine the sampling and measurement error by comparing the sample composition of those that complete an online diary to that of the BLS CE diary production sample to determine the differences in representativeness for various population subgroups. Additionally, response and cooperation rates, as well
As part of the self-administered Diary test, respondents will receive survey points redeemable for cash, merchandise, gift cards or game entries worth the equivalent of $2 cash for completing the Household Characteristics Survey and survey points redeemable for cash, merchandise, gift cards or game entries worth the equivalent of $50 cash for successfully completing each day of the fourteen-day diary period.
The Household Characteristics Survey and Consumer Expenditure Online Diary will be administered to a nationally representative sample of 2,000 persons (age 18 and older), with surveys conducted in English. Weighting the entire population to U.S. Census Bureau benchmarks secured from the latest American Community Survey (ACS) and the most recent March supplement of the Current Population Survey (CPS) along several dimensions including gender, age, race/Hispanic origin, education, Census Region, income, home ownership status, household size, and metropolitan area.
The Bureau of Labor Statistics is particularly interested in comments that:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility.
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget approval of the information collection request; they also will become a matter of public record.
Nuclear Regulatory Commission.
License amendment application; opportunity to comment, request a hearing, and petition for leave to intervene.
The U.S. Nuclear Regulatory Commission (NRC) is considering issuance of an amendment to Renewed Facility Operating License No. DPR-66, issued to Energy Harbor Nuclear Corp., for operation of the Beaver Valley Power Station, Unit 1. The proposed amendment would revise Technical Specification (TS) 5.5.5.1, “Unit 1 SG [Steam Generator] Program,” paragraph d.2 to defer the spring of 2021 refueling outage (1R27) steam generator inspections to the fall of 2022 refueling outage (1R28).
Submit comments by March 15, 2021. Requests for a hearing or petition for leave to intervene must be filed by April 12, 2021.
You may submit comments by any of the following methods; however, the NRC encourages electronic comment submission through the Federal Rulemaking Website:
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For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the
Jennifer C. Tobin, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-2328, email:
Please refer to Docket ID NRC-2021-0046 when contacting the NRC about the availability of information for this action. You may obtain publicly available information related to this action by any of the following methods:
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The NRC encourages electronic comment submission through the Federal Rulemaking website (
The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.
The NRC is considering issuance of an amendment to Renewed Facility Operating License No. DPR-66, issued to Energy Harbor Nuclear Corp., for operation of the Beaver Valley Power Station, Unit 1, located in Beaver County, Pennsylvania.
The proposed amendment would revise TS 5.5.5.1, “Unit 1 SG Program,” paragraph d.2 to defer the spring of 2021 refueling outage (1R27) SG inspections to the fall of 2022 refueling outage (1R28).
Before any issuance of the proposed license amendment, the NRC will need to make the findings required by the Atomic Energy Act of 1954, as amended (the Act), and NRC's regulations.
The NRC has made a proposed determination that the license amendment request involves no significant hazards consideration. Under the NRC's regulations in § 50.92 of title 10 of the
1. Does the proposed amendment involve a significant increase in the probability or consequences of an accident previously evaluated?
Response: No.
The proposed change adds a note to TS 5.5.5.1.d.2 to permit a one-time deferral of the SG inspections from the spring of 2021 (1R27) refueling outage to the fall of 2022 (1R28) refueling outage. An operational assessment has been performed that concludes the SGs will continue to meet the structural and leakage integrity performance criteria throughout the proposed operating period, ensuring there is no significant increase in the probability of a previously evaluated accident. The existing TS limit for addressing potential primary-to-secondary leakage is not altered, ensuring accident analysis initial assumptions are met and that there should be no significant increase in the consequences of a previously evaluated accident.
Therefore, the proposed change does not involve a significant increase in the probability or consequences of an accident previously evaluated.
2. Does the proposed amendment create the possibility of a new or different kind of accident from any accident previously evaluated?
Response: No.
The proposed change adds a note to TS 5.5.5.1.d.2 to permit a one-time deferral of the SG inspections from the spring of 2021 (1R27) refueling outage to the fall of 2022 (1R28) refueling outage. An operational assessment has been performed that concludes the SGs will continue to meet the structural and leakage integrity performance criteria throughout the proposed operating period. Furthermore, there are no physical system, structure, or component changes that could create the possibility of a new or different kind of accident.
Therefore, the proposed amendment does not create the possibility of a new or different kind of accident from any previously evaluated.
3. Does the proposed amendment involve a significant reduction in a margin of safety?
Response: No.
The proposed change adds a note to TS 5.5.5.1.d.2 to permit a one-time deferral of the SG inspections from the spring of 2021 (1R27) refueling outage to the fall of 2022 (1R28) refueling outage. An operational assessment has been performed that concludes the SGs will continue to meet the structural and leakage integrity performance criteria throughout the proposed operating period. Since the proposed inspection deferral does not exceed or alter a design basis or safety limit, it does not significantly reduce the margin of safety.
Therefore, the proposed amendment does not involve a significant reduction in a margin of safety.
The NRC staff has reviewed the licensee's analysis and, based on this review, it appears that the three standards of 10 CFR 50.92(c) are satisfied. Therefore, the NRC staff proposes to determine that the license amendment request involves a no significant hazards consideration.
The NRC is seeking public comments on this proposed determination that the license amendment request involves no significant hazards consideration. Any comments received within 30 days after the date of publication of this notice will be considered in making any final determination.
Normally, the Commission will not issue the amendment until the expiration of 60 days after the date of publication of this notice. The Commission may issue the license amendment before expiration of the 60-day notice period if the Commission concludes the amendment involves no significant hazards consideration. In addition, the Commission may issue the amendment prior to the expiration of the 30-day comment period if circumstances change during the 30-day comment period such that failure to act in a timely way would result, for example, in derating or shutdown of the facility. If the Commission takes action prior to the expiration of either the comment period or the notice period, it will publish in the
Within 60 days after the date of publication of this notice, any persons (petitioner) whose interest may be affected by this action may file a request for a hearing and petition for leave to intervene (petition) with respect to the action. Petitions shall be filed in accordance with the Commission's
As required by 10 CFR 2.309(d) the petition should specifically explain the reasons why intervention should be permitted with particular reference to the following general requirements for standing: (1) The name, address, and telephone number of the petitioner; (2) the nature of the petitioner's right to be made a party to the proceeding; (3) the nature and extent of the petitioner's property, financial, or other interest in the proceeding; and (4) the possible effect of any decision or order which may be entered in the proceeding on the petitioner's interest.
In accordance with 10 CFR 2.309(f), the petition must also set forth the specific contentions which the petitioner seeks to have litigated in the proceeding. Each contention must consist of a specific statement of the issue of law or fact to be raised or controverted. In addition, the petitioner must provide a brief explanation of the bases for the contention and a concise statement of the alleged facts or expert opinion which support the contention and on which the petitioner intends to rely in proving the contention at the hearing. The petitioner must also provide references to the specific sources and documents on which the petitioner intends to rely to support its position on the issue. The petition must include sufficient information to show that a genuine dispute exists with the applicant or licensee on a material issue of law or fact. Contentions must be limited to matters within the scope of the proceeding. The contention must be one which, if proven, would entitle the petitioner to relief. A petitioner who fails to satisfy the requirements at 10 CFR 2.309(f) with respect to at least one contention will not be permitted to participate as a party.
Those permitted to intervene become parties to the proceeding, subject to any limitations in the order granting leave to intervene. Parties have the opportunity to participate fully in the conduct of the hearing with respect to resolution of that party's admitted contentions, including the opportunity to present evidence, consistent with the NRC's regulations, policies, and procedures.
Petitions must be filed no later than 60 days from the date of publication of this notice. Petitions and motions for leave to file new or amended contentions that are filed after the deadline will not be entertained absent a determination by the presiding officer that the filing demonstrates good cause by satisfying the three factors in 10 CFR 2.309(c)(1)(i) through (iii). The petition must be filed in accordance with the filing instructions in the “Electronic Submissions (E-Filing)” section of this document.
If a hearing is requested, and the Commission has not made a final determination on the issue of no significant hazards consideration, the Commission will make a final determination on the issue of no significant hazards consideration. The final determination will serve to establish when the hearing is held. If the final determination is that the amendment request involves no significant hazards consideration, the Commission may issue the amendment and make it immediately effective, notwithstanding the request for a hearing. Any hearing would take place after issuance of the amendment. If the final determination is that the amendment request involves a significant hazards consideration, then any hearing held would take place before the issuance of the amendment unless the Commission finds an imminent danger to the health or safety of the public, in which case it will issue an appropriate order or rule under 10 CFR part 2.
A State, local governmental body, Federally recognized Indian Tribe, or agency thereof, may submit a petition to the Commission to participate as a party under 10 CFR 2.309(h)(1). The petition should state the nature and extent of the petitioner's interest in the proceeding. The petition should be submitted to the Commission no later than 60 days from the date of publication of this notice. The petition must be filed in accordance with the filing instructions in the “Electronic Submissions (E-Filing)” section of this document, and should meet the requirements for petitions set forth in this section, except that under 10 CFR 2.309(h)(2) a State, local governmental body, or Federally recognized Indian Tribe, or agency thereof does not need to address the standing requirements in 10 CFR 2.309(d) if the facility is located within its boundaries. Alternatively, a State, local governmental body, Federally recognized Indian Tribe, or agency thereof may participate as a non-party under 10 CFR 2.315(c).
If a hearing is granted, any person who is not a party to the proceeding and is not affiliated with or represented by a party may, at the discretion of the presiding officer, be permitted to make a limited appearance pursuant to the provisions of 10 CFR 2.315(a). A person making a limited appearance may make an oral or written statement of his or her position on the issues but may not otherwise participate in the proceeding. A limited appearance may be made at any session of the hearing or at any prehearing conference, subject to the limits and conditions as may be imposed by the presiding officer. Details regarding the opportunity to make a limited appearance will be provided by the presiding officer if such sessions are scheduled.
All documents filed in NRC adjudicatory proceedings, including a request for hearing and petition for leave to intervene (petition), any motion or other document filed in the proceeding prior to the submission of a request for hearing or petition to intervene, and documents filed by interested governmental entities that request to participate under 10 CFR 2.315(c), must be filed in accordance with the NRC's E-Filing rule (72 FR 49139; August 28, 2007, as amended at 77 FR 46562; August 3, 2012). The E-Filing process requires participants to submit and serve all adjudicatory documents over the internet, or in some cases to mail copies on electronic storage media. Detailed guidance on making electronic submissions may be found in the Guidance for Electronic Submissions to the NRC and on the NRC website at
To comply with the procedural requirements of E-Filing, at least 10 days prior to the filing deadline, the participant should contact the Office of the Secretary by email at
Information about applying for a digital ID certificate is available on the NRC's public website at
A person filing electronically using the NRC's adjudicatory E-Filing system may seek assistance by contacting the NRC's Electronic Filing Help Desk through the “Contact Us” link located on the NRC's public website at
Participants who believe that they have a good cause for not submitting documents electronically must file an exemption request, in accordance with 10 CFR 2.302(g), with their initial paper filing stating why there is good cause for not filing electronically and requesting authorization to continue to submit documents in paper format. Such filings must be submitted by: (1) First class mail addressed to the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: Rulemaking and Adjudications Staff; or (2) courier, express mail, or expedited delivery service to the Office of the Secretary, 11555 Rockville Pike, Rockville, Maryland 20852, Attention: Rulemaking and Adjudications Staff. Participants filing adjudicatory documents in this manner are responsible for serving the document on all other participants. Filing is considered complete by first-class mail as of the time of deposit in the mail, or by courier, express mail, or expedited delivery service upon depositing the document with the provider of the service. A presiding officer, having granted an exemption request from using E-Filing, may require a participant or party to use E-Filing if the presiding officer subsequently determines that the reason for granting the exemption from use of E-Filing no longer exists.
Documents submitted in adjudicatory proceedings will appear in the NRC's electronic hearing docket which is available to the public at
For further details with respect to this action, see the application for license amendment dated January 27, 2021.
For the Nuclear Regulatory Commission.
Nuclear Regulatory Commission.
Notice of availability.
The U.S. Nuclear Regulatory Commission (NRC) is publishing this notice to advise the public of the availability of its Fiscal Year (FY) 2018 Service Contract Inventory and FY 2017 Service Contract Inventory Analysis. The NRC's FY 2018 Service Contract Inventory is included as part of a Government-wide service contract inventory. The inventory includes covered service contracts that were awarded in FY 2018. The FY 2017 Inventory Analysis provides information on specific contract actions that were analyzed as part of the NRC's FY 2017 Service Contract Inventory.
February 11, 2021.
Please refer to Docket ID NRC-2021-0037 when contacting the NRC about the availability of information regarding this document. You may obtain publicly available information related to this document using any of the following methods:
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Jill Daly, Office of Administration, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-8079 or email:
In accordance with Section 743 of Division C of the FY 2010 Consolidated Appropriations Act, Public Law 111-117, the NRC is publishing this notice to advise the public of the availability of its FY 2018 Service Contract Inventory and FY 2017 Service Contract Inventory Analysis.
The inventory provides information on service contracts with a value of $150,000.00 or more that were awarded in FY 2018. The inventory includes the following:
1. A description of the services purchased;
2. The role the contracted services played in achieving agency objectives;
3. The dollar amount obligated for the services under the contract, and the funding source for the contract;
4. The contract type and date of the award;
5. The name of the contractor and place of performance;
6. The dollar amount invoiced for services under the contract;
7. The number and work location of contractor and first-tier subcontractor employees, expressed as full-time equivalents for direct labor, compensated under the contract;
8. Whether the contract is a personal services contract; and
9. Whether the contract was awarded on a non-competitive basis.
The FY 2017 Inventory Analysis provides information on specific service contract actions that were analyzed as part of the NRC's FY 2017 Service Contract Inventory.
The purpose of the analysis is to determine if contract labor is being used in an effective and appropriate manner and if the mix of federal employees and contractors in the agency is effectively balanced.
For the Nuclear Regulatory Commission.
Pension Benefit Guaranty Corporation.
Notice.
The Pension Benefit Guaranty Corporation (PBGC) is soliciting nominations for appointment to the Advisory Committee of the PBGC.
Nominations must be received on or before March 29, 2021. Please allow three weeks for regular mail delivery to PBGC.
Nominations must be submitted electronically to
The Pension Benefit Guaranty Corporation (PBGC or the Corporation) administers the pension plan termination insurance program under Title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Section 4002(h) of ERISA provides for the establishment of an Advisory Committee to the Corporation. The Advisory Committee consists of seven members appointed by the President from among individuals recommended by the PBGC Board of Directors, which consists of the Secretaries of Labor, Treasury, and Commerce. The Advisory Committee members are as follows:
• Two representatives of employee organizations;
• two representatives of employers who maintain pension plans; and
• three representatives of the general public.
No more than four members of the Committee shall be members of the same political party. Anyone currently subject to federal registration requirements as a lobbyist is not eligible for appointment.
Advisory Committee members must have experience with employee organizations, employers who maintain defined benefit pension plans, the administration or advising of pension plans, or in related fields. Appointments are for 3-year terms. Reappointments are possible but are subject to the appointment process.
The Advisory Committee's prescribed duties include advising the Corporation as to its policies and procedures relating to investment of moneys, and other issues as the Corporation may request or as the Advisory Committee determines appropriate. The Advisory Committee meets at least six times each year. At least one meeting is a joint meeting with the PBGC Board of Directors.
By February 19, 2021, the term of one of the Advisory Committee members representing the general public will have expired. Therefore, PBGC is seeking nominations for one seat.
PBGC is committed to equal opportunity in the workplace and seeks a broad-based and diverse Advisory Committee.
If you or your organization wants to nominate one or more people for appointment to the Advisory Committee to represent the general public, you may submit nominations to PBGC. Nominations may be in the form of a letter, resolution or petition, signed by the person making the nomination. PBGC encourages you to include additional supporting letters of nomination. PBGC will not consider self-nominees who have no supporting letters. Please do not include any information that you do not want publicly disclosed.
Nominations, including supporting letters, should:
• State the person's qualifications to serve on the Advisory Committee (including any specialized knowledge or experience relevant to the nominee's proposed Advisory Committee position to represent the general public);
• state that the candidate will accept appointment to the Advisory Committee if offered;
• include the nominee's full name, work affiliation, mailing address, phone number, and email address;
• include the nominator's full name, mailing address, phone number, and email address; and
• include the nominator's signature, whether sent by email or otherwise.
PBGC will contact nominees for information on their political affiliation and their status as registered lobbyists. Nominees should be aware of the time commitment for attending meetings and actively participating in the work of the Advisory Committee. Historically, this has meant a commitment of at least 15 days per year. PBGC has a process for vetting nominees under consideration for appointment.
Issued in Washington, DC.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange is proposing to amend to amend the Rule 11.600 Series, the Exchange's compliance rule (“Compliance Rule”) regarding the National Market System Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan” or “Plan”)
The text of the proposed rule change is available at the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statement may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
The purpose of this proposed rule change is to amend IEX Rule Series 11.600 to be consistent with the Allocation Exemption. The Commission granted the relief conditioned upon the Participants' adoption of Compliance Rules that implement the alternative approach to reporting allocations to the Central Repository described in the Allocation Exemption (referred to as the “Allocation Alternative”).
Pursuant to Section 6.4(d)(ii)(A) of the CAT NMS Plan, each Participant must, through its Compliance Rule, require its Industry Members to record and report to the Central Repository, if the order is executed, in whole or in part: (1) An Allocation Report;
In addition, under the Allocation Alternative, an “Allocation” would be defined as: (1) The placement of shares/contracts into the same account for which an order was originally placed; or (2) the placement of shares/contracts into an account based on allocation instructions (
To implement the Allocation Alternative, the Participants requested exemptive relief from Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan, to the extent that the provision requires each Participant to, through its Compliance Rule, require its Industry Members that are executing brokers, who do not perform Allocations, to record and report to the Central Repository, if the order is executed, in whole or in part, an Allocation Report. Under the Allocation Alternative, when an Industry Member other than an executing broker (
The Participants stated that granting exemptive relief from submitting Allocation Reports for executing brokers who do not perform an Allocation, and requiring the Industry Member other than the executing broker that is performing the Allocation to submit such Allocation Reports, is consistent with the basic approach taken by the Commission in adopting Rule 613 under the Exchange Act. Specifically, the Participants stated that they believe that the Commission sought to require each broker-dealer and exchange that touches an order to record the required data with respect to actions it takes on the order.
To implement the Allocation Alternative, the Participants also requested exemptive relief from Section 6.4(d)(ii)(A)(2) of the CAT NMS Plan, to the extent that the provision requires each Participant to, through its Compliance Rule, require its Industry Members to record and report to the Central Repository, if an order is executed, in whole or in part, the SRO-Assigned Market Participant Identifier of the prime broker, if applicable. Currently, under the CAT NMS Plan, an Industry Member is required to report the SRO-Assigned Market Participant Identifier of the clearing broker or prime broker in connection with the execution of an order, and such information would be part of the order's lifecycle, rather than in an Allocation Report that is not linked to the order's lifecycle.
The Participants stated that associating a prime broker with a specific execution, as is currently required by the CAT NMS Plan, does not reflect how the allocation process works in practice as allocations to a prime broker are done post-trade and are performed by the clearing broker of the executing broker. The Participants also stated that with the implementation of the Allocation Alternative, it would be duplicative for the executing broker to separately identify the prime broker for allocation purposes.
The Participants stated that if a particular customer only has one prime broker, the identity of the prime broker can be obtained from the customer and account information through the DVP accounts for that customer that contain the identity of the prime broker. The Participants further stated that Allocation Reports related to those executions would reflect that shares/contracts were allocated to the single prime broker. The Participants believe that there is no loss of information through the implementation of the Allocation Alternative compared to what is required in the CAT NMS Plan and that this approach does not decrease the regulatory utility of the CAT for single prime broker circumstances.
In cases where a customer maintains relationships with multiple prime brokers, the Participants asserted that the executing broker will not have information at the time of the trade as to which particular prime broker may be allocated all or part of the execution. Under the Allocation Alternative, the executing broker (if self-clearing) or its clearing firm would report individual Allocation Reports identifying the specific prime broker to which shares/contracts were allocated and then each prime broker would itself report an Allocation Report identifying the specific customer accounts where the shares/contracts were ultimately allocated. To determine the prime broker for a customer, a regulatory user would query the customer and account database using the customer's CCID to obtain all DVP accounts for the CCID at broker-dealers. The Participants state that when a customer maintains relationships with multiple prime brokers, the customer typically has a separate DVP account with each prime broker, and the identities of those prime brokers can be obtained from the customer and account information.
In the Exemption Request, the Participants included certain additional conditions for the requested relief. Currently, the definition of Allocation Report in the CAT NMS Plan only refers to shares. To implement the Allocation Alternative, the Participants proposed to require that all required elements of Allocation Reports apply to both shares and contracts, as applicable, for all Eligible Securities. Specifically, Participants would require the reporting of the following in each Allocation Report: (1) The FDID for the account receiving the allocation, including subaccounts; (2) the security that has been allocated; (3) the identifier of the firm reporting the allocation; (3) the price per share/contracts of shares/contracts allocated; (4) the side of shares/contracts allocated; (4) the
Furthermore, to implement the Allocation Alternative, the Participants proposed to require the following information on all Allocation Reports: (1) Allocation ID, which is the internal allocation identifier assigned to the allocation event by the Industry Member; (2) trade date; (3) settlement date; (4) IB/correspondent CRD Number (if applicable); (5) FDID of new order(s) (if available in the booking system);
On October 29, 2020, the Commission granted the exemptive relief requested in the Exemption Request. The Commission granted the relief conditioned upon the adoption of Compliance Rules that implement the reporting requirements of the Allocation Alternative. Accordingly, the Exchange proposes the following changes to its Compliance Rule to implement the reporting requirements of the Allocation Alternative.
The Exchange proposes to add a definition of “Allocation” as new paragraph (c) to Rule 11.610.
The Exchange proposes to amend the definition of “Allocation Report” set forth in Exchange Rule 11.610(c) to reflect the requirements of the Allocation Exemption. Exchange Rule 11.610(c) defines the term “Allocation Report” to mean:
The requirements for Allocation Reports apply only to shares, as the definition of “Allocation Report” in Rule 11.610(c) refers to shares, not contracts. In the Allocation Exemption, the Commission stated that applying the requirements for Allocation Reports to contracts in addition to shares is appropriate because CAT reporting requirements apply to both options and equities. Accordingly, the SEC stated that the Participants would be required to modify their Compliance Rules such that all required elements of Allocation Reports apply to both shares and contracts, as applicable, for all Eligible Securities. Therefore, the Exchange proposes to amend Rule 11.610(c) (to be renumbered as Rule 11.610(d)) to apply to contracts, as well as shares. Specifically, the Exchange proposes to add references to contracts to the definition of “Allocation Report” to the following phrases: “the Firm Designated ID for any account(s), including subaccount(s), to which executed shares/contracts are allocated;” “the price per share/contract of shares/contracts allocated;” “the side of shares/contracts allocated;” and “the number of shares/contracts allocated to each account.”
The Commission also conditioned the Allocation Exemption on the Participants amending their Compliance Rules to require the ten additional elements in Allocation Reports described above. Accordingly, the Exchange proposes to require these additional elements in Allocation Reports. Specifically, the Exchange proposes to amend the definition of “Allocation Report” in Rule 11.610(c) (to be renumbered as Rule 11.610(d)) to include the following elements, in addition to those elements currently required under the CAT NMS Plan:
The Commission granted the Participants an exemption from the requirement that the Participants, through their Compliance Rule, require executing brokers that do not perform Allocations to submit Allocation Reports. The Commission stated that it understands that executing brokers that are not self-clearing do not perform allocations themselves, and such
The Allocation Exemption requires the Participants to amend their Compliance Rules to require Industry Members to provide Allocation Reports to the Central Repository any time they perform Allocations to a client account, whether or not the Industry Member was the executing broker for the trades. Accordingly, the Commission conditioned the Allocation Exemption on the Participants adopting Compliance Rules that require prime and/or clearing brokers to submit Allocation Reports when such brokers perform allocations, in addition to requiring executing brokers that perform allocations to submit Allocation Reports. The Commission determined that such exemptive relief would improve efficiency and reduce the costs and burdens of reporting allocations for Industry Members because the reporting obligation would belong to the Industry Member with the requisite information, and executing brokers that do not have the information required on an Allocation Report would not have to develop the infrastructure and processes required to obtain, store and report the information. The Commission stated that this exemptive relief should not reduce the regulatory utility of the CAT because an Allocation Report would still be submitted for each executed trade allocated to a client account, which in certain circumstances could still result in multiple Allocation Reports,
In accordance with the Allocation Exemption, the Exchange proposes to add proposed Rule 11.630(a)(2)(F) to the Compliance Rule. Proposed Rule 11.630(a)(2)(F) would require Industry Members to record and report to the Central Repository “an Allocation Report any time the Industry Member performs an Allocation to a Client Account, whether or not the Industry Member was the executing broker for the trade.”
In the Allocation Exemption, the Commission also exempted the Participants from the requirement that they amend their Compliance Rules to require Industry Members to report Allocations for accounts other than client accounts. The Commission believes that allocations to client accounts, and not allocations to proprietary accounts or events such as step-outs and correspondent flips, provide regulators the necessary information to detect abuses in the allocation process because it would provide regulators with detailed information regarding the fulfillment of orders submitted by clients, while reducing reporting burdens on broker-dealers. For example, Allocation Reports would be required for allocations to registered investment advisor and money manager accounts. The Commission further believes that the proposed approach should facilitate regulators' ability to distinguish Allocation Reports relating to allocations to client accounts from other Allocation Reports because Allocations to accounts other than client accounts would have to be identified as such. This approach could reduce the time CAT Reporters expend to comply with CAT reporting requirements and lower costs by allowing broker-dealers to use existing business practices.
To clarify that an Industry Member must report an Allocation Report solely for Allocations to a client account, proposed Rule 11.630(a)(2)(F) specifically references “Client Accounts,” as discussed above. In addition, the Exchange proposes to add a definition of “Client Account” as proposed Rule 11.610(l). Proposed Rule 11.610(l) would define a “Client Account” to mean “for the purposes of an Allocation and Allocation Report, any account or subaccount that is not owned or controlled by the Industry Member.”
The Exchange also proposes to amend Rule 11.630(a)(2)(A) to eliminate the requirement for executing brokers to record and report the SRO-Assigned Market Participant Identifier of the prime broker. Rule 11.630(a)(2)(A) states that each Industry Member is required to record and report to the Central Repository, if the order is executed, in whole or in part, the “SRO-Assigned Market Participant Identifier of the clearing broker or prime broker, if applicable.” The Exchange proposes to delete the phrase “or prime broker” from this provision. Accordingly, each Industry Member that is an executing broker would no longer be required to report the SRO-Assigned Market Participant Identifier of the prime broker.
As the Commission noted in the Allocation Exemption, exempting the Participants from the requirement that they, through their Compliance Rules, require executing brokers to provide the SRO-Assigned Market Participant Identifier of the prime broker is appropriate because, as stated by the Participants, allocations are done on a post-trade basis and the executing broker will not have the requisite information at the time of the trade. Because an executing broker, in certain circumstances, does not have this information at the time of the trade, this relief relieves executing brokers of the burdens and costs of developing infrastructure and processes to obtain this information in order to meet the contemporaneous reporting requirements of the CAT NMS Plan.
As the Commission noted in the Allocation Exemption, although executing brokers would no longer be required to provide the prime broker information, regulators will still be able to determine the prime broker(s) associated with orders through querying the customer and account information database. If an executing broker has only one prime broker, the identity of the prime broker can be obtained from the customer and account information associated with the executing broker. For customers with multiple prime brokers, the identity of the prime brokers can be obtained from the customer and account information which will list the prime broker, if there is one, that is associated with each account.
IEX believes that the proposed rule change is consistent with the provisions of Section 6(b)(5) of the Act,
IEX believes that this proposal is consistent with the Act because it is consistent with, and implements, the Allocation Exemption, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
IEX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule change is consistent with the Allocation Exemption, and is designed to assist the Exchange in meeting its regulatory obligations pursuant to the Plan. The Exchange also notes that the proposed rule change will apply equally to all Industry Members. In addition, all national securities exchanges and FINRA are proposing this amendment to their Compliance Rules. Therefore, this is not a competitive rule filing and does not impose a burden on competition.
Written comments on the proposed rule change were neither solicited nor received.
Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange is filing a proposal to amend the MIAX PEARL Equities Fee Schedule (the “Fee Schedule”) by adopting fees applicable to participants
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
On August 14, 2020, the Commission approved the Exchange's proposal to adopt rules governing the trading of equity securities, referred to as MIAX PEARL Equities.
The Exchange initially filed the proposal on September 24, 2020.
The Exchange believes that exchanges, in setting fees of all types, should meet very high standards of transparency to demonstrate why each new fee or fee increase meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among members and markets. The Exchange believes this high standard is especially important when an exchange imposes various access fees on market participants to access an exchange's marketplace, as well as other non-transaction fees. MIAX PEARL deems Port fees and Connectivity fees to be access fees, and that Ports and Connectivity are inextricably linked components of the Exchange's network. Accordingly, the Exchange believes that it is reasonable and appropriate that the costs and revenues for both should be considered together, as the services associated with connectivity and ports are linked pieces of the network's infrastructure, both of which are necessary for a market participant to access and use the trading System of the Exchange. Both Connectivity fee and Port fee revenue are consolidated into a single line item (Access Fees) on the Exchange's financial statements. The Exchange believes that it is important to demonstrate that the Proposed Fees are based on its costs to provide the services associated with the Proposed Fees and reasonable business needs. Accordingly, the Exchange believes the Proposed Fees, in general, and the Proposed Access Fees, in particular, will allow the Exchange to offset a portion of the expenses the Exchange has and will incur, and that the Exchange has provided sufficient transparency (as described below) into how the Exchange determined to charge such fees. Accordingly, the Exchange is providing an analysis of its revenues, costs, and profitability associated with the Proposed Access Fees. This analysis includes information regarding its methodology for determining the costs and revenues associated with the Proposed Access Fees.
The Exchange proposes to include a Definitions section at the beginning of the Fee Schedule, before the General Notes section. The purpose of the Definitions section is to provide market participants greater clarity and transparency regarding the applicability of fees and rebates by defining terms used within the Fee Schedule in a single location. The Exchange notes that other equities exchanges include Definitions sections in their respective fee schedules,
Unless included in the Definition section, capitalized terms used in the Fee Schedule are defined in the MIAX PEARL Equities Rules. Each of the definitions proposed to be included in the Fee Schedule are based on definitions included in the existing MIAX PEARL fee schedule applicable to options (“Options Fee Schedule”)
• “Cross-connect” occurs when the affected third-party system is sited at the same data center where MIAX PEARL Equities systems are sited, and the third-party connects to MIAX PEARL Equities through the data center, rather than connecting directly to MIAX PEARL Equities outside of the data center.
• “Exchange System Disruption” means an outage of a Matching Engine or collective Matching Engines for a period of two consecutive hours or more, during trading hours.
• “Extranet Provider” means a technology provider that connects with MIAX PEARL Equities systems and in turn provides such connectivity to MIAX PEARL Equities participants that do not connect directly with MIAX PEARL Equities.
• “FIX Order by Order” means a type of FXD Port that sends all order activities other than reject message, including Execution Reports and Trade Cancel/Correct messages. FIX Order by Order is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “FIX Order Interface” or “FOI” means the Financial Information Exchange interface for certain order types as set forth in Exchange Rule 2614. FOI is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “FIX Port” means a FIX port that allows Equity Members to send orders and other messages using the FIX protocol. FIX is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “Full Service Port” or “FSP” means an MEO port that supports all MEO order input message types. FSP is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “FIX Drop Port” or “FXD” means a messaging interface that provides real-time order activities of firms' MEO and FOI orders. MIAX PEARL Equities offers two types of FXD ports: (1) Standard FIX Drop; and (2) FIX Order by Order Drop. FXD Ports may be used by Equities Market Makers, Order Entry Firms and clearing firms. FXD is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “MENI” means the MIAX Express Network Interconnect, which is a network infrastructure which provides Equity Members and non-Members network connectivity to the trading platforms, market data systems, test systems, and disaster recovery facilities of the Exchange. The MENI consists of the low latency and ultra-low latency (“ULL”) connectivity options set forth in the Exchange's Fee Schedule. MENI is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “MEO Interface” or “MEO” means a binary order interface for certain order types as set forth in Rule 516 into the MIAX PEARL System. See Exchange Rule 100.
• “Service Bureau” means a technology provider that offers and supplies technology and technology services to a trading firm that does not have its own proprietary system.
• “Standard FIX Drop” means an FXD Port that only sends trade information, including Execution Reports and Trade Cancel/Correct messages. Standard FIX Drop is currently offered by the Exchange for options trading and provided for in the Exchange's Options Fee Schedule.
• “Third Party Vendor” means a subscriber of MIAX PEARL Equities' market and other data feeds, which they in turn use for redistribution purposes.
• “Waiver Period” means, for each applicable fee, the period of time from the initial effective date of the MIAX PEARL Equities Fee Schedule until such time that MIAX PEARL has an effective fee filing establishing the applicable fee. MIAX PEARL Equities will issue a Regulatory Circular announcing the establishment of an applicable fee that was subject to a Waiver Period at least fifteen (15) days prior to the termination of the Waiver Period and effective date of any such applicable fee.
To provide market participants with a better understanding of how the Exchange has established the levels of the Proposed Access Fees, the Exchange is providing information in this proposal regarding the costs incurred by the Exchange to provide services associated with the Proposed Access Fees, including the Exchange's cost allocation methodology (information that explains the Exchange's rationale for determining that it was reasonable to allocate certain expenses described in this filing towards the total cost to the Exchange to provide the services associated with the Proposed Access Fees). The Exchange is also providing an analysis of its expected revenues and profitability for the services associated with the Proposed Access Fees.
In order to determine the Exchange's costs for providing the services associated with the Proposed Access Fees, the Exchange conducted an extensive review in which the Exchange analyzed every expense item in the Exchange's general expense ledger to determine whether each such expense relates to the services associated with the Proposed Access Fees, and, if such expense did so relate, what portion (or percentage) of such expense actually supports those services. The sum of all such portions of expenses represents the total cost of the Exchange to provide the services associated with the Proposed Access Fees. For the avoidance of doubt, no expense amount was allocated twice. The Exchange is also providing detailed information regarding the Exchange's cost allocation methodology—namely, information that explains the Exchange's rationale for determining that it was reasonable to allocate certain expenses described in this filing towards the total cost to the Exchange to provide the Proposed Access Fees.
Since MIAX PEARL Equities did not exist in 2019 (operations only just launched on September 25, 2020), the Exchange's most recent publicly available financial statement (2019 Audited Unconsolidated Financial Statement) is not an accurate reflection of the total annual costs associated with the development and operation of MIAX PEARL Equities. Accordingly, the Exchange believes it is more appropriate to justify its fees using cost figures that are isolated specifically for MIAX PEARL Equities on an annualized basis, and, utilizing a recent monthly billing cycle representative of 2020 monthly revenue, extrapolated annualized revenue on a going-forward basis. The Exchange does not believe it is appropriate to factor into its analysis future revenue growth or decline into its projections for purposes of these calculations, given the uncertainty of such projections due to the continually changing access needs of market participants, discounts that can be achieved through reaching certain tiers, uncertainty relating to the timing of the expiration of certain fee waivers, uncertainty relating to the actual fee amounts to be established upon expiration of said fee waivers, market participant consolidation, etc. Additionally, the Exchange similarly does not factor into its analysis future cost growth or decline. The purpose of presenting it in this manner is to provide greater transparency into the Exchange's actual and expected revenues, costs, and profitability associated with providing the services
Specifically, proposed Sections (2a) and (b) of the Fee Schedule describe network connectivity fees for the 1 Gigabit (“Gb”) ultra-low latency (“ULL”) fiber connection and the 10 Gb ULL fiber connection, which are to be charged to both Equity Members and non-Members of MIAX PEARL Equities for connectivity to the Exchange's primary/secondary facility. The Exchange also proposes to adopt network connectivity fees for the 1 Gb ULL and 10 Gb ULL fiber connections for connectivity to the Exchange's disaster recovery facility.
The Exchange will offer to both Equity Members and non-Members various bandwidth alternatives for connectivity to MIAX PEARL Equities, to its primary and secondary facilities, which consists of a 1 Gb ULL fiber connection and a 10 Gb ULL fiber connection. The Exchange also offers to both Equity Members and non-Members various bandwidth alternatives for connectivity to the disaster recovery facility of MIAX PEARL Equities, which consists of a 1 Gb ULL fiber connection and a 10 Gb ULL connection.
The Exchange proposes to establish the monthly network connectivity fees for such connections for both Equity Members and non-Members. The Exchange proposes to adopt the following fees for connectivity to MIAX PEARL Equities' primary/secondary facility for both Equity Members and non-Members: (a) $1,000 for the 1 Gb ULL connection; and (b) $3,500 for the 10 Gb ULL connection. The Exchange proposes to adopt the following fees for connectivity to MIAX PEARL Equities' disaster recovery facility for both Equity Members and non-Members: (a) $1,000 for the 1 Gb ULL connection; and (b) $3,000 for the 10 Gb ULL connection.
Monthly network connectivity fees for Equity Members and non-Members for connectivity with the primary/secondary facility will be assessed in any month the Equity Member or non-Members is credentialed to use any of the MIAX PEARL Equities Application Programming Interfaces (“APIs”) or market data feeds in the production environment and will be pro-rated when an Equity Member or non-Member makes a change to the connectivity (by adding or deleting connections) with such pro-rated fees based on the number of trading days that the Equity Member or non-Member has been credentialed to utilize any of the MIAX PEARL Equities' APIs or market data feeds in the production environment through such connection, divided by the total number of trading days in such month multiplied by the applicable monthly rate. Monthly network connectivity fees for Equity Members and non-Members for connectivity to the Disaster Recovery Facility will be assessed in each month during which the Equity Member or non-Member has established connectivity to the Disaster Recovery Facility.
Proposed Section (2)(c) of the Fee Schedule, Pass-Through of External Connectivity Fees, provides for the pass through of external connectivity fees (described below) to Equity Members and non-Members that establish connections with MIAX PEARL Equities through a third-party. Fees assessed to MIAX PEARL Equities by third-party external vendors on behalf of an Equity Member or non-Member connecting to MIAX PEARL Equities (including cross-connects), will be passed through to the Equity Member or non-Member. The external connectivity fees passed through can include one-time set-up fees, monthly charges, and other fees charged to MIAX PEARL Equities by a third-party for the benefit of an Equity Member or non-Member.
Proposed Section (2)(d), Port Fees, of the Fee Schedule describes fees for access and services used by Equity Members and non-Members. MIAX PEARL Equities provides three Port types: (i) The Financial Information Exchange Port (“FIX Port”), which allows Equity Members to send orders and other messages using the FIX protocol;
The Exchange proposes to assess monthly Port fees to Equity Members in each month the Equity Member is credentialed to use a Port in the production environment. MIAX PEARL Equities has primary and secondary data centers and a disaster recovery center. Each Port provides access to all Exchange data centers for a single fee. The Exchange notes that, unless otherwise specifically set forth in the Fee Schedule, the Port fees include the information communicated through the Port. That is, unless otherwise specifically set forth in the Fee Schedule, there is no additional charge for the information that is communicated through the Port apart from what the user is assessed for each Port. The Exchange proposes to assess Port Fees for FIX Ports, MEO Ports, and FXD Ports as set forth in the following table:
• MEO and FIX Ports
The Exchange proposes to waive the fee for the 1st through the 25th FIX Ports and MEO Ports that Equity Members are credentialed to use, as well as the fees for all FXD Ports, for the Waiver Period.
Proposed Section (2)(e), Member and Non-Member Technical Support Request Fee, of the Fee Schedule describes the technical support request fee to be charged to both Equity Members and non-Members that request technical support at any of the MIAX PEARL Equities data centers. MIAX PEARL Equities proposes to charge a fee of $200 per hour for requested technical support. The Exchange intends to provide Equity Members and non-Members access to the Exchange's on-site data center personnel for technical support as a convenience to the Equity Members and non-Members to test or otherwise assess their connectivity to the Exchange. Currently, the Exchange charges the same fee amount for the same services for options trading, as well as at its affiliate option exchanges, Miami International Securities Exchange, LLC (“MIAX”) and MIAX Emerald, LLC (“MIAX Emerald”).
Proposed Sections (3)(a)-(c) describe the fee to be charged for the Exchange's proprietary market data products. MIAX PEARL Equities intends to offer the following three proprietary market data products: (a) Top of Market (“ToM”) feed; (b) Depth of Market (“DoM”) feed; and (c) the Historical Market Data feed.
The ToM feed is a data feed that contains the price and aggregate size of displayed top of book quotations, order execution information, and administrative messages for orders entered on MIAX PEARL Equities. The DoM feed is a data feed that contains the displayed price and size of each order entered on MIAX PEARL Equities, as well as order execution information, order cancellations, order modifications, order identification numbers, and administrative messages.
The Exchange proposes to provide under Sections (3)(a) and (3)(b) of the Fee Schedule that the ToM and DoM would be offered free of charge during the Waiver Period. Even though the fees for the ToM and DoM data feeds are waived during the Waiver Period, the Exchange believes that is appropriate to provide market participants with notice of these feeds on the Fee Schedule without setting forth a specific fee amount, so that there is general awareness that the Exchange intends to assess such a fee in the future, should the Waiver Period terminate and the Exchange establish an applicable fee.
The Exchange will also offer Historical Data for MIAX PEARL Equities, which is a data product that offers historical market data for orders entered on MIAX PEARL Equities upon request. The Exchange proposes to charge a fee for the Historical Data, which will be based on the cost incurred by the Exchange in providing that data. Proposed Section (3)(c) of the Fee Schedule describes the fee to be charged market participants that request Historical Data from MIAX PEARL Equities. Historical Data is intended to aid market participants in analyzing trade and volume data, evaluating historical trends in the trading activity of a particular security, and enabling those market participants to test trading models and analytical strategies. Specifically, Historical Data includes all data that is captured and disseminated on ToM and DoM feeds and is available on a T+1 basis.
The Exchange will only assess the fee for Historical Data on a user (whether Equity Member or non-Member) that specifically requests such Historical Data. Historical Data will be uploaded
The Exchange proposed to charge a flat fee of $500 per device requested. Each device shall have a maximum storage capacity of 8 terabytes. Users may request up to six months of Historical Data per device, subject to the device's storage capacity. Historical Data will be made available beginning from the time of launch of MIAX PEARL Equities on September 25, 2020 (always on a T+1 basis). However, only the most recent six months of Historical Data shall be available for purchase from the request date.
The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act
On March 29, 2019, the Commission issued its Order Disapproving Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC Options Facility to Establish BOX Connectivity Fees for Participants and Non-Participants Who Connect to the BOX Network (the “BOX Order”).
The Exchange believes that the Proposed Fees are consistent with the Act because they (i) are reasonable, equitably allocated, not unfairly discriminatory, and not an undue burden on competition; (ii) comply with the BOX Order and the Guidance; (iii) are supported by evidence (including comprehensive revenue and cost data and analysis) that they are fair and reasonable because they do not result in excessive pricing or supra-competitive profit; and (iv) utilize a cost-based justification framework that is substantially similar to a framework previously used by the Exchange (and its affiliates) to establish comparable access fees, including connectivity fees and port fees, for its options market. Accordingly, the Exchange believes that the Commission should find that the Proposed Fees are consistent with the Act.
The Exchange is not aware of any reason why market participants could not simply drop their connections to an exchange (or not connect to an exchange) if an exchange were to establish prices for its non-transaction fees that, in the determination of such market participant, did not make business or economic sense for such market participant to connect to such exchange. No market participant is required by rule, regulation, or competitive forces to be a Member of the Exchange or MIAX PEARL Equities. As evidence of the fact that market participants can and do disconnect from exchanges based on non-transaction fee pricing, R2G Services LLC (“R2G”) filed a comment letter after BOX's proposed rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-2018-37, and SR-BOX-2019-04).
The Exchange believes its proposal to include a Definitions section in the Fee Schedule promotes just and equitable principles of trade, removes impediments to and perfects the mechanism of a free and open market and a national market system, and, in general protects investors and the public interest and is not designed to permit unfair discrimination between customers, issuers, brokers and dealers. The Exchange believes that the proposal to adopt a Definitions section in the beginning of the Fee Schedule will provide greater clarity to Equity Members, non-Members, market participants and the public regarding the Exchange's fees and rebates, and it is in the public interest for the Fee Schedule to be transparent, comprehensive and user-friendly so as to eliminate the potential for confusion.
The Exchange believes that its proposal is consistent with Section 6(b)(4) of the Act because the Proposed Access Fees will permit recovery (less than all) of the Exchange's costs and will not result in excessive or supra-competitive profit. The Proposed Access Fees will allow the Exchange to recover a portion (less than all) of the costs incurred by the Exchange associated with providing and maintaining the necessary hardware and other infrastructure as well as network monitoring and support services in order to provide the services associated with the Proposed Access Fees. The Exchange believes that it is reasonable and appropriate to establish its fees charged for the services associated with the Proposed Access Fees at levels that will partially offset the costs to the Exchange associated with maintaining and enhancing a state-of-the-art exchange network infrastructure in the U.S. equities industry.
The costs associated with building out and maintaining a state-of-the-art network infrastructure are extensive. This is due to several factors, including costs associated with maintaining and expanding a team of highly-skilled network engineers, fees charged by the Exchange's third-party data center operator, costs associated with projects and initiatives designed to improve overall network performance and stability through the Exchange's research and development (“R&D”) efforts, and costs associated with fully-supporting advances in infrastructure and expansion of network level services, including customer monitoring, alerting and reporting. The Exchange incurs significant technology expense related to establishing and maintaining
Further, because the costs of operating a data center are significant and not economically feasible for the Exchange, the Exchange does not operate its own data centers, and instead contracts with a third-party data center provider. The Exchange notes that larger, well-established exchange operators own/operate their data centers, which offers them greater control over their data center costs. Because those exchanges own and operate their data centers as profit centers, the Exchange is subject to additional costs. Fees for the services associated with the Proposed Access Fees, which are charged for accessing the Exchange's data center network infrastructure, are directly related to the network and offset such costs.
Further, the Exchange invests significant resources in network R&D to continuously improve the overall performance and stability of its network. For example, the Exchange has a number of network monitoring tools (some of which were developed in-house, and some of which are licensed from third-parties), that continually monitor, detect, and report network performance, many of which serve as significant value-adds to Equity Members and enable the Exchange to provide a high level of customer service. These tools detect and report performance issues, and thus enable the Exchange to proactively notify an Equity Member (and the SIPs) when the Exchange detects a problem with an Equity Member's connectivity. In fact, the Exchange's affiliate options exchanges, MIAX and MIAX Emerald, often receive inquiries from other industry participants regarding the status of networking issues outside of the Exchange's own network environment that are impacting the industry as a whole via the SIPs, including inquiries from regulators, because the Exchange has a superior, state-of the-art network that, through its enhanced monitoring and reporting solutions, often detects and identifies industry-wide networking issues ahead of the SIPs. The Exchange also incurs costs associated with the maintenance and improvement of existing tools and the development of new tools.
Also, routine R&D projects to improve the performance of the network's hardware infrastructure result in additional cost. In sum, the costs associated with maintaining and enhancing a state-of-the-art exchange network in the U.S. equity securities industry is a significant expense for the Exchange that is projected to increase year-over-year, and thus the Exchange believes that it is reasonable to offset a portion of those costs through establishing the Proposed Access Fees, which are designed to recover those costs, as described herein. Overall, the Proposed Access Fees are projected to offset only a portion of the Exchange's services associated with the Proposed Access Fees. The Exchange invests in and offers a superior network infrastructure as part of its overall exchange services offering, resulting in significant costs associated with maintaining this network infrastructure, which are directly tied to the amount of the Proposed Access Fees that must be charged to access it, in order to recover those costs.
The Exchange believes it is reasonable to consider the expense and revenue for ports and connectivity alternatives together because ports and connectivity are inextricably linked components of the network infrastructure, and that both are necessary for a market participant to access the Exchange. The various types of connectivity and port alternatives that the Exchange offers provide a wide array of access alternatives necessary for a market participant to conduct its business using the Exchange, which is a business decision to be made by each particular type of market participant. The different types of connectivity and port alternatives allows Equity Members to conduct their different business strategies—some Equity Members put an emphasis on speed, while others emphasize other strategies, such as redundancy and certainty of execution. The Exchange does not require an Equity Member to have a certain framework for accessing the Exchange, but provides various connectivity and port alternatives for each Equity Member's distinct business lines.
The Exchange offers various types of ports with differing prices because each port accomplishes different tasks, are suited to different types of Equity Members, and consume varying capacity amounts of the network. For instance, MEO ports allow for a higher throughput and can handle much higher order rates than FIX ports. Equity Members that are Market Makers or high frequency trading firms utilize these ports (typically coupled with 10Gb ULL connectivity) because they transact in significantly higher amounts of messages being sent to and from the Exchange, versus FIX port users, who are traditionally customers sending only orders to the Exchange (typically coupled with 1Gb connectivity). The different types of ports cater to the different types of Exchange Memberships and different capabilities of the various Exchange Members. Market Makers have quoting and other obligations that traditional customers do not. Market Makers, therefore, need ports and connections that can handle using far more of the network's capacity for message throughput, risk protections, and the amount of information that has to be assessed. Market Makers account for the vast majority of network capacity utilization and volume executed on the Exchange.
The Exchange only has four primary sources of revenue: Transaction fees, access fees (of which the Proposed Access Fees constitute the majority), regulatory fees, and market data fees. Accordingly, the Exchange must cover all of its expenses from these four primary sources of revenue.
The Exchange believes that the Proposed Access Fees are fair and reasonable because they will not result in excessive pricing or supra-competitive profit, when comparing the total annual expense that the Exchange projects to incur in connection with providing the services associated with the Proposed Access Fees versus the total annual revenue of the Exchange projects to collect in connection with providing those services. For 2020,
As discussed, the Exchange conducted an extensive review in which the Exchange analyzed every expense item in the Exchange's general expense ledger (this includes over 150 separate and distinct expense items) to determine whether each such expense relates to the services associated with the Proposed Access Fees, and, if such expense did so relate, what portion (or percentage) of such expense actually supports those services, and thus bears a relationship that is, “in nature and closeness,” directly related to those services. The sum of all such portions of expenses represents the total cost of the Exchange to provide the services associated with the Proposed Access Fees.
For 2020, total actual and projected third-party expense, relating to fees paid by the Exchange to third-parties for certain products and services for the Exchange to be able to provide the services associated with the Proposed Access Fees, was $1,492,112. This includes, but is not limited to, a portion of the fees paid to: (1) Equinix, for data center services, for the primary, secondary, and disaster recovery locations of the MIAX PEARL Equities trading system infrastructure; (2) Zayo Group Holdings, Inc. (“Zayo”) for connectivity services (fiber and bandwidth connectivity) linking MIAX PEARL Equities' office locations in Princeton, New Jersey and Miami, Florida to all data center locations; (3) Secure Financial Transaction Infrastructure (“SFTI”), which supports connectivity and feeds for the entire equity securities industry; (4) various other services providers (including Thompson Reuters, NYSE, Nasdaq, Internap, and Options IT), which provide content, connectivity services, infrastructure services, and market data services; and (5) various other hardware and software providers (including Dell and Cisco, which support the production environment).
For clarity, only a portion of all fees paid to such third-parties is included in the third-party expense herein (only the portions that actually support the services associated with the Proposed Access Fees), and no expense amount is allocated twice. Accordingly, the Exchange does not allocate its entire information technology and communication costs to the services associated with the Proposed Access Fees.
The Exchange believes it is reasonable to allocate such third-party expense described above towards the total cost to the Exchange to operate and support the network, including providing the services associated with the Proposed Access Fees.
The Exchange believes it is reasonable to allocate the identified portions of the Zayo expense because Zayo provides the internet, fiber and bandwidth connections with respect to the network, linking MIAX PEARL Equities with the Exchange's affiliates, MIAX and MIAX Emerald, as well as the data center and disaster recovery locations. As such, all of the trade data flow through Zayo's infrastructure over the Exchange's network. Without these services from Zayo, the Exchange would not be able to operate and support the network and provide the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. The Exchange did not allocate all of the Zayo expense toward the cost of providing the services associated with the Proposed Access Fees, only the portions which the Exchange identified as being specifically mapped to providing the services associated with the Proposed Access Fees, approximately 66% of the total Zayo expense (62% allocated towards the cost of providing the provision of network connectivity and 4% allocated towards the cost of providing ports). The Exchange believes these allocations are reasonable because they represent the Exchange's actual cost to provide the services associated with the Proposed Access Fees, and not any other service, as supported by its cost review.
The Exchange believes it is reasonable to allocate the identified portions of the SFTI expense and various other service providers' (including Thompson Reuters, NYSE, Nasdaq, Internap, and Options IT) expense because those entities provide connectivity and feeds for the entire U.S. securities industry as well as the content, connectivity services, infrastructure services, and market data services for critical components of the network. Without these services from SFTI and various other service providers, the Exchange would not be able to operate and support the network and provide the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. The Exchange did not allocate all of the SFTI
The Exchange believes it is reasonable to allocate the identified portion of the other hardware and software provider expense because this includes costs for dedicated hardware licenses for switches and servers, as well as dedicated software licenses for security monitoring and reporting across the network. Without this hardware and software, the Exchange would not be able to operate and support the network and provide the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. The Exchange did not allocate all of the hardware and software provider expense toward the cost of providing the services associated with the Proposed Access Fees, only the portions which the Exchange identified as being specifically mapped to providing the services associated with the Proposed Access Fees, approximately 57% of the total hardware and software provider expense (54% allocated towards the cost of providing the provision of network connectivity and 3% allocated towards the cost of providing ports). The Exchange believes these allocations are reasonable because they represent the Exchange's actual cost to provide the services associated with the Proposed Access Fees, and not any other service, as supported by its cost review.
For 2020, total projected internal expense, relating to the internal costs of the Exchange to provide the services associated with the Proposed Access Fees, is projected to be $6,905,858. This includes, but is not limited to, costs associated with: (1) Employee compensation and benefits for full-time employees that support the services associated with the Proposed Access Fees, including staff in network operations, trading operations, development, system operations, business, etc., as well as staff in general corporate departments (such as legal, regulatory, and finance) that support those employees and functions; (2) depreciation and amortization of hardware and software used to provide the services associated with the Proposed Access Fees, including equipment, servers, cabling, purchased software and internally developed software used in the production environment to support those services for trading; and (3) occupancy costs for leased office space for staff that support the services associated with the Proposed Access Fees. The breakdown of these costs is more fully-described below.
For clarity, only a portion of all such internal expenses are included in the internal expense herein (only the portions that support the services associated with the Proposed Access Fees), and no expense amount is allocated twice. Accordingly, the Exchange does not allocate its entire costs contained in those line items to the services associated with the Proposed Access Fees.
The Exchange believes it is reasonable to allocate such internal expense described above towards the total cost to the Exchange to operate and support the network, including providing the services associated with the Proposed Access Fees. In particular, MIAX PEARL Equities' employee compensation and benefits expense relating to providing the services associated with the Proposed Access Fees is projected to be $4,317,667, which is only a portion of the $13,492,708 total projected expense for employee compensation and benefits. The Exchange believes it is reasonable to allocate the identified portions of each expense because they include the time spent by employees of several departments, including Technology, Back Office, Systems Operations, Networking, Business Strategy Development (who create the business requirement documents that the Technology staff use to develop network features and enhancements), Trade Operations, Finance (who provide billing and accounting services), and Legal (who provide legal services, such as rule filings and various license agreements and other contracts). As part of the extensive cost review conducted by the Exchange, the Exchange reviewed the amount of time spent by each employee on matters relating to the operation and support of the network, including the services associated with the Proposed Access Fees. Without these employees, the Exchange would not be able to operate and support the network and provide the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. The Exchange did not allocate all of the employee compensation and benefits expense toward the cost of providing the services associated with the Proposed Access Fees, only that portion which the Exchange identified as being specifically mapped to providing the services associated with Proposed Access Fees, approximately 32% of the total employee compensation and benefits expense (29% allocated towards the cost of providing the provision of network connectivity and 3% allocated towards the cost of providing ports). The Exchange believes these allocations are reasonable because they represent the Exchange's actual cost to provide the services associated with the Proposed Access Fees, and not any other service, as supported by its cost review.
MIAX PEARL Equities' depreciation and amortization expense relating to providing the services associated with the Proposed Access Fees is projected to be $2,131,411, which is only a portion of the $2,664,264 total projected expense for depreciation and amortization. The Exchange believes it is reasonable to allocate the identified portions of such projected expense because such expense includes the actual cost of the computer equipment, such as dedicated servers, computers, laptops, monitors, information security appliances and storage, and network switching infrastructure equipment, including switches and taps that were purchased to operate and support the network. Without this equipment, the Exchange would not be able to operate the network and provide the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. The Exchange did not allocate all of the projected depreciation and amortization expense toward the cost of providing the services associated with the Proposed Access Fees, only the portions which the Exchange identified as being specifically mapped to providing the services associated with the Proposed Access Fees, approximately 80% of the total depreciation and amortization expense (76% allocated towards the cost of providing the provision of network connectivity and 4% allocated towards the cost of providing ports). The services associated with the Proposed Access Fees would not be possible without relying on such equipment. The Exchange believes these allocations are reasonable because they represent the Exchange's actual cost to provide the services associated with the Proposed
MIAX PEARL Equities' occupancy expense relating to providing the services associated with the Proposed Access Fees is projected to be $456,780, which is only a portion of the $878,423 total projected expense for occupancy. The Exchange believes it is reasonable to allocate the identified portions of such projected expense because such expense represents the portion of the Exchange's cost to rent and maintain a physical location for the Exchange's staff who operate and support the network, including providing the services associated with the Proposed Access Fees. These amounts consist primarily of rent for the Exchange's Princeton, New Jersey office, as well as various related costs, such as physical security, property management fees, property taxes, and utilities. The Exchange operates its Network Operations Center (“NOC”) and Security Operations Center (“SOC”) from its Princeton, New Jersey office location. A centralized office space is required to house the staff that operates and supports the network. The Exchange currently has approximately 150 employees (and continues to increase its headcount to support the network as the Exchange, and its affiliates, grow the network). Approximately two-thirds of the Exchange's staff are in the Technology department, and the majority of those staff members have some role in the operation and performance of the network. Without this office space, the Exchange would not be able to operate and support the network and provide the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. Accordingly, the Exchange believes it is reasonable to allocate the identified portions of its occupancy expense because such amounts represent the Exchange's actual cost to house the equipment and personnel who operate and support the Exchange's network infrastructure for the services associated with the Proposed Access Fees. The Exchange did not allocate all of the projected occupancy expense toward the cost of providing the services associated with the Proposed Access Fees, only the portions which the Exchange identified as being specifically mapped to providing the services associated with the Proposed Access, approximately 52% of the total occupancy expense (48% allocated towards the cost of providing the provision of network connectivity and 4% allocated towards the cost of providing ports). The Exchange believes these allocations are reasonable because they represent the Exchange's actual cost to provide the services associated with the Proposed Access Fees, and not any other service, as supported by its cost review.
The Exchange notes that a material portion of its total overall expense is allocated to the provision of services associated with the Proposed Access Fees. The Exchange believes this is reasonable and in line, as the Exchange operates a technology-based business that differentiates itself from its competitors based on its trading systems that rely on its high performance network, resulting in significant technology expense. Over two-thirds of Exchange staff are technology-related employees. The majority of the Exchange's expense is technology-based. As described above, the Exchange has only four primary sources of fees in to recover its costs, thus the Exchange believes it is reasonable to allocate a material portion of its total overall expense towards the Proposed Access Fees.
The Exchange's monthly revenue for the Proposed Access Fees is based on the following purchases by Equity Members and non-Members during a recent billing cycle: (i) 12 1Gb ULL connections; (ii) 81 10Gb ULL connections; and (iii) 103 MEO Ports. The monthly revenue from Port fees is subject to change from month to month depending on the number of Ports purchased. Accordingly, the Exchange's total monthly Port revenue was $22,800 and total 1 Gb and 10Gb ULL connectivity revenue was $295,500. The Exchange notes that the port revenue projections are subject to change depending on market participant needs and the tiers achieved. As such, the projection of $295,500 per month is not a static number and may fluctuate from month to month.
Accordingly, based on the facts and circumstances presented, the Exchange believes that its provision of the services associated with the Proposed Access Fees will not result in excessive pricing or supra-competitive profit. To illustrate, on a going-forward, fully-annualized basis, the Exchange projects that its annualized revenue for providing the services associated with the Proposed Access Fees would be approximately $3,600,000 per annum, based on a recent billing cycle. The Exchange projects that its annualized expense for providing the services associated with the Proposed Access Fees would be approximately $8,400,000 per annum. Accordingly, on a fully-annualized basis, the Exchange believes its total projected revenue for the providing the services associated with the Proposed Access Fees will not result in excessive pricing or supra-competitive profit, as the Exchange will incur a loss of $4,800,000 on the Proposed Access Fees ($3.6 million − $8.4 million = ($4.8 million per annum)).
For the avoidance of doubt, none of the expenses included herein relating to the services associated with the Proposed Access Fees relate to any other services offered by MIAX PEARL Equities. Stated differently, no expense amount of the Exchange is allocated twice. The Exchange notes that, with respect to MIAX PEARL Equities expenses included herein, those expenses only cover the MIAX PEARL Equities market; expenses associated with the Exchange's options trading platform, its affiliate exchanges, MIAX and MIAX Emerald, are accounted for separately and are not included within the scope of this filing. Stated differently, no expense amount of the Exchange is also allocated to its options trading platform, MIAX or MIAX Emerald.
The Exchange believes it is reasonable, equitable and not unfairly discriminatory to allocate the respective percentages of each expense category described above towards the total cost to the Exchange of operating and supporting the network, including providing the services associated with the Proposed Access Fees, because the Exchange performed a line-by-line item analysis of all the expenses of the Exchange, and has determined the expenses that directly relate to operation and support of the network, including the services associated with the Proposed Access Fees. Further, the Exchange notes that, without the specific third-party and internal items listed above, the Exchange would not be able to operate and support the network, including the services associated with the Proposed Access Fees to Equity Members and non-Members and their customers. Each of these expense items, including physical hardware, software, employee compensation and benefits, occupancy costs, and the depreciation and amortization of equipment, have been identified through a line-by-line item analysis to be integral to the operation and support of the network. The Proposed Access Fees are intended to recover the Exchange's costs (less than all) of operating and supporting the network, including providing the services associated with the Proposed Access Fees.
Accordingly, the Proposed Access Fees are fair and reasonable because
The Exchange notes that other equities exchanges have similar connectivity alternatives for their participants, including similar low-latency connectivity. For example, the Nasdaq Stock Market LLC (“Nasdaq”), Nasdaq PHLX LLC (“Phlx”), and Nasdaq ISE, LLC (“ISE”) all offer a 1Gb, 10Gb and 10Gb low latency ethernet connectivity alternatives to each of their participants.
The Exchange believes the proposed fee for Historical Data is a reasonable allocation of its costs and expenses among its Equity Members and other persons using its facilities since it is recovering the costs associated with distributing such data should an Equity Member request Historical Data. Access to the Exchange is provided on fair and non-discriminatory terms. The Exchange believes the proposed fee for Historical Data is equitable and not unfairly discriminatory because the fee level results in a reasonable and equitable allocation of fees amongst users for similar services. Moreover, the decision as to whether or not to purchase Historical Data is entirely optional to all users. Potential purchasers are not required to purchase the Historical Data, and the Exchange is not required to make the Historical Data available. Purchasers may request the data at any time or may decline to purchase such data. The allocation of fees among users is fair and reasonable because, if the market deems the proposed fees to be unfair or inequitable, firms can diminish or discontinue their use of this data.
The Exchange believes that the proposed fee for Historical Data is consistent with Section 6(b)(4) of the Act because the Proposed Access Fees will permit recovery of the Exchange's costs and will not result in excessive or supra-competitive profit. The proposed fee for Historical Data will allow the Exchange to recover a portion (less than all) of the costs incurred by the Exchange associated with providing and maintaining the necessary hardware and other infrastructure as well as network monitoring and support services in order to provide Historical Data. The Exchange believes that it is reasonable and appropriate to establish a fee for Historical Data at a level that will partially offset the costs to the Exchange associated with maintaining and providing Historical Data. For example, Historical Market Data is uploaded onto an Exchange-provided device. Each device shall have a maximum storage capacity of 8 terabytes. The Exchange incurs costs in providing the device, storing the historical data, and utilizing resources to upload the data onto the device. Specifically, the device provided by the Exchange costs approximately $200 to $300. Moreover, the Exchange tracks the number of hours spent by Exchange personnel procuring Historical Market Data. Based on the average number of person hours spent by the Exchange on procuring Historical Market Data, and based on the Exchange's average cost per full-time employee (“FTE”) of approximately $250,000 (inclusive of all compensation and employee benefits) per year, the Exchange represents that its cost to provide this service is reasonably related to (and often exceeds) the amount of the Historical Market Data fee the Exchange proposes to charge for such service. Therefore, the FTE cost to the Exchange on average $130 an hour and it takes approximately four FTE hours to process a request for Historical Market Data. Accordingly, the proposed Historical Market Data fee would enable the Exchange to recover a material portion of its costs to provide Historical Market Data. The Exchange believes this is a conservative cost allocation because the Exchange is not allocating any additional costs beyond the employee compensation for employees directly involved in this process and the cost of the device. These unallocated addition costs include technology costs of employees, office space costs of employees, costs associated with supporting departments' time for things such as internal meetings, project management coordination among the individuals who indirectly support the provision of Historical Market Data, and various other indirectly-related costs.
The Exchange also notes that its proposed fee is identical to that it charges today for options historical data and less than that charged by other exchanges for their own historical data. For example, all four of the Cboe equity exchanges charge a fee of $500 for one month of historical data and $2,500 for one terabyte drive of data.
The Exchange believes that the proposed pass-through of external connectivity fees constitutes an equitable allocation of fees, and is not unfairly discriminatory, because it allows the Exchange to recover costs associated with offering access through the network connections, responding to customer requests, configuring MIAX PEARL Equities' systems, programming
The Exchange believes it is reasonable, equitable and not unfairly discriminatory to pass-through External Connectivity fees to Equity Members and non-Members that establish connections with MIAX PEARL Equities through a third-party. MIAX PEARL Equities will only pass-through the actual costs it is charged by third-party external vendors. The Exchange believes it is reasonable and equitable to recover costs charged it on behalf of an Equity Member or non-Member that establishes connections with MIAX PEARL Equities through a third party. Other exchanges, including EDGX and EDGA, charge a fee for similar services to their members and non-members.
The Exchange believes that the proposed Technical Support Request fee is fair, equitable and not unreasonably discriminatory, because it is assessed equally to all Equity Members and non-Members who request technical support. Furthermore, Equity Members and non-Members are not required to use the service but instead it is offered as a convenience to all Equity Members and non-Members. The proposed fee is reasonably designed because it will permit both Equity Members and non-Members to request the use of the Exchange's on-site data center personnel as technical support and as a convenience in order to test or otherwise assess their connectivity to the Exchange and the fee is within the range of the fee charged by other exchanges for similar services and is identical to the same fee assessed by the Exchange today for options as well as the Exchange's affiliates, MIAX and MIAX Emerald.
As discussed above, the Exchange's average cost per FTE of approximately $250,000 (inclusive of all compensation and employee benefits) per year, the Exchange represents that its cost to provide this service is reasonably related to (and often exceeds) the amount of the Technical Support fee the Exchange proposes to charge for such service. Therefore, the cost to the Exchange to provide an employee to provide technical support is approximately $130 per FTE. Also, more than one FTE may be involved depending on the nature of the request. Accordingly, the proposed per hour fee for technical support would enable the Exchange to recover a material portion of such cost. The Exchange believes this is a conservative cost allocation because the Exchange is not allocating any additional costs beyond the employee compensation costs for employees directly involved in this process. These unallocated addition costs include costs associated with potential management review and sign off, technology costs of employees, office space costs of employees, costs associated with supporting departments' time for things such as internal meetings, project management coordination among the individuals who indirectly support the technology support process, and various other indirectly-related costs.
Finally, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues. In such an environment, the Exchange must establish fees that are competitive with other exchanges. For the reasons described above, the Exchange believes that the proposed fees in the MIAX PEARL Equities Fee Schedule appropriately reflect this competitive environment.
The Exchange believes that the Proposed Fees do not place certain market participants at a relative disadvantage to other market participants because the pricing of the Proposed Fees is associated with relative usage of the various market participants and does not impose a barrier to entry to smaller participants. The Exchange believes the Proposed Fees do not favor certain categories of market participants in a manner that would impose a burden on competition; rather, the allocation of the Proposed Fees reflects the network and access resources consumed by various market participants.
The Exchange believes the Proposed Fees do not place an undue burden on competition on other SROs that is not necessary or appropriate. Additionally, other equity exchanges have similar connectivity and port alternatives for their participants, including similar low-latency connectivity, but with much higher rates to connect.
While the Exchange recognizes the distinction between connecting to an exchange and trading at the exchange, the Exchange notes that it plans to operate in a highly competitive market in which market participants can readily connect and trade with venues they desire. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges. The Exchange believes that the Proposed Fees reflect this competitive environment.
Written comments were neither solicited nor received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act,
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On December 18, 2020, Cboe Exchange, Inc. (“Cboe” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange is proposing to amend its rules to permit it to list and trade, on a pilot basis, cash-settled MRUT options with Expiration Friday expiration dates, for which the exercise settlement value will be based on the index value derived from the closing prices of the component securities (“P.M.-settled”). MRUT options are options on the Mini-RUT Index, the value of which is 1/10th the value of the Russell 2000 (“RUT”) Index.
The Exchange proposes to add P.M.-settled MRUT options to the Exchange's pilot program under Interpretation and Policy .13 to Rule 4.13 that allows the listing of P.M. settled options that expire on Expiration Friday (“P.M. Pilot Program”). The Exchange notes that the existing P.M. Pilot Program, which is set to end on May 3, 2021, includes options on the Mini-SPX Index (“XSP”), the value of which is 1/10th the value of the S&P 500 Index.
The Exchange notes that trading in P.M.-settled MRUT options would operate in the same manner as provided in the proposal to list and trade Mini-RUT options on the Exchange. That is, P.M.-settled MRUT options would have the same European-style exercise, same number of permissible expirations, same exercise interval prices and limitations, same position and exercise limits, and will trade in the same minimum price increment.
The Exchange proposes to abide by the same reporting requirements for the trading of P.M.-settled MRUT options that it does for the trading of P.M.-settled XSP options.
Going forward, the Exchange would include the same analysis of P.M.-settled MRUT options, as well as trading in securities that comprise the RUT Index (as MRUT options are based on 1/10th the value of the RUT Index), in the annual reports. Also, like it currently does for P.M.-settled XSP options, the Exchange would submit periodic interim reports for P.M.-settled MRUT options that contain some, but not all, of the information contained in the annual reports.
The pilot reports will both contain the following volume and open interest data:
(1) Monthly volume aggregated for all trades;
(2) monthly volume aggregated by expiration date;
(3) monthly volume for each individual series;
(4) month-end open interest aggregated for all series;
(5) month-end open interest for all series aggregated by expiration date; and
(6) month-end open interest for each individual series.
The annual reports will also contain the information noted in Items (1) through (6) above for Expiration Friday, A.M.-settled, RUT index options traded on Cboe, as well as the following analysis of trading patterns in P.M.-settled MRUT options series in the Pilot Program:
(1) A time series analysis of open interest; and
(2) an analysis of the distribution of trade sizes.
Finally, for series that exceed certain minimum parameters, the annual reports will contain the following analysis related to index price changes and underlying share trading volume at the close on Expiration Fridays:
(1) A comparison of index price changes at the close of trading on a given Expiration Friday with comparable price changes from a control sample. The data includes a calculation of percentage price changes for various time intervals and compare that information to the respective control sample. Raw percentage price change data as well as percentage price change data normalized for prevailing market volatility, as measured by the Cboe Volatility Index (VIX), is provided; and
(2) a calculation of share volume for a sample set of the component securities representing an upper limit on share trading that could be attributable to expiring in-the-money series. The data includes a comparison of the calculated share volume for securities in the sample set to the average daily trading volumes of those securities over a sample period.
The minimum open interest parameters, control sample, time intervals, method for randomly selecting the component securities, and sample periods are determined by the Exchange and the Commission. Additionally, the Exchange would provide the Commission with any additional data or analyses the Commission requests because it deems such data or analyses necessary to determine whether the P.M. Pilot Program, including P.M.-settled MRUT options as proposed, is consistent with the Exchange Act. As it does for current P.M. Pilot products, the Exchange would make public any data and analyses in connection with P.M.-settled MRUT options it submits to the Commission under the Pilot Program.
Further, the Exchange proposes to amend Rule 5.1, which governs trading days and hours, in conjunction with the proposed addition of MRUT options to the P.M. Pilot Program. Cboe Rule 5.1(b)(2)(C) currently provides that on their last trading day, Regular Trading Hours for P.M.-settled XSP options are between 9:30 a.m. and 4:00 p.m. Eastern Time (as opposed to the 9:30 a.m. to 4:15 p.m. Regular Trading Hours for options with those expirations that are non-expiring). The proposed rule change amends Rule 5.1(b)(2)(C) to apply these time frames to the trading of P.M.-settled MRUT options on their last trading day.
With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it and the Options Price Reporting Authority have the necessary systems capacity to handle any potential additional traffic associated with trading of P.M.-settled MRUT options.
After careful consideration of the proposal, the Commission finds that the proposed rule is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,
As the Commission noted in its orders approving the listing and trading of P.M.-settled options on the S&P 500 Index (“SPXPM”), the Commission has had concerns about the potential adverse effects and impact of P.M. settlement upon market volatility and the operation of fair and orderly markets on the underlying cash markets at or near the close of trading, including for cash-settled derivatives contracts based on a broad-based index.
For the reasons described below, the Commission believes that the Exchange's proposal to add P.M.-settled MRUT options to the P.M. Pilot Program is designed to mitigate concerns regarding P.M. settlement and will provide additional trading opportunities for investors while providing the Commission with data to monitor the effects of MRUT options and the impact of P.M. settlement on the markets. To assist the Commission in assessing any potential impact of a P.M.-settled Mini-RUT index option on the options market as well as the underlying cash equities markets, Cboe will be required to submit data to the Commission in connection with the P.M. Pilot Program. The Commission believes that Cboe's P.M. Pilot Program, together with the data and analysis that the Exchange will provide to the Commission, will allow Cboe and the Commission to monitor for and assess any potential for adverse market effects of allowing P.M. settlement for Mini-RUT index options, including on the underlying component stocks. In particular, the data collected from Cboe's P.M. Pilot Program will help inform the Commission's consideration of whether the P.M. Pilot
The Exchange represents that it has adequate surveillance procedures to monitor trading in these options thereby helping to ensure the maintenance of a fair and orderly market
For the reasons discussed above, the Commission finds that Cboe's proposal is consistent with the Act, including Section 6(b)(5) thereof, in that it is designed to remove impediments to and perfect the mechanism of a free and open market, and, in general, to protect investors and the public interest. In light of the enhanced closing procedures at the underlying markets and the potential benefits to investors discussed by the Exchange in the Notice,
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On October 22, 2020, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act” or “Exchange Act”)
The proposed rule change was published for comment in the
As described in the Notice, FINRA Regulation is the regulatory subsidiary of FINRA and operates according to the Plan of Allocation and Delegation of Functions by FINRA to Subsidiaries (the “Plan”).
FINRA also states that it periodically reviews its and FINRA Regulation's By-Laws to ensure adherence to effective governance practices.
FINRA further explains that the removal of a NAC member would continue to require a majority vote of the FINRA Board, while a vote to remove a FINRA Board governor requires a two-thirds vote.
FINRA also states that, given the NAC's adjudicatory role, the best interests of the NAC are more targeted than the best interests of FINRA.
After careful review of the proposed rule change, the Commission finds that the proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder that are applicable to a national securities association.
As a threshold matter, the Commission observes that the provision that is being added to the FINRA Regulation By-Laws by this proposed rule change mirrors a parallel provision found in the FINRA By-Laws.
As the Commission explained in approving the FINRA By-Laws, Section 15A(b)(4) requires that the rules of a national securities association, like FINRA, assure the fair representation of its members in, among other things, the administration of its affairs.
Furthermore, in approving certain amendments to the then-NASD Regulation By-Laws, the Commission found that because those amendments conformed certain NASD Regulation By-Laws provisions to the relevant
The Commission further observes that the NAC acts on behalf of the FINRA Board in several important capacities, including presiding over disciplinary matters that have been appealed to or called for review by the NAC and acting on applications in statutory disqualification and membership proceeding.
In sum, the Commission finds that the proposal will continue to help assure the fair representation of FINRA members in the administration of FINRA's affairs. The Commission also finds that this proposal will help protect investors and further the public interest by supporting fair and impartial adjudicatory processes for, among other things, FINRA's disciplinary matters as well as statutory disqualification and membership proceedings.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to modify Rule 971.2NY regarding its Complex Customer Best Execution (“CUBE”) auction to provide optional all-or-none functionality for larger-sized orders and to make conforming changes to Rule 971.1NY to clarify existing functionality of the Single-Leg AON CUBE functionality. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to expand its electronic crossing mechanism—the CUBE Auction, to provide optional all-or-none (“AON”)
The proposed rule change would be consistent with the recently approved AON CUBE Order functionality for the Single-Leg CUBE Auction.
The Complex CUBE Auction operates seamlessly with the Consolidated Book—while still affording Complex CUBE Orders an opportunity to receive price improvement.
The proposal to expand the current Complex CUBE Auction functionality by providing an additional (optional) method for market participants to effect larger-sized orders in the Complex CUBE Auction would likewise operate seamlessly with the Consolidated Book. The Exchange also believes this proposal would encourage ATP Holders to compete vigorously to provide the opportunity for price improvement for larger-sized orders in a competitive auction process, which may lead to enhanced liquidity and tighter markets.
The Exchange proposes to add new Commentary .04 to Rule 971.2NY to provide that a Complex CUBE Order that has at least 500 contracts on the smallest leg would execute in full at the single stop price against the Complex Contra Order, except under specified circumstances (the “AON Complex CUBE Order”).
The CUBE BBO for a proposed AON Complex CUBE Order would be determined in the same manner as for a standard Complex CUBE Order.
As proposed, an AON Complex CUBE Order would execute in full with the Complex Contra Order at the single stop price even if there is non-Customer interest priced better than the stop price that, either on its own or when aggregated with other better-priced non-Customer RFR Responses, is insufficient to satisfy the full quantity of the AON Complex CUBE Order.
(b) The Complex Contra Order will not receive any allocation and will be cancelled (i) if RFR Responses that are priced better than the stop price can satisfy the full quantity of the AON Complex CUBE Order or (ii) there is contra-side Customer interest at the stop price or better that on its own, or when aggregated with RFR Responses equal to or priced better than the stop price, can satisfy the full quantity of the AON Complex CUBE Order. In either such case, the RFR Responses will be allocated as provided for in paragraphs (c)(4)(A) and (c)(4)(B)(i) of this Rule, as applicable.
Thus, if there is price-improving contra-side interest that can satisfy the AON condition of the Auction, the AON
As further proposed, both the AON CUBE Order and Contra Order would be cancelled,
(c) The AON Complex CUBE Order and Complex Contra Order will both be cancelled if there is contra-side Customer interest at the stop price or better and such interest, either on its own or when aggregated with RFR Responses equal to or priced better than the stop price is insufficient to satisfy the full quantity of the AON Complex CUBE Order.
Thus, as proposed, if there is contra-side Customer interest at the stop price, but there is not enough size (considering the Customer interest and all RFR Responses at the stop price or better) to satisfy the entire AON Complex CUBE Order, then both the AON Complex CUBE Order and the Contra Complex Order would be cancelled. The Exchange believes that this proposal is consistent with the terms of how AONs function generally without violating the Exchange's general priority rules.
With the exception of differences to the minimum size and allocation described in proposed Commentary .04 to Rule 971.2NY, an AON Complex CUBE auction would be subject to all of the provisions of Rule 971.2NY.
Finally, proposed paragraph (d) to Commentary .04 to Rule 971.2NY would provide that prior to entering an agency order (
The Exchange will announce the implementation date of the proposed rule change in a Trader Update to be published no later than 60 days following the approval of this proposed rule change. The Exchange has already notified ATP Holders about the planned implementation of AON Complex CUBE functionality, which has provided them advance time to prepare their systems for participation in the AON Complex CUBE Auction once it becomes available.
For the reasons set forth above, the Exchange believes the proposed rule change is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest.
The proposed optional all-or-none functionality for larger-sized orders, which is consistent with Exchange's recently approved Single-Leg AON CUBE Order functionality,
This proposal would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would provide ATP Holders that locate liquidity for their customers' larger-sized orders a facility in which to execute those orders at the agreed-upon price, while also providing an opportunity for such orders to be price improved. In addition, ATP Holders that opt to utilize this proposed functionality would have an equal opportunity to initiate their own or to respond with their best prices to other AON CUBE Auctions. The Exchange believes the proposed functionality would promote and foster competition and provide more options contracts with the opportunity for price improvement.
The Exchange believes that the proposed functionality would provide more efficient transactions, reduce execution risk to ATP Holders, and afford greater execution opportunities for larger-sized orders. The proposed functionality would operate within the Complex CUBE (including by integrating Complex CUBE into the Complex Matching Engine, per Rule 971.2NY(a)) such that the Exchange is able to assure that the proposed functionality would continue to respect the priority of interest, in particular Customer interest. The proposal ensures that the AON Complex CUBE Order is exposed to ATP Holders for the possibility of price improvement and that Customer orders on the Exchange are protected. As noted above, at the conclusion of an AON Complex CUBE Auction, the AON Complex CUBE Order would be executed in full (against the Complex Contra Order or eligible contra-side auction interest) or would be cancelled, together with the Complex Contra Order.
Further, the proposed functionality is reasonable and promotes a fair and orderly market and national market system, because it is substantially similar to the price- improvement mechanisms for larger-sized orders available on other options exchanges. The Exchange believes this proposal may lead to an increase in Exchange volume and should allow the Exchange to better compete against other markets that already offer an all-or-none electronic solicitation mechanism for larger-sized orders. The Exchange believes that its proposal would allow the Exchange to better compete for solicited transactions, while providing an opportunity for price improvement on the larger-sized orders. In addition, the proposed functionality should promote and foster competition and provide more options contracts with the opportunity for price improvement, which should benefit market participants.
The proposed clarifications to the Single-Leg CUBE Auction Rule would protect investors and the public interest because the proposed changes add clarity, transparency and internal consistency to Exchange rules.
Finally, consistent with other options exchanges offering similar price- improvement auctions, the proposed rule change would require ATP Holders to provide customers with the terms and conditions of agency orders that might be submitted as AON Complex CUBE Orders on their behalf.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change would impose any burden on intramarket competition, as the proposed rule change will apply in the same manner to all orders submitted as AON Complex Orders to the Complex CUBE Auction. The Exchange recently received rule approval for AON CUBE Order functionality in the Single-Leg CUBE Auction, which operates in a substantially similar manner to the complex functionality, accounting for differing priority and allocation rules.
The Exchange is proposing the functionality for Complex Orders as an optional market enhancement that, if utilized, should increase competition for ATP Holders seeking to execute such larger-sized orders in an electronic auction mechanism. ATP Holders that opt to utilize this proposed functionality would have an equal opportunity to initiate their own or to respond with their best prices to other AON CUBE Auctions. The Exchange notes that other options exchanges offer electronic auction mechanisms for larger-sized orders on an AON basis. The Exchange believes the proposed functionality would provide ATP Holders with a greater choice of exchanges from which to execute such orders. The proposal is structured to offer the same enhancement to all market participants and would not impose an intra-market competitive burden on any participant. The price-improvement functionality for the AON Complex CUBE Auction is designed to promote competition for ATP Holders to compete amongst each other by responding with not only their best price, but also the full size for a particular auction.
The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues who offer similar functionality. The Exchange believes that the proposed rule change will relieve any burden on, or otherwise promote, competition. The Exchange believes this proposed rule change is necessary to permit fair competition among the options exchanges and to establish more uniform price-improvement auction rules on the various options exchanges. The proposed functionality may lead to an increase in Exchange volume and should allow the Exchange to better compete against other markets that already offer similar price-improvement mechanisms for larger-sized orders. The Exchange anticipates that this proposal will create new opportunities for the Exchange to attract new business and compete on equal footing with those options exchanges that offer auction AON functionality for larger-sized Complex Orders and for this reason the proposal does not create an undue burden on intermarket competition. By contrast, not having the proposed functionality places the Exchange at a competitive disadvantage vis-à-vis other exchanges that offer similar price-improvement mechanisms for larger-sized Complex Orders.
No written comments were solicited or received with respect to the proposed rule change.
The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B)
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
86 FR 8061, February 3, 2021.
Tuesday, February 9, 2021 at 5:00 p.m.
The Closed Meeting scheduled for Tuesday, February 9, 2021 at 5:00 p.m., has been cancelled.
For further information; please contact Vanessa A. Countryman from the Office of the Secretary at (202) 551-5400.
Securities and Exchange Commission (“Commission”).
Notice.
Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the Act, and under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act.
The RBB Fund, Inc. (the “Company”), Red Gate Advisers, LLC (the “Initial Adviser”), and Herald Investment Marketing, LLC (the “Distributor”).
Applicants request an order (“Order”) that permits: (a) Shielded Alpha ETFs (as described in the Reference Order (defined below)) to issue shares (“Shares”) redeemable in large aggregations only (“creation units”); (b) secondary market transactions in Shares to occur at negotiated market prices rather than at net asset value; (c) certain Shielded Alpha ETFs to pay redemption proceeds, under certain circumstances, more than seven days after the tender of Shares for redemption; and (d) certain affiliated persons of a Shielded Alpha ETF to deposit securities into, and receive securities from, the Shielded Alpha ETF in connection with the purchase and redemption of creation units. The relief in the Order would incorporate by reference terms and conditions of the same relief of a previous order granting the same relief sought by applicants, as that order may be amended from time to time (“Reference Order”).
The application was filed on September 28, 2020 and amended on December 10, 2020 and on January 15, 2020.
An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by emailing the Commission's Secretary at
The Commission:
Harry Eisenstein, Senior Special Counsel, at (202) 551-6764, or Kaitlin Bottock, Branch Chief, at (202) 551-6825 (Division of Investment Management, Chief Counsel's Office).
The following is a summary of the application. The complete application may be obtained via the Commission's website by searching for the file number, or for an applicant using the Company name box, at
1. The Company is a corporation organized under the laws of Maryland and will consist of one or more series operating as Shielded Alpha ETFs. The Company is registered as an open-end management investment company under the Act. Applicants seek relief with respect to Funds (as defined below), including an initial Fund (the “Initial Fund”). The Funds will operate as Shielded Alpha ETFs as described in the Reference Order.
2. The Initial Adviser is a limited liability company organized under the laws of Pennsylvania and will be the investment adviser to the Initial Fund. Subject to approval by the Fund's board of directors, an Adviser (as defined below) will serve as investment adviser to each Fund. The Initial Adviser is, and any other Adviser will be, registered as an investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”). The Adviser may enter into sub-advisory agreements with other investment advisers to act as sub-advisers with respect to the Funds (each a “Sub-Adviser”). Any Sub-Adviser will be registered under the Advisers Act.
3. The Distributor is a limited liability company organized under the laws of Pennsylvania and a broker-dealer registered under the Securities Exchange Act of 1934, as amended, and will act as the principal underwriter of Shares of the Funds. Applicants request that the requested relief apply to any distributor of Shares, whether affiliated or unaffiliated with the Adviser and/or Sub-Adviser (included in the term “Distributor”). Any Distributor will comply with the terms and conditions of the Order.
4. Applicants seek the requested Order under section 6(c) of the Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1 under the Act, and under sections 6(c) and 17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the Act. The requested Order would permit applicants to offer Funds that operate as Shielded Alpha ETFs. Because the relief requested is the same as certain of the relief granted by the Commission under the Reference Order and because the Initial Adviser has entered into a licensing agreement with Blue Tractor Group, LLC, or an affiliate thereof, in order to offer Funds that operate as Shielded Alpha ETFs, the Order would incorporate by reference the terms and conditions of the same relief of the Reference Order.
5. Applicants request that the Order apply to the Initial Fund and to any other existing or future registered open-end management investment company or series thereof that: (a) Is advised by the Initial Adviser or any entity controlling, controlled by, or under common control with the Initial Adviser (any such entity, along with the Initial Adviser, included in the term “Adviser”); (b) operates as a Shielded Alpha ETF as described in the Reference Order; and (c) complies with the terms and conditions of the Order and the terms and conditions of the Reference Order that are incorporated by reference
6. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction, or any class of persons, securities or transactions, from any provisions of the Act, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Section 17(b) of the Act authorizes the Commission to exempt a proposed transaction from section 17(a) of the Act if evidence establishes that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the transaction is consistent with the policies of the registered investment company and the general purposes of the Act. Applicants submit that for the reasons stated in the Reference Order the requested relief meets the exemptive standards under sections 6(c) and 17(b) of the Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Loan Guaranty Service, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995, this notice announces that the Loan Guaranty Service, Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden and it includes the actual data collection instrument.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Maribel Aponte, Office of Enterprise and Integration, Data Governance Analytics (008), 1717 H Street NW, Washington, DC 20006, (202) 266-4688 or email
Under the PRA of 1995, Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to Section 3506(c)(2)(A) of the PRA.
By direction of the Secretary:
Office of the Comptroller of the Currency, Department of the Treasury; Board of Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation.
Final rule.
The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) are adopting a final rule that implements a stable funding requirement, known as the net stable funding ratio (NSFR), for certain large banking organizations. The final rule establishes a quantitative metric, the NSFR, to measure the stability of the funding profile of certain large banking organizations and requires these banking organizations to maintain minimum amounts of stable funding to support their assets, commitments, and derivatives exposures over a one-year time horizon. The NSFR is designed to reduce the likelihood that disruptions to a banking organization's regular sources of funding will compromise its liquidity position, promote effective liquidity risk management, and support the ability of banking organizations to provide financial intermediation to businesses and households across a range of market conditions. The NSFR supports financial stability by requiring banking organizations to fund their activities with stable sources of funding on an ongoing basis, reducing the possibility that funding shocks would substantially increase distress at individual banking organizations. The final rule applies to certain large U.S. depository institution holding companies, depository institutions, and U.S. intermediate holding companies of foreign banking organizations, each with total consolidated assets of $100 billion or more, together with certain depository institution subsidiaries (together, covered companies). Under the final rule, the NSFR requirement increases in stringency based on risk-based measures of the top-tier covered company. U.S. depository institution holding companies and U.S. intermediate holding companies subject to the final rule are required to publicly disclose their NSFR and certain components of their NSFR every second and fourth calendar quarter for each of the two immediately preceding calendar quarters. The final rule also amends certain definitions in the agencies' liquidity coverage ratio rule that are also applicable to the NSFR.
The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) are adopting in final form the agencies' 2016 proposal to implement a net stable funding ratio (NSFR) requirement (the proposed rule), with certain adjustments.
The final rule establishes a quantitative metric, the NSFR, to measure the stability of the funding profile of large U.S. banking organizations, U.S. intermediate holding companies of foreign banking organizations, and their depository institution subsidiaries with $10 billion or more in total consolidated assets. The final rule also requires these banking organizations to maintain minimum amounts of stable funding to support their assets, commitments, and derivatives exposures.
Sections II and III of this Supplementary Information section provide background on the agencies' proposed rule and the tailoring proposals (together, the proposals). Section IV provides an overview of comments received on the proposals and significant changes to the proposals under this final rule. Section V describes the final rule's purpose, design, scope of application, and minimum requirements. The discussion of the final rule in sections VI through IX describes amendments to certain applicable definitions, the calculation of the NSFR, requirements imposed on a banking organization that fails to meet its minimum NSFR requirement, and the public disclosure requirements for U.S. depository institution holding companies and U.S. intermediate holding companies subject to the final rule. Sections X through XII describe the agencies' impact assessment, the effective date and transitions under the final rule, and certain administrative matters.
The 2007-2009 financial crisis revealed significant weaknesses in banking organizations' liquidity risk management and liquidity positions, including how banking organizations managed their liabilities to fund their assets in light of the risks inherent in their on-balance sheet assets and off-balance sheet commitments.
In response to the 2007-2009 financial crisis, the Basel Committee on Banking Supervision (BCBS) established two international liquidity standards. In January 2013, the BCBS established a short-term liquidity metric, the liquidity coverage ratio (LCR), to mitigate the risks arising when banking organizations face significantly increased net cash outflows in a period
Following the 2007-2009 financial crisis, the agencies implemented several requirements designed to improve the largest and most complex banking organizations' liquidity positions and liquidity risk management practices. In 2014, the agencies adopted the LCR rule to improve the banking sector's resiliency to a short-term liquidity stress by requiring large U.S. banking organizations to hold a minimum amount of unencumbered high-quality liquid assets (HQLA) that can be readily converted into cash to meet projected net cash outflows over a prospective 30 calendar-day stress period.
In June 2016, the agencies invited comment on a proposal to implement a net stable funding requirement for the U.S. banking organizations that were subject to the LCR rule at that time.
The proposed rule would have required a banking organization to maintain an amount of available stable funding (ASF) equal to or greater than the banking organization's projected minimum funding needs, or required stable funding (RSF), over a one-year time horizon.
Under the proposed rule, a banking organization's ASF amount would have been calculated as the sum of the carrying values of the banking organization's liabilities and regulatory capital, each multiplied by a standardized weighting (ASF factor) ranging from zero to 100 percent to reflect the relative stability of such liabilities and capital over a one-year time horizon. Similarly, a banking organization's minimum RSF amount would have been calculated as (1) the sum of the carrying values of its assets, each multiplied by a standardized weighting (RSF factor) ranging from zero to 100 percent to reflect the relative need for funding over a one-year time horizon based on the liquidity characteristics of the asset, plus (2) RSF amounts based on the banking organization's committed facilities and derivative exposures. The proposed rule also would have included public disclosure requirements for depository institution holding companies subject to the proposed rule.
The proposed rule would have applied to: (1) Bank holding companies, savings and loan holding companies without significant commercial or insurance operations, and depository institutions that, in each case, have $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure; and (2) depository institutions with $10 billion or more in total consolidated assets that are consolidated subsidiaries of such bank holding companies and savings and loan holding companies. In addition, the Board proposed a modified NSFR requirement that would have applied to certain depository institution holding companies with total consolidated assets of $50 billion or more.
Subsequent to the proposed rule, the agencies published the tailoring proposals to modify the application of the LCR rule and the proposed rule consistent with considerations and factors set forth under section 165 of the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).
In October 2019, the agencies adopted a final rule (tailoring final rule) that amended the scope of application of the LCR rule so that it applies to certain U.S. banking organizations and U.S. intermediate holding companies of foreign banking organizations, each with $100 billion or more in total consolidated assets, together with certain of their depository institution subsidiaries.
The agencies received approximately 30 comments on the proposed rule, as well as approximately 20 comments related to the NSFR rule in response to the tailoring proposals. Commenters included U.S. and foreign banking organizations, trade groups, public interest groups, and other interested parties. Agency staff also met with some commenters at their request to discuss their comments on the proposed rule and the tailoring proposals.
A number of commenters argued that the proposed rule was unnecessary because it would target risks already addressed by existing regulations, such as the LCR rule. Other commenters expressed concern regarding the design and calibration of the proposed rule. These commenters requested clarification on the conceptual underpinnings of the NSFR, requested additional quantitative support for the proposed ASF and RSF factors, and argued that the proposed rule did not satisfy Administrative Procedure Act (APA) requirements because it provided insufficient support for its design and calibration. Some commenters criticized the proposed rule as not being appropriately tailored for implementation in the United States and argued that the proposed rule was more stringent than the Basel NSFR standard such that it could disadvantage U.S. banking organizations relative to their foreign competitors. Relatedly, certain commenters requested that the agencies conform the final rule to the European Union's implementation of the Basel NSFR standard (EU NSFR rule) in order to minimize potential adverse effects on U.S. banking organizations.
Some commenters expressed concern that the proposed rule could result in increased costs to banking organizations and the financial system that would exceed the proposed rule's benefits.
Additionally, many commenters requested changes to specific elements of the proposed rule. For example, commenters recommended the agencies assign higher ASF factors for certain liabilities, such as certain types of deposits, and lower RSF factors for certain categories of assets and committed facilities. Some commenters recommended changes to the proposed rule's treatment of derivatives, particularly the treatment of variation margin and the treatment of potential valuation changes in a derivatives portfolio. In addition, a number of commenters requested that the agencies modify the proposed rule to assign zero percent RSF and ASF factors to certain assets and liabilities commenters viewed as interdependent such that the specific, identifiable assets are funded by the specific, identifiable liabilities of an equal or similar tenor and, therefore, present little or minimal funding risk. Finally, some commenters requested that the agencies delay implementation of the NSFR requirement to allow banking organizations additional time to build internal reporting systems and comply with disclosure requirements.
The agencies received a number of comments requesting the agencies reconsider the proposed rule's scope of application. Specifically, many commenters argued that the proposed thresholds for application were arbitrary and insufficiently risk-sensitive and requested the agencies further tailor the scope of the proposed rule. The agencies also received a number of comments on the appropriateness of the revised scope of application in the tailoring proposals.
As discussed throughout this Supplementary Information section, the final rule retains the general design for the NSFR calculation and calibrates minimum requirements to the risk profiles of banking organizations in a manner consistent with the tailoring final rule. However, the final rule includes a number of modifications, including:
• The final rule assigns a zero percent RSF factor to unencumbered level 1 liquid asset securities and certain short-term secured lending transactions backed by level 1 liquid asset securities (see section VII.D of this Supplementary Information section).
• The final rule provides more favorable treatment for certain affiliate sweep deposits and non-deposit retail funding (see section VII.C of this Supplementary Information section).
• The final rule permits cash variation margin to be eligible to offset a covered company's current exposures under its derivatives transactions even if it does not meet all of the criteria in the agencies' supplementary leverage ratio rule (SLR rule).
• The final rule reduces the amount of a covered company's gross derivatives liabilities that will be assigned a 100 percent RSF factor (see section VII.E of this Supplementary Information section).
The NSFR is designed to address risks that are inherent in the business of banking. Banking organizations perform maturity and liquidity transformation,
A banking organization may mitigate these risks by having funding sources that are appropriately stable over time. Because short-term funding generally tends to be less expensive than longer-term funding, banking organizations have incentives to fund their longer-term or less-liquid assets with less stable, shorter-term liabilities. While this approach may benefit short-term earnings, it may lead to imbalances between how a banking organization chooses to fund its assets and the funding it may need to maintain the assets over time, as well as increases in liquidity and funding risk arising from potential customer and counterparty runs and a more interconnected financial sector. In turn, this creates a funding risk for banking organizations, the financial system, and the broader economy. The final rule requires large banking organizations to avoid excessively funding long-term and less-liquid assets with short-term or less-reliable funding and thus reduces the likelihood that disruptions in a banking organization's regular funding sources would compromise its funding stability and liquidity position.
The final rule establishes a minimum NSFR requirement that is applicable on a consolidated basis to certain top-tier banking organizations with total consolidated assets of $100 billion or more, together with certain depository institution subsidiaries (together, covered companies). Consistent with the proposed rule, the final rule requires a covered company to calculate an NSFR based on the ratio of its ASF amount to its RSF amount and maintain an NSFR equal to or greater than 1.0 on an ongoing basis.
Banking organizations have improved their liquidity risk management practices and liquidity positions since the 2007-2009 financial crisis, including by holding larger liquidity buffers, avoiding excessive reliance on very short-term unstable wholesale funding sources, and improving their internal controls and governance structures surrounding liquidity risk management. The NSFR requirement aims to preserve these improvements and help position covered companies to act as resilient financial intermediaries through potential future periods of instability. The agencies received a number of comments arguing that the proposed rule is unnecessary because other elements of the agencies' regulatory framework already sufficiently address liquidity and funding risk at covered companies.
The final rule is intended to complement and reinforce other elements of the agencies' regulatory framework that strengthen financial sector resiliency by addressing risks that are not directly addressed by the agencies' other regulatory measures. For example, the NSFR rule provides an important complement to the LCR rule, which addresses the risk of increased net cash outflows over a 30-calendar day period of stress by requiring banking organizations to hold HQLA that can be readily converted to cash. While addressing short-term cash-flow related risks is a core component of a banking organization's liquidity risk management, a banking organization could comply with the LCR requirement and still fund its long-term or illiquid assets and commitments with short-term liabilities not sufficiently stable to preserve these assets over an extended period.
Reliance on less-stable sources of funding may require a banking organization to repay or replace its funding more often and make it more exposed to sudden funding market disruptions. Potential loss of funding can restrict a banking organization's ability to support its assets and commitments over the long term, generating both safety and soundness and financial stability risks. The final rule is designed to mitigate such risks by directly increasing the funding resilience of subject banking organizations. The final rule mitigates risks to U.S. financial stability by improving the capacity of banking organizations to continue to support their assets and lending activities across a range of market conditions. A covered company that sufficiently aligns the stability of its funding sources with its funding needs based on the liquidity characteristics of its assets and commitments is better positioned to avoid asset fire sales and continue to function as a financial intermediary in the event of funding or asset market disruptions. As a result, a covered company will be better positioned to continue to operate and lend, which promotes more stable and consistent levels of financial intermediation in the U.S. economy across economic and market conditions.
As a standardized metric, the NSFR also promotes greater comparability across covered companies and foreign banks subject to substantially similar requirements in other jurisdictions and facilitates supervisory assessments of vulnerability. Through public disclosure requirements, the NSFR rule also promotes greater market discipline through enhanced transparency.
A number of commenters questioned the conceptual framework and design of the proposed rule, as well as its overall analytical basis and the calibrations of specific components. In particular, commenters argued that the agencies did not provide sufficient justification or data analysis to support the proposed calibration of the NSFR rule's relevant factors. Some commenters questioned whether the calibrations in the proposed rule reflected a one-year period of stress or whether the calibration was intended to reflect different “business-as-usual” conditions.
The NSFR's conceptual design builds on commonly used assessments of balance sheet funding.
The final rule takes into account the differing risk characteristics of a covered company's various assets, liabilities, and certain off-balance sheet commitments and applies different weightings (ASF and RSF factors) to reflect these risk characteristics. Under the final rule, ASF and RSF factors are used to determine the numerator and denominator of the NSFR and reflect, respectively, the stability of funding, and the need for assets and commitments to be supported by such funding over a range of market conditions, each as assessed under the final rule. As described in sections VII.C and VII.D of this Supplementary Information section, the final rule uses broad categories of liabilities and assets to assess relative stability and funding needs, respectively. These weightings make the NSFR assessment risk sensitive by differentiating between types of assets and types of liabilities.
While the NSFR is a simplified and standardized metric, meeting the NSFR minimum requirement of 1.0 provides evidence that a covered company has, in aggregate, a sufficient amount of stable liabilities and regulatory capital to support over a one-year time horizon its aggregate assets and commitments based on the liquidity characteristics of such aggregate assets and commitments.
Commenters expressed concerns that application of RSF factors to specific assets has the effect of imposing a requirement on covered companies to issue additional long-dated liabilities to fund such assets. The final rule does not prescribe the method by which a covered company must meet its minimum requirement. Under the final rule, the NSFR requirement reflects the aggregate balance sheet of a covered company, and the final rule does not apply separate minimum funding requirements to individual assets, legal entities, or business lines represented on the balance sheet. For example, a covered company that has an NSFR of 1.0 and increases its holding of certain long-dated assets is not required to issue additional long-dated liabilities under the final rule but, rather, has discretion on how to continue to meet its minimum requirement, including by changing its overall asset composition.
Many commenters expressed concerns or suggestions that related to the level of granularity in the NSFR's conceptual design or that the NSFR was a point-in-time measure. For example, commenters suggested the NSFR include additional RSF and ASF factors tailored to specific products and activities.
In response to these concerns, the agencies note that a broad comparison of the stability of a covered company's funding relative to the liquidity characteristics of its assets achieves the final rule's funding risk-mitigation objectives. To limit the burden on covered companies and to maximize the comparability of the metric between each covered company and other international banking organizations, the NSFR is designed as a simplified metric that uses a small number of categories of assets, exposures, liabilities, counterparty types, and residual maturity buckets to achieve its objective. While the balance sheets of large banking organizations reflect a complex variety of transactions and business activities, additional granularity could be burdensome to covered companies relative to the goals of the NSFR requirement. The NSFR was designed holistically and introducing additional granularity could require recalibration of certain other elements. For example, the incorporation of additional RSF factors may require other RSF factors to be adjusted upward, as they currently reflect an aggregate view of the level of stable funding required for the entire set of assets or off-balance sheet commitments in a given category. Additionally, to the extent possible, the metric utilizes the carrying values of assets and liabilities on a covered company's balance sheet under U.S. Generally Accepted Accounting Principles (GAAP) and limits the need for additional valuations.
In response to comments that the NSFR is not sensitive to the different business models of covered companies, the agencies note that the NSFR is designed to allow comparison across covered companies and other international firms, and to minimize differences in how liquidity characteristics of liabilities and assets are evaluated by covered companies. As a standardized metric, the final rule is constructed to ensure a sufficient amount of stable funding across all covered companies, regardless of their business models. The NSFR generally does not differentiate by a banking organization's business model, its lines of business, or the purpose for which individual assets or liabilities are held on its balance sheet. For example, the NSFR treats securities held on a covered company's balance sheet based on the securities' credit risk and market characteristics regardless of whether such securities are held as long-term investments, as hedging instruments, or as market making inventory. While the composition of banking organizations' balance sheets varies based on business models and the services provided to customers, the NSFR is not focused on
Like most prudential requirements, the NSFR is a measure of a covered company's condition at a point in time and by design does not consider the broad variety of actions that management may take in the future. As a general principle, the agencies do not speculate about future transactions, contingencies, or potential managerial remediation steps that the covered company may take.
Certain commenters questioned the NSFR's design in respect to its time horizon. While the NSFR measures a banking organization's balance sheet and commitments at a point in time, the assessment of adequate funding considers the stability of, and the need for, funding with reference to a general one-year time horizon and a range of market conditions. The measurement incorporates contractual maturities but generally does not reflect expectations about the year following the calculation date.
The use of a time horizon for the assessment of funding imbalances is appropriate because the residual maturities of liabilities and assets of a covered company at the calculation date are, among other characteristics, indicative of the liabilities' stability and the assets' need for funding, respectively. For example, liabilities that are due to mature in the short term will generally provide less stability to a banking organization's balance sheet than longer-term liabilities. Similarly, certain short-dated assets maturing in less than one year should require a smaller portion of funding to be maintained over a one-year time horizon because banking organizations may allow such assets to mature without replacing them. The choice of a one-year time horizon is also consistent with traditional accounting and supervisory measures of short-term and long-term financial instruments and exposures.
A number of commenters requested clarification on the extent to which the NSFR calibrations incorporated stress assumptions. Consistent with the complementary designs of the Basel LCR and NSFR standards, the final rule is designed differently from, and to be complementary to, the LCR rule. Unlike the LCR, which compares immediately available sources of cash to potential stressed cash outflows over a 30-calendar day period, the NSFR is not a cash-flow coverage metric, and ASF and RSF amounts are not cash-flow amounts. While ASF factors take into account the characteristics of liabilities that influence relative funding stability across a range of market conditions, the values of ASF factors do not represent liability outflow rates. Similarly, while RSF factors take into account the liquidity characteristics of assets that generally influence their need for funding over a one-year horizon, the values of RSF factors do not reflect the monetization value of assets. In response to comments that the values of factors used in the LCR rule imply that ASF or RSF factors were incorrectly calibrated, it is important to note that comparisons of the values of ASF or RSF factors under the final rule to the values of outflow and inflow rates used in the LCR rule are not indicative of the relative conservatism of the requirements under both rules.
Further, the final rule is not designed to function as a one-year liquidity stress test, and therefore its ASF and RSF factors are not assigned based on, or intended to directly translate to, assumed cash inflows and outflows over a one-year period of stress. Rather, the final rule is intended to serve as a balance-sheet metric, and ASF and RSF factors reflect, respectively, the relative stability of funding and the need for funding based on the liquidity characteristics of assets and commitments, each across a range of economic and financial conditions.
Although the NSFR generally is not calibrated to the stress assumptions of the LCR rule, it nevertheless shares certain common elements and definitions with the complementary LCR where such consistency is helpful. The alignment of the final rule with the structure and design of the LCR rule, where appropriate, aims to improve efficiency and limit compliance costs to covered companies by allowing them more efficiently to implement the two requirements. In response to commenters' concerns that sharing definitions and elements with the LCR rule inappropriately incorporates stress assumptions into the NSFR requirement, the agencies note that many shared elements and defined terms are independent of stress assumptions.
Several commenters argued that the agencies did not sufficiently rely on empirical analysis to inform various portions of the proposed rule. Other commenters argued that the agencies
As explained in detail in sections VII.C and VII.D of this Supplementary Information section, the liabilities within an ASF factor category generally exhibit similar levels of funding stability and the assets within an RSF factor category generally exhibit similar liquidity characteristics. In addition, there is a sufficient number of ASF factor and RSF factor categories in the final rule to differentiate among the funding risks presented by the assets, commitments, and liabilities covered by the NSFR. The ASF and RSF factors as calibrated for these categories of liabilities and assets, and as applied under the Basel NSFR standard to similar categorizations, are generally appropriate for U.S. implementation.
Consistent with the proposed rule and as noted above, certain ASF and RSF factor assignments in the final rule take into account policy considerations relating to the safety and soundness of covered companies and U.S. financial stability.
In response to commenters' assertion that the agencies failed to disclose quantitative data and analyses used to support the proposed rule, the agencies note that they disclosed in the proposed rule material that was available and reliable. In the instances in which the agencies cited data in support of the proposed rule, the agencies identified that data, acknowledged the shortcomings of the available data, and invited input from the public. In developing the final rule, the agencies have considered the comments received.
As noted above, the final rule is based on the general framework of the Basel NSFR standard. Some commenters argued that the agencies should not adopt the proposed rule, or should modify certain elements of the proposed rule, because the Basel NSFR standard is an internationally negotiated standard that was not properly tailored to reflect U.S. financial, legal, and market conditions. By contrast, a number of commenters argued that the final rule should be more consistent with the Basel NSFR standard, particularly with respect to elements that would be more stringent under the proposed rule than the Basel NSFR standard.
In developing the proposed and final rules, the agencies considered the Basel NSFR standard as well as financial, legal, market, and other considerations specific to the United States. Basing the final rule on the general framework of the Basel NSFR standard helps promote competitive equity with respect to covered companies and other large, internationally active banking organizations in other jurisdictions, facilitate regulatory consistency across jurisdictions, and ensure a minimum level of resiliency across the global financial system. Where appropriate, the final rule differs from the Basel NSFR standard to reflect specific characteristics of U.S. markets, practices of U.S. banking organizations and domestic policy objectives.
In the tailoring proposals, the agencies re-proposed the scope of application of the NSFR proposed rule. The tailoring proposals would have established four categories of requirements—Category I, II, III, and IV—that would have been used to tailor the application of the NSFR requirement based on the risk profile of a top-tier banking organization as measured by the risk-based indicators.
The tailoring final rule adopted these categories, with certain changes, for purposes of the LCR rule and the agencies' capital rule. Under the tailoring final rule, Category I requirements apply to U.S. global systemically important banks (GSIBs)
Under the tailoring final rule, covered companies in Category I and II, or in Category III with $75 billion or more in average weighted short-term wholesale funding are subject to the full requirements of the LCR rule. All other covered companies in Category III and covered companies in Category IV with $50 billion or more in average weighted short-term wholesale funding are subject to a reduced LCR requirement calibrated at 85 percent and 70 percent, respectively. The calibration approaches outlined in the tailoring proposals and tailoring final rule were designed to better align the regulatory requirements of banking organizations with their risk profiles, taking into account their size and complexity, as well as their potential impact on systemic risk.
The final rule adopts the risk-based category approach used in the tailoring final rule for purposes of applying the NSFR. The application of the NSFR requirements to specific entities based on their tailoring category is discussed further below.
The tailoring proposals would have applied liquidity requirements to foreign banking organizations based on the risk profile of their combined U.S. operations. Specifically, the proposed NSFR requirements would have applied to a foreign banking organization based on the combined risk profile of its U.S. intermediate holding company and any U.S. branches or agencies, as measured by the risk-based indicators.
Most commenters argued that the NSFR requirement should apply directly to a U.S. intermediate holding company of a foreign banking organization based on the U.S. intermediate holding company's risk profile. Some commenters further asserted that no NSFR requirement should be imposed on U.S. intermediate holding companies in view of the application of the NSFR under home country standards to the top-tier foreign parent. These commenters argued that the application of an NSFR requirement to U.S. intermediate holding companies is inconsistent with the principles of national treatment and equality of competitive opportunity because mid-tier U.S. bank holding companies of a similar size and risk profile would not be subject to an NSFR requirement but rather would be reflected in the NSFR applied at the top-tier consolidated U.S. parent. Other commenters argued that the liquidity requirements that apply to foreign banking organizations' U.S. operations, such as internal liquidity stress testing and liquidity risk management standards, and total loss-absorbing capacity (TLAC) instruments issued by U.S. intermediate holding companies make the application of the NSFR rule unnecessary for such companies. In addition, some commenters argued that U.S. intermediate holding companies should not be subject to the NSFR rule until after the agencies have conducted an impact analysis. By contrast, other commenters supported the proposed application of an NSFR requirement to a U.S. intermediate holding company based on the risk profile of the combined U.S. operations of the foreign banking organization.
A U.S. intermediate holding company poses risks in the United States similar to domestic banking organizations of a similar size and risk profile, even if the parent foreign banking organization is subject to an NSFR requirement in its home jurisdiction. The LCR rule, the Board's enhanced prudential standards rule, and the final rule apply to applicable U.S. banking organizations on a global consolidated basis and incorporate certain liquidity risks posed by mid-tier holding companies and their subsidiaries.
In addition, consistent with the scope of application of the LCR rule, the final rule applies the NSFR requirement to a U.S. intermediate holding company based on the risk profile of the U.S. intermediate holding company, rather than on the combined U.S. operations of the foreign banking organization.
A number of commenters argued that the re-proposed scope of applicability of the NSFR requirement was too stringent. Some commenters argued that smaller regional banking organizations should not be subject to the NSFR rule and that NSFR requirements for Category IV banking organizations should be eliminated. By contrast, other commenters argued that the tailoring proposals would tailor NSFR requirements in a way that would weaken the safety and soundness of large banking organizations and increase risks to U.S. financial stability. Some commenters argued that full NSFR requirements should apply to all covered companies until after the final rule has been effective for a sufficiently long period of time for the agencies to evaluate its efficacy. Other commenters advocated for further tailoring of the NSFR requirements.
For the reasons discussed below, the final rule generally retains the NSFR requirements described under the tailoring proposals. The final rule adopts a reduced NSFR requirement calibrated to 85 percent of the full NSFR requirement for Category III banking organizations with less than $75 billion in weighted short-term wholesale funding, and to 70 percent of the full NSFR requirement for Category IV banking organizations with $50 billion or more in weighted short-term wholesale funding.
Consistent with the scope of application of the LCR rule, the tailoring proposals would have applied full NSFR requirements to covered companies that meet the criteria for Category I. The agencies did not receive comments on the application of the NSFR requirement under Category I and are finalizing this aspect as proposed.
The tailoring proposals would have applied the full NSFR requirement to covered companies that meet the criteria for Category II. Some commenters argued that Category II should include a reduced NSFR requirement to reflect the lower risk profile of Category II banking organizations relative to those in Category I. Specifically, these commenters argued certain banking organizations in Category II present relatively lower stable funding risks than Category I banking organizations due to such banking organizations' concentration in custody activities and use of operational deposits.
Similar to U.S. GSIBs and their large depository institution subsidiaries, banking organizations that meet the criteria for Category II provide material levels of financial intermediation within the United States or internationally, and the NSFR helps to ensure that such banking organizations have appropriate funding to be in a position to sustain the necessary intermediation activities over a range of conditions. Additionally, the failure or distress of banking organizations that meet the criteria for Category II could impose significant costs on the U.S. financial system and economy. For example, any very large or global banking organization, including one that has a significant custody business, that is subject to asset fire sales resulting from funding disruptions is likely to transmit distress on a broader scale because of the greater volume of assets it may sell and the number of its counterparties across multiple jurisdictions. Similarly, a banking organization with significant international activity is more exposed to the risk of ring-fencing of funding resources by one or more jurisdictions. Ring-fencing may hamper the movement of funding, regardless of the level of custody business. More generally, the overall size of a banking organization's operations, material transactions in foreign jurisdictions, and the use of overseas funding sources add complexity to the management of the banking organization's funding profile. For these reasons, the agencies are adopting the proposal to apply the full NSFR requirement to Category II banking organizations.
As described above, the tailoring proposals would have differentiated NSFR requirements in Category III based on whether the level of average weighted short-term wholesale funding of a banking organization was at least $75 billion and sought comment on the calibration of the reduced NSFR requirement.
Some commenters argued that Category III banking organizations with less than $75 billion in average weighted short-term wholesale funding should not be subject to a reduced NSFR requirement. By contrast, many commenters expressed support for a reduced NSFR requirement under Category III, and generally recommended that such requirement be calibrated to 70 percent of the full NSFR requirement, consistent with the calibration of the Board's previously proposed modified NSFR requirement. In addition, several of these commenters argued that the reduced NSFR requirement should apply only to holding companies.
To improve the calibration of a banking organization's minimum ASF amount relative to its funding profile and its potential risk to U.S. financial stability, the final rule differentiates between banking organizations based on their category and their reliance on short-term wholesale funding. As discussed in the tailoring final rule, ongoing reliance on short-term, wholesale funding can make a banking organization more vulnerable to safety and soundness and financial stability risks. Accordingly, under the final rule, a banking organization subject to Category III standards with average weighted short-term wholesale funding of $75 billion or more is subject to the full NSFR requirement.
A banking organization subject to Category III standards with average weighted short-term wholesale funding of less than $75 billion is subject to a reduced NSFR requirement calibrated at 85 percent of the full NSFR requirement. An 85 percent calibration is appropriate for these banking organizations because they are less likely to contribute to a systemic event relative to similarly sized banking organizations that have a greater reliance on short-term wholesale funding and therefore, are more complex, and whose distress or failure is more likely to have greater systemic impact.
As a general matter, the alignment of the reduced NSFR with the Board's initially proposed modified NSFR
Under the tailoring proposals, a Category IV banking organization with average weighted short-term wholesale funding of $50 billion or more would have been required to comply with a reduced NSFR requirement of between 70 and 85 percent. However, the reduced NSFR requirement under Category IV would not have applied to standalone depository institutions or at the level of a subsidiary depository institution.
Some commenters argued that all banking organizations subject to Category IV should be subject to an NSFR requirement and that the requirement could be further modified or simplified for these organizations, as appropriate. In contrast, other commenters argued for the removal of any NSFR requirement for all banking organizations subject to Category IV.
For a banking organization with total consolidated assets of at least $100 billion and less than $250 billion, average weighted short-term wholesale funding of $50 billion or more demonstrates a material reliance on short-term, generally uninsured funding from more sophisticated counterparties, which can make a banking organization more vulnerable to large-scale funding runs, generating both safety and soundness and financial stability risks. Accordingly, such a banking organization is relatively more vulnerable to the funding stability risks addressed by the reduced NSFR requirement relative to similarly sized banking organizations that rely more heavily on stable funding such as retail deposits and have traditional balance sheet structures. The application of the NSFR requirement, albeit at a reduced level, is therefore appropriate for these banking organizations given their lower potential impact on systemic risk.
The final rule calibrates the minimum reduced NSFR requirement under Category IV at a level equivalent to 70 percent of the minimum level required under Category I and II. The difference between the 85 percent reduced NSFR calibration in Category III and the reduced 70 percent LCR calibration in Category IV reflects the differences in risk profiles of banking organizations subject to each respective requirement. The 70 percent calibration recognizes that these banking organizations are less complex and smaller than other banking organizations subject to more stringent requirements under the final rule and would likely have more modest systemic impact than larger, more complex banking organizations if they experienced funding disruptions. Banking organizations that are not subject to Category I, II or III requirements and that have average weighted short-term wholesale funding of less than $50 billion are not subject to an NSFR requirement under the final rule. Depository institution subsidiaries of banking organizations subject to Category IV requirements are not subject to an NSFR requirement.
As described above, the tailoring proposals would have applied the same NSFR requirement to top-tier banking organizations subject to Category I, II, or III standards and to their subsidiary depository institutions with $10 billion or more in total consolidated assets.
Although a number of commenters generally supported the application of consistent requirements for U.S. depository institutions holding companies and their depository institution subsidiaries, many commenters requested that the agencies eliminate the application of the NSFR requirement to depository institutions that are consolidated subsidiaries of covered companies. These commenters stated that the NSFR rule should recognize that the holding company structure in the United States allows for banking organizations to manage liquidity across the broader corporate group and provides firms with flexibility regarding where liquidity is held within the corporate structure. These commenters also argued that an NSFR requirement for a consolidated depository institution is unnecessary in view of the supervisory monitoring and prudential limits applicable to the depository institution's funding structure, as well as the source of strength requirements that obligate the parent to remediate any funding deficiencies at a subsidiary depository institution. Alternatively, these commenters suggested that the agencies should rely on their supervisory authority to ensure stable funding for depository institutions. The commenters also requested that, if the agencies apply the NSFR requirement to depository institutions, an exemption should apply to depository institutions that comprise 85 percent or more of the assets of the consolidated organization. Commenters supporting such an approach stated that the costs of separately applying an NSFR at the subsidiary depository institution-level would outweigh any benefits.
The proposed treatment would have aligned with the agencies' longstanding policy of applying similar standards to holding companies and their depository institution subsidiaries. Large depository institution subsidiaries play a significant role in a banking organization's funding structure, and in the operation of the payments system. Such entities should have sufficient amounts of stable funding to meet their funding needs rather than be overly reliant on their parents or affiliates. In addition, these large subsidiaries generally have access to deposit insurance coverage and, as a result, application of standardized funding requirements would help to reduce the potential for losses to the FDIC's deposit insurance fund. Accordingly, the final rule maintains the application of an NSFR requirement to covered depository institution subsidiaries as proposed.
The proposed rule would have shared definitions with the LCR rule and would have been codified in the same part of the Code of Federal Regulations as the LCR rule for each of the agencies.
One commenter argued that certain of the LCR rule's definitions are flawed and should not be used for purposes of the NSFR rule because they are the result of an internationally negotiated standard that was not properly calibrated to reflect U.S. market conditions or U.S. banking organizations' practices. As discussed in section V.C of this Supplementary Information section, to the extent that the final rule incorporates definitions
The proposed rule would have amended the following definitions that were included in § __.3 of the LCR rule: “calculation date,” “collateralized deposits,” “committed,” “covered nonbank company,” “operational deposit,” “secured funding transaction,” “secured lending transaction,” and “unsecured wholesale funding.”
The proposed rule would have amended the existing definition of “calculation date,” “committed,” and “covered nonbank company” in § __.3 of the LCR rule. The agencies received no comments on the changes to these definitions and are adopting these revised definitions as proposed.
The agencies received comments on the following proposed amendments to existing definitions that are included in § __.3 of the LCR rule: “collateralized deposit,” “operational deposit,” “secured funding transaction,” “secured lending transaction,” and “unsecured wholesale funding.”
The agencies received two comments regarding the definition of “collateralized deposit.” One commenter supported the proposed amendment to include fiduciary deposits collateralized as required under state law, as applicable to state member banks, state nonmember banks, and state savings associations. The other commenter requested that the agencies revise the definition to include secured sweep repurchase arrangements, which the commenter described as arrangements that allow a customer's balances to be temporarily “swept” out of a deposit account and into a secured non-deposit funding arrangement with the covered company. The commenter argued that secured sweep repurchase arrangements are distinct from other secured funding transactions, including wholesale funding offered by a broker-dealer, because they are typically tied to operational accounts and involve an automated sweep of corporate client funds into a secured sweep repurchase account, thus posing, in the commenter's view, less liquidity risk. The commenter argued that secured sweep repurchase arrangements are similar to secured deposit funding because the arrangements are offered as part of a broader business relationship between a covered company and a customer and, therefore, should not be subject to the unwind provisions in § __.21 of the LCR rule.
The final rule adopts the amended definition of “collateralized deposit” as proposed with an adjustment to expressly include deposits of a fiduciary account collateralized pursuant to state law requirements for which a covered company's depository institution affiliate is a fiduciary. The agencies defined “collateralized deposit” to identify a narrow set of secured funding transactions that should not be subject to the unwind provision in the LCR rule for a covered company when determining its HQLA amount.
The agencies received a number of comments regarding the proposed definition of “operational deposit.” Some commenters requested removal of the limitation that operational deposits cannot be provided by non-regulated funds. These commenters argued that a deposit placed at a covered company by a non-regulated fund for the provision of operational services would have similar liquidity risks as a deposit placed by a regulated fund for the same operational purposes.
One commenter argued that the definition of “operational deposit” should not be limited to deposits. The commenter suggested instead that the definition should be revised to include non-deposit unsecured wholesale funding that matures within the LCR rule's 30-day time horizon, in order to include arrangements that allow an operational customer's balances to be temporarily swept out of a deposit account into non-deposit products until such time as the funds are needed to meet operational demands. The commenter argued that excluding such arrangements from the definition of “operational deposit” could underrepresent the amount of a covered company's funding that is associated with the provision of operational services over the LCR rule's 30-day time horizon.
Operational deposit are deposits necessary for the covered company to provide operational services, as that term is defined in § __.3 of the LCR rule, to the wholesale customer or counterparty providing the deposit.
The exclusion of deposits provided by non-regulated funds is appropriate because, in general, non-regulated funds tend to be sophisticated and are more likely than many other types of counterparties to engage in higher-risk trading strategies involving leverage, which may result in higher cash needs due to collateral calls and less stable deposit balances during certain market conditions. In comparison to non-financial wholesale counterparties or regulated financial sector entities, it is also more likely that operational activities at a non-regulated fund would be impacted by the performance of the fund's investment or trading activity that relies upon prime brokerage services, and thus it would be more difficult to separate its deposit balances that are necessary to maintain operational activities from its balances that support trading and investment activities that rely on prime brokerage services (even if these services are provided by different entities of a covered company). As a result, deposits from non-regulated funds may present heightened funding risk relative to deposits from other counterparties.
In addition, operational deposit balances swept out of a deposit account and into non-deposit products will not be eligible to be considered “operational deposits”. The LCR rule provides that in order to be recognized as an operational deposit, any excess amount not linked to operational services must be excluded.
As the preamble to the LCR rule noted, operational deposits are assigned a lower outflow rate under the LCR rule compared to other short-term wholesale funding due to the perceived stability arising from the relationship between a covered company and a depositor, the necessity of the deposit for the provision of operational services, and the switching costs associated with moving such deposits.
For these reasons, the final rule adopts the amended definition of “operational deposits” as proposed.
One commenter recommended amending the definitions of “secured funding transaction” and “secured lending transaction” by replacing “securities” with “financial assets” in order to broaden the forms of collateral that may be used in transactions that meet the definitions. Specifically, the commenter argued that short-term debt, commercial paper, gold, and certain other assets should be permitted forms of collateral because they effectively reduce the risk associated with secured transactions. The same commenter also requested that the definition of “secured lending transaction” be expanded to include certain transactions with retail customers, and, in particular, open-maturity loans to retail customers collateralized by customer securities, such as a margin loan. The commenter asserted that a securities-based loan to a retail counterparty has similar characteristics to an open-maturity reverse repurchase agreement with a wholesale counterparty, including that the transaction is fully secured by the borrower's collateral, the lender has a legal right and operational ability to close out the loan upon default by the counterparty and sell the collateral to offset the lender's credit exposure, and the maturity of the loan extends each day that a notice of termination is not provided.
Under the LCR rule, the cash flows associated with secured funding and secured lending transactions take into account the relative liquidity of the cash and marketable collateral that will be exchanged at the maturity of the transaction and recognize that collateral in the form of HQLA securities tends to be the most liquid. By contrast, collateral that is not generally traded in liquid markets, including property, plant, and equipment, may provide limited liquidity value, particularly relative to the LCR rule's time horizon. While collateral that is not in the form of securities or loans may serve to mitigate credit risk, in the agencies' experience, the cash flows on lending secured by such collateral, including the likelihood of renewing the lending at maturity, depend to a greater degree on the characteristics of the counterparty rather than the collateral, thus making the liquidity risk associated with such arrangements more akin to that of unsecured lending. Accordingly, such lending transactions should not necessarily receive a 100 percent inflow rate under the LCR rule; rather, the inflow rate should depend on the characteristics of the borrower, which more accurately reflect the likelihood that a covered company will be able to realize inflows from or roll over some or all of the loan during a period of significant stress. In contrast to their contributions to total net cash outflows under the LCR rule, the contributions of secured loan assets and secured funding liabilities to the funding risk of a covered company's aggregate balance sheet generally depend on their maturities and counterparty characteristics and the final rule generally treats secured and unsecured wholesale transactions similarly.
In addition, while there is no defined term “securities” in the LCR rule, the agencies are clarifying that a funding transaction that is not a security, is conducted with a wholesale customer or counterparty, and is secured under applicable law by a lien on third-party short-term debt or commercial paper provided by a covered company would qualify as a secured funding transaction. Similarly, a lending transaction that is not a security, is conducted with a wholesale customer or counterparty, and is secured under applicable law by a lien on third-party short-term debt or commercial paper provided by the wholesale customer or counterparty would qualify as a secured lending transaction. However, secured funding and lending transactions where the collateral is in the form of gold or other commodities would not meet the definition of a secured funding transaction or secured lending transaction. These assets exhibit an increased volatility in market value and there are logistical factors associated with holding and liquidating these assets as compared to loans and securities.
The final rule adopts the amended definitions of “secured funding transaction” and “secured lending transaction” as proposed. Under the final rule, the definitions of “secured funding transaction” and “secured lending transaction” include only transactions with wholesale customers or counterparties. Secured lending transactions do not include secured lending to a retail customer or counterparty, such as a retail margin loan. For purposes of the LCR rule generally, secured lending transactions categorize certain lending to a wholesale customer or counterparty where the expectation is that the transaction may mature in the near term with the covered company receiving cash from the counterparty and being required to return collateral to the counterparty.
Finally, under the final rule securities issued or owned by a covered company do not constitute secured funding or lending transactions. For example, asset-backed securities issued by a special purpose entity that a covered company consolidates on its balance sheet are not secured funding transactions. Similarly, securities owned by a covered company where contractual payments to the covered company are collateralized are not secured lending transactions.
The final rule adopts the amended definition of “unsecured wholesale funding” as proposed with an adjustment to expressly exclude asset exchanges. Under the final rule, secured funding with a wholesale counterparty that does not meet the revised definition of “secured funding transaction” generally meets the definition of “unsecured wholesale funding.” However, consistent with the agencies' intent to provide a special framework for asset exchanges, the definitions of “unsecured wholesale funding” and “unsecured wholesale lending” in the final rule have been revised to exclude asset exchanges.
Given that the definitions in the LCR rule would apply to the final rule, the proposed rule also requested comment as to whether any other existing definitions or terms should be amended. The agencies received several comments requesting revisions and clarifications to other definitions in the LCR rule that the agencies did not propose to amend.
Section __.3 of the LCR rule defines “liquidity facility” to mean a legally binding written agreement to extend funds at a future date to a counterparty that is made for the purpose of refinancing the debt of the counterparty when it is unable to obtain a primary or anticipated source of funding. The definition of “liquidity facility” further clarifies that it includes an agreement to provide liquidity support to asset-backed commercial paper by lending to, or purchasing assets from, any structure, program, or conduit in the event that funds are required to repay maturing asset-backed commercial paper.
In addition, a commenter asked the agencies to clarify the treatment of (1) commercial paper backstop facilities where the customer has no commercial paper currently outstanding and (2) facilities that are expected to be cancelled without funding, such as an unfunded bridge lending facility in connection with a capital markets issuance. A commercial paper backstop facility may meet the definition of a liquidity facility because the purpose of the facility is to provide liquidity support in the future, if needed, regardless of whether the customer currently has any commercial paper outstanding or not. The determination of whether such a facility is “committed” likewise would not be impacted by the fact that the customer has no amount of commercial paper outstanding, but would depend on whether it was “unconditionally cancelable” as described above.
The agencies expect that, as a class, living and testamentary trusts with corporate trustees are more likely to exhibit behavioral traits and sophistication comparable to those of a wholesale rather than retail customer or counterparty, even if a natural person has indirect authority over the trustee or complementary power to direct the trust's investment activity.
The agencies received several comments and requests for clarification on this definition. Several commenters suggested that the liquid and readily-marketable criteria are unduly difficult to satisfy. One commenter stated that banking organizations have had difficulty collecting the data necessary to demonstrate that securities meet these criteria, and that the cost of collecting data for certain securities that are widely accepted as being liquid and readily-marketable outweighs the benefits. Several commenters requested additional clarification concerning what is required by each of the elements of the liquid and readily-marketable standard. For example, commenters requested clarification for how to determine that a market maker is “committed,” that there is a “large” number of market participants, and that the trading volume for a security is “high.” Commenters expressed concern that relatively new types of securities and securities that are preferred by investors utilizing a “buy and hold” strategy, including securities of the highest credit quality that have strong demand at primary issuance, may not meet the criteria. Commenters also expressed concern that there appears to be no widely accepted or straightforward method for assessing these criteria.
Commenters also provided alternative methods to establish that a security is liquid and readily-marketable. Several commenters suggested that certain asset classes should be presumed to be liquid and readily-marketable without further analysis if they meet certain criteria. For example, commenters suggested that certain securities should be presumed to be liquid and readily-marketable, including (i) securities backed by the full faith and credit of the United States, including agency securities, (ii) debt issues of foreign sovereigns that meet certain risk weight and other criteria, and (iii) U.S. equities included in the Russell 1000 index. These commenters also suggested that securities presumed to be liquid and readily-marketable could be assessed annually or more frequently to ensure that they are liquid and readily-marketable. Another commenter suggested that a security should be deemed liquid and readily-marketable if a firm can demonstrate that the 30-day trading volume for the security exceeds the firm's holdings of that security, or that there has been a purchase in the market for each offer to sell the security. One commenter suggested that securities should be considered liquid and readily-marketable if other securities issued by the same issuer or guaranteed by the same credit protection provider have already been deemed liquid and readily-marketable.
The LCR rule's definition of “liquid and readily-marketable” is intended to complement other restrictions on the assets that can potentially be included in HQLA. Within the universe of possible HQLA, the criteria in the definition are not overly prescriptive given the divergence of trading frequency and practices. Suggestions to more narrowly define these criteria would be difficult to apply because of the different market structures for different asset classes. In response to commenters' requests for clarification, this Supplementary Information section describes the agencies' general expectations regarding how assets may satisfy the definition's criteria.
The agencies do not expect covered companies to conduct the liquid and readily-marketable analysis on a daily basis. However, the agencies expect that covered companies monitor the securities included as HQLA and conduct the analysis periodically, especially following a change in market conditions. Covered companies should be able to demonstrate that they have an appropriate process to regularly review that each security meets the liquid and readily-marketable requirements and that they do in fact perform this analysis.
The LCR rule defines “liquid and readily-marketable” to mean that a given security is traded in an active secondary market that satisfies four conditions. The first condition is that the active secondary market must have more than two committed market makers. The presence of committed market makers is an important characteristic of liquid securities markets, to ensure that trades within the market will be fulfilled on an ongoing basis. A covered company generally may treat a market maker as committed if the market maker has a history of trading the security in a substantial volume, particularly during times of stress. As with the other criteria necessary for a security to be liquid and readily-marketable, once the covered company makes an initial determination that a security has more than two committed market makers, a periodic review is adequate to confirm the continued presence of committed market makers. The second condition is that the active secondary market must have a large number of non-market maker participants acting as buyers and sellers of the security. The agencies generally will consider a security to satisfy this requirement if the majority of the trading volume for the security involves non-market maker participants. It also may be possible to satisfy this requirement for securities traded in secondary markets where most trades are between market makers if there are a large number of non-market maker participants. The third condition is that the active secondary market must have timely and observable market prices. The agencies generally expect that securities that trade regularly and at prices that are quoted daily can be considered to meet this requirement. The fourth condition is that the active secondary market must have a high trading volume. The analysis should take into account the depth of the market across a range of time periods.
As noted above in section VI.A.3 of this Supplementary Information section, the proposed rule also requested comment as to whether any other existing definitions or terms in § __.3 of the LCR rule should be amended. Although the agencies did not receive specific requests to change the definition of “brokered deposit,” several commenters expressed concern that the FDIC's interpretation of “brokered deposit” is overly broad. The final rule amends certain of the definitions related to brokered deposits in § __.3 to improve clarity and consistency with the FDIC's brokered deposit framework.
Section __.3 previously defined a brokered deposit to mean any deposit held at the covered company that is obtained, directly or indirectly, from or through the mediation or assistance of a deposit broker as that term is defined in section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f(g)) (FDI Act) and includes a reciprocal brokered deposit and a brokered sweep deposit. The final rule amends this definition by adding a reference to the FDIC's regulations and eliminating the reference to reciprocal brokered deposits and brokered sweep deposits because not all reciprocal and sweep deposits are brokered deposits under section 29 of FDI Act and the FDIC's implementing regulations.
For this reason, the final rule also renames “brokered sweep deposit” to “sweep deposit” and “reciprocal brokered deposit” to “brokered reciprocal deposit” wherever these terms appear. These clarifications are important in light of ongoing FDIC efforts to update the classification of brokered deposits. Under the final rule, the term “sweep deposit” includes deposits that are brokered deposits as well as deposits that are not brokered deposits. The term “reciprocal brokered deposits” only includes deposits that are classified as brokered deposits.
Pursuant to section 553(b)(B) of the APA, general notice and the opportunity for public comment are not required with respect to a rulemaking when an “agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” The changes to these definitions are only intended to clarify the scope of the definitions, not substantively alter the definitions or changes the applicable outflow or inflow amounts in the LCR rule. Because these changes are technical in nature and merely improve the clarity of these definitions in the LCR and NSFR rules, the agencies have determined that it is unnecessary to provide notice or the opportunity to comment prior to adopting these changes to these definitions related to brokered deposits.
The proposed rule would have added several new definitions: “carrying value,” “encumbered,” “NSFR regulatory capital element,” “NSFR liability,” and “QMNA netting set,” and “unsecured wholesale lending.”
The agencies received no comments on the proposed definitions of “carrying value,” “encumbered,” “NSFR regulatory capital element,” “NSFR liability,” and “QMNA netting set,” and the final rule adopts these definitions as proposed.
The final rule defines “carrying value” to mean the value on a covered company's balance sheet of an asset, NSFR regulatory capital element, or NSFR liability, as determined in accordance with GAAP. The final rule includes this definition because RSF and ASF factors generally are applied to the carrying value of a covered company's assets, NSFR regulatory capital elements, and NSFR liabilities. By relying on values based on GAAP, the final rule aims to ensure consistency in the application of the NSFR requirement across covered companies and limit operational compliance costs because covered companies already prepare financial reports in accordance with GAAP. This definition is consistent with the definition used in the agencies' regulatory capital rules.
The final rule's definition of “encumbered” uses the criteria for an “unencumbered” asset found in § __.22(b) of the LCR rule. The definition does not include any substantive changes to the concept of encumbrance included in the LCR rule. The final rule uses this definition in place of the criteria enumerated in § __.22(b) of the LCR rule. The addition of this definition is necessary to apply the concept of encumbrance in §§ __.106(c) and (d) of the final rule, which are discussed in sections VII.D of this Supplementary Information section.
Additionally, the final rule defines “NSFR regulatory capital element” to mean any capital element included in a covered company's common equity tier 1 capital, additional tier 1 capital, and tier 2 capital, as those terms are defined
Further, the final rule defines “NSFR liability” to mean any liability or equity reported on a covered company's balance sheet that is not an “NSFR regulatory capital element.” The term “NSFR liability” primarily refers to balance sheet liabilities but may include equity because some equity may not qualify as an “NSFR regulatory capital element.” The definitions of “NSFR liability” and “NSFR regulatory capital element,” taken together, should cover the entirety of the liability and equity side of a covered company's balance sheet.
Finally, the final rule defines “QMNA netting set” to refer to a group of derivative transactions with a single counterparty that is subject to a qualifying master netting agreement (QMNA),
The proposed rule would have included rules of construction in § __.102 relating to how items recorded on a covered company's balance sheet would be reflected in the covered company's ASF and RSF amounts.
As noted above, a covered company generally would have determined its ASF and RSF amounts based on the carrying values of its on-balance sheet assets, NSFR regulatory capital elements, and NSFR liabilities as determined under GAAP. For off-balance sheet assets, the proposed rule would have included a rule of construction in § __.102(a) specifying that, unless otherwise provided, a transaction or exposure that is not recorded on the balance sheet of a covered company would not be assigned an ASF or RSF factor and, conversely, a transaction or exposure that is recorded on the balance sheet of the covered company would be assigned an ASF or RSF factor. While the proposed rule generally would have relied on balance sheet carrying values, it would have provided a separate treatment for derivative transactions and the undrawn amount of commitments. The proposed rule also would have included adjustments to account for certain rehypothecated off-balance sheet assets.
The agencies received several comments regarding the treatment of securitization exposures. Two commenters requested that all or certain securitization exposures that are included on a covered company's balance sheet pursuant to GAAP be excluded from a covered company's NSFR.
During the 2007-2009 financial crisis, a number of banking organizations provided funding support for securitization exposures, even if the banking organization did not include the exposures on its balance sheet. In response to these events, changes were made to GAAP that now require firms to include certain securitization
In response to the request of one commenter that the rule not assign RSF factors to assets of an on-balance sheet securitization that meets (1) the definition of “traditional securitization” under the agencies' regulatory capital rules and (2) the operational requirements of risk transfer under those rules, the agencies note that the operational requirements include the requirement that the exposures are not reported on the firm's consolidated balance sheet under GAAP.
The proposed rule would have included a rule of construction in § __.102(b) that describes the treatment of receivables and payables that are associated with secured funding transactions, secured lending transactions, and asset exchanges with the same counterparty that the covered company has netted against each other. The agencies did not receive any comments regarding these netting criteria and are finalizing these netting criteria as proposed.
For purposes of determining the carrying value of these transactions, GAAP permits a covered company, when the relevant accounting criteria are met, to offset the gross value of receivables due from a counterparty under secured lending transactions by the amount of payments due to the same counterparty under secured funding transactions (GAAP offset treatment). The final rule requires a covered company to satisfy these GAAP accounting criteria and the criteria applied in § __.102(b) before it can treat the applicable receivables and payables on a net basis for the purposes of the NSFR requirement.
Section __.102(b) of the final rule applies the same netting criteria specified in the agencies' SLR rule.
The proposed rule would have included a rule of construction in § __.102(c) specifying that when a covered company, acting as a securities lender, receives a security in an asset exchange, includes the value of the security on its balance sheet, and has not rehypothecated the security received, the covered company is not required to assign an RSF factor to the security it has received and is not permitted to assign an ASF factor to any liability to return the security.
The agencies received two comments relating to this section of the proposed rule. One commenter asserted that § __.102(c), together with § __.106(d),
The other commenter argued that the proposed rule should apply a different treatment for asset exchanges more generally because, according to the commenter, the proposed rule did not sufficiently recognize the funding value of assets received in an asset exchange. In particular, this commenter argued that the rule should assign an ASF factor to the value of the asset received in an asset exchange, based on the type of asset and the remaining maturity of the asset exchange. The commenter asserted that such treatment would also better align with the LCR rule, which under certain circumstances allows a covered company to include in its HQLA amount an asset received in an asset exchange and may take into account both the assets received and provided for purposes of assigning inflow or outflow rates. The commenter further argued that the proposed rule's treatment of asset exchanges would incentivize covered companies to rehypothecate assets received in an asset exchange, which the commenter argued would increase systemic risk.
The NSFR assesses the adequacy of a covered company's funding stability based on the covered company's balance sheet at a point in time. A covered company, acting as a securities lender, retains the security on its balance sheet. Since the covered company is the owner of the provided security, it is appropriate for the covered company to retain stable funding for that security, even in cases where the liquidity characteristics of the asset that the
The final rule adopts the proposed treatment for securities received in an asset exchange by a covered company acting as a securities lender. This provision is intended to neutralize differences across accounting frameworks and maintain consistency across covered companies, and is consistent with the treatment of security-for-security transactions under the SLR rule.
The proposed rule would have assigned ASF and RSF factors to a covered company's NSFR liabilities and assets based in part on the maturity of each NSFR liability or asset. Section __.101 of the proposed rule would have incorporated the maturity assumptions in §§ __.31(a)(1) and (2) of the LCR rule to determine the maturities of a covered company's NSFR liabilities and assets. For example, the proposed rule would require a covered company to apply the earliest possible maturity date to an NSFR liability (which would be assigned an ASF factor) and the latest possible maturity date to an asset (which would be assigned an RSF factor), taking into account any notice periods or options that may modify the maturity date.
A commenter argued that the proposed rule's maturity assumptions provide a less risk-sensitive approach than the Basel NSFR standard, stating that the Basel NSFR standard does not require the assumption that a liability matures according to its earliest possible maturity date, but provides supervisors with discretion regarding assumptions about the exercise of certain options based on reputational factors and market expectations. Another commenter posited that the NSFR rule should not assume that a covered company would exercise a “clean-up” call option with respect to a securitization at the earliest possible date.
The final rule incorporates the maturity assumptions of the LCR rule as proposed. The final rule requires a covered company to identify the maturity date of its NSFR liabilities and assets in a conservative manner by applying the earliest possible maturity date to an NSFR liability and the latest possible maturity date to an asset. The final rule generally also requires a covered company to take a conservative approach when determining maturity with respect to any notice periods and with respect to any options, either explicit or embedded, that may modify maturity dates. For example, a covered company is required to treat an option to reduce the maturity of an NSFR liability or an option to extend the maturity of an asset as if it will be exercised on the earliest possible date.
The final rule treats an NSFR liability that has an “open” maturity (
The final rule treats each principal amount due under a transaction, such as separate principal payments due under an amortizing loan, as a separate transaction for which the covered company would be required to identify the date on which the payment is contractually due and apply the appropriate ASF or RSF factor based on that maturity date. This treatment ensures that a covered company's ASF and RSF amounts reflect the timing of the contractual maturities of a covered company's liabilities and assets, rather than treating the full principal amount as though it were due on one date (such as the last contractual principal payment date). For example, if funding provided by a counterparty to a covered company requires two contractual principal repayments, the first due less than six months from the calculation date and the second due one year or more from the calculation date, only the principal amount that is due one year or more from the calculation date is assigned a 100 percent ASF factor, which is the factor assigned to liabilities that have a maturity of one year or more from the calculation date. The liability for the contractual principal repayment due within six months represents a less stable source of funding and is therefore assigned a lower ASF factor.
For deferred tax liabilities that have no maturity date, the maturity date under the final rule is the first calendar day after the date on which the deferred tax liability could be realized.
Because the maturity assumptions in § __.101 of the final rule apply only to NSFR liabilities and assets, the final rule does not apply the LCR rule's maturity assumptions to a covered company's NSFR regulatory capital elements. Unlike NSFR liabilities, which have varying maturities, NSFR regulatory capital elements are longer-term by definition, and as such, the proposed rule would have assigned a
The final rule's incorporation of the above maturity assumptions provides for consistent determination of maturities across covered companies, which improves comparability and standardization of the NSFR. In addition, these assumptions reflect an appropriate degree of conservatism regarding the timing of when an asset or NSFR liability will mature, which helps to support a covered company's funding resiliency across a range of economic and financial conditions. This approach is also consistent with a provision in the Basel NSFR standard that one commenter argued would be more risk-sensitive. This standard provides that for funding with options exercisable at the discretion of a firm subject to a jurisdiction's NSFR requirement, national supervisors should take into account reputational factors that may pressure a firm not to exercise the option. Given the possibility and variability of reputational considerations with respect to many forms of funding, in addition to the considerations discussed above, the final rule incorporates the LCR rule maturity assumptions as proposed.
With respect to the treatment of securitization clean-up call options, these options are generally features of securitizations with terms greater than one year and are generally exercisable near the end of the term. Instead of providing for firm specific evaluations of the likelihood of exercising a clean-up call option as commenters suggested, the final rule employs standardized assumptions to all firms to facilitate comparability across firms. The maturity assumptions of the LCR rule and final rule, however, do not require all clean-up call options to be exercised at the earliest possible date. Section __.31(a)(1)(iii)(A) of the LCR rule, applicable to the NSFR through § __.101 of the final rule, provides that a covered company must treat an option to reduce the maturity of an obligation as though it will be exercised at the earliest possible date, except where the original maturity of the obligation is greater than one year and the option does not go into effect for a period of 180 days following the issuance of the instrument. If that condition is met, then the maturity of the obligation will be the original maturity date at issuance under both the LCR rule and the final rule.
Section __.103 of the proposed rule would have established the requirements for a covered company to calculate its ASF amount, which would have equaled the sum of the carrying values of the covered company's NSFR regulatory capital elements and NSFR liabilities, each multiplied by an ASF factor assigned in § __.104 or § __.107(c).
In the proposed rule, ASF factors would have been assigned based on the relative stability of each category of NSFR regulatory capital element or NSFR liability relative to the NSFR's one-year time horizon. In addition, § __.108 of the proposed rule would have provided that a covered company may include in its ASF amount the ASF of a consolidated subsidiary only to the extent that the funding of the subsidiary supports the RSF amount of the subsidiary or is readily available to support RSF amounts of the covered company outside the consolidated subsidiary.
Comments regarding the proposed assignment of ASF factors and specific contractual and funding-related features of a number of NSFR regulatory capital elements and NSFR liabilities are described below.
For the purpose of assigning ASF factors, the proposed rule would have categorized NSFR regulatory capital elements and NSFR liabilities into five broad categories based on their tenor, the type of funding, and the type of funding counterparty. The proposed rule would have applied the same ASF factor in each category to reflect the relative stability of a covered company's NSFR regulatory capital elements and NSFR liabilities over a one-year time horizon. ASF factors would have been scaled from zero to 100 percent, with a zero percent weighting representing the lowest relative stability and a 100 percent weighting representing the highest relative stability.
For operational simplicity, the proposed rule would have grouped NSFR regulatory capital elements and NSFR liabilities into one of four maturity categories: One year or more, less than one year, six months or more but less than one year, and less than six months (ASF maturity categories). One commenter expressed concern that the ASF maturity categories are arbitrary and may lead a covered company to unnecessarily adjust its funding profile to align with the ASF maturity categories rather than its actual funding needs. This commenter recommended that the ASF factor framework provide more granular maturity categories (
The agencies did not receive general comments on the proposed approach to differentiate ASF factors based on different funding types and counterparties, although some comments were received on the proposed categories of ASF and are discussed below. However, some commenters suggested that, for purposes of measuring the stand-alone NSFR of a covered company that is a depository institution subsidiary of another covered company, ASF factors should be higher or subject to a floor where the counterparty providing the funding is an affiliated insured depository institution. For example, one commenter suggested that the ASF factor for funding provided by an affiliated depository institution should be no less than 95 percent, particularly where the affiliated depository institution has an ASF amount in excess of its RSF amount when measured on a stand-alone basis. These commenters argued that a higher ASF factor would be appropriate because funding provided by an affiliated depository institution is more stable than funding from non-affiliated sources. These commenters also asserted that special treatment for funding transactions between affiliated insured depository institutions in the final rule would be consistent with the treatment of affiliates in the U.S. bank regulatory framework, such as the treatment of affiliates in sections 23A and 23B of the Federal Reserve Act,
The final rule generally adopts the proposed rule's approach to assigning ASF factors subject to certain modifications and clarifications that are discussed below in this Supplementary Information section. The final rule treats funding to be relatively less stable if there is a greater likelihood that a covered company would need to replace or repay it over a one-year time horizon. As in the proposed rule, the final rule assigns an ASF factor to NSFR regulatory capital elements and NSFR liabilities based on three characteristics relating to the stability of the funding: (1) Funding tenor, (2) funding type, and (3) counterparty type. As discussed below, certain ASF factor assignments under the final rule reflect additional policy considerations.
For purposes of assigning ASF factors, the final rule assigns a higher ASF factor to funding that has a longer remaining maturity (or tenor) than shorter-term funding because, funding that by its terms has a longer tenor is more stable relative to a one-year horizon and should be less susceptible to short-term rollover risk. Specifically, the assignment of a higher ASF factor reflects the relatively decreased likelihood that a firm in the near term would need to replace funding that has a longer tenor, or if necessary, monetize assets at a loss to repay the funding in comparison to funding of a shorter tenor. The need to replace funding or monetize assets could adversely impact a firm's liquidity position or generate negative externalities for other market participants. Longer-term funding, therefore, generally would provide greater stability across all market conditions. For operational simplicity, and consistent with the proposed rule, the final rule groups the tenor of NSFR regulatory capital elements and NSFR liabilities into one of the four ASF maturity categories: One year or more, less than one year, six months or more but less than one year, and less than six months. These ASF maturity categories are consistent with the design principles described in section V of this Supplementary Information section and the Basel NSFR standard. They are also generally consistent to other approaches used for reflecting the role of residual maturities in other agencies' regulations and supervisory approaches.
The purpose of the ASF maturity categories is to categorize NSFR regulatory capital elements and NSFR liabilities in a simple manner based on the relative stability of such funding. Although the categories may result in some greater cliff effects between groups than more granular categories (
The final rule recognizes that certain types of funding, such as certain types of deposits, tend to be more stable than other types of funding, independent of their tenor. For example, as described below in this Supplementary Information section, the final rule assigns a higher ASF factor to stable retail deposits relative to other retail deposits, due in large part to the presence of full deposit insurance coverage and other stabilizing features, such as another established relationship with the depository institution,
The final rule assigns ASF factors by taking into account the type of counterparty that provides the funding, using the same counterparty type classifications as the LCR rule: (1) Retail customers or counterparties, (2) wholesale customers or counterparties that are not financial sector entities, and (3) financial sector entities.
Consistent with the proposed rule, the final rule considers the differences in funding provided by retail and wholesale customers or counterparties when assigning ASF factors. Retail customers or counterparties (including small businesses) typically maintain long-term relationships with covered companies and their deposits may consist of larger numbers of accounts with smaller balances relative to wholesale depositors. Retail customers or counterparties are generally less likely to move deposits over a one-year time horizon than wholesale depositors. In contrast, wholesale depositors are more likely to move deposits over a one-year time horizon for business or investment reasons. Therefore, the final rule treats most types of deposit funding provided by retail customers or counterparties as more stable than deposit funding provided by wholesale customers or counterparties.
In addition, wholesale customers and counterparties that are not financial sector entities typically maintain balances with covered companies to support their non-financial activities, such as production and physical investment, which tend to be less correlated to short-term financial market fluctuations than activities of financial sector entities. Therefore, non-financial wholesale customers or counterparties are more likely than financial sector
Further, differences in business models and liability structures tend to make short-term funding provided by financial sector entities less stable than similar funding provided by non-financial wholesale customers or counterparties. Financial sector entities are typically less reliable funding providers than non-financial wholesale customers or counterparties due, in part, to their financial intermediation activities. Financial sector entities tend to be more sensitive to market fluctuations that could cause them to reduce their general level of funding provided to a covered company. Furthermore, the increased interconnectedness between financial sector entities means that there is a higher correlation of risks across the financial sector that may adversely impact the stability of short-term funding provided by a financial sector entity. Therefore, the final rule treats most short-term funding that is provided by financial sector entities as less stable than similar types of funding provided by non-financial wholesale customers or counterparties.
Further, as a general matter, an affiliation would not necessarily improve the funding stability of the covered company. Banking organizations that generally rely on funding from financial sector affiliates may have similar balance sheet funding risks to those that generally rely on funding of the same tenor from non-affiliates. An affiliated depository institution that is providing funding to a covered company may have a business model, liability structure, sensitivity to market fluctuations, degree of financial sector interconnectedness, or other characteristics that are similar to unaffiliated financial sector entities. While funding relationships with affiliates may provide a banking organization with additional flexibility in the normal course of business, ongoing reliance on contractually short-term funding from affiliates may present risks that are similar to funding from non-affiliate sources, particularly during stress. Therefore, the final rule's treatment of funding from affiliated sources consistent with non-affiliate funding provides a more appropriate measure of balance sheet funding risk.
The agencies also are not convinced that the ASF factors applicable to funding provided by an affiliated insured depository institution should be higher in cases where the affiliated funds provider has an ASF amount in excess of its RSF amount when calculated on a standalone basis. The comparison of ASF to RSF amounts is informative of the overall funding position of a banking organization, taking into account its entire balance sheet, lending commitments, and derivative exposures. However, the balance sheet funding position of an affiliated insured depository institution at a calculation date does not necessarily imply that the institution is generally more likely to continue to provide funds to a covered company than an unaffiliated funding provider. The agencies note that the specific legal provisions cited by commenters (
While comprehensive data on the funding of covered companies by counterparty type is limited, the agencies' analysis of available data confirmed the agencies' expectation of funding stability differences across counterparty types.
The agencies' analysis of available public and supervisory information shows that, during 2008, funding from financial sector entities exhibited less stability than funding provided by non-financial wholesale counterparties, which in turn exhibited less stability than insured retail deposits. For example, Call Report data on insured deposits, deposit data from the FFIEC 002, and broker-dealer liability data reported on the FOCUS Report showed higher withdrawals in wholesale funding than retail deposits over this period. The agencies' analysis of supervisory data from a sample of large depository institutions for which the FDIC was appointed as receiver in 2008 and 2009 also indicated that, during the periods leading up to receivership, funding provided by wholesale counterparties was significantly less stable, showing higher average total withdrawals, than funding provided by retail customers and counterparties.
Based on the tenor, funding type and counterparty type characteristics described above, the agencies categorized NSFR regulatory capital elements and NSFR liabilities into five broad categories and assigned a single ASF factor in each category, as shown in Table 1 below. The types of funding grouped together in each category generally displays relatively similar stability as compared to funding in a different category. The value of the ASF factor is calibrated to reflect the relative distinctions between categories and the general composition of balance sheet liabilities, and is generally consistent with the Basel NSFR standard to promote comparability across jurisdictions and the supervisory assessment of the aggregate funding position of covered companies.
Section __.104(a) of the proposed rule would have assigned a 100 percent ASF factor to NSFR regulatory capital elements, as defined in § __.3 of the proposed rule, and described in section VI.B of this Supplementary Information section. The proposed rule also would have assigned a 100 percent ASF factor to NSFR liabilities that have a remaining maturity of one year or more from the calculation date, other than funding typically provided by retail customers or counterparties. This category would have included debt or equity securities issued by a covered company that have a remaining maturity of one year or more.
In the proposed rule, the agencies requested comment on whether long-term debt securities issued by a covered company where the company is the primary market maker of such securities should be assigned an ASF factor other than 100 percent (for example, between 95 and 99 percent) to recognize the risk that a covered company may buy back these debt securities. One commenter supported the proposed assignment of a 100 percent ASF factor to such securities on the basis that a lower ASF is unnecessary because the NSFR is not a stress metric. The agencies did not receive other comments regarding treatment of the NSFR regulatory capital elements and NSFR liabilities that mature one year or more from the calculation date not provided by retail customers or counterparties.
The final rule assigns a 100 percent ASF factor to NSFR regulatory capital elements and NSFR liabilities that mature one year or more from the calculation date as proposed. NSFR regulatory capital elements and non-retail long-term liabilities that do not mature during the NSFR's one-year time horizon represent the most stable form of funding under the final rule because they are not susceptible to rollover risk during the NSFR's timeframe. Similarly, and as noted by the commenter, there is reduced risk, absent stress conditions, that a covered company will face pressure to buy back its long-term debt securities in significant quantities during the NSFR's one-year time horizon as compared to other liabilities on its balance sheet.
The agencies received comments requesting assignment of a 100 percent ASF factor to certain other NSFR liabilities, which are discussed in more detail below.
Section __.104(b) of the proposed rule would have assigned a 95 percent ASF factor to stable retail deposits held at a covered company.
Some commenters requested that the final rule assign a 95 or 100 percent ASF factor to certain retail deposits that do not meet the definition of “stable retail deposits,” but are subject to contractual restrictions that make it less likely the deposits would be redeemed earlier than their contractual term. For example, some commenters suggested that the NSFR rule assign a 100 percent ASF factor to a retail deposit, such as a certificate of deposit, with a remaining maturity greater than one year if the covered company or its consolidated depository institution does not maintain a secondary market for the deposit, or if the contract contained provisions restricting redemption only to certain specified events, such as death or
The final rule assigns a 95 percent ASF factor to deposits that meet the definition of “stable retail deposit” as proposed. Relative to liabilities in the 100 percent ASF category, stable retail deposits either have no contractual restriction on withdrawal within a one-year period or there is some likelihood that covered companies may permit withdrawals despite contractual restrictions within the one-year horizon. Although some evidence suggests that these deposits are highly stable, they are not as stable as funding for which there is greater certainty of maturity outside the NSFR one-year horizon. Therefore, an ASF factor that is only slightly lower than that assigned to NSFR regulatory capital elements and long-term NSFR liabilities is appropriate because stable retail deposits are nearly as stable over the NSFR's one-year time horizon as NSFR regulatory capital elements and long-term NSFR liabilities under § __.104(a) of the final rule.
The remaining maturity of stable retail deposits does not affect the assignment of an ASF factor under the final rule because the stability of retail deposits is more closely linked to counterparty and funding type characteristics. As noted in the preamble to the proposed rule, the combination of full deposit insurance coverage, the depositor's relationship with the covered company, and the costs of moving transactional or multiple accounts to another institution substantially reduce the likelihood that retail depositors will withdraw stable retail deposits in significant amounts over a one-year time horizon.
Under the proposal, affiliated brokered sweep deposits deposited in accordance with a contract with a retail customer or counterparty and where the entire amount of the deposit is covered by deposit insurance would have been assigned a 90 percent ASF factor.
In a change from the proposal, the final rule also assigns a 95 percent ASF factor to affiliate sweep deposits where the entire amount of the sweep deposit is covered by deposit insurance and where a covered company has demonstrated to the satisfaction of its appropriate Federal banking agency that withdrawal of the deposit is highly unlikely to occur during a liquidity stress event. A sweep deposit arrangement places deposits at one or more banking organizations, with each banking organization receiving the maximum amount that is covered by deposit insurance, according to a priority “waterfall.” Within the waterfall structure, affiliates tend to be the first to receive deposits and the last from which deposits are withdrawn. Because of this priority relationship with an affiliate, a covered company is more likely to receive and maintain a steady stream of sweep deposits provided by a retail customer or counterparty across a range of market conditions. The priority relationship with an affiliate results in a deposit relationship that is reflective of an overall relationship with the underlying retail customer or counterparty where these deposits generally exhibit a stability profile associated with deposits directly from retail customers. This affiliate relationship combined with the presence of full deposit insurance coverage reduces the likelihood that retail depositors will withdraw these deposits in significant amounts over a one-year time horizon. Given these stabilizing characteristics, some affiliate sweep deposits from retail customers may provide similar funding stability across a range of market conditions as stable retail deposits, particularly if there are contractual features or costs that substantially reduce the likelihood that an affiliate sweep deposit will be withdrawn over a one-year time horizon. In light of this possibility, the final rule assigns a 95 percent ASF factor to any fully insured affiliate sweep deposit from a retail customer or counterparty that the covered company demonstrates is highly unlikely to be withdrawn during a liquidity stress event. For the same reasons as the agencies described in connection with this final rule, the agencies are considering making similar changes to the treatment of affiliate sweep deposits in the LCR in a separate rulemaking.
While stable retail deposits and certain fully-insured retail affiliate sweep deposits, regardless of tenor, have the highest stability characteristics for deposits under the final rule, other non-brokered retail deposits and certain retail brokered deposits have a combination of deposit insurance, counterparty relationship, and tenor characteristics that provide relatively less stability than stable retail deposits and are assigned a slightly lower ASF factor of 90 percent.
Section __.104(c) of the proposed rule would have assigned a 90 percent ASF factor to retail deposits that are neither stable retail deposits nor retail brokered deposits. This category would have included retail deposits that are not fully insured by the FDIC or are insured under non-FDIC deposit insurance systems. The agencies did not receive comments on this aspect of the proposed rule, and the final rule assigns a 90 percent ASF factor to these other retail deposits as proposed.
As discussed above in section VII.C.2 of this Supplementary Information section, retail customers and counterparties tend to provide deposits that are more stable than funding provided by other types of counterparties. However, deposits provided by retail customers and counterparties that are not fully covered by FDIC deposit insurance are assigned a lower ASF factor than the ASF factor assigned to stable retail deposits because of the elevated risk that depositors will withdraw funds if they become concerned about the condition of the bank, in part, because the depositor will have no guarantee that uninsured funds will promptly be made available through established and timely intervention and resolution protocols. In addition, deposits that are neither held in a transactional account nor from a customer that has another relationship with a covered company tend to be less stable than stable retail deposits because
Section __.104(c) of the proposed rule would have assigned a 90 percent ASF factor to the following three categories of brokered deposits
The agencies note that the ASF factors assigned to retail brokered deposits are based solely on the stable funding characteristics of these deposits over a one-year time horizon. The assignment of ASF factors is not intended to reflect other impacts of these deposits on a covered company, such as their effect on a company's probability of failure or loss given default, franchise value, or asset growth rate or lending practices.
A commenter argued that brokered deposits are not inherently unstable and should receive similar treatment as non-brokered retail deposits. Several commenters suggested that retail brokered deposits with a remaining maturity of one year or more be assigned a 100 percent ASF factor. Commenters argued that assigning these long-term retail brokered deposits an ASF factor of 100 percent would align with the Basel standard and recognize the more significant role of this funding source in the U.S. financial system relative to other jurisdictions. The commenters further argued that covered companies can expect to rely on these deposits for funding over the NSFR's one-year time horizon given their maturity and because depositors are generally not permitted to withdraw such deposits except under narrow circumstances and usually not without a significant penalty. The commenters also argued that depositors are less likely to accelerate the maturity of their brokered deposits outside of a stress scenario. Commenters also expressed concern that the FDIC's interpretation of “brokered deposit” is overly broad and reflects policy concerns, such as rapid deposit expansion and improper deposit management that are not relevant for purposes of determining the appropriate treatment of such products for regulatory liquidity and stable funding requirements.
Except in the cases described below where brokered deposits have certain stabilizing features, the typical characteristics of brokered deposits support assigning a lower ASF factor for retail brokered deposits than the ASF factor assigned to stable or other retail deposits. Specifically, deposits that are placed by a deposit broker are typically at higher risk of being withdrawn over a one-year period as compared to a retail deposit placed directly by a retail customer or counterparty. As noted, the FDIC has issued a proposal revising its brokered deposits framework
Additionally, statutory restrictions on certain brokered deposits can make this form of funding less stable than other deposit types across a range of market environments. Specifically, a covered company that becomes less than “well capitalized”
For these reasons, the final rule generally assigns a lower ASF factor to retail brokered deposits to reflect their reduced stability in comparison to other forms of retail deposits. However, consistent with the proposal, the final rule applies a 90 percent ASF factor to the following retail brokered deposits that have certain stabilizing characteristics: (1) A brokered reciprocal deposit provided by a retail customer or counterparty, where the entire amount of the deposit is covered by deposit insurance; and (2) a brokered deposit provided by a retail customer or counterparty that is not a brokered reciprocal deposit or sweep deposit, is not held in a transactional account, and has a remaining maturity of one year or more. In a change from the proposal, the final rule assigns a 90 percent ASF factor to any affiliate sweep deposit that does not meet all of the requirements for affiliate sweep deposits to be assigned a 95 percent ASF factor, which includes affiliate sweep deposits that are not fully covered by deposit insurance.
The final rule assigns an ASF factor of 50 percent to most forms of wholesale funding with residual maturities of less than one year, certain retail brokered deposits that do not have the stabilizing characteristics described above, and non-deposit retail funding. For wholesale funding, the 50 percent ASF factor recognizes that funding that contractually matures in less than one year is less stable than longer term wholesale funding relative to the NSFR time horizon. The likelihood that maturing wholesale funding will be renewed generally depends on counterparty relationship characteristics, with financial sector entities being less likely than non-financial sector entities to renew their provision of funding. In addition, the final rule assigns the 50 percent ASF factor to all wholesale operational deposits, regardless of contractual maturity or counterparty, reflecting the provision of operational services. The 50 percent ASF factor applied to certain retail brokered deposits and to retail funding that is not a deposit or security reflect the counterparty relationship characteristics and the extent to which the retail funding has other stabilizing characteristics.
Sections __.104(d)(1) and (2) of the proposed rule would have assigned a 50 percent ASF factor to a secured funding transaction or unsecured wholesale funding (including a wholesale deposit) that, in each case, matures less than one year from the calculation date and is provided by a wholesale customer or counterparty that is not a central bank or a financial sector entity (or a consolidated subsidiary thereof). The proposed rule would have assigned this ASF factor because covered companies generally will need to roll over or replace funding with these characteristics during the NSFR's one-year time horizon.
Several commenters also requested that the NSFR assign a higher ASF factor to public sector entity deposits, including public deposits that must be collateralized and collateralized corporate trust deposits. These commenters argued that these public sector entity collateralized deposits are more stable than most other wholesale deposits because, among other things, the deposit relationship is connected to longer-term relationships between a covered company and the public sector entity, the relationship is often acquired through prescribed bidding processes, and the deposits frequently are secured by HQLA. These commenters also argued that assigning a higher ASF factor to collateralized deposits would be consistent with the LCR rule, which assigns a lower outflow rate to such deposits compared to other forms of wholesale funding. The commenters recommended that the agencies revise the ASF factor for such deposits to one minus the RSF factor applicable to the underlying collateral. One commenter advocated assigning a 95 percent ASF factor (or an alternative factor slightly lower than 95 percent) to public sector entity deposits in excess of FDIC deposit insurance limits if the deposit is privately insured or fully collateralized by an FHLB letter of credit. The commenter argued that such features would lower the likelihood of withdrawal for these types of funds, including during times of stress.
Other commenters requested a higher ASF factor for FHLB advances because, in their view, FHLB advances are stable, reliable and fully secured, and the FHLBs have a proven track record of providing liquidity. For example, one commenter recommended assigning an ASF factor of 80 percent to FHLB advances with maturities of six months or more but less than one year.
The treatment of wholesale deposits in the final rule includes consideration of counterparty relationships. As compared to retail customers or counterparties, wholesale customers or counterparties may be motivated to a greater degree by return and risk of an investment, tend to be more sophisticated and responsive to changing market conditions, and often employ personnel who specialize in the financial management of the counterparty. As a result, wholesale customers or counterparties are more likely to withdraw their funding than a retail customer or counterparty. Further, FDIC deposit insurance coverage does not mitigate these motivations and sophistication characteristics to increase the stability of funding provided by a wholesale customer or counterparty sufficient to warrant an ASF factor higher than 50 percent.
The NSFR's application to a covered company's aggregate balance sheet generally does not involve differentiation between secured and unsecured liabilities and, by design, the NSFR treats the liquidity characteristics of collateral differently from the LCR rule. Although collateralization may reduce credit risk in the event of default, funding stability is influenced more by tenor, funding type and counterparty relationship characteristics. The fact that certain deposits placed by public sector entities are required to be collateralized for their contractual term does not mitigate the risk that a public sector entity may not renew such funding upon maturity. The final rule treats the collateralization of FHLB advances in the same fashion. Additionally, ASF and RSF factor values are not intended to be values of, respectively, cash outflow amounts as in the LCR rule or market haircuts of assets
The final rule also treats the maturity characteristics of FHLB advances consistent with other wholesale funding. Although the FHLBs served as a source of liquidity during the 2007-2009 financial crisis, covered companies generally may need to renew maturing funding from these entities across a range of market conditions. The FHLB system also conduct maturity transformation in obtaining the system's funding from investors. Similar to other wholesale counterparties, the FHLB system responds to events and market conditions in different ways than retail counterparties and could be sensitive to fluctuations in market conditions, which make funding already obtained from FHLBs less stable than retail deposits and other forms of funding that are assigned higher ASF factors. As a result, distinguishing FHLB advances from other types of wholesale funding would be at odds with the goal of the NSFR, which is to provide a standardized measure to ensure appropriate stable funding of covered companies relative to their assets and commitments.
For the reasons discussed above, the final rule assigns an ASF factor of 50 percent for a secured funding transaction or unsecured wholesale funding (including a wholesale deposit) that, in each case, matures less than one year from the calculation date and is provided by a wholesale customer or counterparty that is not a central bank or a financial sector entity (or a consolidated subsidiary thereof), as proposed. Funding from FHLBs and public sector entity deposits that have a residual maturity of less than one year from the calculation date are included in this category.
Sections __.104(d)(3) and (4) of the proposed rule would have assigned a 50 percent ASF factor to a secured funding transaction or unsecured wholesale funding that matures six months or more but less than one year from the calculation date and is provided by a financial sector entity or a consolidated subsidiary thereof, or a central bank.
The agencies did not receive comments on this aspect of the proposed rule, and the final rule adopts this provision as proposed. In assigning a 50 percent ASF factor, the final rule treats secured funding transactions and unsecured funding that each have a remaining maturity of six months or more but less than one year, and are conducted with financial sector counterparties and central banks, the same as similar types of funding from other wholesale customers and counterparties.
Section __.104(d)(5) of the proposed rule would have assigned a 50 percent ASF factor to securities issued by a covered company that mature in six months or more, but less than one year, from the calculation date.
The agencies received no comments on this provision of the proposed rule. Consistent with the proposed rule, the final rule assigns a 50 percent ASF factor to securities issued by a covered company that mature in six months or more, but less than one year, from the calculation date. This treatment is appropriate because funds providers that are investors in securities issued by covered companies include, among others, financial sector entities and the relationship of the funds provider to a covered company generally will have characteristics that make such funding less stable than other types of funding received from retail customers or counterparties.
Section __.104(d)(6) of the proposed rule would have assigned a 50 percent ASF factor to operational deposit funding, including operational deposits from financial sector entities. Operational deposits would include both (i) unsecured wholesale funding in the form of deposits and (ii) collateralized deposits that, in each case, are necessary for the provision of operational services, such as clearing, custody, or cash management services.
Commenters requested that the final rule assign operational deposits a higher ASF factor (
Commenters also asserted that the proposed rule's treatment of operational deposits was inconsistent with the treatment of operational deposits under the LCR rule, and argued that this type of funding is more stable than suggested by the treatment in the LCR rule or the proposed rule based on historical experience, evidenced in the empirical data, and the results of internal stress testing. These commenters contended that the proposed treatment of operational deposits would compound the already punitive treatment of operational deposits under the LCR rule. A commenter also argued that the proposed treatment of operational
The final rule applies an ASF factor of 50 percent to operational deposits as proposed. By definition, operational deposits are essential for the ongoing provision of operational services by a covered company to a wholesale depositor. The final rule therefore applies the ASF factor for operational deposits based on the operational relationship with the depositor rather than the contractual tenor of the funding or the type of wholesale counterparty. The level of operational deposits from a given funds provider may vary over time based on the customer's needs and, consistent with other wholesale funding that matures within one year that is assigned a 50 percent ASF factor, is not contractually guaranteed for the NSFR's one-year horizon. Further a counterparty could successfully restructure how it obtains various operational services and could place some or all of its operational deposits with another financial institution over a one-year time horizon. The 50 percent ASF factor also recognizes that the stability of short-term operational and non-operational deposits from financial counterparties are not identical because switching operational service providers may be difficult and have associated costs that are not present with non-operational deposits.
As discussed in section V.C of this Supplementary Information section, ASF factors are not directly comparable to outflow rates assigned in the LCR rule or other cash flow risk assessments, such as internal liquidity stress testing. While there are some barriers to withdrawing operational deposits, such as switching costs, operational deposits are not as stable as those forms of funding that are assigned a higher ASF factor in the final rule.
In response to commenters' concern that the proposed treatment of operational deposits is especially impactful to the custody banks business model, which place greater reliance on operational deposits than other business models, the agencies note the NSFR rule is meant to apply a single minimum standard to all covered companies regardless of business model, in order to improve resiliency and comparability of funding profiles for all covered companies. Accordingly, the NSFR assigns ASF factors and RSF factors to categories of liabilities and assets based on the characteristics of those liabilities and assets rather than their prevalence in certain business models.
Section __.104(d)(7) of the proposed rule would have assigned a 50 percent ASF factor to most categories of brokered deposits provided by retail customers or counterparties that do not include the additional stabilizing features described under § __.104(c) and summarized above. Specifically, retail brokered deposits to which the proposed rule would have assigned a 50 percent ASF factor included: (1) A brokered deposit that is not a reciprocal brokered deposit or brokered sweep deposit and that is held in a transactional account; (2) a brokered deposit that is not a reciprocal brokered deposit or brokered sweep deposit, is not held in a transactional account, and matures in six months or more, but less than one year, from the calculation date; (3) a reciprocal brokered deposit or brokered affiliate sweep deposit where less than the entire amount of the deposit is covered by deposit insurance; and (4) a brokered non-affiliate sweep deposit, regardless of deposit insurance coverage.
Commenters argued that one or more of the above types of retail brokered deposits should be assigned a higher ASF factor. Commenters asserted the proposed rule's treatment of brokered deposits was too conservative, arguing that brokered deposits have historically been stable sources of funding, including during times of stress, and their use has not been correlated with the growth of risky assets.
Commenters recommended that specific brokered deposits be assigned a 90 percent ASF factor. For example, some commenters suggested that non-affiliate sweep deposits with contractual agreements that provide a depository institution with priority over other participants in a brokered sweep deposit program waterfall receive the same 90 percent ASF factor assigned to affiliated brokered sweep deposits. Another commenter requested that the 90 percent ASF factor be applied to all non-affiliate brokered retail sweep deposits that are fully insured and with remaining terms of greater than one year. Similarly, one commenter suggested that retail brokered deposits categorized as money market deposit accounts that are subject to a commitment to leave the balances on deposit with the bank for a pre-determined period of time and subject to an early withdrawal penalty should be assigned a 90 percent ASF factor. The commenter argued that the agreements, which require that the funds not be withdrawn for a minimum period without incurring a significant interest penalty, make the funds sufficiently stable to warrant a higher ASF factor.
One commenter argued that many brokered deposits held in transactional accounts behave substantially similarly to retail deposits and should therefore receive an ASF factor that is higher than the proposed 50 percent factor. In particular, this commenter noted that, due to the types of deposits that may be considered “brokered deposits” under the FDIC's brokered deposit guidance,
Finally, commenters requested that the agencies increase the ASF factors applied to retail brokered deposits to align the ASF factors with the outflow rates assigned in the LCR rule. For example, one commenter argued that it would be inconsistent for brokered deposits that receive a 25 percent outflow rate under the LCR rule to receive a 50 percent ASF factor under NSFR rule. The commenter argued that the ASF factor and LCR outflow rate should be complements, and, if not, the ASF factor should be more favorable because a covered company would have a full year to make adjustments to its balance sheet to replace a withdrawal of retail brokered deposits, whereas the LCR outflow rate is assumed to occur over a 30 calendar-day stress period. The same commenter argued that the perceived disparate treatment of these brokered deposits between the NSFR rule and LCR rule could incentivize covered companies to meet funding needs with shorter, rather than long-term brokered deposits.
The retail brokered deposits to which a 50 percent ASF factor would have been assigned are less stable sources of funding than the retail brokered deposits that are assigned a 90 percent ASF factor, other deposits that are assigned a 90 percent ASF factor, and
In response to commenters' request to treat certain non-affiliate sweep deposits in a similar manner to affiliate sweep deposits, the agencies note that an affiliate sweep deposit relationship is reflective of an overall relationship with the underlying retail customer or counterparty and these deposits generally exhibit a stability profile associated with deposits directly from retail customers, which warrants assignment of a higher ASF factor. As a result, the final rule assigns a 50 percent ASF factor to non-affiliate sweep deposits and a higher ASF factor to affiliate sweep deposits, as discussed above. The agencies will continue to review the treatment of sweep deposits, including non-affiliate sweep deposits, under the LCR and NSFR rules.
The proposed rule would have assigned a zero percent ASF factor to retail funding that is not in the form of a deposit or security issued by the covered company. In the proposed rule, the agencies noted that non-deposit retail liabilities are not regular sources of funding or commonly utilized funding arrangements for covered companies.
Some commenters expressed concern that the proposed treatment of non-deposit retail liabilities was overly conservative and would unfairly penalize business models that focus on securities trading, such as retail-oriented securities brokerage firms that utilize retail brokerage payables as a source of funding.
Some commenters suggested more favorable treatment for specific types of non-deposit retail liabilities. Specifically, commenters argued that some liabilities owed to retail counterparties in connection with non-deposit products, such as prepaid cards, travelers checks, and customer rewards programs, should be recognized as a stable source of funding given historical experience of low volatility in balances and redemptions over time. In addition, these commenters argued that certain features may be offered in connection with certain prepaid products that would increase their stability, such as pass-through insurance provided by some prepaid card products and state law requirements that money transmitters hold and invest funds equal to outstanding prepaid liabilities in high grade, low-risk assets.
Several commenters argued that the agencies should apply an ASF factor higher than zero percent to non-deposit retail liabilities to align with the treatment of similar liabilities under the LCR rule.
As a general matter, the final rule considers the relationship characteristics of retail customers or counterparties at least as favorably as wholesale counterparties that are not financial sector entities, and takes into account whether funding is obtained in connection with a transactional account or as part of another relationship with the covered company. However, not all forms of retail funding are equally stable. Although the GSIB capital surcharge rule excludes certain forms of non-deposit retail funding from the Method 2 calculation methodology, exclusion of a funding source is not dispositive of its stability because the GSIB score measures a banking organization's systemic importance and does not measure the stability of each type of funding. Accordingly, the final rule does not calibrate ASF factors to non-deposit retail liabilities based on whether those liabilities are included in the Method 2 calculation under the GSIB capital surcharge rule.
As noted by commenters, many of the liabilities that would have been included in the non-deposit retail funding category have demonstrated a relative degree of stability during normal and adverse economic periods, similar to types of funding that receive a 50 percent ASF factor. As non-deposits, however, the types of retail funding described above do not have the same stabilizing characteristics as the categories of deposits assigned a 90 percent or 95 percent ASF factor under the final rule. Although certain non-deposit retail funding may have transactional and other counterparty relationship characteristics similar to retail deposits and retail brokered deposits, they may also reflect counterparty sophistication characteristics similar to certain wholesale counterparties. For these reasons, the final rule assigns a 50 percent ASF factor to funding from a retail customer that is not a deposit or a security, including retail brokerage payables.
Section __.104(d)(8) of the proposed rule would have assigned a 50 percent ASF factor to all other NSFR liabilities that have a remaining maturity of six months or more, but less than one year. As discussed in section VII.C.2 of this Supplementary Information section, a covered company would not need to roll over a liability of this maturity in the shorter-term, but may need to roll it over before the end of the NSFR's one-year time horizon.
The agencies received no comments on this provision of the proposed rule. For the reasons discussed in the proposed rule, the final rule assigns a 50 percent ASF factor to all other NSFR liabilities that have a remaining maturity of six months or more, but less than one year as proposed.
The final rule assigns a zero percent ASF factor to NSFR liabilities that demonstrate the least stable funding characteristics, including trade date payables, certain short-term retail brokered deposits, certain short-term funding from financial sector entities or central banks, and any other NSFR liability that matures in less than six months and is not described above. In the absence of a remaining tenor of at least six months, funding on a covered company's balance sheet of these types are considered unreliable sources of funding relative to the need to support assets and commitments over the NSFR's time horizon.
Section __.104(e)(1) of the proposed rule would have assigned an ASF factor of zero percent to trade date payables that result from purchases by a covered company of financial instruments, foreign currencies, and commodities that are required to settle within the lesser of the market standard settlement period for the particular transactions and five business days from the date of the sale. Trade date payables are established when a covered company buys financial instruments, foreign currencies, and commodities, but the transactions have not yet settled. Trade date payables are recorded on the covered company's balance sheet as a liability. These payables should result in a payment from a covered company at the settlement date, which varies depending on the specific market. Accordingly, trade date payables are not a source of stable funding.
The agencies did not receive comments on this provision. As proposed, the final rule assigns an ASF factor of zero percent to trade date payables because trade date payables should result in a payment from a covered company at the settlement date, meaning the liability does not represent a stable source of funding.
Section __.104(e)(2) of the proposed rule would have assigned a zero percent ASF factor to a brokered deposit provided by a retail customer or counterparty that is not a reciprocal brokered deposit or brokered sweep deposit, is not held in a transactional account, and matures less than six months from the calculation date.
Commenters argued that non-maturity brokered deposits that are held in a savings account are similar in stability to non-brokered retail deposits held in a retail savings account, and therefore should be assigned a higher ASF factor. The commenters argued that assignment of a zero percent ASF factor would overstate the funding risks of brokered savings accounts, which these commenters argued include stabilizing deposit features such as the availability of full or partial FDIC deposit insurance and that the account holder can use other services provided by the banking organization.
Retail brokered deposits that are not brokered reciprocal deposits or sweep deposits, are not held in transactional accounts, and mature in less than six months tend to be less stable than other types of brokered deposits because they do not have the stabilizing features of brokered deposits that are assigned a higher ASF factor. Although non-maturity brokered deposits held in savings accounts may be fully or not fully insured and may provide similar access to services as a non-brokered deposit in a retail savings account, deposit brokers can, in some cases, decide whether to move this funding to a different banking organization at low cost and with little notice to the covered company. Additionally, even if the deposit is fully insured, because the funds are held in non-transactional accounts they are less stable due to the ease with which the deposits can be withdrawn. Finally, under the maturity categories of the final rule, the term of these deposits would fall into the shortest-term and thus represent the least stable form of funding.
For these reasons, the final rule assigns a zero percent ASF factor to a brokered deposit provided by a retail customer or counterparty that is not a brokered reciprocal deposit or sweep deposit, is not held in a transactional account, and matures less than six months from the calculation date as proposed.
Section __.104(e)(4) of the proposed rule would have assigned a zero percent ASF factor to securities that are issued by a covered company and that have a remaining maturity of less than six months. As discussed above in section VII.C.2 of this Supplementary Information section, the proposed rule generally would have treated as less stable funding that has to be paid within the NSFR's one-year time horizon.
The agencies received no comments on this provision of the proposed rule. The final rule assigns a zero percent ASF factor to securities that are issued by a covered company and that have a remaining maturity of less than six months because such funding does not represent a source of stable funding over the NSFR's one-year time horizon.
Section __.104(e)(5) of the proposed rule would have applied a zero percent ASF factor to funding (other than operational deposits) for which the counterparty is a financial sector entity or a consolidated subsidiary thereof and the transaction matures less than six
Many commenters raised concerns that the proposed assignment of a zero percent ASF factor to short-term funding from a financial sector entity would impair an important funding source for covered companies and could adversely affect the functioning of credit markets by increasing borrowing and transaction costs for end-users. Specifically, commenters objected that the proposed rule would assign a zero percent ASF factor to secured funding transactions while also assigning a 10 to 15 percent RSF factor to secured lending transactions.
Commenters also raised domestic and international regulatory concerns around the proposed framework for repurchase agreements. Commenters stated that rulemakings such as the GSIB capital surcharge rule and the SLR rule have increased the costs of transacting in matched-book repurchase agreements by adding higher capital requirements and that the NSFR would further exacerbate these costs. Commenters also questioned the assumption underlying the ASF and RSF factors for repurchase agreement and reverse repurchase agreement transactions—namely, that a covered company would be more likely to roll over short-term loans to financial sector entities than such entities would be likely to roll over short-term funding to a covered company. Since commenters primarily raised these concerns with regards to the assignment of RSF factors to short-term secured funding transactions, these issues are addressed more fully in section VII.D of this Supplementary Information section.
Consistent with the proposed rule, the final rule assigns a zero percent ASF factor to funding (other than operational deposits) for which the counterparty is a financial sector entity or a consolidated subsidiary thereof and the transaction matures less than six months from the calculation date because financial sector counterparties are more likely to withdraw short term funding within a one-year time horizon, regardless of whether the transaction is secured or unsecured. As discussed in section V of this Supplementary Information section, one of the goals of the final rule is to ensure that covered companies have sufficient levels of long-term stable funding and do not excessively rely on short-term borrowings from financial sector entities. Moreover, these types of short-term borrowings with financial sector counterparties can carry elevated risks to the funding needs of covered companies when combined with concentrations that can increase systemic risk and interconnectedness.
The agencies do not anticipate that the treatment of these short-term secured funding transactions will have a significant impact on the markets identified by commenters, such as fixed income markets, commercial mortgage-backed securities, lending markets, or money markets, especially in light of the adjustments made in the treatment of short-term secured lending transactions as discussed in VII.D.3 of this Supplementary Information section. However, the agencies monitor these market segments on an ongoing basis to evaluate the impact of agency rulemakings on financial intermediation. At the same time, the agencies will continue to examine collateral markets for any warning signals, including the costs of short- and long-term funding, participation rates, and collateral flows between covered companies and financial sector entities.
Section __.104(e)(5) of the proposed rule also would have assigned a zero percent ASF factor to short-term funding from central banks to recognize the short-term nature of such funding from central banks, consistent with the proposed rule's focus on stable funding from market sources. For example, funding obtained from the discount window would have been assigned a zero percent ASF factor, consistent with the terms of discount window advances.
The agencies received no comments on this provision of the proposed rule. The final rule assigns a zero percent ASF factor to short-term funding from central banks as proposed.
Section __.104(e)(6) of the proposed rule would have assigned a zero percent ASF factor to all other NSFR liabilities, including those that mature less than six months from the calculation date and those that have an open maturity. NSFR liabilities that do not fall into one of the categories that are assigned an ASF factor generally would not represent a regular or reliable source of funding and, therefore, the proposed rule would not have treated any portion as stable funding.
Commenters requested that the NSFR rule assign a non-zero ASF factor to the unused borrowing capacity with FHLBs because the FHLB system is an important source of liquidity for U.S. banking organizations. The commenters pointed to FHLB lending activity during the 2007-2009 financial crisis, which demonstrated that FHLBs increased their lending by 50 percent between 2007 and 2008. Commenters argued that recognizing this source of funding was appropriate since the NSFR requirement, unlike the LCR rule, is intended to be a structural metric that reflects the stable funding required across all market conditions over a longer one-year time horizon. One commenter suggested that the agencies conduct a study on the potential impact of the final rule on the FHLB system and its role in providing liquidity to banks.
As discussed in section V.C of this Supplementary Information section, the NSFR is determined based on a covered company's balance sheet at a point in time. In order for a funding source to be considered relevant stable funding under the NSFR, a covered company must have obtained the funding for its balance sheet at that point in time. Establishing reliable sources of contingent funding in advance of potential funding needs is an essential part of sound liquidity risk management for banking organizations. For the purposes of assessing the risks presented by a banking organization's balance sheet, however, the NSFR does not treat undrawn lines of credit available to a covered company as stable funding, regardless of whether they are collateralized or whether they are provided by the FHLB system, the Federal Reserve System, or any other third parties.
The final rule assigns a zero percent ASF factor to all other NSFR liabilities, including those that mature less than six months from the calculation date and those that have an open maturity.
Consistent with the proposed rule, under the final rule a covered company's RSF amount reflects a covered company's funding requirement based on the liquidity characteristics of
The proposed rule would have grouped NSFR assets, derivative exposures and commitments into broad categories and assigned RSF factors to determine the overall amount of stable funding a covered company must maintain. RSF factors would have been scaled from zero to 100 percent based on the tenor and other liquidity characteristics of an asset, derivative exposure, or committed facility. The agencies did not receive comments on this general approach to using the characteristics of assets and commitments, and the final rule adopts the characteristics for assigning RSF factors as proposed. As in the proposed rule, the final rule categorizes assets, derivative exposures, and committed facilities into categories and assigns RSF factors based on the following liquidity characteristics: (1) Tenor; (2) encumbrance; (3) type of counterparty; (4) credit quality, and (5) market characteristics. As discussed below and in the relevant sections of this Supplementary Information section, the final rule assigns RSF factors using these characteristics as proposed with certain modifications that simplify the framework to seven categories for the assignment of RSF factors.
In general, the final rule requires a covered company to maintain more stable funding to support assets that have longer tenors because of the greater time the asset will remain on the balance sheet and before the covered company is contractually scheduled to realize inflows at the maturity of the asset. In addition, if assets with a longer tenor are not held to maturity, such assets may liquidate at a discount because of the increased market and credit risks associated with cash flows occurring further in the future. Assets with a shorter tenor, in contrast, generally require a smaller amount of stable funding under the final rule because a covered company would not need to fund such assets after the maturity date unless the assets are extended or rolled over and the covered company would therefore have access to the inflows from these maturing assets sooner. The final rule divides maturities for purposes of a covered company's RSF amount calculation into the same four maturity categories consistent with the ASF maturity categories: One year or more, less than one year, six months or more but less than one year, and less than six months (RSF maturity categories).
As described in section VII.D.3.h of this Supplementary Information section, whether an asset is encumbered and the extent of the encumbrance dictates the amount of stable funding required to support the particular asset. Similar to assets with longer contractual tenors, assets that are encumbered at a calculation date may be required to be held for the duration of the encumbrance and these assets often cannot be monetized while encumbered. In general, the longer an asset is encumbered, the more stable funding is required under the final rule.
A covered company may face pressure to renew some portion of its assets at contractual maturity in order to maintain its franchise value with customers and because a failure to roll over such assets could be perceived by market participants as an indicator of financial distress at the covered company. Typically, these pressures are influenced by the type of counterparty to the maturing asset. For example, covered companies often consider their lending relationships with a wholesale, non-financial borrower to be important to maintain current business and generate additional business in the future. By contrast, the agencies expect these concerns are less likely to be a factor with respect to financial sector counterparties because financial counterparties typically have a wider range of alternate funding sources already in place, face lower transaction costs associated with arranging alternate funding, and have less expectation of stable lending relationships with any single provider of credit. In light of these business and reputational considerations, the final rule generally requires a covered company to maintain more aggregate stable funding to support certain lending to non-financial counterparties than for lending to financial counterparties.
Credit quality is a factor in an asset's general funding requirements because market participants tend to be more willing to purchase assets with higher credit quality on a consistent basis and the prices of these assets are generally less volatile across a range of market and economic conditions. The demand for higher credit quality assets, therefore, is more likely to persist, and such assets are more likely to have resilient values, allowing a covered company to dispose of them more easily across a range of market conditions. Assets of lower credit quality, in contrast, are less likely to retain their value over time across market conditions. The final rule, like the proposed rule, generally requires greater aggregate stable funding with respect to assets of lower credit quality, to reduce the risk that in the event of having to dispose of such an asset prior to maturity a covered company may have to monetize it at a discount.
Assets that are traded in transparent, standardized markets with large numbers of participants and dedicated intermediaries tend to exhibit a higher degree of reliable liquidity. The final rule, therefore, generally requires less aggregate stable funding for holdings of such assets relative to those traded in markets characterized by information asymmetry and relatively few participants.
The agencies invited comment on whether other characteristics should be considered for purposes of assigning RSF factors. Several commenters suggested that RSF factors should be assigned based on criteria related to existing regulations and other market and operational factors.
As discussed in section V.B of this Supplementary Information section, the final rule addresses funding stability risks not directly addressed in other parts of the agencies' regulatory framework. Although the agencies recognize that other regulations may require or incentivize covered companies to hold, or refrain from holding, certain assets, those regulations do not directly address the stability of a banking organization's funding profile in relation to the composition of its assets and commitments. Accordingly, it would not be appropriate to assign RSF factors to assets based on their treatment in other regulations or the impact of regulations on the counterparty to an asset. The liquidity characteristics described above tend to be generally reflected in market haircuts, but RSF factor values are not directly representative of asset haircuts and closer alignment of RSF factors with haircuts used in secured funding markets would be inappropriate for calibrating aggregate funding requirements of covered companies. As also discussed in section V.C, the final rule's simplified and standardized measure of funding risk does not differentiate between business activities or the intent for which a covered company holds a given asset. Accordingly, the final rule takes into account an asset's contractual residual maturity at a point in time and does not speculate on a covered company's intended purpose and timeframe for holding an asset in the future. Further, an asset's eligibility as collateral for FHLB advances is not an appropriate additional basis for determining RSF factors. The liquidity characteristics described above, including credit quality, are likely factors also considered by FHLBs when assessing collateral eligibility. Generally, assets currently held by a covered company contribute to its balance sheet funding risk regardless of the covered company's operational ability to obtain FHLB advances in the future.
Based on the tenor, encumbrance, counterparty type, credit quality, and market characteristics described above, the final rule assigns RSF factors to unencumbered assets and commitments in the categories shown in Table 2. The treatment of encumbered assets is described below and shown in Table 3. The assignment of RSF factors for derivative exposures is described in section VII.E of this Supplementary Information section.
Certain assets held by banking organizations have unique characteristics such that they do not contribute risk to a banking organization's funding profile. Assets such as currency, coin, cash items in the process of collection and short-term central bank reserves on a covered company's balance sheet at the NSFR calculation date generally can be used in the immediate term to meet obligations and eliminate short-term liabilities. In the normal course of business, trade date receivables also constitute assets of this type, even though they are subject to certain operational frictions.
Certain other assets in this category, such as level 1 liquid asset securities on a covered company's balance sheet and certain short-term secured lending transactions backed by rehypothecatable level 1 liquid assets conducted with financial sector entities make minimal contribution to a covered company's aggregate funding risk and are important to the efficient operation of key short-term funding markets.
These unique characteristics make it appropriate to assign an RSF factor of zero percent, the lowest RSF factor assigned to assets.
The proposal would have applied a zero percent RSF factor to currency, coin, cash items in the process of collection, Reserve Bank balances and other central bank reserves with a maturity of less than six months. The agencies received no comments on these asset classes and are finalizing them as proposed.
Section __.106(a)(1)(i) of the final rule assigns a zero percent RSF factor to currency and coin because these assets can be directly used to meet financial obligations. Currency and coin include U.S. and foreign currency and coin owned and held in all offices of a covered company; currency and coin in transit to a Federal Reserve Bank or to any other depository institution for which the covered company's subsidiaries have not yet received credit; and currency and coin in transit from a Federal Reserve Bank or from any other depository institution for which the accounts of the subsidiaries of the covered company have already been charged.
Section __.106(a)(1)(ii) of the final rule assigns a zero percent RSF factor to cash items in the process of collection because these assets will not persist on a covered company's balance sheet, but rather will be converted to assets that can be directly used to meet financial obligations in the immediate term. These items would include: (1) Checks or drafts in process of collection that are drawn on another depository institution (or a Federal Reserve Bank) and that are payable immediately upon presentation in the country where the covered company's office that is clearing or collecting the check or draft is located, including checks or drafts drawn on other institutions that have already been forwarded for collection, but for which the covered company has not yet been given credit (known as cash letters), and checks or drafts on hand that will be presented for payment or forwarded for collection on the following business day; (2) U.S. government checks drawn on the Treasury of the United States or any other U.S. government agency that are payable immediately upon presentation and that are in process of collection; and (3) such other items in process of collection that are payable immediately upon presentation and that are customarily cleared or collected as cash items by depository institutions in the country where the covered company's office that is clearing or collecting the item is located.
Section __.106(a)(1)(iii) of the final rule assigns a zero percent RSF factor to a Reserve Bank balance or to another claim on a Reserve Bank that matures in less than six months from the calculation date. The term “Reserve Bank balances” is defined in § __.3 of the LCR rule and includes required reserve balances and excess reserves, but not other balances that a covered company maintains on behalf of another institution.
Section __.106(a)(1)(iv) of the final rule assigns a zero percent RSF factor to claims on a foreign central bank that mature in less than six months. Similar to claims on a Reserve Bank, claims on a foreign central bank in this category may generally either be directly used to meet financial obligations or will be available for such use in the near term, and a covered company faces little risk of harm to its franchise value if it does not roll over the lending.
The proposed rule would have applied a zero percent RSF factor to trade date receivables that met certain criteria. The proposed rule also would have assigned RSF factors higher than zero to (1) certain level 1 liquid assets and (2) secured lending transactions with a maturity of less than six months
Section __.106(a)(1)(v) of the proposed rule would have assigned a zero percent RSF factor to a trade date receivable due to a covered company that results from the sale of a financial instrument, foreign currency, or commodity that (1) is contractually required to settle within the lesser of the market standard settlement period for the relevant type of transaction, without extension of the standard settlement period, and five business days from the date of the sale; and (2) has not failed to settle within the required settlement period. By contrast, § __.106(a)(8) of the proposed rule would have assigned a 100 percent RSF factor to a trade date receivable that (1) is contractually required to settle within the lesser of the market standard settlement period and five business days, but (2) fails to settle within this period.
The final rule expands the types of trade date receivables that are assigned a zero percent RSF factor to include trade date receivables due to a covered company that result from the sale of a financial instrument, foreign currency, or commodity that is required to settle no later than the market standard for the particular transaction, and that has yet to settle but is not more than five business days past the scheduled settlement date. This change from the proposal will more accurately measure the amount of receivables that are expected to settle and result in inflows in the near future because such trade date receivables are still reasonably expected to settle imminently. As discussed in section VII.D.3.g of this Supplementary Information, trade date receivables that do not qualify for a zero percent RSF factor are assigned a 100 percent RSF factor.
Section __.106(a)(2)(i) of the proposed rule would have assigned a 5 percent RSF factor to unencumbered level 1 liquid assets that would not have been assigned a zero percent RSF factor. The proposed rule would have incorporated the definition of “level 1 liquid assets” set forth in § __.20(a) of the LCR rule but would not have taken into consideration the operational requirements described in § __.22 of the LCR rule. As a result, the proposed rule would have assigned a 5 percent RSF factor to the following level 1 liquid assets: (1) Securities issued or unconditionally guaranteed as to the timely payment of principal and interest by the U.S. Department of the Treasury; (2) liquid and readily-marketable securities,
Some commenters argued that the NSFR rule should assign a zero percent RSF factor for all HQLA. These commenters argued that the proposed non-zero RSF factors for these assets would unduly penalize low-risk sources of funding, increase banking organizations' costs for holding HQLA and engaging in securities financing transactions involving HQLA, and undermine the ability of banking organizations to act as market makers. Other commenters believed a zero percent RSF factor would provide for a more level playing field by aligning with other jurisdictions' implementation of the NSFR.
A number of commenters requested a zero percent RSF factor be assigned to all level 1 liquid assets, which include certain government securities that commenters argued have liquidity characteristics similar to assets that would have been assigned a zero percent RSF factor under the proposed rule.
As described above, assets that a covered company can directly use to meet financial obligations or can reasonably expect to obtain the cash inflows at the maturity of these assets in the near future are assigned a zero percent RSF factor under the final rule. Such assets generally do not present risks to a covered company or the financial sector in the event of funding disruptions. Similarly, given their liquidity characteristics, level 1 liquid asset securities present minimal risks resulting from a covered company's funding of these assets as assessed over a one-year time horizon. Across a broad range of market conditions, a covered company generally may be less likely to have to fund these securities for one year compared to other securities. Although U.S. Treasury securities and other level 1 liquid asset securities generally must be monetized before they can be used to settle obligations and face modest transaction costs in doing so, these assets, regardless of their
Section __.106(a)(3) of the proposed rule would have assigned a 10 percent RSF factor to a secured lending transaction
A number of commenters requested that the agencies reduce or remove the proposed RSF factors for all short-term secured lending transactions to financial sector entities. These commenters argued that the RSF factor should match the zero percent ASF factor assigned to short-term secured funding transactions with financial sector entities, noting that the proposed asymmetrical treatment would prevent a covered company from using such short-term funding transactions wholly to fund its short-term lending transactions. Commenters asserted that this asymmetry would be overly punitive, impair a covered company's ability to conduct prudent short-term liquidity risk management, not accurately reflect collateral quality, and increase costs. Such increased costs, commenters contended, would cause covered companies to reduce such lending, resulting in a further contraction of the repo market, increased market volatility for the securities typically used as collateral, and have a negative impact on financial institutions that rely on the short-term funding market. Commenters also argued that the proposed RSF factors for short-term secured lending transactions to financial sector entities are unnecessary and overly burdensome because other regulatory measures sufficiently address the risks posed by these transactions. Several commenters argued that the proposed RSF treatment would reduce the competitiveness of covered companies relative to other market participants. Other commenters requested that the agencies reduce the RSF factors to align with other jurisdictions' implementation of the NSFR.
The agencies also received comments requesting a zero percent RSF factor be assigned to short-term secured lending transactions with financial sector entities secured by rehypothecatable level 1 liquid assets. One commenter argued that these transactions present few risks of disorderly or destabilizing unwinds due to the quality of the underlying collateral. Another commenter expressed concern that the proposed 10 percent RSF factor would incentivize a covered company to purchase on balance sheet level 1 liquid assets rather than borrow such assets through secured lending transactions to obtain more favorable RSF treatment, which would increase liquidity and interest rate risk as a result of holding the assets on balance sheet.
Covered companies may use short-term secured funding and lending transactions, such as repurchase agreements and reverse repurchase agreements, for collateral management and funding purposes as well as other business and risk management purposes. Short-term secured funding and lending transactions, however, can give rise to certain funding risks. For example, a covered company is exposed to risk of borrower default and fluctuation in the price of the underlying collateral. At the same time, a covered company may be incentivized to continue funding a certain portion of its lending under these transactions even as it loses access to its short term funding transactions. Although the agencies recognize that other regulations reduce certain risks associated with short-term secured lending transactions, the NSFR requirement is designed to directly measure and ensure the stability of covered companies' aggregate funding profile over a one-year horizon.
Consistent with the proposed rule, the final rule generally treats secured lending transactions with financial sector counterparties the same as unsecured lending to these counterparties based on their tenor and counterparty characteristics, described below. However, the agencies have revised the proposed rule by adding § __.106(a)(1)(vii) to the final rule, which assigns an RSF factor of zero percent, rather than 10 percent, for short-term lending transactions with a financial sector entity secured by rehypothecatable level 1 liquid assets, as such short-term secured lending transactions present minimal risk to the covered company. Moreover, as further discussed in section X of this Supplementary Information section, a non-zero RSF factor on secured lending transactions secured with rehypothecateble level 1 liquid assets could also discourage intermediation in certain short-term secured lending markets. The calibration would also align the RSF factor for these loan receivables with the RSF factor for level 1 liquid assets that are held on the covered company's balance sheet.
Section __.106(a)(2)(ii) of the proposed rule would have assigned a 5 percent RSF factor to the undrawn amount of committed credit and liquidity facilities that a covered company provides to its customers and counterparties.
The agencies did not receive any comments on the proposed 5 percent RSF factor assigned to the undrawn amount of committed credit and liquidity facilities. However, several commenters requested the agencies modify the proposed rule to permit a covered company to reduce the undrawn commitments by the value of collateral that it receives to secure its committed facility, particularly collateral in the form of HQLA, for purposes of determining the applicable RSF amount. Commenters noted that the LCR rule permits covered companies to net, for purposes of calculating outflow amounts, level 1 and level 2A liquid assets that secure a committed credit or liquidity facility against the undrawn amount of the facility, and requested similar treatment under the NSFR rule.
Consistent with the proposed rule, the final rule does not permit a covered company to net collateral against undrawn amounts of commitments.
One commenter requested clarification of the term “undrawn amount” and the treatment of funded commitments that result in contractually offsetting collateral inflows. The commenter also asked what level of support would be required to demonstrate an amount is excludable from the undrawn amount because it is contingent upon events not reasonably expected to occur within the NSFR's time horizon. The agencies are clarifying that the undrawn amount is the maximum amount that could be drawn under the agreement within the NSFR requirement's one-year time horizon under all reasonably possible circumstances.
Similarly, a letter of credit that meets the definition of credit or liquidity facility may entitle a seller to obtain funds from a covered company if a buyer fails to pay the seller. If the seller is legally entitled to obtain the funds available under the letter of credit as of the calculation date (because the buyer has defaulted) or if the buyer should reasonably be expected to default within the NSFR's one-year time horizon, then the funds available under the letter of credit are undrawn amounts. However, if, under the terms of the letter of credit, the seller is not legally entitled to obtain funds from the covered company as of the calculation date because the buyer has not failed to perform under the agreement with the seller, and the covered company does not reasonably expect nonperformance within the NSFR's one-year time horizon, then the funds potentially available under the letter of credit are not undrawn amounts.
The agencies expect that a covered company would conduct an analysis of the likelihood of contingent contractual milestones or other events to be reached or occur, which may include reliance on historical experience, including consideration of both internal and industry-wide data. The agencies also expect a covered company to be able to provide sufficient supporting documentation that justifies its assessment that a contractual milestone or other event cannot reasonably be expected to be reached or occur within the one-year time horizon. The sufficiency and appropriateness of that documentation would be reviewed by supervisory staff.
The agencies are finalizing the assigned 5 percent RSF factor to the undrawn amount of committed credit and liquidity facilities that a covered company provides to its customers and counterparties as proposed. The final rule requires a covered company to recognize committed facilities in its aggregate stable funding requirement to a limited extent, even though they are generally not included on a covered company's balance sheet. The 5 percent RSF factor is the lowest non-zero RSF factor and is applied uniquely to off-balance sheet commitments.
The final rule applies a 15 percent RSF factor to unencumbered level 2A liquid assets held on a covered company's balance sheet and lending to financial counterparties that matures in less than six months, other than secured lending transactions backed by rehypothecatable level 1 liquid assets. Based on their liquidity characteristics, including their high credit quality, these assets may also not need to be funded for the entirety of the NSFR's one-year time horizon, and covered companies may have the ability to recognize inflows from such assets within one year across a range of market conditions.
Section __.106(a)(4)(i) of the proposed rule would have assigned a 15 percent RSF factor to level 2A liquid assets, as defined in § __.20(b) of the LCR rule, but would not have taken into consideration the operational requirements described in § __.22 or the level 2 cap in § __.21. As set forth in the LCR rule, level 2A liquid assets
Commenters requested more favorable treatment for certain GSE securities under the NSFR rule. Several commenters recommended that mortgage-backed securities issued by the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) should receive the same 5 percent RSF factor proposed for level 1 liquid assets, as long as Fannie Mae and Freddie Mac remain under the conservatorship of the Federal Housing Finance Agency (FHFA). One commenter argued these securities exhibit favorable liquidity characteristics and are low risk, and expressed concern that the proposed 15 percent RSF factor would discourage banks from purchasing these mortgage-backed securities, which would result in increased mortgage interest rates for homeowners. Another commenter noted that the European Union allows covered bonds with similar liquidity characteristics to qualify as level 1 liquid assets. Another commenter recommended that FHLB consolidated debt obligations should receive a 5 percent RSF factor based on the historical performance of these obligations during financial stress and their strong market attributes, including narrow bid-ask spreads, numerous active and diverse market makers, timely market prices, and high trading volumes.
Similar to other HQLA, level 2A liquid assets held by covered companies on their balance sheets have a broad range of residual maturities and are held for a variety of purposes. For example, covered companies hold such securities as long-term investments, as instruments to maintain medium-term hedges or as part of the covered company's eligible HQLA under the LCR rule. Holdings of unencumbered level 2A liquid assets on a covered company's balance sheet present only modest risks to the covered company or financial system in the event of funding disruptions. A 15 percent RSF factor is appropriate for GSE-issued or GSE-guaranteed obligations because they have high credit quality and are traded in deep, liquid markets. For example, mortgage-backed securities issued by GSEs have a higher credit quality, higher average daily trading volume, and lower bid-ask spreads relative to corporate debt securities, which are assigned a higher RSF factor. However, these securities have different liquidity characteristics than U.S. Treasury securities and other level 1 liquid assets. For instance, GSE obligations are not subject to the same unconditional sovereign guarantee as certain securities that are level 1 liquid assets, which are assigned a zero percent RSF factor. Moreover, while certain GSEs are currently operating under the conservatorship of the FHFA, GSE obligations are not explicitly guaranteed by the full faith and credit of the United States, and they should not receive the same treatment as obligations that have such an explicit guarantee. This treatment is consistent with the agencies' risk-based capital rule, which differentiates between obligations and guarantees of U.S. GSEs, including those operating under conservatorship of FHFA and securities explicitly guaranteed by the full faith and credit of the United States.
Section __.106(a)(4)(ii) of the proposed rule would have assigned a 15 percent RSF factor to a secured lending transaction with a financial sector entity or a consolidated subsidiary thereof that is secured by assets other than rehypothecatable level 1 liquid assets and that matures within six months of the calculation date. The proposal also would have assigned a 15 percent RSF factor to unsecured wholesale lending to a financial sector entity or a consolidated subsidiary thereof that matures within six months of the calculation date.
The comments received by the agencies regarding the treatment of secured lending transactions generally, as well as the agencies' response to the comments, are summarized above in section VII.D.3.a of this Supplementary Information section. The agencies did not receive any comments specific to the proposed treatment of unsecured wholesale lending to a financial sector entity or a subsidiary thereof that matures within six months.
The final rule adopts the proposed treatment for these transactions without any modification. A 15 percent RSF factor reflects that these transactions contribute less to a covered company's aggregate funding requirement because of their shorter tenors relative to loans with a longer remaining maturity, when considering cash inflows upon maturity of the loan. In addition, these loans also generally present lower reputational risk if a covered company chooses not to roll over the transaction because of the financial nature of the counterparty. For these reasons, a 15 percent RSF factor for these assets is lower than the RSF factor assigned to longer-term secured transactions to similar counterparties or to similar-term loans to non-financial counterparties. However, the assignment of a higher RSF factor to these assets compared to similar short-term secured lending transactions to financial counterparties that are secured by rehypothecatable level 1 liquid assets reflects the covered company's more limited ability to monetize assets that are not level 1 liquid assets for the duration of the transaction.
Based on the NSFR's one-year time horizon, the final rule applies the median RSF factor of 50 percent to unencumbered level 2B liquid assets of all maturities. Covered companies may not need to fund these securities for the entirety of the NSFR's one-year time horizon, and covered companies may have the ability to recognize inflows from such assets within one year, each across a range of market conditions.
The final rule also applies a 50 percent RSF factor to most loans with remaining maturities of less than one year and to operational deposit placements. Lending that matures in less than one year is less likely to require funding for a full year relative to loans that have residual maturities of one year or more, which generally receive a higher RSF factor under the final rule. While certain loans that mature in less than one year may be renewed, covered companies are generally more likely to receive cash inflows when these loans mature compared to longer maturities. With respect to operational deposit placements, the 50 percent RSF factor reflects that covered companies as recipients of operational services likely would face limitations to making significant changes to their operational activities during the NSFR's one-year
Section __.106(a)(5)(i) of the proposed rule would have assigned a 50 percent RSF factor to level 2B liquid assets, as defined in § __.20(c) of the LCR rule, but without taking into consideration the operational requirements described in § __.22 or the level 2 caps in § __.21. At the time of proposal, level 2B liquid assets included certain publicly traded corporate debt securities and publicly traded common equity shares that are liquid and readily-marketable. To qualify as a level 2B liquid asset, the asset must meet certain criteria under § __.20 of the LCR rule. For example, among other criteria, equity securities must be part of a major index and both corporate debt securities and municipal obligations must be “investment grade” under 12 CFR part 1.
Subsequent to the issuance of the proposed rule, EGRRCPA was enacted, which requires the agencies to treat certain municipal obligations as a level 2B liquid asset for purposes of the LCR rule and any other regulation that incorporates a definition of the term “high-quality liquid asset” or substantially similar term.
Several commenters expressed concern that the proposed RSF factor for level 2B liquid assets was too high and argued that these securities should be considered more liquid over the NSFR's one-year horizon. For example, one commenter requested a 15 percent RSF factor for equity securities that are included in major market indices, such as exchange-traded funds that track a major market index. Some commenters recommended revised RSF treatment for level 2B liquid asset eligible corporate debt securities. For example, some commenters requested that the RSF factor for corporate debt securities be more granular and calibrated based on the tenor of the securities, the issuer's creditworthiness, or the desired tenor of funding used to purchase the securities. One commenter requested eliminating the requirement that a corporate debt security be investment grade.
The final rule maintains as proposed the 50 percent RSF factor for level 2B liquid assets, which include certain investment grade publicly traded corporate debt securities and municipal obligations
Covered companies may be holding level 2B liquid assets on balance sheet at a calculation date that have a wide range of residual maturities and for a range of purposes, each of which may require various contractual or anticipated holding periods. While some portion of level 2B liquid assets may mature or be contractually scheduled to be sold within one year, a covered company may need to fund certain of these securities over a one-year time horizon. Similar to level 2A liquid assets, covered companies may hold these securities for investment purposes or as part of a covered company's HQLA amount. Over a range of market conditions, a covered company may be generally less likely to have to fund these securities for one year compared to securities that do not qualify as HQLA. For the reasons above, it is appropriate for the RSF factor applied to level 2B liquid assets to be materially higher than the RSF factor of 15 percent applied to level 2A liquid assets but lower than that applied to securities that do not qualify as HQLA.
In response to commenters' requests for additional granularity, the agencies note that the purpose of the NSFR is to provide a broad, standardized measure of funding stability that can be compared across covered companies. As discussed in section V.C, to achieve this purpose, the final rule uses a small number of standardized maturity buckets rather than using granular maturity buckets of debt instruments or the funding used to purchase such assets. In addition, the final rule does not differentiate between assets based on other difficult to monitor criteria, such as a covered company's intent for holding or funding the asset or the characteristics of the issuer, because to do so would require the agencies to make determinations about each covered company's intent or the credit risk of each issuer. Such individualized determinations would be contrary to the NSFR's purpose as a standardized measure. In addition, contrary to commenters' concerns, the agencies expect that the final rule will strengthen the U.S. financial system, including capital markets, by ensuring banking organizations maintain sufficiently stable funding on an ongoing basis.
Section __.106(a)(5)(ii) of the proposed rule would have assigned a 50 percent RSF factor to a secured lending transaction or unsecured wholesale lending transaction that matures in six months or more, but less than one year from the calculation date, where the counterparty is a financial sector entity or a consolidated subsidiary thereof or the counterparty is a central bank.
Section __.106(a)(5)(iii) of the proposed rule would have assigned a 50 percent RSF factor to an operational deposit, as defined in § __.3 of the LCR rule, placed by the covered company at a financial sector entity. Consistent with the reasoning for the ASF factor assigned to operational deposits placed at a covered company, described in section VII.C.3.d of this Supplementary Information section, such operational deposits placed by a covered company are less readily monetizable by the covered company compared to non-operational placements. These deposits are placed for operational purposes, and covered companies likely would face legal or operational limitations to making significant withdrawals during the NSFR's one-year time horizon. While the agencies received comments addressing the ASF factor assigned to operational deposits received by a covered company, as discussed above at section VII.C.3.d, the agencies did not receive any comments addressing the RSF factor assigned to operational deposits placed by a covered company at an unaffiliated financial sector entity. For the reasons discussed in the proposed rule, the final rule adopts the 50 percent RSF factor for operational deposits placed by a covered company at another financial sector entity as proposed.
Section __.106(a)(5)(v) of the proposed rule would have assigned a 50 percent RSF factor to lending to a wholesale customer or counterparty that is not a financial sector entity or central bank, including a non-financial corporate, sovereign, or public sector entity, that matures in less than one year from the calculation date. Unlike with lending to financial sector entities and central banks, the proposed rule would have assigned the same RSF factor to lending to these entities with a remaining maturity of less than six months as it would have assigned to lending with a remaining maturity of six months or more, but less than one year. The proposed rule would not have required this lending to be fully supported by stable funding based on its maturity within the NSFR's one-year time horizon and the assumption that a covered company may be able to reduce its lending to some degree over the NSFR's one-year time horizon. However, the proposed rule's assignment of a 50 percent RSF factor reflected the stronger incentives that a covered company is likely to have to continue to lend to these wholesale counterparties due to reputational risk and a covered company's need to maintain its franchise value, even when the lending is scheduled to mature in the nearer term, as discussed in section VII.D.2.c of this Supplementary Information section. The agencies did not receive any comments addressing the proposed RSF factor assigned to this category. For the reasons discussed in the proposal, the agencies are adopting this provision as proposed.
Section __.106(a)(5)(v) of the proposed rule would have assigned a 50 percent RSF factor to lending to retail customers or counterparties (including certain small businesses), as defined in § __.3 of the LCR rule, that matures less than one year from the calculation date for the same reputational and franchise value maintenance reasons for which it would have assigned a 50 percent RSF factor to lending to wholesale customers and counterparties that are not financial sector entities or central banks. The agencies did not receive any comments specific to the RSF factor assigned to this asset category. For the reasons described in the proposed rule, the agencies are adopting this provision as proposed.
Section __.106(a)(5)(v) of the proposed rule would have assigned a 50 percent RSF factor to all other assets that mature within one year of the calculation date but are not described in the categories above. The shorter maturity of an asset in this category reduces a covered company's funding needs, since the asset may not need to be retained on the covered company's balance sheet past maturity and provides for cash inflows upon maturity during the NSFR's one-year time horizon. However, a covered company generally may be less able to monetize these assets due to their lower credit quality and their relevant market characteristics as compared to the enumerated asset classes that are assigned lower RSF factors.
One commenter expressed concern that this category would capture asset-backed commercial paper that is fully supported by a credit or liquidity facility provided by another bank and has a maturity of six months or less, while unencumbered loans to banks with maturities of less than six months are assigned a 15 percent RSF factor. The commenter argued that a covered company's risk exposure for purchasing asset-backed commercial paper that is fully supported by a facility provided by a bank is equivalent to its risk exposure for a loan to another bank. Accordingly, the commenter argued that such asset-backed commercial paper should receive the same 15 percent RSF factor as a short-term loan to a financial sector entity. Another commenter argued that the RSF factor assigned to commercial
In response, the agencies note that the final rule generally assigns RSF factors to exposures as of a point in time. For holdings of asset-backed commercial paper that are supported by a credit or liquidity facility provided by a bank, a covered company would not have an exposure to a financial sector entity unless the facility has been drawn upon; therefore, such asset-backed commercial paper is not treated as a loan to a financial sector entity under the final rule. Although the contractual features of an individual asset or the credit worthiness of its issuer can affect the funding needs related to holding that particular asset, the final rule is intended to provide a standardized measure of funding stability that can be compared across covered companies. Differentiating between holdings of commercial paper based on contractual features or the issuer's credit worthiness would require the agencies to make determinations based on each contractual arrangement and the credit risk of each issuer. Such individualized determinations would be contrary to the NSFR's purpose as a standardized measure.
For the reasons discussed in the proposed rule, the agencies are finalizing this provision as proposed.
Under the final rule, loans that mature in one year or more (other than operational deposit placements) are assigned higher RSF factors than loans that mature in less than one year. The final rule assigns a 65 percent RSF factor to retail mortgages that mature in one year or more and are assigned a risk weight of no greater than 50 percent under the agencies' risk-based capital rule and loans to retail and non-financial wholesale counterparties that mature in one year or more and are assigned a risk weight of no greater than 20 percent.
Section __.106(a)(6)(i) of the proposed rule would have assigned a 65 percent RSF factor to retail mortgages that mature one year or more from the calculation date and are assigned a risk weight of no greater than 50 percent under subpart D of the agencies' risk-based capital rule. Under the agencies' risk-based capital rule, residential mortgage exposures secured by a first lien on a one-to-four family property that are prudently underwritten, are not 90 days or more past due or carried in nonaccrual status, and that are neither restructured nor modified generally receive a 50 percent risk weight.
Some commenters argued that the proposed rule's treatment for mortgage loans would be overly conservative in comparison to the 15 percent RSF factor assigned to certain GSE-issued or GSE-guaranteed mortgage-backed securities. One commenter noted that prudently underwritten mortgages can be pooled into GSE or private label mortgage-backed securities and argued that, as a result, they should receive an RSF factor no higher than 50 percent. Similarly, another commenter noted that single family mortgage loans should not receive an RSF factor above 50 percent because such loans can be used as collateral for FHLB loans. One commenter suggested that the proposed RSF factor for mortgage loans under the NSFR could encourage banks to originate and sell loans rather than hold them in portfolio.
Mortgage lending to households is an important form of financial intermediation conducted by banking organizations, including during times of funding disruptions. To support financial intermediation, and based on the residual maturity and other liquidity characteristics of mortgage loans, the final rule requires individual mortgages that meet certain criteria to be supported by a greater amount of stable funding than assets assigned a 50 percent RSF factor. Individual mortgage loans have substantially different credit and liquidity characteristics than mortgage-backed securities eligible for a lower RSF factor. In particular, GSE-issued and GSE-guaranteed securities have a much higher trading volume than individual mortgage loans. Mortgage loans also do not have the same liquidity characteristics as assets that are assigned a 50 percent RSF factor, such as assets that are either securities that satisfy certain benchmark market thresholds or assets with relatively short maturity. In contrast, mortgage loans in the 65 percent RSF category mature in more than one year from the calculation date, and typically have many years until they mature. Prior to maturity, it may be difficult to monetize an individual mortgage loan in a timely fashion or without incurring a relatively higher haircut in a secured funding transaction compared to HQLA.
In addition, the agencies acknowledge that covered companies will take into account the final rule's assignment of a 65 percent RSF factor when deciding whether to sell mortgage loans or retain them in portfolio. However, covered companies may choose to retain or sell mortgage loan originations for a variety of reasons including earnings, liquidity, and capital management. Accordingly, the 65 percent RSF factor for mortgage loans would not significantly impact a covered company's decision to retain a mortgage loan in portfolio. The primary purpose of the final rule is to ensure that a banking organization's assets are adequately funded. For the reasons described above, the final rule assigns a 65 percent RSF factor to mortgage loans that meet certain criteria as proposed.
Section __.106(a)(6)(ii) of the proposed rule would have assigned a 65 percent RSF factor to secured lending transactions, unsecured wholesale lending, and lending to retail customers and counterparties that are not otherwise assigned an RSF factor, that mature one year or more from the calculation date, that are assigned a risk weight of no greater than 20 percent under subpart D of the agencies' risk-based capital rule, and where the borrower is not a financial sector entity or a consolidated subsidiary thereof.
The final rule assigns an 85 percent RSF factor to all other retail mortgages not assigned an RSF factor above, all other loans to non-financial sector counterparties, publicly traded common equity shares that are not HQLA, other non-HQLA securities that mature in one year or more, and certain commodities.
Section __.106(a)(7)(i) of the proposed rule would have assigned an 85 percent RSF factor to retail mortgages that mature one year or more from the calculation date and are assigned a risk weight of greater than 50 percent under subpart D of the agencies' risk-based capital rule. As noted above, under the agencies' risk-based capital rule, a retail mortgage is assigned a 50 percent risk weight if it is secured by a first lien on a one-to-four family property, prudently underwritten, not 90 days or more past due or carried in nonaccrual status, and has not been restructured or modified.
For the reasons discussed in the proposed rule, the final rule assigns an 85 percent RSF factor to these mortgage exposures as proposed.
Section __.106(a)(7)(ii) of the proposed rule would have assigned an 85 percent RSF factor to secured lending transactions, unsecured wholesale lending, and lending to retail customers and counterparties that are not otherwise assigned an RSF factor (such as retail mortgages), that mature one year or more from the calculation date, that are assigned a risk weight greater than 20 percent under subpart D of the agencies' risk-based capital rule, and for which the borrower is not a financial sector entity or consolidated subsidiary thereof.
Several commenters requested lower RSF factors for certain lending transactions. For example, a few commenters argued that commercial real estate mortgages should be assigned an RSF factor lower than 85 percent because commercial real estate loans are low risk, and covered companies already are subject to regulatory requirements related to their real estate portfolios, which renders an RSF requirement unnecessary. Another commenter requested the agencies reduce the RSF factor for credit card exposures to customers who pay their entire account balances each month. This commenter argued that credit card exposures to these customers are analogous to short-term loans that receive a 50 percent RSF factor.
The final rule retains the 85 percent RSF factor for this category of lending. These loans mature in one year or more and have less favorable liquidity and market characteristics, including greater credit risk associated with higher risk weights under the agencies' risk-based capital rule. Commercial real estate loans generally present a higher risk profile, heightened vulnerability to changing market conditions, and greater monetization difficulty than loans that are assigned a lower RSF factor. Although commercial real estate lending is subject to other regulations designed to promote safe and sound lending practices, these regulations do not specifically address the funding risks presented by these loans. Accordingly, the agencies consider the 85 percent RSF factor appropriate for these loans in order to ensure covered companies maintain sufficient funding to support these assets.
In addition, the agencies decline to adopt a commenter's suggestion to apply a lower RSF factor to credit card exposures to customers who repay their entire account balances each month. Although some credit card customers fully and regularly repay account balances, assigning different RSF factors to credit card exposures based on a covered company's assumptions of a credit card customer's future repayment behavior would be inconsistent with the NSFR's purpose as a standardized measure of funding stability. Accordingly, the final rule assigns an 85 percent RSF factor to all credit card exposures that mature in one year or more and have a risk weight of greater than 20 percent under the agencies' risk-based capital rule as proposed. The agencies are clarifying, however, that contractual minimum payment amounts due on credit card exposures would generally be considered to be a loan to a retail customer maturing in less than one year and would be subject to the 50 percent RSF factor.
Sections __.106(a)(7)(iii) and (iv) of the proposed rule would have assigned an 85 percent RSF factor to publicly traded common equity shares that are not HQLA and other non-HQLA securities that mature one year or more from the calculation date. For example, these assets would have included equity shares not listed on a recognized exchange, low rated corporate debt securities and municipal obligations, private-label mortgage-backed securities, and other types of asset-backed securities.
As described above, commenters generally expressed concern that the proposed rule's assignment of RSF factors to equity shares was overly conservative and not reflective of market haircuts for such securities. Commenters, however, also expressed specific concerns related to the 85 percent RSF factor assigned to non-HQLA publicly traded common equity shares and other securities that mature in one year or more. One commenter expressed concern that higher RSF factors for non-HQLA securities would be procyclical and incentivize covered companies to sell non-HQLA securities in favor of HQLA securities in a crisis. Other commenters argued that even though equity and debt securities issued by a financial sector entity are precluded from qualifying as HQLA, these assets should receive a lower RSF factor because there is no empirical basis for assigning a higher RSF factor to securities issued by a financial sector entity than to securities issued by a non-financial sector entity. These commenters also asserted that the 85 percent RSF factor would adversely impact capital flows to financial sector entities, which would impair their ability to provide market-making and other services. Another commenter argued that the 85 percent RSF factor is overly conservative because it fails to take into account a bank's ability to mitigate its exposure risk with liquid options, swaps, or future instruments.
Several commenters also requested that lower RSF factors be assigned to
The final rule retains the 85 percent RSF factor for publicly traded securities that are not HQLA and mature in one year or more. Non-HQLA securities, including securities issued by financial sector entities, historically have demonstrated greater price volatility and lower marketability across market conditions than securities that qualify as HQLA. Given this historical experience, it is appropriate to assign a higher RSF factor to these securities than HQLA securities. Although a banking organization may have some ability to mitigate its risk exposure to these assets, the final rule is designed as a standardized measure of the stability of a covered company's funding profile and therefore does not take into account the company's idiosyncratic risk management practices. With respect to the concern that the 85 percent RSF factor would incentivize covered companies to liquidate non-HQLA during a stress period, the 85 percent RSF factor will reduce this risk because covered companies would be holding large amounts of stable funding to support these assets, decreasing the need to immediately monetize these assets.
For the reasons described above, the agencies decline to reduce the RSF factor for certain types of securities which are not eligible as HQLA, as requested by commenters. As previously explained, equities that are not HQLA generally exhibit less favorable liquidity characteristics relative to equities that qualify as HQLA, regardless of the country location of the index or exchange on which that equity is traded. Although specific issuances of private-label residential mortgage-backed securities, commercial mortgage backed securities, or asset-backed securities may exhibit liquidity characteristics similar to HQLA, the final rule assigns RSF factors based on asset class to ensure standardization and ease of comparability of the measure. These securities can exhibit high price volatility, depending on the performance of their underlying assets and specific contractual features. In addition, the bespoke characteristics of securitization structures may be tailored to a limited range of investors, which can limit a banking organization's ability to monetize a given securitization issuance. Although changes in regulatory requirements and rating agency protocols regulations may have reduced certain risks associated with certain securitizations, many of these assets do not have a proven history of liquidity. As a result, the final rule assigns an 85 percent RSF factor as proposed.
Section __.106(a)(7)(v) of the proposed rule would have assigned an 85 percent RSF factor to commodities held by a covered company for which a liquid market exists, as indicated by whether derivative transactions for the commodity are traded on a U.S. board of trade or trading facility designated as a contract market (DCM) under sections 5 and 6 of the Commodity Exchange Act
The proposed rule would have assigned an 85 percent RSF factor, rather than a 100 percent RSF factor, to commodities for which derivative transactions are traded on a U.S. DCM or U.S. SEF because the exchange trading of derivatives on a commodity tends to indicate a greater degree of standardization, fungibility, and liquidity in the market for the commodity.
One commenter argued that the stated rationale for assigning an 85 percent RSF factor to commodities traded on U.S. exchanges should apply equally to commodities traded on non-U.S. exchanges. The commenter requested that rather than assigning a 100 percent RSF factor to commodities traded on non-U.S. exchanges, the final rule assign an 85 percent RSF factor to commodities that are traded on non-U.S. exchanges that are registered in non-U.S. jurisdictions in order to provide consistent treatment with commodities traded on a U.S. exchange. These commodities, the commenter argued, have similar liquidity characteristics to commodities traded on U.S. exchanges.
As noted by the commenter, commodities for which derivative transactions are traded on exchanges registered outside the United States may have a similar degree of liquidity as commodities for which derivative transactions are traded on a U.S. DCM or U.S. SEF. To provide consistent treatment of commodities traded on U.S. and non-U.S. exchanges, the final rule assigns an 85 percent RSF factor to any commodity held by a covered company for which derivative transactions are
Section __.106(a)(8) of the proposed rule would have assigned a 100 percent RSF factor to all other performing assets not otherwise assigned an RSF factor under § __.106 or § __.107. These assets include, but are not limited to, loans to financial institutions (including to an unconsolidated affiliate) that mature in one year or more; assets deducted from regulatory capital;
The agencies received a number of comments suggesting that certain trade date receivables receiving a 100 percent RSF factor under the proposed rule should receive a lower RSF factor. As described above, several commenters opposed the proposal's assignment of a 100 percent RSF factor to trade date receivables that fail to settle within the lesser of five business days and the standard settlement period but are still expected to settle. Another commenter argued that, in the case of trade date receivables generated by primary offerings, settlement delays reflect unique timing needs rather than increased funding risk. Accordingly, the commenter recommended that the agencies assign a zero percent RSF factor to trade date receivables generated by primary offering settlements for the duration of the primary offering.
As described above, the agencies are amending the final rule to assign a zero percent RSF factor to trade date receivables due to a covered company that result from the sale of a financial instrument, foreign currency, or commodity that are required to settle no later than the market standard for the particular instrument, and have yet to settle but are not more than five business days past the scheduled settlement date. The final rule otherwise retains the assignment of a 100 percent RSF factor as proposed. Assets in this category do not consistently exhibit liquidity characteristics that would suggest a covered company should support them with anything less than full stable funding.
Section __.106(b) of the proposed rule would have assigned a 100 percent RSF factor to any asset on a covered company's balance sheet that is past due by more than 90 days or that has nonaccrual status. Because these assets have an elevated risk of non-payment, these assets tend to be illiquid regardless of their tenor. The agencies did not receive any comments on this aspect of the proposal. Consistent with the proposed rule, the final rule requires a covered company to assign a 100 percent RSF factor to nonperforming assets.
Consistent with the criteria used for assigning RSF factors described above, the RSF factor that the proposed rule would have assigned to an asset would have depended on whether or not the asset is encumbered and the length of any encumbrance. As discussed in section VI of this Supplementary Information section, the proposed rule would have defined “encumbered” (a new defined term under § __.3), as the converse of the term “unencumbered” currently used in the LCR rule. Encumbered assets must generally be retained for the period of encumbrance and generally cannot be monetized during this period. Thus, § __.106(c) of the proposed rule would have assigned the RSF factor to encumbered assets based on the tenor of the encumbrance.
The agencies received one comment regarding the potential impact of the proposed rule's treatment of assets pledged for six months or longer by a covered company to an FHLB under a blanket, but not asset-specific, lien to secure an extension of credit to the covered company.
As is the case for an asset pledged to any other counterparty to secure or provide credit enhancement to a transaction, a covered company generally must retain or replace an asset pledged to an FHLB during the period in which it is encumbered and cannot monetize the asset while encumbered.
The final rule retains the treatment of encumbered assets as proposed. Under the final rule, an asset that is encumbered for less than six months from the calculation date is assigned the same RSF factor as would be assigned to the asset if it were not encumbered because the covered company will not need to retain the asset beyond six months. For an asset that is encumbered for a period of six months or more, but less than one year, the final rule assigns an RSF factor equal to the greater of 50 percent and the RSF factor that would be assigned if the asset were not encumbered. This treatment ensures that a covered company's RSF amount reflects the effect of the encumbrance on an asset that would be assigned a lower RSF factor if unencumbered based on its tenor and other liquidity characteristics. Additionally, the final rule assigns a 100 percent RSF factor to an asset that is encumbered for a remaining period of one year or more because the asset would be retained and unavailable to the covered company for the entirety of the NSFR's one-year time horizon. Finally, in cases where the duration of an asset's encumbrance exceeds the maturity of that asset, the final rule assigns an RSF factor to the asset based on its encumbrance period. For example, if a covered company provides a level 1 liquid asset security that matures in three months as collateral in a one-year repurchase agreement, the covered company would need to replace that security upon its maturity with another asset that meets the requirements of the repurchase agreement. Thus, even though the maturity of the asset currently provided as collateral is short-dated, a covered company must fully support an asset with stable funding for the duration of the one-year repurchase agreement. As a result, the RSF factor determined by on the one-year encumbrance period.
Table 3 sets forth the RSF factors for assets that are encumbered.
Section __.106(c)(3) of the proposed rule would have specified that an asset held in a segregated account maintained pursuant to statutory or regulatory requirements for the protection of customer assets would not have been considered to be encumbered solely because it is held in such a segregated account.
Several commenters argued that segregated client assets should have no stable funding requirement because, among other reasons, they already are funded by liabilities to the client and pose limited funding risks to covered companies. Some commenters noted that SEC and CFTC rules require client assets to be segregated and accounted for separately from the covered company's assets, protected from the bankruptcy of the covered company, and held in cash or other limited investments. Commenters also argued that segregated client assets should be treated analogously to currency and coin, which are assigned a 0 percent RSF factor. One commenter argued that the proposed treatment for segregated client assets would conflict with the treatment of such assets under the LCR rule, which recognizes some inflows from anticipated changes in the value of segregated client accounts and 100 percent outflows for non-operational deposits placed by financial institution counterparties.
Several commenters claimed that requiring stable funding for segregated client assets would inappropriately incentivize covered companies to maintain such balances in non-cash form (
The agencies are finalizing the treatment of customer segregated account assets as proposed.
As discussed above, the final rule assigns a zero percent RSF factor to unencumbered level 1 liquid assets and generally assigns a 15 percent RSF factor to a deposit placed at a third-party financial institution with a remaining maturity of less than six months, based on the tenor and other liquidity characteristics of these assets. A covered company's requirement to comply with certain customer protection segregation requirements that result in a deposit at a third-party financial institution does not, by itself, adjust the tenor of such a placement or serve to improve the covered company's ability to withdraw the funds or otherwise monetize the asset in comparison to other deposits placed with a third-party banking organization. For example, unlike coin and currency, a covered company cannot directly use customer segregated account assets to satisfy its own obligations.
For these reasons, it would not be appropriate to assign a zero percent RSF factor to assets based on their segregated status and an asset held in this type of segregated account is assigned the RSF factor that would be assigned to the asset under § __.106 as if it was not held in a segregated account.
As discussed in section V of this Supplementary Information section, the NSFR calculation is based on the carrying value of assets on a covered company's balance sheet consistent with GAAP. However, certain assets that can affect a covered company's aggregate funding risks may not be included on a covered company's balance sheet under GAAP. The proposed rule, therefore, would have included provisions to address the funding risks associated with certain off-balance sheet assets that a covered company may obtain through lending transactions, asset exchanges, or other transactions. These assets can affect a covered company's balance sheet risk profile where they are rehypothecated and used to obtain funding. For example, a covered company may use off-balance sheet assets to generate funding. The assignment of an ASF factor to this liability without recognizing the encumbrance placed on a covered company's balance sheet would distort the NSFR assessment of a covered company's overall balance sheet risks. Therefore, it is appropriate that such reuse of off-balance sheet assets should be associated with an appropriate contribution to a covered company's RSF amount regardless of the source of the assets. This is especially the case if the off-balance sheet asset is encumbered to generate funding that has a longer tenor than the transaction through which the off-balance sheet asset was sourced. In that case, a covered company may need to roll over the transaction through which it obtained the off-balance sheet asset before the encumbrance of the asset terminates. Alternatively, the covered company may need to obtain a replacement asset to close out the sourcing transaction under which it obtained the asset before the encumbrance expires. Under either approach, the covered company must fund an asset for the duration of the encumbrance.
Section __.106(d) of the proposed rule specified how a covered company would have assigned an RSF factor to a transaction involving an off-balance sheet asset that secures an NSFR liability or the sale of an off-balance sheet asset that results in an NSFR liability (for instance, in the case of a short sale). The proposed rule would have assigned an RSF factor to a receivable of a lending transaction, a security provided in an asset exchange, or to the off-balance sheet asset itself depending on the transaction through which the covered company obtained the off-balance sheet asset. Specifically, for an off-balance sheet asset obtained under a lending transaction, § __.106(d)(1) of the proposed rule would have assigned an RSF factor to the receivable of the lending transaction as if it were encumbered for the longer of (1) the remaining maturity of the NSFR liability secured by or resulting from the sale of the off-balance sheet asset and (2) any other encumbrance period already applicable to the lending transaction. For an off-balance sheet asset obtained through an asset exchange, § __.106(d)(2) of the proposed rule would have assigned an RSF factor to the asset provided by the covered company in the asset exchange as if it were encumbered for the longer of (1) the remaining maturity of the NSFR liability secured by or resulting from the sale of the off-balance sheet asset and (2) any other encumbrance period applicable to the provided asset. For an off-balance sheet asset not obtained under either a lending transaction or asset exchange, § .106(d)(3) of the proposed rule would have assigned an RSF factor to the off-balance sheet asset as if it were encumbered for the longer of (1) the remaining maturity of the NSFR liability secured by or resulting from the sale of the off-balance sheet asset and (2) any other encumbrance period applicable to the off-balance sheet asset.
The agencies received several comments on the proposed treatment of rehypothecated off-balance sheet assets under § __.106(d) of the proposed rule. Commenters argued that the proposed treatment would be inconsistent with the concept of the NSFR as a balance-sheet metric because it would assign RSF factors based on assets not included on the covered company's balance sheet under GAAP. Some commenters also argued that the agencies should not adopt the proposed treatment because it would result in stable funding requirements that would be greater than specified under the Basel NSFR standard. Commenters also argued that the proposed rule lacked a clear empirical foundation for the treatment of rehypothecated off-balance sheet assets. One commenter argued that the proposed treatment would result in the assignment of ASF and RSF factors that do not accurately reflect the funding risk of the underlying transactions. One commenter objected to the proposed treatment for rehypothecated off-balance sheet assets received in an asset exchange, asserting
Commenters requested additional clarification as to the scope of activities intended to be covered by § __.106(d) of the proposed rule, in particular by proposed § __.106(d)(3), which would have addressed off-balance sheet assets that are sourced through all other types of transactions. One of these commenters stated that proposed § __.106(d)(3) is extremely punitive and could lead to unintended consequences.
Another commenter asserted that it would be operationally difficult to comply with § __.106(d) of the proposed rule if a covered company is required to link each source and use of off-balance sheet assets to on-balance sheet assets and liabilities. This commenter also suggested that the final rule should recognize the benefits to a covered company of collateral substitution rights, for example, where a covered company has provided two assets to a single counterparty or a single tri-party repurchase agreement intermediary to secure two separate NSFR liabilities, and the covered company has the operational and legal capability to determine the allocation of the assets to each NSFR liability.
To address the funding risks presented when a covered company has an NSFR liability that is secured by, or results from the sale of, an off-balance sheet asset and to prevent distortion of the NSFR metric, the agencies are finalizing the treatment of rehypothecated off-balance sheet assets under § __.106(d) generally as proposed, but are narrowing the scope of the section such that § __.106(d) does not apply to off-balance sheet assets received as variation margin under a derivative transaction. The agencies also are modifying § __.106(d)(3), as explained in this Supplementary Information section. As noted by commenters, the NSFR is a balance-sheet metric, and the treatment for rehypothecated off-balance sheet assets under the final rule assigns RSF factors to assets recorded on a covered company's balance sheet, rather than to off-balance sheet assets. The agencies also note that the BCBS clarified the treatment of certain off-balance sheet assets under the Basel NSFR standard as a result of rehypothecation, which is generally consistent with the treatment under the final rule.
Where a covered company obtains an off-balance sheet asset through a lending transaction,
A commenter asserted that this type of position poses less funding risk, because the on-balance sheet receivable has a shorter maturity than the liability and the off-balance sheet asset is highly liquid. However, the asset funding need for this type of transaction is driven by the obligation to continue to collateralize the liability for a period of one year or more relative to the short-term sourcing transaction rather than the liquidity characteristics of the asset pledged. Therefore, the effective funding need of the receivable associated with the asset pledged must take into account the one-year period of encumbrance, consistent with a 100 percent RSF factor.
Where a covered company provides a security in an asset exchange, the security provided remains on the covered company's balance sheet under GAAP. However, the security received by the covered company in the asset exchange may be an off-balance sheet asset under GAAP (for example, because the covered company acted as a securities borrower in the asset exchange). Under § __.106(d)(2) of the final rule, if a covered company obtains an off-balance sheet asset under an asset exchange and has an NSFR liability secured by, or resulting from the sale of, the off-balance sheet asset, the final rule treats the on-balance sheet asset provided by the covered company in the asset exchange as encumbered for the longer of: (1) The remaining maturity of the NSFR liability secured by the off-balance sheet asset or resulting from the sale of the off-balance asset, as the case may be, and (2) any encumbrance period already applicable to the provided asset. For example, assume a covered company, acting as a securities borrower, provides a level 2A liquid asset as collateral and obtains a level 1 liquid asset security under an asset
With regard to comments that the final rule should recognize the funding value of the off-balance sheet asset received in an asset exchange (in the example above where the covered company acts a securities borrower, the level 1 liquid asset) and for the reasons described in section VII.A.3 of this Supplementary Information section, the final rule provides that a covered company must assign an RSF factor to the on-balance sheet asset provided (in the example above, the level 2A liquid asset) rather than the off-balance sheet asset received because the on-balance sheet asset is a component of the covered company's aggregate funding need at the calculation date. Unlike the LCR rule, where an off-balance sheet asset received in an asset exchange can potentially qualify as eligible HQLA available to satisfy short-term cash-flow needs, the NSFR is a measure of the stability of a covered company's funding profile relative to its assets. As discussed in section V of this Supplementary Information section, the final rule generally does not consider the future availability of an asset as a source of liquidity and assigns RSF factors to assets rather than ASF factors as suggested by commenters.
Where a covered company obtains an off-balance sheet asset through a transaction that is not a lending transaction or an asset exchange (source transaction), there is the potential that the covered company might not record the source transaction on its balance sheet. At the same time, the covered company may rehypothecate the off-balance sheet asset obtained in the source transaction to obtain funding and generate an NSFR liability. This funding could increase the covered company's ASF amount, depending on the maturity and other characteristics of the NSFR liability, without the source transaction or the off-balance sheet asset itself being reflected in its RSF amount. However, due to the rehypothecation of the off-balance sheet asset, a covered company may record a liability to return the asset to the counterparty of the source transaction or a liability secured by the off-balance sheet asset.
To address this risk and prevent potential distortions of the NSFR, under § __.106(d)(3) of the final rule, if a covered company has an off-balance sheet asset that it did not obtain under either a lending transaction or an asset exchange, the covered company is required to treat any associated on-balance sheet asset resulting from the rehypothecation transaction as encumbered for a period equal to the greater of the remaining maturity of the NSFR liability or the encumbrance of the source transaction. This provision would apply to any proceeds that appeared on a covered company's balance sheet as a result of a rehypothecation transaction. For example, if a covered company rehypothecates an off-balance sheet asset for a period of one year more and receives cash as proceeds of the rehypothecation, the covered company would be required to treat the cash received as encumbered and assigned a 100 percent RSF factor. Covered companies are not required to treat the off-balance sheet asset as if the off-balance sheet asset was included on a company's balance sheet. Even if a covered company reuses the proceeds of the rehypothecated transaction, the covered company should still apply an RSF factor, based on the encumbrance, to the on-balance sheet asset that was the direct result of the transaction. Without this treatment, a covered company's RSF amount would not reflect the funding risk that the covered company must maintain the asset, or a similar asset, or the fact that the covered company has limited its ability to monetize or recognize inflows from the source transaction for the duration of the rehypothecation.
Additionally, § __.106(d)(3) of the proposed rule would have applied in the case of an NSFR liability secured by, or resulting from the sale of, an off-balance sheet asset that a covered company had received in the form of variation margin under a derivative transaction. The final rule modifies the proposal by not subjecting assets received as variation margin under a derivative transaction to the requirements of § __.106(d).
Consistent with the proposed rule, § __.106(d) of the final rule does not apply in cases where a covered company has an NSFR liability secured by, or resulting from the sale of, an on-balance sheet asset.
If the value of rehypothecated off-balance sheet assets obtained in lending transactions or asset exchanges is less than the carrying value of the on-balance sheet receivables for the lending transactions or assets provided under the asset exchanges, respectively, the covered company should treat the value of the receivables or assets provided as encumbered in an amount equivalent to the value of the rehypothecated off-balance sheet assets, for purposes of §§ __.106(d)(1) and (2).
Conversely, the value of rehypothecated off-balance sheet assets received by a covered company in a lending transaction, asset exchange, or other transaction might exceed the value of the on-balance sheet receivable for the lending transaction, the assets provided under the asset exchange, or the asset resulting from the NSFR liability, respectively. In such cases, a covered company potentially could rehypothecate an amount of off-balance sheet assets to produce an NSFR liability that exceeds the value of the on-balance sheet lending transaction receivable or assets provided (excess rehypothecated assets). Under the final rule, on-balance sheet assets resulting from the rehypothecation of the off-balance sheet assets are assigned the appropriate RSF factor consistent with other on-balance sheet assets. Covered companies should use appropriate and justifiable assumptions in identifying and attributing the sources and uses of off-balance sheet assets, including excess rehypothecated assets, consistent with the operational clarifications below.
With regard to a commenter's concerns about the operational burden associated with linking assets and liabilities for purposes of § __.106(d), if a covered company provides an asset as collateral, and the covered company operationally could have provided either an off-balance sheet asset or the same security in the form of on-balance sheet asset, the final rule permits the covered company to identify either the off-balance sheet asset or the on-balance sheet asset as the provided collateral for purposes of determining encumbrance treatment under §§ __.106(c) and (d). Similarly, if a covered company operationally could have provided either of two equivalent off-balance sheet assets, one received under a lending transaction and the other under an asset exchange, the final rule does not restrict the covered company's ability to identify either asset as the provided collateral for purposes of determining encumbrance treatment under § __.106(d). In either case, the covered company's identification for purposes of §§ __.106(c) and __.106(d) must be consistent with contractual and other applicable requirements on the relevant calculation date. The same treatment would apply for a covered company's use of a security as collateral and the covered company's ability to identify whether the security is already owned by the covered company or is an identical security received from a lending transaction, asset exchange, or other transaction.
For example, if a covered company receives a security in a reverse repurchase agreement that is identical to a security the covered company already owns, and the covered company provides one of these securities as collateral to secure a repurchase
The agencies anticipate that a covered company would be able to comply with this section based on aggregate information (because much of the data is currently collected and monitored for other purposes, including the FR 2052a and compliance with the LCR rule) rather than through transaction-by-transaction tracking. For example, a covered company may determine its requirements under §§ __.106(c) and __.106(d) based on the aggregate value of an asset class pledged at each of the NSFR rule's encumbrance periods (less than six months, six months or more but less than one year, or one year or more); the aggregate value of the asset class on the covered company's balance sheet; and the values and maturity categories of balance sheet receivables or assets provided by the covered company under transactions sourcing each type of borrowed asset.
In addition, when the covered company has provided two assets to a single counterparty to secure two different NSFR liabilities, and the covered company had the sole legal right and operational capability to determine the allocation of the collateral provided to each of the NSFR liabilities at the calculation date, the final rule permits the covered company to identify which asset secures which NSFR liability for purposes of determining encumbrance treatment under §§ __.106(c) and __.106(d). As an example, assume that a covered company enters into two secured funding transactions with a single counterparty (or with a single tri-party repo intermediary), one with an overnight maturity and one with a maturity of one year, and provides level 2A liquid assets as collateral for one secured funding transaction and level 2B liquid assets as collateral for the second secured funding transaction. If the covered company had the legal right and operational capability to allocate the provided level 2A and level 2B liquid assets between the two secured funding transactions, the final rule permits the covered company to identify which of the securities are encumbered for a period of one year and which are encumbered overnight for purposes of §§ __.106(c) and __.106(d). As described above, the covered company's determinations for purposes of these sections must be consistent with contractual and other applicable requirements, including accounting treatment.
The proposed rule would have required a covered company to maintain stable funding to support its on-balance sheet derivative activities. Under the proposed rule, a covered company would have calculated its required stable funding amount relating to its derivative transactions
Under the proposed rule, a covered company's derivatives RSF amount would have consisted of three general components, each described further below: (1) A component reflecting the current net value of a covered company's derivative assets and liabilities, taking into account variation margin provided by and received by the covered company (current net value component); (2) a component to account for initial margin provided by a covered company for its derivative transactions and assets contributed by a covered company to a CCP's mutualized loss-sharing arrangement in connection with cleared derivative transactions (initial margin component); and (3) a component to account for potential future derivatives valuation changes (future value component). For the current net value component, a covered company would have netted its derivatives transactions and certain variation margin amounts to identify whether the current net value of its
The proposed rule would have required a covered company to measure its derivatives exposures in its calculation of the NSFR, regardless of the counterparty. A few commenters suggested that all derivative transactions with commercial end-users—specifically, entities that are not subject to the clearing requirement under the Commodity Exchange Act
The final rule does not distinguish between derivative transactions with commercial end-users and other counterparty types. Unlike the clearing and margin requirements cited by commenters, which apply specifically to derivative transactions and include statutory exemptions for certain transactions with non-financial sector counterparties, the final rule seeks to measure and address funding risks of a covered company's aggregate balance sheet. The final rule therefore includes derivative transactions as one of many types of exposures that contribute to a covered company's aggregate funding risk.
Under the proposed rule, the stable funding requirement for the current net value component of a covered company's derivative assets and liabilities would have been based on the value (as of the calculation date) of each of its derivative transactions (not subject to a QMNA) and each QMNA netting set and the variation margin provided by and received by the covered company. For the current net value component, the proposed rule would have measured a covered company's aggregate derivative activities on a net basis by: (i) Reducing exposures with each counterparty by taking into account QMNA netting sets; (ii) determining the value of each derivative asset, liability or QMNA netting set after netting certain variation margin amounts; and (iii) offsetting a covered company's overall total derivatives asset amount with its total derivatives liability amount, each as described below (
The agencies received a number of comments regarding this component, including comments on the calculation of the NSFR derivative asset or liability amount, the proposed RSF and ASF factors for these amounts, and how the proposed calculation would have accounted for variation margin received and provided by a covered company. The final rule modifies the calculation of the current net value component with certain adjustments to the types of variation margin that are eligible for netting in such component, but otherwise adopts the treatment as proposed. Due to the variable nature of derivative transactions, the interdependencies within the derivative
First, a covered company determines the asset or liability value of each derivative transaction (not subject to a QMNA) and each QMNA netting set. Each derivative transaction or QMNA netting set has either a derivatives asset value or derivatives liability value, depending on (1) the derivative transaction's or QMNA netting set's asset or liability valuation and (2) the value of variation margin provided or received under the derivative transaction or QMNA netting set that is eligible for netting under the final rule.
A derivatives asset value of a derivative transaction or QMNA netting set is the asset value after netting variation margin received in the form of cash or rehypothecatable level 1 liquid asset securities by the covered company that meets the eligibility conditions described in § __.107(f)(1) of the final rule and discussed in section VII.E.2.b of this Supplementary Information section.
A derivatives liability value of a derivative transaction or QMNA netting set is the liability value after netting any variation margin provided by the covered company, regardless of the type of variation margin. The final rule also specifies that a covered company may not reduce its derivatives asset or liability values by initial margin provided to or received from counterparties.
Second, a covered company sums its derivatives asset values, as calculated in step 1, to determine its total derivatives asset amount, and separately sums its derivatives liability values, as calculated in step 1, to determine its total derivatives liability amount.
Third, a covered company calculates its overall NSFR derivatives asset amount or NSFR derivatives liability amount by calculating the difference between its total derivatives asset amount and its total derivatives liability amount, each as calculated in step 2.
Fourth, and finally, the final rule assigns a 100 percent RSF factor to a covered company's NSFR derivatives asset amount or a zero percent ASF factor to a covered company's NSFR derivatives liability amount.
A number of commenters recommended that the approach for calculating the NSFR derivatives asset amount or NSFR derivatives liability amount should be based on the remaining maturity of a covered company's derivative transactions or netting sets, which commenters asserted would be more consistent with the proposed rule's consideration of tenor for assigning an RSF factor for certain other assets. Moreover, commenters asserted that short-dated derivatives do not require as much long-term funding as long-dated derivatives because a covered company could generally expect to allow its short-dated derivative transactions to mature within the NSFR's one-year horizon, there are generally no market or client expectations that firms would roll over derivative transactions, and the agencies did not provide empirical evidence suggesting otherwise. For example, commenters suggested reducing the RSF factor for assets based on individual derivative transactions with a remaining maturity of less than one year, with a further reduction for asset values based on individual derivative transactions with a remaining maturity of six months or less. Some commenters suggested that the agencies should rely on other regulatory measures to determine the remaining maturity of derivative netting sets, such as the calculation of maturity for derivative netting sets under the internal models methodology for counterparty credit risk under the agencies' advanced approaches risk-based capital rule.
The agencies are not adopting in the final rule a more granular approach to the calculation of the NSFR derivatives asset amount and are instead adopting the approach under the proposed rule. The current net value component is an operationally simple measure of the funding needs associated with a covered company's aggregate derivatives portfolio. Relative to other approaches, such as the more granular approaches suggested by commenters that would take into account the remaining maturity of certain derivative transactions or hedging transactions, the final rule's approach allows for a consistent and comparable measure of net derivative exposures across covered companies. Further, while a more complex approach based on a covered company's internal models methodology as suggested by commenters may be appropriate in other contexts, such an approach would be contrary to the NSFR's standardized calculation of a relatively simple measure of the risks raised by a covered company's derivative positions. Although this simplified approach may overstate the funding risk of certain short-maturity derivative assets, it may
In response to comments requesting the assignment of reduced RSF factors to assets that hedge derivative transactions, the agencies similarly note that the current net value component of the final rule is designed as a simplified approach that nets all derivative liabilities against derivative assets. An alternative approach that permits a covered company to match particular derivative assets or liabilities to specific hedging positions (whether derivative transactions or otherwise) to determine the assignment of RSF factors for the current net value component would introduce significant complexity, reduce standardization, and, depending on the approach, introduce an additional operational burden or increased reliance on covered companies' internal models. In addition, although derivative assets or liabilities may reduce certain risks of the specific positions for which they are hedging, they would still require stable funding to enable the covered company to continue to intermediate and fund its derivatives portfolio and hedging positions over a one-year time horizon. The final rule therefore adopts the same calculation structure as the proposed rule for the current net value component, with modifications discussed below with respect to consideration of variation margin received by a covered company.
The agencies are adopting the proposed rule's assignment of a 100 percent RSF factor to an NSFR derivatives asset amount and a zero percent ASF factor to an NSFR derivatives liability amount. The calculation of a covered company's NSFR derivatives asset amount already recognizes the contribution made by variation margin and derivative liabilities to the funding for derivative asset positions, based on their treatment under the final rule. As a result, the NSFR derivatives asset amount represents overall derivatives activities that are not fully margined, based on the eligibility of variation margin for netting under the rule. Derivative transactions are complex financial instruments that can significantly and quickly fluctuate in value. Given these risks, the final rule, like the proposed rule, would require full stable funding for these net residual exposures. Moreover, while the final rule's current net value component recognizes the contribution made by derivative liabilities to the funding for derivative asset positions, the agencies do not consider a covered company's NSFR derivatives liability amount, if any, to be available stable funding to support assets outside of the covered company's derivative portfolio.
Under the proposed rule's calculation of a covered company's current net value component, a covered company would have been permitted to offset derivative assets only by variation margin received that was in the form of cash that met criteria at § __.10(c)(4)(ii)(C)(
The agencies received comments regarding the proposed rule's criteria for variation margin received to be eligible for netting against derivatives asset values. Commenters argued that the proposed rule lacked a rationale for recognizing all forms of variation margin provided by a covered company against derivatives liability values, while only permitting derivatives asset values to be netted by variation margin received by a covered company if the variation margin met the SLR netting criteria. These commenters argued that the proposed treatment for netting variation margin received was overly conservative and would increase costs to covered companies. Commenters requested that the agencies allow additional forms of variation margin received to be netted against derivatives assets.
Many commenters requested that the final rule permit netting of additional variation margin received against the covered company's derivative assets because the amounts received would represent a funding benefit to the covered company. Commenters argued that, unlike the SLR rule, the NSFR rule is designed to measure the funding risk of a covered company's balance sheet and, therefore, should recognize the value of collateral received when the receipt of collateral represents a source of liquidity or facilitates the monetization of the underlying derivative asset. These commenters asserted that the final rule should recognize netting for any cash collateral that is received by a covered company, specifically criticizing the proposed criteria that variation margin be calculated and transferred on a daily basis or provide for the full extinguishment of a net current credit exposure, as the amounts of cash collateral received would represent a funding benefit to the covered company. Commenters noted that, under the proposed rule, a small shortfall of variation margin would result in a
Commenters also specifically recommended that the final rule not include the proposed criterion that cash variation margin received must be in the same currency as the settlement currency in the contract. These commenters noted that the LCR rule treats HQLA denominated in a foreign currency as a source of liquidity that can be used to meet near-term outflows denominated in a different currency and the swap margin rule permits the receipt of cash collateral denominated in a currency different from the settlement currency of the derivative transaction if the currency falls within swap margin rule's definition of “major currency” or, if the cash variation margin is not in a “major currency,” subject to an 8 percent haircut under that rule.
After considering these comments, the agencies have revised the proposal by: (1) Removing the requirement that variation margin be received in the full amount necessary to extinguish the net current credit exposure to a counterparty in order to be recognized for netting purposes; and (2) modifying the currency requirement. In the final rule, to be recognized for netting purposes, the variation margin (1) must not be segregated; (2) must be received in connection with a derivative transaction that is governed by a QMNA or other contract between the counterparties to the derivative transaction, which stipulates that the counterparties agree to settle any payment obligations on a net basis, taking into account any variation margin received or provided; (3) must be calculated and transferred on a daily basis on mark-to-fair value of the derivative contract; and (4) must be in a currency specified as an acceptable currency to settle payment obligations in the relevant governing contract.
In response to commenters, the final rule does not include the requirement that variation margin be received in the full amount necessary to extinguish the net current credit exposure to a counterparty in order to be recognized for netting purposes. This change will avoid unduly penalizing a covered company if variation margin the covered company has received does not fully extinguish the underlying derivative exposure due to short-term margin disputes or operational reasons and would avoid volatility in a covered company's funding requirement due to periodic, short-term shortfalls in variation margin received.
The final rule includes a modified version of the proposed netting criterion for currency. Specifically, the final rule requires that in order to qualify for netting treatment, variation margin received by a covered company must be in a currency specified as an acceptable currency to settle the obligation in the relevant governing contract. Non-cash variation margin must be denominated in a currency specified as an acceptable currency. The final rule does not adopt certain commenters' suggestions to permit netting of variation margin only if it is denominated in certain major currencies, or to apply discount rates to account for costs of currency conversion, because such requirements would have significantly increased the complexity of the final rule. Allowing variation margin, whether cash or non-cash, that is not in a currency specified as an acceptable currency would also entail currency conversion risks and decrease the certainty about whether the variation margin truly netted out a derivatives exposure.
The final rule retains the requirement that variation margin is calculated on a daily basis based on the fair value of the derivative contract. To satisfy this criterion, derivative positions must be valued daily, and margin must be transferred daily when the threshold and daily minimum transfer amounts are satisfied according to the terms of the derivative contract. While variation margin exchanged less frequently may reduce the funding risk associated with a derivative position, the requirement that margin be exchanged daily makes the funding flows associated with derivative positions more predictable and manageable. Derivative positions with less frequent or episodic transfers of variation margin present more significant funding concerns than derivative positions subject to daily margin exchanges.
With respect to non-cash variation margin received by a covered company, commenters recommended that the final rule recognize variation margin received in the form of rehypothecatable securities. In particular, commenters argued that variation margin received in the form of rehypothecatable level 1 liquid assets represents stable funding to a covered company with respect to derivative assets. The commenters cited the treatment of level 1 liquid assets under the LCR rule as evidence that such securities have limited liquidity and market risk.
Other commenters recommended that all classes of rehypothecatable HQLA, not only rehypothecatable level 1 liquid assets, should be recognized for netting under § __.107 of the final rule. Some commenters urged the agencies to permit netting of variation margin received in the form of rehypothecatable HQLA, subject to haircuts equivalent to the applicable RSF factors for such assets. One commenter also suggested applying the haircuts used by the Board for collateral accepted at the discount window to determine the amount by which such collateral received as variation margin would offset a derivatives asset. Other commenters asserted that market practices—such as haircuts and daily exchange of collateral—ensure that non-cash variation margin received would provide a sufficiently stable source of funding for purposes of netting against a covered company's derivative assets.
Commenters also asserted that permitting netting of non-cash variation margin received would better align with the treatment of collateral under the swap margin rule, which allows certain non-cash collateral to be used to meet variation margin requirements.
Commenters argued that the proposed treatment of non-cash variation margin received would have a disproportionately adverse impact on certain counterparties, such as mutual funds, pension funds, and insurance companies, which generally provide securities as variation margin due to their business models. Commenters stated that, in order to be able to provide cash variation margin to a covered company, these counterparties would have to engage in securities lending or repurchase agreements, which could increase interconnectedness and systemic risks within the financial system, adversely affect the liquidity of such securities, and reduce returns to these counterparties.
In a change from the proposed rule, for purposes of determining derivatives asset values under the final rule, a covered company may take into account variation margin received in the form of rehypothecatable level 1 liquid asset securities. Level 1 liquid asset securities tend to have very stable value and reliable liquidity across market conditions. However, other types of non-cash collateral (
The final rule's allowance of rehypothecatable level 1 liquid assets to be netted against derivatives assets will further align the final rule and the agencies' swap margin rule. Although the swap margin rule permits certain non-level l liquid assets to be used as variation margin for certain swap transactions, limiting the final rule's permissible netting to variation margin received in the form of cash and rehypothecatable level 1 liquid asset securities is appropriate because permitting a covered company to reduce its derivative assets by other types of non-cash collateral could increase the funding risk associated with its derivative portfolio and reduce its ability to continue to intermediate and fund its derivatives portfolio over a one-year horizon. The agencies also recognize that, when measured by total volume, a significant majority of variation margin exchanged by swap dealers continues to be comprised of cash, with the majority of the remaining variation margin comprised of government securities.
Accordingly, § __.107(f)(1)(ii) of the final rule provides that a covered company must calculate the derivatives asset value of the underlying derivative transaction or QMNA netting set by subtracting the value of variation margin received that is in the form of rehypothecatable level 1 liquid asset securities from the asset value of the derivative transaction or QMNA netting set.
The proposed rule would have required a covered company to include in its RSF amount on-balance sheet assets that the covered company has provided (that remain on a covered company's balance sheet) and received as variation margin in connection with its derivative transactions.
The proposed rule would have assigned an RSF factor to on-balance sheet variation margin
As described above, under the final rule, the liability value of a derivative transaction or QMNA netting set, as applicable, takes into account any variation margin provided by a covered company. A covered company may have provided variation margin in an amount that reduces its liability to a counterparty or variation margin in excess of this amount. For example, the amount of a receivable or of securities recorded on a covered company's balance sheet may represent both an amount of variation margin provided that reduces a covered company's derivative liability, as calculated under the final rule, and excess variation margin provided. Consistent with the
To the extent a covered company provides excess variation margin—that is, an amount of variation margin that does not reduce the liability value of a derivative transaction or QMNA netting set—and includes the excess variation margin asset on its balance sheet, the final rule assigns such excess variation margin an RSF factor under § __.106, based on the characteristics of the asset or balance sheet receivable associated with the asset, as applicable. Since excess variation margin does not reduce a covered company's derivatives liabilities values, the covered company's current net value component does not reflect these on-balance sheet assets. The final rule assigns RSF factors to excess variation margin on a covered company's balance sheet to reflect the need for stable funding for such assets as part of the covered company's aggregate balance sheet. The RSF factor applied to excess variation margin provided depends on the asset provided. If a covered company has provided different types of variation margin (for example, both cash and securities), the covered company can determine which variation margin should be treated as excess and apply the appropriate RSF factor.
The proposed rule would have assigned an RSF factor to all variation margin received by a covered company that is on the balance sheet of the covered company,
The agencies are adopting the requirement for variation margin received by a covered company that is on the covered company's balance sheet as proposed. As described above, under the final rule, the derivatives asset value of a derivative transaction or QMNA netting set, as applicable, takes into account certain variation margin received by a covered company. This variation margin received reduces the covered company's derivative assets, resulting in a lower total derivatives asset amount. As a result, the funding needs for this variation margin received is not reflected in the current net value component. Therefore, regardless of whether on-balance sheet variation margin received is eligible for netting under the current net value component calculation, assignment of an RSF factor to these on-balance sheet assets under § __.106 is necessary to capture the funding risk associated with these assets.
The proposed rule would have assigned a zero percent ASF factor to any liability that arises from an obligation to return
As discussed in the proposed rule, given that these liabilities can change based on the underlying derivative transactions and remain on balance sheet, at most, only for the duration of the associated derivative transactions, they do not represent stable funding for a covered company. Additionally, the contribution of variation margin received to the covered company's funding risk is appropriately recognized through the final rule's calculation of the NSFR derivatives asset amount described above and an additional contribution to a covered company's ASF amount in respect to an accounting liability to return such assets would be duplicative. For these reasons, the final rule assigns a zero percent ASF factor to liabilities representing an obligation to return variation margin received by a covered company.
For initial margin received by the covered company that is recorded as an asset on its balance sheet, the proposed rule would not have treated the asset received as initial margin differently from other balance sheet assets and would have assigned an RSF factor according to the characteristics of each asset received. Additionally, the proposed rule would have assigned a zero percent ASF factor to any liability that arises from an obligation to return initial margin received by a covered company related to its derivative transactions.
Some commenters argued that the final rule should recognize the receipt of initial margin by a covered company as a potential source of stable funding, especially if the covered company has the contractual and operational ability to re-use the collateral assets in the future, which commenters asserted is common market practice in the over-the-counter derivatives market. Commenters requested that the final rule more closely align the ASF treatment of liabilities for initial margin received with the RSF treatment of initial margin assets provided by a covered company, in particular with respect to initial margin received from a counterparty that is a commercial end-user. Some commenters requested that the final rule apply an ASF factor of at least 50 percent to liabilities for initial margin received by a covered company and permit initial margin received to reduce the RSF amount for initial margin provided by a covered company in the initial margin component. As another approach, commenters requested that the NSFR rule permit initial margin assets received by a covered company that can be rehypothecated in the future to offset the current RSF amount derived from the related derivative asset, subject to haircuts on the initial margin assets, because such initial margin is contractually linked to the covered company's rights and obligations under the derivative transaction and is
The agencies are adopting the treatment of initial margin received as proposed. As discussed in section V of this Supplementary Information section, the general design of the final rule requires a covered company to assess of the amount of its stable funding based on NSFR regulatory capital and liabilities at a point in time, and the adequacy of such funding based on the characteristics of assets and commitments. The NSFR generally does not determine current stable funding based on the potential future reuse of assets. Consistent with this approach, the derivative framework under the final rule does not recognize as stable funding the potential reuse at a future date of assets received as initial margin. Additionally, the amount of initial margin received by a covered company, and the liability to return such margin, can change based on the aggregate underlying derivative transactions and customer preferences, such as counterparties' demand for derivatives exposure, which may fluctuate over time. Moreover, the extent to which the initial margin assets received are available to a covered company may also fluctuate. Initial margin received by a covered company, including initial margin subject to the swap margin rule, often is subject to segregation requirements that arise from regulatory or contractual requirements, which limits the ability of the covered company to re-use initial margin assets. Even absent a segregation requirement, a covered company may voluntarily agree to segregate the initial margin received at the request of its counterparties or novate the position from the covered company to another counterparty at some point in the future in order to preserve franchise value and avoid negative signaling to market participants, making unsegregated initial margin also an unstable source of funding. This is true also in those cases where a covered company currently has the ability to re-use the initial margin assets that it receives, as the initial margin is only available to the covered company at most for the duration of the derivative transaction. Consistent with the general treatment of balance sheet assets, the final rule applies an RSF factor to a covered company's on-balance sheet assets received as initial margin. These assets result from the current level of activity with derivative counterparties and likely will be held on balance sheet for the duration of the associated derivative transactions or counterparty relationships. It is therefore appropriate to assign RSF factors to these assets based on their liquidity characteristics.
With respect to the liability to return initial margin received, this liability is subject to change based on a covered company's counterparties and their derivative positions and remains, at most, only for the duration of the associated derivative transactions, such that it does not represent stable funding for a covered company. In response to commenters' request that initial margin received be permitted to reduce the RSF amount for initial margin provided, the agencies note that unlike variation margin that is exchanged to account for changes in the current valuations of a derivative transaction or QMNA netting set, initial margin received from counterparties is intended to cover a covered company's potential losses in connection with a counterparty's default (
For these reasons, the final rule assigns a zero percent ASF factor to any liability representing an obligation to return initial margin received and assigns an RSF factor under § __.106 to an asset received as initial margin that is on the covered company's balance sheet based on the characteristics of the asset.
Under the proposed rule, the treatment of a covered company's cleared derivative transaction would have depended on whether the covered company was acting as an agent or as a principal. A covered company's NSFR derivatives asset amount or NSFR derivatives liability amount would have taken into account the asset or liability values of derivative transactions between a CCP and a covered company, acting as principal, where the covered company has entered into an offsetting transaction (commonly known as a “back-to-back” transaction) with a customer. Because a covered company would have obligations as a principal under both derivative transactions comprising the back-to-back transaction, any asset or liability values arising from these transactions, or any variation margin provided or received in connection with these transactions, would have been taken into account in the covered company's calculations of its NSFR derivatives asset or liability amount.
If a covered company was a clearing member of a CCP, it would not have included in its NSFR derivatives asset amount or NSFR derivatives liability amount the value of a cleared derivative transaction that the covered company, acting as agent, has submitted to the CCP on behalf of a customer, including when the covered company has provided a guarantee to the CCP for the performance of the customer. As the proposed rule explained, these cleared derivative transactions are assets or liabilities of a covered company's customer and not the covered company. Similarly, a covered company would not have included in its calculations under § __.107 of the proposed rule variation margin provided or received in connection with customer cleared derivative transactions.
To the extent a covered company includes on its balance sheet under GAAP a derivative asset or liability value (as opposed to a separate receivable or payable in connection with a derivative transaction) associated with a customer cleared derivative transaction, the derivative transaction would have constituted a derivative transaction of the covered company under the proposed rule.
To the extent a covered company has an asset or liability on its balance sheet associated with a customer derivative transaction that is not a derivative asset or liability—for example, if a covered company has extended credit on behalf of a customer to cover a variation margin payment or a covered company holds customer funds relating to derivative transactions in a customer protection segregated account—such asset or liability of the covered company would have been assigned an RSF or ASF factor under §§ __.106 or __.104 of the proposed rule, respectively. Accordingly, to the extent a covered company's balance sheet includes a receivable asset owed by a CCP or payable liability owed to a CCP in connection with customer receipts and payments under derivative
Commenters supported the proposed exclusion from a covered company's NSFR for a cleared derivative transaction that the covered company, acting as agent, has submitted to a CCP on behalf of a customer, stating that this treatment appropriately reflected the limited funding risks of these activities. Some commenters suggested that certain back-to-back derivative transactions with a customer and a CCP also should be excluded from a covered company's NSFR derivatives asset or liability amount because they present minimal funding risks that are similar to cleared derivative transactions where the covered company is acting as an agent. Specifically, commenters highlighted as low risk a derivative transaction where the covered company is not contractually required to make a payment to the customer unless and until the covered company has received a corresponding payment from the CCP. These commenters noted that in both a back-to-back arrangement and a cleared derivative transaction submitted by a covered company as agent with a guarantee of the customer's performance, the covered company faces the same risk upon customer default of being required to make payments to the CCP without receiving a corresponding payment from the customer.
One commenter asked how the proposed rule would treat initial margin that a covered company receives from customers in excess of amounts provided to the CCP in connection with a cleared derivative transaction. The commenter asked how the proposed rule would treat a customer's initial margin that a covered company maintains in segregated accounts and invests in accordance with applicable rules, regulations and agreements with the customer. The commenter also asserted that the customer's initial margin functions as funding for the resulting assets.
Under the final rule, and consistent with the proposal, a covered company's NSFR derivatives asset amount or NSFR derivatives liability amount does not include the value of a cleared derivative transaction that the covered company, acting as agent, has submitted to a CCP on behalf of a customer. This includes instances when the covered company, acting as agent, has provided a guarantee to the CCP for the performance of the customer, as long as the cleared derivative transaction does not appear on a covered company's balance sheet. Additionally, consistent with GAAP, the final rule requires a covered company to include in its NSFR the derivative asset or liability amounts related to back-to-back derivative transactions that the covered company has executed with a CCP and a customer of the covered company as proposed.
As discussed in section V of this Supplementary Information section, the NSFR rule is a standardized metric that generally relies on the assets and liabilities on a covered company's balance sheet. The treatments of submitted agency transactions and executed back-to-back derivative transactions are consistent with the final rule's reliance of on-balance sheet items. Since exposures due to back-to-back derivative transactions are recorded on the balance sheet of a covered company, the final rule's treatment for these exposures will ease administration of the rule by aligning with the balance sheet treatment, consistent with the design of the NSFR. The agencies note that in the case of back-to-back derivative transactions executed with a customer and a CCP where the covered company maintains equal exposures to each counterparty (which reflects the amount of variation margin posted and collected), the covered company's derivative asset and liability positions facing the customer and CCP should generally offset within the covered company's NSFR derivatives asset or liability amount, reflecting a neutral stable funding requirement. However, by taking this approach, the final rule reflects the incremental funding risk that is present when these exposures are not fully offset, such as in the case where there are differences in the amount of eligible variation margin received and collected. In addition, these net exposures are not excluded from the final rule as certain funding risks may still be present. For example, as commenters noted, a covered company in a back-to-back arrangement may be required to make payments to the CCP even if the covered company's customer has failed to make a corresponding payment to the covered company. Initial margin received by a covered company from customers in excess of amounts provided to a CCP in connection with a cleared derivative transaction, including initial margin maintained in segregated accounts and other permitted assets, is treated the same as other initial margin received by a covered company, as described in section VII.E.3 of this Supplementary Information section. Additional RSF amounts could also result from initial margin provided by a covered company to the CCP and the derivatives future value component, each as described below.
The proposed derivative framework included an initial margin component that would address the treatment of assets contributed to a CCP's mutualized loss-sharing arrangement and initial margin provided by a covered company in respect to its derivative transactions. Under the proposed rule, a covered company's contribution to a CCP's mutualized loss-sharing arrangement would have been assigned an RSF factor of 85 percent. Similarly, under the proposed rule, initial margin provided by a covered company for derivative transactions (except where the covered company acts as an agent for a customer's cleared derivative transaction, as described below) would have been assigned an RSF factor equal to the higher of 85 percent or the RSF factor applicable under § __.106 to each asset comprising the initial margin provided. The proposed rule would have assigned an 85 percent RSF factor to the fair value of a covered company's contributions to a CCP's mutualized loss-sharing arrangement or initial margin provided by a covered company regardless of whether the contribution or initial margin is included on the covered company's balance sheet. This treatment reflects the fact that a covered company would have faced the same funding needs and risks as a result of having to provide these assets, regardless of their balance sheet treatment under GAAP. Under the proposed rule, to the extent a covered company included on its balance sheet a receivable for its contributions to a CCP's mutualized loss-sharing arrangement or for initial margin provided for derivative transactions, the covered company would have assigned an RSF factor to the fair value of the asset, but not the receivable, in order to avoid double-counting.
Under the proposed rule, a covered company would not have assigned an RSF factor to initial margin provided by the covered company when it is acting as an agent for a customer's cleared derivative transaction and the covered company does not guarantee return of the initial margin to the customer. The preamble to the proposal noted that a covered company would have had limited liquidity risk for such initial margin because, following certain timing delays, the customer would have been obligated to fund the initial margin for the duration of the transaction.
One commenter asserted that the agencies should not adopt the 85 percent RSF factor because the process by which this percentage was developed for the Basel NSFR standard did not include public input or publication of supporting evidence by the BCBS. Commenters also requested that a lower RSF factor be assigned to a covered company's contributions to a CCP's mutualized loss-sharing arrangement (
With respect to the treatment of initial margin provided by a covered company for derivative transactions, the agencies received several comments recommending that such initial margin should be assigned an RSF factor of less than 85 percent and also that the RSF factor should be assigned based on the remaining contractual maturity of the relevant derivative transaction or QMNA netting set. Commenters argued that such treatment is warranted because a covered company may choose to not re-enter into a short-dated derivative transaction following its maturity if the covered company has liquidity needs at that point and a covered company will be able to liquidate the initial margin provided for the transaction in a short period of time after the contract matures.
One commenter argued that initial margin provided to a CCP for cleared derivative transactions should be assigned a lower RSF factor than initial margin provided for non-cleared derivative transactions because cleared derivatives tend to be more standardized and liquid, and turn over more frequently, than non-cleared derivatives. The commenter asserted that a covered company could choose to reduce its cleared derivative activities with a CCP in the future and realize the return of initial margin provided to a CCP within a six-month time horizon. Therefore, the commenter argued, the final rule should assign an RSF factor of 50 percent to initial margin provided for cleared derivative transactions, similar to the RSF factor assigned to secured lending transactions with a financial sector entity that matures in six months or more but less than one year. The commenter also argued that providing favorable treatment for initial margin provided for cleared derivative transactions would be consistent with the CFTC's margin requirements for derivatives clearing organizations, which assume short liquidation periods,
One commenter supported the proposed rule's treatment of initial margin provided by a covered company when the covered company is acting as an agent for the client and does not guarantee the performance of the CCP to the client. This commenter stated that the proposed rule appropriately reflects the central clearing market structure and noted that the majority of initial margin that a covered company receives from a client for the client's cleared derivative transactions is passed through to the CCP.
After reviewing these comments, the agencies are adopting the treatment of assets provided to a CCP's mutualized loss sharing arrangement and initial margin provided by a covered company for derivative transactions as proposed.
The final rule assesses a covered company's funding profile for its derivative activities on an aggregate net basis based on its current contractual positions. In addition, the final rule generally does not consider the range of potential activities that covered companies or counterparties may take in the future.
The final rule does not incorporate more granular assignments of RSF factors to initial margin provided by a covered company based on the maturity of the underlying derivative transactions. As discussed above, the final rule's treatment of initial margin provided is consistent with the overall approach taken in the rule to utilize an aggregate portfolio framework with respect to derivative transactions that does not take into account the scheduled maturity of individual transactions. For the reasons discussed, while there may be some benefits to a more granular approach, the agencies have determined that a change from the proposal is not justified because such an approach would unnecessarily increase the complexity of the measure and require reliance on covered companies' internal modeling, which is contrary to the NSFR's design as a standardized measure.
Specifically, the final rule assigns an RSF factor of 85 percent to the fair value of assets provided to a CCP's mutualized loss sharing arrangement and an RSF factor of at least 85 percent to the fair value of initial margin provided for derivatives transactions. The application of these RSF factors is based on the assumption that a covered company generally must maintain most of its CCP mutualized loss sharing arrangement contributions or initial margin provided in order to continue to support its customers and intermediate in derivative markets. For similar reasons, the treatment applies regardless of whether the contribution or initial margin is included on the covered company's balance sheet. The final rule's assignment of an 85 percent RSF factor reflects a standardized assumption across all derivative transactions based on an assumption of derivatives activities at an aggregate level. In addition, the standardized
Another commenter asked that the agencies clarify whether initial margin provided by a covered company in connection with cleared derivative transactions of a customer that have a remaining maturity of one year or more would be assigned an RSF factor of 100 percent, similar to the proposed treatment of assets encumbered for a period of one year or longer.
Like the proposed rule, § __.107 of the final rule does not assign an RSF factor to initial margin provided by a covered company acting as agent for a customer's cleared derivative transactions where the covered company does not guarantee the return of the initial margin to the customer. To the extent a covered company includes on its balance sheet any such initial margin provided, this initial margin would instead be assigned an RSF factor pursuant to § __.106 of the final rule and any corresponding liability would be assigned an ASF factor pursuant to § __.104.
In addition to the current net value component, which requires a covered company to maintain stable funding relative to its net current derivatives position as of the calculation date, the proposed rule would have required a covered company to maintain stable funding to support potential changes in the valuation of its derivative transactions over the NSFR's one-year horizon (future value component). Specifically, this future value component would have addressed the risk that the covered company may need to provide or return margin or make settlement payments to its counterparties as the net value of its derivatives portfolio fluctuates.
Under the proposed rule, the future value component would have equaled 20 percent of the sum of a covered company's gross derivative values that are liabilities (
While some commenters supported addressing funding risk associated with changes in the value of derivative transactions in the final rule, other commenters asserted that this component should not be included in the final rule because the NSFR, as a business-as-usual and point-in-time funding metric, should not take into account funding needs that could result from potential future market changes. One commenter argued that the future value component was unnecessary because the LCR rule already adequately addresses the risks associated with potential valuation changes in a covered company's derivatives portfolio.
The agencies also received a number of comments on the specific design and calibration of the proposed future value component. Many of these commenters asserted that the proposed calibration was overly conservative and was not sufficiently supported by empirical evidence. Commenters also argued that gross derivative liabilities are a poor indicator of a covered company's potential contingent funding obligation. The value of a covered company's derivatives portfolio may fluctuate over time (
The current net value component relies on a uniform netting treatment that assumes payment inflows and outflows related to derivatives assets and liabilities would be perfectly offsetting across QMNAs, counterparties, derivative types, and maturities. On its own, this assumption generally benefits covered companies by resulting in a lower funding requirement under the NSFR than might occur in practice. In addition, even if a covered company's payment inflows and outflows under its derivatives are matched, as the first component assumes, the covered company's margin inflows and outflows may not be. For example, even where a covered company has entered into offsetting positions in terms of market risk, its margin rights and obligations (based on changes in the value of its derivatives, contractual triggers such as changes in the covered company's financial condition, or business considerations such as customer requests) may differ. This could occur if it faces different types of counterparties, such as a commercial end-user on one side and a dealer on the other side, for each offsetting position. For covered companies with substantial derivatives activities, margin flows can be a significant source of liquidity risk.
The final rule generally retains the proposed rule's treatment of derivative portfolio potential valuation changes but reduces the weighting of this component from 20 percent to 5 percent of gross derivative liabilities. This revision should reduce the potentially pro-cyclical effects raised by commenters in response to the proposed rule's calibration at 20 percent. To the extent the proposed rule's requirement could have disincentivized covered companies from maintaining longer-dated derivative transactions used by clients for hedging purposes, this change also should reduce such effects. This calibration also ensures covered companies maintain at least a minimum amount of stable funding for funding risks associated with potential valuation changes in derivatives portfolios. In addition, the agencies expect the final rule's reduction of the calibration from 20 percent to 5 percent should lessen the incentive for a covered company to reduce its NSFR funding requirement without meaningfully changing its risk profile by closing out derivative transactions with large gross derivative liabilities and re-entering into equivalent transactions with zero liability exposure. The agencies will monitor this risk through supervisory processes and evaluate the appropriateness of the 5 percent calibration as more data, reflective of a
The final rule relies on gross derivative liabilities as the basis for measuring a covered company's funding risks associated with derivatives portfolio potential valuation changes. Gross derivative liabilities tend to positively correlate with cumulative losses realized over the life of outstanding contracts. Thus, large amounts of gross derivative liabilities are likely to be positively correlated with derivatives portfolios characterized by higher average volatility and collateral and settlement flows. In addition, although gross derivative liabilities may include transactions that are not currently subject to the exchange of variation margin, the agencies note that these transactions may become subject to margin calls or early repayment due to contractual triggers or client requests, for example in response to a change in the covered company's financial condition.
Consistent with the proposed rule, the final rule requires a covered company to treat settlement payments based on changes in the fair value of derivative transactions equivalently to variation margin for purposes of calculating the covered company's gross derivative liabilities. While these settlement payments fully extinguish a covered company's current derivative exposure from an accounting perspective, they do not reduce a derivative transaction's funding risk related to potential valuation changes. Under both the collateralized-to-market and settled-to-market approaches, a covered company may be required to fund equivalent flows of margin or settlement payments based on changes in the value of its derivative transactions. Permitting settlement payments to reduce the gross derivatives liability measure could inappropriately incentivize covered companies to re-characterize variation margin as settlement payments in order to evade the stable funding requirement for potential derivative valuation changes. Therefore, derivative liabilities that have been extinguished from the balance sheet by such settlement payments must still be included in the covered company's calculation of gross derivative liabilities for the purposes of this component. This requirement also should reduce opportunities for evasion.
The agencies also considered a range of alternative approaches for addressing funding risks associated with derivatives portfolio potential valuation changes, including alternative approaches suggested by commenters. The agencies, however, have determined to adopt this component as proposed because the benefits of a simpler measure with less operational costs outweighs its shortcomings. Although many of the alternatives could have increased this component's risk sensitivity, they also would have introduced increased complexity and pro-cyclicality. In addition, the suggested alternative of applying the 20 percent calculation as a floor to the overall NSFR derivatives RSF amount would not reflect the funding risks arising from the other components of the NSFR derivatives treatment.
The agencies received a number of comments arguing that the proposed rule would increase the cost to covered companies of engaging in derivative transactions, which commenters argued would harm capital markets and the economy. Some of these commenters asserted that covered companies would pass on increased costs to derivatives end-users, making it more expensive for commercial firms to hedge business risks.
The final rule promotes stable funding by a covered company of derivatives activities and restricts a covered company's ability to fund such activities with unstable liabilities in a manner that could generate undue risks to the safety and soundness of the covered company or impose costs on U.S. businesses, consumers, and taxpayers in the event of a disruption to the U.S. financial system. In addition, in comparison to the proposed rule, certain modifications included in the final rule will reduce the RSF amount in connection with derivative transactions, thereby also reducing any incremental funding cost increases for covered companies that would have resulted from the proposed requirement. Section X of this Supplementary Information section further discusses the expected impacts of the rule, including potential benefits and costs for covered companies and other market participants.
Under the final rule, a covered company must sum the required stable funding amounts calculated under § __.107 to determine the covered company's derivatives RSF amount. A covered company's derivatives RSF amount includes the following components:
(1) The RSF amount for the current net value component, which is equal to the covered company's NSFR derivatives asset amount, multiplied by an RSF of 100 percent, as described in section VII.E.2 of this Supplementary Information section;
(2) The RSF amount for non-excess variation margin provided by the covered company, which, as described in section VII.E.2 of this Supplementary Information section, equals the carrying value of variation margin provided by the covered company that reduces the covered company's derivatives liability value of the relevant QMNA netting set or derivative transaction not subject to a QMNA netting set, multiplied by an RSF factor of zero percent;
(3) The RSF amount for excess variation margin provided by the covered company, which as described in section VII.E.2 of this Supplementary Information section, equals the sum of the carrying values of each excess variation margin asset provided by the covered company, multiplied by the RSF factor assigned to the asset pursuant to § __.106;
(4) The RSF amount for variation margin received, which comprises the total of the carrying value of variation margin received by the covered company, multiplied by the RSF factor assigned to each asset comprising the variation margin pursuant to § __.106, as described in section VII.E.2 of this Supplementary Information section; and
(5) The RSF amount for potential future valuation changes of the covered company's derivatives portfolio, which, as described in section VII.E.6 of this Supplementary Information section, equals 5 percent of the sum of the covered company's gross derivatives liabilities, calculated as if no variation margin had been exchanged and no settlement payments had been made based on changes in the values of the derivative transactions, multiplied by an RSF factor of 100 percent;
(6) The fair value of a covered company's contributions to CCP mutualized loss sharing arrangements, multiplied by an RSF factor of 85 percent, as described in section VII.E.5
(7) The fair value of initial margin provided by the covered company, multiplied by the higher of an RSF factor of 85 percent and the RSF factor assigned to the initial margin asset pursuant to § __.106, as described in section VII.E.5 of this Supplementary Information section.
The following is a numerical example illustrating the calculation of a covered company's derivatives RSF amount under the final rule. Table 5 sets forth the facts of the example, which assumes that: (1) Each transaction is covered by a QMNA between the covered company and each counterparty; (2) any cash and U.S. Treasury securities received as variation margin by the covered company meet the conditions specified in § __.107(f)(1); (3) variation margin provided by the covered company is not included on the covered company's balance sheet; (4) the covered company has provided U.S. Treasuries as initial margin to its counterparties; and (5) the derivative transactions are not cleared through a CCP.
(1) The derivatives asset value for counterparty A = (10−2)−2 = 6.
(2) The derivatives liability value for counterparty B = (10−5)−3 = 2.
(3) The derivatives liability value for counterparty C = 2.
(1) The covered company's total derivatives asset amount = 6.
(2) The covered company's total derivatives liability amount = 2 + 2 = 4.
(1) The covered company's NSFR derivatives asset amount = max (0, 6−4) = 2.
(2) The covered company's NSFR derivatives liability amount = max (0, 4−6) = 0.
The covered company's derivatives RSF amount is equal to the sum of the following:
(1) NSFR derivatives asset amount × 100% = 2 × 1.0 = 2;
(2) Non-excess variation margin provided × 0% = 3 × 0.0 = 0;
(3) Excess variation provided × applicable RSF factor(s) = 0;
(4) Variation margin received × applicable RSF factor(s) = 2 × 0.0 = 0;
(5) Gross derivatives liabilities × 5% × 100% = (5+2) × 0.05 × 1.0 = 0.35;
(6) Contributions to CCP mutualized loss-sharing arrangements × 85% = 0 × 0.85 = 0; and
(7) Initial margin provided × higher of 85% or applicable RSF factor(s) = (2+1) × max (0.85, 0.0) = 2.55.
The covered company's derivatives RSF amount = 2 + 0 + 0 + 0 + 0.35 + 0 + 2.55 = 4.90.
The proposed rule would have required a covered company to calculate its NSFR on a consolidated basis. When calculating its consolidated ASF amount, the proposed rule would have required a covered company to take into account restrictions on the availability of stable funding at a consolidated subsidiary to support assets, derivative exposures, and commitments of the covered company held at entities other than the subsidiary.
To determine a consolidated ASF amount, a covered company would have calculated the contribution to its consolidated ASF and RSF amounts, respectively, associated with each consolidated subsidiary, each as calculated by the covered company for purposes of the covered company's consolidated NSFR (subsidiary ASF contribution and subsidiary RSF contribution). Where a subsidiary's ASF contribution is greater that the subsidiary's RSF contribution, the amounts above the subsidiary RSF contribution would have been considered an “excess” ASF amount of the subsidiary, as calculated for the purpose of the consolidated firm (excess ASF amount). The proposed rule would have permitted the covered company to include in its consolidated ASF amount each subsidiary ASF contribution: (1) Up to the subsidiary RSF contribution, as calculated from the covered company's perspective, plus (2) any excess ASF amount above the subsidiary's RSF contribution, only to the extent the consolidated subsidiary could transfer assets to the top-tier entity of the covered company, taking into account statutory, regulatory, contractual, or supervisory restrictions. This approach to calculating a covered company's consolidated ASF amount would have been similar to the approach taken in the LCR rule to calculate a covered company's HQLA amount.
ASF amounts associated with a consolidated subsidiary, in this context, refer to those amounts that would be calculated from the perspective of the covered company. That is, in calculating the ASF amount of a consolidated subsidiary that can be included in the covered company's consolidated ASF amount, the covered company would not include certain transactions between consolidated subsidiaries that are netted under GAAP. For this reason, an ASF amount of a consolidated subsidiary that is included in a covered company's consolidated NSFR calculation may not always be equal to the ASF amount of
The proposed rule would have required a covered company that includes a consolidated subsidiary's excess ASF amount in its consolidated NSFR to implement and maintain written procedures to identify and monitor restrictions on transferring assets from its consolidated subsidiaries. The covered company would have been required to document the types of transactions, such as loans or dividends, a covered company's consolidated subsidiary could use to transfer assets and how the transactions would comply with applicable restrictions. The proposed rule would have required the covered company to be able to demonstrate to the satisfaction of the appropriate agency that assets may be transferred freely in compliance with statutory, regulatory, contractual, or supervisory restrictions that may apply in any relevant jurisdiction. A covered company that did not include any excess ASF amount from its consolidated subsidiaries in its NSFR would not have been be required to have such procedures in place. The proposal also requested alternative approaches that the agencies should consider regarding the treatment of excess ASF amounts.
Two commenters requested that the agencies clarify how the proposed consolidation provisions would apply to inter-affiliate transactions, including those that qualify as regulatory capital of a covered company's consolidated subsidiary. One commenter supported the proposed rule's treatment of certain inter-affiliate transactions for purposes of determining the subsidiary ASF and RSF contributions because ignoring such inter-affiliate transactions is consistent with the GAAP accounting treatment of such transactions. Another commenter argued that the ASF and RSF contribution amounts of a consolidated subsidiary should reflect the calculation of ASF and RSF from the subsidiary's perspective on a standalone basis. For example, under this approach, the funding raised by a covered company that is downstreamed to a consolidated subsidiary and included as capital at that subsidiary (downstream funding) would be counted as ASF of the subsidiary and part of the subsidiary ASF contribution. In addition, one commenter requested that the agencies clarify whether the consolidation provisions would apply to securitization vehicles that must be consolidated on the covered company's balance sheet in accordance with GAAP.
The agencies also received comments on the calculation of the consolidated NSFR for covered companies that are subject to a reduced NSFR requirement. Several commenters requested that covered companies subject to a reduced NSFR requirement be allowed to automatically include in their consolidated NSFR a subsidiary's ASF contribution up to 100 percent of the subsidiary's RSF contribution, rather than limiting the automatically included amount based on a reduced requirement at the subsidiary. These commenters asserted that the subsidiary's ASF contribution would be available to meet its full RSF contribution without regards to a reduced consolidated requirement and that this approach would be consistent with the Board's originally proposed modified NSFR treatment.
The final rule includes the consolidation provisions as proposed. Consistent with the proposed rule, the final rule permits a covered company to include in its consolidated ASF amount any portion of the subsidiary ASF contribution of a consolidated subsidiary that is less than or equal to the subsidiary RSF contribution because the subsidiary's NSFR liabilities and NSFR regulatory capital elements generating that ASF amount are available as stable funding for the subsidiary's assets, derivative exposures, and commitments. The final rule limits the automatic inclusion of excess ASF amounts, however, because the stable funding at one consolidated subsidiary of the covered company may not always be available to support assets, derivative exposures, and commitments at another consolidated subsidiary.
For example, if a covered company calculates a subsidiary RSF contribution of $90 based on the assets, derivative exposures, and commitments of a consolidated subsidiary and a subsidiary ASF contribution of $100 based on the NSFR regulatory capital elements and NSFR liabilities of the consolidated subsidiary, the consolidated subsidiary would have an excess ASF amount of $10 for purposes of the consolidation provision in the final rule. The covered company may only include an amount of this $10 excess ASF amount in its consolidated ASF amount to the extent the consolidated subsidiary may transfer assets to the top-tier entity of the covered company (for example, through a dividend or loan from the subsidiary to the top-tier covered company), taking into account any statutory, regulatory, contractual, or supervisory restrictions. Examples of restrictions on transfers of assets that a covered company must take into account in calculating its NSFR include sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 12 U.S.C. 371c-1); the Board's Regulation W (12 CFR part 223); any restrictions on a consolidated subsidiary by state or Federal law, such as restrictions imposed by a state banking or insurance supervisor; and any restrictions on a consolidated subsidiary or branches of a U.S. entity domiciled outside the United States by a foreign regulatory authority, such as a foreign banking supervisor. This limitation on the excess ASF amount of a consolidated subsidiary includable in a covered company's consolidated NSFR applies to both U.S. and non-U.S. consolidated subsidiaries.
The agencies are not modifying the consolidation provisions, as suggested by one commenter, to require a covered company to determine the excess ASF amount of a consolidated subsidiary based on ASF and RSF amounts of the subsidiary as calculated from the subsidiary's perspective on a standalone basis. The final rule aligns with the netting of exposures under GAAP at the consolidated level, and the final rule's consolidation provisions would not require a covered company to take into account, in the calculation of the subsidiary ASF contribution, ASF and RSF amounts resulting from transactions between consolidated subsidiaries that are netted under GAAP.
As described in section V of this Supplementary Information section, the NSFR uses carrying value on a covered company's balance sheet where appropriate. The calculation of subsidiary ASF contribution does not include certain inter-affiliate transactions that are eliminated when a covered company constructs its consolidated balance sheet under GAAP. For example, if consolidated subsidiary “A” makes a loan to consolidated subsidiary “B”, the loan asset of subsidiary A and the liability of subsidiary B generally would be eliminated when a covered company constructs a consolidated balance sheet in accordance with GAAP. Therefore, in this example, subsidiary B's liability is not included in the calculation of subsidiary B's subsidiary ASF contribution.
The scope of the inter-affiliate transactions that are excluded from the calculation of a subsidiary's excess ASF amount includes transactions between a covered company and its consolidated subsidiary, including where the covered company downstreams funding that is recognized as capital at the consolidated subsidiary. For example, if a
To the extent a large depository institution subsidiary of a covered company is subject to a stand-alone NSFR requirement under the final rule, the subsidiary's compliance with its stand-alone NSFR requirement could potentially constitute a restriction on the subsidiary's ability to transfer assets to the covered company, depending on the circumstances. Such a restriction would limit the parent covered company's ability to include portions of the depository institution's excess ASF amount (calculated from the perspective of the consolidated parent covered company), but would not change the calculation of the ASF amount of the subsidiary, as calculated on a standalone basis for purposes of its NSFR requirement. Likewise, regulatory capital requirements applicable to a consolidated subsidiary of a covered company could limit the extent to which the covered company may count the excess ASF amount of the subsidiary towards the covered company's consolidated ASF amount, but would not change the calculation of the subsidiary's ASF amount.
Similar to other balance sheet items, the assets and liabilities of securitization vehicles that are consolidated onto a covered company's balance sheet under GAAP are included in the calculation of the consolidated vehicle's ASF contributions and RSF contributions. For example, securities issued by a securitization vehicle that are liabilities on a consolidated covered company's balance sheet, and assets of a securitization vehicle that are included on a covered company's balance sheet are included in the calculation of the ASF contributions and RSF contributions.
In cases where a covered company is subject to a reduced NSFR requirement, the covered company must calculate the subsidiary ASF contribution and subsidiary RSF contribution amount of each consolidated subsidiary from the perspective of the covered company for purposes of its consolidated reduced NSFR requirement. Specifically, a covered company must apply the appropriate adjustment factor to its consolidated subsidiary's RSF contribution amount when determining the amount of the subsidiary RSF contribution for purposes of determining the amount of the consolidated subsidiary's ASF that can automatically be included in the covered company's consolidated ASF amount. Any amount of the consolidated subsidiary's ASF in excess of its adjusted RSF contribution amount, as calculated by the covered company, may only be included in the covered company's consolidated NSFR to the extent the consolidated subsidiary can transfer assets to the covered company, taking into account statutory, regulatory, contractual, or supervisory restrictions. It is important that covered companies consider funding needs across the consolidated entity for the NSFR calculation as required. Accordingly, covered companies must consider the extent to which assets held at a consolidated subsidiary are transferable across the organization and ensure that a minimum level of ASF is positioned or freely available to transfer to meet funding needs at the subsidiary where they are expected to occur. Although ASF contribution amounts at a consolidated subsidiary in excess of its adjusted RSF contribution amount may be available to support that subsidiary during the NSFR's one-year time horizon, permitting the automatic inclusion of such ASF contribution amounts up to 100 percent of the subsidiary's standalone RSF contribution amounts, as requested by commenters, without appropriate consideration of transfer restrictions, may make the consolidated NSFR requirement less effective.
In light of recent disruptions in economic conditions caused by the outbreak of the coronavirus disease 2019 and the stress in U.S. financial markets, the Board, with the approval of the U.S. Secretary of the Treasury, established certain liquidity facilities pursuant to section 13(3) of the Federal Reserve Act.
In order to prevent disruptions in the money markets from destabilizing the financial system, the Board authorized the Federal Reserve Bank of Boston to establish the Money Market Mutual Fund Liquidity Facility (MMLF). Under the MMLF, the Federal Reserve Bank of Boston may extend non-recourse loans to eligible borrowers to purchase assets from money market mutual funds. Assets purchased from money market mutual funds are posted as collateral to the Federal Reserve Bank of Boston. MMLF collateral generally comprises securities and other assets with the same maturity date as the MMLF non-recourse loan.
In order to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system, the Board authorized each of the Federal Reserve Banks to extend credit under the Paycheck Protection Program Liquidity Facility (PPPLF).
Eligible borrowers under the MMLF and PPPLF include certain banking organizations that are currently subject to the LCR rule and that will be subject to the final rule upon its effective date. Advances from the MMLF and PPPLF facilities are non-recourse, and the maturity of the advance generally aligns with the maturity of the collateral. Accordingly, a covered company is not
To facilitate the use of the MMLF and the PPPLF, on May 6, 2020, the agencies published in the
For the same reasons that the agencies issued the LCR interim final rule, the agencies are adopting, as final, provisions to better align the treatment of these advances and collateral under the NSFR rule with the liquidity risk associated with funding exposures through these facilities, and to ensure consistent and predictable treatment of covered companies' participation in the facilities under the NSFR rule.
Pursuant to section 553(b)(B) of the APA, general notice and the opportunity for public comment are not required with respect to a rulemaking when an “agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” The agencies have determined that it is in the public interest to finalize these changes without notice and comment. The MMLF and PPPLF were established in response to urgent and severe economic disruptions, and these changes will provide certainty to covered companies regarding the NSFR treatment of transactions under the facilities, thereby facilitating the continued operation of, and covered companies' participation in the facilities. In addition, the agencies note that it may be unnecessary to provide notice or the opportunity to comment prior to adopting these changes because the public recently had an opportunity to comment on substantively similar changes to the LCR rule, and no adverse comments were submitted to the agencies in connection with those changes.
The Basel NSFR standard provides that, subject to strict conditions and in limited circumstances, it may be appropriate for an asset and a liability to be considered interdependent and assigned a zero percent RSF factor and a zero percent ASF factor, respectively.
As the proposed rule noted, in order for an asset and liability to be considered interdependent, the Basel NSFR standard would require all of the following conditions to be met: (1) The interdependence of the asset and liability must be established on the basis of contractual arrangements, (2) the liability cannot fall due while the asset remains on the balance sheet, (3) the principal payment flows from the asset cannot be used for purposes other than repaying the liability, (4) the liability cannot be used to fund other assets, (5) the individual interdependent asset and liability must be clearly identifiable, (6) the maturity and principal amount of both the interdependent liability and asset must be the same, (7) the bank must be acting solely as a pass-through unit to channel the funding received from the liability into the corresponding interdependent asset, and (8) the counterparties for each pair of interdependent liabilities and assets must not be the same.
The Basel NSFR standard's conditions for establishing interdependence are intended to ensure that the specific liability will, on the basis of contractual terms and under all circumstances, remain for the life of the asset and all cash flows during the life of the asset and at maturity are perfectly matched with cash flows of the liability. Under such conditions, a covered company would face no funding risk or benefit arising from the interdependent asset and liability. For example, the proposed rule noted that if a sovereign entity establishes a program where it provides funding through financial institutions that act as pass-through entities to make loans to third parties, and all the conditions set forth in the Basel NSFR standard are met, the liquidity profile of a financial institution would not be
Commenters requested that the final rule recognize as interdependent various assets and liabilities. Specifically, commenters requested interdependent treatment in connection with securities borrowing and lending transactions to facilitate client short positions; securities borrowing transactions and covered company short positions; certain client segregated assets and liabilities for client claims on those assets; assets and liabilities arising from derivatives clearing activities on behalf of clients; initial margin received by a covered company under client-facing derivative transactions and used to fund hedge positions for the derivative transactions, and assets and liabilities related to mortgage servicing activities. Commenters asserted that these transactions present no funding risk to covered companies. Discussions below address comments on the treatment of assets and liabilities as interdependent.
As discussed in section V of this Supplementary Information section, the NSFR is a broad measure of the funding profile of the whole balance sheet of a covered company at a point in time and the final rule generally does not apply separate requirements to individual lines of business or to subsets of assets and liabilities of a covered company. The treatment of specific assets and liabilities as interdependent would effectively remove these items from the assessment of the covered company's stable funding profile overall. As discussed in sections VII.C.2.a and VII.D.2.a of this Supplementary Information section, the final rule uses the remaining maturity of assets and liabilities to assess a covered company's funding risks. As a general principle, it would be inconsistent with the purposes and design of the NSFR to provide interdependent treatment to a specific asset and liability where the specified asset can contractually persist on the balance sheet of the covered company after the extinguishment of the specified liability. Additionally, the final rule generally does not consider the range of actions that a covered company may take in the future that would adjust the maturity of an asset in response to the maturity of a liability. Consistent with the purposes and design of the NSFR, as discussed above, the agencies have concluded that it would be inappropriate to recognize any assets and liabilities as interdependent. Additionally, including in the final rule the criteria under which certain transactions could qualify as interdependent would add considerable complexity and undermine the NSFR's design as a simple and standardized measure. In the discussion below, the agencies discuss concerns about why particular transactions suggested by commenters will not qualify as interdependent.
Commenters requested that the agencies reconsider interdependent treatment for transactions conducted by a covered company that facilitate the covered company or its customers entering into short positions. Commenters provided examples of certain secured funding transactions, such as firm shorts or loans of collateral to customers, that they asserted directly fund certain secured lending transactions, such as a reverse repurchase agreement or a securities borrowing transaction. These commenters asserted that the short sale of a security by a covered company represents a liability on its balance sheet. In a similar manner, a client short sale may result in a covered company receiving the cash proceeds as collateral for the security provided to cover the client's short position, increasing the covered company's balance sheet liability to its clients. In each case, the covered company may use the proceeds from its short sale or the cash collateral from the client's short sale to collateralize a secured lending transaction to source the security sold short. The secured lending transaction is recorded as an asset on the covered company's balance sheet.
At the time of terminating its short exposure, the covered company extinguishes its short position liability. Similarly, at the unwind of the client short transaction, the client may return the security to the covered company in return for the cash proceeds of the initial short sale, closing out the covered company's liability to the client. In either case, to close out the asset the covered company may return the security to the securities lender or reverse repurchase agreement counterparty and receive back the cash collateral. Commenters asserted that when either type of short position is unwound, the associated balance sheet liabilities and assets would roll off simultaneously. These commenters argued that such transactions are substantially similar to transactions in which a covered company acts as riskless principal; that the transactions are linked by regulation, internal procedures, and business practices; that the principal amounts of the asset and liability generated by a customer short position are generally the same; and that such treatment would be consistent with the Basel NSFR standard that provides special treatment for securities borrowing transactions. As a result, commenters requested that the agencies assign no funding requirement to the secured lending transaction that sources the security, which is the covered company's balance-sheet asset.
Commenters also noted that certain securities borrowing transactions conducted by a covered company are subject to the Board's Regulation T and requested that the agencies recognize that conducting a stock borrow for a permitted purpose under Regulation T creates a clear link between the liability to the client and the secured lending transaction. One commenter speculated that covered companies would need to raise additional long-term funding to support the stable funding requirement for activities that facilitate short positions and that the cash raised through such issuance may increase a covered company's balance sheet leverage, which in turn may cause the covered company to reduce other financial intermediation activities. One commenter argued that failing to reduce the funding requirement for facilitating short-sale activities would impede market liquidity and cited a report by the Federal Reserve Bank of New York concerning the short-sale ban in the United States from September 18, 2018, to October 8, 2018, as evidence that impeding the short-sale market would damage equities markets.
The agencies have concluded that because there is a risk that the maturities of the assets and liabilities for these transactions may not match, it would be inappropriate to treat these assets and liabilities as interdependent. It is unclear whether the consequence of the maturity of all short sales liabilities on related assets would be the same in practice. For example, the related assets may potentially persist beyond the maturity of the liability. In addition,
Secured funding and lending transactions conducted by a covered company that facilitate the covered company, or its customers, entering into a short exposure contribute to the funding profile of the covered company similar to secured funding and lending transactions conducted for other purposes, such as matched book repurchase and reverse repurchase agreements. Providing interconnected treatment for assets and liabilities related to short positions could incent covered companies to engage in regulatory arbitrage by transforming some matched book repurchase agreements into customer shorts covered by sourcing an asset from a third party. Further, covered companies frequently conduct short-facilitation transactions on an open basis, or with significant embedded optionality, and with highly sophisticated financial counterparties. A covered company may have limited control over the maturity of either the related asset or liability and may be exposed to the asymmetric timing of the maturities or the termination amounts. The decision to terminate the funding received from a short sale may be influenced by a range of factors outside the control of the covered company, such as market volatility or the investment priorities of a covered company's client. In the case of a short exposure covered by a security borrow from a third party, the decision to terminate the secured lending transaction by the covered company may be influenced by the presence of alternative eligible uses for the security borrowed. The secured lending transaction maturity is also dependent upon the capacity of the securities lender to terminate the transaction by returning cash collateral on demand. Conversely, the securities lender may disrupt the symmetry of the transactions by terminating the secured lending transaction prior to the termination of the short. The covered company may not be able to source the securities elsewhere or may not be able to demand additional collateral from the customer but may have to continue facilitating the customer short. As discussed in section VII.D.3.c of this Supplementary Information section, the relatively low RSF factor applied to short-term secured lending transactions with financial counterparties is designed to address uncertainty as to whether assets may persist on the balance sheet. For these reasons, the agencies are not applying interdependent treatment to transactions facilitating short positions.
In another example, commenters requested that the agencies recognize as interdependent assets that are required to be segregated according to regulations and the associated liabilities for client claims on these assets. In particular, a covered company may be required to hold a certain amount of segregated assets in order to comply with regulations applicable to customer funds of a broker-dealer or futures commission merchant. Under the proposed rule, segregated assets that are included on a covered company's balance sheet under GAAP would be assigned RSF factors in the same manner as other assets of the covered company. Commenters asserted that this treatment would overstate the funding requirement associated with these assets since the assets are held for the benefit of clients, covered companies have limited reinvestment rights over the assets, and the assets are funded by associated liabilities to customers. Commenters also argued that the proposed treatment would incentivize covered companies to hold segregated client assets in non-cash form rather than deposit cash with third parties.
Covered companies face funding risk with respect to such segregated accounts due to potential asymmetry between the relevant assets and liabilities. Accordingly, it would be inappropriate to treat such assets and the corresponding liabilities as interdependent. Covered companies have the ability to exercise control over client assets held in segregated accounts, and covered companies may be able to earn a return on those assets depending on reinvestment choices. Additionally, the amount and maturity of segregated assets may not be directly connected to the amount and maturity of liabilities to customers. In cases where a covered company is required to segregate an amount of assets, the determination of the aggregate value segregated may be dependent on many different activities and liabilities to customers, each subject to optionality exercisable at the discretion of the customer. For example, the amount of assets to be segregated for client protection under the SEC's Rule 15c3-3 may be based on a substantial volume of individual customer free credit balances, margin loans extended to customers, and short positions.
Commenters requested that the agencies treat clearing activities conducted on behalf of clients as interdependent transactions. Under these transactions, covered companies would guarantee the performance of a client to the CCP and would collect any necessary margin requirements from the client and post them to the CCP on behalf of the client. Commenters argued that these client clearing activities should be considered as interdependent transactions, as the covered company would be acting solely on behalf of the client.
As discussed in section VII.E.4 of this Supplementary Information section, if a covered company is engaged in clearing activities as an agent for a client, it may be that the covered company would record no balance sheet entries associated with such activities. Accordingly, there would be no RSF factor assigned to such activities. Under these circumstances, interdependent treatment would be unnecessary. To the extent that a covered company guarantees the performance of its client or otherwise engages in activities that cause these transactions to be recorded on its balance sheet, it would be inappropriate to de-recognize them for purposes of the NSFR. In some situations, a covered company may continue to face funding risk as the intermediary between its client and the CCP.
Commenters stated that a covered company in certain circumstances can use initial margin that is provided by a client to purchase a security that can then be used to hedge the market risk of a client-facing derivative transaction. In these cases, commenters asserted that a covered company's liability to return initial margin may be viewed as directly funding the hedge security on the covered company's balance sheet. Commenters argued that interdependent treatment is warranted for the assets and liabilities generated by such activity because the covered company acts as an intermediary when using client funds to hedge the risk created by the client-
In these cases, commenters requested that the agencies either assign a non-zero ASF factor for rehypothecatable initial margin received by a covered company or reduce the RSF factor assigned to the hedge asset purchased using initial margin provided by a client. Commenters asserted that the proposed rule should provide greater funding value to initial margin received by a covered company from clients and used by the covered company to hedge its derivative position with the client because this source of funding is more closely related to the covered company's derivatives activities than other sources of funding that receive higher ASF factors, like retail deposits. The commenters also expressed the view that failure to give interdependent treatment to initial margin liabilities and related hedge assets under these circumstances effectively punishes covered companies for financing corporate entities, which would adversely impact corporate financing.
While a covered company may be unlikely in practice to continue to hold a hedge asset without a corresponding liability to its client, there is generally no absolute contractual bar against this. A covered company generally could continue to hold an asset formally used as a hedge despite a change in or elimination of a particular client's derivative position. A covered company could, for example, return a client's initial margin but continue to hold the asset purchased as a hedge, if only for a short time. It is not the case that the asset and liability necessarily fall due at the same time. Accordingly, it would not be appropriate to treat these assets and liabilities as interdependent.
A commenter also suggested that mortgage servicing rights and deposits related to mortgage servicing be granted interdependent treatment. The commenter argued that the asset (mortgage servicing rights) and liability (mortgage borrower deposits consisting of the principal, interest, tax, and insurance payments collected from the borrowers to be remitted to investors, insurers, and state and local governments) are linked and treated as self-funding by the industry. The commenter also argued that deposits arising from mortgage servicing should be considered stable because they have predictable inflow and outflow patterns.
It would be inconsistent with the NSFR's aggregated balance sheet approach to remove from the ratio calculation, through interdependent treatment, an asset and a liability that are not each clearly identifiable or where the maturities and amounts of the asset and the liability do not align. While certain assets and liabilities may be closely linked (such as mortgage servicing rights and borrower liabilities), there is not enough certainty that the size and maturity of these assets and liabilities would always align.
Commenters also submitted several general comments applicable to many types of transactions that they argued should receive interdependent treatment. Commenters suggested that the agencies could impose data reporting requirements to verify that internal policies and procedures are maintaining a link between the various parts of the transactions they believe should be granted interdependent treatment. Another commenter argued that, if covered companies engage in the transactions outlined above in accordance with the BCBS haircut floors for non-centrally cleared securities financing transactions,
A discussed in section V of this Supplementary Information section, the NSFR is a broad measure of the funding profile of the whole balance sheet of a covered company and the final rule does not apply separate requirements to individual lines of business or to subsets of assets and liabilities of a covered company. The treatment of specific assets and liabilities as interconnected would effectively remove these items from the assessment of the covered company's stable funding profile overall. As a general principle, it would be inconsistent with the purposes and design of the NSFR to provide interdependent treatment to a specific asset and liability where the specified asset can contractually persist on the balance sheet of the covered company after the extinguishment of the specified liability. While internal processes and procedures may increase the probability of such assets and liabilities aligning, it would be impractical to expand the final rule to create or regulate such processes in a manner that would ensure alignment.
As noted above, the proposed rule would have required a covered company to maintain an NSFR of at least 1.0 on an ongoing basis. The agencies expect circumstances where a covered company has an NSFR below 1.0 to arise rarely. However, given the range of reasons, both idiosyncratic and systemic, a covered company could have an NSFR below 1.0 (for example, a covered company's NSFR might temporarily fall below 1.0 during a period of extreme liquidity stress), the proposed rule would not have prescribed a particular supervisory response to address a violation of the NSFR requirement. Instead, the proposed rule would have provided flexibility for the appropriate Federal banking agency to respond based on the circumstances of a particular case. Potential supervisory responses could include, for example, an informal supervisory action, a cease-and-desist order, or a civil money penalty.
The proposed rule would have required a covered company to notify the appropriate Federal banking agency of an NSFR shortfall or potential shortfall. Specifically, the proposed rule would have required a covered company to notify its appropriate Federal banking agency no later than 10 business days, or such other period as
In addition, a covered company would have been required to develop a plan for remediation in the event of an NSFR shortfall. As set forth in the proposed rule, such a plan would have been required to include an assessment of the covered company's liquidity profile, the actions the covered company has taken and will take to achieve full compliance with the proposed rule (including a plan for adjusting the covered company's liquidity profile to comply with the proposed rule's NSFR requirement and a plan for fixing any operational or management issues that may have contributed to the covered company's noncompliance), and an estimated time frame for achieving compliance. The proposed rule would have required a covered company to submit its remediation plan to its appropriate Federal banking agency no later than 10 business days, or such other period as the appropriate Federal banking agency may otherwise require by written notice, after: (1) The covered company's NSFR falls below, or is likely to fall below, the minimum requirement and the covered company has or should have notified the appropriate Federal banking agency, as required under the proposed rule; (2) the covered company's required NSFR disclosures or other regulatory reports or disclosures indicate that its NSFR is below the minimum requirement; or (3) the appropriate Federal banking agency notifies the covered company that it must submit a plan for NSFR remediation and the agency provides a reason for requiring such a plan.
Finally, the covered company would have been required to report to the appropriate Federal banking agency no less than monthly (or other frequency, as required by the agency) on its progress towards achieving full compliance with the proposed rule. These reports would have been mandatory until the firm's NSFR was equal to or greater than 1.0.
The agencies would have retained the authority to take supervisory action against a covered company that fails to comply with the NSFR requirement.
The agencies received one comment requesting clarification of how frequently a covered company must calculate its NSFR to meet the proposed rule's requirement to maintain an NSFR of 1.0 on an “ongoing basis.” The commenter suggested that the final rule should require a covered company to calculate its NSFR in the same manner as it calculates its regulatory capital levels. The commenter argued that, because the NSFR is a long-term funding metric calculated primarily by reference to a covered company's balance sheet, it would not be possible to calculate a firm's NSFR more frequently than monthly.
The agencies also received two comments related to the proposed rule's shortfall provisions. One commenter asserted that the proposed rule did not have a mechanism similar to the LCR permitting a covered company's NSFR to fall below 1.0. Another commenter responded to the agencies' request for comment as to whether the proposed shortfall framework should include a
Consistent with the proposed rule, the final rule requires a covered company to maintain an NSFR of at least 1.0 on an ongoing basis. The NSFR is designed to ensure that covered companies have the ability to serve households and businesses in both normal and adverse economic situations. The agencies would generally support a covered company that chooses to reduce its NSFR during a liquidity stress period in order to continue to lend and undertake other actions to support the broader economy in a safe and sound manner.
While the final rule requires a covered company that is a U.S. depository institution holding company or U.S. intermediate holding company to disclose its NSFR for each quarter on a semi-annual basis,
The agencies have determined not to include a cure period or
The disclosure requirements of the proposed rule would have applied to certain bank holding companies and savings and loan holding companies. The tailoring proposals would have amended the scope of application of the proposed disclosure requirements to apply to domestic top-tier depository institution holding companies and U.S. intermediate holding companies of foreign banking organizations subject to the proposed NSFR rule.
The proposals would have required a company subject to the proposed disclosure requirements to publicly disclose the company's NSFR and its components. The proposed NSFR disclosure template would have included components of a company's ASF and RSF calculations (ASF components and RSF components, respectively), as well as the company's ASF amount, RSF amount, and NSFR. For most ASF and RSF components, the proposed rule would have required disclosure of both “unweighted” and “weighted” amounts.
Two commenters argued that the proposed NSFR disclosure template should not include certain information that is more granular than, or in addition to, the information specified in the BCBS common template, such as the requirement for additional detail regarding a company's HQLA and certain other assets. One of these commenters asserted that the proposed level of detail of required disclosures could constrain a company's ability to execute its funding and related business strategies because a firm subject to the disclosure requirements would be wary of adjusting its funding structure in a way that would appear to market participants to diverge from the funding structures of peer firms. The commenter also argued this anticipation of a market response would inappropriately force firms with different business models and funding needs to maintain similar funding structures. The commenter acknowledged that these concerns could be mitigated if firms explain the difference between their funding structures and those of other firms in the qualitative portion of the public disclosure, but argued that market participants are likely to pay more attention to the quantitative portion of a firm's disclosure. To address these concerns, the commenter argued that reducing the required granularity of the proposed disclosures would provide the market with sufficient information about a company's liquidity profile without resulting in what the commenter argued would be negative effects of overly detailed disclosures.
Other commenters suggested that the final rule require a company to disclose its average NSFR over the relevant reporting period, rather than the company's NSFR at the end of the quarter. The commenters argued that liquidity positions, and consequently a company's NSFR, can be volatile. Accordingly, disclosing a company's NSFR for the day ending a reporting period could suggest that the company's liquidity position is more volatile than an average of the company's NSFR over the entire reporting period would suggest. One commenter also argued that using an average value would be consistent with the disclosure requirements for the LCR. The final rule retains the quantitative disclosure requirements largely as proposed.
Although the final rule requires disclosure of certain liquidity data, it does not require a covered holding company to disclose specific asset-, liability-, or transaction-level details. This should limit the risk that public disclosures will prevent a covered holding company from executing its risk management and business strategies. The disclosure requirements in the final rule are generally consistent with the items specified in the BCBS common template, with some relatively small differences, as described below. By using a standardized tabular format that is generally similar to the BCBS common template, the final rule's NSFR disclosure template enables market participants to compare funding characteristics of covered holding companies in the United States and other banking organizations subject to similar requirements in other jurisdictions.
For most ASF or RSF components, the final rule's NSFR disclosure template, like the proposed NSFR disclosure template, requires separation of the unweighted amount based on maturity categories relevant to the NSFR requirement: Open maturity; less than six months after the calculation date; six months or more, but less than one year after the calculation date; one year or more after the calculation date; and perpetual. While the BCBS common template does not distinguish between the “open” and “perpetual” maturity categories (grouping them together under the heading “no maturity”), the final rule requires a company to disclose
As described further below, the final rule, like the proposed rule, identifies the ASF and RSF components that a covered holding company must include in each row of the NSFR disclosure template, including cross-references to the relevant sections of the final rule. In some cases, the final rule's NSFR disclosure template requires instruments that are assigned identical ASF or RSF factors to be disclosed in different rows or columns, and some rows and columns combine disclosure of instruments that are assigned different ASF or RSF factors.
For consistency, the final rule's NSFR disclosure template requires a covered holding company to clearly indicate the as-of date for disclosed amounts and report all amounts on a consolidated basis and expressed in millions of U.S. dollars or as a percentage, as applicable.
The proposed rule would have required a company subject to the proposed requirement to disclose its ASF components, separated into the following categories: (1) Capital and securities, which includes NSFR regulatory capital elements and other capital elements and securities; (2) retail funding, which includes stable retail deposits, less stable retail deposits, retail brokered deposits, and other retail funding; (3) wholesale funding, which includes operational deposits and other wholesale funding; and (4) other liabilities, which include the company's NSFR derivatives liability amount and any other liabilities not included in other categories. The Board is adopting the ASF component disclosure categories as proposed.
The final rule's NSFR disclosure template differs from the BCBS common template by including some additional ASF categories that are not separately broken out under the Basel NSFR, such as retail brokered deposits. The final rule's NSFR disclosure template also includes additional information regarding a covered holding company's total derivatives amount. These differences from the BCBS common template provide greater transparency by requiring disclosure of additional information relevant for understanding a covered holding company's liquidity profile. These differences would not impact comparability across jurisdictions, as the more specific line items can be added together to produce a comparable total amount.
The proposed disclosure requirements would have required a company to disclose its RSF components, separated into the following categories: (1) Total HQLA and each of its component asset categories (
As discussed in section VII.D.3.h of this Supplementary Information section, the proposed rule would have assigned RSF factors to encumbered assets under §§ __.106(c) and (d). A company subject to the proposed disclosure requirements would have been required to include encumbered assets in a cell of the NSFR disclosure template based on the asset category and asset maturity rather than based on the encumbrance period. Similar treatment would have applied for an asset provided or received by a company as variation margin to which an RSF factor is assigned under § __.107.
The final rule includes the RSF component disclosure categories as proposed with adjustments to incorporate the reduced requirements under the final rule. The final rule's NSFR disclosure template differs in some respects from the BCBS common template to provide more granular information regarding RSF components without undermining comparability across jurisdictions. For example, the final rule requires disclosure of a covered holding company's level 1, level 2A, and level 2B liquid assets by maturity category, which is not required under the BCBS common template, to assist market participants and other parties in assessing the composition of a covered holding company's HQLA portfolio.
A company subject to the proposed disclosure requirements would have been required to provide a qualitative discussion of the company's NSFR and its components sufficient to facilitate an understanding of the calculation and results. The proposed rule would not have prescribed the content or format of a company's qualitative disclosures; rather, it would have allowed flexibility for discussion based on each company's particular circumstances. The proposed rule would, however, have provided guidance through examples of topics
One commenter requested that under the final rule a company only be required to provide a qualitative discussion of items that are “material” rather than “significant” to the company's NSFR, which the commenter argued would be consistent with disclosure requirements applicable under U.S. federal securities laws and facilitate more effective compliance.
The final rule, like the proposed rule, uses the term “significant” to describe the examples of items affecting a covered holding company's NSFR about which a covered holding company should provide a qualitative discussion. However, a covered holding company may determine the relevant qualitative disclosures based on a materiality concept. Information is regarded as material for purposes of the disclosure requirements in the final rule if the information's omission or misstatement could change or influence the assessment or decision of a user relying on that information for the purpose of making investment decisions. This approach is consistent with the disclosure requirements under the Board's regulatory capital rules and the LCR public disclosure requirement.
As noted above, the proposed rule would have required a company to provide a qualitative discussion of its NSFR and included an illustrative list of potentially relevant items that a company could discuss, to the extent relevant to its NSFR. Among the illustrative list of potentially relevant items was an item titled “Other sources of funding or other factors in the net stable funding ratio calculation that the covered depository institution holding company considers to be relevant to facilitate an understanding of its liquidity profile.” The Board has determined that this item would have been redundant given the proposed rule's general requirement that a covered holding company must provide a qualitative discussion of its NSFR. For this reason, the final rule eliminates this example.
Disclosure requirements under the LCR rule also include a qualitative disclosure section.
The proposed rule would have required a company to provide timely public disclosures after each calendar quarter. One commenter argued that the frequency of the required disclosure should be increased to daily because market participants need more timely information to adequately adjust their risk management and business activities based on the liquidity risk of companies. The commenter also argued that quarterly NSFR disclosures could increase market instability relative to more frequent disclosures, because, the commenter argued, large changes in a company's NSFR between quarters would be more disruptive to the market compared to more frequent disclosures that revealed smaller incremental changes to a company's NSFR. Finally, the commenter argued that more frequent disclosure would make it more difficult for a company to engage in “window dressing” its NSFR to create the appearance that its liquidity profile is more stable than the company normally maintains.
Like the proposed rule, the final rule requires public disclosures for each calendar quarter. However, in a change from the proposal, the quarterly NSFR disclosures are required to be reported on a semiannual basis for every second and fourth calendar quarter. For example, following the end of the second quarter of 2023, covered holding companies are required to publicly disclose their NSFRs and ASF and RSF components for the first quarter of 2023 and the second quarter of 2023. This approach balances the benefits of quarterly disclosures, which includes allowing market participants and other parties to assess the funding risk profiles of covered holding companies, with the concerns that more frequent disclosure could result in unintended consequences. The Board will continue to assess the potential effects that public disclosures have on the ability of banking organizations to engage in banking activities that support the economy, especially in times of stress. The Board will work with international groups, such as the BCBS, as part of its continuing evaluation of the efficacy of timely public disclosures.
For supervisory purposes, the Board will continue to monitor on a more frequent basis any changes to a covered holding company's liquidity profile through the information submitted on the FR 2052a report.
As noted above, the proposed rule would have required a company subject to the proposed requirements to publicly disclose, in a direct and prominent manner, the required information on its public internet site or in its public financial or other public regulatory reports. The Board requires that the disclosures be readily accessible to the general public for a period of at least five years after the disclosure date.
Under the proposed rule, the first reporting period for which a company would have been required to disclose its NSFR and its components would have been the calendar quarter that begins on the date the company becomes subject to the proposed NSFR requirement. Several commenters suggested that companies be given additional time to comply with disclosure and reporting requirements after becoming subject to the final rule. In addition, one commenter suggested that the disclosure requirements not be effective until at least two years after a final NSFR rule is adopted. Some argued that companies need additional time to build and implement the data collection systems necessary to meet the NSFR disclosure requirements. Other commenters argued that companies need additional time to align their existing liquidity data reporting processes under the FR 2052a and the LCR public disclosure requirements with those required for the NSFR rule. Another commenter also argued that additional time is necessary to allow the Board to clarify, through interpretation, the definitions of various terms used in the LCR rule and the proposed NSFR, and to allow companies to modify their compliance systems consistent with such interpretations.
To allow covered holding companies sufficient time to modify their reporting and compliance systems, the final rule does not require covered holding companies to provide public NSFR disclosures until the first calendar quarter that includes the date that is 18 months after the covered holding company becomes subject to the NSFR requirement.
As discussed in the Supplementary Information section of the proposed rule, the timing of disclosures required under the Federal banking laws may not always coincide with the timing of disclosures required under other Federal laws, including disclosures required under the Federal securities laws. For calendar quarters that do not correspond to a company's fiscal year or quarter end, under the proposals the Board would have considered those disclosures that are made within 45 days of the end of the calendar quarter (or within 60 days for the limited purpose of the company's first reporting period in which it is subject to the proposed rule's disclosure requirements) as timely. In general, where a company's fiscal year end coincides with the end of a calendar quarter, the Board would have considered disclosures to be timely if they are made no later than the applicable SEC disclosure deadline for the corresponding Form 10-K annual report. In cases where a company's fiscal year end does not coincide with the end of a calendar quarter, the Board would have considered the timeliness of disclosures on a case-by-case basis.
This approach to timely disclosures is consistent with the approach to public disclosures that the Board has taken in the context of other regulatory reporting and disclosure requirements. For example, the Board has used the same indicia of timeliness with respect to the public disclosures required under its regulatory capital rules and the LCR public disclosure requirements.
The agencies analyzed the potential impact of the final rule on the funding structure of covered companies and estimated the potential increase in funding costs for covered companies. In addition, the impact analysis considered the potential costs and benefits of an alternative policy of incorporating a small RSF requirement for level 1 liquid assets and certain short-term secured lending transactions with financial sector counterparties secured by level 1 liquid assets. Finally, this section presents responses to impact-related comments received on the NSFR proposed rule.
The agencies used bank funding data from the second quarter of 2020 to obtain the latest available view of the impact of the final rule. While the second quarter of 2020 represents a period of macroeconomic stress as a result of economic disruptions related to the COVID-19 pandemic, the banking system was healthy and bank funding markets remained open and functioning, partly due to the establishment of facilities by the Board that supported market functioning and provision of credit to households and businesses.
The agencies approximated ASF and RSF amounts at the consolidated level for covered companies that would be subject to the full or reduced NSFR requirement, as applicable, to estimate stable funding shortfalls and excesses. These estimates were based on confidential supervisory data collected on the FR 2052a report and publicly available data from the FR Y-9C. As the available regulatory reports do not correspond perfectly to the final rule's categories of assets, commitments, and liabilities to which RSF and ASF factors are assigned, the estimation entailed the use of staff judgment, which may introduce some measurement error and hence, uncertainty into the estimates.
The scope of application for the final rule includes 20 banking organizations, 11 of which would be Category III banking organizations subject to a reduced NSFR requirement.
Using the approach described above, and assuming uncertainty of 5 percent in the NSFR due to measurement errors and management buffers, the agencies estimate that nearly all of these covered companies would be in compliance with the applicable NSFR requirement in the second quarter of 2020. The agencies estimate that a small number of GSIBs subject to the full NSFR could face an expected NSFR shortfall. The total shortfall is estimated to be $10 to $31 billion of stable funding. The agencies' estimates of shortfalls at these individual covered companies range from a negligible amount to 8 percent of the company's current level of ASF of their estimated NSFR. Beyond this small number of companies with shortfalls, the additional change in stable funding necessary to comply with the final rule at other covered companies, including all depository institution subsidiaries, is zero. Considering all banking organizations that would be subject to the final rule, the agencies estimate that there is a total ASF of $8.5 trillion, a $1.3 trillion surplus over the total RSF.
As the final rule has differential effects on the use of funding of different tenors, the agencies studied the effect of the final rule on overall bank funding costs. The agencies do not expect most covered companies to incur an increase in funding costs to comply with the NSFR requirements. Across the companies with possible NSFR shortfalls, the agencies estimate that the annual funding costs of raising additional stable funding ranges from $80 to $250 million. For the individual companies, estimates of the funding costs range from a negligible amount to about 3 percent of net income from the third quarter of 2019 to the second quarter of 2020. The cost estimate assumes companies with a shortfall would elect to eliminate it by replacing liabilities that are assigned a lower ASF factor with longer maturity liabilities that are assigned a higher ASF factor. This cost is based on an estimated difference in relative interest expense between 90 day AA-rated commercial paper (assigned a zero percent ASF factor) and unsecured debt that matures in one year (assigned a 100 percent ASF factor). The estimated difference is approximately 80 basis points, based on the average cost difference between these two sources of funding from January 2002 to February 2020.
Covered companies have multiple avenues by which to adjust their funding sources to increase their NSFRs, such as raising more retail deposits, raising capital, or lengthening funding terms. In general, covered companies would be expected to adjust to changes in regulation in a manner that provides the most favorable tradeoff between revenues and the cost of compliance. For this analysis, the agencies assumed that covered companies would resolve any NSFR shortfall by increasing their use of 12-month term funding, which is the shortest term that qualifies for a 100 percent ASF factor, and thus is a good proxy for the lowest cost way of resolving an NSFR shortfall through additional funding.
Instead of changing their funding mix to increase available stable funding, covered companies with a stable funding shortfall could instead change their asset mix to reduce their required stable funding. Covered companies may do so if the forgone revenues from such assets are smaller than the cost of raising additional stable funding. In this scenario, the costs incurred by covered companies would be even smaller than the agencies' estimates. Due to the depth and competitiveness of U.S. financial markets, such portfolio changes, if they were to occur, would likely have little knock-on effects on households and businesses.
Maintaining stable funding requirements may reduce the risk of covered company failure and the vulnerability of the financial system more broadly. To assess this, the agencies examined measures of stable funding for financial institutions leading up to and during the 2007-2009 financial crisis. The agencies found that, during the crisis, financial institutions that held low amounts of stable funding were significantly more likely to fail, be resolved, or receive liquidity and funding assistance from federal programs such as the FDIC's Temporary Liquidity Guarantee Program. This analysis indicates that the final rule is likely to increase the overall resilience of the banking system.
To assess changes since the financial crisis, the agencies examined broad measures of funding stability, including the loans-to-deposits ratio and an approximation of the NSFR that, unlike the more precise measure used to estimate the shortfall, can be calculated back to the mid-2000's. These measures show clear improvement since the mid-2000's. Much of this improvement appeared soon after the financial crisis, potentially reflecting the combined effects of the post-crisis regulatory reforms as well as the release of the BCBS's draft NSFR standard in 2010. These broader improvements in funding stability suggest that the total adjustments that banking organizations have made in response to the NSFR standard and proposed rule may be greater than the stable funding shortfalls suggested by the most recent data.
To assess changes in stable funding since the NSFR notice of proposed rulemaking, the agencies compared the stable funding shortfall under the proposed rule, estimated at the time of the proposed rule (December 2015), and the stable funding shortfall under the final rule. Under the proposed rule, the agencies estimated an aggregate stable funding shortfall of $39 billion as of December 2015. The agencies estimate that, as of June 2020 under the final rule, the shortfall is between $10 and $31 billion, or a difference of $8 to $29 billion from the proposed rule in December 2015.
The final rule establishes a zero percent RSF factor for level 1 liquid assets held outright and short-term secured lending transactions with financial sector counterparties that are secured by level 1 high quality liquid assets. The agencies analyzed the costs and benefits of an alternate policy of a 5 percent RSF factor for such assets. As discussed above, the agencies estimated that the marginal cost of additional stable funding is about 80 basis points.
By reducing the profitability of holding these assets, the funding cost of a non-zero RSF factor on level 1 liquid assets could discourage intermediation in U.S. Treasury and repo markets by covered companies that have an NSFR close to or below 100 percent or are concerned that they could have an NSFR below 100 percent under stress. To the extent that higher costs discourage private sector intermediation in these markets, these costs could reduce intermediation activity. Robust intermediation activity is seen as beneficial to the smooth functioning of these key components of the financial system. During past periods of significant market stress or impaired liquidity, the Federal Reserve has taken actions to support the smooth functioning of the markets for Treasury securities and short-term U.S. dollar funding markets. These actions have been taken to prevent strains in the Treasury market from impeding the flow of credit in the economy or to mitigate the risk that money market pressures could adversely affect monetary policy implementation.
In addition, a non-zero RSF factor for level 1 liquid assets would make it more costly for covered companies to hold level 1 liquid assets than to hold central bank reserves, which have a zero percent RSF factor. The differential treatment of these assets, which count equally towards HQLA requirements under the LCR rule, may increase demand for central bank reserves relative to other level 1 liquid assets. Having a range of high-quality assets that can serve as near substitutes for each other allows more flexibility in monetary policy implementation and supports banking organizations' ability to manage liquidity risks efficiently as the supply of these different asset types varies over time, further supporting smooth market functioning.
The agencies identified two benefits of a small RSF requirement on level 1 liquid assets. The first benefit is that the stable funding requirement would help insulate covered companies against sharp price declines of level 1 liquid assets. Such price declines might put liquidity pressure on covered companies by triggering collateral and margin calls, and, in more severe cases, fire sales. Although level 1 liquid assets are less volatile and more liquid than other securities, selling large quantities of them in a short period can depress their price further. In particular, using BrokerTec data, the agencies estimated that the price impact of selling $100 million of on-the-run U.S. Treasury securities ranges from 2 to 13 basis points during financial market stress. A small RSF requirement on level 1 liquid assets would ensure that covered companies fund a small portion of these securities from stable sources, which could ease the liquidity pressure caused by price declines and thus potentially reduce the need for Federal Reserve liquidity support in times of stress.
The second benefit of a small RSF requirement is that it would insulate covered companies against the systemic risk associated with the interconnectedness of short-term financing positions secured by level 1 liquid assets. In particular, covered companies may want to provide short-term financing to counterparties during financial market stress to preserve client relationships, thus maintaining a set of interconnected positions. In the event of counterparty default, covered companies might be forced to sell the level 1 liquid asset collateral securing these positions to be able to perform on their short-term obligations. However, unwinding such interconnected positions could potentially put further liquidity stress on both covered companies and short-term financing markets, especially during periods of stress. Importantly, the agencies found that, over the last 15 years, there were several episodes where the typical 1 to 2 percent haircuts used in U.S. Treasury repurchase agreements did not provide sufficient protection against day-to-day losses on U.S. Treasury securities. A small RSF requirement would incentivize covered companies to fund level 1 liquid assets with more stable funding, which would reduce the risks associated with interconnected short-term financing positions.
After considering the above costs and benefits, importantly including the concern that a small RSF requirement could interfere with the functioning of U.S. Treasury and repo markets by disincentivizing covered companies from acting as intermediaries, the agencies are adopting as part of the final rule a zero percent RSF factor for level 1 liquid assets held as securities and for short-term secured lending transactions secured by level 1 liquid assets.
The agencies received many comments concerning the potential impact of the proposal, most of which argued that the cost of the proposal would have been greater than predicted by the agencies. Commenters argued the impact of the NSFR alone and together with other more recently finalized regulations would have adverse impacts on banking activities, markets, and the real economy. For example, one commenter argued that the NSFR would further reduce the ability of covered companies to act as financial intermediaries, extend credit, promote price discovery, and conduct segregation and custody of client assets, which the commenters argued has already been reduced by recent regulation, including the SLR rule and the GSIB capital surcharge rule. This commenter also argued that the NSFR would reduce liquidity in the markets for securities, raise costs for derivatives end-users, make pricing less efficient, and result in a sunk cost to covered companies in the form of a liquidity buffer. The commenter further argued that the increase in costs to covered companies stemming from the NSFR could be passed on to a covered company's clients. The commenters noted that the predicted cost of the Basel NSFR standard has been cited by other jurisdictions as justification to change the standard, and that the agencies should consider changes to reduce the costs of the proposal.
In regard to commenters' concerns that the proposal would decrease financial intermediation, reduce market liquidity, and increase costs to customers, the estimates from the analysis demonstrated that nearly all covered companies are already in compliance with their NSFR requirements, and there is a substantial surplus of ASF in excess of RSF across covered companies at an aggregate level. The agencies also studied the effect of the final rule on overall bank funding costs and do not expect most covered companies to incur an increase in funding costs to comply with the final NSFR requirements. As such, the final rule would not require further changes by most covered companies to comply with the rule, limiting adverse effects on financial intermediation or market liquidity.
In developing the final rule, the agencies considered commenters' concerns regarding potential costs of specific aspects of the NSFR, and in some cases have made certain targeted changes that reduce potential negative impacts on covered companies. For example, the proposal set the RSF factors for level 1 liquid asset securities held outright and short-term reverse repos secured by level 1 liquid assets to 5 percent and 10 percent, respectively. The final rule establishes a zero percent RSF factor for both level 1 liquid asset securities held outright and short-term reverse repos secured by level 1 liquid assets, in part to avoid disincentivizing covered companies from U.S. Treasury and repo market intermediation. The proposal also required a 20 percent RSF add-on factor for gross derivatives liabilities. Many commenters expressed concerns that this treatment would reduce the willingness of covered companies to act as derivatives counterparties and could thus aggravate financial market liquidity stress. The final rule establishes a 5 percent RSF add-on factor for gross derivatives liabilities to take these concerns into account. The change in the RSF factor from 20 percent to 5 percent reduces estimated aggregate RSF by $77 billion, or 1 percent of the estimated total RSF.
Commenters also asserted that the agencies had insufficient data to estimate the impact of the NSFR on covered companies. The agencies note that the impact analysis for the final rule used publicly available FR Y-9C report data and confidential data from the FR 2052a report data from the second quarter of 2020, which is the most up-to-date and comprehensive information on covered companies.
The agencies also received comments suggesting that a point-in-time estimate of the amount of ASF relative to RSF, as provided above, is an inadequate measure of the economic effect of the NSFR. In particular, the commenters argued that the NSFR fluctuates over the business cycle because categories with high RSF factors, such as nonperforming assets and gross derivatives liabilities, tend to increase during economic downturns. The commenters expressed concerns that, as a result, the NSFR requirement could have pro-cyclical effects. The agencies partly address this concern by reducing the RSF factor for gross derivative liabilities from 20 percent to 5 percent. In addition, the agencies note that the NSFR of nearly all covered companies increased over the first half of 2020, while nonperforming assets and gross derivative liabilities increased for most covered companies. Notably, this increase in the NSFR was partly driven by the inflow of retail deposits at covered companies, which was similar to the inflow of retail deposits during the global financial crisis of 2007-2009. Therefore, the available empirical evidence currently available suggests that retail deposit inflows can partially counteract the potential pro-cyclicality of the NSFR requirement on covered companies during economic downturns.
One commenter agreed with the agencies' statement in the Supplementary Information section to the proposal that even a slight reduction in the probability of another financial crisis would far outweigh the additional costs of the proposal. This commenter cites a study showing that the estimated cost of the 2007-2009 financial crisis was greater than $20 trillion.
Several commenters questioned whether the impact assessment in the proposal adequately accounts for costs to the intermediate holding companies of foreign banking organizations, noting that the impact assessment was developed prior to the finalization of the requirement that certain foreign banking organizations form an intermediate holding company in the United States under the Board's enhanced prudential standards rule. The commenters asserted that this timing likely resulted in the impact assessment in the proposal not including or underestimating the impact to intermediate holding companies. The impact analysis in the final rule considered all covered companies, including intermediate holding companies, using data from the second quarter of 2020.
Under the proposed rule, the NSFR requirement would have been effective as of January 1, 2018. At the time the proposal was issued in April 2016, the agencies set this effective date to provide covered companies with sufficient time to adjust to the requirements of the proposal, including to make any changes to ensure their assets, derivative exposures, and commitments are stably funded and to adjust information systems to calculate and monitor their NSFR ratios. The NSFR is a balance-sheet metric and its calculations would generally be based on the carrying value, as determined under GAAP, of a covered company's assets, liabilities, and equity. As a result, covered companies should generally be able to leverage current financial reporting systems to comply with the NSFR requirement.
Under the proposed rule, the updated definitions were set to become effective for purposes of the LCR rule at the beginning of the calendar quarter after finalization of the proposed NSFR rule, instead of on January 1, 2018. The agencies proposed that revisions to definitions in the LCR rule become effective sooner than the proposed NSFR effective date because they would enhance the clarity of certain definitions used in the LCR rule. Several commenters requested additional time to adjust the revised LCR definitions into their liquidity compliance systems. One commenter requested at least 180 days after the final rule is published for the revised LCR definitions to be effective. Another commenter requested that the Board issue additional guidance on how the revised definitions should be incorporated into FR 2052a reporting requirements prior to implementation of the final rule, particularly the definitions of “secured funding” and “secured lending.”
Many commenters requested that the January 1, 2018 effective date be delayed to provide covered companies additional time to achieve compliance with the NSFR requirement. For example, one commenter requested that the effective date be delayed to at least January 2020. One commenter argued that the agencies should take additional time to better understand the multiple new regulatory initiatives, including
In response to commenters' concerns and in light of the revised date on which the agencies are finalizing the NSFR rule, the agencies are revising the final rule to require covered companies to maintain an NSFR of 1.0 beginning on July 1, 2021. This effective date provides sufficient time for covered companies to take into account the new requirement and, as necessary, to make infrastructure and operational adjustments that may be required to comply with the final rule. To the extent a covered company is required to change its funding profile to comply with the final rule, the effective date should be sufficient to allow the firm to assess the prevailing market conditions to achieve optimal results.
The final rule also adopts an effective date of July 1, 2021 for revisions to definitions currently used in the LCR rule. The effective date for revisions to the definitions in the LCR rule is appropriate, as the revisions will provide additional clarity on the meaning of such terms. In addition, covered companies will be able to modify their compliance systems to incorporate the revised definitions by the effective date, especially since the revisions will likely require covered companies to make adjustments to their existing systems and not require covered companies to develop entirely new systems.
Under the tailoring proposals, a banking organization that would have become subject to the LCR rule or proposed rule after the effective date of the final rule would have been required to comply with the LCR rule or proposed rule on the first day of the second quarter after the banking organization became subject to it (newly covered banking organizations), consistent with the amount of time previously provided under the LCR rule or proposed rule.
Some commenters requested additional time to comply with the LCR rule, and the tailoring final rule provided an additional quarter to comply for newly covered banking organizations to comply with the LCR rule. Consistent with the LCR rule, the final rule provides an additional quarter to comply with the final rule, such that a newly covered company will be required to comply with these requirements on the first day of the third quarter after becoming subject to these requirements. A covered company becomes subject to the NSFR based on its category of applicable standards. A covered company's category is determined based on risk-based indicators as reported on its Call Report, FR Y-9LP or FR Y-15, or on averages of such reported items.
Under the tailoring proposals, a banking organization subject to the LCR rule or proposed rule that becomes subject to a higher outflow or required stable funding adjustment percentage would have been able to continue using a lower calibration for one quarter. A banking organization that becomes subject to a lower outflow or required stable funding adjustment percentage at a quarter end would have been able to use the lower percentage immediately, as of the first day of the subsequent quarter. Some commenters requested longer transitions before a banking organization is required to meet an increased LCR requirement.
The tailoring final rule provided an additional quarter in the LCR rule to continue to use a lower outflow adjustment percentage after a banking organization becomes subject to a higher outflow adjustment percentage, but retained the one quarter transition period for a banking organization that transitions to a lower outflow adjustment percentage. Consistent with the LCR rule, the final rule allows a covered company an additional quarter to continue using a lower required stable funding adjustment percentage after becoming subject to a higher required stable funding adjustment percentage.
The final rule includes a reservation of authority that provides the agencies with the flexibility to extend transitions for banking organizations where warranted by events and circumstances. There may be limited circumstances where a banking organization needs a longer transition period. For example, an extension may be appropriate when unusual or unforeseen circumstances, such as a merger with another entity, cause a banking organization to become subject to an NSFR requirement for the first time. However, the agencies expect that this authority would be exercised in limited situations, consistent with prior practice.
Under the tailoring proposals, once a banking organization became subject to an LCR or proposed NSFR requirement, it would have remained subject to the rule until the appropriate agency determined that application of the rule would not be appropriate in light of the banking organization's asset size, level of complexity, risk profile, or scope of operations. The tailoring final rule repealed this provision in the LCR rule because the revised scope of application framework made this cessation provision unnecessary. Consistent with the LCR rule, the agencies are repealing this provision in the final rule. A banking organization that no longer meets the relevant criteria for being subject to the final rule will not be required to comply with the final rule.
For purposes of the Congressional Review Act, the Office of Management and Budget (OMB) makes a determination as to whether a final rule constitutes a “major” rule.
The Congressional Review Act defines a “major rule” as any rule that the Administrator of the Office of Information and Regulatory Affairs of the OMB finds has resulted in or is likely to result in (A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies or geographic regions; or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.
As required by the Congressional Review Act, the agencies will submit the final rule and other appropriate reports to Congress and the Government Accountability Office for review.
Section 722 of the Gramm-Leach-Bliley Act,
The Regulatory Flexibility Act
Based on its analysis and for the reasons stated below, the Board believes that the final rule will not have a significant economic impact on a substantial number of small entities.
The final rule is intended to implement a quantitative liquidity requirement applicable for certain bank holding companies, savings and loan holding companies, and state member banks.
Under regulations issued by the Small Business Administration, a “small entity” includes firms within the “Finance and Insurance” sector with total assets of $600 million or less.
As discussed in section V.E of this Supplementary Information section, the final rule will generally apply to certain Board-regulated institutions with $100 billion or more total consolidated assets, and certain of their depository institution subsidiaries with $10 billion or more in total assets.
Companies that are subject to the final rule therefore substantially exceed the $600 million asset threshold at which a banking entity is considered a “small entity” under SBA regulations. Because the final rule does not apply to any company with assets of $600 million or less, the final rule is not expected to apply to any small entity for purposes of the RFA. As discussed in the Supplementary Information section, including section V of the Supplementary Information section, the Board does not believe that the final rule duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the final rule will have a significant economic impact on a substantial number of small entities.
The OCC considered whether the final rule is likely to have a significant economic impact on a substantial number of small entities, pursuant to the RFA. The OCC currently supervises approximately 745 small entities. Because the final rule will only apply to OCC-regulated entities that have $10 billion or more in assets, the OCC concludes the rule will not have a significant economic impact on a substantial number of small OCC-regulated entities.
The RFA generally requires an agency, in connection with a final rule, to prepare and make available for public comment a final regulatory flexibility analysis that describes the impact of a final rule on small entities.
The FDIC supervises 3,270 institutions,
The final rule applies the full NSFR requirement to companies that are subject to the Category I and Category II liquidity standards. Companies subject to the Category III liquidity standards with $75 billion or more in average weighted short-term wholesale funding are also subject to the full NSFR requirement. All other companies subject to the Category III standards, and companies subject to the Category IV standards with $50 billion or more in average weighted short-term wholesale funding, are subject to a reduced NSFR requirement calibrated at 85 percent and 70 percent, respectively. Depository institution subsidiaries of companies subject to the Category I, II, or III liquidity standards are subject to the same NSFR requirement as their top tier holding company if the depository institution subsidiary has total consolidated assets of $10 billion or more. Depository institution subsidiaries of companies subject to Category IV liquidity standards are not subject to the NSFR.
As of June 30, 2020, the FDIC supervises four depository institutions that would be subject to an NSFR requirement calibrated at 85 percent.
Because this rule does not apply to any FDIC-supervised institutions that would be considered small entities for the purposes of the RFA, the FDIC certifies that this final rule will not have a significant economic impact on a substantial number of small entities.
Section 302(a) of the Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA)
In addition, under section 302(b) of the RCDRIA, new regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.
Certain provisions of the final rule contain “collection of information” requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the agencies may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid OMB control number. The OMB control numbers are 1557-0323 for the OCC, 7100-0367 for the Board, and 3064-0197 for the FDIC. These information collections will be extended for three years, with revision. The information collection requirements contained in this final rule have been submitted by the OCC and FDIC to OMB for review and approval under section 3507(d) of the PRA (44 U.S.C. 3507(d)) and section 1320.11 of the OMB's implementing regulations (5 CFR part 1320). The Board reviewed the final rule under the authority delegated to the Board by OMB. The agencies did not receive any specific public comments on the PRA analysis.
The agencies have a continuing interest in the public's opinions of information collections. At any time, commenters may submit comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, to the addresses listed in the
Section __.110 requires a covered company to take certain actions following any NSFR shortfall. A covered company would be required to notify its appropriate Federal banking agency of the shortfall no later than 10 business days (or such other period as the appropriate Federal banking agency may otherwise require by written notice) following the date that any event has occurred that would cause or has caused the covered company's NSFR to be less than 1.0. It must also submit to its appropriate Federal banking agency its plan for remediation of its NSFR to at least 1.0, and submit at least monthly reports on its progress to achieve compliance.
Section __.108(b) provides that if an institution includes an ASF amount in excess of the RSF amount of the consolidated subsidiary, it must implement and maintain written procedures to identify and monitor applicable statutory, regulatory, contractual, supervisory, or other restrictions on transferring assets from the consolidated subsidiaries. These procedures must document which types of transactions the institution could use to transfer assets from a consolidated subsidiary to the institution and how these types of transactions comply with applicable statutory, regulatory, contractual, supervisory, or other restrictions. Section __.110(b) requires preparation of a plan for remediation to achieve an NSFR of at least equal to 1.0, as required under § __.100.
Section __.130 requires that a depository institution holding company subject to the NSFR publicly disclose on a biannual basis its NSFR calculated for each of the two immediately preceding calendar quarters, in a direct and prominent manner on its public internet site or in its public financial or other public regulatory reports. These disclosures must remain publicly available for at least five years after the date of disclosure. Section __.131 specifies the quantitative and qualitative disclosures required and provides the disclosure template to be used.
Sections __.40(a) and __.110(a) (filed monthly)—0.5 hours.
Sections __.40(b) and __.110(b)—0.5 hours.
Sections __.40(b)(3)(iv) and __.110(b) (filed quarterly)—0.5 hours.
Sections __.22(a)(2), __.22(a)(5), and __.108(b)—40 hours.
Sections __.40(b) and __.110(b)—200 hours.
Sections 249.90, 249.91, 249.130, and 249.131 (filed biannually)—24 hours.
The Unfunded Mandates Reform Act requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more, adjusted for inflation (currently $157 million), in any one year. The OCC interprets “expenditure” to mean assessment of costs (
(a)
(b)
(1) The [BANK]'s available stable funding (ASF) amount, calculated pursuant to § __.103, as of the calculation date; divided by
(2) The [BANK]'s required stable funding (RSF) amount, calculated pursuant to § __.105, as of the calculation date.
For purposes of calculating its net stable funding ratio, including its ASF amount and RSF amount, under subparts K through N, a [BANK] shall assume each of the following:
(a) With respect to any NSFR liability, the NSFR liability matures according to § __.31(a)(1) of this part without regard to whether the NSFR liability is subject to § __.32;
(b) With respect to an asset, the asset matures according to § __.31(a)(2) of this part without regard to whether the asset is subject to § __.33 of this part;
(c) With respect to an NSFR liability or asset that is perpetual, the NSFR liability or asset matures one year or more after the calculation date;
(d) With respect to an NSFR liability or asset that has an open maturity, the NSFR liability or asset matures on the first calendar day after the calculation date, except that in the case of a deferred tax liability, the NSFR liability matures on the first calendar day after the calculation date on which the deferred tax liability could be realized; and
(e) With respect to any principal payment of an NSFR liability or asset, such as an amortizing loan, that is due prior to the maturity of the NSFR liability or asset, the payment matures on the date on which it is contractually due.
(a)
(b)
(c)
(1) The security received by the [BANK] is not assigned an RSF factor; and
(2) The obligation to return the security received by the [BANK] is not assigned an ASF factor.
A [BANK]'s ASF amount equals the sum of the carrying values of the [BANK]'s NSFR regulatory capital elements and NSFR liabilities, in each case multiplied by the ASF factor applicable in § __.104 or § __.107(c) and consolidated in accordance with § __.109.
(a)
(1) An NSFR regulatory capital element; or
(2) An NSFR liability that has a maturity of one year or more from the calculation date, is not described in paragraph (d)(9) of this section, and is not a retail deposit or brokered deposit provided by a retail customer or counterparty.
(b)
(1) A stable retail deposit (regardless of maturity or collateralization) held at the [BANK]; or
(2) A sweep deposit that:
(i) Is deposited in accordance with a contract between the retail customer or counterparty and the [BANK], a controlled subsidiary of the [BANK], or a company that is a controlled subsidiary of the same top-tier company of which the [BANK] is a controlled subsidiary;
(ii) Is entirely covered by deposit insurance; and
(iii) The [BANK] demonstrates to the satisfaction of the [AGENCY] that a withdrawal of such deposit is highly unlikely to occur during a liquidity stress event.
(c)
(1) A retail deposit (regardless of maturity or collateralization) other than a stable retail deposit or brokered deposit;
(2) A brokered reciprocal deposit where the entire amount is covered by deposit insurance;
(3) A sweep deposit that is deposited in accordance with a contract between the retail customer or counterparty and the [BANK], a controlled subsidiary of the [BANK], or a company that is a controlled subsidiary of the same top-tier company of which the [BANK] is a controlled subsidiary, where the sweep deposit does not meet the requirements of paragraph (b)(2) of this section; or
(4) A brokered deposit that is not a brokered reciprocal deposit or a sweep deposit, that is not held in a transactional account, and that matures one year or more from the calculation date.
(d)
(1) Unsecured wholesale funding that:
(i) Is not provided by a financial sector entity, a consolidated subsidiary of a financial sector entity, or a central bank;
(ii) Matures less than one year from the calculation date; and
(iii) Is not a security issued by the [BANK] or an operational deposit placed at the [BANK];
(2) A secured funding transaction with the following characteristics:
(i) The counterparty is not a financial sector entity, a consolidated subsidiary of a financial sector entity, or a central bank;
(ii) The secured funding transaction matures less than one year from the calculation date; and
(iii) The secured funding transaction is not a collateralized deposit that is an operational deposit placed at the [BANK];
(3) Unsecured wholesale funding that:
(i) Is provided by a financial sector entity, a consolidated subsidiary of a financial sector entity, or a central bank;
(ii) Matures six months or more, but less than one year, from the calculation date; and
(iii) Is not a security issued by the [BANK] or an operational deposit;
(4) A secured funding transaction with the following characteristics:
(i) The counterparty is a financial sector entity, a consolidated subsidiary of a financial sector entity, or a central bank;
(ii) The secured funding transaction matures six months or more, but less than one year, from the calculation date; and
(iii) The secured funding transaction is not a collateralized deposit that is an operational deposit;
(5) A security issued by the [BANK] that matures six months or more, but less than one year, from the calculation date;
(6) An operational deposit placed at the [BANK];
(7) A brokered deposit provided by a retail customer or counterparty that is not described in paragraphs (c) or (e)(2) of this section;
(8) A sweep deposit provided by a retail customer or counterparty that is not described in paragraphs (b) or (c) of this section;
(9) An NSFR liability owed to a retail customer or counterparty that is not a deposit and is not a security issued by the [BANK]; or
(10) Any other NSFR liability that matures six months or more, but less than one year, from the calculation date and is not described in paragraphs (a) through (c) or (d)(1) through (d)(9) of this section.
(e)
(1) A trade date payable that results from a purchase by the [BANK] of a financial instrument, foreign currency, or commodity that is contractually required to settle within the lesser of the market standard settlement period for the particular transaction and five business days from the date of the sale;
(2) A brokered deposit provided by a retail customer or counterparty that is not a brokered reciprocal deposit or sweep deposit, is not held in a transactional account, and matures less than six months from the calculation date;
(3) A security issued by the [BANK] that matures less than six months from the calculation date;
(4) An NSFR liability with the following characteristics:
(i) The counterparty is a financial sector entity, a consolidated subsidiary of a financial sector entity, or a central bank;
(ii) The NSFR liability matures less than six months from the calculation date or has an open maturity; and
(iii) The NSFR liability is not a security issued by the [BANK] or an operational deposit placed at the [BANK]; or
(5) Any other NSFR liability that matures less than six months from the calculation date and is not described in paragraphs (a) through (d) or (e)(1) through (4) of this section.
(a)
(1) The carrying values of a [BANK]'s assets (other than amounts included in the calculation of the derivatives RSF amount pursuant to § __.107(b)) and the undrawn amounts of a [BANK]'s credit and liquidity facilities, in each case multiplied by the RSF factors applicable in § __.106; and
(2) The [BANK]'s derivatives RSF amount calculated pursuant to § __.107(b).
(b)
(c)
(2) A [BANK] whose required stable funding adjustment percentage decreases from a higher to a lower required stable funding adjustment percentage must continue to use its previous higher required stable funding adjustment percentage until the first day of the first calendar quarter after the required stable funding adjustment percentage decreases.
(a)
(1)
(i) Currency and coin;
(ii) A cash item in the process of collection;
(iii) A Reserve Bank balance or other claim on a Reserve Bank that matures less than six months from the calculation date;
(iv) A claim on a foreign central bank that matures less than six months from the calculation date;
(v) A trade date receivable due to the [BANK] resulting from the [BANK]'s sale of a financial instrument, foreign currency, or commodity that is required to settle no later than the market standard, without extension, for the particular transaction, and that has yet to settle but is not more than five business days past the scheduled settlement date;
(vi) Any other level 1 liquid asset not described in paragraphs (a)(1)(i) through (a)(1)(v) of this section; or
(vii) A secured lending transaction with the following characteristics:
(A) The secured lending transaction matures less than six months from the calculation date;
(B) The secured lending transaction is secured by level 1 liquid assets;
(C) The borrower is a financial sector entity or a consolidated subsidiary thereof; and
(D) The [BANK] retains the right to rehypothecate the collateral provided by the counterparty for the duration of the secured lending transaction.
(2)
(3)
(i) A level 2A liquid asset; or
(ii) A secured lending transaction or unsecured wholesale lending with the following characteristics:
(A) The asset matures less than six months from the calculation date;
(B) The borrower is a financial sector entity or a consolidated subsidiary thereof; and
(C) The asset is not described in paragraph (a)(1)(vii) of this section and is not an operational deposit described in paragraph (a)(4)(iii) of this section.
(4)
(i) A level 2B liquid asset;
(ii) A secured lending transaction or unsecured wholesale lending with the following characteristics:
(A) The asset matures six months or more, but less than one year, from the calculation date;
(B) The borrower is a financial sector entity, a consolidated subsidiary thereof, or a central bank; and
(C) The asset is not an operational deposit described in paragraph (a)(4)(iii) of this section;
(iii) An operational deposit placed by the [BANK] at a financial sector entity or a consolidated subsidiary thereof; or
(iv) An asset that is not described in paragraphs (a)(1) through (a)(3) or (a)(4)(i) through (a)(4)(iii) of this section that matures less than one year from the calculation date, including:
(A) A secured lending transaction or unsecured wholesale lending where the borrower is a wholesale customer or counterparty that is not a financial sector entity, a consolidated subsidiary thereof, or a central bank; or
(B) Lending to a retail customer or counterparty.
(5)
(i) A retail mortgage that matures one year or more from the calculation date and is assigned a risk weight of no greater than 50 percent under subpart D of [AGENCY CAPITAL REGULATION]; or
(ii) A secured lending transaction, unsecured wholesale lending, or lending to a retail customer or counterparty with the following characteristics:
(A) The asset is not described in paragraphs (a)(1) through (a)(5)(i) of this section;
(B) The borrower is not a financial sector entity or a consolidated subsidiary thereof;
(C) The asset matures one year or more from the calculation date; and
(D) The asset is assigned a risk weight of no greater than 20 percent under subpart D of [AGENCY CAPITAL REGULATION].
(6)
(i) A retail mortgage that matures one year or more from the calculation date and is assigned a risk weight of greater than 50 percent under subpart D of [AGENCY CAPITAL REGULATION];
(ii) A secured lending transaction, unsecured wholesale lending, or lending to a retail customer or counterparty with the following characteristics:
(A) The asset is not described in paragraphs (a)(1) through (a)(6)(i) of this section;
(B) The borrower is not a financial sector entity or a consolidated subsidiary thereof;
(C) The asset matures one year or more from the calculation date; and
(D) The asset is assigned a risk weight of greater than 20 percent under subpart D of [AGENCY CAPITAL REGULATION];
(iii) A publicly traded common equity share that is not HQLA;
(iv) A security, other than a publicly traded common equity share, that matures one year or more from the calculation date and is not HQLA; or
(v) A commodity for which derivative transactions are traded on a U.S. board of trade or trading facility designated as a contract market under sections 5 and 6 of the Commodity Exchange Act (7 U.S.C. 7 and 8) or on a U.S. swap execution facility registered under section 5h of the Commodity Exchange Act (7 U.S.C. 7b-3) or on another exchange, whether located in the United States or in a jurisdiction outside of the United States.
(7)
(b)
(c)
(1)(i)
(ii)
(A) If the asset would be assigned an RSF factor of 50 percent or less under paragraphs (a)(1) through (a)(4) of this section if the asset were not encumbered, an RSF factor of 50 percent is assigned to the asset.
(B) If the asset would be assigned an RSF factor of greater than 50 percent under paragraphs (a)(5) through (a)(7) of this section if the asset were not encumbered, the same RSF factor is assigned to the asset as would be assigned if it were not encumbered.
(iii)
(2)
(3)
(d)
(1) If the [BANK] received the off-balance sheet asset under a lending transaction, an RSF factor is assigned to the lending transaction as if it were encumbered for the longer of:
(i) The remaining maturity of the NSFR liability; and
(ii) Any other encumbrance period applicable to the lending transaction;
(2) If the [BANK] received the off-balance sheet asset under an asset exchange, an RSF factor is assigned to the asset provided by the [BANK] in the asset exchange as if the provided asset were encumbered for the longer of:
(i) The remaining maturity of the NSFR liability; and
(ii) Any other encumbrance period applicable to the provided asset; or
(3) If the [BANK] did not receive the off-balance sheet asset under a lending transaction or asset exchange, an RSF factor is assigned to the on-balance sheet asset resulting from the rehypothecation of the off-balance sheet asset as if the on-balance sheet asset were encumbered for the longer of:
(i) The remaining maturity of the NSFR liability; and
(ii) Any other encumbrance period applicable to the transaction through which the off-balance sheet asset was received.
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(ii) For purposes of paragraph (5)(i) of this section, the gross derivative value of a derivative transaction not subject to a qualifying master netting agreement or of a QMNA netting set is equal to the value to the [BANK], calculated as if no variation margin had been exchanged and no settlement payments had been made based on changes in the value of the derivative transaction or QMNA netting set.
(6)
(7)
(c)
(1) The [BANK]'s NSFR derivatives liability amount, as calculated under paragraph (d)(2) of this section; and
(2) The carrying value of NSFR liabilities in the form of an obligation to return initial margin or variation margin received by the [BANK].
(d)
(1) A [BANK]'s NSFR derivatives asset amount is the greater of:
(i) Zero; and
(ii) The [BANK]'s total derivatives asset amount, as calculated under paragraph (e)(1) of this section, less the [BANK]'s total derivatives liability amount, as calculated under paragraph (e)(2) of this section.
(2) A [BANK]'s NSFR derivatives liability amount is the greater of:
(i) Zero; and
(ii) The [BANK]'s total derivatives liability amount, as calculated under paragraph (e)(2) of this section, less the [BANK]'s total derivatives asset amount, as calculated under paragraph (e)(1) of this section.
(e)
(1) A [BANK]'s total derivatives asset amount is the sum of the [BANK]'s derivatives asset values, as calculated under paragraph (f)(1) of this section, for each derivative transaction not subject to a qualifying master netting agreement and each QMNA netting set.
(2) A [BANK]'s total derivatives liability amount is the sum of the [BANK]'s derivatives liability values, as calculated under paragraph (f)(2) of this section, for each derivative transaction not subject to a qualifying master netting agreement and each QMNA netting set.
(f)
(1) The derivatives asset value is equal to the asset value to the [BANK], after taking into account:
(i) Any variation margin received by the [BANK] that is in the form of cash and meets the following conditions:
(A) The variation margin is not segregated;
(B) The variation margin is received in connection with a derivative transaction that is governed by a QMNA or other contract between the counterparties to the derivative transaction, which stipulates that the counterparties agree to settle any payment obligations on a net basis, taking into account any variation margin received or provided;
(C) The variation margin is calculated and transferred on a daily basis based on mark-to-fair value of the derivative contract; and
(D) The variation margin is in a currency specified as an acceptable currency to settle obligations in the relevant governing contract; and
(ii) Any variation margin received by the [BANK] that is in the form of level 1 liquid assets and meets the conditions of paragraph (f)(1)(i) of this section provided the [BANK] retains the right to rehypothecate the asset for the duration of time that the asset is posted as variation margin to the [BANK]; or
(2) The derivatives liability value is equal to the liability value of the [BANK], after taking into account any variation margin provided by the [BANK].
(a)
(b)
(a)
(1) The RSF amount of the consolidated subsidiary, as calculated by the [BANK] for the [BANK]'s net stable funding ratio under this part; plus
(2) Any amount in excess of the RSF amount of the consolidated subsidiary, as calculated by the [BANK] for the [BANK]'s net stable funding ratio under this part, to the extent the consolidated subsidiary may transfer assets to the top-tier [BANK], taking into account statutory, regulatory, contractual, or supervisory restrictions, such as sections 23A and 23B of the Federal Reserve Act (12 U.S.C. 371c and 12 U.S.C. 371c-1) and Regulation W (12 CFR part 223).
(b)
(a)
(b)
(i) The [BANK] has or should have provided notice, pursuant to § __.110(a), that the [BANK]'s net stable funding ratio is, or will become, less than 1.0 as required under § __.100;
(ii) The [BANK]'s reports or disclosures to the [AGENCY] indicate that the [BANK]'s net stable funding ratio is less than 1.0 as required under § __.100; or
(iii) The [AGENCY] notifies the [BANK] in writing that a plan is required and provides a reason for requiring such a plan.
(2) The plan must include, as applicable:
(i) An assessment of the [BANK]'s liquidity profile;
(ii) The actions the [BANK] has taken and will take to achieve a net stable funding ratio equal to or greater than 1.0 as required under § __.100, including:
(A) A plan for adjusting the [BANK]'s liquidity profile;
(B) A plan for remediating any operational or management issues that contributed to noncompliance with subpart K of this part; and
(iii) An estimated time frame for achieving full compliance with § __.100.
(3) The [BANK] must report to the [AGENCY] at least monthly, or such other frequency as required by the [AGENCY], on progress to achieve full compliance with § __.100.
(c)
Administrative practice and procedure, Banks, Banking, Liquidity, Reporting and recordkeeping requirements, Savings associations.
Administrative practice and procedure, Banks, Banking, Federal Reserve System, Holding companies, Liquidity, Reporting and recordkeeping requirements.
Administrative practice and procedure, Banks, Banking, Federal Deposit Insurance Corporation, FDIC, Liquidity, Reporting and recordkeeping requirements, Savings associations.
The proposed adoption of the common rules by the agencies, as modified by agency-specific text, is set forth below:
For the reasons set forth in the common preamble, part 50 of chapter I of title 12 of the Code of Federal Regulations is amended as follows:
12 U.S.C. 1
(a)
(b)
(b) The OCC may require a national bank or Federal savings association to maintain an amount of available stable funding greater than otherwise required under this part, or to take any other measure to improve the national bank's or Federal savings association's stable funding, if the OCC determines that the national bank's or Federal savings association's stable funding requirements as calculated under this part are not commensurate with the national bank's or Federal savings association's funding risks. In making determinations under this section, the OCC will apply notice and response procedures as set forth in 12 CFR 3.404.
(c) Nothing in this part limits the authority of the OCC under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, deficient liquidity levels, deficient stable funding levels, or violations of law.
The additions and revisions, in alphabetical order, read as follows:
(1) For any deposit received, the national bank or Federal savings association (as agent for the depositors) places the same amount with other depository institutions through the network; and
(2) Each member of the network sets the interest rate to be paid on the entire amount of funds it places with other network members.
(1) A deposit of a public sector entity held at the national bank or Federal savings association that is required to be secured under applicable law by a lien on assets owned by the national bank or Federal savings association and that gives the depositor, as holder of the lien, priority over the assets in the event the national bank or Federal savings association enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding;
(2) A deposit of a fiduciary account awaiting investment or distribution held at the national bank or Federal savings association for which the national bank or Federal savings association is a fiduciary and is required under 12 CFR 9.10(b) (national banks) or 12 CFR 150.300 through 150.320 (Federal savings associations) to set aside assets owned by the national bank or Federal savings association as security, which gives the depositor priority over the assets in the event the national bank or Federal savings association enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding; or
(3) A deposit of a fiduciary account awaiting investment or distribution held at the national bank or Federal savings association for which the national bank's or Federal savings association's affiliated insured depository institution is a fiduciary and where the national bank or Federal savings association under 12 CFR 9.10(c) (national banks), 12 CFR 150.310 (Federal savings associations), or applicable state law (state member and nonmember banks, and state savings associations) has set aside assets owned by the national bank or Federal savings association as security, which gives the depositor priority over the assets in the event the national bank or Federal savings association enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding.
(1) Is subject to legal, regulatory, contractual, or other restriction on the ability of the national bank or Federal savings association to monetize the asset; or
(2) Is pledged, explicitly or implicitly, to secure or to provide credit enhancement to any transaction, not including when the asset is pledged to a central bank or a U.S. government-sponsored enterprise where:
(i) Potential credit secured by the asset is not currently extended to the national bank or Federal savings association or its consolidated subsidiaries; and
(ii) The pledged asset is not required to support access to the payment services of a central bank.
(b) * * *
(1) The assets are not encumbered.
(b) * * *
(3) Other than the transactions identified in § 50.32(h)(2), (h)(5), or (j) or § 50.33(d) or (f), the maturity of which is determined under § 50.31(a), transactions that have an open maturity are not included in the calculation of the maturity mismatch add-on.
(a) * * *
(1) With respect to an instrument or transaction subject to § 50.32, on the earliest possible contractual maturity date or the earliest possible date the transaction could occur, taking into account any option that could accelerate the maturity date or the date of the transaction, except that when considering the earliest possible contractual maturity date or the earliest possible date the transaction could occur, the national bank or Federal savings association should exclude any contingent options that are triggered only by regulatory actions or changes in law or regulation, as follows:
(2) With respect to an instrument or transaction subject to § 50.33, on the latest possible contractual maturity date or the latest possible date the transaction could occur, taking into account any option that could extend the maturity date or the date of the transaction, except that when considering the latest possible contractual maturity date or the latest possible date the transaction could occur, the national bank or Federal savings association may exclude any contingent options that are triggered only by regulatory actions or changes in law or regulation, as follows:
(4) With respect to a transaction that has an open maturity, is not an operational deposit, and is subject to the provisions of § 50.32(h)(2), (h)(5), (j), or (k) or § 50.33(d) or (f), the maturity date is the first calendar day after the calculation date. Any other transaction that has an open maturity and is subject to the provisions of § 50.32 shall be considered to mature within 30 calendar days of the calculation date.
(b)
(a)
(2) A national bank or Federal savings association that becomes subject to the minimum net stable funding requirement under § 50.1(b)(1)(ii) must comply with the requirements of subparts K through M of this part subject to a transition period specified by the OCC.
(b)
(1) A national bank or Federal savings association whose required stable funding adjustment percentage changes is subject to the transition periods as set forth in § 50.105(c).
(2) A national bank or Federal savings association institution that is no longer subject to the minimum stable funding requirement of this part pursuant to § 50.1(b)(1)(i) based on the size of total consolidated assets, cross-jurisdictional activity, total nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure calculated in accordance with the Call Report, or instructions to the FR Y-9LP, the FR Y-15, or equivalent reporting form, as applicable, for each of the four most recent calendar quarters may cease compliance with the requirements of subparts K through M of this part as of the first day of the first calendar quarter after it is no longer subject to § 50.1(b).
(c)
For the reasons set forth in the common preamble, part 249 of chapter II of title 12 of the Code of Federal Regulations is amended as follows:
12 U.S.C. 248(a), 321-338a, 481-486, 1467a(g)(1), 1818, 1828, 1831p-1, 1831o-1, 1844(b), 5365, 5366, 5368.
(a)
(b)
(i) It is a:
(A) Global systemically important BHC;
(B) GSIB depository institution;
(C) Category II Board-regulated institution;
(D) Category III Board-regulated institution; or
(E) Category IV Board-regulated institution with $50 billion or more in average weighted short-term wholesale funding;
(ii) It is a covered nonbank company; or
(iii) The Board has determined that application of this part is appropriate in light of the Board-regulated institution's asset size, level of complexity, risk profile, scope of operations, affiliation with foreign or domestic covered entities, or risk to the financial system.
(2) This part does not apply to:
(i) A bridge financial company as defined in 12 U.S.C. 5381(a)(3), or a subsidiary of a bridge financial company; or
(ii) A new depository institution or a bridge depository institution, as defined in 12 U.S.C. 1813(i).
(3) In making a determination under paragraph (b)(1)(iii) of this section, the Board will apply, as appropriate, notice and response procedures in the same manner and to the same extent as the notice and response procedures set forth in 12 CFR 263.202.
(c)
(b) The Board may require a Board-regulated institution to maintain an amount of available stable funding greater than otherwise required under this part, or to take any other measure to improve the Board-regulated institution's stable funding, if the Board determines that the Board-regulated institution's stable funding requirements as calculated under this part are not commensurate with the Board-regulated institution's funding risks. In making determinations under this section, the Board will apply notice and response procedures as set forth in 12 CFR 263.202.
(c) Nothing in this part limits the authority of the Board under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, deficient liquidity levels, deficient stable funding levels, or violations of law.
The additions and revisions, in alphabetical order, read as follows:
(1) For any deposit received, the Board-regulated institution (as agent for the depositors) places the same amount with other depository institutions through the network; and
(2) Each member of the network sets the interest rate to be paid on the entire amount of funds it places with other network members.
(1) A deposit of a public sector entity held at the Board-regulated institution that is required to be secured under applicable law by a lien on assets owned by the Board-regulated institution and that gives the depositor, as holder of the lien, priority over the assets in the event the Board-regulated institution enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding;
(2) A deposit of a fiduciary account awaiting investment or distribution held at the Board-regulated institution for which the Board-regulated institution is a fiduciary and is required under 12 CFR 9.10(b) (national banks), 12 CFR 150.300 through 150.320 (Federal savings associations), or applicable state law (state member and nonmember banks, and state savings associations) to set aside assets owned by the Board-regulated institution as security, which gives the depositor priority over the assets in the event the Board-regulated institution enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding; or
(3) A deposit of a fiduciary account awaiting investment or distribution held at the Board-regulated institution for which the Board-regulated institution's affiliated insured depository institution is a fiduciary and where the Board-regulated institution under 12 CFR 9.10(c) (national banks), 12 CFR 150.310 (Federal savings associations), or applicable state law (state member and nonmember banks, state savings associations) has set aside assets owned by the Board-regulated institution as security, which gives the depositor priority over the assets in the event the Board-regulated institution enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding.
(1) Is subject to legal, regulatory, contractual, or other restriction on the ability of the Board-regulated institution to monetize the asset; or
(2) Is pledged, explicitly or implicitly, to secure or to provide credit enhancement to any transaction, not including when the asset is pledged to a central bank or a U.S. government-sponsored enterprise where:
(i) Potential credit secured by the asset is not currently extended to the Board-regulated institution or its consolidated subsidiaries; and
(ii) The pledged asset is not required to support access to the payment services of a central bank.
(b) * * *
(1) The assets are not encumbered.
(b) * * *
(3) Other than the transactions identified in § 249.32(h)(2), (h)(5), or (j) or § 249.33(d) or (f), the maturity of which is determined under § 249.31(a), transactions that have an open maturity are not included in the calculation of the maturity mismatch add-on.
(a) * * *
(1) With respect to an instrument or transaction subject to § 249.32, on the earliest possible contractual maturity date or the earliest possible date the transaction could occur, taking into account any option that could accelerate the maturity date or the date of the transaction, except that when considering the earliest possible contractual maturity date or the earliest possible date the transaction could occur, the Board-regulated institution should exclude any contingent options that are triggered only by regulatory actions or changes in law or regulation, as follows:
(2) With respect to an instrument or transaction subject to § 249.33, on the latest possible contractual maturity date or the latest possible date the transaction could occur, taking into account any option that could extend the maturity date or the date of the transaction, except that when considering the latest possible contractual maturity date or the latest possible date the transaction could occur, the Board-regulated institution may exclude any contingent options that are triggered only by regulatory actions or changes in law or regulation, as follows:
(4) With respect to a transaction that has an open maturity, is not an operational deposit, and is subject to the provisions of § 249.32(h)(2), (h)(5), (j), or (k) or § 249.33(d) or (f), the maturity date is the first calendar day after the calculation date. Any other transaction that has an open maturity and is subject to the provisions of § 249.32 shall be considered to mature within 30 calendar days of the calculation date.
(a)
(2) A Board-regulated institution that becomes subject to the minimum net stable funding requirement under § 249.1(b)(1)(iii) must comply with the requirements of subparts K through N of this part subject to a transition period specified by the Board.
(b)
(2) A Board-regulated institution that is no longer subject to the minimum stable funding requirement of this part pursuant to § 249.1(b)(1)(i) or (ii) based on the size of total consolidated assets, cross-jurisdictional activity, total nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure calculated in accordance with the Call Report, or instructions to the FR Y-9LP, the FR Y-15, or equivalent reporting form, as applicable, for each of the four most recent calendar quarters may cease compliance with the requirements of subparts K through N of this part as of the first day of the first calendar quarter after it is no longer subject to § 249.1(b).
(c)
(a)
(b)
(2) A covered depository institution holding company, U.S. intermediate holding company, or covered nonbank holding company that is subject to this subpart must provide the disclosures required by this subpart beginning with the first calendar quarter that includes the date that is 18 months after the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company first became subject to the minimum stable funding requirement in § 249.100 of this part.
(c)
(d)
(a)
(b)
(A) On a consolidated basis and presented in millions of U.S. dollars or as a percentage, as applicable; and
(B) As simple averages of daily amounts for each calendar quarter.
(ii) A covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company must disclose the beginning date and end date for each calendar quarter.
(2)
(ii) For each component of a covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's RSF amount calculation, other than amounts included in paragraphs (c)(2)(xvi) through (xix) of this section, the “unweighted amount” means the sum of the carrying values of the covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's assets and undrawn amounts of committed credit facilities and committed liquidity facilities extended by the covered depository institution holding company, or U.S. intermediate holding company, or covered nonbank company, as applicable, determined before applying the appropriate RSF factors, and subdivided by maturity into the following maturity categories, as applicable: Open maturity; less than six months after the calculation date; six months or more, but less than one year,
(3)
(ii) For each component of a covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's RSF amount calculation, other than amounts included in paragraphs (c)(2)(xvi) through (xix) of this section, the “weighted amount” means the sum of the carrying values of the covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's assets and undrawn amounts of committed credit facilities and committed liquidity facilities extended by the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company, multiplied by the appropriate RSF factors.
(c)
(1) Disclosures of ASF amount calculations:
(i) The sum of the average weighted amounts and, for each applicable maturity category, the sum of the average unweighted amounts of paragraphs (c)(1)(ii) and (iii) of this section (row 1);
(ii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of NSFR regulatory capital elements described in § 249.104(a)(1) (row 2);
(iii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of securities described in §§ 249.104(a)(2), 249.104(d)(5), and 249.104(e)(3) (row 3);
(iv) The sum of the average weighted amounts and, for each applicable maturity category, the sum of the average unweighted amounts of paragraphs (c)(1)(v) through (viii) of this section (row 4);
(v) The average weighted amount and, for each applicable maturity category, the average unweighted amount of stable retail deposits and sweep deposits held at the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company described in § 249.104(b) (row 5);
(vi) The average weighted amount and, for each applicable maturity category, the average unweighted amount of retail deposits other than stable retail deposits or brokered deposits, described in § 249.104(c)(1) (row 6);
(vii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of sweep deposits, brokered reciprocal deposits, and brokered deposits provided by a retail customer or counterparty described in §§ 249.104(c)(2), 249.104(c)(3), 249.104(c)(4), 249.104(d)(7), 249.104(d)(8) and 249.104(e)(2) (row 7);
(viii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of other funding provided by a retail customer or counterparty described in § 249.104(d)(9) (row 8);
(ix) The sum of the average weighted amounts and, for each applicable maturity category, the sum of the average unweighted amounts of paragraphs (c)(1)(x) and (xi) of this section (row 9);
(x) The average weighted amount and, for each applicable maturity category, the average unweighted amount of operational deposits placed at the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company described in § 249.104(d)(6) (row 10);
(xi) The average weighted amount and, for each applicable maturity category, the average unweighted amount of other wholesale funding described in §§ 249.104(a)(2), 249.104(d)(1), 249.104(d)(2), 249.104(d)(3), 249.104(d)(4), 249.104(d)(10), and 249.104(e)(4) (row 11);
(xii) In the “unweighted” cell, the average amount of the NSFR derivatives liability amount described in § 249.107(d)(2) (row 12);
(xiii) In the “unweighted” cell, the average amount of the total derivatives liability amount described in § 249.107(e)(2) (row 13);
(xiv) The average weighted amount and, for each applicable maturity category, the average unweighted amount of all other liabilities not included in amounts disclosed under paragraphs (c)(1)(i) through (xiii) of this section (row 14);
(xv) The average amount of the ASF amount described in § 249.103 (row 15);
(2) Disclosures of RSF amount calculations, including to reflect any encumbrances under §§ 249.106(c) and 249.106(d):
(i) The sum of the average weighted amounts and the sum of the average unweighted amounts of paragraphs (c)(2)(ii) through (iv) of this section (row 16);
(ii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of level 1 liquid assets described in §§ 249.106(a)(1) (row 17);
(iii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of level 2A liquid assets described in § 249.106(a)(3)(i) (row 18);
(iv) The average weighted amount and, for each applicable maturity category, the average unweighted amount of level 2B liquid assets described in § 249.106(a)(4)(i) (row 19);
(v) The average weighted amount and, for each applicable maturity category, the average unweighted amount of assets described in § 249.106(a)(1), other than level 1 liquid assets included in amounts disclosed under paragraph (c)(2)(ii) of this section or secured lending transactions included in amounts disclosed under paragraph (c)(2)(viii) of this section (row 20);
(vi) The average weighted amount and, for each applicable maturity category, the average unweighted amount of operational deposits placed at financial sector entities or consolidated subsidiaries thereof described in § 249.106(a)(4)(iii) (row 21);
(vii) The sum of the average weighted amounts and, for each applicable maturity category, the sum of the average unweighted amounts of paragraphs (c)(2)(viii), (ix), (x), (xii), and (xiv) of this section (row 22);
(viii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of secured lending transactions where the borrower is a financial sector entity or a consolidated subsidiary of a financial sector entity and the secured lending transaction is secured by level 1 liquid assets, described in §§ 249.106(a)(1)(vii), 249.106(a)(3)(ii), 249.106(a)(4)(ii), and 249.106(a)(7) (row 23);
(ix) The average weighted amount and, for each applicable maturity category, the average unweighted
(x) The average weighted amount and, for each applicable maturity category, the average unweighted amount of secured lending transactions and unsecured wholesale lending to wholesale customers or counterparties that are not financial sector entities or consolidated subsidiaries thereof, and lending to retail customers and counterparties other than retail mortgages, described in §§ 249.106(a)(4)(iv), 249.106(a)(5)(ii), and 249.106(a)(6)(ii) (row 25);
(xi) The average weighted amount and, for each applicable maturity category, the average unweighted amount of secured lending transactions, unsecured wholesale lending, and lending to retail customers or counterparties that are assigned a risk weight of no greater than 20 percent under subpart D of Regulation Q (12 CFR part 217) described in §§ 249.106(a)(4)(ii), 249.106(a)(4)(iv), and 249.106(a)(5)(ii) (row 26);
(xii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of retail mortgages described in §§ 249.106(a)(4)(iv), 249.106(a)(5)(i), and 249.106(a)(6)(i) (row 27);
(xiii) The average weighted amount and, for each applicable maturity category, the average unweighted amount of retail mortgages assigned a risk weight of no greater than 50 percent under subpart D of Regulation Q (12 CFR part 217) described in §§ 249.106(a)(4)(iv) and 249.106(a)(5)(i) (row 28);
(xiv) The average weighted amount and, for each applicable maturity category, the average unweighted amount of publicly traded common equity shares and other securities that are not HQLA and are not nonperforming assets described in §§ 249.106(a)(6)(iii), and 249.106(a)(6)(iv) (row 29);
(xv) The average weighted amount and average unweighted amount of commodities described in §§ 249.106(a)(6)(v) and 249.106(a)(7) (row 30);
(xvi) The average unweighted amount and average weighted amount of the sum of (A) assets contributed by the covered depository institution holding company to a central counterparty's mutualized loss-sharing arrangement described in § 249.107(b)(6) (in which case the “unweighted amount” shall equal the fair value and the “weighted amount” shall equal the unweighted amount multiplied by 85 percent) and (B) assets provided as initial margin by the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company for derivative transactions described in § 249.107(b)(7) (in which case the “unweighted amount” shall equal the fair value and the “weighted amount” shall equal the unweighted amount multiplied by the higher of 85 percent or the RSF factor assigned to the asset pursuant to § 249.106) (row 31);
(xvii) In the “unweighted” cell, the covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's average amount of the NSFR derivatives asset amount under § 249.107(d)(1) and in the “weighted” cell, the covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's average amount of the NSFR derivatives asset amount under § 249.107(d)(1) multiplied by 100 percent (row 32);
(xviii) In the “unweighted” cell, the covered depository institution holding company's, U.S. intermediate holding company's, or covered nonbank company's average amount of the total derivatives asset amount described in § 249.107(e)(1) (row 33);
(xix) (A) In the “unweighted” cell, the average amount of the sum of the gross derivative liability values of the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company that are liabilities for each of its derivative transactions not subject to a qualifying master netting agreement and each of its QMNA netting sets, described in § 249.107(b)(5), and (B) in the “weighted” cell, such sum multiplied by 5 percent, as described in § 249.107(b)(5) (row 34);
(xx) The average weighted amount and, for each applicable maturity category, the average unweighted amount of all other asset amounts not included in amounts disclosed under paragraphs (c)(2)(i) through (xix) of this section, including nonperforming assets (row 35);
(xxi) The average weighted and unweighted amount of undrawn credit and liquidity facilities described in § 249.106(a)(2) (row 36);
(xxii) The average amount of the RSF amount as calculated in § 249.105(a) prior to the application of the applicable required stable funding adjustment percentage in § 249.105(b) (row 37);
(xxiii) The applicable required stable funding adjustment percentage described in Table 1 to § 249.105(b) (row 38);
(xxiv) The average amount of the RSF amount as calculated under § 249.105 (row 39);
(3) The average of the net stable funding ratios as calculated under § 249.100(b) (row 40);
(d)
(i) The main drivers of the net stable funding ratio;
(ii) Changes in the net stable funding ratio results over time and the causes of such changes (for example, changes in strategies and circumstances);
(iii) Concentrations of funding sources and changes in funding structure; or
(iv) Concentrations of available and required stable funding within a covered company's corporate structure (for example, across legal entities).
(2) If a covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company subject to this subpart believes that the qualitative discussion required in paragraph (d)(1) of this section would prejudice seriously its position by resulting in public disclosure of specific commercial or financial information that is either proprietary or confidential in nature, the covered depository institution holding company, U.S. intermediate holding company, or covered nonbank company is not required to include those specific items in its qualitative discussion, but must provide more general information about the items that had a significant effect on its net stable funding ratio, together with the fact that, and the reason why, more specific information was not discussed.
For the reasons set forth in the common preamble, part 329 of chapter III of title 12 of the Code of Federal Regulations is amended as follows:
12 U.S.C. 1815, 1816, 1818, 1819, 1828, 1831p-1, 5412.
(a)
(b) * * *
(1) An FDIC-supervised institution is subject to the minimum liquidity standard, minimum stable funding standard, and other requirements of this part if:
(b) The FDIC may require an FDIC-supervised institution to maintain an amount of available stable funding greater than otherwise required under this part, or to take any other measure to improve the FDIC-supervised institution's stable funding, if the FDIC determines that the FDIC-supervised institution's stable funding requirements as calculated under this part are not commensurate with the FDIC-supervised institution's funding risks. In making determinations under this section, the FDIC will apply notice and response procedures as set forth in 12 CFR 324.5.
(c) Nothing in this part limits the authority of the FDIC under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe or unsound practices or conditions, deficient liquidity levels, deficient stable funding levels, or violations of law.
The additions and revisions, in alphabetical order, read as follows:
(1) For any deposit received, the FDIC-supervised institution (as agent for the depositors) places the same amount with other depository institutions through the network; and
(2) Each member of the network sets the interest rate to be paid on the entire amount of funds it places with other network members.
(1) A deposit of a public sector entity held at the FDIC-supervised institution that is required to be secured under applicable law by a lien on assets owned by the FDIC-supervised institution and that gives the depositor, as holder of the lien, priority over the assets in the event the FDIC-supervised institution enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding;
(2) A deposit of a fiduciary account awaiting investment or distribution held at the FDIC-supervised institution for which the FDIC-supervised institution is a fiduciary and is required under applicable state law to set aside assets owned by the FDIC-supervised institution as security, which gives the depositor priority over the assets in the event the FDIC-supervised institution enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding; or
(3) A deposit of a fiduciary account awaiting investment or distribution held at the FDIC-supervised institution for which the FDIC-supervised institution's affiliated insured depository institution is a fiduciary and where the FDIC-supervised institution under 12 CFR 9.10(c) (national banks), 12 CFR 150.310 (Federal savings associations), or applicable state law (state member and nonmember banks, and state savings associations) has set aside assets owned by the FDIC-supervised institution as security, which gives the depositor priority over the assets in the event the FDIC-supervised institution enters into receivership, bankruptcy, insolvency, liquidation, resolution, or similar proceeding.
(1) Is subject to legal, regulatory, contractual, or other restriction on the ability of the FDIC-supervised institution to monetize the asset; or
(2) Is pledged, explicitly or implicitly, to secure or to provide credit enhancement to any transaction, not including when the asset is pledged to a central bank or a U.S. government-sponsored enterprise where:
(i) Potential credit secured by the asset is not currently extended to the FDIC-supervised institution or its consolidated subsidiaries; and
(ii) The pledged asset is not required to support access to the payment services of a central bank.
(b) * * *
(1) The assets are not encumbered.
(b) * * *
(3) Other than the transactions identified in § 329.32(h)(2), (h)(5), or (j) or § 329.33(d) or (f), the maturity of which is determined under § 329.31(a), transactions that have an open maturity are not included in the calculation of the maturity mismatch add-on.
(a) * * *
(1) With respect to an instrument or transaction subject to § 329.32, on the earliest possible contractual maturity date or the earliest possible date the transaction could occur, taking into account any option that could accelerate the maturity date or the date of the transaction, except that when considering the earliest possible contractual maturity date or the earliest possible date the transaction could occur, the FDIC-supervised institution should exclude any contingent options that are triggered only by regulatory actions or changes in law or regulation, as follows:
(2) With respect to an instrument or transaction subject to § 329.33, on the latest possible contractual maturity date or the latest possible date the transaction could occur, taking into account any option that could extend the maturity date or the date of the transaction, except that when considering the latest possible contractual maturity date or the latest possible date the transaction could occur, the FDIC-supervised institution may exclude any contingent options that are triggered only by regulatory actions or changes in law or regulation, as follows:
(4) With respect to a transaction that has an open maturity, is not an operational deposit, and is subject to the provisions of § 329.32(h)(2), (h)(5), (j), or (k) or § 329.33(d) or (f), the maturity date is the first calendar day after the calculation date. Any other transaction that has an open maturity and is subject to the provisions of § 329.32 shall be considered to mature within 30 calendar days of the calculation date.
(b)
(a)
(2) An FDIC-supervised institution that becomes subject to the minimum net stable funding requirement under § 329.1(b)(1)(ii) must comply with the requirements of subparts K through M of this part subject to a transition period specified by the FDIC.
(b)
(1) An FDIC-supervised institution whose required stable funding adjustment percentage changes is subject to the transition periods as set forth in § 329.105(c).
(2) An FDIC-supervised institution that is no longer subject to the minimum stable funding requirement of this part pursuant to § 329.1(b)(1)(i) based on the size of total consolidated assets, cross-jurisdictional activity, total nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure calculated in accordance with the Call Report, or instructions to the FR Y-9LP, the FR Y-15, or equivalent reporting form, as applicable, for each of the four most recent calendar quarters may cease compliance with the requirements of subparts K through M of this part as of the first day of the first calendar quarter after it is no longer subject to § 329.1(b).
(c)
By order of the Board of Governors of the Federal Reserve System.
By order of the Board of Directors.
Commodity Futures Trading Commission.
Final rule.
The Commodity Futures Trading Commission (“Commission” or “CFTC”) is adopting final rules (“Final Rules”) addressing operational issues facing swap execution facilities (“SEF”) and their market participants in connection with the Commission's regulatory requirements for a SEF's audit trail data, financial resources, and chief compliance officer (“CCO”).
This rule is effective May 12, 2021.
Nancy Markowitz, Deputy Director, (202) 418-5453,
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)
Pursuant to its discretionary rulemaking authority in CEA sections 5h(f)(1) and 8a(5), the Commission identified the relevant areas in which the statutory SEF framework would benefit from additional rules or regulations.
Subsequently, a number of SEFs and their market participants requested relief from certain part 37 requirements they found in practice to be operationally unworkable or unnecessarily burdensome. A number of SEFs indicated that some of those requirements are impractical or unachievable due to technology limitations, or are incompatible with existing market practices. For example, as discussed further below, a number of SEFs stated that the requirement to include post-execution allocation information in audit trail data under § 37.205 is operationally difficult and impractical to implement.
In November 2018, the Commission issued a notice of proposed rulemaking under CEA sections 5h(f)(1) and 8a(5), seeking to address these issues by codifying relevant staff no-action relief or otherwise resolving the concerns of SEFs and market participants.
Accordingly, the Final Rules implement certain operationally-focused proposals that received limited and generally positive feedback from commenters—namely, targeted changes to requirements for a SEF's audit trail data, financial resources, CCO governance, and timing of CCO reports.
In summary, the Final Rules make the following changes to the SEF regulatory regime:
(1)
(2)
(3)
Existing § 37.205(a) requires a SEF to capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses.
During the SEF registration process starting fall 2013 through spring 2016, numerous SEFs indicated that post-execution allocations are made away from SEFs and typically occur between the clearing firm or the customer and the derivatives clearing organization (“DCO”) or at the middleware provider.
Recognizing the practical difficulties SEFs face in obtaining information regarding allocations occurring away from the SEF after a trade has been executed, the Commission proposed to eliminate the requirements in
Commenters support the proposal to eliminate the requirement to capture and retain post-execution allocation information.
The Commission has determined, based on representations from SEFs, that SEFs are unable to obtain post-execution allocation information and is adopting the amendments to § 37.205(a) and (b)(2) as proposed. Moreover, the Commission is able to obtain post-execution allocation information from other registered entities and market participants, and is not aware that SEFs' reliance on the relief from collecting and retaining post-execution allocation has raised any regulatory concerns.
As commenters noted, post-execution allocation generally takes place between the clearing firm or the customer and the DCO, or at the middleware provider. DCOs are required to maintain records of all information necessary to record allocation of bunched orders for cleared swaps.
Core Principle 13 requires a SEF to have adequate financial, operational, and managerial resources to discharge each of its responsibilities.
These regulations are intended to ensure that a SEF has financial strength sufficient to discharge its responsibilities, maintain market continuity, and withstand unpredictable market events.
Based on the Commission's experience with overseeing the financial resources requirements, feedback previously received from SEFs, and the Commission staff's experience with administering guidance on operating costs, the Proposed Rules set forth several amendments to the Core Principle 13 regulations, including the addition of acceptable practices to Core Principle 13 in Appendix B to part 37.
As discussed in greater detail below, the Proposed Rules included: (i) Clarification of the scope of operating costs that a SEF must cover with adequate financial resources; (ii) acceptable practices for calculating projected operating costs; (iii) amendments to the existing six-month liquidity requirement for financial resources held by a SEF; and (iv) streamlined and flexible requirements with respect to financial reports filed with the Commission.
Existing § 37.1301(a) requires a SEF to maintain financial resources sufficient to enable it
Certain SEFs expressed concerns that existing § 37.1301(a), when read in conjunction with existing § 37.1301(c), requires that SEFs include operational costs in the financial resources calculation, even if those costs relate to functions that are not germane to discharging SEF core principle responsibilities.
In the notice of proposed rulemaking, the Commission acknowledged some SEF operational costs may not be necessary to comply with a SEF core principle or Commission regulation and, therefore, should not be included when calculating the adequacy of the SEF's financial resources.
The Commission also proposed to amend § 37.1301(a) to require a SEF to maintain financial resources adequate to comply with “applicable Commission regulations.” This amendment was intended to clarify that a SEF's obligation to maintain adequate financial resources extends to those resources necessary to comply with any additional regulatory requirements the Commission has promulgated.
Under proposed § 37.1301(a), a SEF need not maintain financial resources to cover the costs of activities (
The Commission also proposed several technical changes in order to align proposed § 37.1301(a) with Core Principle 13's requirements. Core Principle 13's requirements are ongoing, prompting the Commission to propose requiring a SEF to maintain adequate financial resources on an “ongoing basis.” The Commission also proposed to replace the word “sufficient” with “adequate” while adopting additional language to specify a SEF's financial resources are “adequate” if their value “exceeds,” rather than is “at least equal to,” one year's worth of operating costs,
Refinitiv and WMBAA support the proposed changes to the general financial resource requirements.
WMBAA requested the Commission allow a SEF to use a credit facility to meet the general financial resources requirement.
The Commission is adopting the amendments to § 37.1301(a) and eliminating § 37.1301(c) as proposed. The Commission believes it is unnecessary to require a SEF to maintain financial resources for activities beyond those required to comply with a SEF core principle or Commission regulation. Limiting the financial resources requirement to the costs of activities necessary to comply with the SEF core principles and Commission regulations is expected to reduce barriers to growth, innovation, and entry. The Commission believes this approach strikes an appropriate balance between ensuring a SEF's financial stability and allowing the SEF discretion in allocating resources.
The Commission views WMBAA's request to permit the use of a credit facility to meet the general financial resources requirement as a substantive amendment to its regulations that is beyond the scope of the Proposed Rules. As a result, the Commission is not addressing the request in the Final Rules. However, the Commission may take the request into consideration for future rulemakings.
The Final Rules do not address WMBAA's comment that it is unnecessary and burdensome for a SEF to maintain financial resources covering a full year's operating costs, as this is a requirement set forth in the Act.
Existing § 37.1302 sets forth the types of financial resources available to a SEF to satisfy the general financial resources requirement.
The Commission proposed to amend the current regulation to refer to generally accepted accounting principles “in the United States” in order to conform to the proposed amendments to § 37.1306 described further below.
The Commission received no comments on the proposed changes.
The Commission is adopting the amendment to § 37.1302 as proposed. This change will conform to the adopted amendments to § 37.1306 described further below.
Existing § 37.1305 requires a SEF to maintain unencumbered, liquid financial assets,
Since the adoption of part 37, many SEFs have maintained that a six-month minimum liquidity requirement is more than is necessary and some of their liquid assets could be better applied toward growth of the SEFs.
In light of this experience, the Commission proposed to renumber § 37.1305 as § 37.1303 and amend the minimum liquid assets requirement to equal the greater of (i) three months of projected operating costs, calculated on a rolling basis; or (ii) the projected costs needed to wind down the swap execution facility's operations.
The Commission further noted that under the proposed change, SEFs would be able to use the resources previously allocated to the liquid asset requirement to invest in other areas of SEF operations.
The Commission also proposed an amendment to clarify that a SEF can overcome any deficiency in satisfying this requirement by obtaining a committed line of credit or similar facility in an amount at least equal to the deficiency.
Refinitiv and Bloomberg support the proposed rule and believe the proposed three-month minimum liquid asset requirement better reflects a SEF's liquidity needs for day-to-day operations and, if necessary, for winding down operations.
WMBAA requested the Commission allow SEFs to count all commissions receivable, aged less than three months, towards their liquid financial resources calculation.
The Commission is adopting § 37.1303 as proposed. Requiring a SEF to maintain liquid financial resources equal to the greater of three months of projected operating costs or its projected wind-down costs will ensure that SEFs have sufficient resources for day-to-day operations as well as winding down operations if needed, while freeing capital for innovation and expansion in the SEF's business where appropriate.
The Commission notes that under existing § 37.1303, amended as § 37.1304, the Commission may review the methodologies used in the calculation of a SEF's projected costs needed to wind down the swap execution facility's operations and may require changes as appropriate. Some examples a SEF may use to support its conclusion include: The tenor of the contracts listed on the facility, the listing of the SEF's contracts on other facilities, the ability of participants to close out positions and trade on a different SEF and, in the event the SEF's swaps are cleared, the ability of participants to clear swaps at the same DCO as they currently utilized if they had to trade on a different facility.
Finally, WMBAA's requests to include additional types of resources as liquid assets are beyond the scope of this rulemaking. The Commission may consider including additional types of liquid assets in a future rulemaking.
Existing § 37.1303 requires a SEF to make a reasonable calculation of its projected operating costs, each fiscal quarter over a twelve-month period, to determine the amount of financial resources needed to comply with the financial resource requirement.
The Commission proposed to renumber § 37.1303 as § 37.1304 and amend the rule to add the requirement that a SEF make a reasonable calculation of projected wind-down costs, providing discretion in adopting the methodology for calculating such costs. The Commission stated the proposed amendment is consistent with the reasonable discretion already provided for calculating projected operating costs and corresponds to proposed § 37.1303, which incorporates the calculation of a SEF's wind-down costs into the liquidity determination.
The Commission also proposed to include acceptable practices to Core Principle 13 in Appendix B associated with proposed § 37.1304. The proposed acceptable practices expound upon the reasonable discretion that SEFs have for computing projected operating costs in determining their financial resource requirements, consistent with existing guidance provided by Commission staff.
Specifically, the proposed acceptable practices state that calculations of projected operating costs,
In addition, the proposed acceptable practices specify that a SEF in calculating projected operating costs may prorate, but not exclude, certain expenses. The Commission recognizes some costs may be only partially attributable to a SEF's compliance with the SEF core principles and regulatory requirements. Therefore, only those attributed costs need to be included in a SEF's projected operating costs. Accordingly, a SEF may prorate
WMBAA supports the proposed acceptable practices.
The Commission is adopting § 37.1304 and the acceptable practices as proposed. The requirement to calculate wind-down costs corresponds to the amendments the Commission is adopting in amended § 37.1303 discussed above, which incorporate the calculation of a SEF's wind-down costs into the liquidity requirement. The reasonable discretion provided for calculation of wind-down costs is already provided to SEFs for their calculations of projected operating costs.
The Commission believes the acceptable practices added to Appendix B to part 37 will assist SEFs in complying with amended § 37.1304.
Existing § 37.1304—“Valuation of financial resources”—requires a SEF, at least once each fiscal quarter, to compute the current market value of each financial resource used to meet its financial resources requirement under § 37.1301.
The Commission proposed to renumber existing § 37.1304 as § 37.1305 and amend the provision to add a reference to the liquidity requirement under amended § 37.1303. This would clarify that compliance with amended § 37.1303 requires a SEF to utilize the current market value of the applicable financial resources as computed pursuant to § 37.1304.
The Commission did not receive any comments on this amendment.
The Commission is adopting § 37.1305 as proposed, confirming that compliance with the liquidity requirement under amended § 37.1303 requires a SEF to utilize the current market value of the applicable financial resources.
Existing § 37.1306 establishes a SEF's financial reporting requirements.
The Commission proposed several amendments to § 37.1306(a). First, the Commission proposed to require a SEF to prepare its financial statements in accordance with U.S. GAAP. For a SEF that is not domiciled in the U.S., and is not otherwise required to prepare its financial statements in accordance with U.S. GAAP, the Proposed Rules allowed the SEF to prepare its statements in accordance with either the International Financial Reporting Standards issued by the International Accounting Standards Board, or such comparable international standard as the Commission may accept in its discretion. The Commission noted the quality and transparency of SEF financial reports submitted under the current reporting requirement have varied and stated the U.S. GAAP-based requirement would promote consistency and better ensure a minimum reporting standard across financial submissions.
The Commission also proposed to require a SEF to provide its own financial statements, rather than allow a SEF the option of submitting the statements of its parent company. The Commission noted it may lack jurisdiction over a SEF's parent company or its affiliates, and in such instances, the Commission could not consider the parent company's financial resources in determining whether the
The Commission also proposed revisions to § 37.1306(a)(1) to add appropriate references to amended § 37.1303 and amended § 37.1305. In addition to specifying the amount of financial resources necessary to comply with § 37.1301, a SEF's quarterly report would have to include the amount of financial resources necessary to comply with the liquidity requirement in amended § 37.1303. Further, the amounts specified in the report would have to be based on the current market value of each financial resource and computed as reasonable calculations of the SEF's projected operating costs and wind-down costs.
The Proposed Rules also posed several questions to commenters on reporting requirements for SEFs. These included whether a SEF's financial reports should be required to be audited and whether financial reporting should be required on a semiannual rather than a quarterly basis.
WMBAA supports requiring a SEF's financial statements be prepared in accordance with U.S. GAAP or its equivalent for non-U.S. SEFs, concurring with the Commission's view that such a requirement would promote comparability across SEFs.
WMBAA objects to requiring a SEF's financial reports be audited, contending audited reports would not improve oversight. WMBAA reasoned that an auditing firm would not provide a complete assessment because it likely would be unable or unwilling to opine on certain unique aspects of a SEF's financial resources calculations, including projection of costs based on historical or estimated costs.
WMBAA also believes the current reporting requirement—quarterly financial reports—is sufficient to ensure capital adequacy, but that a semi-annual and annual report would also be adequate to achieve the goal of Commission oversight.
The Commission did not receive any comments on its proposal to require SEFs to submit their own financial statements rather than those of their parent entities.
The Commission is adopting the proposal requiring financial statements submitted as part of a SEF's quarterly financial reports to conform to U.S. GAAP or comparable foreign standards. As supported by commenters' feedback, the Commission continues to believe conforming financial statements to U.S. GAAP or comparable foreign standards will enhance the quality and transparency of SEFs' financial reporting and facilitate assessments of SEFs' financial conditions.
The Commission is adopting, as proposed, the requirement for a SEF to provide its own financial statements (including balance sheet), rather than the financial statements of its parent. This change will provide the Commission with a more accurate picture of the SEFs' assets to ensure a SEF has adequate financial resources.
The Commission will not adopt the requirement that financial statements be audited. As noted by commenters, the Commission has the ability to request additional information from a SEF if warranted, and the Commission does not believe the benefits of a blanket auditing requirement would justify the costs to SEF operators at this time.
Finally, the Commission will retain the existing quarterly reporting requirement for SEFs, rather than moving to a semiannual reporting requirement. Quarterly reports are necessary for the Commission to remain current with the SEF's financial condition in a manner that semiannual reports would not. Timely financial information will be particularly important to the Commission as it monitors the transition to a relatively less stringent liquidity requirement for SEFs' financial resources under the Final Rules.
Existing § 37.1306(c) sets forth documentation requirements for a SEF's financial reporting obligations.
Based on the proposed amendments to the Core Principle 13 regulations described above, the Commission proposed conforming amendments to § 37.1306(c) that would require a SEF to specify the methodology used to compute its financial resources and liquidity requirements. Proposed § 37.1306(c)(1) requires documentation to be sufficient to enable the Commission to determine whether the SEF has made reasonable calculations of projected operating and wind-down costs under § 37.1303. Proposed § 37.1306(c)(2)(i) through (iv)
The proposed requirement would create regulatory certainty by codifying the no-action relief, permitting SEFs to maintain their existing practices and avoid legal exposure arising out of a SEF's inability to comply with regulations.
The Commission further stated proposed § 37.1306(c)(2)(i) through (iv) would address the current lack of adequate documentation or insufficient identification of excluded or prorated expenses by some SEFs in submitting their projected operating costs based on Commission staff guidance.
The Commission did not receive any comments on the proposed amendments to § 37.1306(c).
The Commission is adopting the amendments to § 37.1306(c) as proposed. The enhanced specificity in documentation requirements will save time and effort for both Commission and SEF personnel by reducing the need for multiple iterations of communications and submissions in order to assess a SEF's compliance with the financial resources requirements. The requirement to provide documentation of projected wind-down costs corresponds to the incorporation under the revised rules of wind-down costs into a SEF's liquidity requirement and the requirement to compute such costs in addition to operating costs.
Existing § 37.1306(d) requires a SEF to file its financial report no later than 40 calendar days after the end of each of the SEF's first three fiscal quarters, and no later than 60 calendar days after the end of the SEF's fourth fiscal quarter, or at such later time as the Commission may permit.
The Commission proposed to extend the due date for SEFs' fourth-quarter report from 60 to 90 days following the end of the quarter. The revised due date would conform to the proposed revisions to the due date for the SEF annual compliance report under proposed § 37.1501(e)(2), discussed below. The Commission recognized that preparing multiple year-end reports for concurrent submission, including a fourth-quarter financial report and an annual compliance report, imposes resource constraints on SEFs.
The Commission did not receive any comments on the proposed extension of the deadline for submission of the fourth-quarter financial report.
The extended deadline for fourth-quarter financial reports is being adopted as proposed. The Commission continues to believe the resource constraints facing SEFs at year-end justify an additional 30 days to prepare the fourth-quarter financial report. The Commission has not experienced difficulties in monitoring SEFs' financial condition as a result of the 30-day extension currently available under Commission staff no-action relief.
The Commission proposed to add a new § 37.1306(e) requiring each SEF to provide notice to the Commission of its noncompliance with the financial resource requirements no later than 48 hours after the SEF knows or reasonably should know of its noncompliance.
The Commission did not receive any comments on proposed § 37.1306(e).
The Commission is adopting § 37.1306(e) as proposed. The Commission continues to believe prompt notification of noncompliance is necessary for it to perform its oversight functions and ensure market stability.
Existing § 37.1307(a) delegates authority to the Director of DMO, or other staff as the Director may designate, to perform certain functions that are reserved to the Commission under the Core Principle 13 regulations, including reviewing the methodology used to compute projected operating costs.
The Commission proposed to amend § 37.1307(a)(2) to additionally delegate the authority to review and make changes to the methodology used by a SEF to determine the market value of its financial resources under amended § 37.1304 and the methodology that SEFs use to determine their wind-down costs under amended § 37.1305. Further, the Commission would delegate the ability to request and receive the additional documentation related to calculation methodologies required under § 37.1306(c) and receive required notifications of noncompliance under § 37.1306(e). The proposed amendments also include several additional technical amendments based on the proposed amendments to Core Principle 13 regulations, as described above.
The Commission did not receive any comments on the proposed delegations of authority.
The Commission is adopting the additional provisions for delegation of authority as proposed. These delegation provisions will facilitate prompt and efficient determinations of the adequacy of SEF financial resources, consistent with the existing delegation authority under § 37.1307(a).
Statutory Core Principle 15 requires each SEF to designate a CCO and sets forth its corresponding duties.
The Proposed Rules set forth several amendments to § 37.1501 based on the Commission's experience since the part 37 implementation. These amendments streamline CCO requirements, allow SEF management to exercise discretion in CCO oversight, and simplify the preparation and submission of the ACR.
Core Principle 15 requires the CCO to report directly to the SEF's “board [of directors]” or “senior officer”
The Commission proposed to relabel paragraph (a) as “Definitions,” and define “senior officer” as the chief executive officer or other equivalent officer of the SEF. The Commission stated defining “senior officer” would clarify the permissible reporting lines for the CCO and provide specificity to the Commission's proposed amendments to the Core Principle 15 regulations, as described below.
WMBAA supports the proposed amendments to add a definition of senior officer.
The Commission is adopting § 37.1501(a) as proposed. The Commission continues to believe the definition of senior officer will clarify a CCO's permissible reporting lines consistent with Core Principle 15.
Existing §§ 37.1501(b)-(c) set forth certain baseline requirements for the SEF CCO position. Commission regulation 37.1501(b)—“Designation and qualifications of chief compliance officer”— requires a SEF to designate an individual to serve as the CCO; requires the CCO to have the authority and resources to help fulfill the SEF's statutory and regulatory duties, including supervisory authority over compliance staff; and establishes minimum qualifications for the designated CCO.
The Commission proposed to amend, clarify, or eliminate various existing requirements under § 37.1501(b) and (c) and consolidate the remaining provisions into § 37.1501(b). The Commission proposed to eliminate rules that are duplicative of Core Principle 15, including requirements that a SEF designate a CCO
Consistent with Core Principle 15, which requires a CCO to report to the SEF's board of directors or senior officer, the Commission proposed amendments under § 37.1501(b) to allow a SEF's senior officer to have the same oversight responsibilities over the CCO as the board of directors. First, the Commission proposed to allow a CCO to consult with the board of directors or senior officer of the SEF as the CCO develops the SEF's policies and procedures.
The Commission further proposed to eliminate the limitations on authority to remove a CCO, which currently restricts CCO removal authority to a majority of the board, or in the absence of a board, a senior officer.
Based on the proposed consolidation of existing § 37.1501(b) and (c), the Commission also proposed several technical amendments to the remaining provisions under proposed § 37.1501(b), including the renumbering of certain existing provisions.
The Commission proposed to adopt a new acceptable practice to Core Principle 15 in Appendix B providing, in determining whether the background and skills of a potential CCO are appropriate for fulfilling the responsibilities of the role of the CCO, a SEF has the discretion to base its determination on the totality of the qualifications of the potential CCO, including, but not limited to, compliance experience, related career experience, training, and any other relevant factors related to the position. The Commission stated a non-exclusive list provides the clarity that SEFs sought regarding a CCO's requisite qualifications, and also provides a board of directors and senior officer reasonable flexibility in appointing a CCO.
WMBAA supports the proposed amendments to § 37.1501(b) and (c). According to WMBAA, the Commission's revised rules should eliminate duplicative or unnecessary requirements, streamline existing provisions, and thereby allow SEFs to meet their statutory and regulatory obligations in a more effective and less burdensome manner.
The Commission is adopting the amendments to § 37.1501(b) and (c) as proposed. These changes will mitigate potential confusion by removing requirements that are duplicative of provisions in Core Principle 15 and references to governance structures, such as the ROC, that are not required by statute or regulation. The Commission believes the amendments granting the SEF's senior officer additional oversight authority over the CCO better reflects the reality that the senior officer is often better-positioned than the board of directors to facilitate a CCO's effectiveness on a day-to-day basis, while still maintaining the CCO's independence to an appropriate degree.
Further, the acceptable practice on qualifications of a CCO will provide SEFs with additional clarity on appropriate considerations in selecting a CCO, without limiting permissible considerations to the enumerated list. As stated in the acceptable practice, the Commission continues to stress the importance of considering potential conflicts of interest in appointing a CCO.
Existing § 37.1501(d)—“Duties of chief compliance officer”— requires a CCO, at a minimum, to: (i) Oversee and review the SEF's compliance with the Act and Commission regulations;
The Commission proposed to consolidate certain existing provisions of § 37.1501(d) (to be renumbered as § 37.1501(c)), specify a CCO may identify noncompliance matters through “any means” in addition to the currently prescribed means, and clarify that the procedures followed to address noncompliance issues must be “reasonably designed” by the CCO to handle, respond, remediate, retest, and resolve noncompliance issues identified by the CCO.
The Commission also proposed to amend the CCO's duty to resolve conflicts of interest.
The Commission stated these proposed amendments would not weaken the CCO's statutory duty to address conflicts of interest, but rather reflect the CCO's practical ability to detect and resolve conflicts.
WMBAA supports the proposed changes to the CCO's duties.
The amendments are being finalized as proposed, with one exception. The Commission notes the list of potential conflicts that a CCO should resolve under existing § 37.1500(d)(2) does not create an inference that they are an exhaustive list of conflicts that a CCO must address but, instead, provides useful examples, and the list will not be eliminated as proposed.
Existing § 37.1501(e)—“Preparation of annual compliance report”—requires the CCO to annually prepare and sign an ACR that, at a minimum, (i) describes the SEF's written policies and procedures, including the code of ethics and conflicts of interest policies;
After part 37 was implemented, the Commission gained experience and received feedback on the ACR requirements. The Commission determined that some of the required ACR content provides it with minimal meaningful insight into a SEF's compliance program. For example, some of the content is duplicative of information obtained by the Commission from other reporting channels, such as the system-related information that a SEF must file pursuant to Core Principle 14 and rule certifications filed pursuant to part 40 of
Based upon its experience in reviewing ACRs, the Commission proposed certain amendments to eliminate duplicative or unnecessary information requirements and streamline existing requirements, thereby reducing unnecessary regulatory burdens and compliance costs associated with certain aspects of ACRs. The Commission also proposed certain amendments to enhance the usefulness of ACRs by enabling the Commission to better assess the effectiveness of a SEF's compliance and self-regulatory programs.
Under the proposed approach, a SEF would no longer need to include in its ACR either a review of all the Commission regulations applicable to a SEF or an identification of the written policies and procedures designed to ensure compliance with the Act and Commission regulations.
To enhance the Commission's ability to assess a SEF's written policies and procedures regarding compliance matters, the Commission also proposed to require a SEF to discuss only material noncompliance matters and explain the corresponding actions taken to resolve such matters.
Consistent with these proposed amendments, the Commission also proposed to limit a SEF CCO's certification of an ACR's accuracy and completeness to “all material respects” of the report.
Refinitiv and WMBAA support the proposed amendments to the preparation of the ACR.
The Commission is adopting the amended requirements for preparation of an ACR as proposed. The streamlined content requirements will allow SEF CCOs to focus on providing complete and accurate information on the compliance matters that are most critical to the Commission's oversight of SEFs, and allow the Commission to conduct a more efficient and effective
Existing § 37.1501(f)(1) requires a CCO to provide the ACR to the board or, in the absence of a board, the senior officer for review.
The Commission proposed several amendments to the ACR submission procedures. First, the Commission proposed to provide SEFs with an additional 30 days to file the ACR with the Commission, but no later than 90 calendar days after a SEF's fiscal year end.
WMBAA supports the proposed amendments to the ACR submission requirements.
The amendments to the ACR submission requirements are being finalized as proposed. Given other relevant end-of-year reporting requirements, including the SEF's required fourth-quarter financial report (as well as any reporting required of the SEF's affiliates under other regulatory regimes), the Commission continues to believe a 30-day extension of the submission timeline and a less stringent “reasonable and valid” standard for further extensions will facilitate more accurate and useful reporting to the Commission.
Existing § 37.1501(g)(1) requires a SEF to maintain a copy of written policies and procedures adopted in furtherance of compliance with the Act and the Commission's regulations;
The Commission proposed to streamline the recordkeeping requirements that pertain to the CCO's duties and the preparation and submission of the ACR. Specifically, the Commission proposed to revise § 37.1501(f) to require a SEF to keep all records demonstrating compliance with the duties of the CCO and the preparation and submission of the ACR consistent with the recordkeeping requirements under §§ 37.1000 and 37.1001.
The Commission did not receive any comments on the proposed amendments to the CCO's recordkeeping requirements.
The Commission is adopting the recordkeeping requirements as proposed. The Commission believes the simplified requirements will better ensure access to relevant compliance information.
Existing § 37.1501(h)—“Delegation of authority”—delegates the authority to grant or deny a SEF's request for an extension of time to file its ACR to the Director of DMO.
The Regulatory Flexibility Act (“RFA”) requires federal agencies, in promulgating rules, to consider the impact of those rules on small entities.
The Paperwork Reduction Act of 1995 (“PRA”)
The rule amendments adopted herein will result in the revision of a collection of information for which the Commission has previously received a control number from OMB: OMB Control Number 3038-0074, Core Principles and Other Requirements for Swap Execution Facilities. The responses to this collection of information are mandatory.
The Commission did not receive any comments regarding its PRA burden analysis in the preamble to the notice of proposed rulemaking. The Commission is revising information collection number 3038-0074 to reflect the adoption of amendments to part 37 of its regulations, as discussed below, but does not believe the regulations as adopted impose any other new collections of information that require approval of OMB under the PRA.
Currently, there are approximately 19 SEFs registered with the Commission that may be impacted by this rulemaking and, in particular, the collection of information contained herein and discussed below.
Existing § 37.205(a) requires a SEF to capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses. Existing § 37.205(b)(2)(iv) requires a SEF's audit trail program to include an electronic transaction history database that identifies, among other things, each account to which order fills are allocated. The Commission proposed to eliminate the requirements in § 37.205(a) and (b)(2)(iv) that a SEF capture post-execution allocation information in its audit trail. Instead, the Commission proposed to require that SEFs capture in their audit trail information only through execution on the SEF. The Commission is adopting the amendments as proposed.
As noted in the Proposed Rules, to the extent that the Commission is providing SEFs with greater discretion in fulfilling their information collection obligations with respect to audit trail requirements under § 37.205, the Commission estimates and assumes SEFs will continue to fulfill their information collection burdens in a manner similar to the status quo. Accordingly, amended § 37.205(a) and (b) will not substantively or materially affect a SEF's total information collection burden hours. With respect to § 37.205(a), the Commission's proposal to eliminate such information collections will not result in a net change to a SEF's aggregate burden hours because the 2016 Part 37 PRA Renewal already considered such relief and non-compliance with such requirements in its revised estimate.
Core Principle 13 requires a SEF to have adequate financial, operational, and managerial resources to discharge its responsibilities. To achieve financial resource adequacy, a SEF must maintain financial resources sufficient to cover its operating costs for a period of at least one year, calculated on a rolling basis. The Commission implemented Core Principle 13 by adopting §§ 37.1301 through 37.1307 to specify: (i) The eligible types of financial resources that may be counted toward compliance (§ 37.1302); (ii) the computation of projected operating costs (§ 37.1303); (iii) valuation requirements (§ 37.1304); (iv) a liquidity requirement for those financial resources that is equal to six months of a SEF's operating costs (§ 37.1305); and (v) reporting obligations (§ 37.1306). These regulations are intended to ensure that a SEF has financial strength sufficient to discharge its responsibilities, maintain market continuity, and withstand unpredictable market events.
The Commission proposed several amendments to the Core Principle 13 regulations to achieve a better balance between ensuring SEF financial stability, promoting SEF growth and innovation, and reducing unnecessary costs. The proposed rules: (i) Clarify the scope of operating costs that a SEF must cover with adequate financial resources; (ii) set forth acceptable practices, based on existing Commission staff guidance, that address the discretion that a SEF has when calculating projected operating costs pursuant to proposed § 37.1304; (iii) amend the existing six-month liquidity requirement for financial resources held by a SEF; and (iv) streamline requirements with respect to financial reports filed with
The Commission is adopting the amendments to §§ 37.1301 through 37.1307 as proposed. With respect to two questions posed in the notice of proposed rulemaking, the Commission will not adopt the requirement that financial statements be audited, and the Commission will retain the existing quarterly reporting requirement for SEFs, rather than moving to a semiannual reporting requirement.
As stated in the notice of proposed rulemaking, the Commission estimates the amendment to § 37.1301(b) will decrease the annual recurring information collection burden hours by five burden hours; the amendment to § 37.1306 will increase the annual recurring information collection burden hours by 10 burden hours and not impose an initial, non-recurring burden; and the amendment to § 37.1306(c) will impose an initial, non-recurring information collection of 20 burden hours and five annual recurring information collection burden hours after the initial year to update the information. Other than as discussed above, the Commission believes the amendment to § 37.1306(c) will not impose new information collection burdens on SEFs or substantively or materially modify existing burdens.
Statutory Core Principle 15 requires each SEF to designate a CCO and sets forth its corresponding duties. Among other responsibilities, the CCO is required to ensure the SEF complies with the CEA and applicable rules and regulations, and to establish and administer required policies and procedures. Core Principle 15 also requires the CCO to prepare and file an ACR to the Commission. The Commission promulgated requirements under § 37.1501 to implement these requirements.
The Commission proposed several amendments to § 37.1501 based on the Commission's experience since the part 37 implementation. These amendments streamline CCO requirements; allow SEF management to exercise discretion in CCO oversight; and simplify the preparation and submission of the ACR. Specifically, the proposed changes: (i) Add the definition of “senior officer;” (ii) eliminate the existing ROC-related requirements; (iii) allow the SEF's senior officer to have the same oversight responsibilities over the CCO as the board; (iv) eliminate the limitations on authority to remove the CCO, which currently restricts that removal authority to a majority of the board, or in the absence of a board, the senior officer; (v) add a new acceptable practice to Core Principle 15 in Appendix B associated with § 37.1501(b)(2)(i), which requires the CCO to have the background and skills appropriate to the position and states that a SEF should be especially vigilant regarding potential conflicts of interest when appointing the CCO; (vi) adopt several amendments to clarify and streamline the CCO's duties, including refining the scope of the CCO's duty to taking only “reasonable steps” to resolve “material” conflicts of interest that may arise; and (vii) make other amendments, including elimination of duplicative rules and renumbering and consolidation of existing provisions. The amendments are being finalized as proposed, with one exception. The Commission is not eliminating the list of potential conflicts that the CCO should resolve under existing § 37.1501(d)(2).
With respect to the ACR, existing § 37.1501(e) requires the CCO to prepare and sign annually an ACR that, at a minimum: (i) Describes the SEF's written policies and procedures; (ii) reviews the SEF's compliance with the Act and Commission regulations; (iii) provides a self-assessment of the effectiveness of the SEF's policies and procedures; (iv) lists material changes to the policies and procedures; (v) describes the SEF's financial, managerial, and operational resources; (vi) describes any material compliance matters identified through certain enumerated mechanisms and explains how they were resolved; and (vii) certifies that, to the best of the CCO's knowledge and reasonable belief and under penalty of law, the ACR is accurate and complete.
The Commission proposed several amendments to simplify the ACR submission procedures including: Providing SEFs with an additional 30 days to file the ACR with the Commission, but no later than 90 calendar days after a SEF's fiscal year end, and requiring the CCO to submit an amended ACR to the SEF's board or, in the absence of a board, the senior officer of the SEF, for review prior to submitting the amended ACR to the Commission. The proposed rules also would streamline the recordkeeping requirements that pertain to the CCO's duties and the preparation and submission of the ACR. The amendments to the ACR preparation, submission and recordkeeping requirements are being adopted and finalized as proposed.
As stated in the notice of proposed rulemaking, the Commission estimates the amendment to § 37.1501(d) will reduce annual recurring information collection burden hours by approximately 10 burden hours per SEF. The amendment to § 37.1501(d)(3) will reduce annual recurring information collection burden hours by approximately five burden hours per SEF. The amendment to § 37.1501(d)(4) will reduce annual recurring information collection burden hours per SEF by three burden hours. The amendment to § 37.1501(d)(5) will reduce annual recurring information collection burden hours per SEF/CCO by 10 burden hours.
Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders.
The Commission is finalizing several of the Proposed Rules. First, the Final Rules eliminate the requirement that a SEF capture post-execution allocation information in its audit trail data. Second, regarding financial resources, the Final Rules finalize amendments to the existing six-month liquidity requirement and add new acceptable practices that provide further guidance to SEFs for making a reasonable calculation of their projected operating costs. Finally, the Final Rules streamline requirements for the CCO position; allow SEF management to exercise discretion in CCO oversight; and simplify the preparation and submission of the required ACR.
The baseline against which the Commission considers the costs and benefits of the Final Rules is the statutory and regulatory requirements of the CEA and Commission regulations now in effect, in particular CEA section
In some instances, it is not reasonably feasible to quantify the costs and benefits with respect to certain factors, for example, price discovery or market integrity. Notwithstanding these limitations, however, the Commission otherwise identifies and considers the costs and benefits of these rules in qualitative terms. The Commission did not receive any comments from commenters which quantified or attempted to quantify the costs and benefits of these rules.
The following consideration of costs and benefits is organized according to the rules and rule amendments finalized in this rulemaking. For each rule, the Commission summarizes the Final Rules, and identifies and discusses the costs and benefits attributable to each rule. The Commission, where applicable, then considers the costs and benefits of the Final Rules in light of the five public interest considerations set out in section 15(a) of the CEA.
The Commission notes that this consideration of costs and benefits is based on the understanding that the swaps market functions internationally, with many transactions involving U.S. firms taking place across international boundaries, with some Commission registrants being organized outside of the U.S., with leading industry members typically conducting operations both within and outside the U.S., and with industry members commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the discussion of costs and benefits below refers to the effects of the Final Rules on all swaps activity subject to the final new and amended regulations, whether by virtue of the activity's physical location in the U.S. or by virtue of the activity's connection with activities in, or effect on, U.S. commerce under CEA section 2(i).
Existing § 37.205(a) requires a SEF to capture and retain all audit trail data necessary to detect, investigate and prevent customer and market abuses.
Recognizing the practical difficulties that SEFs face in obtaining information regarding allocations that occur away from the SEF after a trade has been executed, the Commission is eliminating the requirements in § 37.205(a) and (b)(2)(iv) that a SEF capture post-execution allocation information in its audit trail.
Post-execution allocations are made away from SEFs and typically occur between the clearing firm or the customer and the DCO, or at the middleware provider.
The changes to the existing audit trail requirements may reduce the scope of information captured in a SEF's audit trail, but the Commission believes that these changes are not likely to affect materially the protection of market participants and the public. The Commission notes that post-execution allocation information has generally not been captured because SEFs have operated under no-action relief, which was provided by Commission staff due to the general inability of SEFs to access this information. Thus, although the elimination of the requirement to capture and retain post-execution allocation information is a regulatory change, it should not have a material effect on the status quo.
The Commission believes the revised audit trail requirements provide a nearly identical level of protection to market participants and the public as provided under the existing rules. As noted above, SEFs generally do not capture post-execution allocation information in their audit trail because SEFs have operated under no-action relief, which was provided by Commission staff due to the general inability of SEFs to access this information. Moreover, the Commission is able to obtain post-execution allocation information from other registered entities and is not aware that SEFs' reliance on the relief from collecting post-execution allocation information has raised any regulatory concerns. Thus, elimination of the requirement that SEFs capture and retain post-execution allocation information should not have a material effect on the level of protection for market participants and the public relative to the status quo, although it is a regulatory change.
The Commission believes that there will be no substantive change to the efficiency, competitiveness, and financial integrity of markets because
The Commission believes these rules will have no effect on price discovery because they affect only how SEFs track and audit trades and do not change what information is disclosed to market participants. Further, the amendments to § 37.205 will not change the current status quo in the markets.
The Commission believes these rules will have no material effect on sound risk management practices because they do not change the status quo and the Commission is not aware that SEFs' reliance on the no-action relief from collecting post-execution allocation information has raised any regulatory concerns.
The Commission has not identified any effects that these rules will have on public interest considerations other than those enumerated above, nor did any commenter suggest one.
Commenters support the proposal to eliminate the requirement to capture and retain post-execution allocation information because SEFs remain unable to obtain the information.
The Final Rules improve on the existing rules to apply the existing Core Principle 13 financial resources requirements to SEF operations in a more practical manner, including through amendments to the existing six-month liquidity requirement and the addition of new acceptable practices that provide further guidance to SEFs for making a reasonable calculation of their projected operating costs.
Amended § 37.1301 requires a SEF to maintain financial resources in an amount adequate to cover only those projected operating costs necessary to enable the SEF to comply with its core principle obligations under section 5h of the Act and any applicable Commission regulation for a one-year period, calculated on a rolling basis.
Pursuant to existing § 37.1303, a SEF has reasonable discretion to determine its financial obligations under § 37.1301.
Specifically, the financial resources guidance provides that a SEF may reasonably exclude from its projected operating costs certain expenses, including: (i) Costs attributable solely to sales, marketing, business development, or recruitment;
Amended § 37.1303 requires a SEF to maintain liquid assets in an amount equal to the greater of (i) three months of projected operating costs necessary to enable the SEF to comply with its core principle obligations and applicable Commission regulations, or (ii) the SEF's projected wind-down costs. In contrast, under existing rules, a SEF
Amended § 37.1306(a) requires a SEF's quarterly financial submissions to conform to U.S. GAAP, or in the case of a non-U.S. domiciled SEF that is not otherwise required to prepare U.S. GAAP-compliant statements, to prepare its statements in accordance with either the International Financial Reporting Standards issued by the International Accounting Standards Board, or a comparable international standard that the Commission may accept in its discretion. Amended § 37.1306(c) provides that a SEF's quarterly financial statements must explicitly: (i) Identify all the SEF's expenses without any exclusions; (ii) identify all expenses and corresponding amounts that the SEF excluded or prorated when it determined its projected operating costs; (iii) explain why the SEF excluded or prorated any expenses; and (iv) identify and explain all costs necessary to wind down the SEF's operations. Amended § 37.1306(d) extends the deadline for a SEF's fourth-quarter financial statement from 60 to 90 days after the end of such fiscal quarter to conform to the extended deadline for a SEF's annual compliance report. Amended § 37.1306(e) is a new rule that requires a SEF to provide notice no later than 48 hours after it knows or reasonably should know it no longer meets its financial resources obligations.
The Commission expects amended § 37.1301(a) to reduce the total financial assets that most SEFs must maintain because a SEF will only be required to maintain sufficient resources to cover its operations necessary to comply with its core principle obligations and applicable Commission regulations, rather than all of its operating costs as is required by existing § 37.1301(a). With respect to § 37.1301(a), the acceptable practices provide further guidance regarding the scope of a SEF's reasonable discretion when determining the SEF's financial requirements under amended § 37.1301(a) to exclude certain expenses from its projected operating cost calculations, thereby reducing the amount of total financial assets that a SEF must maintain under amended § 37.1301(a). To the extent that the acceptable practices generally adopt the Commission staff's existing financial resources guidance, SEFs may already have realized the benefits associated with reduced financial resources requirements.
The liquidity requirement in amended § 37.1303 significantly reduces the amount of liquid financial assets that must be maintained by most SEFs. Currently, a SEF must maintain liquid financial assets equal to six months of projected operating costs, while amended § 37.1303 only requires most SEFs to maintain three months of projected operating costs. As a result, amended § 37.1303 is expected to reduce the liquidity requirement for most SEFs by 50 percent.
Amended § 37.1304 provides that a SEF must make a reasonable calculation of projected wind-down costs, but has reasonable discretion in adopting the methodology for calculating such costs. The finalized acceptable practices expound upon the reasonable discretion that a SEF has for computing its projected operating costs to exclude certain expenses from its projected three months of operating cost calculations.
The Commission believes the Final Rules provide SEFs with greater flexibility in terms of establishing their financial resources. This, in turn, may lead to greater efficiencies in terms of financing and capital allocation and investment. However, the Commission acknowledges, as discussed below, this flexibility may increase the level of financial risk at the SEF.
Amended §§ 37.1306(a) and (c) will increase transparency and augment the Commission's oversight by requiring SEFs to provide standardized, U.S. GAAP-compliant financial submissions that explicitly identify any cost a SEF has excluded or prorated in determining its projected operating costs. In its experience conducting ongoing SEF oversight, Commission staff has devoted additional effort to obtain appropriate clarity and sufficient documentation from SEFs. Therefore, the Commission believes that establishing the minimum documentation that a SEF must provide will mitigate the time and resources required both by Commission staff in conducting its oversight and by SEFs in responding to Commission staff's requests for additional information. Final § 37.1306(e) benefits market integrity by ensuring that the Commission is aware of any non-compliance 48 hours after a SEF knows or reasonably should know that it fails to satisfy its financial resources obligations rather than when the SEF submits its quarterly financial statement under § 37.1306(a), increasing the Commission's ability to promptly respond.
Amended § 37.1301(a) reduces the amount of financial resources a SEF must maintain to an amount that will enable the SEF to comply with its core principle obligations and applicable Commission regulations for a one-year period, calculated on a rolling basis, rather than in an amount necessary to cover all of the SEF's operations as required under existing § 37.1301(a). The acceptable practices provide guidance on the costs that a SEF may exclude when determining its obligations under amended § 37.1301(a). As a result, amended § 37.1301(a) as supplemented by the acceptable practices likely will induce SEFs to reduce the current level of total financial resources that they maintain under § 37.1301. In turn, this could decrease market participants' confidence and could harm a SEF's stability during adverse market conditions because the SEF may not have adequate financial resources to cover its costs. However, the Commission believes the potential harm to a SEF's financial stability and to the market is minimal because amended § 37.1301(a) addresses only the amount of a SEF's total financial assets, which includes illiquid assets, rather than focusing only on a SEF's liquid assets. The Commission notes that illiquid assets are less important compared to the amount of liquid financial assets that a SEF must maintain under amended § 37.1303 since it is more difficult for a SEF to timely liquidate its illiquid assets to cover its operating
Amended § 37.1303 may require some SEFs to maintain additional liquid financial assets, compared to the current liquidity requirement, where a SEF's wind-down costs exceed six months of operating costs. However, as explained above in the discussion of benefits, the Commission believes most SEFs do not have wind-down costs that exceed six months of operating costs. Accordingly, amended § 37.1303 should not increase the liquidity requirement for most SEFs.
Amended § 37.1304 requires a SEF to incur an additional marginal cost to calculate its wind-down costs, in addition to its projected operating costs as currently required, in order to determine its financial resources obligations under §§ 37.1301 and 37.1303. The Commission estimates this change will impose an initial, minimal, one-time cost for each SEF related to determining the length of time and associated costs associated with an orderly wind down.
The Commission anticipates amended § 37.1306(a) will impose greater costs on a SEF. Specifically, amended § 37.1306(a) requires a SEF to submit U.S. GAAP-compliant quarterly reports. Because U.S. GAAP-compliant financial statements generally require additional effort compared to financial statements that are not U.S. GAAP-compliant, the Commission estimates the proposed change will increase annual costs for each SEF required to create U.S. GAAP-compliant financial reports.
The Commission does not believe amended § 37.1306(c) will increase costs. Under existing § 37.1306(c), a SEF must provide sufficient documentation explaining the methodology it used to compute its financial resources requirements; accordingly, amended § 37.1306(c) is merely clarifying the type of information that is already required.
The Commission previously noted that the financial resources requirements protect market participants and the public by establishing uniform standards and a system of Commission oversight that ensures trading occurs on a financially stable facility, which in turn, mitigates the risk of market disruptions, financial losses, and system problems that could arise from a SEF's failure to maintain adequate financial resources.
Moreover, under amended § 37.1306(e), a SEF is required to provide notice no later than 48 hours after it knows or reasonably should know that it no longer satisfies its financial resources obligations, ensuring that the Commission can take prompt action to protect market participants and the public. In contrast, the Commission currently is notified of non-compliance in a SEF's quarterly financial statements. Lastly, a SEF is required to submit U.S. GAAP-compliant quarterly financial submissions under amended § 37.1306(c) that explicitly identify the costs a SEF has excluded or prorated in determining its projected operating costs. As a result, the Commission will more easily be able to compare SEFs' financial health and take proactive steps to protect market participants and the public if the Commission identifies a SEF with weak financial health or the development of negative financial trends among SEFs that could endanger market participants or the public.
Amended § 37.1301(a) and § 37.1303, as further supplemented through the acceptable practices, together should benefit market efficiency by reducing capital costs since SEFs are no longer required to maintain an excessive amount of financial resources. Accordingly, a SEF should be able to more efficiently allocate its financial resources, which in turn should encourage market growth and innovation. For example, as noted above, in the case of amended § 37.1303, the Commission expects most SEFs will need to hold approximately 50 percent less liquid financial assets as reserve capital to cover operating costs. The existing financial resources requirements can pose a burden to a SEF that wishes to innovate, because they will impose higher capital requirements if the SEF wishes to offer new or experimental technology, execution methods, or related products and services. This is especially so if such business lines, products, or services are not expected to be immediately profitable or would have low margins.
The existing regulations may also discourage a SEF from offering more capital intensive activities, such as execution methods that involve human brokers compared to fully electronic trading that is less capital intensive. Accordingly, the Commission believes the amended financial resources requirements will be more neutral with respect to a SEF's chosen technology and business model, and therefore should encourage a greater variety of execution methods and related services and products in the market place.
Reducing capital costs may promote the entry of new entrants into the market by reducing start-up costs and initial capital requirements, thereby further encouraging competition and innovation. The increase in competition and innovation would depend on the extent to which potential new entrants respond to this encouragement.
Amended § 37.1306(e) should improve the financial integrity of markets by requiring a SEF to notify the Commission within 48 hours after it knows or reasonably should know that it no longer satisfies its financial resources obligations, ensuring that the Commission can take prompt action to protect market integrity. Lastly, amended § 37.1306(c) improves SEF financial submissions by requiring U.S. GAAP-compliant statements as well as clarifying that a SEF must explicitly identify any costs that it has excluded
The Commission has not identified any effects of these rules on price discovery.
By establishing specific standards with respect to how SEFs should assess and monitor the adequacy of their financial resources, the financial resources rules should promote sound risk management practices by SEFs. As noted above, amended § 37.1303 requires a SEF to identify its wind-down costs and associated timing and ensure it has sufficient liquid assets to maintain an orderly wind down. Similarly, amended § 37.1306(c) requires a SEF to explain the basis of its determination for its estimate of its wind-down costs and timing. Amended § 37.1306(e) requires a SEF to notify the Commission no later than 48 hours after it knows or reasonably should know it no longer satisfies its financial resources obligations. As a result, SEFs will be required to ensure they maintain the necessary procedures to identify, and to notify the Commission of, any non-compliance.
The Commission has not identified any effects that these rules will have on public interest considerations other than those enumerated above, nor did any commenter suggest one.
The Proposed Rule included requests for comment regarding possible alternatives to the proposed reporting requirements for SEFs. These included whether to require that a SEF's financial reports be audited, and whether financial reporting should be required on a semiannual rather than a quarterly basis.
WMBAA objected to the alternative of requiring that a SEF's financial reports be audited, contending, as discussed further above, that auditing reports would not improve oversight (
Regarding the frequency of reports, WMBAA stated the current reporting requirement of quarterly financial reports is sufficient for ensuring capital adequacy, but that a semi-annual or annual report would also be adequate if a SEF is required to maintain all related documents and support for further inspection.
As noted above, commenters generally supported the proposed financial resources rules and offered no relevant alternatives other than those discussed above.
First, the Proposed Rule included amendments to § 37.1301(b), which requires a SEF that also operates as a DCO to also comply with the financial resource requirements for DCOs under § 39.11. Specifically, the Commission proposed to amend § 37.1301(b) to permit SEFs that also operate as DCOs to file a single financial report under § 39.11 that covers both the SEF and DCO. The Commission is not finalizing this proposed change as part of the Final Rules but is continuing to consider it.
Second, the proposed acceptable practices included a provision that would have allowed a SEF offering more than one bona fide execution method to include the costs of only one of those methods in calculating projected operating costs, with the goal of mitigating the burden for SEFs wishing to offer multiple execution methods. This proposed change was intended to be consistent with the Proposed Rule's removal of existing limitations on execution methods for Required Transactions. The Final Rules are not implementing the Proposed Rule's expansion of permissible execution methods for Required Transactions, nor is it eliminating the minimum trading functionality requirement that a SEF maintain an Order Book as one of its execution methods. Accordingly, the Commission is not finalizing this particular proposed acceptable practice at this time.
The Commission is adopting several amendments to the CCO regulations. First, the Commission is allowing the senior officer
Second, the Commission is consolidating and amending existing § 37.1501(d)(5) and (6)
Third, the Commission is making certain amendments to the ACR regulations in existing § 37.1501(e)
The Commission is finalizing several amendments to simplify the ACR submission procedures. The Commission is amending existing § 37.1501(f)(2)
In addition to these substantive changes, the Commission is adopting a number of conforming, clarifying, and streamlining changes that would not impose new costs or result in new benefits and are not discussed below. The Commission is eliminating the CCO's obligations to the ROC, including existing § 37.1501(c)(1)(iii), which requires a quarterly meeting with the ROC and existing § 37.1501(c)(1)(iv), which requires the CCO to provide self-regulatory program information to the ROC. The Final Rule will not impact SEFs as there is no requirement that a SEF have a ROC.
Additionally, the Commission is consolidating existing § 37.1501(b) and (c) into final § 37.1501(b). The Commission is eliminating existing § 37.1501(b)(1), which requires a SEF to designate a CCO and existing § 37.1501(c)(2), which requires the CCO to report directly to the board of directors or the senior officer of the SEF, as these requirements are already contained under § 37.1500.
The Commission is eliminating the requirement under existing § 37.1501(f)(1) that a SEF document the submission of the ACR to the SEF's board of directors or senior officer in the board minutes or some other similar written record. This requirement is already covered in the general recordkeeping requirements in amended § 37.1501(f), which is existing § 37.1501(g).
The Commission is finalizing an amendment to § 37.1501(a)(2) to define a “senior officer” as “the chief executive officer or other equivalent officer of the swap execution facility.”
The amendments give the senior officer the same authority as the board of directors to oversee the CCO and provide SEFs with greater opportunity to structure the management and oversight of the CCO based on the SEF's particular corporate structure, size, and complexity. This could increase efficiency and reduce costs. Additionally, the quality of oversight of the CCO could improve if the senior officer is better positioned than the board of directors to provide day-to-day oversight of the CCO.
The amendments permit a CCO to use any means to identify noncompliance issues and are less prescriptive than the existing rule, which could increase efficiency and reduce costs. The amendment to § 37.1501(d) refines the scope of the required information in an ACR and should make the ACR process more efficient and reduce costs. The removal of § 37.1501(e)(2)(i) and certain specific content set forth under § 37.1501(e)(4) should reduce the amount of time that a CCO and his or her staff spend preparing the ACR.
Amended § 37.1501(d)(4), which requires SEFs to focus on describing material non-compliance matters, rather than describing all compliance matters, should streamline the ACR requirement and provide more useful information to the Commission. Additionally, the clarification under § 37.1501(e)(3) that the CCO must submit an amended ACR to the SEF's board of directors or, in the absence of a board of directors, the senior officer of the SEF, should reduce the need for extensive follow-up discussions.
Finally, the amendment allowing SEFs more time to submit their ACRs should reduce the time and resource burden on CCOs and SEFs' compliance departments. This additional time should allow SEFs to fully complete their ACRs and meet their other end-of-year reporting obligations such as the fourth-quarter financial report. However, the Commission understands that those SEFs that already may rely on Commission staff no-action relief for an extra 30 days to complete the ACR may have already availed themselves of the benefits associated with the extended reporting deadline.
The amendments to § 37.1501(b) that authorize the senior officer to oversee the CCO could impair the independence of the CCO, and as a result, the CCO's oversight of the SEF. However, the Commission believes this concern is mitigated by the Commission's review of annual ACRs and its examination program.
The amendments eliminate requirements that the CCO identify noncompliance matters using certain specified detection methods, design procedures that detect and resolve all possible noncompliance issues, and eliminate all potential conflicts of interest. These requirements are replaced by more flexible standards, which could potentially allow for some impairment of a CCO's oversight of the SEF's compliance in some circumstances. However, the Commission believes the resulting costs (in the form of potential adverse consequences) will not be material because the amendments require a CCO to focus on material aspects of the compliance program (
The amendments to § 37.1501(e) that reduce the information required in an ACR could make it more difficult for the Commission to assess a SEF's compliance and self-regulatory programs. However, the Commission does not anticipate that these changes will materially impact the Commission's assessment, as the Commission already receives or has access to such information from other sources. For example, the Commission approves the SEF's compliance staffing and structure as part of the SEF's registration or rule submission, and annual updates provide minimal additional information, at best. In addition, SEFs report finalized disciplinary actions to the NFA,
Finally, the amendment providing SEFs more time to submit their ACRs could delay the Commission recognizing and addressing a SEF compliance issue. However, the Commission anticipates that such risk is mitigated to the extent that SEFs submit ACRs on the timeline set forth in the Final Rules. The Commission's experience has not indicated that delayed reporting pursuant to Commission staff no-action relief has adversely impacted its ability to recognize and address compliance issues in a timely manner.
The Commission believes the changes to the existing SEF CCO requirements are likely to better enable the Commission to protect market participants and the public. Specifically, the Commission should be better able to assess whether a SEF's policies and procedures adversely impact a SEF's operations or its ability to comply with the core principles or Commission's regulations, which are intended in part to protect market participants.
The changes to the ACR requirements under amended § 37.1501(d) should better enable the Commission to assess the effectiveness of a SEF's compliance and self-regulatory programs; this assessment is intended, in part, to protect market participants. The amendments will remove some of the duplicative and unnecessary content requirements and require the ACR to focus on describing material non-compliance matters. The Commission believes the new requirements will streamline the ACR and provide more useful information to the Commission. Removing these information requirements,
The Commission is promoting the efficiency and integrity of a SEF's market by allowing a more streamlined compliance approach that does not require the board of directors to assume primary oversight responsibility for the CCO. This streamlined approach should, in many circumstances, permit CCOs to more efficiently make changes to the regulatory program in response to potential trading violations, which should aid in protecting the financial integrity of the market. Furthermore, the focus of CCOs' duties on reasonably designed procedures to address noncompliance issues and material conflicts of interest should improve CCOs' effectiveness by specifying that this is the appropriate standard. This increased effectiveness should permit CCOs to better allocate resources to focus on detecting and deterring material rule violations, which otherwise may harm the market's efficiency, competitiveness, and integrity.
The Commission believes the changes to the CCO requirements will not impede a CCO's ability to ensure compliance and are unlikely to have a substantial impact on price discovery.
The Commission believes the new CCO rules should promote sound risk management practices. The gains in this regard will depend on the quality and effective implementation of the policies and practices that SEFs currently have in place and the new policies and procedures that they will adopt due to the proposed amendments.
The Commission has not identified any effects that these rules will have on public interest considerations other than those enumerated above, nor did any commenter suggest one.
Commenters support the proposed changes. WMBAA supports the amendments to add a definition of senior officer,
The Commission also proposed to eliminate the existing enumerated conflicts of interest to avoid any inference that they are an exhaustive list of conflicts that a CCO must address. The Commission has determined that the list of potential conflicts that a CCO should resolve under existing § 37.1500(d)(2) does not create
Section 15(b) of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the purposes of the CEA, in issuing any order or adopting any Commission rule or regulation.
The Commission does not anticipate that the amendments to part 37 that it is adopting in this rule will result in anticompetitive behavior. The Commission received no comments on the antitrust considerations of the proposed rules finalized herein.
Swap execution facilities.
For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR part 37 as follows:
7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a, as amended by Titles VII and VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376.
(a)
(a)
(b)
(a) A swap execution facility shall maintain financial resources on an ongoing basis that are adequate to enable it to comply with the core principles set forth in section 5h of the Act and any applicable Commission regulations. Financial resources shall be considered adequate if their value exceeds the total amount that would enable the swap execution facility to cover its projected operating costs necessary for the swap execution facility to comply with section 5h of the Act and applicable Commission regulations for a one-year period, as calculated on a rolling basis pursuant to § 37.1304.
(b) An entity that operates as both a swap execution facility and a derivatives clearing organization shall also comply with the financial resource requirements of § 39.11 of this chapter.
Financial resources available to satisfy the requirements of § 37.1301 may include:
(a) The swap execution facility's own capital, meaning its assets minus its liabilities calculated in accordance with generally accepted accounting principles in the United States; and
(b) Any other financial resource deemed acceptable by the Commission.
The financial resources allocated by the swap execution facility to meet the ongoing requirements of § 37.1301 shall include unencumbered, liquid financial assets (
A swap execution facility shall each fiscal quarter, make a reasonable calculation of its projected operating costs and wind-down costs in order to determine its applicable obligations under §§ 37.1301 and 37.1303. The swap execution facility shall have reasonable discretion in determining the methodologies used to compute such amounts. The Commission may review the methodologies and require changes as appropriate.
No less than each fiscal quarter, a swap execution facility shall compute the current market value of each financial resource used to meet its obligations under §§ 37.1301 and 37.1303. Reductions in value to reflect market and credit risk (“haircuts”) shall be applied as appropriate.
(a) Each fiscal quarter, or at any time upon Commission request, a swap execution facility shall provide a report to the Commission that includes:
(1) The amount of financial resources necessary to meet the requirements of §§ 37.1301 and 37.1303, computed in accordance with the requirements of § 37.1304, and the market value of each available financial resource, computed in accordance with the requirements of § 37.1305; and
(2) Financial statements, including the balance sheet, income statement, and statement of cash flows of the swap execution facility.
(i) The financial statements shall be prepared in accordance with generally accepted accounting principles in the United States, prepared in English, and denominated in U.S. dollars.
(ii) The financial statements of a swap execution facility that is not domiciled in the United States, and is not otherwise required to prepare financial statements in accordance with generally accepted accounting principles in the United States, may satisfy the requirement in paragraph (a)(2)(i) of this section if such financial statements are prepared in accordance with either International Financial Reporting Standards issued by the International Accounting Standards Board, or a comparable international standard as the Commission may otherwise accept in its discretion.
(b) The calculations required by paragraph (a) of this section shall be made as of the last business day of the swap execution facility's applicable fiscal quarter.
(c) With each report required under paragraph (a) of this section, the swap execution facility shall also provide the Commission with sufficient documentation explaining the methodology used to compute its financial requirements under §§ 37.1301 and 37.1303. Such documentation shall:
(1) Allow the Commission to reliably determine, without additional requests for information, that the swap execution facility has made reasonable calculations pursuant to § 37.1304; and
(2) Include, at a minimum:
(i) A total list of all expenses, without any exclusion;
(ii) All expenses and the corresponding amounts, if any, that the swap execution facility excluded or prorated when determining its operating costs, calculated on a rolling basis, required under §§ 37.1301 and 37.1303, and the basis for any determination to exclude or prorate any such expenses;
(iii) Documentation demonstrating the existence of any committed line of credit or similar facility relied upon for the purpose of meeting the requirements of § 37.1303 (
(iv) All costs that a swap execution facility would incur to wind down the swap execution facility's operations, the projected amount of time for any such wind-down period, and the basis of its determination for the estimation of its costs and timing.
(d) The reports and supporting documentation required by this section shall be filed not later than 40 calendar days after the end of the swap execution facility's first three fiscal quarters, and not later than 90 calendar days after the end of the swap execution facility's fourth fiscal quarter, or at such later time as the Commission may permit, in its discretion, upon request by the swap execution facility.
(e) A swap execution facility shall provide notice to the Commission no later than 48 hours after it knows or reasonably should know that it no longer meets its obligations under § 37.1301 or 37.1303.
(a) The Commission hereby delegates, until it orders otherwise, to the Director of the Division of Market Oversight or such other employee or employees as the Director may designate from time to time, authority to:
(1) Determine whether a particular financial resource under § 37.1302 may be used to satisfy the requirements of § 37.1301;
(2) Review and make changes to the methodology used to compute projected operating costs and wind-down costs under § 37.1304 and the valuation of financial resources under § 37.1305;
(3) Request reports, in addition to those required in § 37.1306, or additional documentation or information under § 37.1306(a), (c), and (e); and
(4) Grant an extension of time to file fiscal quarter reports under § 37.1306(d).
(b) The Director may submit to the Commission for its consideration any matter that has been delegated in this section. Nothing in this section prohibits the Commission, at its election, from exercising the authority delegated in this section.
(a)
(b)
(ii) The chief compliance officer shall have supervisory authority over all staff acting at the direction of the chief compliance officer.
(2)
(ii) No individual disqualified from registration pursuant to sections 8a(2) or 8a(3) of the Act may serve as a chief compliance officer.
(3)
(ii) The swap execution facility shall notify the Commission within two business days of the appointment or removal, whether interim or permanent, of a chief compliance officer.
(4)
(5)
(6)
(c)
(1) Overseeing and reviewing compliance of the swap execution facility with section 5h of the Act and any related rules adopted by the Commission;
(2) Taking reasonable steps, in consultation with the board of directors or the senior officer of the swap execution facility, to resolve any material conflicts of interest that may arise, including, but not limited to:
(i) Conflicts between business considerations and compliance requirements;
(ii) Conflicts between business considerations and the requirement that the swap execution facility provide fair, open, and impartial access as set forth in § 37.202; and;
(iii) Conflicts between a swap execution facility's management and members of the board of directors;
(3) Establishing and administering written policies and procedures reasonably designed to prevent violations of the Act and the rules of the Commission;
(4) Taking reasonable steps to ensure compliance with the Act and the rules of the Commission;
(5) Establishing procedures reasonably designed to handle, respond, remediate, retest, and resolve noncompliance issues identified by the chief compliance officer through any means, including any compliance office review, look-back, internal or external audit finding, self-reported error, or validated complaint;
(6) Establishing and administering a compliance manual designed to promote compliance with the applicable laws, rules, and regulations and a written code of ethics for the swap execution facility designed to prevent ethical violations and to promote honesty and ethical conduct by personnel of the swap execution facility;
(7) Supervising the self-regulatory program of the swap execution facility with respect to trade practice surveillance; market surveillance; real time market monitoring; compliance with audit trail requirements; enforcement and disciplinary proceedings; audits, examinations, and other regulatory responsibilities (including taking reasonable steps to ensure compliance with, if applicable, financial integrity, financial reporting, sales practice, recordkeeping, and other requirements); and
(8) Supervising the effectiveness and sufficiency of any regulatory services provided to the swap execution facility by a regulatory service provider in accordance with § 37.204.
(d)
(1) A description and self-assessment of the effectiveness of the written policies and procedures of the swap execution facility, including the code of ethics and conflict of interest policies, to reasonably ensure compliance with the Act and applicable Commission regulations;
(2) Any material changes made to compliance policies and procedures during the coverage period for the report and any areas of improvement or recommended changes to the compliance program;
(3) A description of the financial, managerial, and operational resources set aside for compliance with the Act and applicable Commission regulations;
(4) Any material non-compliance matters identified and an explanation of the corresponding action taken to resolve such non-compliance matters; and
(5) A certification by the chief compliance officer that, to the best of his or her knowledge and reasonable belief, and under penalty of law, the annual compliance report is accurate and complete in all material respects.
(e)
(2)
(3)
(ii) An amendment shall contain the certification required under paragraph (d)(5) of this section.
(4)
(f)
(g)
The additions read as follows:
(b)
(i) Costs attributable solely to sales, marketing, business development, product development, or recruitment and any related travel, entertainment, event, or conference costs;
(ii) Compensation and related taxes and benefits for swap execution facility personnel who are not necessary to ensure that the swap execution facility is able to comply with the core principles set forth in section 5h of the Act and any applicable Commission regulations;
(iii) Costs for acquiring and defending patents and trademarks for swap execution facility products and related intellectual property;
(iv) Magazine, newspaper, and online periodical subscription fees;
(v) Tax preparation and audit fees;
(vi) To the extent not covered by paragraphs (b)(1)(ii) or (iii) of this Core Principle 13 of Section 5h of the Act—Financial Resources, the variable commissions that a voice-based swap execution facility may pay to its SEF trading specialists (as defined under § 37.201(c)), calculated as a percentage of transaction revenue generated by the voice-based swap execution facility. Unlike fixed salaries or compensation, such variable commissions are not payable unless and until revenue is collected by the swap execution facility; and
(vii) Any non-cash costs, including depreciation and amortization.
(2)
(i) Maintain sufficient documentation that reasonably shows the extent to which an expense is partially attributable to an excludable expense;
(ii) Identify any prorated expense in the financial reports that it submits to the Commission pursuant to § 37.1306; and
(iii) Sufficiently explain why it prorated any expense. Common allocation methodologies that can be used include actual use, headcount, or square footage. A swap execution facility may provide documentation, such as copies of service agreements, other legal documents, firm policies, audit statements, or allocation methodologies to support its determination to prorate an expense.
(3)
(i) Maintain sufficient documentation that reasonably shows the extent to which the shared expense is attributable to and paid for by the swap execution facility and/or affiliated entity;
(ii) Identify any shared expense in the financial reports that it submits to the Commission; and
(iii) Sufficiently explain why it prorated any shared expense. A swap execution facility may provide documentation, such as copies of service agreements, other legal documents, firm policies, audit statements, or allocation methodologies, that reasonably shows how expenses are attributable to, and paid for by, the swap execution facility and/or its affiliated entities to support its determination to prorate an expense.
(b)
(2) [Reserved]
The following appendices will not appear in the Code of Federal Regulations.
On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.
More than two years ago, in November 2018, the Commission voted to propose a comprehensive overhaul of the existing framework for swap execution facilities (SEFs).
Back in November 2018, I expressed concern that finalization of the SEF Proposal would reduce transparency, increase limitations on access to SEFs, and add significant costs for market participants.
In addition to expressing substantive concerns about the overbreadth of the SEF Proposal, I also voiced concerns that we were rushing by having a comparatively short 75-day comment period.
Finally, I would like to address the Commission's separate vote to withdraw the unadopted provisions of the SEF Proposal. In the past, I have expressed concern with such withdrawals by an agency that has historically prided itself on collegiality and
I support the Commission's decision to withdraw its 2018 proposal to overhaul the regulation of swap execution facilities (“SEFs”)
When the Commission issued the 2018 SEF NPRM, I proposed that we enhance the existing swaps trading system instead of dismantling it. For example, I urged the Commission to clarify the floor trader exception to the swap dealer registration requirement and abolish the practice of post-trade name give-up for cleared swaps. I am pleased that the Commission already has acted favorably on both of those matters. Today's rulemaking represents a further positive step in this targeted approach.
Many commenters to the 2018 SEF NPRM supported this incremental approach, advocating discrete amendments rather than wholesale changes. Today, the Commission is adopting two Final Rules that codify tailored amendments that received general support from commenters. The first rule—Swap Execution Facilities—amends part 37 to address certain operational challenges that SEFs face in complying with current requirements, some of which are currently the subject of no-action relief or other Commission guidance. The second rule—Exemptions from Swap Trade Execution Requirement—exempts two categories of swaps from the trade execution requirement, both of which are linked to exceptions to or exemptions from the swap clearing requirement.
Commission regulations require a SEF to capture and retain all audit trail data necessary to detect, investigate, and prevent customer and market abuses, which currently includes identification of each account to which fills are ultimately allocated.
This Swap Execution Facility final rule also will amend part 37 to tie a SEF's financial resource requirements more closely to the cost of its operations, whether in complying with core principles and Commission regulations or winding down its operations. Based on its experience implementing the SEF regulatory regime, the Commission believes that these amended resource requirements—some of which simply reflect current practice—will be sufficient to ensure that a SEF is financially stable while avoiding the imposition of unnecessary costs. Additional amendments to part 37, including requirements that a SEF must prepare its financial statements in accordance with U.S. GAAP standards, identify costs that it has excluded in determining its projected operated costs, and notify the Commission within 48 hours if it is unable to comply with its financial resource requirements, will further enhance the Commission's ability to exercise it oversight responsibilities.
Finally, this rule makes limited changes to the Chief Compliance Officer (“CCO”) requirements. As a general matter, I agree that the Commission should clarify certain CCO duties and streamline CCO reporting requirements where information is duplicative or not useful to the Commission. Although the CCO requirements diverge somewhat from those for futures commission merchants and swap dealers, the role of SEFs is different and therefore, standardization is not always necessary or appropriate. I expect that the staff will continue to monitor the effects of all of the changes adopted today and inform the Commission if it believes further changes to our rules are needed.
Commodity Exchange Act (“CEA”) section 2(h)(8) specifies that a swap that is excepted from the clearing requirement pursuant to CEA section 2(h)(7) is not subject to the requirement to trade the swap on a SEF. Accordingly, swaps that fall into the statutory swap clearing exceptions (
The Exemptions from Swap Trade Execution Requirement final rule affirms the link between the clearing mandate and the trading mandate for swaps that are exempted from the clearing mandate under authorities other than CEA section 2(h)(7). The additional clearing exemptions are typically provided by the Commission to limited types of market participants, such as cooperatives or central banks that use swaps for commercial hedging or have financial structures or purposes that greatly reduce the need for mandatory clearing and SEF trading. In addition, limited data provided in the release indicates that, at least up to this point in time, these exempted swaps represent a small percentage of the notional amount of swaps traded.
This final rule also exempts inter-affiliate swaps from the trade execution requirement. These swaps are exempted from the clearing requirement primarily because the risks on both sides of the swap are, at least in some respects, held within the same corporate enterprise. As described in the final rule release, these swaps may not be traded at arms-length and serve primarily to move risk from one affiliate to another within the same enterprise. Neither market transparency nor price discovery would be enhanced by including these transactions within the trade execution mandate. For these reasons, I am approving the Exemptions from Swap Trade Execution Requirement final rule as a sensible exemption consistent with the relevant sections of the CEA.
These two Final Rules provide targeted changes to the SEF regulations based on experience from several years of implementing them. These limited changes, together with the withdrawal of the remainder of the 2018 SEF NPRM, effectively leave in place the basic framework of the SEF rules as originally adopted by the Commission. This framework has enhanced market transparency, improved competition, lowered transaction costs, and resulted in better swap prices for end users. While it may be appropriate to make other incremental changes going forward, it is important that we affirm the established regulatory program for SEFs to maintain
I thank the staff of the Division of Market Oversight for their work on these two rules and their helpful engagement with my office.